Drexel Chemical Company v. Gowan Company, LLC

NOT RECOMMENDED FOR PUBLICATION
File Name: 26a0078n.06
No. 24-5543
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
DREXEL CHEMICAL COMPANY,
Plaintiff-Appellant,
v.
GOWAN COMPANY, LLC,
Defendant-Appellee.
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ON APPEAL FROM THE
UNITED STATES DISTRICT
COURT FOR THE WESTERN
DISTRICT OF TENNESSEE
OPINION
Before: CLAY, KETHLEDGE, and LARSEN, Circuit Judges.
KETHLEDGE, Circuit Judge. Two pesticide companies dispute the effective termination
date of their “Cooperation Agreement” to sell an herbicide. Drexel Chemical Company argues
that the agreement terminated on December 31, 2023; Gowan Company says it ended on April 29
of that year. The district court adopted Gowan’s interpretation of the agreement’s termination
clause. We respectfully disagree and reverse.
I.
Drexel is a Tennessee corporation, Gowan an Arizona one; both of them manufacture and
sell pesticides used in the agricultural business. One such pesticide—actually an herbicide, which
are a subset of pesticides—is S-Ethyl dipropylthiocarbamate, known as “EPTC.” By way of
background, before a pesticide can be marketed in the United States, it must be “registered” with
the EPA. 7 U.S.C. § 136a(a). As part of the registration process, the company that first seeks to
market a pesticide (which usually holds a patent for it as well) must submit to the EPA what is

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known as “registration data.” That data includes, among many other things, the pesticide’s
“complete [chemical] formula,” along with data showing that the pesticide’s use is reasonably safe
for humans and for the environment. See id. § 136a(c). Registration data is itself valuable
intellectual property: a company that seeks to market a generic version of a pesticide, after its
patent expires, must register that version with the EPA; in doing so, the new registrant typically
relies on the original registrant’s data (as to safety, and so on) for the pesticide; and the new
registrant must then compensate the owner of that data for that use. See § 136a(c)(7)(A) and (B).
By 2006, Gowan had purchased the “EPTC business” of a much larger pesticide company,
Syngenta Group, which had moved on to selling a newer, patented herbicide. (By then EPTC had
been sold in the United States for more than a half-century.) Gowan’s “EPTC business” included
registrations for generic EPTC products, as well as ownership of the underlying “EPTC
registration data.” EPTC is used to protect certain crops—potatoes, above all, but also beans, corn,
and alfalfa, among others. Tr. 106, 145-46. It does so by killing the seeds of destructive weeds
(selectively, without harming the crop) as they germinate; if applied thereafter, apparently, EPTC
is ineffective. Tr. 105-06.
Thus, for most crops, EPTC must be applied early in the year—typically, between February
and May, depending on latitude. Tr. 104, 107. Hence the market for EPTC is seasonal: as Gowan
executive Juli Jessen explained, producers “start filling the tanks” with new product in the fall,
when distributors (who sell the product to farmers) “make these decisions” about which products
to offer to farmers (what Jessen called “the distributor mentality”). Tr. 150-51. Once the tanks
are full, Jessen testified, “we bill out the product” to distributors, “usually with some sales terms
. . . so that they will be prepared to start applying the product when they can get into those fields.”
Tr. 150. Relatedly, Drexel executive Stanley Bernard observed: “You can easily miss a whole

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calendar year by not having your product ready to distribute and make it to the farmer in time for
his growing season.” Tr. 104. A producer’s invoices for EPTC typically remain outstanding
during the growing season. Tr. 111. But by the fall, Jessen explained, producers will “close them
out and pay rebates” to distributors, thereby settling their accounts for the year. Tr. 151.
Meanwhile, again in 2006, Drexel was seeking to enter the generic EPTC market. Drexel
had obtained its own EPTC registrations from the EPA, using the registration data then owned by
Gowan; and the two companies were then engaged in arbitration as to the compensation owed by
Drexel to Gowan for that use. Rather than fight through an arbitration and then compete against
each other in the same market, however, Drexel and Gowan decided to join forces. In July 2006
they entered into a “Cooperation Agreement,” whose minimum term was 15 years, and whose
effective date was January 1, 2006. The agreement provided that Gowan would dismiss its “data
compensation claim against Drexel”; that “Drexel shall withdraw its EPTC products from the
market”; and that “both Parties acknowledge equal (50/50) ownership of all EPTC Assets.” Agmt.
§§ 2, 4. The agreement further provided (to simplify somewhat) that Gowan would perform all
the functions necessary actually to produce and sell the EPTC to distributors—e.g., “manage
supply and delivery activities,” “contract with third party formulators,” and “perform all
marketing, sales and distribution of the Products[.]” Agmt. § 7.1, Ex. A.
The agreement also included a profit-sharing provision, in § 8. That provision defined “net
profits” as the “net selling price” of the EPTC goods sold in a particular “Fiscal Year,” minus (a)
the “actual cost” of producing and storing the goods (e.g., “raw materials,” “manufacturing,”
“formulation, packaging, storage,” and so on), and (b) a 22% “Service Fee,” payable to Gowan,
for performing all the activities (recited above) necessary for manufacturing and marketing the
EPTC products. “Fiscal Year” was defined as “the period beginning on September 1 of any year

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and ending on August 31 of the following year.” That timing tracked the seasonal cycle of
producing EPTC in the fall, selling it to distributors before planting, and then closing out accounts
with them before the next fall. Agmt. § 1.4. Meanwhile, Gowan was running the actual business,
and thus paying production costs and receiving payments from distributors. Thus, § 8.2 provided
that “Gowan shall pay directly to Drexel its share of the net profits,” in “one annual payment within
thirty (30) days of the end of the Fiscal Year and only on the sales that are final, which in this case
shall mean sales for which no invoices are outstanding and all rebates have been paid.”
Section 8.1 further provided that the “net profits” of the companies’ EPTC business (as
well as the “net losses,” of which there were none) would be allocated as follows:
Calendar Year Gowan Drexel
2006 through and including 2010 75% 25%
2011 through and including 2015 60% 40%
2016 and thereafter 50% 50%
The effect of that allocation of net profits—favoring Gowan in the agreement’s first ten
years, leveling off to 50/50 thereafter—was to compensate Gowan for granting Drexel equal
ownership of the EPTC registration data. Tr. 23. Thus, as a practical matter, the Cooperation
Agreement was a noncompete agreement: rather than enter the EPTC market, Drexel agreed to
stay out of it, in exchange for half-ownership of Gowan’s registration data and a cut of the profits
of an EPTC business that, by all appearances, Gowan carried on largely as it had before.
Finally, as relevant here, the agreement included a termination clause. Section 6.1
provides:
This Agreement shall remain in full force and effect until the fifteenth anniversary
of the Effective Date. Thereafter the Agreement shall extend automatically in one
year increments unless terminated by either Party with two (2) years’ prior written
notice, with the earliest termination notification being January 1, 2021.

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On April 29, 2021, Gowan notified Drexel of its intent to terminate the agreement.
Gowan’s termination letter recited an aim of “completing the termination by December 31, 2022.”
But Gowan later changed course, and said the agreement would end on April 29, 2023—two years
after the notice date. Drexel read § 6.1 differently, to renew the agreement in “one year
increments” rather than partial ones—so that the agreement would not end until December 31,
2023.
Drexel eventually brought this suit in federal court, seeking a declaratory judgment that
Drexel’s reading of § 6.1 is correct. (Gowan and Drexel are citizens of different states, so the
district court had diversity jurisdiction.) After a brief bench trial, during which a total of two
witnesses testified—Bernard for Drexel, Jessen for Gowan—the district court ruled from the bench
that Gowan’s reading of § 6.1 was correct. The court also denied a motion by Drexel for a new
trial or to alter or amend the judgment under Federal Rule of Procedure 59, and a motion to seal
the trial record. This appeal followed.
II.
We review the district court’s legal conclusions de novo and its factual findings for clear
error. Pressman v. Franklin Nat. Bank, 384 F.3d 182, 185 (6th Cir. 2004). Per the parties’
agreement, Tennessee law applies here. Agmt. § 15.
This case illustrates how the relevant context for interpreting contracts and statutes,
respectively, is sometimes different. Statutes bind everyone in the jurisdiction where they apply,
so we interpret them according to their public meaning—which, in most cases, is the meaning of
the statute’s text as its words are ordinarily understood. See Wis. Cent. Ltd. v. United States, 585
U.S. 274, 277-78 (2018). Tennessee courts likewise interpret a contract’s terms “as those terms
are ordinarily understood.” Pharma Conf. Edu., Inc. v. State, 703 S.W.3d 305, 311 (Tenn. 2024).

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But contracts bind only the parties that agree to them. Thus, the Tennessee Supreme Court has
said, a “cardinal rule of contract interpretation is to ascertain and give effect to the intent of the
parties.” Allstate Ins. Co. v. Watson, 195 S.W.3d 609, 611 (Tenn. 2006).
Frequently a contractual term, considered within the contract’s four corners, can be read
only one way. In the agreement here, for example, § 8.2 provides that Gowan “shall pay” Drexel
“its share of the net profits” for a fiscal year in “one annual payment”—which excludes any
argument that Gowan could break that payment in two. But sometimes “contractual language” is
“susceptible to more than one reasonable interpretation.” Individual Healthcare Specialists, Inc.
v. BlueCross BlueShield of Tenn., Inc., 566 S.W.3d 671, 691 & n.18 (Tenn. 2019). (That
circumstance is what the Tennessee courts call a “threshold ambiguity[,]” id., which is not
ambiguity in the usual sense of equipoise.) In that circumstance, the court may consider—as
relevant context—“evidence related to the situation of the parties and the circumstances of the
transaction[,]” along with “the subject matter of the contract.” Pharma Conf., 703 S.W.3d at 316
(cleaned up); see also Individual Healthcare Specialists, 566 S.W.3d at 692. That kind of evidence
concerns “objective” circumstances, rather than “a party’s subjective understanding of the
contract’s terms.” Pharma Conf., 703 S.W.3d at 317. Thus—to determine which of two meanings
for a contractual term is the correct one—a court may consider those objective circumstances.
Such is the case here. Section 6.1, to reiterate, says that—after the 15th anniversary of the
agreement’s January 1, 2006 effective date—“the Agreement shall extend automatically in one
year increments unless terminated by either Party with two (2) years’ prior written notice, with the
earliest termination notification being January 1, 2021.” The question here is whether—when a
party gives such notice on April 29, rather than on January 1—the agreement terminates exactly
two years after the party gave notice, or whether instead the agreement extends beyond that date,

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to the end of that calendar year. Gowan argues, and the district court agreed, that “two (2) years’
prior written notice” means simply that—and thus that the agreement ended on April 29, 2023,
which was two years after Gowan gave notice of its intent to terminate. Drexel counters that,
beginning “on the fifteenth Anniversary of the Effective Date”—which, in fact, is the relevant
anniversary here—the agreement shall “extend automatically in one year increments” unless the
agreement has been “terminated” with two years’ “prior written notice”; and that, on January 1,
2023, the agreement had not so “terminated,” because Gowan had given notice only 20 months
before. Thus, Drexel argues, the agreement terminated on December 31, 2023—because only then
would the agreement have been prevented from extending “automatically” in a “one year
increment[].”
When one considers only the text of § 6.1, both of these meanings are linguistically
plausible. To discern which meaning better aligns with the parties’ likely intent, therefore, we
look first to other provisions in the agreement itself. Those tend to support Drexel’s interpretation.
As noted above, “Fiscal Year” is defined as “the period beginning on September 1 of any year and
ending on August 31 of the following year.” Agmt. § 1.4. Of course, one might argue those dates
are arbitrary; but the agreement’s profit-sharing provisions suggest they are not. Those provisions
require a determination of “net profits” each year; and net profits equals revenue minus costs
(including Gowan’s service fee). Agmt. § 8.2. Thus, one must know the totals for costs and
revenues alike before one can determine “net profits” for a “Fiscal Year.” And § 8.2 requires
Gowan to make that determination at “the end of a Fiscal Year,” not in the middle of it, and to pay
Drexel its share of net profits in a single “annual payment” not more than 30 days later. One might
infer, therefore, that the parties might not receive some of their revenues until the end of the fiscal
year.

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Yet that leaves the question whether costs and revenues for EPTC are distributed more or
less evenly throughout the fiscal year—as, say, the costs and revenues (and thus profits) of selling
pens or paper towels might be. For in that case, termination of the agreement in the middle of a
fiscal year—and thus conducting a net-profit determination then—might be fair to both parties:
the fraction of net profits paid to Drexel would approximate the fraction of the fiscal year that had
passed. But if the costs and revenues for EPTC are skewed, respectively, toward one end of the
fiscal year or another—for example, if costs are frontloaded during the fiscal year, and revenues
backloaded—then a net-profits determination in the middle of a fiscal year could likewise be
skewed in favor of one party or the other. And that, in turn, would suggest that the parties intended
that the agreement would renew in “one year increments,” or not at all.
So, to determine which of these possible interpretations of § 6.1 is correct, we consider
“the situation of the parties and the circumstances of the transaction.” Pharma Conf., 703 S.W.2d
at 316 (cleaned up). Those circumstances were the subject of the two executives’ testimony at
trial; and for the most part those circumstances are undisputed. Specifically, as described above,
the costs of producing and marketing were indeed frontloaded in the fiscal year: the EPTC “tanks”
were filled in the fall; and Gowan then published its “sales terms” to distributors, who promptly
made their purchasing decisions so that (as Jessen testified) farmers “will be prepared to start
applying the product when they can get into those fields.” Tr. 150. Invoices are paid later, Tr. 111,
with most sales being “final” by the end of the fiscal year (August 31), when net profits are
calculated. Agmt. § 8.2. The whole process, and with it a new fiscal year, then begins anew on
September 1.

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Nobody disputed any of these points at trial. True, Jessen testified that some crops—
carrots and alfalfa, for example—were sometimes planted later in the calendar year. But the record
makes clear that those crops were marginal for purposes of generating EPTC sales. Indeed, Jessen
admitted that two of “the three main crops” for EPTC—“potatoes and dry beans”—followed the
seasonal schedule of winter sales and spring planting, as described above. Tr. 149-50. “And so
the market season,” Jessen said, was to release “sales programs in the fall[,]” and then to “close
them out and pay rebates the following fall.” Tr. 151.
Thus, as described by the executives for both parties, the EPTC market is indeed seasonal.
The agreement’s “Fiscal Year” tracks that seasonal schedule just as Jessen described it—which by
all appearances is why the net-profit determination comes after that date, and not before. The
undisputed “circumstances of the transaction” here, therefore, show that a determination of net
profits in April, rather than September, would understate profits for the fiscal year—to Drexel’s
serious detriment. That conclusion too is supported by the record: according to Bernard, Drexel’s
share of net profits fluctuated between $600,000 and $800,000 per fiscal year, Tr. 123; yet Drexel’s
share of profits for the first seven months of fiscal year 2023—after the district court held the
agreement had terminated on April 29 of that year—was less than $2,900. Appellee Br. 19.
The district court, for its part, reasoned that “Section 6.1 does not contain the words
December 31st,” and thus that Drexel’s interpretation added “terms or language to the contract.”
Tr. 7-8. But one could just as easily say that Gowan’s interpretation elides the words, “extend
automatically in one year increments,” as used in § 6.1. The court also reasoned that the April 29,
2023, termination—some 20 months after Gowan gave notice—afforded Drexel plenty of “time
to prepare for life after the contract ends.” Tr. 9. But Drexel’s point, as to the parties’
circumstances, was not that Drexel lacked time for an orderly transition away from the Cooperation

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Agreement. Drexel’s point, rather, was that a mid-year termination would allow Gowan to retain
nearly 100% of the parties’ net profits from EPTC for that year—which is in fact what happened.
Moreover, the April 29 termination meant that Drexel could not participate in the EPTC market in
any capacity—as a co-venturer with Gowan, or as a competitor in its own right—during the 2023
fiscal year. As Bernard explained: “April 29th is too late for us to enter the market. Yet, it’s not
going to be late enough for us to share in the profits.” Tr. 111.
The district court otherwise reasoned that “Ms. Jessen’s testimony on market timing for
the distributors and the various growing seasons” for various crops was “more specific and clearer,
and, thus, more persuasive,” than Bernard’s testimony was. Tr. 8. But the court overlooked that
Jessen’s testimony on those points complemented Bernard’s testimony rather than conflicted with
it. Indeed, this was a trial in which few if any facts were actually disputed. Drexel’s interpretation
of § 6.1 comports with the Agreement’s other provisions and with the circumstances surrounding
the parties’ agreement; Gowan’s interpretation is one to which no rational actor in Drexel’s
position would agree. Finally, in construing § 6.1 the district court did not assign any significance,
so far as the record shows, to the seasonal nature of costs and revenues in the EPTC business. And
that circumstance, for all the reasons explained above, is pivotal in determining the parties’ intent
in this agreement. We therefore conclude that Drexel’s interpretation of § 6.1 is correct, and that
the parties’ agreement therefore terminated on December 31, 2023, rather than on April 29 of that
year.
Separately, we agree with the district court that Drexel did not remotely make the showing
necessary to seal the trial record. See Shane Grp., Inc. v. Blue Cross Blue Shield of Mich., 825
F.3d 299, 305–06 (6th Cir. 2016).

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* * *
The district court’s judgment is reversed, and the case is remanded for proceedings
consistent with this opinion. The district court’s April 30, 2024, order denying Drexel’s motion
to seal is affirmed.

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