Daily Development for Friday, January 12

By: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
prandolph@cctr.umkc.edu

The reporter for this item is DIRTer Larry Schnapf of the New York Bar, in his excellent environmental newsletter.

HAZARDOUS SUBSTANCES; CERCLA; CONTRIBUTION ACTIONS: Seller of contaminated property who indemnified buyer against hazardous substances claims may not later bring a contribution action against other potentially responsible parties.

Southdown v. Allen, 119 F.Supp.2d 1223 (N. D. Ala. 2000)

The decision holds that a seller of a hazardous waste recycling facility who agreed to indemnify the buyer and clean up the site waived any right to bring a contribution action against the former owner andcustomers of the facility.

In 1990, the plaintiff purchased from Allen the stock of Allworth, Inc., which operated a hazardous waste recycling facility. The plaintiff subsequently discovered the facility was contaminated. It sold the its stock in Allworth to Nortru, Inc. in 1995 and at that time entered into a remediation agreement. The agreement provided that the seller (plaintiff in this action) would remediate the contamination "at its sole expense" and also agreed to indemnify Allworth and Nortru for any environmental claims.

The Allworth/Nortru stock purchase agreement also contained a non compete covenant under which the seller acknowledged that a portion of the value of the stock was attributable to the "business relationships between the companies and key customers of the companies, and the willingness of the seller to refrain from pursuing its relationships with those customers"

In 1996, the plaintiff filed a CERCLA contribution action against Allen, which then filed a thirdparty against Allworth and Nortru. The plaintiff then named 41 former and current Allworth customers. These thirdparty defendants then filed a fourthparty claim against an additional 139 former and current customers of Allworth. Nortru filed a partial motion for summary judgment which was joined by the customer defendants seeking a ruling that the plaintiff's contribution actions were barred by the remediation agreement.

An important part of the argument was plaintiffs' claim that the language "at its sole expense" meant that it assumed remediation responsibility as between itself and the other party to the stock purchase agreement, and not that it had agreed to bear the expenses exclusively, without recourse to others who were not parties to the agreement. It claimed that this interpretation could be made on the basis of parole evidence and argued that the contract language was ambiguous, permitting the admission of that evidence. The court noted that the plaintiff's counsel repeatedly had insisted in argument on other issues that the court was limited to the language of the contract where it was clear, and it concluded that the term "at its sole expense" is not ambiguous and meant in this contract that plaintiff would be solely liable, without any recourse to others. Despite reaching its conclusion that the language was unambiguous, the court spends about fifty pages analyzing why it is appropriate to conclude, in context, that plaintiff understandably would have agreed to undertake all of the admittedly huge cost of remediation.

Plaintiff argued that, for public policy reasons, an agreement to waive contribution rights under CERCLA cannot be waived without clear and unambiguous language. The court responded that the plaintiff's agreement to assume all liability in the remediation agreement constituted the requisite "explicity waiver" of CERCLA contribution rights. Moreover, the court said that the seller's contribution action against the customers was incompatible with the language of the stock purchase agreement seeking to protect Allworth's customer relationships.

Reporter's Comment: The reporter does not see any "explicit" language in the contract as discussed by the court that waived the seller's right to bring a CERCLA contribution action against noncontractual parties such as the facility customers who could be CERCLA PRPs. State contract law often requires some showing that the contract put the indemnitor on notice about the types of liabilities that are being transferred. To give effect to preCERCLA indemnities, courts usually look for broad language that shows the parties intended to include CERCLAlike liability.

This case illustrates the importance of clarifying how noncontractual remedies are being allocated by parties in a transaction. Many parties now specifically provide in their contracts that the rights set forth in the contract are the sole and exclusive rights of the parties and that they waive any common law or other statutory rights they might have to contribution or indemnity.

Editor's Comment 1: The editor concurs that if especially clear and unambiguous waiver language is required, this contract does not cut it. Although the term "solely liable" obviously in most contexts means that a part undertakes all costs, exclusive of recourse to third parties, it cannot be said that the language is so clear that it ought to overcome an interpretive preference against waiver of important rights under CERCLA versus third parties not involved in the contract.

The aspect of the holding regarding the language in the stock purchase agreement concerning preservation of customer relationships doesn't really help here. Although it may supply an additional rationale for interpreting ambiguous language a certain way, it doesn't render the language any less ambiguous, and certainly doesn't, in and of itself, constitute a "clear waiver" of CERCLA contribution rights.

Editor's Comment 2: The editor can remember reporting on the first set of cases that held that, under CERCLA, remediation responsibility could not, as a matter of federal policy, be reallocated by private contracts. We've come a long way from that point. Clear indemnification and waiver provisions are still upheld. But remember that no one can avoid the long reach of the government, which in the end will squeeze you if all the "indemnitors" and "contribution waivers" have been squeezed dry already. Monkeying with contaminated property is still no game for amateurs.

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1‑6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

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