Petition for Writ of Certiorari — Harley-Davidson, Inc. v. Minstar, Inc.

Buprems Onur, SE. .

PILED

\) 941321 FEB 2195

NO. 95 “Oreiee-Of-FHE CLERK

IN THE SUPREME COURT OF THE UNITED STATES

October Term, 1994

HARLEY-DAVIDSON, INCc.,

Petitioner,

Via

MINSTAR, INC., and AMF INCORPORATED,

Respondents.

ON PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

PETITION FOR WRIT OF CERTIORARI

Jeffrey P. Clark

Counsel of Record

REINHART, BOERNER,

VAN DEUREN, NORRIS &

RIESELBACH, s.c.

1000 North Water Street

Suite 2100

P.O. Box 92900

Milwaukee, Wisconsin 53202

(414) 298-1000

Attorneys for Petitioner

ii

QUESTIONS PRESENTED FOR REVIEW

A. Does Se stion 107 (e) (1),

“2. 9.3.0.-9 9607(e) (1), of the Compre -

hensive Environmental Response, Compensa-

tion, and Liability Act ("CERCLA")

Prohibit indemnification agreements

between CERCLA "potentially responsible

parties" ("PRPs"), such as Harley-

Davidson, Inc. ("Harley-Davidson") and

AMF Incorporated ("AMF") ?

B. May a court disregard

Other relevant equitable considerations,

Such as the "Gore Factors", and base

allocation of CERCLA liability among PRPs

solely upon an indemnification agreement?

ol Did the United States

Court of Appeals for the Seventh Circuit

properly bar Harley-Davidson's Claim

against AMF and its Corporate parent,

Minstar, Irc. ("Minstar"), when (1) the

indemnification agreements at issue in

this action raise disputed materia]

244

issues of triable fact which were not the

subject of this appeal and have not been

considered by the District Court;

(ii) the Seventh Circuit apparently

relied on only one of the two

indemnification agreements between the

parties; and (iii) the Seventh Circuit

did not apply the proper state-law rule

of construction for indemnification

agreements -- that the court construe any

ambiguity against the drafter?

iv

PARTIES

The names of all parties to the

the court whose judgment is

proceeding in

sought to be reviewed appear in the

caption of the case.

TABLE OF CONTENTS

QUESTIONS PRESENTED FOR REVIEW....... ii

et Be ere a er ee eee ee ee iv

pr ee ae ee ee ee ee a Vv

py OP Be) ae ivy § kit > ene eee vil

OPINIONS BY OTHER COURTS .. ce ccevewewes 2

Mi 2 eh Sy of it are ner ear ama ear 3

LSP CRAU Shee RE HAW OCR ASO OER SS 6

Steers UE Tee Ge 6 0 668 se ede eee es 7

FEDERAL JURISDICTION BELOW........... 16

SUS Oe POE Soc eocesaedeeuenus 17

te THIS COURT HAS NOT DECIDED

THE IMPORTANT QUESTION OF WHETHER

SECTION 107(e) (1) OF CERCLA PERMITS

INDEMNIFICATION AGREEMENTS BETWEEN

POTENTIALLY RESPONSIBLE PARTIES ...... 20

ane THE SEVENTH CIRCUIT APPARENTLY

DID NOT CONSIDER ANY EQUITABLE FACTORS

OTHER THAN THE 1980 INDEMNIFICATION

AGREEMENT BETWEEN AMF AND AMF YORK... 33

eo THE UNITED STATES COURT OF

APPEALS FOR THE SEVENTH CIRCUIT

COMMITTED JUDICIAL ERRORS IN THIS

CASE THAT WILL GO UNREMEDIED IF

THE SUPREME COURT DOES NOT GRANT

CDMS EUME 2250s 60 cee NESS DOO anew an 40

vi

A. The Seventh Circuit Appears

to Have Relied On Only One of the Two

Essential Indemnification Agreements

Sm ee ee dg cd tea weed OO ae ee ee 41

B. The Seventh Circuit Did Not

Apply The Proper Rules For Construing

Indemnification Agreements ........... 47

CORCLUG ION . ccc eet tec ertre bese eneess 52

vii

TABLE OF AUTHORITIES

CASES

AM Intern., Inc. v. International

Forging Equipment, 743 F. Supp. 525

(N.D. Ohio 1990), rev'd in part,

982 F.2d 989 (6th Cir. 1993) ..... 24, 30

Beazer East v. The Mead Corp.,

34 F.3d 206, 211 (3d Cir.)

wens Gemtead: (2996) ...6s6ece0s 18, 24, 25

Commander Oil Corp. v. Advance Food

Serv. Egquip., 991 F.2d 49

(2G CAB. SORE) cc cvissecavucanwees 24, 30

CPC International, Inc. v. Aerojet-

General Corp., 759 F. Supp. 1269

(W.D. Mich. 1991), reconsideration

denied sub nom, Vv. rdov

Chemical of Michiga », 1991 WL 111515

(@.D. BGR... SRG Be, APPA) i vctscces 24

Danella Southwest v. Southwestern Bell

Telephone, 775 F. Supp. 1227, 1240

(E.D. Mo. 1991), aff'd, 978 F.2d 1263

(Stn Gat. Ser ci vee es ees eee 24

Di Vv ron nton Youn wn

>». (... 368 Ves Sees Fe we Ges Dae,

56 EncDe SEO Chee 6iénn ee Oe sees 48

DiPetro v. Ci f Phil lphia, 496

A.2d 407, 410 (Pa. Super. 1985) ...... 49

Environmental Trans. Systems v.

Ensco, Inc., 969 F.2d 503, 508

(VER CAS. ARee!) wens cencsesuaseaes 36, 38

viii

Fisher Development Co. v. Boise

Cascade Corp., 37 F.3d 104, 109

eR RR, ee ee ee 48

Folino v. Hampden Color and

Chemical Co., 832 F. Supp. 757, 760

+ Be | et Se es ee ee ee ar 29

Gross v. Sweet, 49 N.Y.2d 102,

400 N.E.2d 306, 424 N.Y.S.2d 365,

267 Ce. Gs S9TS) sa siccndensnee-sees 51

Harley-Davidson, Inc. v. Minstar, Inc.,

41 F.3d 341 (7th Cir.), reh'g denied

CSRS) ov cectcwcesedessueséacesawes passim

Harley-Davidson, Inc. v. Minstar, Inc.,

837 F. Supp. 978 (E.D. Wis. 1993),

rev'd, 41 F.3d 341 (7th Cir.), reh'g

OE” Ge | 8 a ees ee , BS F

Hutchinson v. Sunbeam Coal Corp.,

513 Pa. 192, 201, 519 A.2d 385,

ee, Se <b eal kb ee ee oo ow Ce 50

John S. B . ae. ww FF n Gas

Co., 992 F.2d 401 (1st Cir. 1993) ... 24,

25, 30, 48

Jones-Hamilton v. Beazer Materials &

Services, 973 F.2d 688, 692 (9th Cir.

Rae 5s Dewees cha dees oh 18

Joslyn Manufacturing Co. v. Koppers

Company, Inc., 40 F.3d 750 (5th Cir.

RE 6 ee oe a 6 bo ed eee ee ee wea eee 25

Kerr-M hemical v. Lefton Iron

Metal, 14 F.3d 321 (7th Cir.), reh'g

rr Sees 6 vcadn teen cee mass deus 34, 36

Mardan Corp. v. C.G.C. Music, Ltd.,

804 F.2d 1454 (9th Cir. 1986) .... passim

ix

Niecko v. EMRO Marketing Co., 973

P.26@ i296. (660 Cat. BPee) «2s seca 25, 31

Olin Corp. v. Consolidated Aluminum

Corp., 807 F. Supp. 1133, 1139

(S.D.N.Y. 1992), aff'd in part,

vacated in part, 5 F.3d 10

a. RS: 3} Ee ee eee ee 27

Olin Corp. v. Consolidated -Aluminum

Comm., 5 F.26 10 (2G Cat. 238s) «<-> 27.

30, 48

Peterson v. Sealed Air Corp., 902 F.2d

1232, 1233 (7th Cir.), reh'g denied

8) Pr err re een ah hey er 46

Ramos v. Browning-Ferris Industries of

South Jersey, 103 N.J. 177, 191,

SAG Bia Bees Get c BOO 4c eeeisaceces 51

Shapiro v. Alexanderson, 741 F. Supp.

472 (S.D.N.Y. 1990), reargument denied,

743 F. Supp. 268 (S.D.N.Y. 1990) ..... 24

Southland _ hlan i Tne. ,

696 F. Supp. 994 (D.N.J. 1988) ....... 31

Spivey v. Great Atlantic & Pacific

Tea Co., 255 N.W.2d 469 (Wis. 1977) .. 51

Tippins Inc. v. USX Corp., 37 F.3d 87

Ce Gs RS be Sheba e ke Oa es 48, 49

U.S. v. A & F Materials Co., Inc.,

578 F. Supp. 1249, 1256 .

+ et ee ee er ere es Freee 36

U.S. v. Hardage, 985 F.2d 1427

(SRGm Cals Bees? shoe beer eieehaees passim

U.S. v. R.W. Meyer, Inc., 932 F.2d 568

(SG Can. Bee x<lavauecseasawsee ures 38

0S ESC Roe a NOEL Ctr On ty

U.S. vy outh rolina R ling and

Disposal, Inc., 653 F. Supp. 984,

1013 (D.S.C. 1984), Aff'd in part and

vacated in part sub. nom.,

U.S. v. Monsanto Co., 858 F.2d 160

(4th Cir. 1988), cert. denied,

Cre Wits BOOe. SORE. Use sec kbawercncuen 29

CONSTITUTIONS AND STATUTES

Be Weeeue © SOP e Ue 6h 66 cs 6 ea es ee ween 14

re Pe See ey Se ee ee eed 16

es ee ee oss a a a ke wk ee ee 17

ee A ee et) ae eee. 17

Section 107(a) of CERCLA,

ae oe 2; - 2hs oe

Section 107(e) (1) of CERCLA,

2 U.G.C. § S607 (@) (2) 2... cccccs passim

Section 113(b) of CERCLA,

ee eee 13, 16

Section 113(f£) of CERCLA,

Oe WeeiGe Be PORE CE CR) 2 6slxw ue den ds 5, 13

ao Pe. Stat. SB FOL, F7OA, FOS o.cccca 11

OTHER SOURCES

EPA Enforcement, 23 Envtl. L. Rep.

(Envtl. L. Inst.) 10,179 (April 1993) 21

Steven Ferrey, The New Wave: Superfund

Allocation Strategies and Outcomes,

25 Environment Reporter 790 (8/26/94) 21

xi

Eve L. Pouliot, Coercion vs.

Cooperation: Suggestions for the

Better Effectuation of CERCLA

(Superfund), 47 SMU L. Rev. 607

CSE le ea PS es ee ees ee ee a es 21

Restatement (Second) Conflict of Laws

Se aay meter. Cael) <4 0a eee eee nee es 49

U.S. EPA, CERCLA-3rd Quarter FY 92

Superfund Management Reporter,

er a Be 4 ae ek ee eae ee ewe aL

Charles A. Wright, et al., Federal

Practice and Procedure, § 3921

6) 2s re oy a re ee eee 46

; No. 95-

IN THE SUPREME COURT OF THE UNITED STATES

October Term, 1994

HARLEY-DAVIDSON, INc.,

Petitioner,

Wea

MINSTAR, INC., and AMF INCORPORATED,

Respondents.

ON PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

PETITION FOR WRIT OF CERTIORARI

Harley-Davidson, Inc. ("Harley-

Davidson"), by its attorneys, asks that a

writ of certiorari issue to review the

Opinion and judgment of the United States

; Court of Appeals for the Seventh Circust

entered on November 30, 1994,

OPINIONS BY OTHER COURTS

, Decision of which review

is sought: Harley-Davidson, Inc. v.

Minstar, Inc., 41 F.3d 341 (7th Cir.),

reh'g denied (1994) (Appendix A).

ye Grant of Stay of Mandate:

Harley-Davidson, Inc. v. Minstar, Inc.,

Case No. 94-2171 (1/6/95) (Appendix B).

3. Denial of Motion for

Rehearing, with Suggestion for Rehearing

En Banc: Harley-Davidson, Inc. v.

Minstar, Inc., Case No. 94-2171

(12/28/94) (Appendix C).

4. District Court decision:

Harley-Davidson, Inc. v. Minstar, Inc.,

837 F. Supp. 978 {E.D. Wis. 1993)

(Appendix D).

j

;

:

1

a}

JURISDICTION

The Court of Appeals for the

Seventh Circuit rendered its judgment in

this matter on November 30, 1994.

Harley-Davidson's motion for rehearing,

with suggestion for en banc, was denied

on December 28, 1994. Harley-Davidson's

motion for stay of mandate was granted on

January 6, 1995. This Court's jurisdic-

tion is conferred by 28 U.S.C. § 1254(1).

STATUTORY PROVISIONS INVOLVED

Section 107(a) of CERCLA:

Notwithstanding any other

provision or rule of law, and

subject only to the defenses

set forth in subsection (b) of

this section--

(1) the owner and operator

of a vessel or a facility,

(2) any person who at the

time of disposal of any

hazardous substance owned or

operated any facility at which

such hazardous substances were

disposed of,

(3) any person who by

contract, agreement, or

otherwise arranged for

disposal or treatment, or

arranged with a transporter

for transport for disposal or

4

treatment, of hazardous

substances owned or possessed

by such person, by any party

or entity, at any facility or

incineration vessel owned or

operated by another party or

entity and containing such

hazardous substances, and

(4) any person who accepts

or accepted any hazardous

Substances for transport to

disposal or treatment

facilities, incineration

vessels or sites selected by

such person,

from which there is a release,

or a threatened release which

causes the incurrence of

response costs, of a hazardous

substance, shall be liable

for--

(A) all costs of removal or

remedial action incurred by

the United States Government

or a State or an Indian tribe

not inconsistent with the

national contingency plan;

(B) any other necessary

costs of response incurred by

any other person consistent

with the national contingency

plan.

42 U.S.C. § 9607(a).

Section 107(e) (1) of CERCLA:

No indemnification, hold

harmless, or similar agree-

ment or conveyance shall be

effective to transfer from the

owner or operator of any

vessel or facility or from any

person who may be liable fora

5

. release under this section, to

any ot1er person the liability

imposed under this section.

Nothing in this subsection

shall bar any agreement to

insure, hold harmless, or

indemnify a party to such

: agreement for any liability

under this section.

42 U.S.C. § 9607(e) (1).

Section 113(f) (1) of CERCLA:

Contribution. Any person may

seek contribution from any

other person who is liable or

potentially liable under

section 107(a), during or

following any civil action

under section 106 or under

section 107(a). Such claims

shall be brought in accordance

with this section and the

Federal Rules of Civil

Procedure, and shall be

governed by Federal law. In

resolving contribution claims,

the court may allocate

response costs among liable

parties using such equitable

factors as the court

determines are appropriate.

Nothing in this section shall

diminish the right of any

person to bring an action for

contribution in the absence of

& Civil action under

section 106 or section 107.

42 U.S.C. § 9613(f) (1).

4

5

INTRODUCTION

Companies which buy or sell

contaminated properties often negotiate

the issue of whether one party to the

transaction will indemnify the other from

potential environmental liability under

CERCLA. The purchase and sale contracts

which these companies negotiate typically

allocate the risk of CERCLA environmental

liability between buyer and seller.

Because cleaning up polluted sites can be

quite costly -- often running into the

millions of dollars -- these environ-

mental liability allocation contracts

frequently are challenged in federal

courts on the grounds they contravene the

CERCLA principle that the polluter pays

and violate Section 107(e) (1) of CERCLA.

This case presenta this Court

with the opportunity to define the

appropriate standard for determining

whether such an indemnity contract is

enforceable and to provide contracting

parties, federal district and appellate

courts and litigants with guidance. Such

guidance hopefully will help to reduce

the substantial transaction costs

» - porn .

“ ABA A i SRA SD Da AEE ts A RA RR is?

associated with resolving these environ-

mental liability allocation disputes.

Therefore, this Court should grant

Harley-Davidson's petition for issuance

of a writ of certiorari to the Seventh

Circuit to establish the appropriate

standard for applying Section 107(e) (1)

of CERCLA to environmental liability

allocation agreements.

STATEMENT OF THE CASE

This case involves a CERCLA

cost-recovery suit brought by Harley-

Davidson, Inc. ("Harley-Davidson")

{

against Minstar, Inc. ("Minstar"), AMF

Incorporated ("AMF"), and the United

States of America, the United States

Department of Defense, and the United

States Department of the Navy (collec-

tively the "Navy") to compel those

parties to pay their fair share to clean

up the environmental pollution they

caused at a manufacturing facility the

Navy and, later, AMF owned and operated

in Pennsylvania.

This case centers around the

environmental pollution at a site in

York, Pennsylvania. The Navy took title

to the site in 1944, operating it until

1964 as the York Naval Ordnance Plant.

The Navy sold the York site to AMF on

January 31, 1964. In December 1980, AMF

transferred the York Facility to its

wholly owned subsidiary, AMF York,

Incorporated ("AMF York"). The 1980

Acquisition Agreement between AMF and its

spin-off corporation, AMF York, included

the following indemnification language:

AMF York Incorporated shall

assume and discharge, and

shall indemnify AMF

9

Incorporated against all

debts, liabilities and

obligations, without any

limitation, relating to AMF

Incorporated's AMF York

Division, its operations and

products, whether known or

unknown . . . and whether

existing on the date of this

agreement or coming into

existence hereafter.

On June 16, 1981, AMF sold the

York Facility to Harley-Davidson, via a

Purchase Agreement. The 1981 Purchase

Agreement between Harley-Davidson and AMF

included two relevant indemnification

clauses:

AMF agrees to indemnify and

hold [Harley-Davidson] harm-

less against and in respect

of: .. . (ii) any loss,

liability or obligation

in connection with...

(I) any liability or obliga- }

tion of AMF or any of the

Companies or the Subsidiaries

arising out of or resulting

from an event or occurrence

happening prior to the Closing

Date due to non-compliance

with any Federal, state or

local law, regulation; order

CGA RSs ah Mt Gath bea Dl Sal AAA aR Woche iidatibesA Wet, Sake he Bb We Sencar Ne Chee Raa a mE btkibaty

i ik een:

10

or administrative or judicial

determination relating to the

environment. 1

Section 10.5(a)(ii)(I) of 1981 Purchase

Agreement. Further,

AMF agrees to indemnify and

hold [Harley-Davidson] harm-

less against and in respect

Of: . « » (ha) Sy ace,

liability or obligation

in connection with. .

(G) any liability or obliga-

tion in connection with the

golf car business, whether

arising out of an even or

occurrence happening prior to,

on or after the Closing Date,

in excess of applicable

reserves in the Adjusted

Closing Balance Sheet.

Section 10.5(a) (ii) (G) of 1981 Purchase

Agreement. Minstar acquired AMF in 1985.

All three owners of the York

Facility -- including the Navy, AMF and

Harley-Davidson -- performed manufac-

turing operations at the site. In 1986,

1AMF York was specifically designated as a

"Company" in the 1981 Purchase Agreement,

thus, AMF expressly indemnified Harley-

Davidson for certain of AMF York's

liabilities.

Wit ecwintes bat

—

11

five years after acquiring the York

Facility, Harley-Davidson conducted an

environmental audit at the site and

discovered significant environmental

contamination. Since 1986, Harley-

Davidson has investigated and cleaned up

that contamination under the supervision

of the Pennsylvania Department of

Environmental Resources.

On July 31, 1991, Harley-

Davidson filed a six-count Amended

Complaint, in the United States District

Court for the Eastern District of

Wisconsin, against Minstar, AMF and the

Navy. The Amended Complaint asserts

Claims against all defendants under

Sections 107 and 113 of CERCLA, 42 U.S.C.

§§ 9607 and 9613. The Amended Complaint

also asserts claims against Minstar and

AMF under Sections 701, 702 and 705 of

the Pennsylvania Hazardous Sites Cleanup

i2

Act ("PAHSCA"), 35 Pa. Stat. §§ 701, 702,

and 705.

On November 5, 1993, Judge

Rudolph T. Randa, of the U.S. District

Court for the Eastern District of

Wisconsin, decided the first sentence of

Section 107(e) (1), of CERCLA, precludes

the use of any indemnification, hold

harmless or similar agreement to con-

tractually transfer the liability that

one PRP owes to the Government or another

PRP. The District Court further

concluded the second sentence of

Section 107(e) (1) permits indemni-

fication, hold harmless and similar

agreements between a PRP and a party not

otherwise liable under CERCLA.

The District Court reasoned

that the second sentence of

Section 107(e) (1) must modify the

terms of the first sentence of that

section. Because CERCLA defines

alla ie tal Ga ay

p

liability in a different statutory

section, Section 107(a), the District

Court determined that the second sentence

of 107(e) (1) must modify the language

"any other person" in the first sentence.

As the District Court concluded:

Read this way, the second

sentence permits the transfer

of liability owed by a

potentially responsible party

to a non-liable or non-

potentially responsible party,

such as an insurance company.

Harley-Davidson, Inc. v. Minstar, Inc.,

837 F. Supp. at 984.

The District Court held that

the 1980 internal indemnification agree-

ment between AMF and AMF York was

ineffective, and did not shield AMF or

Minstar from CERCLA liability for their

pollution at the York site. In light of

this holding, the District Court denied

the motion of AMF and Minstar for summary

judgment. The District Court did not

reach the material issues of triable fact

14

between the parties concerning the

appropriate allocation of responsibility

among the parties for cleaning up the

York Facility.

On February 4, 1994, the

District Court certified its earlier

decision for appeal pursuant to 28 U.S.C.

§ 1292(b), finding that its decision

"involves a controlling question of law

as to which there is substantial ground

for difference of opinion and that an

immediate appeal from the [decision] may

materially advance the ultimate termina-

tion of the litigation."

The United States Court of

Appeals for the Seventh Circuit accepted

the interlocutory appeal on April 26,

1994. Harley-Davidson's claims against

the Navy, which is not a party to this

appeal, remained for disposition in the

District Court.

15

On November 30, 1994, a three-

judge panel of the Seventh Circuit

reversed the District Court. Rather than

treating the second sentence of

Section 107(e) (1) as a modifier of the

first sentence, the Seventh Circuit

treated each sentence separately. Thus,

the Seventh Circuit determined:

The first sentence speaks of

"transfer [ring] >

liability, "that is, of

shifting liability from one

person to another. Indemni-

fication does not do that.

The party remains fully liable

to whomever he has wronged; he

just has someone to share the

expense with. The second

sentence clearly permits

sharing, just as the first

forbids shifting.

Harley-Davidson, Inc. v. Minstar, Inc.,

41 F.3d at 343.

The Seventh Circuit concluded

by stating, "The indemnification agree-

ment is enforceable and applicable, and

bars Harley-Davidson's claim against

these defendants." Id., at 344.

16

On December 28, 1994, the

Seventh Circuit denied Harley-Davidson's

motion for rehearing, with suggestion for

rehearing en banc, without discussion.

Subsequently, Harley-Davidson

moved for a stay of mandate, pursuant to

Rule 41 of the Federal Rules of Appellate

Procedure -- which requires that the

petition for certiorari must present a

substantial question -- and Circuit

Rule 41 of the Rules of the Seventh

Circuit -- which provides that a mandate

will not ordinarily be stayed unless

there is a substantial showing that the

petition for certiorari raises an

important question meriting review by the

Supreme Court. On January 6, 1995, the

Seventh Circuit granted Harley-Davidson's

motion for stay of mandate to and

including February 5, 1995.

17

FEDERAL JURISDICTION BELOW

The District Court exercised

subject matter jurisdiction on the

following bases: (a) federal question

jurisdiction pursuant to 28 U.S.C.

§ 1331; (b) federal district courts have

exclusive jurisdictisn over all CERCLA

claims pursuant to 42 U.S.C. § 9613(b);

(c) supplemental jurisdiction over the

PAHSCA claims pursuant to 28 U.S.C.

§ 1367, because they arise out of a

common nucleus of operative facts and

would ordinarily be tried in a single

action; and (d) diversity jurisdiction

pursuant to 28 U.S.C. § 1332, because at

the time the suit was initiated there was

complete diversity of citizenship between

Harley-Davidson, a Wisconsin corporation

with its principal place of business in

Wisconsin, and Minstar, a Delaware

corporation with its principal place of

business in Minnesota, and AMF, a New

18

Jersey corporation with its principal

place of business in Minnesota, and the

amount in controversy exceeds $50,000,

exclusive of interest and costs.

SUMMARY OF ARGUMENT

"The tendency of the law must

always be to narrow the field of uncer-

tainty." Oliver Wendell Holmes, Common

Law 127 (1881).

"CERCLA'sS provision regarding

indemnity clauses is truly murky. .. ."

Jones-Hamilton v. Beazer Materials &

Services, 973 F.2d 688, 692 (9th Cir.

1992). Section 107(e) (1) of CERCLA,

42 U.S.C. § 9607(e) (1), "taken as a whole

is notably obscure. .. ." Harley-

Davidson, Inc. v. Minstar Inc., 41 F.3d

at 342. The first sentence is

"Mysterious." Id., at 343. It has also

been said, "(Section 107(e) (1)] appears

internally inconsistent." Beazer East v.

The Mead Corp., 34 F.3d 206, 211

19

(3d Cir.), reh'gq denied (1994). Until

this Court definitively clarifies

Section 107(e) (1) of CERCLA, the mystery

and uncertainty surrounding its intended

meaning will persist.

Section 107(e) (1)'s enigmatic

nature lies at the heart of why this

Court should grant certiorari in this

case. This Court has not addressed

whether indemnification agreements

between PRPs are prohibited under

Section 107(e) (1) of CERCLA.

In addition to clarifying the

meaning of Section 107(e) (1) of CERCLA,

this Court should grant certiorari in

this case in order to remedy the errors

committed by the Seventh Circuit Court of

Appeals. Specifically, the Seventh Cir-

cuit decided disputed, material factual

issues in this case not yet addressed by

either the parties or the District Court.

Further, the Seventh Circuit did not

20

apply the proper rules of construction

for indemnification agreements. By

rectifying the errors committed by the

Seventh Circuit, this Court will be able

to clarify whether equitable factors --

in addition to indemnification agreements

-- must be considered before equitably

allocating liability among PRPs, whether

post-CERCLA indemnification agreements

must specify CERCLA or environmental

liabilities to be effective, and whether

State-law principles of contract inter-

pretation, such as the canon that

ambiguous indemnification agreements are

to be construed against the drafter,

Should be applied. Finally, if not

addressed, the Seventh Circuit's errors

will bar Harley-Davidson's CERCLA claims

against AMF and ianene in connection

with the cleanup of the York facility.

21

+ THIS COURT HAS NOT DECIDED THE

IMPORTANT QUESTION OF WHETHER

SECTION 107(e) (1) OF CERCLA PERMITS

INDEMNIFICATION AGREEMENTS BETWEEN

POTENTIALLY RESPONSIBLE PARTIES.

The Supreme Court should grant

Harley-Davidson's petition for writ of

certiorari because the Seventh Circuit

decided an important question of federal

law that has not been, but should be,

Settled by the Supreme Court of the

United States. Rule 10.1(c) of the Rules

of the Supreme Court of the United

States.

There are an estimated 40,000

hazardous waste sites awaiting federal

Evaluation and response. Steven Ferrey,

The New Wave: Superfund Allocation

Strategies and Outcomes, 25 Environment

Reporter 790 n. 4 (8/26/94) (citing U.S.

EPA, CERCLA-3rd Quarter FY 92 Superfund

q Management Reporter, June 30, 1992). The

average cleanup cost per site is approxi -

mately $25 million. EPA Enforcement, 23

22

Envtl. L. Rep. (Envtl. L. Inst.) 10,179,

10,251 (April 1993) (citing Department of

Justice environmental enforcement

Statistic that site cleanups average

nearly $25 million); Eve L. Pouliot,

Coercion vs. Cooperation: Suqgqestions

for the Better Effectuation of CERCLA

(Superfund), 47 SMU L. Rev. 607, 638

(FN 145) (citing 40 C.F.R. pt. 300

(1992)) (The average total cost of a

remedial site cleanup is $27.8 million).

Based on these estimates, the nationwide

cleanup "bill" will total $1 trillion

dollars. Undoubtedly, many of the

parties saddled with those cleanup costs

will look for contribution from other

parties, including the purchasers and

sellers of the polluted sites.

Typically, purchasers and sellers of real

estate attempt to allocate cleanup

liability through use of indemnity

clauses in purchase and sale contracts.

23

Despite the obvious need for

clear, consistent law to guide con-

tracting parties, courts and litigants,

CERCLA's indemnification section --

Section 107(e) (1) -- remains shrouded in

mystery. The Seventh Circuit's recent

opinion in Harley-Davidson continued the

pattern of federal district and appellate

courts being forced to construct strained

interpretations of an important, yet

cryptic, statutory provision of CERCLA to

resolve disputes between PRPs over how to

equitably allocate cleanup costs.

Section 107(e) (1) of CERCLA

provides:

No indemnification, hold harm-

less, or similar agreement or

conveyance shall be effective

3 to transfer from the owner or

2 operator of any vessel or

, facility or from any person

who may be liable for a

release under this section, to

any other person the liability

imposed under this section.

Nothing in this subsection

Shall bar any agreement to

insure, hold harmless, or

24

indemnify a party to such

agreement for any liability

under this section.

42 U.S.C. § 9607(e) (1).

Section 107(e) (1) of CERCLA

should be definitively interpreted by

this Court. Section 107(e) (1) can be,

and has been, read to either prohibit

indemnification agreements? or to permit

such agreements.* See Danella South-

bo

E.g., Harley-Davidson, Inc. v. Minstar,

Inc., 837 F. Supp. 978 (E.D. Wis. 1993),

rev'd, 41 F.3d 341 (7th Cir.), reh'g

denied (1994); CPC International, Inc. v.

Aerojet-General Corp., 759 F. Supp. 1269

(W.D. Mich. 1991), reconsideration denied

sub. nom, S hoe A rdov hemical of

Michigan, 1991 WL 111515 (W.D. Mich.,

March 26, 1991); AM Intern., Inc. v.

International Forging Equipment, 743

F. Supp. 525 (N.D. Ohio 1990), rev'd in

part, 982 F.2d 989 (6th Cir. 1993);

Shapiro v. Alexanderson, 741 F. Supp. 472

(S.D.N.Y. 1990), reargument denied, 743

F. Supp. 268 (S.D.N.Y. 1990).

3E.g., Harley-Davidson, Inc. v. Minstar,

Inc., 41 F.3d 341 (7th Cir. 1994); Beazer

East, Inc. v. Mead Corp., 34 F.3d 206 (3d

Cir. 1994); Olin Corp. v. Consolidated

Aluminum Corp., 5 F.3d 10 (2d Cir. 1993);

hn B Vv

Co., 992 F.2d 401 (1st Cir. 1993);

n il Vv Vv rv.

Equip., 991 F.2d 49 (2d Cir. 1993);

25

west _ v. Southwestern Bell Telephone, 775

F. Supp. 1227, 1240 (E.D. Mo. 1991),

aff'd, 978 F.2d 1263 ("The first section

of this obscure provision appears to

prohibit indemnification agreements under

all circumstances, while the second sec-

tion appears to permit indemnification

agreements under all circumstances").

This confusion should not be permitted to

persist.

To date, eight United States

Circuit Courts of Appeals have answered

the question of whether indemnification

agreements between potentially

responsible parties are barred by

Section 107(e) (1) of CERCLA.‘ Although it

U.S. v. Hardage, 985 F.2d 1427 (10th Cir.

2998) «

hn S. B In v. Bo n .

992 F.2d 401; Olin Cc Vv nsoli ed

Aluminum Corp., 5 F.3d 10; Beazer East,

inc. v. Mead Corp., 34 F.3d 206; Joslyn

nuf rin ee mpan

Inc., 40 F.3d 750 (Sth Cir. 1994) ;

Liecko v rketi —» wee v.24

1296 (6th Cir. 1992); Har -Davi n

26

is true that none of these courts have

reached the conclusion set forth by the

District Court in the case at bar, the

majority of these courts have not under-

taken a careful and well-reasoned

analysis of the statute. Further, the

courts of appeals do not uniformly agree

on the proper method of interpretation of

CERCLA Section 107(e) (1).

The history of the interpre-

tation of CERCLA Section 107(e) (1) by the

courts of a peals is rife with inadequate

analyses of the statutory language.

Instead, the courts have often reached

conclusions without supporting rationale.

See, e.qg., U.S. v. Hardage, 985 F.2d

1427, 1433 (10th Cir. 1993) ("The plain

meaning of this language is that,

although responsible parties may not

Inc. v. Minstar, Inc., 41 F.3d 341;

Mardan Corp. v. C.G.C. Music, Ltd., 804

F.2d 1454 (9th Cir. 1986); U.S. v.

Hardage, 985 F.2d 1427.

27

altogether transfer their CERCLA

liability, they have the right to obtain

indemnification for that liability").

Those conclusions are then relied upon by

other courts and adopted without reasoned

discussion. The result is a string of

decisions reached without any real analy-

sis, discussion or apparent reasoning.

For example, the Second

Circuit's opinion in Olin Corp. v.

Consolidated Aluminum Corp., 5 F.3d 10

(2d Cir. 1993), merely adopted the

underlying district court conclusion.

The district court, in turn, arrived at

its conclusion by adopting the Ninth

Circuit's opinion in Mardan Corp. v.

C.G.C. Music, Ltd., 804 F.2d 1454 (9th

Cir. 1986). Olin Corp. v. Consolidated

Aluminum Corp., 807 F. Supp. 1133, 1139

(S.D.N.Y. 1992), aff'd in part, vacated

in part, 5 F.3d 10 (2d Cir. 1993).

28

However, the Ninth Circuit's

opinion did not focus on the validity of

indemnification agreements under CERCLA.

Rather, the Mardan opinion addressed

whether state law or federal common law

governed the interpretation of agreements

for indemnification of environmental

liabilities. In fact, the extent of the

Ninth Circuit's discussion of

Section 107(e) (1), as it relates to the

permissibility of indemnification agree-

ments between PRPs, resides in a single

sentence:

"As the government points out,

section 107(e) (1) expressly

preserves agreements to

insure, to hold harmless, or

to indemnify a party held

liable under section 107(a)."

Mardan Corp., 804 F.2d at 1459. There is

no discussion, analysis, or reasoning

contained within the Ninth Circuit's

opinion to support its conclusion.

Further, there is not even a mention of,

29

what other courts term, the "apparent

internal inconsistency" of the language

Of CERCLA Section 107(e) (1). See, .g.,

Beazer East, Inc. v. Mead Corp., 34 F.3d

at 211 ("On first reading, this appears |

internally inconsistent") . |

A matter as important as the

validity of indemnification agreements

under CERCLA should nct be allowed to be

decided without reasoned analysis. This

is a matter which should be specifically

addressed and decided. There is no

better forum for this matter to be

definitively resolved than the Supreme

Court.

In addition to the variance of

conclusions reached by courts addressing

CERCLA Section 107(e) (1), federal courts

have also utilized different methods of

interpreting the statutory language.

One group in effect ignores

Section 107(e) (1)'s first sentence,

30

Simply finding that PRPs may allocate

CERCLA liability. See Folino v. Hampden

Color and Chemical Co., 832 F. Supp. 757,

760 (D. Vt. 1993); U.S. v. South Carolina

Recycling and Disposal, Inc., 653

F. Supp. 984, 1013 (D.S.C. 1984), Aff'd

in part and v in xr m.,

U.S. v. Monsanto Co., 858 F.2d 160 (4th

Cir. 1988), cert. denied, 490 U.S. 1106

(1989).

A second group of courts

interpreting CERCLA Section 107/(e) (1)

finds, without explaining its method of

interpretation, that the right of private

parties to enter indemnification agree-

ments is preserved. Commander Oil v.

Advance Food Service Equipment, 991 F.2d

49, 51 (2d Cir. 1993); Mardan Corp. v.

C,.4.C.. Magic. 16G.; 804 F.2d at 1458.

Yet another group of courts,

recognizes the inconsistency of the two

sentences of CERCLA Section 107(e) (1) and

31

acknowledges that the second sentence

should modify the first. Unfortunately,

these courts then employ an incorrect

method of harmonizing the two sentences.

Olin Corp. v. Consolidated Aluminum

Corp., 5 F.3d at 14; John S. Boyd Co. v.

Boston Gas Co., 992 F.2d 401, 405 (ist

Caz. 2003): 2.4. yy. Hardage, 985 F.2d

at 1433; AM Intern. v. International

Forging Equipment, 982 F.2d 989, 994 (6th

Cir. 1993), citing Niecko v. Emro

Marketing Co., 973 F.2d 1296, 1300 (6th

Caz. 1992).

Federal courts also have

struggled with the concept of whether an

environmental allocation agreement or

indemnity clause must specifically

reference "CERCLA-like" liability or at

least environmental liability in order to

Satisfy CERCLA Section 107(e) (1). See,

e€.g., Southland Corp. v. Ashland Oil,

inc., 696 F. Supp. 994 (D.N.J. 1988) (no

32

"Clear transfer or release of future

'CERCLA-like' liabilities"). Even though

AMF entered into the 1980 indemnity

agreement with AMF York after CERCLA was

enacted, the contract did not refer to

CERCLA in particular and did not mention

environmental liability in general. A

clear, express allocation of CERCLA

liability between AMF and AMF York was

lacking in the 1980 agreement. Never-

theless, the Seventh Circuit stated in

the case at bar: "Harley-Davidson argues

that the agreement is not broad enough to

cover the contamination of the York site.

But it could not be more broadly worded."

Harley-Davidson, Inc. v. Minstar, Inc.,

41 F.3d at 344. Given the CERCLA

principle that the polluter should pay,

the breadth of an indemnity clause should

not be as important a factor in deter-

Mining its enforceability under CERCLA

Section 107(e) (1) as is the question of

33

whether it expressly and unequivocally

allocates CERCLA liability.

Because CERCLA Section

107(e) (1) has not been subjected to a

thorough analysis at the court of appeals

level, and because courts throughout the

United States are not in complete

uniformity in either results or methods

of interpretation, this Court should

grant certiorari in this case.

Whether indemnification

agreements between potentially

responsible parties are prohibited by

CERCLA Section 107(e) (1) -- or whether

they are permissible only under certain

Situations -- will remain unresolved

until this Court makes the final deter-

mination. By addressing the question of

what Congress intended in CERCLA

Section 107(e) (1), this Court would also

have the opportunity to articulate

whether other equitable factors in

34

addition to the existence of an indemnity

contract should be considered when

equitably allocating CERCLA liability

between PRPs.

II. THE SEVENTH CIRCUIT APPARENTLY

DID NOT CONSIDER ANY EQUITABLE FACTORS

OTHER THAN THE 1980 INDEMNIFICATION

AGREEMENT BETWEEN AMF AND AMF YORK.

The method courts utilize to

allocate liability between responsible

parties under CERCLA is an important

question that this Court should address.

Until the Seventh Circuit's recent deci-

Sion in Harley-Davidson, the Seventh

Circuit indicated that in implementing

Congressional intent courts should look

to various equitable factors in deter-

mining allocation among responsible

parties under CERCLA. The court's most

recent opinion, however, appears to

vitiate both its own precedent and

legislative intent.

35

In Kerr-McGee Chemical v.

Lefton Iron & Metal, 14 F.3d 321 (7th

Cir.), reh'g denied (1994), the Seventh

Circuit apparently recognized that

contractual agreements between parties

are not necessarily determinative of

Statutory liability. Id., at 326. Based

on this principle, it follows that even

if CERCLA Section 107(e) (1) allows

contractual transfers of CERCLA

liability, such contractual transfers

will not necessarily serve to determine

Statutory liability.

The Seventh Circuit previously

held that the following equitable fac-

tors, taken together, should be con-

Sidered in allocating CERCLA Section 107

liability: (1) the ability of the par-

ties to demonstrate that their contri-

bution to a discharge, release or dis-

posal of a hazardous waste can be distin-

guished; (2) the amount of the hazardous

36

waste involved; (3) the degree of toxi-

city of the hazardous waste involved;

(4) the degree of involvement by the

parties in the generation, transporta-

tion, treatment, storage or disposal of

the hazardous waste; (5) the degree of

care exercised by the parties with

respect to the hazardous waste concerned,

taking into account the characteristics

of such hazardous waste; (6) the degree

of cooperation by the parties with

federal, state or local officials to

prevent any harm to the public health or

the environment~ (all of the. afore-

mentioned constitute the so-called "Gore

factors");* (7) the parties' relative

“The "Gore factors" were. originally part

of an amendment to the 1980 House

Superfund Bill which did not pass.

EnyeXcumentad Transpor tation Systems,

Inc. v. ENSCO, Inc., 969 F.2d 503, 508

(7th. Cir. 1992), citing U.S. v. A& F

Materials Co., Inc., 578 F. Supp. 1249,

1256 (S.D. Ill. 1984).

ee

37

fault; and (8) any contracts between the

parties bearing on the allocation of

cleanup costs. Id., at n. 4.

The Seventh Circuit's recent

opinion in Harley-Davidson, however,

appears to contradict its earlier holding

in Kerr-McGee. The Harley-Davidson

opinion, in effect, appears to create a

rule that a court may completely deter-

mine allocation among PRPs based solely

on an indemnification agreement.

Specifically, the Seventh Circuit

concluded that the indemnification agree-

ment between AMF York and AMF "bars

Harley-Davidson's claim. . .." Harley-

Davidson, Inc. v. Minstar, Inc., 41 F. 3d

at 344. Further, because this case was

before the Seventh Circuit on inter-

locutory appeal, the District Court had

not addressed the equitable factors

listed above.

38

The Seventh Circuit held, in

effect, that a broadly worded indemnifi-

cation agreement obviates the need to

inquire into any other equitable factors

before allocating liability between

responsible parties. While it is not

disputed that the Seventh Circuit may

overrule its own line of decisions, this

Court should not uphold the Seventh

Circuit's newest pronouncement of CERCLA

law. The Seventh Circuit's holding

contravenes legislative intent that other

equitable factors be considered when

equitably allocating liability between

responsible parties.

The Seventh Circuit has noted

that "the language and legislative

history of the new contribution section

[Section 113 of CERCLA] innicnsan, at the

very least, Congress's intent that courts

should equitably allocate costs of clean-

up. . . ." Environmental Trans.

39

Systems v. Ensco, Inc., 969 F.2d 503, 508

(7th Cir. 1992) (citing U.S. v. Monsanto

Co., 858 F.2d at 173 n. 29). The Seventh

Circuit further stated, "Like the Court

of Appeals for the Sixth Circuit, we

think a court may consider any factors

appropriate to balance the equities in

the totality of the circumstances."

Environmental Trans. Systems v. Ensco,

inc., 969 F.2d at 509 (citing U.S. v.

R.W. Meyer, Inc., 932 F.2d 568 (6th Cir.

1991)).

The Seventh Circuit's own

decisions, relying on decisions from

other courts of appeals, show that courts

should look at the "totality of the

circumstances" and equitably allocate

liability. As the Seventh Circuit

observed, such a rule furthers the

legislative intent behind Section 113(f)

of CERCLA.

40

The Supreme Court should grant

certiorari in this case in order to

answer an important question of federal

law. Specifically, this Court should

determine whether a court, in allocating

CERCLA liability among responsible

parties, may ignore most of the relevant

equitable factors -- to the point of not

even hearing evidence on most of them --

and allocate purely on the basis of an

indemnification agreement between the

parties.

Thus, it would be inconsistent

with Section 113 of CERCLA to bar Harley-

Davidson's claims against Minstar and AMF

before the District Court has considered

the evidence and had an opportunity to

equitably allocate CERCLA response costs

among the parties.

41

III. THE UNITED STATES COURT OF

APPEALS FOR THE SEVENTH CIRCUIT COMMITTED

JUDICIAL ERRORS IN THIS CASE THAT WILL GO

UNREMEDIED IF THE SUPREME COURT DOES NOT

GRANT CERTIORARI.

This Court should exercise its

Supervisory authority in this case

because: (1) the Seventh Circuit either

read only one of the two indemnification

agreements essential to this case or

tacitly decided disputed factual matters

without permitting evidence to be taken

by the District Court; and (2) the

Seventh Circuit did not apply the

applicable rule of contract interpre-

tation in construing the one indemnifica-

tion agreement it did consider. Exer-

Cising supervisory authority would be

especially appropriate here, as the ques-

tion of which law to apply when inter-

preting indemnification contracts --

federal common law or traditional state

contract interpretation law -- is rele-

vant to the standard the Court should

42

articulate for a federal district court

to follow when applying CERCLA

Section 107(e) (1) to an indemnification

agreement between PRPs.

oe The Seventh Circuit

Appears to Have Relied On Only One Of The

Two Essential Indemnification Agreements

In This Case.

The Seventh Circuit stated,

"The buyer [AMF York and, subsequently,

Harley-Davidson] had agreed to indemnify

the seller against all liabilities

relating to the division of the seller

(called the AMF York Division) that owned

the plant." Harley-Davidson, Inc. v.

Minstar, Inc., 41 F.3d at 342. This

seemingly innocuous statement reveals a

serious error underlying the Seventh

Circuit's opinion.

First, although only one was

ever mentioned by the Seventh Circuit,

there were two agreements between the

parties containing indemnification

43

Clauses. As noted earlier, the 1980

Acquisition Agreement between AMF and AMF

York included the following indemnifi-

cation language:

AMF York Incorporated shall

assume and discharge, and

shall indemnify AMF

Incorporated against all

debts, liabilities and

obligations, without any

limitation, relating to AMF

Incorporated's AMF York

Division, its operations and

products, whether known or

unknown . . . and whether

existing on the date of this

agreement or coming into

existence hereafter.

In addition, explicit language

in a 1981 Purchase Agreement between

Harley-Davidson and AMF provided the

following indemnifications running from

AMF to Harley:

AMF agrees to indemnify and

hold (Harley-Davidson) harm-

less against and in respect

Ofs °-s ww 0S4): Sy eee,

liability or obligation

in connection with...

(I) any liability or obliga-

tion of AMF or any of the

Companies or the Subsidiaries

arising out of or resulting

44

from an event or occurrence

happening prior to the Closing

Date due to non-compliance

with any Federal, state or

local law, regulation, order

or administrative or judicial

determination relating to the

environment.

Section 10.5(a)(ii)(I) of 1981 Purchase

Agreement. Further,

AMF agrees to indemnify and

hold [Harley-Davidson] harm-

less against and in respect

Of: .. . €48) Gy Jene,

liability or obligation

in connection with —

(G) any liability or obliga-

tion in connection with the

golf car business, whether

arising out of an even or

occurrence happening prior to,

on or after the Closing Date,

in excess of applicable

reserves in.the Adjusted

Closing Balance Sheet.

Section 10.5(a) (ii) (G) of 1981 Purchase

Agreement.

Even assuming the 1980

Acquisition Agreement's indemnification

language would "bar[] Harley-Davidson's

claim against these defendants," Harley-

Davidson Inc. v. Minstar, Inc., 41 F.3d

at 344, the indemnification to Harley-

45

Davidson, contained within the 1981

Purchase Agreement, preserves Harley-

Davidson's right to demand at least some

contribution from AMF and Minstar.

In order for the Seventh

Circuit to reach the conclusion it did --

Harley-Davidson's claims against AMF and

Minstar are barred -- the Seventh Circuit

appears to have done one of two things:

either (a) it completely ignored the

indemnification provisions found in the

1981 Purchase Agreement; or (b) it found

the 1981 Purchase Agreement inapplicable

without stating any justification for

doing so. In effect, the Seventh Circuit

determined triable factual issues -- such

as whether the liability related to the

AMF York golf car business was in excess

of the Adjusted Closing Balance Sheet --

without allowing the District Court to

resolve those disputed issues of fact

after developing the evidentiary record.

46

The Seventh Circuit took this

case on interlocutory appeal. The narrow

issue decided by the District Court, and

briefed and argued by the parties, was

limited to whether indemnification agree-

ments are prohibited by Section 107(e) (1)

of CERCLA. The factual record as to the

other disputed issues is incomplete, as

the parties involved expected the case to

be remanded to the District Court to

develop and determine the remaining

questions of fact.

While the Seventh Circuit's

authority to decide issues not speci-

fically certified for interlocutory

appeal is not questioned, Peterson v.

Sealed Air Corp., 902 F.2d 1232, 1233

(7th Cir.), reh'q denied (1990), an

appellate court should limit itself to

deciding only issues plainly put forth in

the record in as complete a form as is

required for final determination of the

47

legal principles involved. 16 Charles A.

Wright, et al., Federal Practice and

Procedure, § 3921 (1977). In this case,

the Seventh Circuit went beyond the

factual record and committed prejudicial

error.

Whether the Seventh Circuit

ignored one of the two crucial indemni-

fication agreements in this case --

documents both parties agreed were

essential to the case -- or found the

second agreement inapplicable, the

Seventh Circuit appears to have departed

from the accepted and usual course of

judicial proceedings. This Court should

exercise its supervisory power and cor-

rect the serious error committed in this

case.

B. The Seventh Circuit Did

N Apply The Pr r Rul For n in

n

Indemnification Agreements.

The second error underlying the

Seventh Circuit's opinion in Harley-

48

Davidson is that the court did not apply

the proper rule of interpretation for

indemnification agreements. If the

Seventh Circuit had properly applied the

law of Pennsylvania, or even the law of

any other state relevant to this case, it

would have concluded that the indemnifi-

cation language in the 1980 Purchase

Agreement is ambiguous, and as such

should be construed against AMF, the

drafter of the ambiguous language.

While it is well settled that

federal law governs issues relating to

the validity of a-release of a federal

cause of action, Dice v. Akron, Canton &

Youngstown R.R. Co., 342 U.S. 359, 72

S. Ct. 312, 96 L.Ed. 398 (1952), every

Court of Appeals addressing this issue

has applied state rules of contract law

in interpreting CERCLA indemnification

agreements. Tippin Vv ’

37 F.3d 87 (3d Cir. 1994); Fisher

49

Development Co. v. Boise Cascade Corp.,

37 F.3d 104, 109 (3d Cir. 1994); Beazer

Fast Inc. v. The Mead Corp., 34 F.3d 206;

Olin Corp. v. Consolidated Aluminum

Corp., 5 F.3d at 14-15; John S. Boyd Co.,

Inc. v. Boston Gas Co., 992 F.2d at 406;

United States v. Hardage, 985 F.2d

at 1433 n. 2; Mardan Corp. v. C.G.C.

Music Ltd., 804 F.2d at 1457-60.

Pennsylvania law should apply

here because the York facility is located

in Pennsylvania, AMF York was a Pennsyl-

vania corporation, and Pennsylvania has

the strongest governmental interest in

the remediation of the York facility and,

hence, the disposition of this case. See

Restatement (Second) Conflict of Laws

8§ 222, 224(2) (1971); Tippins Inc. v.

USX Corp., 37 F.3d 87.

Pennsylvania law mandates that

"while a party may contract for indemni-

fication for its own torts, 'the language

50

in the indemnity provision must be clear

and unequivocal and the burden is even

greater where such party drafted the

agreement.'" Tippins, Inc. v. USX, 37

F.3d at 91 n. 4(quoting DiPetro v. City

of Philadelphia, 496 A.2d i107, 410 (Pa.

Super. 1985)).

"A contract is ambiguous if it

is reasonably susceptible of different

constructions and capable of being

understood in more than one sense."

Hutchinson v. Sunbeam Coal Corp., 513 Pa.

192, 201, 519 A.2d 385, 390 (1986). The

express terms of the 1980 indemnification

contract between AMF and AMF York limit

the extent of indemnification to the AMF

York Division, its operations and

products. That clause does not address

the operations or products of AMF's other

divisions or subsidiaries which also pol -

luted the York facility. Furthermore,

the 1980 indemnification clause does not

oar Aes Ce eee

|

speak to liabilities resulting from AMF's

ownership of the York facility. Finally,

the 1980 indemnification clause does not

cover any potential CERCLA generator

liability of AMF's divisions or sub-

Sidiaries, with the exception of the AMF

York Division.

While Harley-Davidson contends

that the 1980 indemnification contract --

if enforceable under CERCLA -- explicitly

limits the indemnification running from

Harley-Davidson to AMF York to those

liabilities incurred by the York

Division, the very least that can be said

is that the 1980 indemnification contract

is ambiguous. Because the indemnifica-

tion contract is ambiguous, the Seventh

Circuit should have construed it against

AMF, the drafter of the indemnification

Cclause.® The Seventh Circuit erred by

6All of the states relevant to this

case -- Pennsylvania, Wisconsin, New York

and New Jersey -- provide similar rules

52

construing the ambiguous 1980 indemnity

agreement in favor of AMF.

The Seventh Circuit departed

from the accepted and usual course of

judicial proceedings by not adhering to

the applicable law governing the inter-

pretation of the indemnification language

in this case. For this reason, this

Court should issue a writ of certiorari

in this case.

of interpretation for indemnification

agreements. See, e.g., Spivey v. Great

Atlantic & Pacific Tea Co., 255 N.W.2d

469 (Wis. 1977) (If a party seeks to be

indemnified against its own negligence,

then the indemnification agreement must

specifically provide as such.); Gross v.

Sweet, 49 N.Y.2d 102, 400 N.E.2d 306, 424

N.Y.S.2d 365, 367 (Ct. App. 1979) (An

exculpatory clause will not be deemed to

insulate a party from liability for his

negligent acts unless the intention of

the parties is expressed in unmistakable

language.) ; Vv -

Industries of South Jersey, 103 N.J. 177,

191, 510 A.2d 1151 (N.J. 1986) (A contract

will not be construed to indemnify the

indemnitee against losses resulting from

its own negligence unless such an

intention is expressed in unequivocal

terms.).

53

CONCLUSION

Granting certiorari in this

case will allow the Supreme Court to

enunciate a clear, nationwide standard

for applying CERCLA Section 107(e) (1) to

allocation contracts while at the same

time remedying the errors of law con-

tained in the Seventh Circuit's decision.

Rectifying the Seventh Circuit's errors

would further clarify the appropriate

CERCLA 107(e) (1) standard for determining

the enforceability of an indemnification

agreement under CERCLA. Specifically,

rectifying the Seventh Circuit's errors

would allow this Court to determine

whether federal district and appellate

courts need to evaluate the totality of

equitable circumstances, including all

relevant contracts between the parties,

before allocating liability between PRPs.

Further, by granting certiorari

in this case, this Court would have the

54

opportunity to clarify the requirements a

post-CERCLA indemnification agreement

must satisfy to be effective and to

specify whether federal courts must apply

state law principles of contract con-

struction, such as the canon that any

ambiguity in an indemnification agreement

must be resolved against the drafter, in

this case, AMF, when evaluating the

enforceability of such an agreement under

CERCLA Section 107(e) (1).

For these reasons, Harley-

Davidson respectfully requests that this

Court issue a writ of certiorari in this

case.

Respectfully submitted

this 2nd day of February, 1995.

Jeffrey P. Clark

Counsel of Record

REINHART, BOERNER,

VAN DEUREN, NORRIS &

RIESELBACH, s.c.

1000 North Water Street

Milwaukee, Wisconsin 53202

414-298-1000

Attorneys for Petitioner

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