Ashland Global Holdings Inc. v. Valvoline Inc.

Background

Ashland Global Holdings Inc. sued Valvoline, Inc. over the Tax Matters Agreement, a contract that governed aspects of the companies’ tax relationship after Valvoline became a separate public company. Ashland alleged that Valvoline breached the agreement by not using Legacy Tax Attributes on its 2019 tax returns. The opinion describes Legacy Tax Attributes as tax attributes existing at the beginning of the taxable period starting October 1, 2016; they could be used to offset income on tax returns. Ashland alleged that the unused attributes represented a financial benefit worth approximately $29 million.

Ashland asserted two claims: breach of contract and a related claim seeking a declaration about the parties’ rights. Valvoline moved to dismiss the Amended Complaint under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal when a complaint does not state enough facts to support a legally plausible claim.

The Court’s Analysis

The court examined three provisions of the Tax Matters Agreement. Section 3.02 required payments based on the difference between Valvoline’s actual tax liability and a hypothetical liability calculated as if Valvoline could not use Legacy Tax Attributes. The court concluded that this provision appeared to assume Valvoline might use the attributes, but did not affirmatively require Valvoline to use any, some, or all of them. The phrase “if any” accounted for the possibility that the actual and hypothetical tax liabilities would be the same.

Section 2.02 required Valvoline to prepare certain tax returns consistently with Ashland’s returns and with “past practice.” The court held that Ashland had not plausibly alleged that Valvoline’s non-use of the attributes in 2019 directly related to matters affecting an Ashland tax return. Ashland’s allegation merely repeated the contract’s wording and did not provide facts explaining the connection. Blank tax forms submitted by Ashland did not establish how Valvoline’s tax decision affected Ashland’s returns.

The court also rejected Ashland’s theory that “past practice” referred to Valvoline’s use of the attributes on its 2017 and 2018 returns. Because the agreement was signed in 2016, those later practices had not yet occurred when the agreement used the term. The court said that Ashland had not alleged that “past practice” instead referred to Ashland’s pre-agreement practice of using the attributes on its consolidated returns. Ashland could not add those allegations through its opposition brief or statements at oral argument.

Finally, Section 7.01 required the parties to cooperate fully with reasonable requests involving tax returns and related matters. The court found that Ashland had not clearly alleged that it requested Valvoline to use the attributes, that such a request was reasonable, or that Valvoline’s decision not to use them was a failure to cooperate rather than simply a refusal to accept Ashland’s position.

Disposition

The court held that Ashland had not plausibly alleged a breach of the Tax Matters Agreement and dismissed both the breach-of-contract claim and the related declaratory-judgment claim without prejudice. The court granted Valvoline’s motion to dismiss. It allowed Ashland to file a Second Amended Complaint by February 15, 2022, and stated that failure to do so would result in dismissal of the case with prejudice. Judge Ronnie Abrams directed the Clerk of Court to terminate the motion.