So Sue Me: Common Contractual Provisions and Their Role in Allocating Environmental Liability

James W. Conrad Jr.

Editors' Summary: Under CERCLA, a liable party cannot transfer its liability, yet it can contractually arrange for a third party to ultimately bear the financial burden of that liability. The applicability of these contractual allocations of environmental liability generally hinges on judicial interpretation of representations, warranties, indemnities, and releases. This Article surveys the case law on contractual allocation of CERCLA liability. Addressing legal issues unique to particular types of contractual provisions, the Article recommends ways to use and draft such provisions.

Mr. Conrad is an Assistant General Counsel of the Chemical Manufacturers Association in Arlington, Va. In private practice until 1993, Mr. Conrad spent many years representing potentially responsible parties in connection with Superfund sites and managing environmental issues in transactions.

This Article has been adapted from articles of the same title previously published in 1 ENVTL. LIABILITY 77 (1993) and 6 HAZARDOUS WASTE STRATEGIES UPDATE 1 (Sept. 1994). The author gratefully acknowledges the substantial assistance of Maureen M. Crough and Norman F. Carlin in preparing this revision. Ms. Crough and Mr. Carlin practice in the New York office of Sidley & Austin, where they focus on environmental transactional issues. Any opinions expressed in the Article are those of the author.

[26 ELR 10219]

Under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA, or Superfund),¹ the past has come back to haunt virtually every major U.S. business and many minor ones too. Waste disposal practices conducted decades ago—often by operations or subsidiaries that have since been sold—now give rise to strict liability for multimillion dollar cleanups. In response to the enormous magnitude of actual and projected cleanup costs,² as well as the capricious way in which government enforcement singles out certain parties to shoulder those costs,³ companies that have paid for cleanups aggressively sue those that have not, seeking to shift all or at least some of the burden.

As a result, the excavation of buried drums is usually accompanied by the unearthing of old contracts. Lawsuits frequently follow as parties dispute the effect of their contracts. Of course, these contracts often were executed long before Superfund was even contemplated. This Article canvasses judicial decisions regarding the contractual allocation of liability created by Superfund and comparable state statutes, focusing on the clauses most commonly at issue: representations and warranties, indemnities and releases. The Article also offers general recommendations in light of this case law on the use and drafting of such provisions. The Article first summarizes the conventional roles of these provisions. It then discusses a number of issues that arise generically in cases involving environmental liabilities. Finally, it addresses legal issuesunique to particular types of contractual provisions.⁴

[26 ELR 10220]

Background—Roles of Contractual Provisions

Judicial interpretations of common contractual provisions in the environmental context grow out of, and generally implement, prior nonenvironmental case law regarding those provisions. That case law is almost entirely state law and, thus, may vary from state to state. In general, however, the following principles hold true:

. A representation is an express statement of fact made by a party to a contract, at the time of the contract, to induce the other party into entering into the agreement.

. A warranty is a promise that a representation is true, intended to relieve the other party of any duty to inquire into the relevant facts.

Business contracts typically include a host of "reps and warranties" regarding issues material to the contract.

. An indemnity is an undertaking by one party to compensate or make good another party for some loss or liability.

Most commonly, indemnity clauses in business contracts refer to liabilities, as well as or in lieu of losses, so that the indemnified party (the indemnitee) need not actually incur a loss before the indemnity is triggered. While breach of a warranty has been held to create an implied right of indemnification, business contracts typically contain express indemnity clauses specifying the circumstances under which one party is obligated to indemnify the other.

Indemnities can, and often principally seek to, protect the indemnitee from liability or losses that the indemnitor directly causes, not only those asserted against the indemnitee by third parties based on the indemnitor's misdeeds. A party generally can be indemnified against its own negligence or strict liability, so long as that intent is clearly and unequivocally expressed.

. A release is a contractual statement relinquishing a right, claim, or privilege that the releasor has or may have against the released party.

Releases are most commonly found in agreements between parties with unequal bargaining power, or in agreements settling disputes.

While not separately discussed in this Article, clauses expressly allocating liabilities assumed and retained by the parties to a business contract are common and generally operate in conjunction with the clauses just noted.

Contractual Provisions in the Environmental Context—General Considerations

The defining feature of cases interpreting conventional contractual clauses in the environmental context has been the exceptionally strong desire courts have evinced to promote, or at least not frustrate, the perceived public policies motivating CERCLA and similar state statutes. Again and again, courts note the "broad remedial purpose" of such laws and the need to construe them "liberally" to effectuate that purpose.⁵ Courts thus feel, or impose upon themselves, the need to ensure that environmental wrongs are righted by the payment of remedial expenses. Exacerbating this situation, the parties seeking to avoid cleanup liability on contractual grounds frequently are, in fact, the ones who caused the problems. The philosophy underlying Superfund and similar laws—that the "polluter pays"—frequently plays a major role in determining the outcome of contractual cases.⁶

To a remarkable extent, however, courts have resisted the pressure to hold the wealthier or more "culpable" party automatically liable. While a fair number of decisions can be criticized as being result-oriented or inconsistent with prior contractual case law, in general, courts have evolved consistent and rational rules for the contractual resolution of environmental issues.

Contractual Allocation of Liability Under CERCLA

A threshold question in environmental cases is whether CERCLA or similar statutes override agreements allocating liability. For example, if party A releases party B, may A nevertheless file a CERCLA claim against B on the theory that CERCLA voids the release? CERCLA's relevant language, adopted more or less verbatim in several other federal and state laws,⁷ has been variously described as "rather confusing"⁸ and "inartful":⁹

No indemnification, hold harmless, or similar agreement or conveyance shall be effective to transfer from the owner or operator of any vessel or facility or from any person who may be liable for a release or threat of release [of a hazardous substance] under this section, to any other person the liability imposed under this section. Nothing in this subsection shall bar any agreement to insure, hold harmless, or indemnify a party to such agreement for any liability under this section.¹⁰

From 1986, when the section was first construed, until 1990, these seemingly contradictory sentences were reconciled as follows: the first makes clear that a responsible party can never evade or escape its liability to another person that has a valid CERCLA claim and who has not bargained it away (in most cases, this latter person is the federal government); the second sentence allows responsible parties in effect to insure against their liability—while they remain accountable for it, they can arrange that a third party will ultimately bear the financial burden.¹¹

[26 ELR 10221]

This view has periodically been challenged, however, by trial court decisions holding that liable parties may contractually draw new, previously nonliable parties into the CERCLA liability net, but that no party may ever limit its liability to other liable parties.¹² These cases reasoned that "this outcome is consistent with [CERCLA's] broad policies of encouraging cleanups and placing the burden of their costs on those responsible for hazardous waste problems."¹³ In fact, permitting laws like CERCLA to override private agreements is likely to discourage cleanups, as new parties who might restore and rehabilitate sites in exchange for a limit on their liability would be deterred by the prospect of becoming liable without limit.¹⁴ Fortunately, these decisions have all been reversed or overruled,¹⁵ and all circuit courts that addressed this issue have agreed that CERCLA does not override contractual allocation of liability.¹⁶

Governing Law

A second threshold issue raised in every case involving CERCLA or another federal statute is whether the contractual language at issue is to be interpreted according to a uniform federal rule or to state law. All courts agree that the issue is one of federal law, since they are addressing the possible surrender of a federal cause of action. The matter becomes more complex, however, as most courts then hold that they must look to state law to provide the content of that federal law, rather than forging a uniform federal rule.¹⁷ These cases agree that there is no particular need for national uniformity, that the use of state law will not frustrate CERCLA's purpose, and that application of a uniform federal rule would disrupt commercial relationships based on state law.¹⁸ Only a few trial courts have bucked this trend by concluding that a uniform federal rule should govern the issue at stake,¹⁹ and appellate courts have disagreed with those rulings.²⁰ In many cases, though, the issue has no practical effect, as courts have acknowledged that they would rule the same way whether federal or state law controlled.²¹ Resorting to state law does have at least two benefits. It allows parties to choose by use of a choice of law clause the law that will govern an incipient contract and to ascertain with reasonable confidence what law will govern an already existing contract. And the practical effect of referring to state law is to lessen the pressure on a court to make the polluter pay regardless of what the agreement in question said.²²

The Effect of Pre-CERCLA Contracts on CERCLA Claims

In the 16 years since CERCLA's enactment, a third issue that repeatedly arises in contractual litigation is whether and when pre-CERCLA agreements affect CERCLA claims.²³ As just discussed, most courts conclude that this federal law issue should be resolved by referring to state law. The law in most states is relatively similar, however, and these cases tend to cite one another, even though they purport to be resolving matters under their respective states' laws.

[26 ELR 10222]

The result is a largely uniform rule: a contractual provision clearly encompassing any and every possible liability, past, present, and future, will be read to encompass CERCLA liability, even though CERCLA postdated the contract.²⁴ Thus, courts have found CERCLA claims covered by indemnities or releases that referred to "all claims and obligations of any character or nature whatsoever";²⁵ "all claims, demands or causes of action … which [the releasor] had, has or may have";²⁶ "and any other issues between them";²⁷ "all the … liabilities … of whatever kind, character and description … existing or arising after April 30, 1977";²⁸ "all liabilities, obligations and indebtedness … as they exist on the Closing Date or arise thereafter";²⁹ "all … liabilities … without any limitation … whether known or unknown … and whether existing on the date of this agreement or coming into existence hereafter";³⁰ or "any claim, demand, action or cause of action or liability (whether or not now known, suspected or claimed), including any claim for contribution or indemnity, which any of the [parties] ever had, now has or hereafter may have …."³¹

Less sweeping provisions have still been held to include CERCLA liability when they referred to "CERCLA-type liability,"³² or at least to liability arising out of noncompliance with applicable laws, if the release triggering CERCLA liability occurred in violation of law.³³ On the other hand, language that refers only to enumerated types of liabilities, that has no reference to environmental matters, that creates no inferences about future-arising liabilities, and that does not indicate that consideration was paid for a release or indemnity, is generally insufficient to affect CERCLA claims.³⁴ This result is often achieved in cases in which it can be shown that the party seeking to avoid liability had no knowledge of contamination or environmental problems at the time of contract.³⁵ Of course, courts can and often do come to very different conclusions regarding the same or very similar language, and the relative virtues of the contending parties may tip the balance or even force the result in a case.³⁶

State laws do differ and, in some instances, the peculiarity of a state's law can alter the foregoing general rules. For example, Illinois law provides that a general release cannot release unknown claims, although knowledge of contamination, rather than knowledge of a law making the contamination actionable, has been held sufficient to uphold a release.³⁷ More troublesome is an Ohio law, which provides that mutual mistake regarding the existence of contamination voids a release, notwithstanding its language, unless it can be shown by extrinsic evidence that the parties really intended a release to apply to future claims.³⁸ California [26 ELR 10223] law requires courts toconsider extrinsic evidence in all cases before concluding that a contract is not ambiguous.³⁹ In states such as these, therefore, resolution of the pre-CERCLA contract issue may very well require a trial court to evaluate extrinsic evidence. Obviously, such rules preclude resolving the issue on the basis of motions, and increase the cost and delay involved.

Practice Considerations

The foregoing does not imply that in drafting agreements one must specifically name CERCLA and any other enactment one wishes to encompass; indeed, such an approach leads to extremely lengthy documents that create the additional risk of being construed to exclude any enactment not named.⁴⁰ To capture CERCLA liability, it should generally suffice to refer to any "liability" arising from the "release or threatened release" into the "environment" of a "hazardous substance."

Contractual Provisions in the Environmental Context—Particular Clauses

Representations and Warranties

The principal functions of "reps and warranties" are to establish that the normal preconditions to a deal are present, and to create a trip wire giving the other side a basis for canceling the agreement or suing if one of those preconditions is not met. Indemnities heighten the utility of reps and warranties by giving the other party an agreed upon remedy for breach.

Environmental reps and warranties are best thought of as having the narrow function just noted. They are not fundamentally different than other reps and warranties; they simply expand the universe of matters being represented. In particular, they are generally insufficient to effect a transfer or shift in liability unless conjoined with indemnities.

The limited role of reps and warranties has been best illustrated in a series of cases addressing the significance of "as is" clauses. Commonly, when a party wishes to avoid making any promises about a piece of property, it will expressly state that it is not making any representations or warranties about the property and that the property is being offered "AS IS, WHERE IS." Such clauses have frequently been used to sell potentially contaminated property and, especially in the case of pre-CERCLA contracts, are often the closet the agreements come to stating which party ended up with the resulting liability. Unfortunately for the sellers, courts have almost uniformly agreed that these clauses serve merely as disclaimers, protecting the seller from claims for breach of express or implied warranty.⁴¹ The sellers in these cases have been held to retain their original liability for the sites they sold, absent other, clearer language regarding assumption of liability.⁴² An illustrative example of both kinds of language is contained in Niecko v. Emro Marketing Co.,⁴³ in which the purchase agreement stated:

11. Buyer acknowledges that he has inspected and is familiar with the condition of the property; that Seller has not made any warranties or representations as to the condition of said property, including, but not limited to, soil conditions … and that Buyer is purchasing the same "as is"; that he assumes all responsibility for any damages caused by the conditions on the property upon transfer of title.⁴⁴

The court noted that the second clause standing alone was a simple as-is clause, but concluded that the third clause was a clear assumption of liability and operated to shift liability for the site to the buyer.⁴⁵

Practice Considerations

An entire article could be dedicated to the issues and possible language involved in environmental reps and warranties. Salient among them are:

. CERCLA liability can attach for actions that were completely legal at the time they occurred. Accordingly, a representation that a party is, and has been, in compliance with environmental laws and rules is inadequate. The other party should ask for a rep that the first party has no actual or contingent liability to investigate or remediate contamination at the property in question.

. CERCLA liability exists not only for sites that an entity owns or operates now, but for sites that it owned or operated at a prior time when disposal occurred there, and for sites where one "arranged for disposal or treatment" of waste.⁴⁶ Courts have also concluded [26 ELR 10224] that companies typically assume the CERCLA liabilities of other companies whose stock they have acquired. Even asset purchases may bring CERCLA liabilities with them, if the acquiring company meets one of several tests for "successor liability."⁴⁷ Thus, environmental reps need to be carefully phrased to encompass all the possible sources of CERCLA liability that may exist for a company.

. Complete compliance with environmental laws in the United States is practically impossible. Reps and warranties, therefore may need to be qualified by, for example, a materiality threshold, or may require a schedule that lists known exceptions to the reps.

. In addition to and separate from the reps and warranties, but consistent with them, a contract should have a clear statement of which party is assuming or retaining which environmental liabilities.

Indemnities

So long as it is in force, an indemnity can convert a rep and warranty into a liability shifting device. A party that agrees to indemnify another for breach of a warranty that there is no contamination at a site would be hard-pressed to argue that the indemnitee had nevertheless assumed liability for contamination. The result is even clearer if the indemnity follows or is the conclusion of a clause stating that the indemnitor retains, or assumes, liability for contamination.⁴⁸

Environmental indemnities often are not keyed to reps and warranties alone, but are essentially free-standing. That is, the indemnitor may simply agree to indemnify the other party for any liability the other suffers as a result of contamination existing at a site at the time of the contract.⁴⁹ This approach has the virtue of cutting short any dispute about whether the liability "arose from" or was otherwise caused by the breach or untruth of a particular warranty. An indemnity that reaches beyond the scope of the reps and warranties effectively creates an independent cause of action, as it is not premised on the breach of any other provision of the contract. Free-standing and broadly worded indemnity provisions are usually upheld as written.⁵⁰ This result may seem harsh from the viewpoint of an indemnitor, since it may be forced to assume liability for contamination it may not have caused and, in the case of pre-CERCLA agreements, under a statute that did not yet exist. Nevertheless, an indemnitee should be able to rely on contractual provisions that resulted from negotiations between sophisticated business entities.⁵¹ Even broad indemnities must be carefully drafted, however, because courts can be quite adept at finding loopholes.⁵²

Indemnitors will generally insist on limiting their indemnity to conditions existing as of the time of closing, so as not to pay for the indemnitee's subsequent sloppiness. Such an approach is only as useful as the baseline the parties draw at the time of closing delineating the existing contamination. On the other hand, the parties may not wish to conduct any sampling to draw this baseline; neither may be eager to end up owning a property whose defects, previously only suspected, are confirmed. Once aware of sampling data showing contamination, regulators may feel compelled to require cleanup of a site about which they would otherwise never have been concerned.

Like the insurance policies that they resemble, indemnities often will be subject to both dollar and time limits. Generally, they will be limited to the survival of the environmental rep and warranty; for example, both will expire [26 ELR 10225] one year after closing. They also may have dollar thresholds below which they are not triggered, as well as ceilings above which they either cease or become cost-sharing arrangements.

Indemnities that expire can raise perplexing issues. The general view is that indemnities only codify the indemnitee's right of action against the indemnitor for breach of some other aspect of the contract, or create a free-standing contractual right of action.⁵³ They therefore have no effect on other causes of action that the indemnitee might have under statute or common law, independent of the contract. For example, before an indemnity regarding site contamination expired, the indemnitee, e.g., a buyer, should be able to sue the indemnitor, e.g., the seller, under CERCLA and its state counterparts, as well as under the contract. While a contractual right of action may disappear once the indemnity expires, the indemnitee should still enjoy its statutory causes of action. Most environmental cases observe this principle.⁵⁴ At least one troublesome decision has not, however, holding that when an indemnity expired, the indemnitee then assumed the liabilities the indemnity provision addressed.⁵⁵ This result is perverse, because the indemnity provision was plainly established to benefit the indemnitee during its pendency, not to burden the indemnitee thereafter.

Practice Considerations

Attorneys drafting indemnity provisions should consider whether an indemnity should:

. Be limited to breach of reps and warranties, or be free-standing.

. Be complete, or limited to conditions existing at time of closing. If the latter, determine how those are to be delineated.

. Have a dollar floor or ceiling, and a time limit. Indemnities may also provide for the parties to share expenses in varying proportions above a certain amount, or at a given time after closing.

. Include reasonable attorneys fees.

. Include the obligation to defend, with provisions regarding approval of counsel, control of litigation/settlement, the need for separate counsel, or like considerations.

. Include language regarding assumption of liabilities. If so, exercise extreme care to specify whether and which environmental liabilities are assumed or retained, and ensure coordination with other provisions of the agreement.⁵⁶

Contractual Releases

The most significant issues regarding contractual releases in the environmental context are whether they are overridden by CERCLA, and whether contractual releases can encompass claims based on later-enacted laws.⁵⁷ The other major issue with respect to contractual releases is their scope. Typically, contractual releases are construed strictly against the released party, and so courts frequently manage to find loopholes in even the most clearly worded releases. For example, in Griffith v. New England Telephone & Telegraph Co.,⁵⁸ the court concluded that a landlord's letter to a tenant releasing it from "any further responsibility and future economic liability on the property" released the tenant only from the two weeks of rent remaining under the lease.⁵⁹

In addition, Superfund litigation often gives rise to situations in which an indemnity effectively operates as a release. When a party who is contractually obliged to indemnify another against environmental liability brings a CERCLA contribution action against the indemnitee, the latter may raise its right to indemnification under the agreement as a defense. To the extent that an agreement bars the indemnitor from asserting a claim against the indemnitee, the agreement may more accurately be characterized as a release. Though an indemnity is usually construed against the indemnitee, when an indemnity operates as a release it is the indemnitor/releasor who bears the burden [26 ELR 10226] of establishing that parties intended the scope of the release to be limited.⁶⁰

Practice Considerations

Attorneys drafting contractual releases in the context of environmental law should consider the following:

. Future-arising claims may be covered by a release only if that intent is clearly manifest. Acknowledgment in the agreement of present conditions, e.g., the nature and extent of known or possible contamination, may enable the release to include unforeseen claims premised on those conditions.⁶¹

. A recital that separate consideration has been given for a release increases the likelihood that it will be given effect as written.

. A release cannot be too sweeping or redundant from the perspective of the party receiving it.⁶²

Conclusion

Litigation over the contractual allocation of environmental liabilities is an active area of an environmental law practice. While case law is somewhat inconsistent and still evolving, existing cases provide reasonable guidance as to how environmental contractual provisions should be drafted. On the other hand, these cases also demonstrate how easily courts can find gaps or ambiguities in what appears on its face to be clear, complete language. For both these reasons, lawyers familiar with substantive environmental law and the cases referenced in this Article should always review agreements in their entirety and have primary responsibility for drafting those provisions most relevant to environmental issues.

1. The Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. §§ 9601-9675, ELR STAT. CERCLA §§ 101-405.

2. One recent study found that U.S. companies, on average, were spending $ 26.5 million per site on Superfund cleanups, of which 32 percent was for transaction costs, which are principally legal expenses. Rand Institute for Civil Justice, Fixing Superfund: The Effect of the Proposed Superfund Reform Act of 1994 on Transaction Costs 66 (1994).

3. Because Superfund liability is joint and several, each responsible party is individually liable for the entire cost of cleaning up a site. See, e.g., United States v. Chem-Dyne Corp., 572 F. Supp. 802, 805-10, 13 ELR 20986, 20986-88 (S.D. Ohio 1983). The U.S. Environmental Protection Agency typically will only pursue the largest companies from among the universe of potentially responsible parties, leaving those unfortunate few to seek contribution from the others.

4. The 104th Congress has considered a variety of reforms to CERCLA. Bills pending before House and Senate committees would repeal retroactive liability at certain categories of sites, and provide exemptions from liability for certain categories of responsible parties, e.g., "de minimis" or "de micromis" contributors to contamination at a site, small businesses, and discounts or tax credits for certain cleanup costs stemming from liability incurred before the enactment of Superfund or the 1986 Superfund amendments. These reforms, however, would not fundamentally affect the legal issues discussed in this Article. Moreover, the insurance industry, environmental groups, and the Clinton Administration have strongly criticized the proposed bills, raising doubts about the likelihood that the 104th Congress will enact any CERCLA reforms.

Due to the complexity of using contractual provisions to allocate environmental liability in transactions, and the unique features of every transaction, this Article is intended to be informational only, and is no substitute for legal consultation in the context of a particular transaction.

5. See, e.g., Mobay Corp. v. Allied-Signal, Inc., 761 F. Supp. 345, 350, 354, 21 ELR 20791, 20795 (D.N.J. 1991).

6. See, e.g., Dedham Water Co. v. Cumberland Farms Dairy, Inc., 805 F.2d 1074, 1081, 17 ELR 20223, 20226 (1st Cir. 1986) (stating that CERCLA's policy is to hold the company that contaminated the property responsible for the cleanup costs).

7. See, e.g., Oil Pollution Act of 1990, 33 U.S.C. § 2710, ELR STAT. OPA § 1010; Resource Conservation and Recovery Act, 42 U.S.C. § 6991b(b)(6)(C)(i), ELR STAT. RCRA § 9003(b)(6)(C)(i); Michigan Leaking Underground Storage Tank Act, MICH. COMP. LAWS §§ 299.842(6), (7) (1995).

8. Jones-Hamilton Co. v. Kop-Coat, Inc., 750 F. Supp. 1022, 1025, 21 ELR 20475, 20476-77 (N.D. Cal. 1990), aff'd in part, rev'd in part sub nom. Jones-Hamilton Co. v. Beazer Materials & Servs., Inc., 973 F.2d 688, 22 ELR 20677 (9th Cir. 1992).

9. Niecko v. Emro Mktg. Co., 973 F.2d 1296, 1300, 23 ELR 20133, 20134 (6th Cir. 1992) (discussing an identically worded Michigan law, cited supra note 7).

10. 42 U.S.C. § 9607(e)(1), ELR STAT. CERCLA § 107(e)(1).

11. See, e.g, Mardan Corp. v. CGC Music, Ltd., 804 F.2d 1454, 1458-59, 17 ELR 20209, 20211-12 (9th Cir. 1986). For a detailed analysis of this issue, see James W. Conrad Jr., CERCLA Does Not Invalidate Contractual Allocations of Liability, 22 ELR 10045 (Jan. 1992).

12. Harley-Davidson, Inc. v. Minstar, Inc., 837 F. Supp. 978, 981-85 (E.D. Wis. 1993), rev'd, 41 F.3d 341, 25 ELR 20176 (7th Cir. 1994); AM Int'l, Inc. v. International Forging Equip. Co., 743 F. Supp. 525, 529-30, 21 ELR 20332, 20334 (N.D. Ohio 1990), rev'd, 982 F.2d 989, 23 ELR 20573 (6th Cir. 1993); CPC Int'l, Inc. v. Aerojet-General Corp., 759 F. Supp. 1269, 1282-83, 22 ELR 20022, 20027-28 (W.D. Mich. 1991).

13. CPC Int'l, 759 F. Supp. at 1282, 22 ELR at 20027-28.

14. This dynamic has given rise to the recently recognized "Brownfields" problem, in which developers forsake sites with minor or suspected contamination—despite their suitability otherwise for industrial or commercial development—for undeveloped, suburban or rural sites. See E. Lynn Grayson & Stephen A.K. Palmer, The Brownfields Phenomenon: An Analysis of Environmental, Economic, and Community Incentives, 25 ELR 10337 (July 1995).

15. See supra note 12. Though this issue was not appealed in CPC Int'l, 759 F. Supp. at 1269, 22 ELR 20022, the indemnitee in that case subsequently sued in state court for breach of the indemnification agreement. Following the Sixth Circuit's reasoning in Niecko v. Emro Mktg. Co., 973 F.3d 1296, 23 ELR 20133 (6th Cir. 1992), the state court held that the agreement was enforceable, since CERCLA did not bar contractual allocation of liability among responsible parties. Cordova Chem. Co. v. Department of Natural Resources, 212 Mich. App. Ct. 144, 536 N.W.2d 860 (1995).

16. Harley-Davidson, 41 F.3d at 342-44, 25 ELR at 20176-77; Joslyn Mfg. Co. v. Koppers Co., 40 F.3d 750, 754, 25 ELR 20476, 20477-78 (5th Cir. 1994); Beazer East, Inc. v. Mead Corp., 34 F.3d 206, 211, 25 ELR 20001, 20003 (3d Cir. 1994), cert. denied, 115 S. Ct. 1696 (1995); Olin Corp. v. Consolidated Aluminum Corp., 5 F.3d 10, 15, 24 ELR 20021, 20023 (2d Cir. 1993); John S. Boyd Co. v. Boston Gas Co., 992 F.2d 401, 405, 23 ELR 21122, 21123 (1st Cir. 1993); United States v. Hardage, 985 F.2d 1427, 1444 (10th Cir. 1993); AM Int'l, 982 F.2d at 993-95, 23 ELR at 20575-76; Mardan Corp. v. CGC Music, Ltd., 804 F.2d 1454, 1458-59, 17 ELR 20209, 20211 (9th Cir. 1986).

17. See Beazer East, 34 F.3d at 212-15, 25 ELR at 20003-05 (discussing reasons for agreeing with "our sister courts of appeals [which] have uniformly selected state law"); see also Harley-Davidson, 41 F.3d at 344, 25 ELR at 20177; Joslyn, 40 F.3d at 755, 25 ELR at 20478; Olin Corp., 5 F.3d at 15, 24 ELR at 20023.

18. See, e.g., American Int'l Enters., Inc. v. FDIC, 3 F.3d 1263, 1268-69 (9th Cir. 1993) (applying a three-factor analysis established by the U.S. Supreme Court in United States v. Kimball Foods, Inc., 440 U.S. 715, 727-28 (1979)).

19. The only cases of which the author is aware include: Hatco Corp. v. W.R. Grace & Co.—Conn., 801 F. Supp. 1309, 1318 (D.N.J. 1992), vacated, 59 F.3d 400, 400-05, 25 ELR 21238, 21239-40 (3d Cir. 1995); Mobay Corp. v. Allied-Signal, Inc., 761 F. Supp. 345, 351-52, 21 ELR 20791, 20793-94 (D.N.J. 1991); Weigmann & Rose Int'l Corp. v. NL Indus., 735 F. Supp. 957, 961-62 (N.D. Cal. 1990).

20. The Third Circuit recently reversed the district court's decision in Hatco Corp., 59 F.3d 400, 25 ELR 21238, noting that the New Jersey federal district court's adoption of a uniform federal rule in that case and in Mobay Corp., 761 F. Supp. 345, 21 ELR 20791, were overruled by that circuit's opinion in Beazer East, 34 F.3d at 215, 25 ELR at 20005. See Hatco Corp., 59 F.3d at 405, 25 ELR at 21239. Weigmann & Rose, 735 F. Supp. 957, arguably is inconsistent with the Ninth Circuit's prior holding in Mardan Corp., 804 F.2d 1454, 17 ELR 20209, as well as its later decision in Jones-Hamilton Co. v. Beazer Materials & Servs., Inc., 973 F.2d 688, 692-93, 22 ELR 20677, 20679 (9th Cir. 1992) (interpreting an indemnity according to California law).

21. See, e.g., Beazer East, 34 F.3d at 215 n.4, 25 ELR at 20005 n.4; Purolator Prods. Corp. v. Allied-Signal, Inc., 772 F. Supp. 124, 131 n.3 (W.D.N.Y. 1991).

22. It is instructive to note that the judges advocating a uniform federal rule have uniformly opposed upholding the contractual language at issue. See Hatco Corp., 801 F. Supp. at 1318, Mobay Corp., 761 F. Supp. at 351-52, 21 ELR at 20793-94; Weigmann & Rose, 735 F. Supp. at 961-62; see also Mardan Corp., 804 F.2d at 1463-66, 17 ELR at 20214-15 (Reinhardt, J., dissenting).

23. While most cases involve CERCLA, the issue arises with any statute enacted after execution of the agreement in question. See, e.g., 101 Fleet Place Assocs. v. New York Tel. Co., 197 A.D.2d 27, 30, 609 N.Y.S.2d 896, 898 (1994) (discussing New York navigation law provisions similar to those of CERCLA); John S. Boyd Co. v. Boston Gas Co., 992 F.2d 401, 404 n.3, 23 ELR 21122, 21123 n.3 (1st Cir. 1993) (discussing Massachusetts' "mini-Superfund" law).

24. See, e.g., Olin Corp. v. Consolidated Aluminum Corp., 5 F.3d 10, 15-16, 24 ELR 20021, 20023-24 (2d Cir. 1993) (holding that a pre-CERCLA indemnity agreement that contained broad indemnity language includes CERCLA cleanup costs); Georgia Ports Auth. v. Diamond Mfg. Co., 164 B.R. 189, 204-05 (Bankr. S.D. Ga. 1994) (same). Thus, an agreement executed 40 years before the enactment of CERCLA is capable of shifting CERCLA liability. HRW Sys., Inc. v. Washington Gas Light Co., 823 F. Supp. 318, 333, 23 ELR 21586, 21591-92 (D. Md. 1993).

25. Rodenbeck v. Marathon Petroleum Co., 742 F. Supp. 1448, 1456-57, 21 ELR 20327, 20331-32 (N.D. Ind. 1990).

26. FMC Corp. v. Northern Pump Co., 668 F. Supp. 1285, 1292, 18 ELR 20293, 20296 (D. Minn. 1987), dismissed mem., 871 F.2d 1091 (8th Cir. 1988).

27. Mardan Corp. v. CGC Music, Ltd., 804 F.2d 1454, 1458-59, 17 ELR 20209, 20211-12 (9th Cir. 1986).

28. United States v. South Carolina Recycling & Disposal, Inc., 653 F. Supp. 984, 1011, 14 ELR 20272 (D.S.C. 1984), aff'd in relevant part sub nom. United States v. Monsanto, 858 F.2d 160, 19 ELR 20085 (4th Cir. 1988), cert. denied, 490 U.S. 1106 (1989).

29. Olin Corp. v. Consolidated Aluminum Corp., 5 F.3d 10, 15, 24 ELR 20021, 20024 (2d Cir. 1993).

30. Harley-Davidson, Inc. v. Minstar, Inc., 41 F.3d 341, 344, 25 ELR 20176, 20177 (7th Cir. 1994).

31. Lyncott Corp. v. Chemical Waste Management, Inc., 690 F. Supp. 1409, 1413 (E.D. Pa. 1988); see also Olin Corp., 5 F.3d at 15-16, 24 ELR at 20023-24; SmithKline Beecham Corp. v. Rohm & Haas Co., 854 F. Supp. 1201, 1206, 24 ELR 21533, 21535 (E.D. Pa. 1994); HRW Sys., Inc. v. Washington Gas Light Co., 823 F. Supp. 318, 332-34, 23 ELR 21586, 21591-92 (D. Md. 1993); Village of Fox River Grove v. Grayhill, Inc., 806 F. Supp. 785, 794 (N.D. Ill. 1992); Purolator Prods. Corp. v. Allied-Signal, Inc., 772 F. Supp. 124, 131-38 (W.D.N.Y. 1991); Niecko v. Emro Mktg. Co., 769 F. Supp. 973, 986, 22 ELR 20503, 20509-10 (E.D. Mich. 1991), aff'd 973 F.2d 1296, 23 ELR 20133 (6th Cir. 1992). Conversely, a pre-CERCLA agreement in which the purchaser expressly did not assume "any liability … which is not set forth in the Agreement … which would have been set forth therein had all the facts with respect thereto been known on the date thereof, … " did not shift CERCLA liability, since the parties would have provided for this had all the facts (including the existence of CERCLA) been known. United States v. Vermont Am. Corp., 871 F. Supp. 318, 321, 25 ELR 20730, 20731 (W.D. Mich. 1994).

32. See, e.g., Kerr-McGee Chem. Corp. v. Lefton Iron & Metal Co., 14 F.3d 321, 327, 24 ELR 20369, 20370-71 (7th Cir. 1994) (pre-CERCLA agreement to indemnify against losses arising from "the maintenance of any action, claim or order concerning pollution or nuisance"); Armotek Indus. Inc. v. Freedman, 790 F. Supp. 383, 391-92, 22 ELR 21406, 21411 (D. Conn. 1992)(pre-CERCLA representation referring to compliance with environmental laws); Mobay Corp. v. Allied-Signal, Inc., 761 F. Supp. 345, 358, 21 ELR 20791, 20797 (D.N.J. 1991) (pre-CERCLA agreement mentioning that one party is assuming environmental-type liabilities may include CERCLA liability).

33. Jones-Hamilton Co. v. Kop-Coat, Inc., 750 F. Supp. 1022, 1028, 21 ELR 20475, 20478 (N.D. Cal. 1990). Note, however, that one need not violate any law to become liable under CERCLA. See Beazer East, Inc. v. Mead Corp., 34 F.3d 206, 217, 25 ELR 20001, 20006 (3d Cir. 1994) (pre-CERCLA assumption of responsibility for compliance with specified environmental permits, licenses, or orders did not unambiguously assume liability for CERCLA response costs).

34. John S. Boyd Co. v. Boston Gas Co., 992 F.2d 406-07, 23 ELR 21123-24 (1st Cir. 1993); see also Mobay Corp., 761 F. Supp. 355-58, 21 ELR 20795-96; Southland Corp. v. Ashland Oil, Inc., 696 F. Supp. 994, 1001-02, 19 ELR 20733, 20736 (D.N.J. 1988); Jersey City Redev. Auth. v. PPG Indus., 1987 WESTLAW 54410 (D.N.J. Sept 3, 1987), aff'd mem., 886 F.2d 1411 (3d Cir. 1988).

35. See, e.g., John S. Boyd Co., 992 F.2d at 407, 23 ELR at 21124.

36. Cf. Mobay Corp., 761 F. Supp. at 354-58, 21 ELR at 20795-96 (company that paid for cleanup not barred from suing recalcitrant parties, despite having issued them indemnity covering "all obligations and liabilities relating to the [site] arising out of claims made … for … any damages to any property … resulting from any condition existing, substance … discharged … or action taken or omitted … whether or not [occurring] prior to the Closing Date…."); compare with Hays v. Mobil Oil Corp., 930 F.2d 96, 99, 100-02, 21 ELR 21210, 21212 (1st Cir. 1991) (company that paid for cleanup barred from suing because it had indemnified defendant "against all losses and claims … for … property damage arising out of (1) the use or condition of [the] premises … or (3) the storage or handling of products on the premises…."). Both cases involved statutes enacted after the agreement in question.

37. See Village of Fox River Grove v. Grayhill, Inc., 806 F. Supp. 785, 794 (N.D. Ill. 1992).

38. See AM Int'l, Inc. v. International Forging Equip. Co., 982 F.2d 989, 995-97, 23 ELR 20573, 20576-77 (6th Cir. 1993). This is not the law in all states. See, e.g., Mardan Corp. v. CGC Music, Ltd., 804 F.2d 1454, 1458-59, 17 ELR 20209, 20211-12 (9th Cir. 1986) (under New York law, "when general peace is the consideration [for a release] there can be no mutual mistake as to the extent of the injuries, known or unknown.").

39. Jones-Hamilton Co. v. Beazer Materials & Servs., Inc., 973 F.2d 688, 692, 22 ELR 20677, 20679 (9th Cir. 1992).

40. See Commander Oil Corp. v. Advance Food Serv. Equip., 991 F.2d 49, 54, 23 ELR 20858, 20861 (2d Cir. 1993) (broad indemnification provisions in a purchase agreement were "compromised by … specific language allocating environmental responsibility" in a simultaneously executed leaseback agreement, suggesting that indemnity for unmentioned CERCLA liability may not have been intended by the parties; extrinsic evidence was required to resolve the ambiguity between provisions).

41. For example, an "as is" clause may bar rescission of a sale of property on which contamination requiring Superfund cleanup is discovered. Commerce Redev. Agency v. American Home Prods., Inc., 37 Env't Rep. Cas. (BNA) 1277, 1287 (C.D. Cal. Mar. 26, 1993).

42. See Ganton Technologies, Inc. v. Quadion Corp., 1992 WESTLAW 71658 (N.D. Ill. Mar. 30, 1992); Mobay Corp. v. Allied-Signal, Inc., 761 F. Supp. 345, 355-56, 21 ELR 20791, 20797 (D.N.J. 1991); Weigmann & Rose Int'l Corp. v. NL Indus., 735 F. Supp. 957, 62 (N.D. Cal. 1990); Allied Corp. v. Frola, 730 F. Supp. 626, 630, 20 ELR 21193, 21195 (D.N.J. 1990); Amland Properties Corp. v. Aluminum Co. of Am., 711 F. Supp. 784, 803, 19 ELR 21180, 21189 (D.N.J. 1989); Channel Master Satellite Sys., Inc. v. JFD Elecs. Corp., 702 F. Supp. 1229, 1230-32, 19 ELR 20839, 20840-41 (E.D.N.C. 1988); Southland Corp. v. Ashland Oil, Inc., 696 F. Supp. 994, 1001, 19 ELR 20733, 20735 (D.N.J. 1988).

43. 973 F.2d 1296, 1300, 23 ELR 20183, 20184 (6th Cir. 1992).

44. Id. at 1303, 23 ELR at 20186.

45. Id.

46. 42 U.S.C. § 9607(a)(1)-(3), ELR STAT. CERCLA § 107(a)(1)-(3). One court has construed "arranging for the disposal" of waste very broadly to include shipping pesticide raw materials to a formulator under a tolling arrangement. United States v. Aceto Agric. Chems. Corp., 872 F.2d 1373, 1379-82, 19 ELR 21038, 21041-43 (8th Cir. 1989). And another court has also construed that phrase broadly to include selling a building laden with PCB transformers for well-below market price. Sanford St. Local Dev. Corp. v. Textron, Inc., 768 F. Supp. 1218, 1222-23, vacated, 805 F. Supp. 29 (W.D. Mich. 1991).

47. See, e.g., United States v. Mexico Feed & Seed Co., 980 F.2d 478, 487, 23 ELR 20461, 20464 (8th Cir. 1992) (an asset purchaser that continues to operate the business of the seller may acquire the seller's liabilities, though not if the purchaser lacks "substantial ties" to the seller); Atlantic Richfield Co. v. Blosenski, 847 F. Supp. 1261, 1287, 24 ELR 21125, 21135 (E.D. Pa. 1994) (asset purchaser who substantially continues seller's business may acquire seller's CERCLA liability even in an arm's-length transaction and when purchaser lacks knowledge of potential liability); United States v. Atlas Minerals & Chems., Inc., 824 F. Supp. 46, 50-52, 23 ELR 21609, 21611-12 (E.D. Pa. 1993) (following Mexico Feed & Seed insofar as it limits the applicability of the "continuity of enterprise" theory of successor liability to those cases in which the purchaser has "substantial ties" to the seller). Note that "CERCLA liability can run to a corporate successor despite contractual provisions to the contrary." Blackstone Valley Elec. Co. v. Stone & Webster, Inc., 867 F. Supp. 73, 76 (D. Mass. 1994).

48. See, e.g., Keywell Corp. v. Weinstein, 33 F.3d 159, 161-62, 165-66, 24 ELR 21476, 21477-78, 21479-80 (2d Cir. 1994); Purolator Prods. Corp. v. Allied-Signal, Inc., 772 F. Supp. 124, 131 (W.D.N.Y. 1991).

49. See, e.g., Harley-Davidson, Inc. v. Minstar, Inc., 41 F.3d 341, 344, 25 ELR 20176, 20177 (7th Cir. 1994) (buyer agreed to "indemnify [seller] against all … liabilities, … without any limitation, relating to [seller's] operations and products, whether known or unknown … and whether existing on the date of this agreement or coming into existence hereafter").

50. Id. (indemnity upheld when buyer of division of seller agreed to indemnify seller against all liabilities, without limitation, related to division's operations and products); Joslyn Mfg. Co. v. Koppers Co., 40 F.3d 750, 754, 25 ELR 20476, 20477-78 (5th Cir. 1994) (same result where lessee agreed to "indemnify as an insurer [lessor] … against any and all liability … incident to … the doing of whatsoever Lessee attempts hereunder, or … resulting from any condition of or defect in the Premises …."); Olin Corp. v. Consolidated Aluminum Corp., 5 F.3d 10, 15-16, 24 ELR 20021, 20023-24 (2d Cir. 1993) (indemnity upheld when buyer of aluminum business agreed to indemnify seller against all liabilities, absolute or contingent, related to the business); United States v. Hardage, 985 F.2d 1427, 1434-35 (10th Cir. 1993) (upholding indemnity when waste disposal contractor agreed to indemnify waste generator against "any claim of loss or damage resulting from the transporting or disposal of [the generator's] material").

51. Olin Corp., 5 F.3d at 15-16, 24 ELR at 20023-24.

52. Cf. Bancamerica Commercial Corp. v. Trinity Indus., Inc., 900 F. Supp. 1427, 1476 (D. Kan. 1995) (bank that took possession of property securing defaulted loan agreed to indemnify plant operator for any claim "in which it is alleged that [the current operator] is liable as a transferee or successor to [a prior operator]"; court held that the current operator's CERCLA liability was predicated on its status as operator, not on its status as a transferee or successor, and thus outside the agreed scope of indemnity); Scott Galvanizing, Inc. v. Northwest Enviroservs., Inc., 25 Chem. Waste Lit. Rep. 1033, 1039 (D. Wash. Jan. 28, 1993) (waste transporter agreed to indemnify waste generator for "any and all liability [etc.], including but not limited to pollution or other damage, as and to the extent that such liabilities, [etc.] are caused by, arise out of or in any manner result from the performance by [transporter] of its services under this agreement"; contractual language did not preclude the interpretation that thegenerator's CERCLA liability was outside the scope of indemnity because it arose not from the transporter's performance, but rather from the generator's status as generator). But see New York v. SCA Servs., Inc., 1994 WESTLAW 66931 (S.D.N.Y. Feb. 18, 1994) (when waste transporter agreed to indemnify waste generator for "any and all liability … associated with the removal, storing or disposition of the material," the parties' intent to indemnify for CERCLA liability was unambiguous; rejecting argument that generator's liability as "arranger for disposal," independent of contract, was not within scope of indemnity).

53. A contract may contain provisions of both types, with different expiration dates. See SmithKline Beecham Corp. v. Rohm & Haas Co., 854 F. Supp. 1201, 1211, 24 ELR 21533, 21537-38 (E.D. Pa. 1994) (though indemnity for breach of seller's representation that the property was free of defects had expired before indemnitee brought its claim, free-standing indemnity provision for liabilities relating to conduct of the business had not).

54. See Union Carbide Corp. v. Thiokol Corp., 890 F. Supp. 1035, 1050 (S.D. Ga. 1994) (while expiration of reps and warranties and general indemnity, as provided by survival clause, foreclosed indemnitee's contractual indemnity claims, indemnitee still could bring CERCLA claims against indemnitor; lapse of survival period did not shift CERCLA liability from indemnitor); Southland Corp. v. Ashland Oil, Inc., 696 F. Supp. 994, 1002, 19 ELR 20733, 20736 (D.N.J. 1988) (same).

55. Armotek Indus. Inc. v. Freedman, 790 F. Supp. 383, 390-91, 22 ELR 21406, 21410-11 (D. Conn. 1992). This decision erred fundamentally by concluding that the time limit on the indemnity clause of the contract reached all claims for indemnity, and by then casting the plaintiff's CERCLA claim as one for "indemnity." The plain language of the agreement, however, indicates that the time limitation was intended only to affect claims for indemnity for breach of warranty. Id. at 388-89, 22 ELR at 21409-10; cf. Hays v. Mobil Oil Corp., 930 F.2d 96, 100, 21 ELR 21210, 21212 (1st Cir. 1991) (time limit clause referred to "any claim of any kind by [plaintiff] based on or arising out of this contract or otherwise…."). In addition, CERCLA itself classifies claims between responsible parties as "contribution," rather than indemnity, claims. 42 U.S.C. § 9613(f), ELR STAT. CERCLA § 113(f).

56. Compare City Management Corp. v. U.S. Chem. Corp., 43 F.3d 244, 248, 25 ELR 20170, 20171-72 (6th Cir. 1994) (buyer assumed liability for particular property, while seller expressly retained CERCLA or other environmental liabilities with respect to any other site) with GNB Battery Technologies, Inc. v. Gould, 65 F.3d 615, 623, 26 ELR 20047, 20050-51 (7th Cir. 1995) (buyer assumed all liabilities except environmental liability associated with specified sites, indicating that buyer assumed environmental liabilities with respect to any other site). See also CBS Inc. v. Hasbro, Inc., 1994 WESTLAW 421365 (E.D. Pa. Aug. 9, 1994). In the purchase agreement at issue in CBS, the seller agreed to indemnify buyer for all liability relating to the purchased property not expressly assumed by the buyer. In another provision, the seller agreed to indemnify buyer for liability related to specified contamination, as disclosed in an environmental consultant's report. The court rejected the seller's argument that it had assumed responsibility only for liabilities listed in the report, holding that the provision referencing the report constituted a further, overlapping indemnity, not a limitation on the broad provision.

57. See, e.g., Fisher Dev. Co. v. Boise Cascade Corp., 37 F.3d 104, 25 ELR 20760 (3d Cir. 1994).

58. 32 Mass. App. Ct. 79, 84, 585 N.E.2d 751, 754 (1992), aff'd in relevant part, 414 Mass. 824, 610 N.E.2d 944 (1993).

59. Id. at 84, 585 N.E.2d at 754.

60. See, e.g., Hatco Corp. v. W.R. Grace & Co.—Conn., 59 F.3d 400, 404-06, 25 ELR 21238, 21239-40 (3d Cir. 1995). In Hatco Corp., a buyer agreed to indemnify the seller for certain liabilities, then brought suit to recover the costs of cleaning up the property. The agreement was invoked in defense by the seller, "which has not expended any sums for cleanup and makes no claim for them. Hence, [seller] has no basis for indemnity at this point, but in reality is seeking to shield itself from [buyer's] claim for reimbursement." Id. at 406, 25 ELR at 21239-40. In this context, the buyer bore the burden of proving that the scope of the indemnity did not reach CERCLA claims. See also Olin Corp. v. Consolidated Aluminum Corp., 5 F.3d 10, 16 n.4, 24 ELR 20021, 20024 n.4 (2d Cir. 1993); Mardan Corp. v. CGC Music, Ltd., 804 F.2d 1454, 1462, 17 ELR 20209, 20213 (9th Cir. 1986).

61. See, e.g., Village of Fox River Grove v. Grayhill, Inc., 806 F. Supp. 785, 794-95 (N.D. Ill. 1992) (pre-CERCLA release of "all manner of actions … claims and demands" between parties, in settlement of litigation over improper wastewater discharges from sewer system, sufficed to release CERCLA claims arising from subsequent rupture of sewer system).

62. See infra text accompanying footnotes 24-36. See, e.g., Fisher Dev. Co. v. Boise Cascade Corp., 37 F.3d 104, 106, 25 ELR 20760, 20762-63 (3d Cir. 1994) (release of all "promises, covenants, agreements, contracts, … controversies, suits, actions, causes of actions, … damages, claims or demands, … which [releasor] ever had, now has or hereafter can, shall, or may have, for, upon or by reason of any matter, cause or thing whatsoever, from the beginning of the world to the day and date of these Presents," though granted in exchange for payment of $ 2,000 in settlement of landlord-tenant litigation unrelated to environmental liability, sufficed to release CERCLA claim for remediation costs exceeding $ 860,000).