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Beazer E., Inc. v. Mead Corp.

ELR Citation: 25 ELR 20001
Nos. No. 93-3372, 34 F.3d 206/39 ERC 1507/(3d Cir., 09/12/1994)

The court holds that an agreement for the sale of a contaminated Alabama plant does not require the buyer's successor to indemnify the seller's successor for response costs it incurred under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) in cleaning up the site. The agreement, which predates CERCLA, required the buyer to assume the plant's obligations to comply with solid waste disposal permits, licenses, and orders "hereafter issued" by the U.S. Environmental Protection Agency "in accordance with applications now pending and listed" on an attached exhibit. The agreement required the seller to indemnify the buyer against all of the seller's liabilities other than those the buyer expressly assumed. The court first holds that a pre-CERCLA agreement can require an indemnitor to hold an indemnitee harmless from CERCLA liability. The court further holds that state law, not federal common law, determines whether an indemnity provision can be construed broadly enough to cover one responsible party's CERCLA liability to another. This is an issue of first impression for the court, but other federal circuit courts have uniformly selected state law. The court adopts the Ninth Circuit's reasoning and application of the U.S. Supreme Court's test in United States v. Kimbell Foods, Inc., 440 U.S. 715 (1979), for determining whether a uniform federal rule is needed to decide federal claims based on federal statutes when Congress has not made clear its intent on what law should supply a rule of decision. In Mardan Corp. v. C.G.C. Music, Ltd., 17 ELR 20209 (9th Cir. 1986), the Ninth Circuit held that a federal common-law standard for interpreting releases of CERCLA liability was unnecessary. The court notes that this principle is supported by the U.S. Supreme Court's decision in O'Melveny & Myers v. Federal DepositInsurance Corp., 114 S. Ct. 2048 (1994), which held that special federal rules are justified only in situations where there is a significant conflict between some federal policy or interest and the use of state law.

The court holds that Alabama law applies and requires a plain and unambiguous expression of intent to cover the cost of the liability in question. The court holds that the agreement's provision setting forth the buyer's assumption of obligations is ambiguous under Alabama contract law. Cases outside Alabama that have held that a release or indemnification provision covers CERCLA liability have all involved indemnity clauses with much broader and more inclusive language than the language in this case. The court holds that the provision is not specific enough to impose on the buyer's successor a duty to indemnify the seller's successor for its CERCLA response costs. Because this provision and the provision setting forth the seller's indemnification obligations refer circuitously to each other, it follows that neither provision expressly requires either party to indemnify the other. Based on its earlier analysis, the court rejects the argument of the buyer's successor that the provision establishing the buyer's obligations was intended to limit the buyer's assumption of liabilities to those expressly listed on the exhibit attached to the agreement and that because CERCLA is not listed as one of the buyer's obligations, the seller's successor must indemnify the buyer's successor under the provision setting forth the seller's indemnification obligations. The court finds plausible the interpretation under which the words "hereafter issued" are limited to permits or licenses that might result from the pending applications, but not so plain as to justify its construction under the Alabama rule that indemnity provisions must be strictly construed and limited to their plain meaning. The court concludes that its decision leaves both the buyer's successor and the seller's successor responsible for their fair share of the cleanup costs associated with the site. This result reinforces CERCLA policy that polluters pay for costs associated with remedying pollution. The court reverses the district court's decision and remands for further proceedings on the contribution claim of the buyer's successor.

Counsel for Appellant
Dean A. Calland
Babst, Calland, Clements & Zomnir
Two Gateway Ctr., 8th Fl., Pittsburgh PA 15222
(412) 394-5400

Counsel for Appellee
Alan M. Wiseman
Howrey & Simon
1299 Pennsylvania Ave. NW, Washington DC 20004
(202) 783-0800

Before Becker, Hutchinson and Cowen, JJ.