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Emhart Indus. v. Duracell Int'l, Inc.

Citation: 17 ELR 21243
No. Nos. 1-85-0055, -0088, 665 F. Supp. 549/26 ERC 1314/(M.D. Tenn., 07/02/1987)

The court holds that the seller of a business is liable to the buyer under the indemnity provisions of the purchase agreement for all costs of cleaning up facilities and equipment contaminated with polychlorinated biphenyls (PCBs) and trichloroethylene (TCE), consequential damages, costs of enforcing the contract, part ofthe costs of third-party actions against the buyer, and response costs under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). The court first holds that Connecticut's choice of law rules govern this action, since the court must apply the choice of law rules that the Connecticut federal district court, in which this suit was originally filed, would apply. Applying these rules, the court holds that any contract claims, including claims under the guaranty, are governed by Connecticut law, since the contract contained a good-faith stipulation that Connecticut law would apply. The court holds that Connecticut law applies to the four tort claims asserted by the buyer. The court declines to decide whether the precedent of the Second or Sixth Circuit applies to the buyer's CERCLA claim, since the precedent from these circuits is not inconsistent.

Addressing the contractual claims, the court holds that the seller is liable for the buyer's attorney fees pursuant to the seller's contractual promise to indemnify the buyer for "any obligation, liability, loss, damage or expense" arising under any body of law pertaining to health, safety, or environmental protection. The language in the indemnity provisions expressly referring to attorney fees satisfies the requirements for the exception to the general rule that attorney fees are not available for enforcement of a contractual indemnity. The court holds that the buyer's temporary shutdown of one of the facilities led to losses incurred under or imposed by law. The buyer's decision to close the facility after it discovered PCB contamination was reasonable in light of its obligations under the Occupational Safety and Health Act, the Toxic Substances Control Act, and common law. The court holds that the seller is not liable for the costs of permanently closing this plant. While the seller is obligated to pay for all cleanup to the level recommended by the Environmental Protection Agency, the indemnity provisions do not cover the buyer's independent decision to close the plant instead of conducting a third cleaning. The court also holds that the seller is liable for the cost of cleaning the equipment, but not for the seller's decision to abandon the equipment. The court holds that the seller has a continuing obligation to indemnify the buyer for its costs, attorney fees, and ultimate liability arising from third-party suits concerning the PCB contamination. However, the seller is not liable for any damages caused by the buyer's use of TCE as a solvent. The court holds that the seller is also liable for the buyer's expenses at other facilities, including the costs of investigating other capacitor facilities for PCB contamination. The court holds that the buyer is entitled to control the cleanup operations. The language in the indemnity that the seller has "sole responsibility" refers to financial responsibility. The court holds that the seller's corporate parent is obligated under the guaranty to pay any damages that the seller does not pay.

Turning to the buyer's tort claims, the court holds that the buyer's fraud, misrepresentation, and Connecticut Unfair Trade Practice Act claims are barred by the contract's three-year limitation period for misrepresentation claims. The buyer's nuisance claim is barred by Connecticut's three-year statute of limitations. The court holds that the seller is liable for CERCLA response costs incurred by the buyer at the contaminated facilities, but is not liable for response costs attributable to the buyer's use of TCE at one of the facilities.

Counsel for Plaintiff
Warren S. Radler
Rivkin, Radler, Dunne & Bayh
EAB Plaza, Uniondale NY 11556-0111
(516) 357-3000

Counsel for Defendant
James D. Miller
King & Spalding
1730 Pennsylvania Ave. NW, Washington DC 20006
(202) 737-0500