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Mardan Corp. v. C.G.C. Music, Ltd.

Citation: 17 ELR 20209
No. No. 85-1520, 804 F.2d 1454/25 ERC 1273/(9th Cir., 11/18/1986) Aff'd

The court rules that state law should be used to determine the validity of agreements between private parties on the release of claims under Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) § 107. Applying New York law, the court holds that a general release, executed in connection with the purchase and sale of real property and encompassing all causes of action or suits arising out of the property's purchase, is an effective bar to a CERCLA § 107 action for recovery of cleanup costs incurred by the present property owner against the former owner. The court first rejects the argument that a uniform federal rule should be fashioned, holding that although federal law governs the validity of releases of federal causes of action, appropriate state law should be incorporated to govern the issue of whether and when agreements between private "responsible parties" can settle disputes over contribution rights under § 107. The court observes that CERCLA § 107(e)(1) expressly preserves hold harmless agreements, and that such agreements cannot prejudice the government's right to recover cleanup costs from any responsible party. Moreover, adopting a uniform federal rule requiring that releases explicitly refer to CERCLA would not appreciably advance federal interests to any greater degree than a non-uniform rule, and would actually disrupt commercial relationships predicated on state law. The court then holds that New York law, which governs the contract issues in this case, is neither "aberrant" nor "hostile" to federal interests and therefore applies in interpreting the release. The court holds that the broad terms of the release, encompassing all claims between the parties, and the negotiations leading up to the release's execution, indicate that it was intended to settle all claims the purchaser had or might someday have against the seller. The releasor, the court holds, did not sustain his burden of establishing that the release was to be limited to discrete accounting issues, such as severance and vacation pay for employees. Finally, the court holds that the theory that the release should be disregarded because of a mutual mistake of fact does not apply. The theory, under New York law, distinguishes between injuries unknown to the parties, in which case the theory would apply, and a mistake as to the consequences of a known injury, in which case the theory does not apply. The court holds that both parties knew of the hazardous waste site on the property and that some corrective action would have to be taken someday and were only mistaken as to the extent of the action.

A dissenting judge would adopt a uniform federal rule that a release of a CERCLA claim must be express.

[The district court decision is published at 15 ELR 20370.]

Counsel for Plaintiff-Appellant
Karen L. Florini
Land and Natural Resources Division
Department of Justice, Washington DC 20530
(202) 633-2000

Renee R. McDermott
Barnes & Thornburg
1313 Merchants Bk. Bldg., Indianapolis IN 46204
(317) 638-1313

Counsel for Defendants-Appellees
Warren S. Radler, Barbara B. Guibord
Rivkin, Leff, Sherman & Radler
100 Garden City Plaza, Garden City NY 11530
(516) 746-7500