United States v. South Carolina Recycling and Disposal, Inc.

No. 80-1274-6 (653 F. Supp. 984 at 1010) (D.S.C. December 23, 1985)

The court holds that companies that sold a chemical manufacturing plant to a defendant in a Comprehensive Environmental, Response, Compensation, and Liability Act (CERCLA) cost recovery action are not liable as third-party defendants because the defendant assumed all liabilities of the plant under the agreement of sale. The court holds that the defendant assumed all liabilities under the acquisition contract, including the liability for off-site waste disposal. Defendant has failed to substantiate its claim that the third-party defendants committed fraud by failing to disclose violations of environmental laws. Further, CERCLA § 107(e)(1) implicitly recognizes that liability between private parties may be dealt with contractually.

[Other decisions in this litigation are published at 14 ELR 20272 and 20895, and 17 ELR 20843 and 20847.

Counsel are listed at 17 ELR 20843.

[17 ELR 20846]

SIMONS, District Judge.

ORDER ON THIRD-PARTY CLAIM

This matter comes before the court on the Motion of third-party defendants, G.D. Searle & Co., and Will Ross, Inc., for Summary Judgment against third-party plaintiff, E.M. Industries, Inc. On May 7, 1985,the court held a hearing on this Motion. Final disposition of this Motion was held in abeyance pending an anticipated appellate decision on a case which provided persuasive precedent for certain damages issues involved in the underlying claim of the original Complaint. Because this court recently entered an Order on the issue of damages, disposition of this third-party Summary Judgment Motion is now timely.

BACKGROUND

The principal claim of the original Complaint in this action arises from the deposit of chemical wastes by South Carolina Recycling and Disposal, Inc. ("SCRDI") at the Bluff Road site, Columbia, South Carolina. Defendant third-party plaintiff EMI was sued by the United States under the Comprehensive Environmental Response Compensation and Liability Act of 1980 ("CERCLA"), 42 U.S.C. § 9601 et seq., for deliveries of waste material by EMI's MC/B facility, an Ohio chemical manufacturing plant. The waste material was ultimately deposited at the Bluff Road site.

The third-party action arises by virtue of the sale of MC/B by Will Ross, a subsidiary of Searle, to Merck AG and its subsidiary EMI. EMI has contended that Will Ross and Searle should indemnify EMI for amounts for which EMI may be held liable for the clean-up at the Bluff Road site. However, because the agreement of sale clearly states that EMI assumed all liabilities of MC/B, such costs are the responsibility of EMI. Accordingly, the court concludes that summary judgment on the third-party claim in favor of Searle and Will Ross is appropriate.

FINDINGS OF FACT

1. Adolf Haasen, president of EMI, first contacted the sellers concerning the possible purchase of MC/B in late 1976. Negotiations progressed to the point of an inspection of MC/B's Norwood, Ohio, manufacturing plant in April of 1977. On April 7, 1977, Haasen, accompanied by two technical people, one of whom was a Mr. Weissbach, toured the Norwood facility. Weissbach reported to Haasen what he had observed at the plant, including the chemicals MC/B manufactured, the manufacturing facility, and MC/B's disposal of chemical waste. Weissbach reported that "MC/B was using waste haulers to haul off the waste that could not be disposed of with the municipal sewer district." Weissbach reported to Haasen that waste to be disposed of off-site "would be hauled away, for example to South Carolina."

2. MC/B first entered a contract with SCRDI for off-site waste disposal on January 18, 1977. That contract was entered into for MC/B by Michael Mulligan, Vice President of Operations, a position he holds for EM Science, the successor name for MC/B. On April 4, 1977, SCRDI picked up the first shipment of chemical waste from MC/B.

3. On May 5, 1977, a memorandum of understanding was signed indicating an intention by EMI to purchase MC/B from Will Ross. MC/B made two other chemical waste shipments to SCRDI (May 27 and June 17) before the actual sales agreement was signed. On June 14, Mulligan wrote directly to EMI specifying that SCRDI was under contract with MC/B for the disposal of chemical waste.

4. On July 12, 1977, the parties signed the contract document by which MC/B was sold to EMI. A further shipment to SCRDI occurred on August 11, 1977, and the sale was closed on September 1, 1977. That contract provided, in pertinent part, that:

Subject to the exceptions and exclusions of this Agreement, Buyers agree that on the Closing Date EM will assume and agree to perform and pay when due all the debts, liabilities, obligations, and contracts relating to the business of MC/B of whatever kind, character or description, whether or otherwise, existing or arising on or after April 30, 1977, which Sellers would be bound or obligated to pay. Buyers nonetheless reserve the right to contest, settle or refuse to satisfy any such debt, liability, obligation or contract for reasonable cause but shall, subject to Paragraph 1.5 of this Agreement indemnify and hold Sellers harmless against payment or performance on the part of Sellers of any said debts, liabilities, obligations, or contracts including reasonable legal fees and expenses.

5. Since EMI has owned MC/B, nine further shipments of waste have been made to SCRDI. EMI has entered into identical offsite waste disposal contracts with SCRDI in 1978 and 1979. As far as Mulligan was aware, MC/B was disposing of its waste in a lawful manner. Adolf Haasen, President of EMI, testified that he has no evidence that as of either July 12, 1977 (the date of the agreement of sale) or September 1, 1977 (the closing date) that MC/B was in violation of any statute, ordinance or regulation dealing with offsite waste disposal. Similarly, Roger Bipes, Chief Engineer for MC/B (a position he held for EM Science until 1982 when he became assistant site manager) testified that as of the date of the contract agreement, he was aware of no violations of any laws, regulations, or ordinances dealing with off-site disposal.

6. EMI was sued by the United States in 1980 for various clean-up costs at the Bluff Road site in Columbia, South Carolina. Neither Searle nor Will Ross have been named as defendants by the government.

7. Defendant third-party plaintiff EMI has argued that the entire MC/B acquisition agreement was tainted by allegedly fraudulent representations relating to the on-site waste disposal at the Norwood, Ohio facility of MC/B. Multiple issues, including the contention of fraud relating to undisclosed on-site waste disposal were the subject of an action by EMI against Searle/Will Ross in the Southern District of Ohio. Trial of the case resulted in a mistrial, and subsequently the matter was settled by a payment of six million dollars ($6,000,000) by Searle to EMI. The intent of the parties in entering into the settlement was stated as follows:

1. Intent. The intent of this Settlement Agreement is to settle all liability and disputes among Searle, SMP, EMI and Merck relating to on-site waste disposal activities at the manufacturing facility and real estate generally located at 2909 Highland Avenue, Norwood, Ohio (hereinafter "the 'MC/B' facility"), which is more fully described in Exhibit A attached hereto.

2. Payments by Searle and SMP. Searle and SMP agree to pay directly to EMI the total sum of Six Million Dollars ($6,000,000.00) upon execution of this Settlement Agreement.

3. No Admission of Liability. By entering into this Settlement Agreement, the parties hereto do not admit any issue of law or fact nor any liability for any waste disposal practices at the MC/B facility.

4. Release. EMI and Merck fully and forever release and discharge Searle, [17 ELR 20847] SMP, their subsidiaries, predecessors, successors in interest, assignees, and all officers, directors, agents, employees and representatives of all such entities from all claims, actions, causes of actions, demands or liability of any kind or nature, asserted or unasserted, direct or indirect, known or unknown, having arisen or to arise in the future, in any way related to or arising from any substances (including, without limitation, chemicals, and hazardous and/or toxic wastes) deposited, spilled, leaked, disposed of, dumped or buried at the MC/B facility or any contiguous property (such substances being hereinafter collectively referred to as the "buried substances"), including, but not limited to, any liability arising from: (1) the excavation, removal, treatment, transportation, and/or redisposal of such buried substances; (2) any such buried substances (or the residue thereof) which have migrated or will in the future migrate off-site (i.e., off the MC/B facility) via groundwater, surface water, or air; or (3) any on-site waste disposal, storage or treatment activities.

Settlement Agreement at 1-2 (Emphasis supplied).

CONCLUSIONS OF LAW

A. By virtue of paragraph 1.4 of the acquisition agreement, EMI agreed to assume all debts and liabilities of MC/B either existing as of the date of closing, or arising thereafter (subject to exceptions in paragraph 1.5, not relevant in the instant case).¹ This case, therefore, presents a straightforward application of the contract to the liability at issue in this case — the off-site waste disposal at the Bluff Road site.

B. This Motion requires an examination of two primary questions: first, whether the liability in the instant case is one assumed under paragraph 1.4 of the contract, and second, whether the contractual provision therefore applies to bar EMI from seeking indemnification in this case. Since the answer to both questions is in the affirmative, and since no material disputes of fact have been established, summary judgment in favor of Searle and Will Ross is appropriate.

First, there is simply no doubt that this is a liability assumed by EMI under the acquisition agreement, for the contract provides that Buyers assume all liabilities, of whatever kind, whether they existed at the time of the sale, or arose thereafter. It is immaterial whether one views the liability as arising at the time of the shipments (therefore, existing "on" the date of closing) or arising by virtue of the lawsuit (therefore, "after" the closing date) for Buyers assumed liability for both. Similarly immaterial is whether such shipments took place while MC/B was owned by Will Rossor by EMI, for again, liability for such waste disposal was assumed by EMI upon its purchase of MC/B. As already noted, subject to certain exceptions not relevant here, EMI assumed all liabilities of MC/B, including the liability for off-site waste disposal at issue here.

C. EMI's third-party action flies in the fact of the clear language of the acquisition agreement. As between EMI/Merck and Searle/Will Ross, EMI has assumed liability for the off-site waste disposal at issue here. No reason exists not to apply the clear language of the agreement.

D. EMI's contention that environmental liability is exempted from the indemnity provisions of the sales agreement is without merit as a defense against the present Motion. As reflected in footnote 1, supra, paragraph 2.12 of the sales agreement provides in pertinent part as follows:

2.12 Environmental Laws. To Sellers' best knowledge, MC/B has not operated in violation of any applicable statute, ordinance or regulation dealing with air pollution, emissions, effluents, waste disposal or environmental control and Sellers have received no official notice of any alleged violation of any of the foregoing statutes, ordinances or regulations, except in all cases for violations which have been corrected prior to the date hereof.

EMI has failed to submit any affidavits or deposition which would create any material issue of fact concerning fraud by indicating Searle's knowledge of violations of environmental statutes or regulations as of the acquisition date. Because Searle's knowledge of such violations is what paragraph 2.12 guarantees against, the absence of any such affidavit is fatal to this aspect of EMI's argument against Summary Judgment.

The court also notes that the express intent of the settlement agreement between EMI and Searle in their Ohio litigation involved settlement of "all liability and disputes among Searle, SMP, EMI and Merck relating to on-site waste disposal activities at the [MC/B facility in Norwood, Ohio]." In this court's view, such broad language precludes EMI's present effort to resurrect the onsite waste disposal issue in their claim of fraud by Searle and Will Ross. Apart from the failure of EMI to support the fraud claim by affidavit, the unambiguous language of the Ohio settlement provides an additional basis for this court's conclusion that no material issues of fact are presented by EMI's attempt to assert fraud.

E. The Comprehensive Environmental Response Compensation and Liability Act of 1980 ("CERCLA"), 42 U.S.C. § 9601 et seq., implicitly recognizes the viability of such indemnity agreements in § 9607(e)(1), which states that:

Nothing in this subsection shall bar any agreement to insure, hold harmless, or indemnify a party to such an agreement for any liability under this Section.

Thus, CERCLA itself recognizes that as between private parties, liability may be dealt with contractually in such manner as the parties agree. In this case, the parties contractually agreed that any such liability would be the responsibility of the purchaser, EMI.

F. The agreement clearly provides that the liability in this case as between EMI and Searle/Will Ross rests with EMI, and no reason exists why such contractual agreement should not be effective. Thus, in the absence of any properly supported disputes of material fact, Summary Judgment in favor of Searle and Will Ross ishereby granted.

AND IT IS SO ORDERED.

1. Paragraph 1.5 excludes assumption of any liability, inter alia, which constitutes a breach of any covenant, agreement, representation or warranty of Seller under the Agreement. In paragraph 2.12, Sellers warranted that "to Sellers best knowledge, MC/B has not operated in violation of any applicable statute, ordinance, or regulation dealing with . . . waste disposal . . . and Sellers have received no official notice of any alleged violation of any of the foregoing statutes, ordinances, or regulations . . ." As noted by the testimony of Haasen, Bipes and Mulligan, no claim is made that Sellers violated such warranty with respect to off-site waste disposal, in that MC/B believed at all times that it was acting in conformance with relevant waste disposal regulations. In fact, the same on-site plant manager who arranged waste shipments to SCRDI prior to the sale authorized waste shipments to SCRDI after the sale of MC/B as well.