Peoples Gas Light and Coke Com v. Beazer East Inc.

In the
United States Court of Appeals
For the Seventh Circuit
No. 14-3634
THE PEOPLES GAS LIGHT AND COKE
COMPANY,
Plaintiff-Appellant,
v.
BEAZER EAST, INC.,
Defendant-Appellee.
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 14 C 2434 — George M. Marovich, Judge.
ARGUED MAY 26, 2015 — DECIDED S EPTEMBER 21, 2015
Before BAUER, KANNE, and WILLIAMS , Circuit Judges.
BAUER, Circuit Judge. Plaintiff-appellant, The Peoples Gas
Light and Coke Company (“Peoples”), brought suit against
defendant-appellee, Beazer East, Inc. (“Beazer”), to recover
costs incurred by Peoples in conducting environmental
investigation and removal activities at a property, partially
owned by Peoples, known as the Crawford Station site.
2 No. 14-3634
I. BACKGROUND
This case requires the interpretation of a contract entered
into in 1920 between Peoples and Beazer’s predecessor,
Koppers. Under the terms of the contract, Koppers agreed to
“organize … a corporation empowered by its charter to build
and to operate a by-product coke plant and a plant for the
manufacture of carbureted water gas.” The corporation was to
be called Chicago By-Product Coke Company (“Chicago Coke”
or “Coke”). Coke then was to enter into a contract with
Koppers, under the terms of which Koppers would agree to
build and operate for a period of years a coke plant located at
Crawford Station in Chicago, Illinois (the “coke plant”), “for
and in behalf of and in the name of ‘Coke,’” using Koppers’
patented coke-oven technology. To pay for construction, Coke
issued $13,000,000 of first mortgage bonds to Koppers and
$600,000 of second mortgage bonds. Peoples agreed to pur-
chase all of the gas and coke manufactured at the plant for
distribution to consumers.
Operations at the coke plant began in October 1921. Seven
years later, Peoples acquired the assets of Coke. Koppers
continued to operate the coke plant until 1938, when Peoples
purchased the stock of Coke and took over operations until
1956. Today, some of the land is still owned by Peoples.
In recent years, Peoples began working with the United
States Environmental Protection Agency (“EPA”) and the
Illinois Environmental Protection Agency to investigate
environmental contamination at the Crawford Station site.
Peoples eventually entered into three agreements with the
EPA, beginning in 2007 when they entered an “Administrative
No. 14-3634 3
Settlement Agreement and Order on Consent” (“2007 AOC”).
This agreement required Peoples “to conduct an Engineering
Evaluation and Cost Analysis … of alternative response actions
… to address the environmental concerns in connection with
… Crawford Station.” In 2008, Peoples and the EPA entered a
second “Administrative Settlement Agreement and Order on
Consent” (“2008 AOC”), which concerned “the preparation
and performance of a remedial investigation and feasibility
study” at the Crawford Station site. Then, in 2011, Peoples and
the EPA entered a third “Administrative Settlement Agree-
ment and Order on Consent” (“2011 AOC”), which provided
“for the performance of a removal action by [Peoples] and the
reimbursement of certain response costs by the United States”
in connection with the Crawford Station site. As a result of the
investigation and removal activities at the Crawford Station
site, Peoples has incurred over $70,000,000 in costs.
On April 4, 2014, Peoples filed suit against Beazer to
recover costs incurred in connection to the aforementioned
environmental investigation and removal activities. Count I of
the two-count complaint was for cost recovery pursuant to
CERCLA § 107(a), 42 U.S.C. § 9607(a); Count II was for
contribution pursuant to CERCLA § 113(f)(3)(B), 42 U.S.C.
§ 9613(f)(3)(B). Beazer moved to dismiss the complaint on
three grounds: (1) Peoples had contractually released Koppers
of all liability of any character for its operation of the coke
plant; (2) Peoples was limited to a contribution claim; and
(3) Peoples’ contribution claim was time-barred with respect to
costs incurred under the 2007 and 2008 AOCs.
On September 8, 2014, the district court partially granted
Beazer’s motion to dismiss. The court dismissed with prejudice
4 No. 14-3634
Count I of the complaint, finding that Peoples had resolved its
liability to the United States via administrative settlement and,
therefore, only had a claim for contribution under CERCLA
§ 113(f)(3)(B). As to Count II, the district court dismissed with
prejudice Peoples’ claims for contribution for costs arising out
of the 2007 and 2008 AOCs. The court held that each AOC was
subject to the three-year statute of limitations set forth in
42 U.S.C. § 9613(g)(3)(B), thus Peoples’ claims were time-
barred. The court held Peoples’ contribution claim stemming
from the 2011 AOC was not time-barred, but dismissed
with prejudice Peoples’ contribution claim based on Koppers’
operator liability. The court denied Beazer’s motion as to
Peoples’ claim based on ownership liability. On November 3,
2014, the district court conducted a Status Hearing where
Peoples moved to voluntarily dismiss the remaining contribu-
tion claim in Count II. The district court granted this oral
motion and entered judgment in favor of Beazer.
On appeal, Peoples contests the district court’s dismissal of
Count II of its complaint.1 Peoples presents two issues on
appeal: (1) that the district court erred in holding that the 1920
agreement bars Peoples’ contribution claims under CERCLA
§ 113(f)(3)(B) based on Koppers’ status as an operator; and
(2) that the district court erred in holding that Peoples’ contri-
bution claims arising out of the 2007 and 2008 AOCs are time-
barred.
1
Because Peoples voluntarily dismissed the part of Count II relating to its
claim for contribution arising out of Koppers’ ownership liability, it does
not appeal this issue.
No. 14-3634 5
II. ANALYSIS
CERCLA was passed in 1980 “to promote the ‘timely
cleanup of hazardous waste sites’ and to ensure that the costs
of such cleanup efforts were borne by those responsible for the
contamination.” Burlington Northern & Santa Fe Ry. Co. v.
United States, 556 U.S. 599, 602 (2009) (internal citations
omitted). There are four classes of potentially responsible
parties upon whom CERCLA imposes liability: (1) present
owners and operators of facilities; (2) past owners or operators
of the facility at the time of the disposal of a hazardous
substance; (3) arrangers of the disposal of hazardous sub-
stances at the facility; and (4) certain transporters of hazardous
substances. 42 U.S.C. § 9607(a). The parties do not dispute
Koppers’ role as an operator during the relevant period.
Section 107(e)(1) of CERCLA provides:
No indemnification, hold harmless, or similar agree-
ments or conveyance shall be effective to transfer from
the owner or operator of any vessel or facility or from
any person who may be liable for a release or threat of
release under this section, to any other person the
liability imposed under this section. Nothing in this
subsection shall bar any agreement to insure, hold
harmless, or indemnify a party to such agreement for
any liability under this section.
42 U.S.C. § 9607(e)(1).
At first blush, this section appears internally inconsistent.
However, we have joined other federal courts of appeals in
reconciling these two sentences by construing them to mean
6 No. 14-3634
that responsible parties may not transfer their CERCLA
liability, but may obtain indemnification for that liability. See
PMC, Inc. v. Sherwin-Williams Co., 151 F.3d 610, 613 (7th Cir.
1998) (“Parties are free … to allocate [CERCLA] expenses
between themselves by contract.”); Kerr-McGee Chem. Corp. v.
Lefton Iron & Metal Co., 14 F.3d 321 (7th Cir. 1994); Harley-
Davidson, Inc. v. Minstar, Inc., 41 F.3d 341, 342–43 (7th Cir. 1994)
(holding that § 107(e)(1) “does not outlaw indemnification
agreements, but merely precludes efforts to divest a responsi-
ble party of his liability”); see also SmithKline Beecham Corp. v.
Rohm & Haas Co., 89 F.3d 154, 158 (3rd Cir. 1996)
(“[R]esponsible parties can lawfully allocate CERCLA response
costs among themselves while remaining jointly and severally
liable to the government for the entire clean-up.”); Beazer East,
Inc. v. Mead Corp., 34 F.3d 206, 211 (3rd Cir. 1994).
Peoples does not question this court’s interpretation of
§ 107(e)(1). However, it argues that the 1920 agreement, which
was signed well-before CERCLA was passed, does not relieve
Beazer (as Koppers’ successor) of its liability for contribution
under CERCLA. It is well-established that “[a] party may
indemnify another party for liability arising out of a law not in
existence at the time of contracting.” Kerr-McGee, 14 F.3d at
327. However, where such a contractual assignment of liability
pre-dates CERCLA, courts will look to see “whether an
indemnification provision is either specific enough to include
CERCLA liability or general enough to include any and all
environmental liability which would, naturally, include
subsequent CERCLA claims.” Beazer East, 34 F.3d at 211.
Peoples argues that the 1920 agreement between Beazer’s
predecessor Koppers and Peoples contains neither an unquali-
No. 14-3634 7
fied, broad release of environmental liability nor a specific
release of environmental liability sufficient to absolve Beazer
of its CERCLA liability.
We apply state law to determine whether a particular
indemnification provision encompasses contribution costs
under CERCLA. See LaSalle Nat’l Trust, N.A. v. ECM Motor Co.,
76 F.3d 140 (7th Cir. 1996). Here, we apply Illinois law to
construe the terms of the 1920 agreement. Under Illinois law,
the court’s “primary objective in construing a contract is to
give effect to the intent of the parties.” Gallagher v. Lenart, 226
Ill. 2d 208, 232 (Ill. 2007). The court must first “look to the
language of [the] contract alone, as the language, given its
plain and ordinary meaning, is the best indication of the
parties’ intent,” and construe the contract “as a whole, viewing
each part in light of the others.” Id. at 233. The court should
consider extrinsic evidence to ascertain the parties’ intent only
where the language of the contract is reasonably or fairly
susceptible to more than one meaning. Id.Paragraph 48 of the 1920 agreement states:
The obligation to be assumed by “Koppers” with
respect to the operation of the proposed By-Product
Coke Plant shall be limited to operating or supervising
the operation thereof for and in behalf of and in the
name of “Coke,” without liability of any character on
the part of “Koppers,” except as expressly assumed
under the terms of this contract, and shall cover the
period contemplated by paragraphs 54 to 60 inclusive
hereof. “Koppers” shall assume full responsibility for
the efficient operation and for the maintenance of the
8 No. 14-3634
plant in good working order during the period of
operation by “Koppers,” but the expense of such
operation and maintenance or loss incident thereto shall
be borne by “Coke” as hereinafter provided.
Looking to the plain language of the contract alone, and
construing the contract as a whole, we agree with the district
court that the 1920 agreement is unambiguous and that its
language is broad enough to absolve Beazer of liability for
contribution costs under CERCLA. The first sentence of
paragraph 48 explicitly states that Koppers’ obligation to
operate or supervise the operation of the coke plant was
assumed “without liability of any character on the part of ‘Koppers,’
except as expressly assumed under the terms of this contract”
(emphasis added). Peoples argues that the second sentence
in paragraph 48, which states, “‘Koppers’ shall assume full
responsibility for the efficient operation and for the mainte-
nance of the plant in good working order during the period of
operation by ‘Koppers,’” identifies liabilities that were
“expressly assumed” by Koppers. This argument is flawed for
a number of reasons.
In the first place, under Peoples’ interpretation of this
language, the second sentence of paragraph 48 reinstitutes the
very same liability that the first sentence of paragraph 48
released Koppers of with respect to its obligation to operate
and supervise the operation of the plant. Thus, Peoples’
interpretation would render the first sentence of the paragraph
meaningless, and courts should not “interpret a contract in a
manner that would nullify or render provisions meaningless,
or in a way that is contrary to the plain and obvious meaning
No. 14-3634 9
of the language used.” Thompson v. Gordon, 241 Ill. 2d 428, 442
(Ill. 2011).
Peoples’ characterization of the first clause of the second
sentence as an assumption of liability cannot be reconciled with
the second clause of the same sentence, which states, “but the
expense of such operation and maintenance or loss incident
thereto shall be borne by ‘Coke.’” Where possible, courts should
construe a contract so that its provisions are harmonized and
not in conflict. See Henderson v. Roadway Exp., 720 N.E.2d 1108,
1111 (Ill. App. Ct. 1999). The fact that “Coke,” not Koppers,
was responsible for any “loss incident” to the operation and
maintenance of the plant is in direct conflict with Peoples’
interpretation that Koppers assumed liability for the operation
and maintenance of the plant. Peoples contends that there is no
direct conflict in these two clauses because: (1) losses related to
environmental liability would have been outside the parties’
contemplation in 1920; and (2) the phrase “loss incident
thereto” refers to expenses in excess of profits, not to long-
term, future liability. Putting aside the fact that Peoples cannot
support such a narrow definition of the term “loss,” its
argument that the contract could not have contemplated future
liabilities is illogical. A party’s intent is not determined by
viewing a clause or provision in isolation, or in looking at
detached portions of the contract. Thompson, 241 Ill. 2d at 441.
Viewing the contract as a whole, it is clear that the 1920
agreement was signed before the financing, construction, and
operation of the plant occurred, thus every liability contem-
plated by the contract necessarily was a future liability.
10 No. 14-3634
Actually, the terms of the 1920 agreement indicate that the
second sentence of paragraph 48 acts not as an assumption of
liability on the part of Koppers or as a limitation on the broad
release language of the first sentence of paragraph 48, but as an
elaboration of the limited scope of Koppers’ obligations as an
operator. This is consistent with the rest of the agreement,
which establishes that Koppers’ obligation was limited to
financing and operating the coke plant for a limited amount of
time until it had been repaid. This interpretation is also
reinforced by the inclusion of the language, “for and in behalf
of and in the name of ‘Coke,’” which indicates the parties’
intent to distance Koppers from any ultimate liability for the
operation of the plant. Finally, it is supported by the language
of paragraph 63 of the agreement, where Koppers explicitly
agreed to:
… covenant and agree to keep and save harmless and to
indemnify “Peoples Gas” and “Coke,” … from and
against all and every demand or demands of any nature
or kind, and from the payment of any royalties, dam-
ages, losses or expense, claimed or established against
“Peoples Gas” or “Coke,” … for or growing out of any
infringement upon Letters Patent of the United States,
by or in respect to, or for or on account of the adoption
or use of any patented invention, article, appliance,
machinery or process which is furnished by or through
“Koppers” and adopted or used in or about the con-
struction or operation of said plants or any part thereof,
… (emphasis added).
Unlike the language used in the second sentence of para-
graph 48, this language is an express assumption of liability.
No. 14-3634 11
However, since it relates to patents, it cannot be said to
materially alter the broad release of liability contained in
paragraph 48. Consistent with the contract as a whole, there-
fore, we agree with the district court that the language of
paragraph 48 unambiguously absolves Beazer of any and all
liability resulting from its operation of the coke plant.
We also agree that this language is broad enough to include
contribution costs under CERCLA. Peoples argues that a pre-
CERCLA contractual release must be “unqualified” and not
contain any exceptions. However, Peoples’ argument misstates
federal precedent on this issue. Federal courts look to whether
a pre-CERCLA indemnification clause is specific enough to
include CERCLA liability or general enough to include any and
all environmental liability. Beazer East, 34 F.3d at 211. The 1920
agreement contains clear and unequivocal language that
Koppers’ obligation to operate the coke plant is assumed
“without liability of any character on the part of ‘Koppers’”
(emphasis added). This is precisely the kind of broad and
general release language that has been construed by courts to
encompass CERCLA liability. See E.I. Du Pont de Nemours and
Co. v. United States, 365 F.3d 1367, 1373 (Fed. Cir. 2004) (holding
that an indemnification clause reciting the government’s
agreement to hold a contractor “harmless against any loss,
expense, or damage” arising out of the performance of certain
work and not due to the personal failure of the contractor to
exercise good faith covered CERCLA liability); SmithKline
Beecham Corp.,89 F.3d at 159–60 (holding that a contract that
indemnified the buyer against “all material liabilities relating
to the conduct of the business prior to the First Closing Date …
which are not assumed by the Buyer” under a different
12 No. 14-3634
subsection contained the “sort of broad language in pre-
CERCLA contracts” that encompasses CERCLA liability);
Purolator Prods. Corp. v. Allied Signal, Inc., 772 F. Supp. 124(W.D. N.Y. 1991) (holding that a provision indemnifying for
“all liabilities and obligations … relating to or arising out of the
Assets” was expansive enough to include CERCLA liability);
American Nat’l Can Co. v. Kerr Glass Mfg. Corp., No. 89-C-0168,
1990 WL 125368, *3 (N.D. Ill. August 22, 1990) (indemnity
provision covering “any claim of any kind or nature whatso-
ever with respect to the business … arising out of the facts or
events occurring prior to the Closing Time” was sufficiently
broad to encompass future CERCLA liability). It is readily
apparent from a plain reading of paragraph 48 that the parties
sought to release Koppers from all future claims, including
environmental liability, arising out of Koppers’ operation of
the plant. Accordingly, we agree with the district court that the
language of the 1920 agreement bars Peoples’ claim for
contribution from Koppers under CERCLA § 113(f)(3)(B).
Because we affirm the district court’s determination that the
1920 agreement bars Peoples’ contribution claims against
Beazer, we need not address whether Peoples’ contribution
claims arising out of the 2007 and 2008 AOCs are time-barred.
III. CONCLUSION
For the reasons set forth above, we AFFIRM the dismissal
of Peoples’ claims against Beazer for contribution under
CERCLA § 113(f)(3)(B), 42 U.S.C. § 9613(f)(3)(B).