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El Paso Refinery, Ltd. Partnership v. TRMI Holdings, Inc.

ELR Citation: 33 ELR 20022
Nos. No. 01-50107, 302 F.3d 343/(5th Cir., 08/22/2002)

The court affirms a district court decision allocating liability among past and present owners for contamination at an oil refinery site. The refinery was built in 1929 by a gasoline company. In 1984 it was spun off to a wholly owned subsidiary of the company that agreed to assume all responsibility for environmental contamination at the refinery. In 1986, the subsidiary sold the refinery to another company. The purchase agreement and deed for this transfer included covenants preventing subsequent owners from seeking contribution from the subsidiary or from compelling the subsidiary to take remedial action at the site. The company then declared bankruptcy in 1992, and the bankrupt company's creditors foreclosed the property and sold the site to the current owner. During the bankruptcy proceeding, a term sheet was executed that included provisions governing the allocation of environmental liability between the current owner and the bankrupt company. The current owner then filed a declaratory action in bankruptcy court to clarify how the purchase agreement, deed, and term sheet allocated environmental responsibility among the parties. The parties appealed to the district court, and this appeal followed.

The court first holds that the bankruptcy court properly exercised jurisdiction over the gasoline company. Because the gasoline company formerly owned the contaminated property that is at the center of this dispute, the gasoline company is necessarily implicated in this action. The court next holds that the current owner's claims against the gasoline company and the subsidiary are not barred by the "circuity of action" doctrine. Although the subsidiary is entitled to indemnification from the bankrupt company under the terms of a prior settlement agreement, the current owner did not agree to indemnify the bankrupt company, either expressly or impliedly, in the term sheet. Thus, the term sheet does not create an implied indemnity by the current owner in favor of the subsidiary. In addition, under the term sheet, the current owner did not assume responsibility for all unknown environmental contamination at the refinery. Instead, the term sheet only allocated post-foreclosure environmental liability to the current owner. Further, the subsidiary is not a third-party beneficiary of the term sheet and is, therefore, not entitled to its benefits. The court finally holds that the covenants set forth in the purchase agreement and deed between the subsidiary and the bankrupt company are not binding on the current owner. The covenants do not touch and concern the land since they convey no benefits to the refinery.

Counsel for Plaintiff
Gregory Gordon
Jones, Day, Reavis & Pogue
2727 N. Harwood St., Dallas TX 75201
(214) 969-3759

Counsel for Defendant
Kathy Reece
Fennemore & Craig
3003 N. Central Ave., Ste. 2600, Phoenix AZ 85012
(602) 916-5000