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HATCO CORP. v. W.R. GRACE & CO.

July 27, 1992

HATCO CORPORATION, Plaintiff,
v.
W.R. GRACE & CO. - CONN., Defendant and Third Party Plaintiff, v. ALLSTATE INSURANCE COMPANY (as Successor to NORTHBROOK EXCESS AND SURPLUS INSURANCE COMPANY), et al., Third-Party Defendants.



The opinion of the court was delivered by: ALFRED M. WOLIN

WOLIN, District Judge

 Our society's destruction of its own living environment is a problem that we increasingly must confront. For centuries humankind has polluted the Earth's land, air and waterways with impunity, under the assumptions, now known to be false, that the Earth's resources are inexhaustible, and that advances in technology would in any event solve our environmental problems faster than we could create them.

 To some extent we are all responsible for the past lax practices of industry and government. *fn1" That we, through our representatives in government, tolerated standards and practices that allowed wholesale dumping of untreated chemicals and other forms of hazardous waste onto our land, and into our water and air, bespeaks of our lack of forethought as a society. To the extent these cheaper, though harmful waste disposal practices lowered the prices we paid for consumers products or government services, or created wealth for great numbers of shareholders of publicly traded companies, the inescapable fact remains that we all benefitted directly from this conduct.

 At long last we have recognized the frailty created by our shortsightedness and have begun to take steps to reduce the rate of the Earth's destruction, and to remediate our past transgressions against the planet. For its part, through the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA") as amended, 42 U.S.C. § 9601 et seq., Congress has fashioned a statutory framework intended to motivate individuals to cleanup their own land by providing the incentive that they may recover all costs from other parties to whom the environmental damage is attributable. Conceived in haste and born out of compromise, that statute has produced significant litigation over the meaning of even its most basic terms, *fn2" and has not, after a decade, produced a fraction of the results envisioned by Congress. As this case well demonstrates, the legal, economic and political difficulties involved in fairly and accurately allocating financial responsibility for the cleanup of past environmental abuses present problems perhaps more daunting than the scientific and engineering problems faced in the actual remediation of the polluted sites.

 This is a case brought pursuant to CERCLA and state common law. The current owner of an industrial site located in Fords, New Jersey--Hatco Corporation ("Hatco")--who has conducted chemical manufacturing operations on the site for thirteen years, has sued its predecessor-in-title--W.R. Grace & Co.-Conn. ("Grace")--who conducted chemical manufacturing operations on the site for close to twenty years. A cast of numerous third- fourth- and fifth-party insurance company defendants have been impleaded into the action. All are battling to avoid responsibility for costs to monitor, evaluate and remediate the Fords tract.

 For more than three decades, that site has been polluted by a wide variety of toxic chemical compounds (including known carcinogens) that have been defined by the Environmental Protection Agency as "hazardous substances." Voluminous evidence presented to the Court demonstrates the extent to which this land has been polluted. Through the practice of pumping millions of pounds of effluent yearly from its chemical manufacturing operations into lagoons and holding ponds on the site, the owners and operators of the site have thoroughly saturated the ground with toxic wastes. Much of it continues to migrate under the earth, spreading the poisons over a wider area and contaminating the groundwater. Illustrative of conditions at the site is the existence of a marsh filled with black sludge that exudes a strong mothball odor. Estimates of potential cleanup costs have been suggested by the parties in the range from "tens of millions" of dollars upward to $ 100 million.

 Before the Court are a number of motions by and between Hatco and Grace. First are cross-motions for summary judgment on the issue whether Grace's liabilities under CERCLA were assumed by Hatco under the 1978 Sale Agreement in which Hatco purchased the Fords, New Jersey facility that is the subject of this action. Grace asserts that it is entitled to a judgment, as a matter of law, that under the Sale Agreement, Hatco assumed responsibility and agreed to indemnify Grace for all costs to remediate and remove hazardous substances that may have been disposed of on the Fords site when it was owned by Grace, with the exception of those liabilities for which Grace is effectively insured. Hatco, conversely, asserts that it is entitled to a judgment as a matter of law that it did not under the Agreement assume any such responsibilities. For the reasons that follow, the Court will deny Grace's motion and grant Hatco's motion.

 Second is the motion of Grace for summary judgment in its favor on Hatco's claim under state common law for damage to property based on a theory of strict liability. Grace bases its motion on the grounds that: (1) Hatco assumed the risk of the abnormally dangerous conditions at the site; and (2) Hatco's claims are time-barred by the statute of limitations. For the reasons that follow, Grace's motion will be granted on the statute of limitations ground.

 Third is a motion by Hatco to strike a number of defenses from Grace's Answer to the Second Amended Complaint. For the reasons stated below, that motion will be granted in substantial part.

 Fourth is a motion by Hatco for partial summary judgment against Grace on the issue of Grace's liability for all response costs under CERCLA. Grace has cross-moved, contingent on the Court granting Hatco's motion, for a declaration that Hatco is liable in contribution for its equitable share of response costs. Hatco's motion will be denied, and Grace's motion will therefore not be reached.

 Fifth are cross-motions for summary judgment on the issue whether response costs already incurred by Hatco to clean up one area of the site were incurred in compliance with the national contingency plan. Both motions will be denied.

 Last, the parties have cross-moved for summary judgment on the issue whether attorneys' fees are recoverable by a private party in a response cost action under CERCLA. Because the Court adheres to its view, expressed in a previous case, that such fees are not recoverable, Hatco's motion will be denied, and Grace's will be granted.

 BACKGROUND

 From 1959 until 1978, Grace owned and operated a chemical manufacturing business located on an approximately 80-acre tract of land in Fords, New Jersey, that used and produced a number of different chemical products, consisting primarily of plasticisers and synthetic lubricants. The business was run by a division of Grace known as Hatco Chemical Division. On August 21, 1978, Grace simultaneously sold "the Chemical Assets other than the Chemical Realty" of the Hatco Chemical Division to the Farben Corporation ("Farben"), and the "Chemical Realty" to the Fuss Corporation ("Fuss"). Fuss and Farben were owned by Alex Kaufman, who had worked at the Fords Hatco site for over twenty years, both for Grace and its predecessor. On September 1, 1978, Farben changed its name to the Hatco Chemical Corporation. On September 30, 1978, Fuss merged into the Hatco Chemical Corporation. On October 28, 1986, the Hatco Chemical Corporation was renamed the Hatco Corporation.

 In the Sale Agreement, "Assumed Liabilities and Obligations" is defined as:

 (a) liabilities of Chemical *fn3" reflected in, reserved against or noted on the Closing Net Statement, other than Excluded Liabilities;

 and

 (b) the following obligations and liabilities existing on the date of the Closing, or in the case of those described in clause (iv), arising thereafter, whether or not they are reflected in, reserved against or noted on the Closing Net Statement:

 (i) obligations with respect to sales orders accepted by the Chemical Business, *fn4" other than Excluded Liabilities;

 (ii) obligations for goods and services ordered by the Chemical Business, other than Excluded Liabilities;

 (iii) liabilities and obligations with respect to capital expenditures described in any Request for Capital Appropriation approved in accordance with Seller's customary procedures by the management of the Chemical Business, or any management group of Seller senior thereto;

 (iv) other obligations and liabilities arising in the ordinary course of the Chemical Business, whether prior to or after the date of Closing, other than Excluded Liabilities;

 (v) other liabilities and obligations of which Alex Kaufman or David G. Seabrook has actual present personal knowledge and awareness at the date of this agreement, other than Excluded Liabilities; and

 (vi) other liabilities and obligations which do not exceed $ 5,000 per item and $ 50,000 in the aggregate, other than Excluded Liabilities.

 Sale Agreement § 1.11 (JA 187). *fn5"

 The Sale Agreement defines "Excluded Liabilities" to include, among other items, "liabilities against which Seller is effectively insured, without regard to any applicable deductible amounts", and "the liabilities specifically described in the schedule to this Section." Sale Agreement § 1.10(c), (h). *fn6" Included in the schedule to § 1.10 as an excluded liability is the "Alleged pollution of Sling Tail Brook on or about May 31, 1977." *fn7" (JA 187) Section 2.02 of the Sale Agreement provides, in part, that Hatco would not be responsible for any obligations or liabilities of Grace other than the defined "Assumed Liabilities and Obligations." That section further states that "All such liabilities and obligations not assumed by Buyers are hereby retained by [Grace]".

 DISCUSSION

 I. Summary Judgment Standard

 Summary judgment shall be granted if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c); see Hersh v. Allen Products Co., 789 F.2d 230, 232 (3d Cir. 1986). In making this determination, a court must draw all reasonable inferences in favor of the non-movant. Meyer v. Riegel Products Corp., 720 F.2d 303, 307 n.2 (3d Cir. 1983), cert. dismissed, 465 U.S. 1091, 104 S. Ct. 2144, 79 L. Ed. 2d 910 (1984). Whether a fact is "material" is determined by the substantive law defining the claims. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 2510, 91 L. Ed. 2d 202 (1986); United States v. 225 Cartons, 871 F.2d 409, 419 (3d Cir. 1989).

 "At the summary judgment stage the judge's function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Anderson, 477 U.S. at 249, 106 S. Ct. at 2511. Summary judgment must be granted if no reasonable trier of fact could find for the non-moving party. Id.

 II. Cross-Motions for Summary Judgment on the Issue Whether Hatco Assumed CERCLA Liability In the Sale Agreement

 Both parties have moved for summary judgment on Grace's defenses that Hatco may not recover damages under CERCLA because it assumed all environmental liabilities in the Sale Agreement. Resolution of this motion requires the Court to apply the standard it previously adopted in Mobay Corp. v. Allied-Signal, Inc., 761 F. Supp. 345, 354-58 (D. N.J. 1991) to the contract in issue in this case. In Mobay, this Court recognized, as had other courts before it, that CERCLA allows parties to privately allocate by contract the risk of loss for liabilities under that statute. See, e.g., Smith Land & Improvement Corp. v. Celotex Corp., 851 F.2d 86, 89 (3d Cir. 1988) ("agreements to indemnify or hold harmless [from CERCLA liabilities] are enforceable between the parties"), cert. denied, 488 U.S. 1029, 102 L. Ed. 2d 969, 109 S. Ct. 837 (1989). 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. 42 U.S.C. § 9607(e)(1). To the extent than an agreement to insure, hold harmless or indemnify the seller from CERCLA liability prevents a purchaser from asserting a CERCLA claim against the seller, the agreement can be viewed as a "release." Mobay, 761 F. Supp. at 355.

 Although CERCLA liabilities can be allocated between parties when expressly agreed to, the problem raised in Mobay was whether indemnity agreements entered before the enactment of CERCLA could ever act to release a party from CERCLA liability. Because entered pre-CERCLA, such agreements could not have expressly mentioned CERCLA liabilities in any indemnity, hold harmless or insurance provision. After canvassing the existing law, the Court concluded that parties could have agreed to allocate risks of liability between them arising from CERCLA even prior to the enactment of CERCLA, provided that it was done by written agreement that included "a clear provision which allocates these risks to one of the parties." Id. at 358. The Court held that such a "clear provision" must be either: (1) a broad waiver of "all liabilities of any type whatsoever", *fn8" id. at 358, n.15 (emphasis in original), which would clearly evince the parties' broad intent to finally 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", id. at 358, which would clearly evince the parties' intent to settle all issues related to present and future environmental liabilities.

 This holding, as another District Court has recently recognized, was derived substantially from the generally recognized public policy tending toward strict construction of any indemnity agreement under which one party agrees to indemnify another for the consequences of that other's own acts. See Purolator Products Corp. v. Allied-Signal, Inc., 772 F. Supp. 124, 130-31 (W.D.N.Y. 1991); see also Haynes v. Kleinewefers and Lembo Corp., 921 F.2d 453, 456-57 (2d Cir. 1990) (discussing New York law of indemnity, under which agreement to indemnify another for liability arising from its own acts is construed strictly). Hence, to create a contractual duty of one party to indemnify or hold the other harmless from CERCLA-type liability arising from that other's acts, an unmistakable intent to do so must be expressed in unambiguous terms or be clearly implied. Consequently, extrinsic evidence is for the most part irrelevant to the issue of the parties' intent, and the interpretation of the agreement in issue will always be a question of law ripe for summary judgment. An agreement will either unambiguously express or clearly imply that one party will indemnify the other against its own acts giving rise to liability under CERCLA, or it will not. Hence, to the extent Grace's motion for summary judgment fails, Hatco's motion will necessarily succeed.

 As discussed above, for the Sale Agreement to have effected a release by Hatco of any CERCLA claim it might ever have against Grace, it must contain either a broad, all-inclusive waiver by Hatco of any and all claims it might ever have against Grace arising from the sale, or it must contain a specific provision that expressly or by clear implication waives any claim it might ever have against Grace arising from environmental problems at the Fords facility. The Sale Agreement contains neither type of provision.

 The Sale Agreement clearly lacks a broad waiver and release from all liabilities. Assumed liabilities are carefully enumerated in section 1.11 of the Sale Agreement. More important, section 2.02 expressly declares that Hatco will not be responsible for any liability or obligation not included in the definition at section 1.11, and that "All such liabilities and obligations not assumed by [Hatco] are hereby retained by [Grace]." Thus, far from including a broad, all-inclusive waiver of any and all liabilities, the Sale Agreement actually contains express declarations to the contrary.

 Grace's reliance on Purolator is misplaced. In that case the court found that a purchaser of assets had released the seller from CERCLA liabilities because in two separate agreements related to the transfer of certain assets, the parties included language under which the purchaser broadly assumed, without limitation, any and all liabilities related to or arising from the transferred assets. The 1975 agreement provided:

 Facet hereby assumes and agrees to satisfy all liabilities and obligations of Bendix, secured or unsecured (whether accrued, absolute, contingent or otherwise) relating to or arising out of the Assets (which are transferred hereby subject to such liabilities and obligations).

 Grace argues that section 1.11(b)(iv) evinces a clear intent by the parties to have Hatco assume all environmental-type liabilities that might arise at the Fords facility. That section provides for the assumption by Hatco of "other liabilities and obligations arising in the ordinary course of the Chemical Business, whether prior to or after the date of the Closing, other than Excluded Liabilities." (Emphasis added). Grace contends that environmental cleanup liabilities arise "in the ordinary course" of Hatco's operations, and are therefore covered by subsection (iv). It further argues that the express inclusion of one environmental liability--for Sling Tail Brook pollution--in a schedule of specific "Excluded Liabilities" that complemented the general classes of Excluded Liabilities included in section 1.10 indicates a clear intent on the part of the parties that Hatco assume all other environmental liabilities under the ordinary course clause.

 An identical "ordinary course" provision in an agreement between Grace and another party was construed by the Second Circuit Court of Appeals, in a different factual context, in Haynes v. Kleinewefers and Lembo Corp., 921 F.2d 453 (2d Cir. 1990). In Haynes, Grace argued that a liability arising after a sale of assets, from an injury sustained by an employee operating a machine that had been altered when it was owned by Grace, was assumed by the purchaser of assets under an "ordinary course of business" provision identical in all material respects to the one included in the Sale Agreement. 921 F.2d at 457. The Second Circuit, construing the subsection in the context of the whole section, rejected Grace's argument.

 Applying ordinary rules of contract construction, it found that the reference to "other" liabilities and obligations in the "ordinary course" provision limited those liabilities and obligations to those "of like kind" to those mentioned in preceding subsections of the definition of "Assumed Liabilities and Obligations". Id. The preceding subsections in the agreement in Haynes, like those involved here, referred to accepted sales orders, ordered goods and services, and capital expenditures. Id. The Second Circuit found no additional language in the remainder of the agreement from which, together with the ordinary course clause, it could be clearly implied that the purchaser assumed liability for personal injuries that resulted from acts by Grace. Thus, the Second Circuit held that the "other" liabilities and obligations referred to in the "ordinary course" provision included only liabilities and obligations related to "business transactions" and did not broadly include any liability or obligation that arose during ownership of the assets. Id. More important, however, the Second Circuit held that "a catch-all phrase such as 'other obligations and liabilities arising in the ordinary course of business' fails to establish clearly an unmistakable intent to assume an obligation to indemnify." Id. at 458. This Court agrees.

 Grace has attempted to distinguish the Sale Agreement from the agreement in Haynes by arguing that the express retention by Grace in the schedule to section 1.10 of its liability for the alleged pollution of Sling Tail Brook makes clear that the parties thought about potential environmental liabilities, and expressly allocated their risk. This differs from the agreement in Haynes, it argues, because no mention of liability for personal injuries was made in that agreement. It contends that from the express retention by Grace of the liability for its pollution of Sling Tail Brook, together with the "ordinary course" provision, it can clearly be implied that Hatco assumed all other environmental-type liabilities. This argument is based on the canon of construction that the inclusion of one thing implies the exclusion of all others. *fn10"

 The Court cannot accept Grace's argument, and finds that the mention of one environmental liability in the schedule to section 1.10 of the Sale Agreement does not modify the meaning of the "ordinary course" clause of the Sale Agreement. That provision remains constricted in scope, as the Second Circuit found in Haynes, by the liabilities and obligations expressed in other subsections of section 1.11. Grace's argument to the contrary reads too much significance into the inclusion of the phrase "other than Excluded Liabilities" in the ordinary course provision. That phrase--"other than Excluded Liabilities"--is included in each subsection of section 1.11. Inclusion of one item in the definition of "Excluded Liabilities" does not, without more, mean that every other liability of a similar nature was assumed by Hatco. It is clear from the structure of section 1.10 that when the parties meant to exclude a broad class of liabilities, they did so expressly. They did not do so with respect to environmental liabilities.

 Moreover, the express retention by Grace of one specified pollution liability cannot alone shift responsibility for all other environmental liabilities to Hatco. To imply such a meaning would too easily relieve Grace of the burden, as a party seeking to impose on another a duty to indemnify it against the consequences of its own acts, to ensure that such an intent is clearly intended and expressed. Grace's express retention of one liability says nothing about the scope of liabilities Hatco assumed; it does not clearly imply that Hatco assumed all other similar liabilities, particularly when the Sale Agreement provides expressly to the contrary in section 2.02. Grace's reliance on the expressio unius doctrine is misguided. That doctrine "is not of universal application and caution should be exercised in its use." McKenna v. Ortho Pharmaceutical Corp., 622 F.2d 657, 667 (3d Cir.), cert. denied, 449 U.S. 976, 66 L. Ed. 2d 237, 101 S. Ct. 387 (1980). When the controlling substantive law, as with the law of indemnity, requires a greater clarity of expression of contractual intent than is usually required in contracts, even more caution than is ordinarily the case should be applied in the use of the expressio unius rule of construction. *fn11" Thus, regardless of the inclusion of the Sling Tail Brook liability in the schedule to section 1.10, "a catch-all phrase such as 'other obligations and liabilities arising in the ordinary course of business' fails to establish clearly an unmistakable intent to assume an obligation to indemnify." Haynes, 921 F.2d at 458

 Even giving Grace the benefit of its construction of the "ordinary course" provision--that environmental liabilities are "ordinary course" liabilities within the meaning of the Sale Agreement--it would still fail to effect a wholesale assumption of environmental-type liabilities because the only "ordinary course" liabilities assumed are those of the "Chemical Business". "Chemical Business" is defined in the Sale Agreement as "that business presently conducted by Chemical . . . ." Thus, Hatco argues, and the Court agrees, that because most of the liabilities in issue in this case are attributable to manufacturing activities that were not "presently conducted" at the time of the sale in 1978, even accepting Grace's construction of the ordinary course clause, those liabilities would not have been assumed. Grace counters that the "presently conducted" language is surplusage and should be ignored. Although Grace supports this argument by pointing out the absurdity of recognizing the "presently conducted" language in other contexts in the Sale Agreement, the language does not lead to an absurd result in the context in issue. Grace's arguments at best lead to the conclusion that the meaning of "Chemical Business" is ambiguous, which is further reason why the "ordinary course" clause should not be construed to effect a broad assumption of liability by Hatco.

 Grace asserts another argument based on the drafting history of the Sale Agreement. Although, as discussed above, extrinsic evidence is irrelevant to the issue whether environmental liabilities have been assumed, the Court will nevertheless briefly address Grace's argument. Grace contends that during the negotiations of the Sale Agreement, Hatco attempted on more than one occasion to include in the agreement a provision by which Grace expressly retained all environmental liabilities. It further claims that it rejected the inclusion of such language every time it was suggested by Hatco. From this, together with its express retention of the Sling Tail Brook liability, Grace contends that the parties must therefore have believed that all other environmental liabilities were assumed by Hatco. This argument, like the previous argument based on the expressio unius maxim, improperly seeks to reverse the burden of expression of intent.

 For an agreement to indemnify against CERCLA liabilities, an intent to that affect must be clearly expressed. This rule is simple: No clear expression, no indemnity. Grace's argument seeks to turn this rule on its head by imposing the opposite requirement that, unless it expressly agreed not to be indemnified for all of its environmental liabilities, Hatco must indemnify it for those liabilities. Grace seems to forget that the CERCLA liabilities in issue were its liabilities to begin with. If the parties failed to agree to expressly allocate the risk of loss for all of Grace's environmental liabilities, the burden of that failure must fall on Grace. Hence, Grace's refusal during the drafting of the Sale Agreement to expressly acknowledge its retention of all environmental liabilities in that document was an act without legal significance, notwithstanding its express retention of one specific environmental liability.

 Grace additionally argues that another provision in the definition of assumed liabilities acts as an assumption by Hatco of all environmental-type liabilities. It argues that the assumption of

 other liabilities and obligations of which Alex Kaufman or David G. Seabrook has actual present personal knowledge and awareness at the date of this ...


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