Hatco Corp. v. W.R. Grace & Co.-Conn.

Opinions of the United
1995 Decisions States Court of Appeals
for the Third Circuit
7-5-1995
Hatco v WR Grace
Precedential or Non-Precedential:
Docket 94-5276
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UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
____________
No. 94-5276
____________
HATCO CORPORATION,
Appellee
v.
W.R. GRACE & CO.--CONN., a Corporation
of the State of Connecticut,
Defendant and Third-Party Plaintiff
v.
ALLSTATE INSURANCE COMPANY (as successor to Northbrook
Excess and Surplus Company); AMERICAN EMPLOYERS'
INSURANCE COMPANY; CERTAIN UNDERWRITERS AT LLOYD'S,
LONDON AND THE LONDON MARKET COMPANIES; COMMERCIAL
UNION INSURANCE COMPANY; CONTINENTAL CASUALTY COMPANY;
PACIFIC EMPLOYERS INSURANCE COMPANY; UNIGARD SECURITY
INSURANCE COMPANY,
Third-Party Defendants
and
COMMERCIAL UNION INSURANCE COMPANY,
Third-Party Defendant and Fourth-Party Plaintiff
v.
MARYLAND CASUALTY COMPANY,
Fourth-Party Defendant and Fifth-Party Plaintiff
v.
AMERICAN CENTENNIAL INSURANCE COMPANY; EVANSTON
INSURANCE COMPANY; FIRST STATE INSURANCE COMPANY;
GIBRALTAR CASUALTY COMPANY; HARTFORD CASUALTY INSURANCE
COMPANY; CERTAIN UNDERWRITERS AT LLOYD'S, LONDON AND
THE LONDON MARKET COMPANIES; MIDLAND INSURANCE COMPANY;
RELIANCE INSURANCE COMPANY; REPUBLIC INSURANCE COMPANY;
ROYAL INDEMNITY COMPANY; TRANSPORT INDEMNITY, a/k/a
MISSION AMERICAN INSURANCE COMPANY; TWIN CITY FIRE
INSURANCE COMPANY,
Fifth-Party Defendants
W.R. GRACE & CO.--CONN., Appellant
____________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
(D.C. Civ. No. 89-cv-01031)
____________
Argued January 25, 1995
Before: MANSMANN, HUTCHINSON, and WEIS, Circuit Judges
Filed July 5, l995
____________
Anthony J. Marchetta, Esquire (ARGUED)
Robert G. Rose, Esquire (ARGUED)
Elizabeth J. Sher, Esquire
PITNEY, HARDIN, KIPP & SZUCH
P.O. Box 1945
Morristown, NJ 07962-1945
Attorneys for Appellant
Aubrey M. Daniel, III, Esquire (ARGUED)
Paul Mogin, Esquire
Evan J. Roth, Esquire
Eric M. Braun, Esquire
Dane H. Butswinkas, Esquire
Stephen D. Sencer, Esquire
WILLIAMS & CONNOLLY
725 12th Street, N.W.
Washington, DC 20005
Robert M. Goodman, Esquire
CARPENTER, BENNETT & MORRISSEY
3 Gateway Center
Newark, NJ 07102
Attorneys for Appellee
____________
OPINION OF THE COURT
____________
WEIS, Circuit Judge.
In this case, the buyer of a chemical plant has sued
the seller under state law and the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980 ("CERCLA"), 42
U.S.C. §§ 9601-9675, for costs incurred in abating contamination
at the site. The district court, applying federal common law,
held that the sale agreement between the parties did not clearly
relieve the seller from a duty to contribute and, after a trial,
entered judgment for the buyer. We conclude that state law
governs the interpretation of the contract and requires
consideration of extrinsic evidence to resolve ambiguities. We
agree with the district court that the parties are not entitled
to a jury trial under CERCLA. Accordingly, we will vacate the
judgment in favor of the buyer and remand for a hearing on the
contractual issues.
In 1959, W.R. Grace & Co.--Conn. acquired a chemical
manufacturing business in Fords, New Jersey. Grace owned and
operated the plant until 1978 when it sold the operation to the
straw-parties that, in turn, transferred the business to Hatco
Corporation, whose sole shareholder was and is Alex Kaufman.1
Kaufman had worked at the Fords site for over twenty
years and served as the president of Grace's chemical division
there from 1962 until the sale in 1978. At the time of the sale,
the site was polluted by the manufacturing operations that had
1
. The parties have made no distinction between Hatco and its
corporate predecessors to whom Grace had originally sold the
plant. We will therefore treat Hatco as if it were the original
purchaser.
been carried on over the years. Additional contamination
occurred during the subsequent years when Hatco owned the
facility.
Under pressure from state authorities, Hatco undertook
cleanup operations at the site and then sued for reimbursement of
sums expended, alleging liability against Grace under CERCLA and
the New Jersey Spill Compensation and Control Act ("Spill Act"),
N.J. Stat. Ann. §§ 58:10-23.11 to -23.24. Contending that Hatco
had assumed responsibility for cleanup in the 1978 agreement of
sale, Grace moved for summary judgment. Hatco filed a cross-
motion on the same issue. The district court denied Grace's
motion on that issue and granted Hatco's, concluding that the
agreement, as a matter of law, did not unambiguously shield Grace
from Hatco's claim for reimbursement.
In a nonjury trial, the district court found both Grace
and Hatco responsible under the New Jersey Spill Act and CERCLA.
The court apportioned the cleanup costs between the two companies
based on a number of factors and entered judgment in favor of
Hatco and against Grace in the amount of $9,269,892.41, plus
prejudgment interest of $2,919,885.75, for a total of
$12,189,778.16. The proceedings before the district court have
been chronicled in a series of published opinions.2
2
. Hatco Corp. v. W.R. Grace & Co.--Conn., 859 F. Supp. 769(D.N.J. 1994); Hatco Corp. v. W.R. Grace & Co.--Conn., 849 F.
Supp. 987 (D.N.J. 1994); Hatco Corp. v. W.R. Grace & Co.--Conn.,
849 F. Supp. 931 (D.N.J. 1994); Hatco Corp. v. W.R. Grace & Co.--
Conn., 836 F. Supp. 1049 (D.N.J. 1993), modified, 849 F. Supp.
987 (D.N.J. 1994); Hatco Corp. v. W.R. Grace & Co.--Conn., 801 F.
Supp. 1334 (D.N.J. 1992); Hatco Corp. v. W.R. Grace & Co.--Conn.,
801 F. Supp. 1309 (D.N.J. 1992).
Although unresolved claims between the parties remain
(including potential insurance coverage), the court entered final
judgment pursuant to Fed. R. Civ. P. 54(b). Grace has appealed,
raising a number of issues, one of which we find is dispositive
of this appeal.
I.
Under CERCLA, 42 U.S.C. § 9607(e), "agreements to
indemnify or hold harmless are enforceable between [private]
parties but not against the government." Smith Land &
Improvement Corp. v. Celotex Corp., 851 F.2d 86, 89 (3d Cir.
1988); accord Beazer East, Inc. v. Mead Corp., 34 F.3d 206, 211
(3d Cir. 1994), cert. denied, 115 S. Ct. 1696 (1995). Although
these private agreements cannot nullify a party's underlying
CERCLA liability, they are effective to shift the ultimate
financial loss. Beazer, 34 F.3d at 211; Mardan Corp. v. C.G.C.
Music, Ltd., 804 F.2d 1454, 1459 (9th Cir. 1986).
Grace contends that it is not required to reimburse
Hatco for cleaning up the Fords site because in the agreement of
sale between the parties, Hatco assumed the obligation of
satisfying any environmental obligations. Following its earlier
opinion in Mobay Corp. v. Allied-Signal, Inc., 761 F. Supp. 345(D.N.J. 1991), the district court held that in order to create a
duty to indemnify under federal common law, "an unmistakable
intent to do so must be expressed in unambiguous terms or be
clearly implied." Hatco Corp. v. W.R. Grace & Co.--Conn., 801 F.
Supp. 1309, 1318 (D.N.J. 1992).
However, some months after this appeal was taken, we
held that agreements among private parties inter se addressing
the allocation of responsibility for CERCLA claims are to be
interpreted by incorporating state, not federal, law. Fisher
Dev. Co. v. Boise Cascade Corp., 37 F.3d 104, 109 (3d Cir. 1994);
Tippins, Inc. v. USX Corp., 37 F.3d 87, 91 n.4 (3d Cir. 1994);
Beazer, 34 F.3d at 215. We have also decided that, given
appropriate language, a pre-CERCLA agreement can be effective for
claims arising after the statute became effective. Fisher, 37
F.3d at 110; Beazer, 34 F.3d at 211.
The sale agreement before us provides that its terms
are to be interpreted by the laws of New York. Under that
state's law, the assignment of the burden of proof depends upon
whether the agreement in question is characterized as a "release"
or as an "indemnity" contract. Compare, e.g., Structural
Painting Corp. v. Travelers Indemnity Co., 451 N.Y.S.2d 875, 876
(N.Y. App. Div. 1982) (burden of establishing intent of parties
is assigned to releasor) with Walsh v. Morse Diesel, Inc., 533
N.Y.S.2d 80, 83 (N.Y. App. Div. 1988) (burden of establishing
intent of parties is assigned to indemnitee).
In the case before us, the district court and the
parties on appeal have used the terms "release" and "indemnity"
interchangeably. Under the Mobay standard, perhaps that made no
difference, but it is otherwise under Beazer. As we remarked in
a CERCLA context, the effect of a release is to shield the
beneficiary of that agreement from liability rather than to shift
its responsibility to another as is the case of a contract to
indemnify. Fisher, 37 F.3d at 112.
New York law specifies that an indemnity agreement be
strictly construed and that a clear and unmistakable intent to
indemnify be manifested in the contract. Heimbach v.
Metropolitan Transp. Auth., 553 N.E.2d 242, 246 (N.Y. 1990). If
the parties' intent is not clear from the writing, the court must
consider extrinsic evidence. Commander Oil v. Advance Food Serv.
Equip., 991 F.2d 49, 51 (2d Cir. 1993) (applying New York law);
Seiden Assocs., Inc. v. ANC Holdings, Inc., 959 F.2d 425, 430 (2d
Cir. 1992) (applying New York law); General Mills, Inc. v.
Filmtel Int'l Corp., 599 N.Y.S.2d 820, 822 (N.Y. App. Div. 1993).
However, under state law, the agreement here may be
more accurately characterized as a release. "To constitute a
release, a writing must contain an expression of a present
intention to renounce a claim." Carpenter v. Machold, 447
N.Y.S.2d 46, 46-47 (N.Y. App. Div. 1982) (citation omitted).
"No particular form need be used in drafting a release . . . ."
Pratt Plumbing & Heating, Inc. v. Mastropole, 414 N.Y.S.2d 783,
784 (N.Y. App. Div. 1979). Indeed, "[a]ny words may be used, as
long as they manifest the releasor's intent to discharge. The
parties' intent will determine the scope of a release." Bank of
Am. Nat'l Trust & Sav. Ass'n v. Gillaizeau, 766 F.2d 709, 713 (2d
Cir. 1985) (applying New York law) (citations omitted).
Releases are governed by principles of contract law.
Mangini v. McClurg, 249 N.E.2d 386, 389 (N.Y. 1969). Whether an
agreement is ambiguous is a question of law for the court, W.W.W.
Assocs., Inc. v. Giancontieri, 566 N.E.2d 639, 642 (N.Y. 1990),
to be determined by looking to the document as a whole rather
than to sentences or clauses in isolation. Williams Press, Inc.
v. State, 335 N.E.2d 299, 302 (N.Y. 1975). If an ambiguity in
the document prevents a firm conclusion that an agreement is a
release, extrinsic evidence may be introduced to resolve that
question of fact. Gillaizeau, 766 F.2d at 713-15; see also Green
v. Lake Placid 1980 Olympic Games, Inc., 538 N.Y.S.2d 82, 84
(N.Y. App. Div. 1989) (circumstances sufficient to raise issue of
fact as to parties' intent permit extrinsic evidence as aid to
interpretation of a release).
A factor to be considered in determining whether an
agreement is a "release" or an "indemnity" is the type of claim
asserted in the litigation. "An action for the breach of an
indemnity agreement does not arise until [a party] has suffered
damage by reason of the breach." Eliseo v. Stan Margolin
Assocs., Inc, 572 N.Y.S.2d 831, 831-32 (N.Y. App. Div. 1991)
(citation omitted).3
In Bouton v. Litton Indus., Inc., 423 F.2d 643 (3d Cir.
1970), we interpreted New York law in construing a contract for
the sale of a business and distinguished between agreements of
indemnity and those of assumption. We held that the language of
3
. Although a claim for indemnity does not arise until the prime
obligation to pay has been established, some third-party actions
may be commenced in the interest of judicial economy before they
are technically ripe. Mars Assocs., Inc. v. New York City Educ.
Constr. Fund, 513 N.Y.S.2d 125, 133 (N.Y. App. Div.), appeal
dism'd as interlocutory, 514 N.E.2d 391 (N.Y. 1987).
the contract was "that of assumption not of indemnification" and
that "one who assumes a liability, as distinguished from one who
agrees to indemnify against it, takes the obligation of the
transferor unto himself . . . ." Id. at 651.
Although various canons may dictate that an ambiguous
agreement is to be construed against one of the parties,4 such
rules are of little consequence when the agreement in question
has been "negotiated at arm's length between the representatives
of two sophisticated business entities." Hogeland v. Sibley,
Lindsay & Curr Co., 366 N.E.2d 263, 266 (N.Y. 1977).
The burden of proof rests on the releasor to establish
that general language in the document was meant to be limited "or
otherwise does not represent the intent of the parties."
Mangini, 249 N.E.2d at 390; see also Olin Corp. v. Consolidated
Aluminum Corp., 5 F.3d 10, 16 n.4 (2d Cir. 1993) (applying New
York law); Mardan, 804 F.2d at 1462 (applying New York law).
"[T]he burden of proof is not a necessary concomitant of the
burden of pleading" an affirmative defense. Hill v. St. Clare's
Hosp., 490 N.E.2d 823, 830 (N.Y. 1986) (citations omitted).
"Thus the burden of proof as to the validity of a release is on
the defendant who pleads it, but a releasor who seeks to limit
4
. For example, in New York, an ambiguous contract usually is
construed most strongly against the drafter when the other party
has had no voice in the preparation. Jacobson v. Sassower, 489
N.E.2d 1283, 1284 (N.Y. 1985). By contrast, a release is
construed most strongly against the releasor. Mt. Read Terminal,
Inc. v. LeChase Constr. Corp., 396 N.Y.S.2d 959, 960 (N.Y. App.
Div. 1977).
the effect of a release because of a claimed mutual mistake has
the burden of proof on that issue." Id. (citations omitted).
II.
With this survey of New York law, we now turn our
attention to the dispute at hand. The relevant language in the
agreement is: "[Hatco] hereby assumes and agrees to . . .
discharge" certain obligations of Grace. The agreement has been
invoked by Grace, which has not expended any sums for cleanup and
makes no claim for them. Hence, Grace has no basis for indemnity
at this point, but in reality is seeking to shield itself from
Hatco's claim for reimbursement.
Hatco is attempting to recover sums it spent to meet
Grace's asserted liability. However, if the agreement is
enforceable, it acts to relieve Grace from payment for matters
that Hatco had taken over itself when the parties executed the
assumption agreement in 1978. Indeed, as the district court
pointed out, to the extent a document of that nature "prevents a
purchaser from asserting a CERCLA claim against the seller, the
agreement can be viewed as a ``release.'" Hatco, 801 F. Supp. at
1317. We are in accord with this comment of the district court,
and we shall treat the agreement as a release.
In diversity cases, the burden of proof is a matter of
substantive law, Blair v. Manhattan Life Ins. Co., 692 F.2d 296,
299 (3d Cir. 1982), and is not controlled by Fed. R. Civ. P.
8(c), which governs releases pled as affirmative defenses. See
Palmer v. Hoffman, 318 U.S. 109, 117 (1943). We recognize that
the present dispute is not a diversity case, but because the
parties here have chosen to have their agreement interpreted in
accordance with New York law, we will apply that state's
substantive law on the burden of proof. See Olin, 5 F.3d at 16
n.4; Mardan, 804 F.2d at 1462. Because it contends that the
terms of the agreement are unclear, we conclude that the proper
course is to require Grace to bear the burden of producing
evidence bearing on ambiguity. Hatco, though, as the releasor
seeking to limit the effect of the release, bears the burden of
persuasion on the effect of that agreement.
In reviewing the agreement, the district court used a
very strict criterion articulated as simply, "No clear
expression, no indemnity." Hatco, 801 F. Supp. at 1321. In
other words, the district court opined that matters extrinsic to
the agreement are irrelevant to the indemnity inquiry. However,
when a writing is ambiguous, New York cases require the admission
of extrinsic evidence to establish or disprove the intent of the
parties.
The assumption agreement that Hatco executed
specifically incorporated the sale agreement and read in
pertinent part:
"1. [Hatco] hereby assumes and agrees
to pay and discharge in due course all
liabilities of [Grace] attributable to the
Chemical Business listed in Exhibit A to this
instrument, and [Hatco] hereby assumes and
agrees to perform and fulfill all obligations
of [Grace] attributable to the Chemical
Business . . . .
2. [Hatco also] agrees to indemnify
[Grace] and to save and hold [Grace] harmless
from and against any and all damage,
liability, [or] loss . . . arising out of or
resulting from any failure by [Hatco] duly to
perform or fulfill any agreement set forth in
this instrument."
Liabilities and obligations of Grace attributable to
the chemical business and assumed by Hatco were defined in
relevant part as follows:
"(b) [Hatco assumes] the following
obligations and liabilities existing on the
date of the Closing, or in the case of those
described in clause (iv), arising thereafter
. . . :
(i) obligations with respect to sales
orders accepted by the Chemical Business,
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 [Grace's]
customary procedures by the management of the
Chemical Business, or any management group of
[Grace] senior thereto;
(iv) other obligations and liabilities
arising in the ordinary course of the
Chemical Business, whether prior to or after
the date of the Closing, other than Excluded
Liabilities;
(v) other liabilities and obligations
of which Alex Kaufman or David G. Seabrook[5]
has actual present personal knowledge and
awareness at the date of the Sale Agreement,
other than Excluded Liabilities;
5
. Seabrook served as a financial analyst at the Fords plant at
one time and as one of the principal negotiators for Hatco in its
purchase of the facility in 1978.
(vi) other liabilities and obligations
which do not exceed $5,000 per item and
$50,000 in the aggregate, other than Excluded
Liabilities." (emphasis added).
The "Excluded Liabilities" that Hatco did not assume
were listed in specific detail and fell into a number of
categories, including two pending law suits, a potential personal
injury claim, and the "[a]lleged pollution of Sling Tail Brook on
or about May 31, 1977."
"Chemical business" was defined as "that business
presently conducted by [Grace] comprising the manufacture and
sale of plasticisers and synthetic lubricants . . . at Fords, New
Jersey." The sale agreement tracked the language and
specifications set out in the assumption agreement.
A.
Grace contends that the pollution at the Fords site is
included within the phrase "other obligations and liabilities
arising in the ordinary course of the Chemical Business" and thus
is within the scope of clause (iv). The district court rejected
that argument and relied on Haynes v. Kleinewefers & Lembo Corp.,
921 F.2d 453 (2d Cir. 1990) for support. In that case, the Court
of Appeals for the Second Circuit found that contractual
provisions -- identical in some respects to those of the case at
hand but in an indemnity setting -- were unambiguous. In Haynes,
the purchaser of a business sought to recover amounts it had paid
to settle the personal injury claim of its employee who was
injured by a defective machine previously owned by the seller.
The Court held that the purchaser was entitled to indemnity
because the injury did not occur "in the ordinary course of
business," a factor that the contractual language required as a
prerequisite to absolving the seller.
The Haynes court, relying on the general rule of
construction, ejusdem generis, concluded that "[f]ollowing an
enumeration of particular classes ``other' must be read as ``other
such like,' and includes only others of like kind and character."
Id. at 457 (quoting Black's Law Dictionary 992 (5th ed. 1979)).
The court thus construed the phrase "other obligations and
liabilities arising in the ordinary course of business" as
including matters similar to those previously enumerated in the
same paragraph -- such as orders for sales that had been accepted
by the seller, orders for goods or services, and capital
expenditures. Id. at 458. Because those categories were quite
dissimilar to an incident resulting in personal injury, the court
held that the employee's claim was not included among the
obligations that the buyer had undertaken. The language of the
agreement "fail[ed] to establish clearly an unmistakable intent
to assume an obligation to indemnify." Id.Even assuming that personal injury to an employee does
not arise in the ordinary course of business, we nevertheless
differ with the district court's view that Haynes governs the
case at hand. There are two crucial factors that set the present
dispute apart from that in Haynes. First, disposal of waste in
the operation of a chemical plant is very much a function of the
day-to-day operation of the business. Second, unlike the lack of
a relevant intimation of personal injury claims in the Haynes
agreement, in the one at hand, there is a specific and important
reference to at least one environmental claim -- the Sling Tail
Brook pollution incident.
If one substitutes the phrase "Alleged pollution of
Sling Tail Brook on or about May 31, 1977" for the term "Excluded
Liabilities" in every instance where that term appears in
paragraph (b), the facially appealing argument that clause (iv)
relates only to "accepted sales orders, ordered goods and
services, and capital expenditures" falls apart. We conclude
that the phrase "ordinary course of the Chemical Business,"
together with the reference to an environmental claim in the
excluded liabilities section, creates an ambiguity as to the
scope of the assumption agreement. Consequently, extrinsic
evidence must be admitted to properly discern the intent of the
parties.
To bolster its argument, Grace sought to show that
during the negotiations for sale, Hatco attempted to include in
the agreement express language excluding environmental liability,
but that Grace refused to do so. Although the district court
held that extrinsic evidence was not permissible, it nevertheless
did review Grace's contention and reasoned that it "improperly
[sought] to reverse the burden of expression of intent." Hatco,
801 F. Supp. at 1321. The court concluded that the burden of
manifesting a clear expression of intent must fall on Grace. Id.
However, as we have set out in our discussion of New York law,
the burden of demonstrating the intent of the parties falls on
Hatco because it is the releasor attempting to limit the effect
of the release.
B.
The district court also reviewed Hatco's contention
that the agreement's definition of "Chemical Business," in
referring to "business presently conducted," would not include
claims arising from manufacturing operations that had been
discontinued some time before the sale. The court remarked that
although it agreed with Hatco's position on the point, "Grace's
arguments at best lead to the conclusion that the meaning of
``Chemical Business' is ambiguous . . . ." Id. We agree that an
ambiguity exists, and on this point also, extrinsic evidence
should have been admitted.
C.
Clause (v) provides that Hatco would assume "other
liabilities and obligations of which Alex Kaufman or David G.
Seabrook has actual present personal knowledge and awareness at
the date of the Sale Agreement." The extent of those
individuals' actual knowledge is disputed, but there seems to be
little doubt that they were both aware of actual or potential
environmental problems in 1978. As noted earlier, Hatco
unsuccessfully sought to insert in the agreement specific
disclaimers of liability for such risks.
The district court concluded that CERCLA liabilities
did not exist at the time of the sale and, therefore, clause (v)
did not establish that Hatco had assumed them. As the court
viewed the situation, "liability" necessarily indicated "a legal
relationship between the liable party and the party to whom it is
liable." Id. at 1322. According to the court, "No such legal
relationship existed . . . until [the] enactment of CERCLA." Id.
Thus, the existence of facts necessary for CERCLA liability in
the court's view was not "sufficient to constitute knowledge of
``liabilities.'" Id.
This reasoning is not consistent with the court's
earlier pronouncement that a broad assumption of environmental
liability pre-dating CERCLA would be effective for post-CERCLA
claims. Id. at 1317-18. That conclusion was clearly correct.
See Fisher, 37 F.3d at 110-11 n.1; Beazer, 34 F.3d at 211;
Philadelphia Elec. Co. v. Hercules, Inc., 762 F.2d 303, 309-10
(3d Cir. 1985).6 In those cases, as well as in the one here,
6
. See also Joslyn Mfg. Co. v. Koppers Co., 40 F.3d 750, 754-55
(5th Cir. 1994) (two leases dated 1942 and 1949 were sufficiently
broad so as to transfer responsibility for cleanup costs, "even
though environmental liability . . . was not specifically
contemplated at the time of contracting") (applying Louisiana
law); Kerr-McGee Chem. Corp. v. Lefton Iron & Metal Co., 14 F.3d
321, 326-27 (7th Cir. 1994) (1972 agreement was sufficiently
broad so as to transfer responsibility for cleanup costs,
agreement covered claims of "pollution or nuisance," and state
environmental statute was enacted two years before the parties
contracted) (applying Illinois law); Olin, 5 F.3d at 15-16 (1974
agreement was sufficiently broad so as to transfer responsibility
for cleanup costs "even to future unknown liabilities") (applying
New York law); John S. Boyd Co. v. Boston Gas Co., 992 F.2d 401,
407 (1st Cir. 1993) (1959 agreement was narrow so as to preclude
transfer of responsibility for cleanup costs because agreement
only related to "existing" liabilities, but apparently made no
mention of environmental liabilities) (applying Massachusetts
law); United States v. Hardage, 985 F.2d 1427, 1435 (10th Cir.
1993) (1972 and 1977 agreements to transport hazardous waste were
sufficiently broad so as to transfer responsibility for cleanup
costs, and yet sufficiently narrow so as to preclude cross-
indemnification) (applying Oklahoma law); AM Int'l, Inc. v.
International Forging Equip. Corp., 982 F.2d 989, 997 (6th Cir.
1993) (1979 agreement, but remand was necessary to determine
"[n]o such legal relationship existed . . . until [the] enactment
of CERCLA," but despite that chronology, pre-CERCLA agreements
were held effective.
The district court also commented that "Grace seems to
forget that the CERCLA liabilities in issue were its liabilities
to begin with." Hatco, 801 F. Supp. at 1321. Although these
environmental liabilities were obviously attributable to Grace
before the sale in 1978, we find the court's statement to be
irreconcilable with its later conclusion that these identical
liabilities were not "existing" on the closing date. See id. at
1322. Indeed, the first step in determining whether Hatco
assumed Grace's liabilities is whether Grace had any liabilities
to be assumed.
The court similarly remarked that "[w]ithout a
statutory or common law basis to impose responsibility, . . . it
is too far of a stretch to characterize the existence of the
facts as a ``liability.'" Id. But Grace had already incurred
potential environmental liabilities under state and federal law
before the closing date of the 1978 assumption agreement.7 Grace
(..continued)
whether parties contemplated environmental liabilities despite
the fact that the agreement apparently made no mention of
environmental liabilities) (applying Ohio law); Polaroid Corp. v.
Rollins Envtl. Servs. (NJ), Inc., 624 N.E.2d 959, 966 (Mass.
1993) (1976 agreement was sufficiently broad so as to transfer
responsibility for cleanup costs, and "the parties were aware of
changing [environmental] regulations and strict liability was a
tenable claim") (applying New Jersey law).
7
. The parties both limit their discussion of environmental
liabilities to those arising under New Jersey as well as federal
law.
was responsible under state common-law and statutory provisions
for the abatement of the environmental harm to the Fords site
resulting from past hazardous waste disposal practices. In
State, Dep't of Envtl. Protection v. Ventron Corp., 468 A.2d 150,
163 (N.J. 1983), the Supreme Court of New Jersey pointed out that
"the Spill Act [did] not so much change substantive liability as
it establishe[d] new remedies for activities recognized as
tortious both under prior statutes and the common law." See also
Leo v. Kerr-McGee Chem. Corp., 37 F.3d 96, 101 & n.8 (3d Cir.
1994) (citing T & E Indus., Inc. v. Safety Light Corp., 587 A.2d
1249 (N.J. 1991)); Polaroid Corp. v. Rollins Envtl. Servs. (NJ),
Inc., 624 N.E.2d 959, 965-67 (Mass. 1993) (applying New Jersey
law). Because the waste disposal practices at the Fords site
threatened the public health and the environment by leaching
chemicals into potential sources of drinking water, corresponding
responsibility for cleanup existed on the date of closing under
federal theories as well. See, e.g., United States v. Price, 688
F.2d 204, 214 (3d Cir. 1982); United States v. Solvents Recovery
Serv. of New England, 496 F. Supp. 1127 (D. Conn. 1980).
The Mardan court's view of New York law is also
pertinent: "[I]f the injury is known, and the mistake [of the
parties] is merely as to the consequence, future course, or
sequelae of a known injury, then the release will stand."
Mardan, 804 F.2d at 1463 (internal quotation omitted) (applying
New York law); see also Purolator Prods. Corp. v. Allied-Signal,
Inc., 772 F. Supp. 124, 137 (W.D.N.Y. 1991) (applying New York
law). In the circumstances here, it is of no practical
importance whether Grace's obligation to clean up the site would
be imposed by CERCLA, another federal statute, the common law, or
a New Jersey statute. In any event, the process would require
the expenditure of substantial sums of money, and it is that
reimbursement which Hatco seeks here. We, therefore, do not
accept the district court's restrictive view of the term
"liabilities" as found in paragraph (b) of Exhibit A to the
assumption agreement.
The circumstances of the sale from Grace to Hatco are
unique in that Kaufman, the owner of Hatco, had been in charge of
Grace's activities at the Fords facility for many years before
the transfer of ownership. It may be an exaggeration, but it
makes the point to say that the buyer knew more about the plant
and its operations than did the seller.
Kaufman's knowledge as of the closing date was
discussed at length by the district court in its findings of fact
after the trial. The court found that Kaufman had been highly
regarded by Grace as an organic chemist. Hatco v. W.R. Grace &
Co.--Conn., 836 F. Supp. 1049, 1077 (D.N.J. 1993). He had been
employed by Grace's predecessor in a number of capacities and, at
one point, had been in the research and development laboratory
that was responsible for product developments and improvements in
the manufacturing processes. He became plant manager and
acquired familiarity with waste disposal practices at the
facility. In 1960, at his request, an engineering expert
submitted a report on the waste water disposal practices at
Fords.
In 1962, Kaufman became president of the division that
operated the facility and began to spend more of his time
acquiring new business, rather than taking a particularly active
part in running the day-to-day operation of the Fords plant. Id.
at 1078. However, he was regularly informed of any contacts with
governmental agencies on environmental matters, other
environmental problems at the facility, and the plant's pollution
control expenditures. Id. at 1079. He received monthly reports
on whether the Grace chemical division had been involved in any
government proceedings pertaining to enforcement of environmental
laws.
As of 1978 at the latest, Kaufman was aware of the
increasing activity of governmental agencies in coping with the
environmental consequences of past and present chemical
manufacturing activities. He was kept advised of impending
legislation, including such federal statutes as the Toxic
Substances Control Act, 15 U.S.C. §§ 2601-2629, and understood
that those involved in the chemical business had to be concerned
about environmental regulations.
These findings offer compelling reasons for determining
the extent of Kaufman's knowledge at the time of the closing.
Seabrook also had worked for some time at the plant before its
sale to Hatco, and his knowledge, too, is a crucial issue.
Without further proceedings to adequately develop those facts,
the court will be unable to decide the meaning of clause (v).
D.
To resolve the ambiguities that we have discussed, it
will be necessary that the matter be remanded to the district
court so that it may conduct a hearing at which extrinsic
evidence may be produced in order to determine the full scope and
effect of the assumption agreement. However, before concluding,
we must determine whether this case must be tried to a jury.
III.
Grace contends that it was entitled to a jury trial on
its CERCLA claims. The procedural aspects of the jury trial
issue in this record are somewhat blurred. Rather than exploring
the complexities, we shall assume that Grace was entitled to rely
on the jury trial demand originally made by Hatco on the CERCLA
claims.8 The district court denied Grace's requests, concluding
that cost-recovery actions and claims for contribution under
CERCLA, 42 U.S.C. §§ 9607(a)(4) and 9613, are equitable in
nature. Hatco v. W.R. Grace & Co.--Conn., 859 F. Supp. 769, 774
(D.N.J. 1994). The district court ruled that cost-recovery suits
are actions for restitution and are not triable to a jury.
42 U.S.C. § 9607(a)(1)(B) provides that the owner or
operator of a facility is liable for "necessary costs of response
incurred by any other person consistent with the national
8
. It is questionable whether Grace's demand for a jury trial on
its "counterclaim" was appropriate. The assumption agreement is
properly characterized as a release that should have been pleaded
as an affirmative defense. It is not a separate claim. See
Owens-Illinois, Inc. v. Lake Shore Land Co., 610 F.2d 1185 (3d
Cir. 1979). See also Fed. R. Civ. P. 8(c) (a defense improperly
pleaded as a counterclaim may be treated by the court "as if
there had been a proper designation").
contingency plan." Judicial construction of this section
originally created an implied right of contribution. See Key
Tronic Corp. v. United States, 114 S. Ct. 1960, 1965 (1994).
However, a subsequent amendment to CERCLA (SARA), 42 U.S.C.
§ 9613(f)(1) provides that "[a]ny person may seek contribution
from any other person who is liable or potentially liable under
section 9607(a) . . . during or following any civil action under
[that section]." The court is permitted to allocate response
costs under section 9613(f)(1) "using such equitable factors as
the court determines are appropriate." As the Supreme Court
said, sections 9607 and 9613 provide "similar and somewhat
overlapping remed[ies]." Key Tronic, 114 S. Ct. at 1966.
In United States v. Alcan Aluminum Corp., 964 F.2d 252(3d Cir. 1992), we determined that under section 9607, an alleged
responsible party is entitled to prove that the environmental
harm is divisible and thus is reflected in the degree of
liability. On the other hand, section 9613(f)(1) allows more
discretion to the court in allocating response costs, and factors
other than liability may enter into apportionment. Id. at 270
n.29; see also United States v. Colorado & E. R.R., 50 F.3d 1530,
1534-38 (10th Cir. 1995) (§ 9607 establishes joint and several
responsibility on a strict liability basis; § 9613 allocates
amounts due on equitable considerations). Both sections are
intertwined, and there are practical difficulties with making a
distinction between them that would justify differing rulings on
the availability of a jury trial.
As a general rule, the right to a jury trial is
protected by the Seventh Amendment when the claim is a legal one,
but not if it is equitable. In establishing new statutory
remedies, Congress may provide for jury trials in addition to
those required by the Constitution. Tull v. United States, 481
U.S. 412, 417 n.3 (1987); Curtis v. Loether, 415 U.S. 189, 191-92
(1974). The determination of which form of trial is applicable
to a specific claim, however, is not always a simple one,
particularly when the remedy is statutory and Congress has not
stated its intention. See the discussion in Crocker v. Piedmont
Aviation, Inc., 49 F.3d 735, 744-49 (D.C. Cir. 1995).
A.
The only appellate court ruling on the right to a jury
trial in CERCLA cases is United States v. Northeastern
Pharmaceutical & Chem. Co., 810 F.2d 726 (8th Cir. 1987). There,
the Court of Appeals determined that a jury trial was not
permitted in an action brought under section 9607 by the
government against several individuals, alleging them to be
jointly and severally liable for response costs. Id. at 749.
The Court observed that the government was asking for restitution
of amounts that it had expended and as such was seeking a form of
equitable relief.
Restitution is based on substantive liability having
its origins in unjust enrichment or the restoration to a party in
kind of his lost property or its proceeds. Crocker, 49 F.3d at
747; see also Porter v. Warner Holding Co., 328 U.S. 395, 402
(1946) (restitution is within the traditional equitable powers of
the court); Restatement of Restitution § 115. Northeastern
Pharmaceutical's holding has been widely accepted, and Grace does
not take issue with it on this appeal. We are in agreement that
a jury trial is not available in a claim brought under section
9607.
B.
Whether a right to a jury trial exists in a claim
grounded in section 9613(f)(1) has not been decided by any
appellate court, but the district courts have reached conflicting
results on the issue.9 The statute contains no references to the
right to juries. One district court, after performing an
exhaustive search, found no specific comments in the legislative
history. See American Cyanamid Co. v. King Indus., Inc., 814 F.
Supp. 209, 212-13 (D.R.I. 1993).
We note that one statement in the Report of the House
Committee on the Judiciary accompanying SARA tends to disclaim
any congressional intent to have juries decide § 9613 matters.
"New subsection [9613(f)(1)] of CERCLA
. . . ratifies current judicial decisions
that the courts may use their equitable
powers to apportion the costs of clean-up
among the various responsible parties
involved with the site. Courts are to
9
. Compare American Cyanamid Co. v. King Indus., Inc., 814 F.
Supp. 209, 213-15 (D.R.I. 1993); Wehner v. Syntex Corp., 682 F.
Supp. 39, 39-40 (N.D. Cal. 1987) with United States v. Shaner,
No. 85-1372, 1992 WL 154618, at **2-4 (E.D. Pa. June 15, 1992)
(unpublished opinion).
resolve claims for apportionment on a case-
by-case basis pursuant to Federal common law,
taking relevant equitable considerations into
account. Thus, after questions of liability
and remedy have been resolved, courts may
consider any criteria relevant to determining
whether there should be an apportionment."
131 Cong. Rec. 34,645 (1985); see also H.R. 253(III), 99th Cong.,
2d Sess. 19 (1985), reprinted in 1986 U.S.C.C.A.N. 2835, 3038,
3041-42.
Finding no clear indication of congressional intent to
grant a jury trial in either the statute or the legislative
history, we must therefore look to the constitutional guarantee
in the Seventh Amendment. The Supreme Court has supplied the
formula for this largely historical review, acknowledging its
difficulty. "``First, we compare the statutory action to 18th-
century actions brought in the courts of England prior to the
merger of the courts of law and equity. Second, we examine the
remedy sought and determine whether it is legal or equitable in
nature.'" Wooddell v. International Bhd. of Electrical Workers,
Local 71, 502 U.S. 93, 97 (1991) (quoting Chauffeurs, Teamsters &
Helpers Local No. 391 v. Terry, 494 U.S. 558, 565 (1990)).
In In re Japanese Elec. Prods. Antitrust Litig., 631
F.2d 1069 (3d Cir. 1980), we were favored with an elaborate
historical presentation by the parties. After considering the
various arguments, we concluded that courts determine "the legal
or equitable nature of a suit by comparing it with suits actually
tried in courts of common law or equity." Id. at 1083.
The parties here have not briefed the historical phase
of the inquiry, and we disclaim an exhaustive survey of our own
on whether contribution in the 18th century was an equitable or
legal remedy. Our research, however, indicates that during the
relevant period, contribution was an equitable remedy. In
reviewing various texts, we have found Joseph Story's
Commentaries on Equity Jurisprudence (2d ed. 1839) to be the most
persuasive. Conceding that, in a few cases, a common-law remedy
of contribution existed, the author states that the
"more beneficial exercise of Equity
Jurisdiction, in cases of apportionment and
contribution, is in cases, where . . .
charges on real estate . . . are actually
paid off by some of the parties in interest.
. . . In most cases of this sort there is no
remedy at law, from the extreme uncertainty
of ascertaining the relative proportions,
which different persons, having interests of
a very different nature, quality, and
duration, in the subject-matter, ought to
pay."
Id. § 483, at 461 (footnote omitted). That comment is
particularly applicable in CERCLA claims.
Justice Story also referred to opinions written by the
highly regarded authority on equity, Chancellor Kent of New York.
Id. § 469, at 449 n.2. In Cheesebrough v. Millard, 1 Johns. Ch.
409, 415 (N.Y. Ch. 1815), Kent wrote that "[t]he object of the
principle of contribution is equality in the support of a common
burden . . . ." Similarly, in Campbell v. Mesier & Dunstan, 4
Johns. Ch. 334, 338 (N.Y. Ch. 1820), he observed that "[t]he
doctrine of contribution is founded, not on contract, but on the
principle, that equality of burden, as to a common right, is
equity . . . ."
Chancellor Kent cited Lord Chief Baron Eyre's opinion
in Dering v. Earl of Winchelsea, 1 Cox's Ch. Cas. 318, 321, 29
Eng. Rep. 1184, 1185, 2 Bos. & Pull. 270 (Ex. 1787), where it is
said, "we shall find that contribution is bottomed and fixed on
general principles of justice, and does not spring from contract
. . . . [T]he doctrine of equality operates more effectually in
this Court, than in a Court of law." See also Stevens v. Cooper,
1 Johns. Ch. 425, 430 (N.Y. Ch. 1815) ("It is a doctrine well
established, that when land is charged with a burden, the charge
ought to be equal, and one part ought not to bear more than its
due proportion; and equity will preserve this equality by
compelling the owner of each part to a just contribution.")
(citing Harbert's Case, 3 Coke's Rep. 14, 76 Eng. Rep. 647 (Ex.
1584); Harris v. Ingledew, 3 P. Wms. 91, 24 Eng. Rep. 981 (M.R.
1730)); John Adams, The Doctrine of Equity 219-25 (1st ed.
1850).10
10
. As the Supreme Court noted in Northwest Airlines, Inc. v.
Transport Workers Union of Am., AFL-CIO, 451 U.S. 77, 86 n.16
(1981), the non-contribution rule of the common law is generally
traced to Merryweather v. Nixan, 8 Term. Rep. 186, 101 Eng. Rep.
Although John N. Pomeroy's Treatise on Equity
Jurisprudence § 1418, at 468 n.1 (1st ed. 1883) states that
"jurisdiction at law has become well settled which is sufficient
in all ordinary cases of suretyship or joint liability," he
acknowledges that "[t]he equitable jurisdiction still remains and
has some most important advantages." That commentary, however,
was written several decades after that of Justice Story. As
George E. Palmer explains in his work The Law of Restitution
§ 1.5, at 31 (1978), enforcement of contribution claims by suits
at law did not appear until early in the nineteenth century.
The nature of CERCLA claims has been noted by us in
passing, "The contribution proceeding is an equitable one in
which a court is permitted to allocate response costs based on
factors it deems appropriate." Alcan, 964 F.2d at 270 n.29. In
another context we remarked, "[T]he right of contribution from
others is grounded in equity." Pacific Indem. Co. v. Linn, 766
F.2d 754, 769 (3d Cir. 1985).
After our review of the more important authorities, we
are of the belief that a claim for contribution of the nature
presented in the case before us would have been entertained by a
chancellor in equity in 1791, but not by a court at law. That
determination is not dispositive in and of itself because the
claims here are brought pursuant to the terms of a statute. As
(..continued)
1337 (K.B. 1799). Because most American courts understood that
case as a general proscription of contribution, the early common
law in this country prohibited contribution among joint
tortfeasors.
the Supreme Court has observed, where Congress provides for
enforcement of statutory rights in a civil suit, "a jury trial
must be available if the action involves rights and remedies of
the sort typically enforced in an action at law." Curtis, 415
U.S. at 195. But certainly the fact that the remedy was one
typically granted only in equity argues against a statutory
remedy being considered as one at law.11
In Rex v. CIA. Pervana de Vapores, S.A., 660 F.2d 61,
65 (3d Cir. 1981), we observed that the Seventh Amendment issue
presented in a case must be considered in the context of the
congressional schema in which it arises. As noted earlier,
CERCLA's language and legislative history lack any evidence of
intent to have the claims determined by a jury. To the contrary,
references to equity and equitable factors do appear, and we may
assume that Congress was well aware that juries are not a feature
of equitable trials. It is entirely reasonable, therefore, to
believe that Congress intended to design a remedy that would
track traditional equity practice. Cf. Cox v. Keystone Carbon
Co., 861 F.2d 390, 393 (3d Cir. 1988) (ERISA case) ("[W]e can
infer that Congress knew the significance of the term equitable
and intended that no jury be available on demand."); see also
11
. Lord Devlin argues that the test should be whether a
chancellor in 1791 would have exercised the power of equity to
hear the case, not the more narrow inquiry of whether precedent
demonstrated that such suits had actually been heard. See
Patrick Devlin, Equity, Due Process and the Seventh Amendment: A
Commentary on the Zenith Case, 81 Mich. L. Rev. 1571 (1983). It
would seem that Lord Devlin's approach, unfortunately, would lead
to even more uncertainty in determining the bounds of the Seventh
Amendment.
Pane v. RCA Corp., 868 F.2d 631, 637 (3d Cir. 1989) (ERISA case).
In the case at hand, the district court reasoned that
because the precipitating claims under section 9607 are primarily
equitable in nature, a claim for contribution under section
9613(f)(1) is also essentially equitable. Hatco, 859 F. Supp. at
775. The court further relied on the fact that section
9613(f)(1) requires a court to apportion the costs between the
parties "using such equitable factors as the court determines are
appropriate." Id. at 775 n.3.
We concur with the district court's reasoning.
Particularly, we are impressed with the references in section
9613(f)(1) to "equitable" factors. This is an indication that
the statutory action for contribution is to be a flexible remedy
that may be based on circumstances not cognizable in nor readily
adaptable to an action at law. In sum, we are persuaded that an
action for contribution under section 9613(f)(1) is essentially
equitable. Accord United States v. R.W. Meyer, Inc., 932 F.2d
568, 572 (6th Cir. 1991). Accordingly, we hold that in suits
brought under 42 U.S.C. §§ 9607 or 9613(f)(1), the parties are
not entitled to a jury trial.
IV.
The parties have raised a number of other issues not
related to the 1978 assumption agreement. We decline to address
them at this juncture because the ultimate resolution of the
assumption question could be outcome-determinative and our
opinion on those other issues would be merely advisory.
Accordingly, we will vacate the judgment of the district court
and will remand for further proceedings consistent with this
opinion.
Each party to bear its own costs.
TO THE CLERK:
Please file the foregoing Opinion.
____________________________
Circuit Judge
ADDENDUM
The assumption agreement between Grace and Hatco read
as follows:
"HATCO CHEMICAL
BUYER'S ASSUMPTION AGREEMENT
. . . [P]ursuant to the Sale Agreement and
for valuable consideration, the receipt of
which is hereby acknowledged,
1. [Hatco] hereby assumes and agrees to
pay and discharge in due course all
liabilities of [Grace] attributable to the
Chemical Business listed in Exhibit A to this
instrument, and [Hatco] hereby assumes and
agrees to perform and fulfill all obligations
of [Grace] attributable to the Chemical
Business listed in Exhibit A to this
instrument. As used in this instrument,
"Chemical Business" means that business
presently conducted by the Chemical Division
of the Hatco Group of [Grace] comprising the
manufacture and sale of plasticisers and
synthetic lubricants at a principal
manufacturing location at Fords, New Jersey.
For purposes of this instrument, "Chemical
Business" does not include the business of
purchase and resale of oxo-alcohols conducted
by such Chemical Division, or any interest of
[Grace] in Grace Petro-chemicals, Inc. or its
undivided one-half interest in Oxochem
Enterprise.
2. [Hatco] hereby agrees to indemnify
[Grace] and to save and hold [Grace] harmless
from and against any and all damage,
liability, loss, cost or deficiency
(including, but not limited to, reasonable
attorneys' fees and other costs and expenses
incident to proceedings or investigations of
the defense of any claim) arising out of or
resulting from any failure by [Hatco] duly to
perform or fullfill any agreement set forth
in this instrument."
Exhibit A of the assumption agreement provided the
following:
"Assumed Liabilities and Obligations [By Hatco]
The following liabilities and obligations of
[Grace] attributable to the Chemical
Business:
(a) liabilities of the Hatco Chemical
Division of [Grace] 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,
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 [Grace's]
customary procedures by the management of the
Chemical Business, or any management group of
[Grace] senior thereto;
(iv) other obligations and liabilities
arising in the ordinary course of the
Chemical Business, whether prior to or after
the date of the 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 the Sale Agreement,
other than Excluded Liabilities;
(vi) other liabilities and obligations
which do not exceed $5,000 per item and
$50,000 in the aggregate, other than Excluded
Liabilities.
All terms defined in the Sale Agreement
have the same meaning in this agreement. The
following are the Excluded Liabilities, as
defined in the Sale Agreement:
``Excluded Liabilities' means the
following liabilities and obligations of
[Grace] attributable to the Chemical Business
for all periods ending on or prior to the
date of the Closing: (a) all liabilities for
taxes, including without limitation income
taxes, (except federal, state and local
payroll and withholding taxes for the pay
period which includes the date of the
Closing, to the extent not paid by [Grace],
provided an accrual in such amount shall be
made in the Closing Net Amount) (b) notes and
accounts payable to other groups, divisions
or other units or subsidiaries or affiliates
of [Grace], other than trade accounts payable
arising from the purchase of goods, (c)
liabilities against which [Grace] is
effectively insured, without regard to any
applicable deductible amounts, (d) product
liabilities, including without limitation
liabilities for personal injury, with respect
to merchandise sold or shipped prior to the
date of the Closing, (e) liabilities and
obligations arising from claims asserted by
any employee or former employee with respect
to injury, sickness, disease or death or
under any disability of workmen's
compensation laws, (f) liabilities for which
the corresponding assets are prepaid expenses
and deferred charges, the benefit of which
cannot be effectively transferred to [Hatco],
(g) liabilities and obligations arising from
claims asserted by any of the former owners
or managers of any predecessor company, any
portion of the business or assets of which is
included in the Chemical Business or the
Chemical Assets, and (h) the liabilities
specifically described in the schedule to
this Exhibit."
The schedule to Exhibit A of the assumption agreement
provided the following:
"Excluded Liabilities [i.e., Those Retained By Grace]
1. Alleged pollution of Sling Tail Brook on
or about May 31, 1977.
2. Canton v. Buffalo Tank, et al., Superior
Court of New Jersey, Middlessex County,
Docket L-4354-77.
3. Potential claim by Norman Bresee for
personal injury incurred at the Chemical
plant in 1976.
4. Liloia v. E.I. duPont de Nemours & Co.,
Inc., et al., Superior Court of New Jersey,
Essex County, Docket L-44267-76."
Hatco Corp. v. W.R. Grace & Co.--Conn.
No. 94-5276
HUTCHINSON, J., Concurring and Dissenting.
I concur in the decision to vacate the district court's
judgment in favor of Hatco on its claim for contribution from
Grace. I agree that the district court incorrectly applied
federal rather than New York law to interpret the meaning of the
ambiguous provisions in the sales agreement governing Hatco's
responsibility for liabilities arising out of Grace's prior
operation of its "chemical business" on the real property Hatco
purchased. See Beazer East, Inc. v. Mead Corp., 34 F.3d 206 (3d
Cir. 1994), cert. denied, 115 S. Ct. 1696 (1995). I respectfully
disagree, however, with the Court's conclusion that New York law
requires the applicable provisions of the sales agreement to be
construed as a release rather than a promise to indemnify. I
believe that these provisions are also ambiguous as to whether
the parties intended to release or indemnify Grace against such
liabilities. Indeed, Hatco's release is Grace's indemnity.
Thus, I believe their characterization as a release or an
indemnity is a question of fact that should be decided by the
district court in the first instance.
New York law is not a model of clarity in
distinguishing releases from agreements to indemnify. Compare
Structural Painting Corp. v. Travelers Indem. Co., 451 N.Y.S.2d
875, 876 (N.Y. App. Div. 1982) with Walsh v. Morse Diesel, Inc.,
533 N.Y.S.2d 80, 83 (N.Y. App. Div. 1988). In New York, as
elsewhere, a polluter seeking indemnity against the cost of
abating its pollution must establish an unmistakable intent to
indemnify as well as the extent of the indemnification by clear
evidence. Heinbach v. Metropolitan Transp. Auth., 553 N.E.2d
242, 246 (N.Y. 1990) (citations omitted). New York law, on the
other hand, allows a releasee to establish intent to release by a
mere "expression of a present intention to renounce a claim."
Carpenter v. Machold, 447 N.Y.S.2d 46, 47 (N.Y. App. Div. 1982)
(citation omitted). Moreover, once a document construed as a
release is held to be ambiguous, the burden of proving the kinds
of harm that are not subject to the release shifts to the
releasor. Structural Painting, 451 N.Y.S.2d at 876.
Unfortunately, the uncertainty that arises in applying
these distinctions to disputes among two or more polluters of a
single site over payment of the cost of abating contamination
each has contributed to seems to me likely to increase the
already staggering transactional costs of CERCLA litigation. I
am especially reluctant to hold, as a matter of law, that New
York would construe an agreement like the one before us as a
release if, as the Court indicates, it introduces the factor of
who acts first into the process of distinguishing agreements of
release from promises to indemnify. See Majority Op. at 11.
This could import into CERCLA litigation an incentive for a
polluter to delay the start of clean up lest this publicly
responsible act may prove privately costly. Thus, I believe
CERCLA's goal of expeditious environmental cleanup will be better
served by interpreting provisions in ambiguous agreements for
allocation of the cost of abating pollution among polluters as
agreements of indemnity rather than agreements of release, when
applicable local law makes that possible.
Accordingly, though I concur in the Court's mandate
remanding this case to the district court for reconsideration of
Hatco's claim for contribution under New York rather than federal
common law, I would also leave the district court free to decide,
in the first instance, whether the parties intended an agreement
of release or one of indemnity.12
12
. I agree with the Court that additional evidence may be
needed on remand concerning Kaufman's and Seabrook's knowledge of
the extent to which the site was polluted before the sale. In
addition, I note my full agreement with the scholarly analysis
the Court adduces to support its rejection of Grace's contention
that it has a Seventh Amendment constitutional right to a jury
trial on its CERCLA claims.