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CERCLA Does Not Invalidate Contractual Allocations of Liability

January 1992

Citation: ELR 10045

Author: James W. Conrad

Editors' Summary: CERCLA § 107(e) recognizes that private parties may agree to limit or to insure against their CERCLA liability by using common law contract tools, including indemnification and hold harmless agreements. But what role did Congress intend such private party agreements to play in allocating CERCLA liability? The plainly contradictory language of CERCLA § 107(e) does not give a final answer to this question, because the first sentence of CERCLA § 107(e) appears to invalidate indemnities and the like, and the second sentence appears to save them. Recently, two federal district courts in AM International v. International Forging Equipment Corp. and CPC International v. Aerojet-General Corp. issued the first decisions to analyze CERCLA § 107(e)'s legislative history. In a dramatic departure from precedent first articulated by the Ninth Circuit in Mardan Corp. v. C.G.C. Music, Ltd., the courts in AM International and CPC concluded that § 107(e) should be read only to give effect to contracts binding parties otherwise not liable, and not to contracts between potentially liable parties. Before AM International and CPC, every court that had addressed CERCLA § 107(e) interpreted it as preventing a party liable under CERCLA from completely evading its liability, but allowing it contractually to allocate the ultimate financial burden of that liability among itself and others.

This Article argues that the
Mardan interpretation of CERCLA § 107(e) is correct. The Article first compares the Mardan interpretation with the contrary reasoning of AM International and CPC. It then explicates its preference for the Mardan view in light of CERCLA § 107(e)'s plain meaning and legislative history, as well as the language and legislative history of a comparable provision of the Oil Pollution Act of 1990. Finally, the Article explains why the Mardan view better advances the policies underlying CERCLA, particularly the goal of promoting private, voluntary cleanup, and why the AM International and CPC view has the opposite effect. The author concludes that the Mardan rule does not shift cleanup costs from private parties to the government, but only between private parties, and that equitable allocation of response costs does not require the wholesale invalidation of private contractual arrangements.

James W. Conrad Jr. is an Associate with the Washington, D.C., office of Davis, Graham & Stubbs. His concentrations in site remediation and transactional work (and his sense ofoutrage) impelled this Article. The author received a J.D. from George Washington University's National Law Center in 1985 and a B.A. from Haverford College in 1981. He gratefully acknowledges the assistance of Laura Gasser, University of Pennsylvania Law School Class of 1992, and a Summer Associate with Davis, Graham & Stubbs in 1991.

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