Petition for Writ of Certiorari — Mead Corp. v. Beazer East, Inc.
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94141 4 FEB 2 2 1995
QEFICE OF IHE CLERK
No. 94-
IN THE
Supreme Court of the United States
OCTOBER TERM, 1994
THE MEAD CORPORATION,
Petitioner,
v.
BEAZER EAST, INC.
Petition For A Writ Of Certiorari To The United States
Court Of Appeals For The Third Circuit
PETITION FOR A WRIT OF CERTIORARI
ALAN M. WISEMAN
Counsel of Record
THOMAS A. ISAACSON
HOWREY & SIMON
1299 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
(202) 783-0800
JOHN H. BINGLER
GEORGE P. FAINES
THORP, REED & ARMSTRONG
One Riverfront Center
Pittsburgh, PA 15222
(412) 394-7711
Counsel for Petitioner
The Mead Corporation
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Balmar Legal Publishing Services, Washington, D.C. (202) 682-9800
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QUESTION PRESENTED
Whether the only agreements that are effective to transfer
liability for hazardous waste clean-up costs under section
107(e)(1) of the Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. § 9607(e)(1), are
indemnification agreements, not hold harmless agreements.
PARTIES TO THE PROCEEDING
All parties to the proceeding are identified in the caption.
The Mead Corporation owns less than 100% of the following
companies:
Northwood Forest Industries, Ltd. (50%)
Northwood Pulp & Timber Ltd. (100% )
Northwood Waferboard, Ltd. (100%)
Northwood Properties, Ltd. (100%)
B.C. Chemicals, Ltd. (50%)
B.C. Chemicals Co. (Jt. Venture - 36.4%)
Vernon Seed Orchard Co. (Jt. Venture - 30%)
Rustad Bros. & Co., Ltd. (100%)
Blackwater Construction Co., Ltd. (100%)
Bond Brothers Sawmill Ltd. (100%)
Gang-Nail Truss (P.G.) Ltd. (100%)
Aviocart S.p.A. (97%)
Mead-Emballage S.A. (99.53%)
Mead Packaging Argentina (75% owned by 100%-owned
subsidiary Mead Packaging Int’1, Inc.)
Harima M.IL.D., Inc. (25%)
International Fibre Sales, S.A. (33.3%)
Cabin Bluff Partners (50% owned by 100% owned
subsidiary M-B Pulp Co.) |
Cabin Bluff Management Co. (50% owned by 100%-owned
subsidiary Mead Timber Co.)
oc Ai pit gee
Northwood Panelboard Co. (50% owned by 100%-owned
subsidiary Mead Panelboard Co.)
PRS SET il dA ee tied 1 WA © SRR OMT ts a EEA OPE ee ea
TABLE OF CONTENTS
QUESTION PRESENTED..............
CO
ee ee
STATUTORY PROVISION INVOLVED ......
I es ke ee eee
eee
B. WeetesiSemmery ............
C. Proceedings Below ...........
REASONS FOR GRANTING THE PETITION .. .
I. CORRECTING THE DECISION BELOW IS
NECESSARY TO AVOID SIGNIFICANTLY
IMPAIRING THE ABILITY OF PARTIES
TO ENFORCE CONTRACTS CONCERNING
RESPONSIBILITY FOR THE COST OF
HAZARDOUS WASTE CLEAN-UPS .....
A. Contractual Allocation Of Liability For
Hazardous Waste Clean-up Costs Is A
Vital Issue In Federal Environmental
EE ae
B. The Third Circuit Decision Below
Erroneously Limited Section 107(e)(1)
Of CERCLA To Indemnity
ST hs 6 ce 55 6s + 2 2 2 «
C. Allowing The Decision Below To Stand
Would Create Further Confusion In The
Law Among The Circuits ........
Pit
oN Rh NN NES SS — lm,
10
t4
D. By Limiting Section 107(e)(1) To
Indemnity Agreements, The Decision
Below Significantly Undermines
Parties’ Ability To Effectuate And
Enforce Private Allocations Of Liability
For Hazardous Waste Clean-Ups ... .
E. The Third Circuit’s Interpretation Of
Section 107(e)(1) Should Be Rejected
Because It Needlessly Creates Serious
Constitutional Problems. ........
F. Correcting The Third Circuit’s
Misinterpretation Of Section 107(e)(1)
Will Enhance The Correct Disposition
ee 6 kiwi d a ee wee
Me. UO AR Se ie Se
-iv-
17
19
22
24
TABLE OF AUTHORITIES
Cases Pages
Aerospatiale Helicopter Corp. v. Uniroyal Health
Services, Inc., 778 S.W.2d 492 (Tex. Ct.
App. -- Dallas 1989), cert. denied, 498
ee ee ee 17
Allgeyer v. Louisiana, 165 U.S. 578 (1897) .... 20
AM International, Inc. v. International Forging
Equipment, 743 F. Supp. 525 (N.D. Ohio
1990), rev’d, 982 F.2d 989 (6th Cir. 1993) . . 10, 14
Beazer East, Inc. v. Mead Corp., 34 F.3d 206
eS Eee re passim
C. P. Chemicals, Inc. v. Exide Corp., No. 93-1426,
1993 U.S. App. LEXIS 33,716
Ve ee es ee 11
Commander Oil Corp. v. Advance Food Service
Equipment, 991 F.2d 49 (2d Cir. 1993)... . 11,15
Concrete Pipe & Products, Inc. v. Construction
Laborers Pension Trust, 113 S. Ct.
I 19, 20
Connolly v. Pension Benefit Guaranty Corp.,
Ce 8 Be 8 19, 20
Crowell v. Benson, 285 U.S. 22 (1932) ...... 19
Dice v. Akron, Canton & Youngstown Railraod,
ee ee ht dk i ee ee 9
Fisher Development Co. v. Boise Cascade Corp.,
37 F.3d 104 (3d Cir. 1994) .......... 15
Foster v. Nix, 327 S.E.2d 833 (Ga. Ct. App. 1985) . . 17
Hooper Associates, Ltd. vy. AGS Computers, Inc.,
546 eae vos ON. Y. 1969) ......... 17
-Y~
Industrial Tile, Inc. v. Stewart, 388 So. 2d 171
(Ala. 1980), cert. denied, 449 U.S.
Se Ce) 6 ke ee et PSTN ws 13
John S. Boyd Co. v. Boston Gas Co., 992 F.2d 401
CUE BPE 60 8:6 bo eh me Fe ee ee 11,14
Joslyn Manufacturing Co. v. Koppers Co., 40 F.3d
Fara SEP 6 ten eee aweeks 1,6
Kerr-McGee Chemical Corp. v. Lefton Iron & Metal
Co., 14 F.3d 321 (7th Cir. 1994) ....... 11,15
Mardan Corp. v. C.G.C. Music, Ltd., 804 F.2d
ok | ee eee 11, 12, 14
Marmon Group, Inc. v. Rexnord, Inc., 822 F.2d 31
oo A ee 15
Meder v. Resorts International Hotel, Inc., 573
A.2d 922 (N.J. Super. Ct. 1989). ....... 17
National Railroad Passenger Corp. v. Atchison,
Topeka & Santa Fe Ry.,
re 19
Nationwide Mutual Insurance Co. v. Hall,
643 So. 2d 551 (Ala. 1994) .......... 13, 17
Niecko v. Emro Marketing Co., 973 F.2d 1296
Cts, See se Se TOG as 11
Olin Corp. v. Consolidated Aluminum Corp..,
3 P38 Gr es Cert bse 8 8 eee es 14
Owens v. Midwest Tank & Manufacturing Co., 549
N.E.2d 774 (Ill. App. Ct. 1989) ........ 17
Pension Benefit Guaranty Corp. v. R.A. Gray & Co.,
467 UB. 727 GSR) oc PS RSS 20, 22
Railroad Retirement Board v. Alton Railroad Co.,
22
295 US. SIOCISSO) 0:0, 3 bm & tale
Smith Land & Improvement Corp. v. Celotex Corp.,
851 F.2d 86 (3d Cir. 1988), cert. denied,
ee 11
Southern Pacific Transportation Co. v. Sandyland
Protective Association, 274 Cal. Rptr.
a Te he 17
United States Trust Co. v. New Jersey,
I eee 19
United States v. Hardage, 985 F.2d 1427
a 5 ae yo e 2 « 11,15
United States v. Sperry Corp., 493 U.S. 52 (1989) . . 20
Usery v. Turner Elkhorn Mining Co.,
CO a 19, 20
Wagner v. Regency Inn Corp., 463 N.W.2d 450
ee 17
Westinghouse Electric Corp. v. Prudential Insurance
Co. of America, 547 So. 2d 721
gs RS 17
Williamson v. Lee Optical, Inc., 348
EI, ee 19
Worth v. Aetna Casualty & Surety Co.,
513 N.E.2d 253 (Ohio 1987) ......... 17
CONSTITUTIONAL PROVISIONS
OE Ee EE 19
STATUTES
Ala. Code § 12-21-109 (1994) ........... 18
Comprehensive Environmental Response,
Compensation, and Liability Act of 1980
(“CERCLA”), 42 U.S.C. §§ 9601-9675
Cpeeeraaes, © BGP sw ee ee wee passim
Section 107, 42 U.S.C. § 9607 (1988)
Section 107(a), 42 U.S.C. § 9607(a) (1988)
Section 107(e)(1), 42 U.S.C. § 9607(e)(1)
i Ma irae ae get a eo Sl
Section 113, 42 U.S.C. § 9613 (1988)
Section 113(f), 42 U.S.C. § 9613(f) (1988) . .
Se UDA. GURU hence wens
oe Us @ OE ID 6s D0) ds oe oes oes
y Rie hee are
OTHER AUTHORITIES
Daniel R. Avery, Enforcing Environmental
Indemnification Against A Settling Party
Under CERCLA, 23 Seton Hall L.
oe ETT Ce eee eee
Amy E. Aydelott, “Cerclaing” The Issues:
Making Sense of Contractual Liability Under
CERCLA, 3 Vill. Envtl. L.J. 347 (1992)
Thaddeus Bereday, Contractual Transfers of
Liability Under CERCLA Section 107(e)(1):
For Enforcement of Private Risk Allocations
In Real Property Transactions, 43 Case W.L.
es ee oe
Brian O. Dolan, Misconceptions of Contractual
Indemnification Against CERCLA Liability:
Judicial Abrogation of the Freedom to
Contract, 42 Catholic U. L. Rev. 179 (1992) . .
Ridgway M. Hall, Robert H. Harris and Judith A.
Reinsdorf, Superfund Response Cost
Allocations: The Law, The Science and
The Practice, 49 Bus. Law. 1489 (1994) ...
12
10
10
10
Douglas A. Henderson, Environmental Liability
and the Law of Contracts, 50 Bus.
Se eee
Lisl E. Miller, Indemnification Agreements Under
CERCLA, 23 Envtl. L. 333 (1993) ......
Penny L. Parker and John Slavich, Contractual
Efforts to Allocate the Risk of Environmental
Liability: Is There A Way To Make
Indemnities Worth More Than The Paper
They Are Written On?, 34 Sw. L.J. 1349
I ee oe er ee PO wh hw oe cee
Mary K. Ryan, The Superfund Dilemma: Can You
Ever Contract Your Liability Away?,
75 Mass. L. Rev. 131 (1990) .........
a
10, 12, 16
10
10
No. 94-
IN THE
Supreme Court of the United States
OCTOBER TERM, 1994
THE MEAD CORPORATION,
Petitioner,
Vv.
BEAZER EAST, INC.
Petition For A Writ Of Certiorari To The United States
Court Of Appeals For The Third Circuit
PETITION FOR A WRIT OF CERTIORARI
OPINIONS BELOW
The opinion of the court of appeals is reported at 34 F.3d
206 (App. Al-A28). The opinions of the district court and the
magistrate judge are unreported. (App. A31-A46).
JURISDICTION
The judgment of the court of appeals was entered on
September 12, 1994. (App. A29). A timely motion for rehearing
was denied on November 25, 1994. (App. A30). The jurisdic-
tion of this Court is invoked under 28 U.S.C. § 1254(1).
STATUTORY PROVISION INVOLVED
Section 107(e)(1) of the Comprehensive Environmental
Response, Compensation, and Liability Act (“CERCLA”), 42
U.S.C. § 9607(e)(1), provides in full:
i
No indemnification, hold harmless, or similar
agreement 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 for a release or
threat of 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 indemnify a party to such agreement for
any liability under this section.
STATEMENT
A. Introduction
This Petition concerns the important and statutorily-guar-
anteed right of private parties to allocate CERCLA liabilities for
hazardous waste clean-ups between themselves. When Mead
sold the Woodward Coke Facility to respondent Beazer! in
1974, six years prior to the passage of CERCLA, the Purchase
Agreement transferred to Beazer the liability for future environ-
mental compliance costs and provided that Beazer would hold
Mead harmless for such costs. When section 107(e)(1) of
CERCLA was subsequently enacted, the legislation expressly
preserved the right of parties to allocate private CERCLA
obligations through such hold harmless agreements.
The Third Circuit, however, misinterpreted section
107(e)(1) of CERCLA to limit retroactively the scope of agree-
ments effective under section 107(e)(1) by erroneously applying
an indemnification standard of interpretation to hold harmless
agreements. The standard adopted by the Third Circuit eviscer-
ates the intention of the parties, as expressed in the Purchase
Agreeinent, requiring Mead twenty years later to bear hazardous
waste clean-up liabilities which, under well-settled principles of
Respondent Beazer East, Inc. and its predecessors -- including Koppers
Company, Inc., the purchaser of the Woodward Facility -- are collectively
referred to as “Beazer.”
4
contract law and by the terms of a valid and binding contract,
Beazer contractually agreed to bear.
The Third Circuit decision conflicts with decisions of the
First, Sixth and Ninth Circuits which have not imposed the
higher indemnification standard to the interpretation of hold
harmless agreements. If the Third Circuit’s mistaken view of
section 107(e)(1) is left intact, it will retroactively abrogate
contracts in which sophisticated parties transferred future envi-
ronmental liabilities to the purchaser.
The assertion of a prior contractual allocation of liability is a
principal defense in private litigation brought under CERCLA—
certainly one of the largest areas of federal court environmental
litigation today. Nearly every circuit court has dealt at least once
with section 107(e)1) issues and a great many cases remain in the
district courts. The absence of clear law in this area fosters litiga-
tion, discourages settlements, and significantly impairs the drafting
of real estate contracts.
The important distinction between indemnity obligations
on the one hand and release or hold harmless agreements on the
other lies at the heart of the error made by the Third Circuit
below. A release or hold harmless agreement acknowledges that
one party has waived its right to sue another party and serves
the defensive purpose of barring such an action. An indemnity
agreement, by contrast, does not merely shield such an action
but goes much further and provides an affirmative cause of
action. A release/hold harmless agreement leaves the liability
where it stands, whereas an indemnity agreement shifts it to
another party.
In light of this difference in the functions of the two types
of agreements, state laws generally impose a much higher
standard of proof on a party seeking to assert the presence of an
indemnity agreement than on a party seeking to assert the
defense that it has been released or held harmless for the liability
at issue. The Purchase Agreement in this case--as asserted in
-4-
Mead’s affirmative defense to Beazer’s CERCLA action--
plainly was a valid release/hold harmless agreement under the
applicable Alabama law and should have been judged under the
more relaxed standard applicable to such agreements.
The Third Circuit consistently required that the Purchase
Agreement between Mead and Beazer satisfy the far stricter
standards for an indemnity agreement in order to be valid under
section 107(e)(1) of CERCLA, and refused even to allow the
consideration of parol evidence to resolve any possible ambi-
guities. But, nothing in that section permits such an interpreta-
tion, which also has the result of impermissibly changing the
law of contracts. In fact, that statute clearly encompasses hold
harmless agreements as well. The Third Circuit’s interpretation
of section 107(e)(1), whereby Mead’s legitimate property rights
and investment-backed contractual expectation of being re-
leased will have retroactively been taken away, raises serious
constitutional due process concerns. Therefore, Mead’s affirm-
ative defense based upon the release/hold harmless provisions
of the Purchase Agreement with Beazer should be viable under
section 107(e)(1) regardless of whether they also meet the higher
standard applicable to indemnity agreements.
B. Factual Summary
The facts pertinent to this Petition are straight-forward and
undisputed. The parties to this action are sophisticated busi-
nesses which, in the course of selling a large industrial facility
prior to the enactment of CERCLA, chose by contract to allocate
the environmental liabilities that later became at issue in this
litigation.
The Woodward Coke Facility, located in Birmingham,
Alabama, has been producing coke, coal tar and coke by-prod-
ucts from coal since the early 1900s. (App. A4). Mead acquired
the Woodward Facility in 1968 and sold it six years later, in
1974, to Beazer, the world leader in the coke industry, which
had constructed and maintained the facility. (App. A4-A5).
ri
The 1974 Purchase Agreement detailed the allocation of envi-
ronmental liabilities to Beazer. (App. A5). Paragraph 4(c)
provides in full:
4. Assumption of Agreements and Liabilities
As of the Closing Date, Buyer shall assume and
agree to perform:
c. Obligations of the Coke Plant to comply
from and after the Closing Date with all of the
terms and conditions of any NPDES permit
issued by the United States Environmental Pro-
tection Agency or the then permitting authority,
any permit or order issued by the Alabama Water
Improvement Commission and the Alabama Air
Pollution Control Commission of the State of
Alabama or any successor authority, any license,
permit or order issued by the Jefferson County
Department of Health, and of any other waste-
water or runoff water discharge permit, license
or order, air pollution permit, license or order,
solid waste disposal permit, license or order,
hereafter issued by the United States Environ-
mental Protection Agency and/or by the State of
Alabama and/or any of its political subdivisions,
all in accordance with applications now pending
and listed on Exhibit F hereto.2 (italics added)
(App. A5).
Paragraph 8(b) of the 1974 Purchase Agreement provides in full:
2 Exhibit F listed the then-existing air and water permits and applications
for the facility.
)
-6-
8. Other Covenants of Mead and Buyer
b. Indemnity against Assumed Liabilities
Buyer hereby indemnifies Mead against
and hereby agrees to hold Mead harmless from
and to reimburse Mead for any and all liabilities,
losses, damages, costs of settlement and ex-
penses (including, without limitation, reasonable
attorneys’ fees) which may be imposed upon or
incurred by Mead in connection with any liabili-
ties or obligations of Mead and/or the Coke Plant
assumed by Buyer under this Purchase Agree-
ment. (italics added) (App. A6).
The Purchase Agreement also provided that Beazer was
buying the facility “AS IS, WHERE IS AND WITH ALL
FAULTS.” Paragraph 2(e). Combined with the applicable
Alabama doctrine of caveat emptor, the “As is . . .” provision
alone would have barred an action by Beazer were it not for the
retroactivity provisions of CERCLA. 42 U.S.C. §§ 9607(a),
9613¢f).
C. Proceedings Below
In the late 1980s, the EPA initiated proceedings against
Beazer which culminated in a 1991 Consent Decree between
EPA and Beazer (“EPA Order’), which will lead to the eventual
clean-up of hazardous wastes at the Woodward Facility. In
1991, Beazer brought an action against Mead pursuant to sec-
tions 107 and 113 of CERCLA (and various state law claims)
seeking to obligate Mead to contribute to Beazer’s costs of the
clean-up. The district court had jurisdiction pursuant to 28
U.S.C. §§ 1331, 1332 and principles of pendent jurisdiction.
At the outset of discovery, Beazer moved for partial sum-
mary judgment on its CERCLA claims, seeking a determination
that Mead was liable for some of the clean-up costs. Mead filed
es
f. 3
a cross-motion for summary judgment alleging that the 1974
Purchase Agreement obligated Beazer to assume, and hold
Mead harmless from, any costs incurred by Beazer in connection
with such environmental clean-ups. The combined effect of
paragraphs 4(c) and 8(b) is that Beazer must indemnify Mead
and hold Mead harmless from any expense connected to the
environmental liabilities assumed by Beazer under paragraph
4(c). If the EPA Order was a “solid waste disposal order
hereafter issued by EPA” under paragraph 4(c), then Beazer was
required to hold Mead harmless from any costs incurred by
Beazer in connection with that EPA Order.
The Magistrate Judge ruled that the Purchase Agreement
was unambiguous, rendering it unnecessary to consider parol
evidence, and that Mead was entitled to summary judgment on
its affirmative defense. (App. A45-A46). Chief Judge Dia-
mond adopted that opinion as the decision of the district court.
(App. A31-A32).
Beazer appealed to the Third Circuit which reversed the
decision of the district court, ruling that the Purchase Agreement
was facially ambiguous, but did not remand to the district court
for consideration of the parol evidence. 34 F.3d at 219. The
effect of that decision was to abrogate retroactively Mead’s
contract rights which provided a complete defense to Beazer’s
CERCLA contribution claims.
The Third Circuit decided five issues. First, the court held
that section 107(e)(1) permits parties to allocate CERCLA li-
abilities between themselves. 34 F.3d at 211. Second, it held
that state law (here, Alabama) governs the interpretation of an
agreement to determine if it meets section 107(e)(1). Jd. at 215.
Third, the Third Circuit erroneously interpreted section
107(e)(1) to require that contracts transferring future environ-
mental liabilities be evaluated under the law of indemnification,
notwithstanding the fact that the Purchase Agreement has a
release/hold harmless provision and an “As is” clause. Id.
-8-
Fourth, the Third Circuit erroneously determined that the Pur-
chase Agreement lacks the requisite clear and unambiguous
expression of an intent by Beazer to indemnify Mead for CER-
CLA liabilities. Fifth, the Third Circuit erroneously held that,
under the high standard for an indemnification agreement, Mead
should not even be afforded an opportunity to use parol evidence
to show that, notwithstanding any alleged ambiguities on the
face of paragraph 4(c), the parties in fact unambiguously in-
tended to require Beazer to indemnify Mead. Id. 3
REASONS FOR GRANTING THE PETITION
I. CORRECTING THE DECISION BELOW IS NECES-
SARY TO AVOID SIGNIFICANTLY IMPAIRING
THE ABILITY OF PARTIES TO ENFORCE CON-
TRACTS CONCERNING RESPONSIBILITY FOR
THE COST OF HAZARDOUS WASTE CLEAN-UPS
This case presents an important opportunity to clarify the
conflict and confusion among the circuits regarding the meaning
of one of the most vital provisions of CERCLA, the principal
statute underlying hazardous waste litigation in the federal
courts. If left undisturbed, the decision below would signifi-
cantly hinder the ability of parties to enforce their contractual
rights. A statute which expressly seeks to preserve such basic
contractual rights should not be interpreted to impair retroac-
tively those rights, as the Third Circuit has done. This case is
appropriate for review by this Court because, while the interpre-
> Mead filed a Petition for rehearing citing the clear Alabama iaw which
allows parties to introduce parol evidence to prove the intended meaning of
a facially ambiguous indemnity agreement. The Third Circuit denied that
Petition. Although the Third Circuit’s interpretation of that Alabama law is
not directly at issue in this Court, it illustrates the severity of the result reached
by the Third Circuit. Once the Third Circuit erroneously determined that
section 107(e)(1) required it to find the heightened level of unambiguity
required for an indemnity agreement, it held that any ambiguity on the face
of the agreement cannot be cured, no matter how persuasive a factfinder might
consider the parol evidence.
-9-
tation of an agreement to determine its meaning is a question of
state law, the issue of what sort of meaning/purpose will suffice
to release a claim under CERCLA is a question of federal law
based upon the language of section 107(e)(1). See Dice v.
Akron, Canton & Youngstown R.R., 342 U.S. 359, 361 (1952)
(federal law governs the validity of a release of a federal cause
of action). The statutory interpretation of section 107(e)(1)
fundamentally is a question of federal law.
A. Contractual Allocation Of Liability For Hazard-
ous Waste Clean-up Costs Is A Vital Issue In
Federal Environmental Litigation
The reach of CERCLA virtually guaranteed that it would
generate a great deal of litigation, much of which would focus
on the question whether a particular agreement transferred li-
abilities to one of the parties. See Ridgway M. Hall, Robert H.
Harris and Judith A. Reinsdorf, Superfund Response Cost Allo-
cations: The Law, The Science and The Practice, 49 Bus. Law.
1489, 1493 (1994) (“wrangling over allocation issues is one of
the principal contributors to the high transactional costs associ-
ated with the Superfund program”). A salient and unique feature
of CERCLA is its retroactivity whereby, pursuant to sections
107(a) and 113(f), one liable party may seek contribution from
other previous owners or users of a site, regardless of when their
ownership or use occurred. Any significant industrial site or
landfill, etc., is likely to have had multiple owners, users,
tenants, transporters, etc. during the course of its often lengthy
history.
Given the high costs of hazardous waste clean-ups, any
party required to clean up a site will seek contribution from as
many potential defendants as possible. These defendants often
will have had some form of contractual arrangement with the
plaintiff or with one another, such as purchase-sale agreements,
leases, transportation contracts, disposal agreements, and other
contracts. These contractual arrangements nearly always raise
-10-
questions about whether the parties agreed to allocate clean-up
liabilities between themselves.
Because those clauses may constitute the only real defense,
litigation over their meaning and legal effect has become a major
issue in CERCLA cases.* To date, this Court has not addressed
any of the legal issues relating to the interpretation and enforce-
ment of such clauses in CERCLA cases.
B. The Decision Below Erroneously Limited Section
107(e)(1) Of CERCLA To Indemnity Agreements
CERCLA specifically addresses the role of such contrac-
tual agreements. The first sentence of section 107(e)(1) oro-
vides that “ [nJo ...agreement or conveyance shall be effective
to transfer ...the liability imposed under this section,” while the
second sentence specifies that “[n]Jothing in this subsection shall
bar any agreement to insure, hold harmless, or indemnify a party
to such agreement for any liability under this section.”
A few early cases puzzled over the seemingly inconsistent
language of the two sentences of section 107(e)(1). E.g., AM
Int’l, Inc. v. International Forging Equip., 743 F. Supp. 525
See Douglas A. Henderson, Environmental Liability and the Law of
Contracts, 50 Bus. Law. 183, 238 (1994) (there have been nearly 50 decisions
evaluating contracts under CERCLA). The number of such cases precludes
listing them individually but the amount of commentary on this subject is an
indication of its importance. E.g., Id.; Thaddeus Bereday, Contractual Trans-
fers of Liability Under CERCLA Section 107(e)(1): For Enforcement of
Private Risk Allocations In Real Property Transactions, 43 Case W.L. Rev.
161 (1992); Penny L. Parker and John Slavich, Contractual Efforts to Allocate
the Risk of Environmental Liability: Is There A Way To Make Indemnities
Worth More Than The Paper They Are Written On?, 34 Sw. L.J..1349 (1991);
Mary K. Ryan, The Superfund Dilemma: Can You Ever Contract Your
Liability Away?, 75 Mass. L. Rev. 131 (1990); see also Amy E. Aydelott,
“Cerclaing” The Issues: Making Sense of Contractual Liability Under CER-
CLA, 3 Vill. Envtl. LJ. 347 (1992); Brian O. Dolan, Misconceptions of
Contractual Indemnification Against CERCLA Liability: Judicial Abrogation
of the Freedom to Contract, 42 Catholic U. L. Rev. 179 (1992); Lisl E. Miller,
Indemnification Agreements Under CERCLA, 23 Envtl. L. 333 (1993).
eh.
(N.D. Ohio 1990), rev’d, 982 F.2d 989 (6th Cir. 1993). Now,
every circuit court considering the issue has reconciled these two
sentences by distinguishing between the fundamental liability
that a party owes the government for clean-up costs and the
liability of such parties to contribution actions between each
other.> The first sentence of section 107 (e)(1) precludes pri-
vate contracts from defeating a party’s liability to the govern-
ment and assures that the government has sufficient private
resources available for clean-ups.®
The second sentence deals with the distinct issue whether
the parties may privately allocate CERCLA liability so as to
create, or preclude, any private actions for contribution or
indemnity between themselves. It provides, in clear and simple
language, that nothing in that section limits the nghts of such
parties privately to allocate their liability.
The statutory nght of parties to allocate these liabilities
serves several important interests. First, it preserves the basic
freedom of contract. There is no public interest in precluding
firms from privately allocating CERCLA responsibility. The
public interest is fully protected by the first sentence of section
107(e)(1) which assures that the government’s pursuit of parties
to assure a clean-up is not impeded by private agreements.
Beazer, 34 F.3d at 215. Here, the parties to the 1974 Purchase
> Joslyn Mfg. Co. v. Koppers Co., 40 F.3d 750 (Sth Cir. 1994); Kerr-
McGee Chem. Corp. v. Lefton Iron & Metal Co., 14 F.3d 321 (7th Cir. 1994);
John S. Boyd Co. v. Boston Gas Co., 992 F.2d 401 (1st Cir. 1993); Commander
Oil Corp. v. Advance Food Serv. Equip., 991 F.2d 49 (2d Cir. 1993); United
States v. Hardage, 985 F.2d 1427 (10th Cir. 1993); C. P. Chem., Inc. v. Exide
Corp., No. 93-1426, 1993 U.S. App. LEXIS 33,716 (4th Cir. Dec. 28, 1993);
Niecko v. Emro Mktg. Co., 973 F.2d 1296 (6th Cir. 1992); Smith Land &
Improvement Corp. v. Celotex Corp., 851 F.2d 86 (3d Cir. 1988), cert. denied,
488 U.S. 1029 (1989); Mardan Corp. v. C.G.C. Music, Ltd., 804 F.2d 1454
(9th Cir. 1986).
6 Beazer is a subsidiary of the British industrial conglomerate, Hanson
plc, whose ability to finance the clean-up is not in doubt.
2%.
Agreement were sophisticated businesses that were fully capa-
ble of assessing the risks of various allocations of liability and
structuring a transaction that accomplished those objectives.
Second, section 107(e)(1) promotes the predictability of
contracts involving the sale, lease and use of land and facilities.
See Mardan, 804 F.2d at 1458-60. The inability of a seller or
lessor to be reasonably certain that its assignment of environ-
mental liability to the buyer or lessee will not preclude a later
contribution action complicates and hinders the consummation
of such transactions. See Daniel R. Avery, Enforcing Environ-
mental Indemnification Against A Settling Party Under CER-
CLA, 23 Seton Hall L. Rev. 872, 874 (1993) (“financial
allocation of environmental liabilities is often the ‘wild card’ of
the business transaction”).”
The Third Circuit’s interpretation of section 107(e)(1)®
was wrong because nothing in that section even implies that it
is limited narrowly to defined types of agreements. The only
reasonable reading of that section is that any contract which is
valid under the governing law will be effective as between the
parties. Section 107(e)(1) creates no guidelines, or restrictions
with respect to such contracts, but merely assures that an other-
, See Henderson, 50 Bus. Law. at 185:
The lack of predictability in the construction and interpretation of
these provisions is particularly troublesome in the real property context.
Prospective purchasers of corporate assets, real estate and other simi-
larly valuable property cannot be assured, for example, that after they
secure a release of environmental liabilities, the provision will with-
stand later judicial scrutiny. By the same token, sellers of corporate
property found to be contaminated cannot be assured that their negoti-
ated release from environmental liability will be given effect.
8 The Third Circuit, of course, was aware that section 107(e)(1) con-
tained the phrase “hold harmless.” While not explaining its reasoning, the
Third Circuit evidently erroneously assumed that that phrase was synony-
mous with “indemnify” and failed to recognize that the phrase also connotes
defensive agreemet is to release parties from liability.
a’,
wise valid private contractual allocation of liability shall not be
defeated by CERCLA. The reference in section 107(e)(1) to
“any agreement to insure, hold harmless, or indemnify” includes
the full range of agreements that could either create a cause of
action based on indemnity or would defeat a cause of action
based upon a hold harmless agreement, or its equivalent.
The terms of paragraph 4(c) and the structure of the 1974
Purchase Agreement demonstrate that Mead’s affirmative de-
fense based on that provision should not be reviewed under the
law of indemnity. First, the language of paragraphs 4(c) and
8(b) does not speak solely in terms of the concept of indemnity.
On the contrary, paragraph 8(b) expressly states that the buyer
shall “hold Mead harmless” for any liabilities assumed by buyer,
including those in paragraph 4(c).
Second, paragraph 4(c) makes clear that the buyer is as-
suming these liabilities. Once a party assumes a liability, it
cannot sue the released party for contribution for that very
liability.
Third, Mead’s affirmative defense to Beazer’s claims un-
der CERCLA is a matter of release/hold harmless, not an action
for indemnity. Mead is not seeking to recover money from
Beazer but merely is seeking to fend off Beazer’s CERCLA
claims by raising the 1974 Purchase Agreement as an affirm-
ative defense.
The two Alabama cases cited by the Third Circuit to
Support its imposition of the high standard required for an
indemnity contract illustrate this distinction. Beazer, 34 F.3d at
215. See Nationwide Mutual Ins. Co. v. Hall, 643 So. 2d 551
(Ala. 1994); Industrial Tile, Inc. v. Stewart, 388 So. 2d 171 (Ala.
1980), cert. denied, 449 U.S. 1081 (1981). In those cases, the
plaintiff sought indemnity as the basis for its cause of action.
Neither case involved the defensive assertion oi a hold harmless
agreement to enforce a prior allocation of liability.
-14-
The reliance by the Third Circuit upon the law of indemnity
reflects an incorrect interpretation of what sort of agreement
would be permitted under section 107(e)(1). Had the Third
Circuit correctly interpreted section 107(e)(1) to permit private
allocations of liability which merely amounted to a release (but
did not necessarily create a positive right of indemnity) then it
would not have interpreted the 1974 Purchase Agreement under
the harsh light of state indemnity law. The Third Circuit re-
quired that the Purchase Agreement satisfy state indemnity law
in order to be viable under section 107(e)(1). That result is
incorrect based both upon the terms of the Purchase Agreement
and the plain language of section 107(e)(1).
C. The Decision Below Creates Further Confusion In
The Law Among The Circuits
While the courts have not developed a uniform approach
to the treatment of such agreements in CERCLA cases, the Third
Circuit’s unduly narrow interpretation of section 107(e)(1) gen-
erally is at odds with the case law from other circuits, although
at least one other circuit apparently made the same error as did
the Third Circuit. The First, Sixth and Ninth circuits have
correctly recognized that, where a party asserts the existence of
a prior contractual allocation of liability as a defense, the agree-
ment should be analyzed as a release/hold harmless agreement.
See Boyd, 992 F.2d at 406-07 (holding that the release was not
sufficiently broad to encompass CERCLA liabilities); AM Int’l,
982 F.2d at 996-97 (holding that the release could bar CERCLA
claims and remanding the case to the district court for fact-find-
ing on whether the particular release met the criteria under Ohio
law); Mardan, 804 F.2d at 1461-63 (affirming grant of summary
judgment to defendant on the ground that the release covered
claims under CERCLA). In Olin Corp. v. Consolidated Alumi-
num Corp., 5 F.3d 10, 15-16, n. 4 (2d Cir. 1993), the Second
Circuit confronted an indemnity and release agreement which
was asserted both offensively by the plaintiff (as a common law
-15-
indemnity claim) and defensively by the plaintiff in response to
a counterclaim under CERCLA. The court treated the two
contexts interchangeably, citing both the law of release and the
law of indemnity, without any discussion of the significant
difference between the substance of those two concepts. /d.°
In the very recent decision in Joslyn, the Fifth Circuit made
the same error as did the Third Circuit below.!° In Joslyn a
buyer-defendant asserted that the terms of a prior agreement
barred the seller-plaintiff from bringing a CERCLA claim to
recover portions of its clean-up costs. That agreement stated
that the plaintiff's predecessor “shall defend, indemnify as an
insurer, and save harmless” defendant from a wide range of
liabilities. 40 F.3d at 754. Despite the fact that: (1) that
language, like paragraphs 4(c) and 8(b) here, encompasses both
an indemnity and a release/hold harmless and (2) the terms of
the agreement were asserted as a defense, the Fifth Circuit solely
considered the section 107(e)(1) defense as a question of indem-
nity. Id. However, because the Fifth Circuit ultimately deter-
mined that the relevant language conveyed the requisite intent
even for an indemnity agreement, the Fifth Circuit’s erroneous
view of section 107(e)(1) was harmless error.
? A number of other cases have addressed the situation where the plaintiff
(or a third-party plaintiff) seeks contractual indemnity in addition to its
contribution claims under CERCLA. Kerr-McGee, 14 F.3d at 327; Com-
mander, 991 F.2d at 54; Hardage, 985 F.2d at 1434; Marmon Group, Inc. v.
Rexnord, Inc., 822 F.2d 31, 34 (7th Cir. 1987). Each of these cases correctly
applied the higher standard applicable to those true indemnity contexts.
" Adding to the confusion is a subsequent decision of the Third Circuit
which enforced a release of CERCLA claims. Fisher Dev. Co. v. Boise
Cascade Corp., 37 F.3d 104 (3d Cir. 1994). In Fisher a different panel
recognized that the reference to “hold harmless” in section 107(e)(1) includes
_ both risk-shifting agreements (such as indemnity) and risk-shielding agree-
ments (such as releases or hold harmless). Id. The Fisher decision made no
attempt to reconcile the erroneous interpretation imposed on Mead by the
Third Circuit below.
-16-
Therefore, the decisions of the Third Circuit below and the
Fifth Circuit in Joslyn stand in marked contrast to the approach
taken by most other courts of appeals that have addressed this
issue. Whereas these courts generally have recognized that the
assertion of a prior agreement as a defense to a CERCLA claim
should be treated as a release/hold harmless agreement under
section 107(e)(1), the Third Circuit below and the Fifth Circuit
apparently rejected that approach and erroneously treated it as
a question of indemnity. See also Parker and Slavich, Contrac-
tual Efforts to Allocate the Risk of Environmental Liability, 34
Sw. L.J. 1349 n. 1 (observing that while hold harmless agree-
ments technically serve an exculpatory function, they are some-
times confused with indemnity agreements).
Clarifying the confusion on this issue would benefit the
courts, litigants and parties to real estate transactions by defini-
tively stating the governing rules for private allocations of
CERCLA liability. See Henderson, 50 Bus. Law at 184 (“De-
spite almost fifty decisions on contracts under [CERCLA]... it
remains unclear when parties can and cannot contractually shift
environmental responsibilities under CERCLA.... The case law
on this issue ranges from the curious to the bewildering.”). A
decision by this Court also would reduce the enormous burden
that privete CERCLA cost allocation cases place on the federal
courts. Stripping parties of valid contract defenses virtually
forces them to litigate fact-intensive allocation issues regarding
many years of operation at a site, such as the disposal and the
hydrogeological movements of the various chemicals used dur-
ing those many years.
-17-
D. By Limiting Section 107(e)(1) To Indemnity Agree-
ments, The Decision Below Significantly Under-
mines Parties’ Ability To Effectuate And Enforce
Private Allocations Of Liability For Hazardous
Waste Clean-Ups
The unreasonable limitation read into section 107(e)(1) by
the Third Circuit below dramatically undermined Mead’s rights
in this case and, if followed elsewhere, would significantly
frustrate parties’ ability to enforce their contractual allocations
of liability. In this case, like those in virtually any jurisdiction, !!
the proof required under an indemnity standard is significantly
more difficult to meet than that needed to prove that the parties
have entered into a valid release/hold harmless agreement. See
Nationwide, 643 So. 2d at 555 (Alabama law requires that
agreement to indemnify against one’s own negligence be ex-
pressed in “clear and unequivocal language”). This heightened
standard is consistent with the obvious difference between an
" E.g., Southern Pac. Transp. Co. v. Sandyland Protective Ass’n, 274
Cal. Rptr. 626, 629 (Cal. Ct. App. 1990) (California -- statute precludes
indemnity for one’s sole negligence); Westinghouse Elec. Corp. v. Prudential
Ins. Co. of Am., 547 So. 2d 721, 722 (Fla. Dist. Ct. App. 1989) (Florida --
“indemnity provision must be construed strictly in favor of the indemnitor’”);
Foster v. Nix, 327 S.E.2d 833, 837 (Ga. Ct. App. 1985) (Georgia -- contracts
of indemnification are “construed strictly against the indemnitee”); Owens v.
Midwest Tank & Mfg. Co., 549 N.E.2d 774, 776 (Ill. App. Ct. 1989) (Illinois
-- indemnity agreements are “disfavored”); Wagner v. Regency Inn Corp.,
463 N.W.2d 450, 456 (Mich. Ct. App. 1990) (Michigan -- indemnity agree-
ments construed against indemnitee); Meder v. Resorts Int’l Hotel, Inc., 573
A.2d 922, 928 (NJ. Super. Ct. 1989) (New Jersey — ambiguities “strictly
construed against the indemnitee”); Hooper Assocs., Ltd. v. AGS Computers,
Inc., 548 N.E.2d 903, 905 (N.Y. 1989) (New York - contracts “strictly
construed” against finding a duty to indemnify); Worth v. Aetna Casualty &
Sur. Co., 513 N.E.2d 253, 256 (Obio 1987) (Ohio — indemnity must be
expressed in “clear and precise terms”); Aerospatiale Helicopter Corp. v.
Uniroyal Health Servs., Inc., 778 S.W.2d 492, 502 (Tex. Ct. App. -- Dallas
1989) (Texas -- indemnity “strictly construed in favor of the indemnitor’),
cert. denied, 498 U.S. 854 (1990).
-18-
indemnity and a release. While an indemnity seeks to upset the
status quo, the enforcement of a release preserves it.
Requiring that only an indemnity agreement would satisfy
section 107(e)(1) significantly impedes Mead’s efforts to en-
force the bargain it entered in 1974. Throughout its opinion the
Third Circuit emphasized the high burden imposed under Ala-
bama law on a party seeking indemnity. That Alabama require-
ment was a central factor in the Third Circuit’s conclusion that
the Purchase Agreement was not sufficiently explicit to require
Beazer to indemnify Mead. Beazer, 34 F.3d at 216.
If, instead of employing the exacting standard for an in-
demnity agreement, the Third Circuit merely had asked whether
it satisfied the terms of a release/hold harmless agreement, the
analysis would have been quite different. Under the Alabama
statute providing that releases “must have effect according to
their terms and the intentions of the parties,” Ala. Code §12-21-
109 (1994), such agreements merely are reviewed according to
ordinary rules of contract interpretation. There is no special
standard imposed for an agreement to allocate liability between
the parties.
A great many contracts may have been intended to allocate
liability for environmental expenses in a manner sufficient to
create a release/hold harmless defense in the event that the
releasor brought a contribution action in federal court. But
many of those contracts may lack the emphatic Jiarity of expres-
sion in order to meet the more demanding standard imposed
under state indemnity laws. In those cases, following the deci-
sion of the Third Circuit will mean that the intent to assign
liability to one of the parties will be defeated because they failed
to express that intention with the heightened degree of explicit-
ness required to meet the demonstrably inapplicable state law of
indemnity.
* ve Based se
ey EE za tes a 4
aa as 4 DAES Bir re
Somme t” 55i585 355 5: Fees
-19-
E. The Third Circuit’s Interpretation Of Section
107(e)(1) Should Be Rejected Because It Needlessly
Creates Serious Constitutional Problems
It is a cardinal principle of this Court to construe statutes
to avoid constitutional problems where more than one interpre-
tation of a statute is plausible.!2 Concrete Pipe & Prods., Inc.
v. Construction Laborers Pension Trust, 113 S. Ct. 2264, 2282-
83, (1993); Crowell v. Benson, 285 U.S. 22, 62 (1932). The
Third Circuit’ s interpretation of section 107(e)(1) arbitrarily and
irrationally abrogates Mead’s “ontract rights, raising serious
doubt whether the provision, as interpreted, meets due process
requirements. U.S. Const. amend. V. This Court should inter-
pret section 107(e)(1) to protect hold harmless agreements to
avoid the constitutional infirmities inherent in the Third Cir-
cuit’s interpretation.
Congress does not possess unlimited power to readjust
rights and burdens and upset otherwise settled expectations.
Usery v. Turner Elkhorn Mining Co., 428 U.S. 1, 16-17 (1976);
Connolly v. Pension Benefit Guar. Corp., 475 U.S. 211, 229
(1986) (O’Connor, J., concurring). Legislation violates the Due
Process Clause of the Fifth Amendment when the legislature has
acted in an arbitrary and irrational way. Nat’! R.R. Passenger
Corp. v. Atchison, Topeka & Santa Fe Ry., 470 U.S. 451, 472
(1985); Williamson v. Lee Optical, Inc., 348 U.S. 483, 487-88
(1955). Legislation impairing a private contract, whether it does
SO prospectively or retroactively, is unconstitutional when its
consequences are particularly harsh and oppressive. Nat’! R.R.
Passenger Corp., 470 U.S. at 472; United States Trust Co. v.
New Jersey, 431 U.S. 1, 17 n.13 (1977).
12 This particular reason for interpreting section 107(e)(1) was not as-
serted below because it was never foreseen that the Third Circuit would ignore
_ the plain language of section 107(e)(1). This constitutional argument fur-
nishes a further reason for interpreting the section according to its express
terms.
-20-
Section 107(e){1), as interpreted by the Third Circuit and
applied to the Purchase Agreement, violates the Due Process
Clause by, without any rational justification, retroactively abro-
gating Mead’s contract right to be held harmless by Beazer for
CERCLA liability.!3 The Third Circuit, without explanation,
excluded valid release/hold harmless agreements from the sec-
tion’s protection. United States v. Sperry Corp., 493 U.S. 52,
64 (1989) (retroactive legislation must be justified by “rational
legislative purpose”).
The deprivation of Mead’s rights is arbitrary and irrational,
as neither related to, nor supported by, the parties’ conduct or
the goals of CERCLA. In recent cases it has been observed that
the imposition of retroactive liability must relate to some aspect
of the burdened party’s conduct so that it is rational to treat the
burden as the party’s responsibility. Concrete Pipe, 113 S. Ct.
at 2292 (O’Connor, J., concurring); Connolly, 475 U.S. at
228-36 (O’Connor, J., concurring). These cases have left open
“the possibility that the imposition of retroactive liability on
employers for the benefit of employees may be arbitrary and
irrational in the absence of any connection between the em-
ployer’s conduct and some detriment to the employee.” Jd. at
229 (citing Turner Elkhorn, 428 U.S. at 19, 24-26 and Pension
Benefit Guar. Corp. v. R.A. Gray & Co., 467 U.S. 717, 733
(1984)).
As interpreted by the Third Circuit, section 107(e)(1)’s
exclusion of valid release/hold harmless agreements fails both
aspects of that constitutional requirement. First, the nullifica-
tion of Mead’s contract rights vis-a-vis Beazer is wholly unre-
lated to anything Mead has done since 1974 and serves no
legitimate purpose. Having paid for the hold harmless agree-
ment in the form of a lower sale price, Mead has a legitimate
investment-backed contractual expectation that Beazer will not
“ The freedom of contract is generally protected by the Due Process
Clause of the Fifth Amendment. Allgeyer v. Louisiana, 165 U.S. 578, 591
(1897).
* tm gggnaninaie
-21-
be able to shift environmental liabilities back to Mead. More-
over, by precluding Mead from introducing parol evidence to
show, in fact, that the parties clearly intended to allocate this
liability to Beazer, particularly in light of the “As is” clause, the
Third Circuit sua sponte denied Mead the chance to show that
the heightened indemnity standard is satisfied here. The District
Court had ruled on the basis of the four corners of the Purchase
Agreement, expressly stating that it, therefore, did not need to
review the otherwise relevant parol evidence which had been
submitted to the Court. (App. A31-A32, A45 n.3). The Third
Circuit erroneously failed to remand to the district court to
consider the parol evidence when it found ambiguity. The Third
Circuit failed to provide a rational explanation for depriving
Mead of its contract rights and sua sponte depriving Mead the
Opportunity to prove the parties’ contractual intentions under
established law of contract interpretation. !4
Second, the abrogation of Mead’s contract righis, under the
Third Circuit’s interpretation of section 107(e)(1), does not
further the goals of CERCLA. Denying Mead its contract rights
does not promote the clean-up of CERCLA sites since, as noted
above, Beazer already has been found liable to EPA and is
capable of paying for the clean-up. Even if, in another case, a
hypothetical owner could not afford to conduct a clean-up, the
government can hold additional parties liable. Nor does the
abrogation of Mead’s contract rights further CERCLA’s goal of
placing response costs on private parties rather than on the
government. CERCLA’s joint and several liability scheme
already ensures that either Beazer and/or other private parties,
not the government, will assume all such costs.
14 ‘The Third Circuit never provided any reasons why the agreement does
not release Mead from CERCLA contribution claims or hold Mead harmless
_ for CERCLA response costs -- an entirely different issue from indemnifica-
tion.
2.
Where legislation has a retroactive effect, justifications for
the legislation’s prospective aspects may not suffice for its
retroactive aspects. Retroactive application, itself, must be jus-
tified by a rational purpose. R.A. Gray & Co., 467 U.S. at 730.
Under the Third Circuit’s interpretation, the retroactive
nature of section 107(e)(1) is particularly oppressive toward
Mead. Mead and Beazer entered the Purchase Agreement in
1974, six years before CERCLA was enacted. Thus, long before
Congress and the courts devised and clarified CERCLA’s liabil-
itv scheme, Mead already had developed the significant invest-
ment-backed expectation that it was released from and held
harmless for a substantial amount of environmental liability,
including the class under which CERCLA liability falls. See
Railroad Retirement Bd. v. Alton R. R.,295 U.S. 330, 354 (1935)
(“arbitrary imposition of liability to pay again for services long
since rendered and fully compensated is not permissible legis-
lation’). Now, twenty years after Mead was released from these
sorts of environmental claims, section 107(e)(1), as interpreted
by the Third Circuit, is overriding that bargain and establishing
Mead as liable for the very costs out of which it had contracted
in 1974.
F. Correcting The Third Circuit’s Misinterpretation
Of Section 107(e)(1) Will Enhance The Correct
Disposition Of This Case
The central issue presented by this Petition is the interpre-
tation of section 107(e)(1). Should this Court decide that the
Third Circuit misinterpreted section 107(e)(1) and that the 1974
Purchase Agreement should be evaluated under the correct
standard applicable to release/hold harmless agreements, this
Court would certainly be free to conduct that determination de
novo. Whether this Court takes that approach, or, instead,
follows its usual practice of remanding the matter, a ruling that
the 1974 Purchase Agreement should be reviewed under the
22.
principles applicable to release/hold harmless agreements
would significantly advance the correct resolution of this action.
Mead has very strong arguments that the 1974 Purchase
Agreement allocated to Beazer the liability for future environ-
mental liabilities, specifically including compliance with future
EPA solid waste disposal orders, and that only by virtue of the
Strict requirements for an indemnity agreement did the Third
Circuit determine that the Purchase Agreement was not suffi-
ciently explicit to defeat Beazer’s claim. Both the Magistrate
Judge and the District Court reviewed the same Purchase Agree-
ment and found that it precluded Beazer from seeking to shift to
Mead the cost of complying with the EPA solid waste clean-up
order at the Woodward Facility.
The Purchase Agreement makes Beazer alone responsible
for the costs of complying with a wide range of environmental
permits, licenses and orders, including any future solid waste
disposal order issued by the EPA. There is no dispute, and the
Third Circuit did not doubt, that the EPA Order which precipi-
tated the investigation and clean-up of the Woodward Facility
is a solid waste disposal order issued by EPA. Since paragraph
4(c) expressly makes Beazer liable for complying with any such
orders issued after the closing date of the sale transaction, there
is no time limit on the transfer of liability to Beazer.
-24-
CONCLUSION
For the foregoing reasons, the Petition for a Writ of Cer-
tiorari should be granted.
Respectfully submitted,
ALAN M. WISEMAN
Counsel of Record
THOMAS A. ISAACSON
HOWREY & SIMON
1299 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
(202) 783-0800
JOHN H. BINGLER
GEORGE P. FAINES
THORP, REED & ARMSTRONG
One Riverfront Center
Pittsburgh, PA 15222
(412) 394-7711
Counsel for Petitioner
The Mead Corporation
Dated: February 22, 1995
Al
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 93-3372
BEAZER EAST, INC.,
Appellant,
V.
THE MEAD CORPORATION,
Appellee.
APPEAL FROM THE UNITED STATES
DISTRICT COURT FOR THE WESTERN DISTRICT OF
PENNSYLVANIA.
ARGUED FEBRUARY 15, 1994
FILED SEPTEMBER 12, 1994
D.C. Civil Action No. 91- 00408
A2
BEFORE: BECKER, HUTCHINSON and COWEN,
Circuit Judges.
(Filed September 12, 1994)
George E. Yokitis,
Kenneth R. Bruce,
Albert Bates, Jr., IV,
Dean A. Calland,
(ARGUED),
Babst, Calland, Clements & Zomnir, P.C.,
8th Floor,
Two Gateway Center,
Pittsburgh, PA 15222,
Billie S. Flaherty,
Beazer East, Inc.,
436 Seventh Avenue,
Pittsburgh, PA 15219,
Robert L. Schuftan,
Wildman, Harrold, Allen & Dixon
225 West Wacker Drive,
Chicago, IL 60606
Attorneys for Appellant
Alan M. Wiseman,
(ARGUED),
Thomas A. Isaacson,
Howrey & Simon,
1299 Pennsylvania Avenue, N.W.,
Washington, DC 20004-2402,
George P. Faines,
John H. Bingler, Jr.,
Thorp, Reed & Armstrong
One Riverfront Center,
Pittsburgh, PA 15222,
Attorneys for Appellee.
A3
OPINION OF THE COURT
HUTCHINSON, Circuit Judge.
Appellant, Beazer East, Inc. (“Beazer”), appeals an order
of the United States District Court for the Western District of
Pennsylvania dismissing Beazer’s claims for indemnity and
contribution. Beazer claimed appellee, The Mead Corporation
(“Mead”), was bound by a promise to pay Beazer all or part of
Beazer’s response costs on a Comprehensive Environmental
Response Compensation and Liability Act, 42 U.S.C.A.
§§ 9601-9675 (West 1983 & Supp. 1994) (“CERCLA”),
cleanup of a site Beazer’s predecessor had acquired from
Mead’s predecessor. Instead, the district court granted summary
judgment to Mead on Mead’s counterclaim for indemnity from
Beazer against Mead’s response costs. In doing so, the district
court adopted a United States Magistrate Judge’s report and
recommendation (“Magistrate Judge’s Report”). The magis-
trate judge had concluded that Mead was a responsible party for
purposes of CERCLA but that the asset purchase agreement
(“Agreement”) under which Beazer had acquired the site of the
contaminated facility, the Woodward Facility Coke Plant (the
“Woodward Facility” or “Coke Plant”), required Beazer to
indemnify Mead against CERCLA liability. The magistrate
judge reasoned that a provision for indemnification in a contract
that predates CERCLA’s enactment will govern the responsibil-
ity of the contracting parties inter se for payment of CERCLA
cleanup costs if the indemnification or release provision is a
general release from all liability arising out of a particular
transfer or contains an unambiguous promise to indemnify
against all liabilities that environmental law, present or future,
may impose because of pollutants on the property transferred.
The magistrate judge then concluded that the asset purchase
agreement between Mead’s predecessor, the seller, and Beazer’ s
predecessor, the buyer of the contaminated site, unambiguously
required Beazer to indemnify Mead against any liability for
ee
A4
injury to the environment from substances on the property,
including cleanup under CERCLA, no matter who polluted the
site. The paragraph in question, Paragraph 4(c) of the agreement,
required the buyer and its successors to assume and perform
“fo]bligations of the Coke Plant to comply from and after the
Closing Date with all of the terms and conditions of any . . . solid
waste disposal permit, license or order, hereafter issued by the
United States Environmental Protection Agency . . . in accord-
ance with applications now pending and listed in Exhibit F
hereto.” Appellant’s Appendix (“App.”) at 23.
On appeal Beazer argues that the district court erred in
concluding this indemnity provision was unambiguously broad
enough to impose on it a general duty to indemnify Mead against
all environmental liability under either state or federal common
law concerning the construction of such contracts of indemnity.
We agree with the magistrate judge and the district court
concerning the substance if not the source of the standard that
must be used in determining the effect of an indemnity clause
on a party’s liability under laws subsequently enacted to protect
the environment. We part ways with the magistrate judge and
the district court, however, in the application of this standard to
the provision at hand. We agree with Beazer that Paragraph 4(c)
of this agreement does not plainly and unambiguously require
it to indemnify Mead for cleanup costs at the Coke Plant, and
therefore reverse the order of the district court granting Mead
summary judgment, vacate the order which dismisses Beazer’s
claim for contribution and remand for further proceedings con-
sistent with this opinion. On remand the district court will have
to consider both parties’ contribution claims, and determine the
proper apportionment of CERCLA liability.
I. Factual & Procedural History
Mead’s predecessor, the Woodward Corporation, operated
the Woodward Facility as a coke and coke-by products manu-
facturing facility from 1905 until 1968. In 1968, the Woodward
SS ee eer ate
eae
AS
Iron Company merged with Mead. Mead, in turn, operated the
Coke Plant until 1974, when it sold the facility and surrounding
land to Beazer’s predecessor, Koppers Company, Inc. (“KCT’).
KCI purchased the Coke Plant under the Agreement in question.
Paragraph 4 of the Agreement provides that KCI, as buyer, or
its successors, will assume certain agreements and liabilities. It
reads:
As of the Closing Date, Buyer shall assume and agree
to perform:
a... . all other commitments, liabilities and obliga-
tions expressly assumed by Buyer pursuant to this
Purchase Agreement.
* *£ *#
c. Obligations of the Coke Plant to comply from and
after the Closing Date with all of the terms and con-
ditions of any NPDES permit issued by the United
States Environmental Protection Agency or the then
permitting authority, any permit or order issued by the
Alabama Water Improvement Commission and the
Alabama Air Pollution Control Commission of the
State of Alabama or any successor authority, any
license, permit or order issued by the Jefferson County
Department of Health, and of any other wastewater or
runoff water discharge permit, license or order, air
pollution permit, license or order, solid waste disposal
permit, license or order, hereafter issued by the United
States Environmental Protection Agency and/or by
the State of Alabama and/or any of its political subdi-
visions, all in accordance with applications now pend-
ing and listed on Exhibit F hereto.
App. at 22-23. Exhibit F contains a “List of Environmental
Applications and Permits.” It is divided into two parts, one for
permits related to air and one for permits related to water.
A6
Exhibit F lists no permits related to solid waste. All the listed
permits refer to their date of issuance and the issuing authority.
Paragraph 8(a) of the Agreement requires Mead, the seller,
to indemnify Beazer, the buyer, against certain other liabilities.
It provides:
a. Indemnity Against Unassumed Liabilities. Mead
hereby indemnifies Buyer against and hereby agrees
to hold Buyer harmless from and to reimburse Buyer
for any and all liabilities, losses, damages, costs of
settlement and expenses . .. which may be imposed
upon or incurred by Buyer in connection with any
liabilities or obligations of Mead other than those
expressly assumed by Buyer.
App. at 29.
Paragraph 8(b), on the other hand, requires Beazer, as the
buyer’s successor, to indemnify Mead, as seller’s successor,
against other liabilities, including whatever liabilities paragraph
4(c) imposes on the buyer. It reads:
b. Indemnity Against Assumed Liabilities. Buyer
hereby indemnifies Mead against and hereby agrees
to hold Mead harmless from and to reimburse Mead
for any and all liabilities, losses, damages, costs of
settlement and expenses . . . which may be imposed
upon or incurred by Mead in connection with any
liabilities or obligations of Mead and/or the Coke
Plant assumed by Buyer under this Purchase Agree-
ment.
App. at 30. )
In 1977, KCI transferred the Coke Plant and surrounding
land to the Industrial Development Board of the City of Fair-
field, Alabama (“IDB”). In turn, IDB leased the premises back
to KCI. KCI continued to operate the facility. In 1988, Beazer
acquired KCI and transferred the lease to a newly created
A7
corporation, Koppers Industries, Inc. (“KII’’). At about this
same time IDB transferred its ownership interest in the Coke
Plant and the surrounding land back to KIL.
In 1981, the United States Environmental Protection
Agency (“EPA”) and the Alabama Department of Environ-
mental Management began to investigate the Coke Plant site for
toxic substances. As a result, EPA asked Beazer to sign an
Administrative Order on Consent (the “Order’) that would
require Beazer to do a site-wide environmental investigation and
eventually cleanup the site. On June 21, 1991, Beazer signed
the Order. Issued pursuant to the Solid Waste Disposal Act, it
identifies thirty-nine problem areas at the Coke Plant. The
Order calls each of them a “solid waste management unit.”
Beazer agreed to test each of these units for the presence of toxic
wastes and then clean them up as necessary.
On March 6, 1991, Beazer filed this action. The complaint,
following amendment and dismissal of several counts, claimed
contribution from Mead against any response costs Beazer
incurred under CERCLA, 42 U.S.C.A. §§ 9607(a), 9613(f), or
indemnification from Mead based on Paragraph 8(a) of the
Agreement. Under the Agreement’s indemnification provisions,
Beazer claimed that the expense of investigating the toxicity of
these areas and cleaning them up was ultimately Mead’ s respon-
sibility. Beazer also alleged that many of the solid waste man-
agement units it agreed to cleanup are parts of the site that Mead
had dedicated to waste management but Beazer had never
utilized while it was operating the facility.
Mead denied any obligation either to indemnify Beazer
against these costs or to contribute to the cost of testing, inves-
tigating or cleaning up the site. It also asserted a counterclaim
under Paragraph 4(c) of the Agreement demanding that KCI and
Beazer, as KCI’s successor in interest, indemnify Mead, hold it
harmless and reimburse it for all response costs that investiga-
tion and cleanup of toxic wastes deposited on or in the Coke
A8
Plant or its environs may require. In another counterclaim, Mead
asserted, in the alternative, a right to contribution from Beazer
for any CERCLA costs Mead might be required to pay.
Beazer filed a motion for a partial summary judgment
seeking a declaration that Mead was a responsible operator
under sections 107(a) and 113(f) of CERCLA, and that Para-
graph 8(a) of the Agreement required Mead to indemnify Beazer
against liability for all response costs. Mead filed a cross-motion
for summary judgment asserting that Paragraph 4(c) of the
Agreement relieved it of any obligation to indemnify Beazer or
contribute to any cleanup costs Beazer might incur, and that
Paragraphs 4(c) and 8(b) combined to obligate Beazer to indem-
nify Mead against any CERCLA response costs Mead might
incur.
The magistrate judge to whom the district court had re-
ferred these motions issued a report recommending that Mead
be held liable as a “responsible party” for any government paid
response costs, that Mead’s cross-motion for summary judg-
ment against Beazer be granted and that Beazer’s action be
dismissed in its entirety. Beazer filed timely objections, but the
district court adopted the Magistrate’s Report as its opinion,
granted Mead’s cross-motion for summary judgment and dis-
missed all of Beazer’s claims. Beazer filed this timely appeal.
Il. Jurisdiction & Standard of Review
The district court had subject matter jurisdiction over this
case under 28 U.S.C.A. §§1331, 1332, 1367 (West 1993) and
42 U.S.C.A. § 9613(b) (West Supp. 1993). We have appellate
jurisdiction over the district court’s final order dismissing
Beazer’s claims and granting Mead’s counterclaim under 28
U.S.C.A. § 1291 (West 1993).
We exercise plenary review over a district court’s grant of
summary judgment. Viewing the evidence in the light most
favorable to the non-moving party, we must determine whether
A9
there remain any genuine issues of material fact and, if not,
whether the moving party is entitled to judgment as a matter of
law. See Bank of Nova Scotia v. Equitable Fin. Management,
Inc., 882 F.2d 81, 83 (3d Cir. 1989).
Il. Analysis
Section 9607(e)(1) of CERCLA provides:
No indemnification, hold harmless, or similar agreement
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 for a release or threat of 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 indemnify a party to such
agreement for any liability under this section.
42 U.S.C.A. § 9607(e)(1) (West 1983). On first reading, this
appears internally inconsistent. We have reconciled its two sen-
tences by construing them to mean “agreements to indemnify or
hold harmless are enforceable between the parties but not against
the government.” Smith Land & Improvement Corp. v. Celotex
Corp., 851 F.2d 86, 89 (3d Cir. 1988), cert. denied, 488 U.S. 1029,
102 L. Ed. 2d 969, 109 S. Ct. 837 (1989); See also United States
v. Hardage, 985 F.2d 1427, 1433 (10th Cir. 1993) (Under section
9607(e)(1) “responsible parties may not altogether transfer their
CERCLA liability, [but] they have the right to obtain indemnifi-
cation for that liability.”) (citations omitted) (emphasis in origi-
nal). As the district court recognized in Hatco Corp. v. W.R.
Grace & Co.—Conn., 801 F. Supp. 1309 (D.N.J. 1992):
Because § 9607(e)(1) renders ineffective any attempt to
completely “transfer liability, the most a party can do to
limit its liability under CERCLA is to obtain from another
an agreement “to insure, hold harmless, or indemnify” it
from any liabilities established against it.
A10
Id. at 1317 (quoting 42 U.S.C.A. § 9607(e)(1)).
Thus, Beazer could have lawfully agreed to indemnify Mead
for its CERCLA liability or, conversely, Mead could have law-
fully agreed to indemnify Beazer. The issue is whether either did
so. The Agreement the parties rely on was executed before CER-
CLA was enacted. Therefore, we must, at the outset, resolve the
preliminary issue of whether a contract of indemnity that predates
CERCLA can be construed to include indemnity against CERCLA
liability. This is a question of first impression in this Court.
Other courts that have analyzed pre-CERCLA indemnity
provisions have uniformly held that a pre-CERCLA agreement
can require one party to indemnify another against CERCLA
liability. See, e.g., Kerr-McGee Chem. Corp. v. Lefton Iron &
Metal Co., 14 F.3d 321, 327 (7th Cir. 1994); Hatco Corp., 801
F. Supp. at 1317-18; Purolator Prods. Corp. v. Allied-Signal,
Inc., 772 F. Supp. 124, 132 (W.D.N.Y. 1991); Mobay Corp. v.
Allied-Signal, Inc., 761 F. Supp. 345, 356-58 (D.N.J. 1991). We
find the reasoning of these courts persuasive. Accordingly, we
hold that a pre-CERCLA agreement can require an indemnitor
to hold the indemnitee harmless from CERCLA liability.
Nevertheless, not all pre-CERCLA promises to indemnify
cover CERCLA liability. We must look to see whether an
indemnification provision is either specific enough to include
CERCLA liability or general enough to include any and all
environmental liability which would, naturally, include sub-
sequent CERCLA claims. The first step in this inquiry is to
determine what law applies to the construction or interpretation
of contractual provisions that affect responsibilities Congress
has imposed on us in statutes enacted to enforce this nation’s
strong commitment to a clean, safe and attractive environment.
We now turn to this issue, also one of first impression in this Court.
All
A.
In deciding what law to apply to determine whether Para-
graphs 4(c) and 8(a) establish an obligation for Beazer to indem-
nify Mead against CERCLA liability or Mead to indemnify
Beazer, the magistrate judge looked first to the law the parties
chose in Paragraph 13(k)(1) of the Agreement. It provides that
Alabama law will govern.! Seeing “no reason to frustrate the
obvious and expressed intent of the parties,” the magistrate
judge said he would apply Alabama law to decide whether the
Agreement’s indemnity provisions were clear enough to require
Beazer to hold Mead harmless against CERCLA liability at the
site. Magistrate Judge’s Report at 9.
Finding no Alabama law directly on point, the magistrate
judge took a cue from the holdings of the United States District
Court for the District of New Jersey that pre-CERCLA agree-
ments may cover CERCLA liability if such agreements are
“worded broadly enough to encompass any and all liabilities, or
if environmental liability is Clearly referred to in the agreement.”
Id. at 9-10 (citing Hatco Corp., 801 F. Supp. at 1318; Purolator
Prods. Corp., 772 F. Supp. at 132; Mobay Corp., 761 F. Supp.
at 356; Southland Corp. v. Ashland Oil Inc., 696 F. Supp. 994
(D.N.J. 1988)). After concluding that Alabama law on the
meaning of contracts was not inconsistent with this developing
standard of federal common law, the magistrate judge saw no
impediment to interpreting the Agreement under Alabama con-
tract law. Nevertheless, he pointed out that construction or
interpretation of a pre-CERCLA indemnity clause’s effect on
CERCLA liability might “be an issue best determined by a
uniform federal rule . . . and that the federal case law establishing
the standard under CERCLA may override any inconsistent
State law in this respect.” Id. at 10 n.2.
' The paragraph states, “Each of the parties elects that this Purchase
Agreement shall be governed, construed and enforced in accordance with the
laws of the State of Alabama.” App. at 44-45.
Al12
The first question that we should ask is whether the national
interest in uniform application of federal statutory law requires
federal courts to develop a federal common law to preclude
willy-nilly use of various state law principles in interpreting or
construing indemnification provisions that affect liabilities under
CERCLA. Cf. O’Melveny & Myers v. Federal Deposit Insurance
Corp., 114 S. Ct. 2048, 2052-55 (1994).
Generally, federal law governs the validity of an agreement
releasing a cause of action arising under federal law; see Dice
v. Akron, Canton & Youngstown R.R. Co., 342 U.S. 359, 361,
(1952), but the construction or interpretation of a private con-
tract is generally thought to be a question of state law. Accord-
ingly, most courts have recognized that imposition of CERCLA
liability on a successor corporation is a question of federal law.
See, e.g., John S. Boyd, Co. v. Boston Gas. Co., 992 F.2d 401,
406 (1st Cir. 1993); Mardan Corp. v. C.G.C. Music, Ltd., 804
F.2d 1454, 1457 (9th Cir. 1986); HRW Sys., Inc. v. Washington
Gas Light Co., 823 F. Supp. 318 326-28 (D. Md. 1993);
Chesapeake & Potomac Tel. Co. v. Peck Iron & Metal Co., 814
F. Supp. 1266, 1267-68 (E.D. Va. 1992).
Nevertheless, all of the courts of appeals that have consid-
ered developing a federal rule of decision appear to have decided
it is better to look to state law in interpreting or construing a
contract’s indemnification provisions vis-a-vis CERCLA.?
2 See John S. Boyd Co., 992 F.2d at 406 (incorporating state law into
federal law to construe an agreement pertaining to CERCLA liability); Olin
Corp. v. Consolidated Aluminum Corp., 5 F.3d 10, 15 (2d Cir. 1993)(state
law supplies the principles that govern the construction or interpretation of
indemnification clause applicable to CERCLA liability ); Hardage, 985 F.2d
at 1433 & n.2; Mardan Corp., 804 F.2d at 1458, 1460 (holding that federal
courts should look to applicable state law to decide the validity of releases
of claims under CERCLA); see also City of Phoenix, Az. v. Garbage Servs.
Co., 827 F. Supp. 600, 602-03 (D. Ariz 1993)(“When developing federal
common law, the court must decide whether to fashion a nationally uniform
federal rule, or incorporate state law as the federal rule of decision. . .. The
Ninth Circuit Court of Appeals has taken both approaches when filling in the
wens
tabaci aheadnin
PRR 5 OR INA ON ch ONES ga AN ORAS A MOE AL OE Re abe he MP
Al3
In John S. Boyd Co., the United States Court of Appeals
for the First Circuit looked to the Massachusetts law of contracts
to apportion CERCLA liability among contracting parties inter
se. In construing the parties’ written agreement, it said, “state
contract law . . . provide[s] the substantive tule, so long as it is
not hostile to the federal interests animating CERCLA.” John S.
Boyd Co., 992 F.2d at 406 (citations omitted); Hardage, 985
F.2d at 1433 n.2 (“Because the government’s interests are
unaffected by the allocation of liability between jointly and
severally liable parties, we easily conclude that a uniform federal
Tule is unnecessary and that state law will govern the indemni-
fication clauses.”); see also O ‘Melveny, 114 S. Ct. at 2055 (“Our
cases uniformly require the existence of [a significant conflict
between some federal policy or interest and the use of state law]
as a precondition for recognition of a federal rule of decision.”’).
The United States Court of Appeals for the Ninth Circuit
has analyzed the issue of choosing state or federal common law
to determine whether private indemnification agreements cover
CERCLA liability in depth. See Mardan Corp., 804 F.2d at
1458-60. In Mardan Corp., the government, in an amicus brief,
argued for state law to provide the substance of the decision rule.
It said that “whether and when agreements between private
‘responsible parties’ can settle disputes over contribution rights
under [CERCLA]” did not require the development of a uniform
federal rule. Jd. at 1458. The court of appeals stated:
Section [9607(e)(1)] expressly preserves agreements
to insure, to hold harmless, or to indemnify a party
held liable under [CERCLA]. Absent CERCLA,
these contracts would be interpreted under state law.
Al4
By preserving such agreements, Congress seems to
have expressed an intent to preserve the associated
body of state law under which agreements between
private parties would normally be interpreted. Cer-
tainly federal courts need not fashion federal common
law to interpret every settlement of liability that arises
under federal statutes.
Id.
Because Congress’s intent to require a federal rule of
decision was “not entirely clear,” the court of appeals consid-
ered whether the policies Congress sought to advance by enact-
ing CERCLA required a uniform federal standard for the
interpretation and construction of indemnity clauses. For guid-
ance it looked to the Supreme Court’s opinion in United States
v. Kimbell Foods, Inc., 440 U.S. 715 (1979). Id. Kimbell Foods
set out the factors courts should use to determine when a uniform
federal rule is needed to decide federal claims based on federal
statutes when Congress has not made clear its intent on what law
should supply a rule of decision. See Kimbell Foods, 440 U.S.
at 728-29. They are:
(1) whether the issue requires “a nationally uniform
body of law”; (2) “whether application of state law
would frustrate specific objectives of the federal pro-
grams”; and (3) whether “application of a federal rule
would disrupt commercial relationships predicated on
state law.”
Mardan Corp., 804 F.2d at 1458 (citing Kimbell Foods, 440
U.S. at 728-29). The court of appeals in Mardan Corp. applied
Kimbell Foods and concluded there was no need for a federal
common law standard. It stated:
First, we find no reason to think that the issue requires a
uniform body of law. Commercial enterprises selling their
assets or insuring themselves will normally look to state
Al5
law to interpret their indemnification provisions, which
will generally indemnify the enterprises against a whole
host of possible liabilities. einige does not seem to
impose any particular burden. .
Second, the application of state law to interpret such re-
leases will not frustrate the objectives of CERCLA. Con-
tractual arrangements apportioning CERCLA liabilities
between private “responsible parties” are essentially tan-
gential to the enforcement of CERCLA’s liability provi-
sions. Such agreements cannot alter or excuse the
underlying liability, but can only change who ultimately
pays that liability. . . .
* * *
Finally, we are convinced that application of a federal rule
. .. would disrupt commercial relationships predicated on
state law. . . . Creating a federal rule to govern CERCLA
releases would introduce confusion and uncertainty into
these commercial relationships in two respects. One, buy-
ers and sellers would face greater confusion about which
body of law to turn to. Two, the creation of a federal rule,
as opposed to incorporating a ready-made and fully fleshed
out body of state law, would, during the development of
that federal rule, leave parties very uncertain about what
rule governed CERCLA releases. . . .
Id. at 1458-60.
Judge Reinhardt, in a dissent in Mardan Corp., thought that
a uniform federal rule should be applied to determine whether
any particular agreement indemnified against CERCLA liability.
Mardan Corp., 804 F.2d at 1463 (Reinhardt, J., dissenting).
Citing cases that adopted uniform federal rules to determine
liability under section 9607 and the legislative history of that
section stressing the need for “‘a uniform rule of law . . . to
discourage business[es] dealing in hazardous substances fem
Al6
locating primarily in states with more lenient laws,’” Judge
Reinhardt reasoned that “a uniform federal rule regarding re-
leases from CERCLA liability serves Congress’ goals in the
same manner that a uniform rule regarding liability does.” Jd. at
1464 (citing 5 U.S.C.C.A.N. 6119, 6119-20, 6132 (1980) and
quoting 126 Cong. Rec. H11787 (daily ed. Dec. 3, 1980) (state-
ment of Representative Florio, CERCLA House sponsor) (al-
teration in original)). But see id. at 1459-60 (majority opinion)
(arguing that parties are still fully liable to the government
regardless of applicable law and concluding that adoption of
state law does not conflict with congressional purpose underly-
ing CERCLA).
Though this Court has yet to consider what law should
govern the construction or interpretation of any particular in-
demnity provision on the apportionment of CERCLA liability
among contracting parties, we have adopted a federal common
law standard in other environmental contexts.? In Smith Land
& Improvement Corp. v. Celotex Corp., we stressed the need for
uniform standards if CERCLA is to be effective and indicated
that a district court considering successor liability under CER-
CLA should look to “[t]he general doctrine of successor liability
in operation in most states . . . rather than the excessively narrow
statutes which might apply in only a few states.” Smith Land &
Improvement Corp., 851 F.2d at 92. We reasoned if we refused
to apply uniform federal standards to regulate CERCLA liabil-
ity, “CERCLA aims may be evaded easily by a responsible
party’s choice to arrange a merger or consolidation under the
laws of particular states which unduly restrict successor liabil-
ity.” Id. In Lansford-Coaldale Water Autherity v. Tonolli
Corp., 4 F.3d 1209 (3d Cir. 1993), we also expressed a prefer-
3 It is perhaps material to note that these standards do not spring full
formed and grown from the heads of federal judges as Athena did from Zeus
nor does and Delphic oracle whisper uniformly in each judge’s ear. See
Manfred Lurker, Dictionary of Gods and Goddesses, Devils & Demons
44-45 (1987).
Al7
ence for uniform federal standards to govern CERCLA liabil-
ity.We held that “given the federal interest in uniformity in the
application of CERCLA, it is federal common law, and not state
law, which governs when corporate veil-piercing is justified
under CERCLA.” Id. at 1225 (citations omitted).
None of our cases, however, deal with the need for a federal
standard in interpreting or construing contracts to indemnify and
our sister courts of appeals have uniformly selected state law.
See supra note 2. Fortunately we see no need to create a circuit
conflict and will join the other courts of appeals that look to the
law of a particular state concerning the construction or interpre-
tation of contracts of indemnity to determine whether a particu-
lar indemnification provision covers CERCLA liability. We
thus endorse the majority’s reasoning and application of the
Kimbell Foods test in Mardan Corp.
Moreover, we see support for this principle in the Supreme
Court’s recent decision in O’Melveny & Myers. It teaches us that
special federal rules are justified only in “situations where there
is a ‘significant conflict between some federal policy or interest
and the use of state law.’” O’Melveny & Myers, 114 S. Ct. at
2055 (quoting Wallis v. Pan American Petroleum Corp., 384
U.S. 63, 68, (1966)).
In O’Melveny & Myers, the Supreme Court considered
whether federal or state decisional law should govern the ques-
tion of imputation of knowledge in a suit where the FDIC sued
in its capacity as receiver for a federally insured bank that had
failed. The FDIC argued that Kimbell Foods required the dis-
trict court to apply a uniform federal rule of decision to deter-
mine FDIC’s rights because “federal law governs questions
involving the rights of the United States under nationwide
federal programs.” O’Melveny & Myers, 114 S. Ct. at 2053
(quoting Kimbeil Foods, 440 U.S. at 726). The Supreme Court
first stated, “[T]he FDIC is not the United States, and even if it
were we would be begging the question to assume that it was
Al8
asserting its own rights rather than, as receiver, the rights of [the
failed bank.]” Jd. (emphasis added). It went on to note, “The
rules of decision at issue here do not govern the primary conduct
of the United States or any of its agents or contractors, but affect
only the FDIC’s rights and liabilities, as receiver, with respect
to primary conduct on the part of private actors that has already
occurred.” Jd. at 3055 (emphasis added). The Supreme Court
then held that the issue of imputed knowledge in bank receiver-
ship cases “is not one of those extraordinary cases in which the
judicial creation of a federal rule of decision is warranted.” /d.
at 2056.
How Beazer and Mead apportion their CERCLA liability
among themselves does not affect the primary duty they owe the
United States to clean up the poisons left to befoul the site both
used. Whether one must indemnify the other concerns instead
the liability of private actors for acts already done, just as the
liability of the alleged tortfeasor in O’Melveny involved the
FDIC’ right, as successor to the private right of an injured party,
to recover for the injuries its predecessor had suffered as a result
of past acts. How much Beazer or Mead pay each other seems
to us to have even less effect on the United States than did the
ability of FDIC to recover for tort injuries suffered by the failed
bank it took over. The interpretation and construction of Para-
graph 4(c) has no impact on either party’s liability to the
government. See Smith Land & Improvement Corp., 851 F.2d
at 89. On reason as well as authority, we therefore hold that state
law should determine whether any particular contract of indem-
nity provision can be construed generally or broadly enough to
cover one responsible party’s liability to another.
B.
Having determined that state law on the interpretation and
construction of indemnification agreements applies to this case,
we turn to the question of what state law should be applied. On
See ee. eee eee en ee en ae
Al9
that issue, we can quickly agree with the district court and apply
Alabama law. 4
We look to decisions of the Alabama courts and especially
those of the Supreme Court of Alabama. Its most recent deci-
sion concerning the interpretation or construction of indemnifi-
cation provisions is Nationwide Mutual Insurance Co. v. Hall,
Nos. 1921128 & 1921272, 1994 WL 107547 (Ala. April 1,
1994). There, it held that indemnification agreements are en-
forceable in Alabama if “‘the parties knowingly, evenhandedly,
and for valid consideration, intelligently enter into an agreement
whereby one party agrees to indemnify against the indemnitee’s
own wrongs, [and if that agreement is] expressed in clear and
unequivocal language.’”” Nationwide Mut. Ins. Co., Nos.
1921128 & 1921272, 1994 WL 107547 at * 3 (quoting Indus-
trial Tile, Inc. v. Stewart, 388 So. 2d 171, 175-76 (Ala. 1980),
cert. denied, 449 U.S. 1081, (1981) (alteration in original)). In
Nationwide, Alabama’s supreme court recognized that indem-
nity agreements covered only those incidents within their plain
meaning and the court expressed a strong preference for this
limitation. Id. (quoting Craig Constr. Co. v. Hendrix, 568 So.
2d 752, 757 (Ala. 1990); Industrial Tile, Inc., 388 So. 2d at 176).
The supreme court then stated that “an indemnity contract
4 We again note the magistrate judge, despite his summary conclusion
that Alabama law controls, seems to have applied the standard adopted by
the United States District Court for the District of New Jersey. That court
has used a federal standard to conclude that an indemnification or release
provision which affects a party’s CERCLA liability must be:
(1) a broad waiver of “all liabilities of “any type » hutsoever”.
_ .which would clearly evince the parties’ broad intent to finz"' y
settle all present and future liability issues arising from the sale,;
or (2) at a minimum, “must at least mention that one party is
assuming [all] environmental-type liabilities”. . which would
clearly evince the parties’ intent to settle all issues related to
pvesent and future environmental liabilities.
Hatco Corp., 801 F.Supp. at 1317-18 (quoting and citing Mobay Corp., 761
F.Supp. at 358 & n.15) (emphasis in original). The magistrate judges siaies,
however, that he used this standard because it is consistent with Alabama law.
Era Ve oe ee nS
A20
purporting to indemnify for the consequences of the indemni-
tee’s own negligence is unambiguous, and therefore, enforce-
able when its language specifically refers to the negligence of
the indemnitee. . . . [but that] such ‘talismanic’ or thaumaturgic
language is not necessary if the requisite intent is otherwise
clear.” Id. (citations omitted). >
We conclude that Alabama law requires a plain and unam-
biguous expression of intent to cover the cost of the liability in
question. Using this standard, we now consider whether Para-
graph 4(c) unambiguously expresses Beazer’s intent to indem-
nify Mead against CERCLA liability.
C.
The crux of the parties’ argument concerns the district
court’s conclusion that Beazer expressly and unambiguously
agreed to indemnify Mead for its CERCLA liability.© They
disagree as to whether the magistrate judge correctly applied
Alabama’s limiting standard to the Agreement. Paragraph 4(c)
reads:
4. Assumption of Agreements and Liabilities
As of the Closing Date, Buyer [Beazer] shall assume
and agree to perform:
* *
c. Obligations of the Coke Plant to comply from and
after the Closing Date with all of the terms and conditions
of . . . any sclid waste disposal permit, license or order,
hereafter issued by the United States Environmental
Protection Agency .. . all in accordance with applications
now pending and listed on Exhibit F hereto.
7 We do not think Alabama would apply a different rule in deciding
whether an indemnity clause covers strict liability under environmental law.
. Whether an agreement is unambiguous is a question of law. McDon-
ald v. U.S. Die Casting & Dev. Corp., 585 So. 2d 853, 855 (Ala. 1991).
teh ie ih Selene iA.“ Teto Swenson
A21
App. at 23.7 Exhibit F is divided into two parts. Beazer argues
that Paragraph 4(c) limits its agreement to assume Mead’s
environmental liabilities to the permits mentioned in Exhibit F’s
“List of Environmental Applications and Permits.” Because
neither part of Exhibit F mentions any solid waste permit, Beazer
contends that Paragraph 4(c)’s promise to indemnify does not
unambiguously cover CERCLA response costs incurred in re-
moving any toxic wastes found in or around the Coke Plant.
After concluding that Paragraph 4(c) did not unambigu-
ously rule out a promise to indemnify Mead against CERCLA
liability, the magistrate judge went on to consider whether it
unambiguously required Beazer to indemnify Mead for CER-
CLA liability under the federal standard announced in Mobay
Corp. He acknowledged that Paragraph 4(c) was not a broad,
genezal promise to indemnify Mead against all liability. Nev-
ertheless, he concluded that the text of the paragraph
clearly implies that, as between Beazer and Mead, Beazer
would be responsible for any environmental liability aris-
ing from the Woodward Facility after the date of the sale.
Even more than this implication regarding all environ-
mental liability, the provision expressly provides that
7 Beazer’s duty to indemnify is controlled by Paragraph 8(b) of the
Agreement which provides:
Buyer [Beazer] hereby indemnifies Mead against and hereby
agrees to hold Mead 1507 harmless from and to reimburse Mead
for any and all liabilities, losses, damages, costs of settlement
_ and expenses . . . which may be imposed upon or incurred by
Mead in connection with any liabilities or obligations of Mead
and/or the Coke Plant assumed by Buyer under this Purchase
Agreement.
App. at 30. The obligations imposed by Paragraph 4 constitute “liabilities or
obligations . . . assumed by Buyer [Beazer] under this Purchase Agreement.”
Id. Thus, if Paragraph 4 encompasses CERCLA liability, Beazer would be
required to indemnify Mead under Paragraph 8(b) of the Agreement.
A22
Beazer will be responsible for complying with orders is-
sued by the EPA regarding solid waste.
Magistrate Judge’s Report at 15. The magistrate judge con-
strued Paragraph 4(c) as a promise by the buyer and its succes-
sors to indemnify the seller and its successors against all
environmental liabilities associated with the Coke Plant.
In doing so, the magistrate judge decided that Paragraph
4(c)’s textual reference to future “orders” issued by state, local,
and federal agencies contradicted the more restrictive interpre-
tation of Paragraph 4(c) which Beazer would have us infer from
the specific list of permits mentioned in Exhibit F Paragraph
4(c). If Paragraph 4(c) were confined to the permits listed in
Exhibit F, the magistrate judge reasoned that Paragraph 4(c)’s
reference to permits, licenses, and orders “hereafter issued”
would be meaningless. Thus, he concluded that Paragraph 4(c)
did include all subsequent orders, permits, and licenses relating
to environmental liability including those required or issued
under CERCLA. Accordingly, the magistrate judge made the
recommendation the district court accepted in granting sum-
mary judgment to Mead and dismissing Beazer’s claim for
contribution under CERCLA.
Paragraph 4(c) does expressly make Beazer responsible for
“solid waste . . . permits issued by [EPA],” but it has as
additional limiting language; “all in accordance with applica-
tions now pending and listed on Exhibit F hereto.” Therefore,
Beazer contends that the magistrate judge erred when he con-
cluded that Paragraph 4(c) clearly and unambiguously trans-
ferred Mead’s CERCLA liability to Beazer. Beazer first argues
that Paragraph 4(c) is no more than a “window” provision,
common in commercial agreements for the sale of assets, which
gives a seller interim protection against a buyer’s failure to
comply with the conditions of any existing environmental per-
mits that are specifically listed, as they are here in Exhibit F.
Thus, Beazer argues that the magistrate judge erred when he
A23
failed to consider the parties’ basic decision to structure the sale
as a purchase of assets. Beazer would have us infer that the
decision to buy and sell assets was mutually agreed on for the
express purpose of limiting the purchaser’s liability. We think
Beazer’s argument that purchasers under asset purchase agree-
ments normally assume only those debts, obligations, and li-
abilities of the seller that are expressly identified in the
agreement is plausible and that the district court’s holding that
Beazer must indemnify Mead would be inconsistent with that
purpose. Nevertheless, we have been unable to find any evi-
dence in this record that would unambiguously confirm that
interpretation, and the text of Paragraph 4(c) is at least arguably
to the contrary. Cf. Watts v. TI, Inc., 561 So. 2d 1057, 1059-60
(Ala. 1990). Therefore, we conclude that Beazer’s argument
about the nature and purpose of framing a transfer of a business
enterprise as a sale of assets begs the question on Paragraph
4(c)’s meaning.
Beazer’s argument that the language of Paragraph 4(c) is
not clear enough to transfer Mead’s CERCLA liability to Beazer
under Alabama law is more telling. We conclude Paragraph 4(c)
is ambiguous under the principles of Alabama law that guides
determinations of contracts. See Reeves Cedarhurst Dev. Corp.
v. First Amfed Corp., 507 So. 2d 184, 186 (Ala. 1992) (“An
instrument is unambiguous if only one reasonable meaning
clearly emerges.”) (quoting Vainrib v. Downey, 565 So. 2d 647,
648 (Ala. Civ. App. 1990)). The provision is subject to more
than one reasonable interpretation, and it is not plain enough to
be construed as an unambiguous promise by Beazer to indem-
nify Mead against all environmental liability associated with the
site of the Coke Plant, including liability without fault under
laws like CERCLA, yet to be passed. Therefore, it does not
Square with the principle of Alabama law that promises to
indemnify are limited to subjects plainly expressed.
A24
Moreover, cases outside Alabama which have held a re-
lease or indemnification provision covers CERCLA liability
have all involved indemnity clauses with much broader and
more inclusive language than here. See, e.g., Kerr-McGee
Chem. Corp., 14 F.3d at 326-27; Olin Corp., 5 F.3d at 12-13;
Hardage, 985 F.2d at 1434; Niecko v. Emro Mktg. Co., 973 F.2d
1296, 1300 (6th Cir. 1992); Mardan Corp., 804 F.2d at 1461-62.
The Olin Corp. case provides one recent example. *® The court of
appeals held that this provision evidenced a “clear and unmis-
takable intent” to transfer the seller’s environmental liability to
the buyer, even future and unknown liability. Olin Corp., 5 F.3d
at 15-16.
The court of appeals held:
In no uncertain terms, [the purchaser] agreed to as-
sume the liability for losses resulting from “the main-
tenance of any . . . claim . . . concerning pollution or
nuisance ....” The indemnity provision covers all
pollution and nuisance claims without limitation .. .
The sale agreement in Olin Corp., originally provided:
[The buyer] hereby assumes and agrees to be responsible for
and to pay, perform, discharge and indemnify [the seller]
against, all] liabilities (absolute or contingent), obligations and
indebtedness of [the seller] related to the Aluminum Assets .
as they exist on the Effective Time or arise thereafter with
respect to actions or failures to act occurring prior to the
Effective Time.
Olin Corp., 5 F.3d 10, 12-13.
A later agreement in Olin Corp. stated:
In consideration of the payment on this date by [the seller] to
[the buyer] of $3,700,000 . . . [the buyer] hereby releases and
settles all claims of any nature which [it] now has or hereafter
could have against [the seller] . . . whether or not previously
asserted, under or arising out of the Purchase Agreement .. .,
or the transactions contemplated thereby.
Id. at 13 (footnote omitted).
A25
[and makes the purchaser] responsible for any liability
imposed . . . under CERCLA.
Id. at 327 (footnote omitted).
The contradictory terms and references of this Agreement
leave us with no firm conclusion as to the clear and unmistakable
intent of the parties. Under applicable principles of Alabama
law, the parties failed to express the intent to indemnify with the
requisite clarity. We hold, therefore, that Paragraph 4{c) is not
specific enough to impose on Beazer a duty to indemnify Mead
for their CERCLA reponse costs.
D.
Because Paragraphs 4(c) and 8 refer circuitously to each
other, it follows therefore that neither Paragraph 4(c) nor Para-
graph 8 expressly require either party to indemnify the other. ?
In the Kerr-McGee case the indemnification clause read:
[The Purchaser] expressly agrees to indemnify and to defend
and hold [plaintiff's predecessor Moss- American], it’s officers.
employees, and agents, free and harmless from and against any
and all claims, damages, judgments, fines, penalties, assess-
ments, losses, expenses, including interest, court costs and
attorney fees, however the same may be caused, arising out of
or resulting from, directly or indirectly, the following: (a) the
purchase, dismantling or sale of the personal property and real
property by [the purchaser]; (b) the maintenance of any action,
claim or order concerning pollution or nuisance: and (c) the
property and real property.
Kerr-McGee Chem. Corp., 14 F.3d at 326-27 (emphasis added) foomote
omitted); see also John S. Boyd Co., 992 F.2d at 403-04 (construing a
provision stating that “[the successor corporation] agreed to assume ‘all the
duties and liabilities of [its predecessor] related to [the] gas business” and
that “[the successor corporation] agreed to ‘indemnify and save harmless [the
predecessor) from any duty or liability with respect to the gas business.””).
’ Mead's duty to indemnify Beazer is set forth in Paragraph 8(a) of the
Agreement. It is quoted in full supra, Part 1, typescript at 5. It requires Mead,
A26
Accordingly, our earlier analysis requires us to reject Beazer’s
argument that Paragraph 4(c) was intended to iimit Beazer’s
assumption of liabilities to those expressly listed in Exhibit F,
and that therefore because CERCLA is not a listed obligation
Mead must indemnify Beazer under Paragraph 8(a). Beazer
relies on the grammatical rule of the last antecedent to assert that
the language “all in accordance with . . . Exhibit F” is a limitation
on the preceding reference to “solid waste disposal . . . order”
in support of its argument that the magistrate judge’s construc-
tion of Paragraph 4(c)’s phrase “all in accordance with” Exhibit
F to mean which includes Exhibit F must fail. The phrase “all
in accordance with” can be interpreted as Beazer would have it,
but it does not compel that construction. Beazer’s contention
that the magistrate judge erred when he concluded the limitation
of Paragraph 4(c) to the permits expressly listed in Exhibit F
would leave the words “hereafter issued” without meaning does
not persuade us. As we have already explained, its argument
that these words merely reflect an intent to protect the seller
during a transition period immediately following the transfer of
assets to the buyer fails to shine through the murky text of
Paragraph 4(c). Beazer’s suggested interpretation of the words
“hereafter issued” as limited to permits or licenses that might
result from the pending applications is again plausible, but not
so plain as to justify its construction under the Alabama rule that
indemnity provisions must be strictly construed and limited to
their plain meaning.
E.
Paragraph 4(c) does not clearly state that Beazer has agreed
to assume all liability for toxic wastes under present or future
laws protecting the environment. Though the phrase in Para-
graph 4(c), “hereafter issued,” appears to look to the future, the
the seller, to indemnify Beazer, the buyer, against all liabilities other than
those “expressly assumed by the Buyer.” Paragraph 8(b), quoted supra in
note 7, is its mirror image. It requires Beazer, the buyer, to indemnify Mead,
the seller, against all liabilities “assumed by Buyer.”
A27
phrase “all in accordance with” appears to limit the buyer’s
environmental liability to orders, permits and licenses that are
listed in the exhibit referenced. Accordingly, nothing in this
agreement demonstrates a clear and unambiguous intent to
transfer all CERCLA liability to Beazer.
Our refusal to construe Paragraph 4(c) as a clear promise
by Beazer to indemnify Mead against CERCLA response costs
leaves both Beazer and Mead responsible for their fair share of
the cleanup costs associated with the Coke Plant. That result
reinforces CERCLA policy. “Congress enacted CERCLA, a
complex piece of legislation . . . to force polluters to pay for
costs associated with remedying their pollution.” United States
v. Alcan Aluminum Corp., 964 F.2d 252, 258 (3d Cir. 1992).
Thus, we will reverse the district court’s entry of summary
judgment in favor of Mead and remand this case for further
proceedings on Beazer’s contribution claim. !°
10 Section 9613(f) provides, in relevant part:
Any person may seek contribution from any other person who
is liable or potentially liable under section 9607(a) of this utile.
. In resolving contribution claims, the court may allocate
response costs among liable parties using such equitable factors
as the court determines are appropriate.
**%*
A person who has resolved its liability to the United States or a
State for some or all of a response action or for some or all of
the costs of such action in an administrative or judicially ap-
proved settlement may seek contribution from any person who
is not party to a settlement . . . .
42 U.S.C.A. § 9613(f(1), (3B)(West Supp. 1994). The magistrate judge
determined that Mead was a “responsible party” for purposes of CERCLA
liability. It declined, however, to apportion the response costs or reach
Mead’s or Beazer’s contribution claims under section 9613(f) because it
found that Beazer had agreed to indemnify Mead for all CERCLA liability
under Paragraph 4(c) of the Agreement. On remand, the trial court will have
to revisit the parties’ contribution claims and correspondingly apportion
A28
IV. CONCLUSION
The order of the district court granting summary judgment
on Mead’s counterclaim and the order dismissing Beazer’s
claim for contribution will be reversed and the case will be
remanded to the district court for further proceedings consistent
with this opinion.
A29
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 93-3372
BEAZER EAST, INC.,
Appellant,
v.
THE MEAD CORPORATION,
Appellee.
Appeal from the United States District Court
for the Western District of Pennsylvania
(D.C. Civil Action No. 91-00408)
Present: Becker, Hutchinson and Cowen, Circuit Judges
JUDGMENT
This cause came on to be heard on the record from the
United States District Court for the Western District of Pennsyl-
vania and was argued by counsel on February 15, 1994.
On consideration whereof, it is now here ordered and
adjudged by this Court that the judgment of the said District
Court entered June 30, 1993, be, and the same is hereby reversed
and the cause is remanded to the District Court for further
proceedings consistent with the opinion of this Court. Costs
taxed against the appellee. All of the above in accordance with
the opinion of this Court.
ATTEST:
fs/__
Clerk
Dated: September 12, 1994
A30
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 93-3372
BEAZER EAST, INC.,
Appellant,
v.
THE MEAD CORPORATION,
Appellee.
Appeal from the United States District Court
for the Western District of Pennsylvania
(D.C. Civil Action No. 91-00408)
SUR PETITION FOR PANEL REHEARING
Present: Becker, Hutchinson And Cowen, Circuit Judges
The petition for panel rehearing filed by appellee in the
above captioned matter having been submitted to the judges who
participated in the decision of this court, and no judge who
concurred in the decision having asked for rehearing, the peti-
tion for panel rehearing is denied.
By the Court,
/s/
William D. Hutchinson
Circuit Judge
Dated: November 25 1994
A31
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
BEAZER EAST, INC.,
Plaintiff,
v.
THE MEAD CORPORATION,
Defendant.
Civil Action No. 91-408
Chief Judge Diamond
Magistrate Judge Benson
MEMORANDUM ORDER
On April 29, 1991, this case was referred to United States
Magistrate Judge Kenneth J. Benson for pretrial proceedings in
accordance with the Magistrates Act, 28 U.S.C. §636 (b) (1) (A)
and (B), and Rules 3 and 4 of the Local Rules for Magistrates.
The magistrate judge’s report and recommendation, filed
on May 12, 1993, recommended that plaintiff's motion for
partial summary judgment (Docket No. 47) be granted in part
and denied in part, and that defendant’s cross-motion for sum-
mary judgment (Docket No. 58) be granted and the case be
dismissed since plaintiff has assumed the responsibility for
complying with orders issued by the EPA with respect to the site
in question. The parties were allowed ten (10) days from the
date of service to file objections. Service was made on all
counsel by first-class mail on May 12, 1993. Objections were
filed by plaintiff on May 24, 1993 and on June 3, 1993, defen-
dant filed a response to plaintiff's objections. After de novo
review of the pleadings ad documents in the case, together with
the report and recommendation and objections thereto, the fol-
lowing order is entered:
A32
AND NOW, this 30th day of June, 1993;
IT IS HEREBY ORDERED that plaintiff's motion for
partial summary judgment (Docket No. 47) is granted in part
and denied in part, and that defendant’s cross-motion for sum-
mary judgment (Docket No. 58) is granted and the case is
dismissed.
The report and recommendation of United States Magis-
trate Judge Kenneth J. Benson, dated May 12, 1993 (Docket
#100), is adopted as the opinion of the court.
/s/
GUSTAVE DIAMOND
Chief United States District Judge
cc: Honorable Kenneth J. Benson
United States Magistrate Judge )
George E. Yokitis, Esquire
Kenneth R. Bruce, Esquire
Albert Bates, Jr., IV, Esquire
Babst, Calland, Clements
& Zomnir, P.C. !
Two Gateway Center, Eighth Floor
Pittsburgh, PA 15222
Billie S. Flaherty, Esquire f
Beazer East, Inc. :
436 Seventh Avenue
Pittsburgh, PA 15219 i
John H. Bingler, Jr., Esquire
George P. Faines, Esquire
Thorp, Reed & Armstrong
One Riverfront Center
Pittsburgh, PA 15222
Alan M. Wiseman, Esquire
Richard W. Fields, Esquire
Steven L. Leifer, Esquire
Thomas A. Isaacson, Esquire
Howrey & Simon
1299 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2402
A33
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
BEAZER EAST, INC.,
Plaintiff,
v.
THE MEAD CORPORATION,
Defendant.
Civil Action No. 91- 408
Chief Judge Diamond
Magistrate Judge Benson
MAGISTRATE JUDGE’S
REPORT AND RECOMMENDATION
I. RECOMMENDATION
It is respectfully recommended that plaintiff's motion for
partial summary judgment (Docket No. 47) be granted in part
and denied in part, and that defendant’s cross-motion for sum-
mary judgment (Docket No. 58) be granted.
Il. REPORT
This is an action commenced by Beazer East, Incorporated,
(“Beazer”) a Delaware Corporation with its principal office and
place of business in Pittsburgh, Pennsylvania, against The Mead
Corporation (“Mead”), an Ohio corporation with its principal
office and place of business in Dayton, Ohio. The action seeks
contribution for present and future expenses that will be incurred
in the proposed cleanup of the Woodward Facility, an industrial
site near Dolomite, Alabama. The original complaint and
amended complaint were pleaded in nine counts. Disposition
of Mead’s motion to dismiss has reduced the amended compiaint
to three counts, the first two alleging causes of action pursuant
to the Comprehensive Environmental Response, Compensation
A34
and Liability Act (“CERCLA”), 42 U.S.C. §9601 et seq., and
the third alleging a cause of action for indemnity based upon
the purchase agreement under which Beazer acquired the Wood-
ward Facility from Mead in 1974.
Mead has asserted four counterclaims. The first count
alleges that the purchase agreement included a provision
whereby Beazer agreed to indemnify, hold harmless and reim-
burse Mead for the response costs sought by Beazer in its
complaint. The second count alleges a breach of the purchase
agreement in that Beazer agreed to comply with all relevant
environmental orders and regulations, but has not done so.
Mead seeks its costs and expenses in defending this action. The
third and fourth counterclaims are for contribution under CER-
CLA.
Beazer has filed a motion for partial summary judgment
(Docket No. 47) seeking a declaration that Mead is a responsible
party pursuant to §§107(a) and 113(f) of CERCLA (but leaving
for another day the issue of allocation of response costs between
the parties), and that Mead owes it a duty of indemnification
pursuants to the purchase agreement. Mead has filed a motion
for summary judgment (Docket No. 58) seeking a ruling that
Beazer, in the purchase agreement, agreed to assume any liabil-
ity Mead may have for the response costs sought in Counts I and
Il of the complaint. Mead seeks summary judgment with respect
to Count III of the complaint, asserting that it did not agree to
indemnify Beazer for CERCLA response costs. The motions
have been extensively briefed, numerous exhibits have been
provided by the parties, and argument was held on April 8, 1993.
The motions are ripe for disposition.
FACTUAL BACKGROUND
The Woodward Facility was operated from 1905 until 1968
by Woodward Iron Company as a coke and coke by-products
manufacturing facility. In 1968, Woodward Iron Company
A35
merged with Mead. Mead, in turn, operated the facility until
1974, when it sold the facility and surrounding land to Koppers
Company, Inc., (““KCT’), Beazer’s predecessor-in-interest. The
purchase agreement is the source of great dispute in this matter,
and will be addressed below. In 1977, the facility and surround-
ing land were transferred to the Industrial Development Board
of the City of Fairfield, Alabama, and KCI immediately leased
the premises back and continued to operate the facility. KCI
was acquired by Beazer in 1988, and the facility was immedi-
ately transferred to a new corporation, Koppers Industries, Inc.
(“KIT”). Also in 1988, the Industrial Development Board of the
City of Fairfield transferred its ownership interests in the facility
and surrounding land to KII.
The Woodward Facility has been the object of an investi-
gation by the Environmental Protection Agency and the Ala-
bama Department of Environmental Management since 1981
which has culminated in the EPA seeking an Administrative
Order on Consent which would require Beazer to conduct a
site-wide environmental investigation leading, in time, to actual
cleanup of the site. On June 21, 1991, Beazer signed a final
“Administrative Order on Consent,” issued pursuant to the Solid
Waste Disposal Act, which identifies 39 problem areas of the
Woodward Facility which are described in the order as “solid
waste management unit[s].” Beazer alleges that much of the
proposed investigation will be directed to areas in or adjacent to
the Woodward Facility which were utilized solely by Mead
during its operation of the facility, and, therefore, that Mead is
responsible for the costs associated with the investigation and
cleanup of those areas.
The first issue presented by the cross-motions for summary
judgment filed in this case is whether Mead is a responsible party
pursuant to CERCLA. The parties then disagree concerning the
import of the purchase agreement. Beazer asserts that Mead is
obligated thereby to indemnify Beazer for environmental liabili-
A36
ties. Mead asserts that Beazer agreed to assume Mead’s envi-
ronmental liabilities, at least to the extent of any orders from the
EPA involving solid waste.
SUMMARY JUDGMENT STANDARD
Summary judgment is appropriate if, drawing all infer-
ences in favor of the non-moving party, “. . . the pleadings,
depositions, answers to interrogatories and admissions on file,
together with the affidavits, if any, show that there is no genuine
issue of material fact and the movant is entitled to judgment as
a matter of law.” Fed.R.Civ.P. 56(c). Summary judgment may
be granted against a party who fails to adduce facts sufficient to
establish the existence of any element essential to that party’s
case, and for which that party will bear the burden of proof at
trial. Celotex Corporation v. Catrett, 477 U.S. 317 (1986). The
moving party bears the initial burden of identifying evidence
which demonstrates the absence of a genuine issue of material
fact. Once that burden has been met, the non-moving party must
set forth “. . . specific facts showing that there is a genuine issue
for trial . . .” or the factual record will be taken as presented by
the moving party and judgment will be entered as a matter of
law. Matsushita Electric Industrial Corp. v. Zenith Radio
Corp., 475 U.S. 574 (1986). An issue is genuine only if the
evidence is such that a reasonable jury could return a verdict for
the non-moving party. Anderson v. Liberty Lobby, Inc., 477
U.S. 242 (1986).
CERCLA “RESPONSIBLE PARTY” STATUS
In order to establish liability under CERCLA, the plaintiff
must prove that, 1) defendant is, or was at the time of disposal,
the owner or operator, 2) of a facility, 3) at which there was a
release or threatened release of a hazardous substance, and 4)
which caused another person to incur response costs. 42 U.S.C.
$9607; U.S. v. Alcan Aluminum Corp., 964 F.2d 252, 258-59
(3d Cir. 1992); Kelly v. Thomas Solvent Co., 790 F. Supp. 710
A37
(W.D.Mich. 1990). Here, there is no dispute that Mead owned
the Woodward Facility from at least 1968 through 1974, and
that coal tar sludge, a hazardous substance identified in the EPA
order at issue, was disposed of at the facility, or “released.”
Thus, Beazer has carried its burden of proving that Mead meets
the first three elements of the test for liability under CERCLA.
Mead, however, asserts that Beazer has failed to establish its
entitlement to summary judgment with respect to the fourth
element, since it has failed to establish that Mead is solely
responsible for any of the response costs, i.e., Beazer has failed
to establish that the response costs are “divisible.”
In order to be held to be a responsible party under CER-
CLA, it is sufficient that some response costs are incurred due
to the release by the party in question. See, Kelley, supra. Here,
Beazer has certainly incurred response costs at the Woodward
Facility. Further, since Mead is responsible for at least some of
the coal tar sludge dumped on the site, at least some of the
response costs incurred by Beazer, or which will be incurred by
Beazer, must be attributable to Mead’s actions while operating
the facility. This is sufficient to support a finding that Mead is
a responsible party under CERCLA.
Divisibility, on the other hand, is an issue only after
more than one party has been determined to have been
responsible for the release of hazardous substances at a single
site. Liability under §9607 is joint and several, except where
the harm is determined to be divisible. Kelley, supra. Thus,
if two parties have each contributed to the contamination of
a site, they are each subject to liability for the entire cost of
remediation, unless it can be proven that the harm caused by
the parties is divisible. Here, Beazer has not even attempted
to apportion the harm. Rather, Beazer seeks only a declara-
tion that Mead is jointly liable for the contamination of the
Woodward Facility. As noted above, Beazer is entitled to
such a ruling. Apportionment of the response costs may be
A38
left for another day. Jd.! It is at that point, if it is ever reached,
that divisibility of harm will become relevant.
CONTRACTUAL PROVISION
Even though Mead qualifies as a responsible party under
CERCLA, it may nonetheless be entitled to summary judgment
on the CERCLA claims if, as Mead alleges, Beazer has agreed
to assume liability in this regard. Mead relies upon the purchase
agreement in asserting that Beazer did just that. Beazer, on the
other hand, alleges in count three of its complaint that Mead
agreed to indemnify Beazer for environmental liability, and
seeks summary judgment in its own right, again relying on the
provisions of the purchase agreement. In this respect, CERCLA
provides as follows:
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 for a release or threat
of 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
! Mead’s reliance on Kelley is misplaced. In a prior opinion in the same
case, Kelley v. Thomas Solvent Co., 727 F. Supp. 1532 (W.D.Mich. 1989)
(Kelley I), the court found Thomas Solvent jointly and severally liable due
to proof that a release of hazardous substances had occurred at a time when
Thomas Solvent owned and operated the facility in question. The court in
Kelley I properly left for a later time the question of apportionment of
response costs. In the latter opinion, Kelley II, the court was faced with a
claim that Thomas Solvent was responsible for all response costs. Since the
plaintiff was also jointly and severally liable due to its own release of
hazardous substances when it operated the facility in question, and no
evidence of divisibility had been presented, the court denied the motion for
summary judgment, and deferred ruling on apportionment until some equi-
table means of apportioning response costs could be arrived at. The court
did not, at any time, indicate that liability under CERCLA is reliant upon
proof of divisibility of harm.
A39
harmless or indemnify a party to such agreement for
any liability under this section.
42 U.S.C. § 9706(e)(1). This strangely worded provision has
been consistently interpreted as allowing hold-harmless or in-
demnity agreements between jointly responsible parties. Thus,
“agreements to indemnify or hold harmless are enforceable
between the parties.” Smith Land & Improvement Corp. v.
Celotex Corp., 851 F.2d 86, 89 (3d Cir. 1988), cert. denied, 488
U.S. 1029 (1989). Interpretation of the provisions of the 1974
purchase agreement will dispose of the issues remaining with
respect to the cross-motions for summary judgment, since a
valid agreement by Beazer to indemnify or hold Mead harmless
would be dispositive of Mead’s responsibility for contribution
under CERCLA, and an agreement by Mead to indemnify
Beazer for any costs incurred due to hazardous substances
released by Mead would, in effect, mirror Mead’s existing
CERCLA liability.
First, it must be determined what law the court should
follow in interpreting the provisions of the purchase agreement.
The agreement provides that “[e]ach of the parties elects that
this Purchase Agreement shall be governed, construed and
enforced in accordance with the laws of the state of Alabama.”
I see no reason to frustrate the obvious and expressed intent of
the parties to have the contract provisions interpreted pursuant
to Alabama law.
Interpretation of contractual terms is a function of the court.
Royal Cup, Inc. v. Jenkins Coffee Service, Inc., 898 F.2d 1514
(11th Cir. 1990) (applying Alabama law). Where the terms of
a contract are clear and unambiguous, extrinsic evidence is not
permitted to contradict those terms. Southern United Life Ins.
Co. v. Gregory, 508 So. 2d 247 (Ala. 1987). In determining
whether a contract is ambiguous, the court must read the lan-
guage used as an ordinary man would understand it, and should
give all terms their usual and ordinary meaning. Liggans R.V.
A40
Center v. John Deere Ins. Co., 575 So. 2d 567, 571 (Ala.
1991). A contract term may not be read in isolation, but must
be construed in light of the agreement as a whole. Jd. If a release
of liability is unambiguous in its terms, Alabama courts will
enforce that release. Boggan v. Waste Away Group, Inc., 585
So. 2d 1357, 1360 (Ala. 1991). An issue present in this case,
and which is not conclusively resolved by any Alabama case, is
whether or not a release or indemnity provision of a contract can
be effective with respect to CERCLA liability when CERCLA
had not been enacted at the time the contract was entered into.
In this respect, federal courts have held that pre-CERCLA
agreements will be sufficient to cover CERCLA liability if they
are worded broadly enough to encompass any and all liabilities,
or if environmental liability is clearly referred to in the agree-
ment. See, e.g., Hatco Corp. v. W.R. Grace & Co.-Conn., 801
F. Supp. 1309, 1318 (D.N.J. 1992); Purolator Products Corp.
v. Allied-Signal, Inc., 772 F.Supp. 124, 132 (W.D.N.Y. 1991);
Mobay Corp. v. Allied-Signal, Inc., 761 F. Supp. 345, 356
(D.N.J. 1991); Southland Corp. v. Ashland Oil, Inc., 696 F.
Supp. 994 (D.N.J. 1991). I find nothing in Alabama law which
is inconsistent with this standard, and, hence, will apply it in this
instance, after first determining just what the contract provides
for under Alabama law. 2
The specific provision in question is paragraph 4 of the
purchase agreement entitled “Assumption of Agreements and
Liabilities”, which provides as follows:
As of the Closing Date, Buyer shall assume and agree
to perform:
2 Since Alabama law is not inconsistent with the standard utilized by
federal courts, I need not decide whether federal or state law should control
the issue of the sufficiency of an indemnity clause for CERCLA liability. I
note, however, that this may be an issue best determined by a uniform federal
rule in any event, and that the federal case law establishing the standard under
CERCLA may override any inconsistent state law in this respect.
Eee oo emChmhLcOmCOmCOrereerowrer rere rr mr eee ee ae eee eee a, ao
A41
a. All of the Coke Plant obligations under the
commitments, purchase orders, and contracts
which constitute Coke Plant Assets (being those
listed on Exhibit B hereto) in accordance with
Section 2 hereof to the extent performance there-
under is required after the Closing Date, and all
other commitments, liabilities and obligations
expressly assumed by Buyer pursuant to this
Purchase Agreement.
b. Obligations of the Coke Plant to make pay-
ments in respect of those taxes and other ex-
penses deducted from the Purchase Price as
hereinafter provided and not otherwise specified
to be assumed above.
c. Obligations of the Coke Plant to comply
from and after the Closing Date with all of the
terms and conditions of any NPDES permit is-
sued by the United States Environmental Protec-
tion Agency or the then permitting authority, any
permit or order issued by the Alabama Water
Improvement Commission and the Alabama Air
Pollution Control Commission of the State of
Alabama or any successor authority, any license,
permit or order issued by the Jefferson County
Department of Health, and of any other waste-
water or runoff water discharge permit, license
or order, air pollution permit, license or order,
solid waste disposal permit, license or order,
hereafter issued by the United States Environ-
mental Protection Agency and/or by the State of
Alabama and/or any of its political subdivisions,
all in accordance with applications now pending
and listed in Exhibit F hereto.
A42
The exhibit referred to in the last sentence of paragraph 4(c)
is entitled “List of Environmental Applications and Permits,”
and is divided into two parts, one for permits related to air,
and one for permits related to water. The permits are listed
with reference to their date of issuance and issuing authority.
Beazer argues that this provision merely requires it to comply
with the permits listed in Exhibit F, and does not act as an
assumption of any other environmental liabilities with re-
spect to the Woodward Facility. It is undisputed that the
response costs here have no relation to the permits listed in
Exhibit F. Beazer further argues that, since the contract
provides that Mead will indemnify Beazer for all liabilities
except those specifically assumed, that Mead owes a contrac-
tual duty of indemnification for the response costs incurred
here. The key to Beazer’s argument is its interpretation of
the final sentence of Paragraph 4(c) referring to Exhibit F. I
cannot agree with Beazer that the reference to Exhibit F
expresses the intention of the parties to limit Beazer’s liabil-
ity to the permits listed therein.
First, if it had been the parties’ intention to limit Beazer’s
environmental responsibility to the permits listed, they could
have done so without referring, as they do, to both present and
future “orders” issued by state, local and federal agencies.
Second, the phrase “all in accordance with” does not necessarily
operate to limit the language preceding it. The order in this case
issued by the EPA to remedy a solid waste problem, although
not governed by the permits listed in Exhibit F, is still in
accordance with those permits. Put simply, remedying hazard-
ous waste disposal sites would be in conformity with the purpose
of the permits, even if not governed thereby. Further, reading
the clause in the fashion suggested by Beazer would have the
effect of making meaningless many of the terms used in para-
graph 4(c). The exhibit lists only permits in existence at the time
of the agreement, or that had been applied for at that time.
Paragraph 4(c), however, speaks broadly concerning the obliga-
A43
tion of Beazer to comply, from the closing date forward, with
not only permits, but also licenses and orders “hereafter
issued” by state, local and federal authorities. A court must
give all of the provisions of a contract a reasonable interpre-
tation if possible. Shadrick v. Johnston, 581 So. 2d 805, 810
(Ala. 1991); Federal Land Bank of New Orleans v. Terra
Resources. Inc., 373 So. 2d 314, 320 (Ala. 1979). Reading
paragraph 4(c) in the fashion suggested by Beazer would
have the effect of eliminating the term “hereafter issued”
since Beazer would have the obligation described apply only
to the permits listed, which were either already in effect or
had been applied for. It would also make surplusage of the
language concerning solid waste “permits, licenses and or-
ders” since the exhibit contains only air and water permits.
Finally, the use of the expansive term “any” referring to the
permits, orders and license with which Beazer was agreeing
to comply, would be expressly contradicted by limiting the
application to specific permits listed. In short, to read para-
graph 4(c) in the fashion suggested by Beazer would require
that a substantial portion of the language used be ignored.
This would not be a reasonable interpretation of contractual
language. Instead, the paragraph should be read as setting
forth environmental liabilities assumed by Beazer which
include the permits listed in Exhibit F. In this way, effect
can be given to all of the provisions of paragraph 4(c). Thus,
paragraph 4(c) cannot be read as a matter of law to exclude
the order in question here from Beazer’s assumed responsi-
bilities.
Next, it must be determined if the contract unambiguously
requires Beazer to assume Mead’s responsibility for its portion
of the response costs in this matter.
Mead points out that the response costs incurred by
Beazer at the Woodward Facility have been incurred pursuant
to an order entered by the EPA, after the 1974 sale to Beazer,
A44
regarding the disposal of solid wastes. Paragraph 4(c) expressly
references “orders” issued by the EPA regarding “solid waste”
issued after the closing date. I am constrained to agree with
Mead that the only reasonable interpretation of paragraph 4(c)
of the purchase agreement is to transfer to Beazer all responsi-
bility for complying with the order issued by the EPA in this
case.
Beazer makes numerous arguments against reading the
agreement in this fashion. Beazer’s fundamental position, that
Paragraph 4(c) is limited to the permits listed, has been rejected.
Beazer also asserts, however, that the language of 4(c) is not the
type of broad, all-inclusive language which other federal courts
have held sufficient to encompass CERCLA liability. Cases
which have addressed the issue of pre-CERCLA indemnity or
assumption provisions have found that either broad language
transferring all liability, or language transferring environmental
liability inclusive of CERCLA-type liability, is sufficient to
effect an assumption of CERCLA liabilities, even though the
agreement antedates the enactment of CERCLA. Purolator
Products Corp. v. Allied-Signal, Inc., supra; Mobay Corp. v.
Allied-Signal, Inc., supra; Southland Corp. v. Ashland Oil, Inc.,
supra. This case does not involve a broad, all-inclusive indem-
nity provision. See, e.g., Purolator, 772 F.Supp. at 131 (where
buyer agreed to assume and satisfy “all liabilities and obligations
of ” the seller relating to the assets purchased). However, the
language used does indicate the intent of the parties that Beazer
be responsible for compliance with all “permits, licenses*and
orders” issued by state, local and federal authorities. “[T]o create
a contractual duty of one party to indemnify or hold the other
harmless from CERCLA-like liability arising from the other’s
acts, an unmistakable intent to do so must be expressed in
unambiguous terms or clearly implied.” Hatco, 801 F.Supp. at
1318. Here, the language used clearly implies that, as between
Beazer and Mead, Beazer would be responsible for any environ-
mental liability arising from the Woodward Facility after the
A45
date of sale. Even more than this implication regarding all
environmental liability, the provision expressly provides that
Beazer will be responsible for complying with orders issued by
the EPA regarding solid waste. Thus, in this case, there is more
than simply a general transfer of environmental liability. Indeed,
there is a specific delegation of the responsibility for complying
with EPA orders. The purchase agreement clearly requires
Beazer to assume all liability for the response costs in this case,
which arise from an order issued by the EPA regarding solid
waste.3
3 The parties have spent a great deal of time and effort addressing the
knowledge each had at the time of the sale, and the stage of development that
environmental regulation had reached at the time the contract was entered
into. There is no doubt that sophisticated parties negotiated the purchase
agreement in an arms-length transaction. Apart from this, there is no other
inquiry necessary into the knowledge each party had upon signing the
contract, since the terms of the contract are unambiguous. Further, the
substantial effort by each party to establish either the foreseeability or
nonforeseeability of CERCLA’s remedial provisions is, I believe, beside the
point. Foreseeability is not the issue. In fact, the courts have held expressly
that parties cannot be held to have foreseen CERCLA prior to its enactment.
Mobay, at 1288. Courts look instead to the expressed intent of the parties
concerning liabilities in general and, where appropriate, to their expressed
intent with respect to environmental liabilities specifically. If a party has
assumed all environmental liability, it does not matter that it failed to predict
that Congress would vastly expand those liabilities. By the same token, if a
party has, as has Beazer, assumed the responsibility of complying with all
EPA orders concerning solid waste, it cannot be heard to complain that the
EPA’s powers were subsequently expanded to allow it to force remediation
of a private site. Thus, although the parties have spent a great deal of effort
on developing the issue of knowledge and the state of the law at the time of
contracting, and have, quite frankly, done a tremendous job of presenting that
dispute for consideration, the matters are simply not relevant to the pending
motions.
A46
CONCLUSION
Wherefore, on the basis of the foregoing, it is respectfully
recommended that plaintiff's motion for partial summary judg-
ment (Docket No. 47) be granted in part and denied in part, and
that defendant’s motion for summary judgment (Docket No. 58)
be granted and the case be dismissed since plaintiff has assumed
the responsibility for complying with orders issued by the EPA
with respect to the site in question.
In accordance with the Magistrates Act, 28 U.S.C. Section
636 (b) (1) (B) and (C), and Rule 4 of the Local Rules for
Magistrates, the parties are allowed ten (10) days from the date
of service to file objections to this report.
/s/
KENNETH J. BENSON
UNITED STATES MAGISTRATE JUDGE
Dated: May 12, 1993
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.