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

Page 400

59 F.3d 400

41 ERC 1338, 25 Envtl. L. Rep. 21,238

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

and

W.R. Grace & Co.--Conn., Appellant.

No. 94-5276.

United States Court of Appeals Third Circuit.

Argued Jan. 25, 1995.

Decided July 5, 1995.

Sur Petition for Rehearing Aug. 8, 1995.

Anthony J. Marchetta (argued), Robert G. Rose (argued), Elizabeth J. Sher, Pitney, Hardin, Kipp & Szuch, Morristown, NJ, for appellant.

Aubrey M. Daniel, III (argued), Paul Mogin, Evan J. Roth, Eric M. Braun, Dane H. Butswinkas, Stephen D. Sencer, Williams & Connolly, Washington, DC, Robert M. Goodman, Carpenter, Bennett & Morrissey, Newark, NJ, for appellee.

Before: MANSMANN, HUTCHINSON, and WEIS, Circuit Judges.

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. Secs. 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 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. Secs. 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

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. Sec. 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, --- U.S. ----, 115 S.Ct. 1696, 131 L.Ed.2d 559 (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., 88 A.D.2d 743, 451 N.Y.S.2d 875, 876 (1982) (burden of establishing intent of parties is assigned to releasor) with Walsh v. Morse Diesel, Inc., 143 A.D.2d 653, 533 N.Y.S.2d 80, 83 (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., 75 N.Y.2d 392-93, 657, 553 N.Y.S.2d 653, 657, 553 N.E.2d 242, 246 (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., 195 A.D.2d 251, 599 N.Y.S.2d 820, 822 (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, 86 A.D.2d 727, 447 N.Y.S.2d 46, 46-47 (1982) (citation omitted). "No particular form need be used in drafting a release...." Pratt Plumbing & Heating, Inc. v. Mastropole, 68 A.D.2d 973, 414 N.Y.S.2d 783, 784 (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, 24 N.Y.2d 556, 301 N.Y.S.2d 508, 511-13, 249 N.E.2d 386, 389 (1969). Whether an agreement is ambiguous is a question of law for the court, W.W.W. Assocs., Inc. v. Giancontieri, 77 N.Y.2d 157, 565 N.Y.S.2d 440, 443, 566 N.E.2d 639, 642 (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, 37 N.Y.2d 434, 373 N.Y.S.2d 72, 76-77, 335 N.E.2d 299, 302 (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., 147 A.D.2d 860, 538 N.Y.S.2d 82, 84 (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...