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Fourth Circuit Affirms North Carolina District Court’s Application of “Plain Meaning Rule” in Purchase Agreement Dispute

Metropolitan Group, Inc. v. Meridian Industries, Inc.
United States Court of Appeals for the Fourth Circuit, No. 12-1932 (4th Cir., Jan. 18, 2013)
by Jhanelle Graham, Law Clerk
Semmes, Bowen & Semmes (www.semmes.com)

In Metropolitan Group, Inc. v. Meridian Industries, Inc., the United States Court of Appeals for the Fourth Circuit affirmed the decision of the United States District Court for the Western District of North Carolina, in a breach of contract lawsuit initiated by Metropolitan Group, Inc. (“Metropolitan”) against Meridian Industries, Inc. (“Meridian”). The Fourth Circuit held, per curiam, that the district court properly concluded that Meridian did not breach its Purchase Agreement with Metropolitan; rather, the appellate court determined that Metropolitan breached its contract with Meridian by destroying groundwater monitoring wells on the conveyed property, without any evidence to justify Metropolitan’s conduct.

The facts of the case arose from the sale of Meridian’s shuttered Belmont, North Carolina yarn-dyeing facility (the “Property”) to Metropolitan. Metropolitan claimed that Meridian breached the relevant Purchase Agreement by having “actual knowledge” that certain hazardous materials remained on the Property when it was conveyed to Metropolitan. In response, Meridian filed a counterclaim against Metropolitan for breach of contract, contending that Metropolitan destroyed certain groundwater monitoring wells on the Property and thereby failed to keep its obligation under the Purchase Agreement to reasonably facilitate Meridian’s access to the groundwater on the Property. The United States District Court for the Western District of North Carolina entered summary judgment in favor of Meridian on both claims, and Metropolitan appealed to the United States Court of Appeals for the Fourth Circuit.

On appeal, Metropolitan contended that: (1) the district court erred in entering summary judgment against its contract claim because a jury could conclude that Meridian had actual knowledge that hazardous materials remained on the Property at the time of the Purchase Agreement; and (2) the district court erroneously entered summary judgment in favor of Meridian’s contract counterclaim because, in Metropolitan’s view, a jury could conclude that the Purchase Agreement did not obligate Metropolitan to provide Meridian with access to anything other than the Property at large, not to the specific groundwater monitoring wells that were destroyed. The Fourth Circuit rejected both of Metropolitan’s contentions.

First, the Fourth Circuit reiterated that the standard of review for a grant of summary judgment is de novo, drawing reasonable inferences in the light most favorable to the nonmoving party. Webster v. U.S. Dep’t of Agric., 685 F.3d 411, 421 (4th Cir. 2012); United States v. Bergbauer, 602 F.3d 569, 574 (4th Cir. 2010). Moreover, to withstand a summary judgment motion, the nonmoving party must produce competent evidence sufficient to reveal the existence of a genuine issue of material fact for trial. See Fed. R. Civ. P. 56(c)(1); Thompson v. Potomac Elec. Power Co., 312 F.3d 645, 649 (4th Cir. 2002). Second, the court articulated that in resolving a dispute over the proper construction of a contract governed by North Carolina law, a court’s “primary purpose” is to “ascertain and give effect to the intention of the parties.” Schenkel & Shultz, Inc. v. Hermon F. Fox & Assocs., P.C., 658 S.E.2d 918, 921 (N.C. 2008). When the contractual terms are unambiguous, the parties’ intent as to their meaning is self-evident. Harleysville Mut. Ins. Co. v. Buzz Off Insect Shield, L.L.C., 692 S.E.2d 605, 612 (N.C. 2010). Similarly, when the contract defines a term, the court must ascribe that meaning to the term in order to give effect to the intent of the parties. Id.

For Metropolitan’s first contention that Meridian breached the Purchase Agreement, the Fourth Circuit found no support in the plain language of the document. The Agreement defined “actual knowledge” as “the current, actual conscious knowledge” of employees of Meridian—however, none of the pertinent deposition testimony indicated that any Meridian employee had actual knowledge that any hazardous materials were on site at the time the Purchase Agreement was signed. Furthermore, even assuming without deciding that the record demonstrated a degree of negligence on Meridian’s part, the court stated that Metropolitan’s claims would fail because the Purchase Agreement did not warrant against Meridian’s negligence, but warranted only against Meridian’s actual knowledge. Because Metropolitan could not identify anything in the record to demonstrate more than negligence or ignorance on the part of Meridian’s employees, the court held that Metropolitan did not meet its burden of proving Meridian’s “actual knowledge.”

With respect to Metropolitan’s second contention that Meridian’s counterclaim for breach of contract was improperly granted by the district court, the appellate court also found no support in the record. Rather, the court’s review of the Purchase Agreement suggested that Metropolitan’s interpretation of the agreement was misguided. The court stated that contractual phrases cannot be removed from their surrounding context, because contracts must be construed “as a whole,” considering each provision “in relation to all other provisions.” Schenkel & Shultz, 658 S.E.2d at 921. Therefore, the Fourth Circuit upheld the district court’s conclusion that the Purchase Agreement committed Metropolitan to facilitate reasonably Meridian’s access to the groundwater on the Property, which Meridian was required by North Carolina authorities to monitor periodically. Furthermore, the Fourth Circuit concluded that the district court did not err in finding that Metropolitan’s repeated destruction of the groundwater monitoring wells was patently unreasonable, given the absence of any record evidence explaining or justifying Metropolitan’s conduct. Accordingly, the Fourth Circuit affirmed the judgment of the district court in Meridian’s favor on both claims.