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Commander Oil Corp. v. Advance Food Serv. Equip.

Citation: 23 ELR 20858
No. No. 92-7827, 991 F.2d 49/36 ERC 1425/(2d Cir., 04/13/1993)

The court, applying New York law, holds that indemnification provisions in an asset purchase agreement between a Comprehensive Environmental Response, Compensation, and Recovery Act (CERCLA) defendant and a third-party defendant, when read in connection with a lease related to the agreement, are ambiguous as a matter of law, and vacates the district court's grant of summary judgment in favor of the third-party defendant and remanded to allow the parties to offer extrinsic evidence about the contract terms. The CERCLA defendant previously sold its electrical wiring manufacturing business to the third-party defendant under an asset purchase agreement, which contained an indemnification clause requiring the third-party defendant to indemnify the CERCLA defendant for any liabilities resulting from certain pending nonenvironmental lawsuits, as well as all other litigation occurring from and after the date of signing the agreement concerning the business and assets being acquired under the sale. As part of the sale, the parties also entered into a lease whereby the CERCLA defendant leased to the third-party defendant the land on which the sale agreement assets were located. The lease also contained indemnification language allocating responsibility for environmental liabilities related to the property.

The court holds that the district court properly interpreted the asset purchase agreement and lease together, as if they were a single document. The underlying physical elements involved in the agreement are intertwined substantively, and the two documents refer to each other. The court holds that the purchase agreement's "catch-all" phrase—"all other litigation occurring from and after the date of the Agreement relating to the business and assets being acquired"—does not clearly manifest the parties' intent that the third-party defendant indemnify the CERCLA defendant for any liability under CERCLA. Two Ninth Circuit cases cited by the CERCLA defendant that interpret New York law are distinguishable from the facts in this case and are not controlling. The contracts in this case contain provisions that could be read to extend indemnification coverage, but can also be read to contain certain provisions which could be read to restrict coverage for environmental claims. There is an open question whether the agreements' inclusion of the phrase "all other litigation" was meant to reach beyond the categories of nonenvironmental lawsuits listed in an exhibit to that agreement. Thus, the court concludes that the indemnification language alone does not afford a definite and precise meaning, is ambiguous as a matter of law, and remand is ordered to allow the parties to offer extrinsic evidence of their intentions as to the third-party's obligation to defend and indemnify.

Counsel for Plaintiff
Richard G. Leland
Rosenman & Colin
575 Madison Ave., New York NY 10022
(212) 940-8800

Counsel for Defendant
Thomas C. Buckel Jr.
Hancock & Estabrook
Mony Tower One
P.O. Box 4976, Syracuse NY 13221
(315) 471-3151

Walker, J. (before Oakes and Winter, JJ.):