22 ELR 10045 | Environmental Law Reporter | copyright © 1992 | All rights reserved
CERCLA Does Not Invalidate Contractual Allocations of LiabilityBy James W. Conrad Jr.
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.
[22 ELR 10045]
Your client formerly had a joint venture operation with the Sloppy Manufacturing Company (Slopco). The relationship grew increasingly acrimonious, in part because Slopco did not share your client's commitment to strict environmental compliance, and your client decided to pull out. In exchange for full ownership of some valuable intellectual property rights your client had previously licensed to the joint venture, Slopco agreed to indemnify, hold harmless, and release your client from and against any environmental liabilities associated with the venture and the manufacturing plant it owned. Slopco operated the plant in a manner befitting its name for several years, and eventually became the subject of a U.S. Environmental Protection Agency (EPA) hazardous waste enforcement action. After expending several hundred thousand dollars on corrective action, Slopco sues your client for contribution under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA).1 You move for summary judgment based on the release agreement and CERCLA § 107(e).2 You win, right?
Maybe not. Until recently, every court that had addressed § 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. Under that view, a liable party remains liable to the federal government or to any other CERCLA claimant that has not bargained away its claim.3 In June 1990, however, a federal district court [22 ELR 10046] decided AM International v. International Forging Equipment Corp.,4 which holds that CERCLA § 107(e) only legitimizes agreements that expand liability to parties not otherwise liable, and does not apply to agreements between potentially liable parties. Earlier this year, a second district court in CPC International v. Aerojet-General Corp.5 followed AM International.
A definitive resolution of the issue is needed. In an attempt to advance that result, this Article seeks to show that the original judicial interpretation of CERCLA § 107(e) is correct. The Article begins by describing that interpretation, first expounded in 1986 by the Ninth Circuit in Mardan Corp. v. C.G.C. Music, Ltd.,9 and then examines the contrary reasoning of AM International and CPC. After analyzing the language of the statute itself, the Article turns to the legislative history of CERCLA § 107(e), as well as to the language and history of a comparable provision of the Oil Pollution Act of 1990,10 arguing that a close examination of these sources reveals the correctness of the Mardan view. Finally, the Article explains why the Mardan view better advances the policies underlying CERCLA, particularly the goal of promoting private, voluntary cleanup.
The Mardan View of CERCLA Section 107(e)
Congress enacted CERCLA in 1980 to provide a comprehensive means of responding to hazardous substance releases. The linchpin of the statute is § 107, which creates a notoriously sweeping strict, joint, and several liability system reaching current owners and operators of contaminated sites, owners and operators at former times of disposal, and transporters and generators of hazardous substances disposed of at a site.11 Subsection (e), an "inartfully drafted"12 portion of § 107, provides:
(1) 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 under this section, to any other person the liability imposed under this section.
(2) Nothing in this subchapter, including the provisions of paragraph (1) of this subsection, shall bar a cause of action that an owner or operator or any other person subject to liability under this section, or a guarantor, has or would have, by reason of subrogation or otherwise against any person.13
Despite the provision's "rather confusing language,"14 the first court to address it — and the only appellate court thus far — had little difficulty in parsing its syntax. In Mardan,15 the buyer of a musical instrument plant sued the seller to recover monies the buyer had expended cleaning up the site pursuant to an EPA consent order. The seller defended on the ground that the buyer had previously released it from "all actions, causes of action, [and] suits … based upon, arising out of or in any way relating to the Purchase Agreement [between the two parties]."16 The Ninth Circuit stated that, "[a]s the government points out, Section 107(e) expressly preserves agreements to insure, to hold harmless, or to indemnify a party held liable under Section 107(a)."17 The court added:
Contractual arrangements apportioning CERCLA liabilities between private "responsible parties" are essentially tangential to the enforcement of CERCLA's liability provisions. Such agreements cannot alter or excuse the underlying liability, but can only change who ultimately pays that liability. Moreover, regardless of how or under what law these agreements are interpreted, the result cannot prejudice the right of the government to recover cleanup or closure costs from any responsible party, including either [the buyer, the seller] or both.18
Subsequent cases followed Mardan without expanding on this discussion, due to the perceived obviousness of the [22 ELR 10047] rule.19 Not until 1990, in Central Illinois Public Service Co. v. Industrial Oil Tank & Line Cleaning Service,20 did a court even advert to the apparent contradiction between the first sentence of CERCLA § 107(e)(1), which appears to invalidate indemnities and the like, and the second sentence, which appears to save them. In Central Illinois, the Western District of Missouri explained:
The two sentences in Section 9607(e)(1) can be reconciled in only one way: That is, a liable party remains liable (e.g., to the United States) regardless of whether it has an indemnity agreement, but the liable party still may proceed against a third party (e.g., an insurance company) which has agreed to indemnify the liable party. This interpretation is consistent with the language of the statute, the cases applying it, and the legislative history.21
Thus, by early 1990, all six courts that had addressed the issue agreed on the Mardan view that CERCLA § 107(e) preserves contractual allocations of CERCLA liability.22 The crevice of ambiguity spotted by the court in Central Illinois, however, was soon levered wide open by the AM International decision.
The AM International View of CERCLA Section 107(e)
The Central Illinois gloss, especially the unelaborated reference to legislative history,23 was apparently not enough for the Northern District of Ohio, which issued AM International24 four months later. The convoluted facts of AM International involved a completed sale and partial leaseback of property — including an industrial plant for plating, heat treating, and painting — by the plaintiff (AMI) to D & B Realty, which was co-owned by two individuals, Dziak and Diemer. Several years later, D & B Realty assigned the lease to Dziak, doing business as EIC. AMI then sold the plant to another Dziak-controlled entity, IFE, and gave a release of all claims to EIC and Dziak. After the Ohio Environmental Protection Agency could not persuade Dziak to undertake cleanup at the site, AMI paid for the work and then sued D & B Realty, EIC, IFE, Dziak, and Deimer under CERCLA and state law. EIC and Dziak argued that AMI was barred from bringing suit by virtue of its agreement to release "any and all [claims] of every kind and description, known or unknown, in law or in equity, which AMI now has or may hereafter have against [EIC and Dziak]."25
At the outset of its analysis, the court observed that CERCLA § 107(e) is "[o]n its face … internally inconsistent."26 It then immediately resorted to two portions of the section's sparse legislative history. It first examined a June 2, 1980, draft of the Senate CERCLA bill (S. 1480), which began with the present first sentence of § 107(e), followed by this language:
Provided, [t]hat this subsection shall not apply to a transfer in a bona fide conveyance of a facility or site (1) between two parties not affiliated with each other in any way, (2) where there has been an adequate disclosure in writing … of all facts and conditions (including potential economic consequences) material to such liability, and (3) to a transferor who can provide assurances of financial responsibility and continuity of operation consistent with the degree and duration of risks associated with such facility or site.27
The court remarked that "[t]he provision as initially conceived, therefore, disfavored releases except under strict conditions."28
Next, the court considered the following colloquy between Senator Cannon and Senator Randolph, a sponsor of the bill, from the November 24, 1980, Senate debate on CERCLA:
Mr. CANNON. Section 107(e)(1) prohibits transfer of liability from the owner or operator of a facility to other persons through indemnification, hold harmless, or similar agreements or conveyances. Language is also included indicating that this prohibition on the transfer of liability does not act as a bar to such agreements, in particular to insurance agreements.
The net effect is to make the parties to such an agreement, which would not have been liable under this section, also liable to the degree specified in the agreement. It is my understanding that this section is designed to eliminate situations where the owner or operator of a facility uses its economic power to force the transfer of its liability to other persons, as a cost of doing business, thus escaping its liability under the act all together.
Mr. RANDOLPH. That is correct.29
The court in AM International acknowledged the consistent rule embodied in prior cases addressing CERCLA § 107(e); indeed, it cited all six decisions.30 Nonetheless, the court concluded based on these two historical items that § 107(e) should be read only to "give effect to contracts binding parties [22 ELR 10048] otherwise not liable, to indemnify or insure liable parties,"31 and not to contracts between parties both or all of which are potentially liable.32 The court reasoned that indemnity agreements and releases between tortfeasors are unenforceable, since § 107(e)'s second sentence allows only a limited right to contract regarding liability, while § 107(e)(2) expressly directs that such contracts may not limit suits against persons liable under CERCLA.33 To interpret the section otherwise, the court concluded, would discourage a released party from performing cleanup measures and undercut the primary policy of encouraging cleanup initiatives.34
The 1991 decision in CPC35 agreed with AM International's reading of the statute and its legislative history. CPC's startling facts36 involved an attempt by the Michigan Department of Natural Resources (MDNR) to sell a bankrupt's contaminated property to a solvent buyer. After at least one deal fell through, MDNR entered negotiations with Cordova Chemical Co. (Cordova). This deal, too, initially faltered, due to Cordova's reluctance to acquire contaminated property. Cordova eventually agreed to buy the site, but only after executing a stipulation and consent order that listed the pollution problems, divided up responsibility for cleanup between MDNR and Cordova, released Cordova from any liability in connection with any other corrective actions that MDNR or any other governmental agency deemed necessary or advisable, including the creation, maintenance, and operation of any purge wells, and provided that MDNR would indemnify and hold Cordova harmless from all losses and expenses associated with certain MDNR cleanup actions. Although MDNR obtained state funds for a new groundwater purging system, the system was never installed, and the groundwater contamination worsened. Eventually, the site moved into litigation, and Cordova filed for summary judgment motion against MDNR based on the stipulation and consent order and CERCLA § 107(e).
Although the court in CPC observed that the AM International analysis appeared to contradict the outcome in several cases, it nonetheless found its reading of CERCLA § 107(e) to be correct "as a general statutory rule forbidding the application of releases to ban CERCLA liability."37 It added:
This outcome is consistent with the statute's broad policies of encouraging cleanups and placing the burden of their costs on those responsible for hazardous waste problems. In addition, as AM International carefully details, this result is consistent with the legislative history of section 107(e)(1)….38
Five other district court decisions since AM International have addressed CERCLA § 107(e). One found AM International's reasoning persuasive,39 while two others make no reference to it.40 Of the two decisions since AM International that have expressly declined to follow it, only the recently decided Niecko v. Emro Marketing Co.41 squarely and completely confronts the AM International view, but Niecko's discussion is wholly dictum.42
Statutory Interpretation of CERCLA Section 107(e)
In any question of statutory interpretation, the touchstone is the language of the act itself.43 The crux of the debate over CERCLA § 107(e)'s meaning is its first sentence, which provides that "[n]o indemnification, hold harmless, or similar agreement or conveyance shall be effective to transfer from … any person who may be liable … to any other person the liability imposed under this section."44 The heart of this sentence in turn is the word "transfer." If "transfer" in this context means to shift or to pass through, such that the transferor remains primarily accountable but the transferee ultimately must pay, this sentence clearly and completely negates the sentence that follows it.45 If, however, "transfer" means to escape or evade absolutely, such that the transferor is no longer liable to anyone, then the two sentences of § 107(e)(1) are perfectly consistent.46 Thus, the basic canon of statutory interpretation that the words of a statute should be read to give each word meaning and to avoid rendering any word contradictory or surplusage47 demonstrates the correctness of the Mardan view.48
[22 ELR 10049]
The AM International view, by contrast, contravenes the plain language of the statute, because it allows liable parties to transfer (that is, to shift or pass on) their liability, provided they do so only to parties who previously were not liable. If A obtains the foolish agreement of B to absorb some of A's liability, to the extent B pays that liability, A has in fact "transferred" it, as AM International defines that word. Moreover, the AM International view contravenes another canon of statutory interpretation — that one should not adopt an interpretation that requires adding words to a statute.49 CERCLA § 107(e)(1) bars the transfer of liability to any other person, not, as AM International holds, to any other person who is not already liable.
Legislative History of CERCLA Section 107(e)
To the extent an analysis of statutory language is deemed insufficient, one must then turn to the legislative history for guidance as to Congress' intent.50 Although CERCLA § 107(e)'s legislative history is admittedly sparse, a fuller review than the selective AM International reading is more supportive of the Mardan view. The origin of CERCLA § 107(e) apparently derives, in the Senate at least, from a February 1, 1980, working draft of the Senate bill.51 The February 1980 draft contains only the first sentence of the present provision and is thus ambiguous: depending upon how one interprets "transfer," it either banned indemnification agreements totally, or it merely prohibited the complete evasion of legal responsibility, leaving unaddressed the issue of allocating ultimate liability.52
This ambiguity is resolved by the Staff Working Paper of June 2, 1980, quoted in AM International.53 Far from indicating Congress' disfavor for releases except under strict conditions, the June draft in fact shows that Congress was using "transfer" to mean "completely escape" liability.54 The June draft retained the February draft's prohibition on transfers of liability, but then created an exception that plainly envisioned the transferee assuming all liability. To take advantage of the exception under the June draft, the two parties could not be affiliated with each other in any way (to avoid sham transfers to shell corporations); the transfer had to be with adequate disclosure in writing of all material facts and conditions (to ensure that the transferee knew what it was getting into); and the transferee had to be able to provide assurances of financial responsibility andcontinuity of operation consistent with the degree and duration of risks associated with the facility (to ensure that the transferee could afford a cleanup if one were necessary).55 The validity of indemnities and releases as mere insurance or liability-shifting devices was assumed, a fortiori.
This bill language was discussed in the Report of the Senate Environment and Public Works Committee of July 11, 1980 (Senate Report).56 That report stated: "Consistent with the concept of strict liability, persons can not escape liability by 'contracting away' their responsibility…."57 By "responsibility," the Committee was referring to the legal, statutory responsibility that a potentially liable party has to the government or other CERCLA claimants.58 Insurance and indemnity agreements — even between potentially liable parties — are certainly consistent with the concept of strict liability; one generally may insure against strict liability.59 Indeed, the Senate Report also explained that its version of CERCLA § 107(e) "is [not] intended to prohibit the purchase of insurance by common carriers to cover the liability imposed by section , nor is it intended to prohibit agreements among common carriers … by which one or several parties agree to indemnify the indemnitee for losses incurred as a result of liability imposed by [that section]."60 The only exception to the prohibition on transferring liability contained in the Senate Bill involved the transfer of a facility or site. Since insurance agreements obviously do not involve such a transfer, the Senate Committee necessarily viewed them as consistent with its general prohibition on transferring liability.
Viewed in light of this interpretation of "transfer" in CERCLA § 107(e), the November 24, 1980, exchange between Senators Randolph and Cannon61 supports the Mardan view, as Senator Cannon noted that the bill would permit indemnity and similar agreements, including, in particular, insurance agreements, but would prevent a liable party from "escaping its liability under the act all together."62
[22 ELR 10050]
Legislative history from the House is less significant than that from the Senate. No conference occurred when CERCLA was enacted; the House passed the text of the Senate bill in the waning hours of a lame duck session. There were two House bills, H.R. 7020,63 dealing with hazardous waste only, which was eventually struck in its entirety and made the House vehicle for the Senate bill, and H.R. 85,64 concerned primarily with liability for oil spills, which passed in the House but died in the Senate.65
H.R. 7020, as introduced and reported, stated simply that "[n]othing in [the liability] section shall affect the liability of any other person, including a guarantor, by reason of subrogation, indemnification agreement or otherwise, to a person held liable under this section."66 The apparent progenitor of CERCLA § 107(e)(2), this language clearly provides that nothing in CERCLA prevents a liable party from proceeding against another party, whether or not liable, to enforce an indemnity.67
H.R. 85 contained language similar to S. 1480: the first sentence of § 107(e)(1), followed by a "provided that" exception referring to indemnity agreements running from oil lease holders to their contractors.68 The House Merchant Marine Committee Report described this language as "prevent[ing] the owner of a facility from attempting to pass off his liability to his contractors … as a cost of doing business with him."69 This language perhaps comes closest to the AM International view, but (1) it is still ambiguous; and (2) it is not the language, nor even the bill, that was eventually enacted.
Similar Statutory Provisions: The Oil Pollution Act
Courts may look to other similar statutory provisions to determine the legislative intent of a particular statute,70 and one such source of support for the Mardan view appears in the language and legislative history of the Oil Pollution Act of 1990 (OPA).71 The OPA is very closely modeled on CERCLA,72 and clearly allows indemnity and release agreements between potentially liable parties. Section 1010 of the OPA, entitled "Indemnification agreements," contains three subsections that more artfully arrange, with slight modifications, the language of Section 107(e).73 In particular, the language saving indemnification and similar agreements is the first subsection, and the language prohibiting transfer of liability is a separate subsection that follows it. The OPA Conference Report spells out that the prohibition on liability transfer "does not preclude agreements where one party agrees to pay for all or part of the liability to which another party is subject…."74 If any shred of doubt remained, it is dispelled by the September 18, 1989, report of the House Merchant Marine and Fisheries Committee, which reported a bill that repeated CERCLA § 107(e) nearly verbatim.75 In describing this language, the report states that while
a responsible party may not transfer the liability imposed under this section to any other person[,] … the prohibition against transferring liability by agreement does not preclude agreements in which another person may agree to pay for all or part of the liability to which a responsible party may be subject.76
Use of the same language in these two enactments, dealing with the same general subject matter, is a "strong indication that the statutes should be interpreted to mean the same thing."77
[22 ELR 10051]
The court in AM International held that its reading of the section also comports with CERCLA policy:
While the statute's primary policy is the encouragement of clean-up initiative on the part of responsible parties, a secondary policy is the equitable apportionment of costs in the aftermath. A secondary policy that permitted defenses to contribution of this kind would undercut the primary policy of encouraging clean-up initiative. Parties would be less likely to take the initiative if a mutual release were in effect among them, since the release would confine the costs to any party which acted.78
Likewise, the court in CPC opined that its ruling is consistent with CERCLA's broad policy of encouraging cleanups and placing the cost burden on those responsible for hazardous waste problems.79 The court in Mardan may have been too optimistic when it stated that "[i]n fashioning a statute to further a federal interest, Congress seldom if ever intends to pursue that interest at any cost."80 Nonetheless, it is easy to show that the AM International view advances CERCLA's policies no better, or less well, than the Mardan view does.
First, CERCLA's policy of making the polluter pay is not impaired by the Mardan rule. In every case construing CERCLA § 107(e), the parties that sought to escape the consequences of their contractual obligations were at least potentially liable themselves under CERCLA; otherwise, they would not have incurred, or been compelled to incur, the response costs that they did. Also, no court has ever intimated that the parties seeking in these cases to enforce their contractual rights did not remain liable to EPA or to any other CERCLA claimant that had not agreed to waive its claim. These parties were still obliged to sign consent orders and to reimburse the government if their indemnitors did not step up to the plate, or ran out of funds. The Mardan rule does not shift cleanup costs from private parties to the government, but only between private parties.81
Second, serving the policy of equitable allocation of response costs does not require the wholesale invalidation of private contractual arrangements. Presumably, the most equitable allocation of costs is that agreed to by the parties involved. As several courts have noted, parties entering into releases, indemnities, etc., involving environmental matters generally are sophisticated businesses that can fairly be expected to look out for their own interests.82 While some individuals and small businesses may have been hood-winked in past years into releasing or indemnifying polluters83 and are now stuck with big cleanup tabs, this situation seems increasingly unlikely to occur today, given the enormous attention paid to liability for contamination. It makes no sense for recent and future transactions to be burdened and impeded by a rule of law developed for a situation that should no longer arise, if it ever did.84
It is also a delusion to think that the AM International rule will, as the decision implies, encourage innocent or volunteer parties to take the initiative of cleaning up sites.85 Even with covenants not to sue, contribution protection, etc., it is difficult enough today to persuade nonliable parties to have anything to do with contaminated property. Few would be so foolhardy as to submit themselves voluntarily to such liability, knowing that they were utterly unable to limit that liability contractually.86 The result of the AM International rule would instead be that no one would willingly agree to have anything to do with a contaminated site, thus dramatically reducing the amount of voluntary cleanup that occurs.
If prospective purchasers, lessees, and lenders are unable to limit their exposure contractually, site owners and other liable parties will be more, not less, inclined under the AM International rule simply to abandon or cease using such sites, or to sell them fraudulently. This inclination is further exacerbated by the high number of years required for sites to be declared clean — if that ever occurs — and rampant fears about reopeners for undiscovered contamination at clean sites. At a minimum, current owners would be required to make massive concessions on price or other issues to persuade buyers to stick their heads in the lion's maw of CERCLA liability.
The AM International interpretation of CERCLA § 107(e) runs contrary to the majority of decisions considering the issue, misinterprets the statute and its legislative history, and will discourage cleanup, hamper commercial ventures, and impair freedom of contract. It should be buried in the annals of CERCLA history.
1. 42 U.S.C. §§ 9601-9675, ELR STAT. CERCLA 001-075.
2. Id. § 9607(e), ELR STAT. CERCLA 026.
3. See Mardan Corp. v. C.G.C. Music, Ltd., 804 F.2d 1454, 1458-59, 17 ELR 20209, 20211 (9th Cir. 1986); Central Ill. Pub. Serv. v. Industrial Oil Tank & Line Cleaning Serv., 730 F. Supp. 1498, 1507, 21 ELR 20076, 20081 (W.D. Mo. 1990); Southland Corp. v. Ashland Oil, 696 F. Supp. 994, 1000, 19 ELR 20733, 20735 (D.N.J. 1988); Versatile Metals v. Union Corp., 693 F. Supp. 1563, 1573, 19 ELR 20472, 20476 (E.D. Pa. 1988); Chemical Waste Mgm't v. Armstrong World Indus., 669 F. Supp. 1285, 1294-95, 18 ELR 20191, 20196 (E.D. Pa. 1987); FMC Corp. v. Northern Pump Co., 668 F. Supp. 1285, 1289, 18 ELR 20293, 20295 (D. Minn. 1987), appeal dismissed, 871 F.2d 1091 (8th Cir. 1988).
4. 743 F. Supp. 525, 21 ELR 20332 (N.D. Ohio 1990), appeal docketed, No. 90-3958 (6th Cir. Nov. 2, 1990).
5. 759 F. Supp. 1269 (W.D. Mich. 1991).
AM International and CPC are the first decisions to analyze CERCLA § 107(e)'s legislative history. Unfortunately, their analysis, as a third court has observed, appears "persuasive" on its face.6 The dire consequences that could follow if AM International's revisionist view continues to gain adherents cannot be overstated; if affirmed, AM International may produce a regulatory and political fiasco comparable to that created by the Eleventh Circuit's decision in United States v. Fleet Factors Corp.7 regarding lender liability under CERCLA. The prospect that one's CERCLA liability can never be contractually limited or insured against will certainly deter many from acquiring interests in businesses or property with any reasonable potential for such liability.8 Owners of such businesses or properties will find it harder to sell them or to obtain anyone else's agreement to help clean them up.
6. Jones-Hamilton Co. v. Kop-Coat, Inc., 750 F. Supp. 1022, 1026, 21 ELR 20475, 20477 (N.D. Cal. 1990). The court in Jones-Hamilton concluded that it was bound by the Ninth Circuit's decision in Mardan, 804 F.2d at 1454, 17 ELR at 20209, whose reasoning it noted also had "great appeal." Id.
7. 901 F.2d 1550, 20 ELR 20832 (11th Cir. 1990), cert. denied, 111 S. Ct. 752 (1991). Fleet Factors, which upheld the liability of a lender as an owner or operator of a facility under Superfund, has triggered an EPA rulemaking, much congressional activity, and a blizzard of articles and seminars on the subject of lender liability.
AM International is currently on appeal before the Sixth Circuit, and CPC is still in trial.
8. For example, most property interest transactions would be impaired in the case of manufacturing or other industrial activities, where the prospect for potential CERCLA liability is high.
9. 804 F.2d 1454, 17 ELR 20209 (9th Cir. 1986).
10. 33 U.S.C. §§ 2701-2761, ELR STAT. OIL POLL. ACT 001-034.
11. 42 U.S.C. § 107(a), ELR STAT. CERCLA 024.
12. Jones-Hamilton Co. v. Kop-Coat, Inc., 750 F. Supp. 1022, 1025, 21 ELR 20475, 20477 (N.D. Cal. 1990).
13. 42 U.S.C. § 9607(e), ELR STAT. CERCLA 026.
14. Jones-Hamilton, 750 F. Supp. at 1024-25 n.2, 21 ELR at 20476 n.2.
15. 804 F.2d at 1454, 17 ELR at 20209.
16. Id. at 1456, 17 ELR at 20210.
17. Id. at 1458, 17 ELR at 20211. The federal government thus clearly adopted the Mardan position, although it has not appeared in any subsequent reported case discussing CERCLA § 107(e). The Justice Department's primary interest in Mardan evidently was not to argue that private releases are valid under CERCLA, but to argue that state law, not a uniform federal rule, should determine the validity of such a release (for example, in that case, whether the release needed to mention CERCLA specifically). Id. at 1458-59, 17 ELR at 20211. The court agreed with the government that state law should govern. Id. at 1460, 17 ELR at 20212.
18. Id. at 1459, 17 ELR at 20211 (citation omitted).
19. See Southland Corp. v. Ashland Oil, 696 F. Supp. 994, 1000, 19 ELR 20733, 20735 (D.N.J. 1988) ("By its own terms, CERCLA expressly preserves the right of private parties to contractually transfer to another or release another from the financial responsibility arising out of CERCLA liability."); Versatile Metals v. Union Corp., 693 F. Supp. 1563, 1573, 19 ELR 20472, 20476 (E.D. Pa. 1988) (quoting CERCLA § 107(e) and then stating simply: "CERCLA's liability provisions, therefore, do not abrogate the parties' contractual rights." (citation omitted)); Chemical Waste Mgm't v. Armstrong World Indus., 669 F. Supp. 1285, 1294-95, 18 ELR 20191, 20196 (E.D. Pa. 1987) (quoting CERCLA § 107(e) and adding "the court agrees that this language authorizes indemnity agreements between owner/operators and generators." (citation omitted)); FMC Corp. v. Northern Pump Co., 668 F. Supp. 1285, 1289, 18 ELR 20293, 20295 (D. Minn. 1987), appeal dismissed, 871 F.2d 1091 (8th Cir. 1988) (discussing CERCLA § 107 and concluding that "a person that is liable under the terms of [CERCLA] may by agreement be held harmless or indemnified by another party." (citation omitted)).
20. 730 F. Supp. 1498, 21 ELR 20076 (W.D. Mo. 1990).
21. Id. at 1507, 21 ELR at 20081.
22. One court has contended that the Mardan line of cases may be divided into two camps, one represented by the language from Central Illinois quoted in the text accompanying note 21, and another which holds "that the second sentence of Section 107(e)(1) completely negates the first…." Jones-Hamilton Co. v. Kop-Coat, Inc., 750 F. Supp. 1022, 1025, 21 ELR 20475, 20477 (N.D. Cal. 1990). Careful review of the cases, however, reveals that theyall either subscribe expressly to the Central Illinois analysis or are implicitly consistent with it.
23. See supra text accompanying note 21.
24. 743 F. Supp. at 525, 21 ELR at 20332.
25. Id. at 528, 21 ELR at 20333.
27. Id. (quoting S. 1480, 96th Cong., 2d Sess. § 4(i), 126 CONG. REC. 30900 (1980)).
28. Id. 21 ELR at 20334.
29. Id. at 529, 21 ELR at 20334 (quoting 126 CONG. REC. 30984 (1980)).
30. Id. at 529-30, 21 ELR at 20334. Oddly, while the court commented that "[c]ourts are divided on the effect of releases under CERCLA," id. at 528, 21 ELR at 20333, it cited no decisions contrary to the ones discussed above (nor, apparently, did any exist at the time).
31. Id. at 530, 21 ELR at 20334.
32. Id. at 529, 21 ELR at 20334.
35. 759 F. Supp. at 1269.
36. See generally id. at 1273-75.
37. Id. at 1282.
38. Id. at 1282-83.
39. Jones-Hamilton Co. v. Kop-Coat, Inc., 750 F. Supp. 1022, 21 ELR 20475 (N.D. Cal. 1990); see supra note 6.
40. Mobay Corp. v. Allied-Signal, Inc., 761 F. Supp. 345 (D.N.J. 1991); Rodenbeck v. Marathon Petroleum Co., 742 F. Supp. 1448, 21 ELR 20327 (N.D. Ind. 1990).
41. 769 F. Supp. 973 (E.D. Mich. 1991); see also Purolator Prods. Corp. v. Allied-Signal, Inc., No. 90-1060L (W.D.N.Y. Aug. 16, 1991). Purolator rejects AM International primarily because it represents the minority position. Purolator does not rebut the legislative history adduced by AM International as much as it offers other legislative history describing CERCLA's purpose as being remedial, rather than punitive. Purolator, No. 90-1060L, slip op. at 9-15.
42. Niecko, which involved a gasoline station cleanup, concluded that "CERCLA is not applicable to the instant case" due to the CERCLA petroleum exclusion. 769 F. Supp. at 982. Its lengthy discussion of CERCLA § 107(e) is intended to illuminate, by analogy, the meaning of an identically worded provision of the Michigan underground storage tank law. Id. at 986-91.
Like CPC, 759 F. Supp. at 1269, Niecko was decided by a federal district court in Michigan and thus creates a dramatic split between the eastern and western district courts in that state.
43. E.g., Blum v. Stenson, 465 U.S. 886, 896 (1984).
44. 42 U.S.C. § 9607(e)(1), ELR STAT. CERCLA 026.
45. That sentence reads: "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." Id.
46. Purolator Prods. Corp. v. Allied-Signal, Inc., No. 90-1060L, slip op. at 10 (W.D.N.Y. Aug. 16, 1991) ("The only restriction [CERCLA] places on [indemnity] agreements is that they may not be used to transfer liability. In other words, liable parties can contractually shift responsibility for their response costs among each other, but they may not thereby escape their underlying liability to the Government or another third party." (emphasis added).
47. E.g., Mountain States Tel. & Tel. Co. v. Pueblo of Santa Ana, 472 U.S. 237, 249-50 (1985) (refusing to construe one section of a statute as nullifying another); American Fed. of Gov't Employees v. Federal Labor Relations Bd., 803 F.2d 737, 741 (D.C. Cir. 1986) ("[C]reat[ing] tension within [a statute], it goes without saying, is not favored … particularly when another reading obviates any conflict that would otherwise be created." (citing 2A N. SINGER, SUTHERLAND STATUTES AND STATUTORY CONSTRUCTION §§ 46.05-.06 (C. Sands rev. 4th ed. 1984)).
48. Under this view, subsection (e)(2) is consistent with subsection (e)(1); subsection (e)(2) confirms the right of an indemnified, liable party to proceed against its indemnitor. See Purolator Prods. Corp. v. Allied-Signal, Inc., No. 90-1060L, slip op. at 13-14 (W.D.N.Y. Aug. 16, 1991); Niecko v. Emro Marketing Co., 769 F. Supp. 973, 989 (E.D. Mich. 1991). Moreover, to the extent one might feel that the two subsections conflict, subsection (e)(1)'s second sentence controls over subsection (e)(2), since subsection (e)(1) states that it operates notwithstanding any provision "in this subsection," that is, subsection (e).
49. See Doski v. M. Goldseker Co., 539 F.2d 1326, 1332 (4th Cir. 1976) ("[W]e do not think it permissible to construe a statute on the basis of a mere surmise as to what the Legislature intended and to assume that it was only by inadvertence that it failed to state something other than what it plainly said."); see also Hartford Fire Ins. Co. v. Lawrence, Dykes, Goodenberger, Bower & Clancy, 740 F.2d 1362, 1365 (6th Cir. 1984); In re Borba, 736 F.2d 1317, 1320 (9th Cir. 1984).
50. Blum v. Stenson, 465 U.S. 886, 896 (1984).
51. The text of the Senate bill ultimately was enacted. See infra note 63 and accompanying text.
52. S. 1480, 96th Cong., 2d Sess. § 4(i) (1980). The bill is reprinted in 1 CONGRESSIONAL RESEARCH SERV., A LEGISLATIVE HISTORY OF THE COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION, AND LIABILITY ACT OF 1980, prepared for SENATE COMM. ON ENVIRONMENT AND PUBLIC WORKS, 97TH CONG., 2D SESS. 193, 220 (Comm. Print 1983) [hereinafter CRS].
53. See supra note 27 and accompanying text.
54. AM International, 743 F. Supp. at 528, 21 ELR at 20334.
55. S. 1480, supra note 52, § 4(i), at 245, 275. See also Niecko v. Emro Marketing Co., 769 F. Supp. 973, 990-91 (E.D. Mich. 1991).
56. See S. REP. NO. 848, 96th Cong., 2d Sess. 44 (1980), reprinted in 1 CRS, supra note 52, at 305, 351.
57. S. REP. NO. 848, 96th Cong., 2d Sess. 31 (1980), reprinted in 1 CRS, supra note 52, at 338.
58. BLACK'S LAW DICTIONARY 1312 (6th ed. 1990) (defining "responsibility" as "[t]he state of being answerable for an obligation").
59. See 43 AM. JUR. 2D INSURANCE § 728 (1982) (strict products liability insurance policies are specifically designed to protect the producer and manufacturer of goods against loss because of injury caused by the use of their products).
60. S. REP. NO. 848, 96th Cong., 2d Sess. 44 (1980), reprinted in 1 CRS, supra note 52, at 351.
61. This "colloquy" never actually occurred, but was manufactured subsequent to passage and included in the revised and extended remarks. See 1 CRS, supra note 52, at vii, 763-64.
62. 126 CONG. REC. 30984 (1980), reprinted in 1 CRS, supra note 52, at 764. Moreover, to the extent this artificial exchange is interpreted otherwise, "even the contemporaneous remarks of a single legislator who sponsors a bill are not controlling in analyzing legislative history." Consumer Prod. Safety Comm'n v. GTE Sylvania, Inc., 447 U.S. 102, 118 (1980). See also Monterey Coal Co. v. Federal Mine Safety and Health Review Comm'n, 743 F.2d 589, 596 (7th Cir. 1984) (although the sponsor's interpretation is ordinarily given substantial weight, "[n]ot everything [she] says has the force of law"). Legislators' floor statements "are not reflexively to be accorded the same weight as committee reports." Bank of New York v. Hoyt, 617 F. Supp. 1304, 1311 (D.R.I. 1985).
63. 96th Cong., 2d Sess. (1980), reprinted in 2 CRS, supra note 52, at 3 (as introduced), 138 (as reported), 391 (as passed).
64. 96th Cong., 1st Sess. (1980), reprinted in 2 CRS, supra note 52, at 474 (as introduced), 691 (as reported), 1016 (as passed).
65. This history is explained in the preface to 1 CRS, supra note 52.
66. H.R. 7020, supra note 63, § 5(a), reprinted in 2 CRS, supra note 52, at 41, 187. The report of the House Interstate and Foreign Commerce Committee said nothing about this provision. H.R. REP. No. 1016, 96th Cong., 2d Sess., pt. 1, at 33-35 (1980), reprinted in 2 CRS, supra note 52, at 64-66.
67. This is the Mardan view of what CERCLA § 107(e)(2) accomplishes. See supra note 48.
68. H.R. 85 stated:
No indemnification, hold harmless, or similar agreement shall be effective to transfer from the owner or operator of a facility, to any other person, the liability imposed under [this section], other than as specified in this title: Provided, That this provision does not preclude an agreement whereby the holder of a leasehold interest for the exploration of oil agrees to indemnify for, or hold harmless from, such liability, the owner or operator of a vessel or facility which is, by contract or other agreement, engaged in activity on behalf of the holder of the leasehold interest.
H.R. 85, supra note 64, § 104(h), reprinted in 2 CRS, supra note 52, at 496.
69. H.R. REP. NO. 172, 96th Cong., 1st Sess. 45 (1979), reprinted in 2 CRS, supra note 52, at 555.
70. See Chevron U.S.A., Inc. v. Hammond, 726 F.2d 483, 491 n.10, 14 ELR 20305, 20308 n.10 (9th Cir. 1984); Lutz v. Chromatex, Inc., 730 F. Supp. 1328, 1332, 20 ELR 20751, 20753 (M.D. Pa. 1990).
71. 33 U.S.C. §§ 2701-2761, ELR STAT. OIL POLL. ACT 001-034.
72. See ENVIRONMENTAL LAW INSTITUTE, Oil Pollution Deskbook 3, 8 (1991) [hereinafter OPA Deskbook].
73. Section 1010 states:
(a) Agreements Not Prohibited. — Nothing in this Act prohibits any agreement to insure, hold harmless, or indemnify a party to such agreement for any liability under this Act.
(b) Liability Not Transferred. — No indemnification, hold harmless, or similar agreement or conveyance shall be effective to transfer liability imposed under this Act from a responsible party or from any person who may be liable for an incident under this Act to any other person.
(c) Relationship to Other Causes of Action. — Nothing in this Act, including the provisions of subsection (b), bars a cause of action that a responsible party subject to liability under this Act, or a guarantor, has or would have, by reason of subrogation or otherwise, against any person.
33 U.S.C. § 2710, ELR STAT. OIL POLL. ACT 007-008.
74. See H.R. CONF. REP. NO. 653, 101st Cong., 2d Sess. 111 (1990), reprinted in OPA Deskbook, supra note 72, at 91.
75. See H.R. REP. NO. 242, 101st Cong., 1st Sess., pt. 2, at 9 (H.R. 1465, § 102(i)) (1989)), reprinted in OPA Deskbook, supra note 72, at 187.
76. Id. pt. 2, at 63, reprinted in OPA Deskbook, supra note 72, at 204.
77. E.g., Powell v. Commissioner, 791 F.2d 385, 390 (5th Cir. 1986) ("Absent some compelling reason to read the analogous phrases in the two statutes differently, they should be interpreted consistently."); Hargrave v. Oki Nursery, Inc., 646 F.2d 716, 720 (2d Cir. 1980); Jordan v. Lyng, 659 F. Supp. 1403, 1412 (E.D. Va. 1987) ("[T]wo statutes with a common purpose and similar language should be interpreted pari passu because, absent a clear manifestation to the contrary, the legislature is presumed to intend the same result by using similar language in similar legislation.").
78. 743 F. Supp. at 529, 21 ELR at 20334.
79. 759 F. Supp. at 1282.
80. 804 F.2d at 1460, 17 ELR at 20212.
81. Id. at 1458-59, 17 ELR at 20211; Purolator Prods. Corp. v. Allied-Signal, Inc., No. 90-1060L, slip op. at 10 (W.D.N.Y. Aug. 16, 1991); Niecko v. Emro Marketing Co., 769 F. Supp. 973, 990 (E.D. Mich. 1991); FMC Corp. v. Northern Pump Co., 668 F. Supp. 1285, 1293, 18 ELR 20293, 20295 (D. Minn. 1987), appeal dismissed, 871 F.2d 1091 (8th Cir. 1988).
82. E.g., Mardan, 804 F.2d at 1460, 17 ELR at 20212; Niecko, 769 F. Supp. at 989 n.9.
83. The gas station leases and sales contracts drafted by major oil companies at issue in Niecko, 769 F. Supp. at 973, and in Rodenbeck v. Marathon Petroleum Co., 742 F. Supp. 1448, 21 ELR 20327 (N.D. Ind. 1990), may approach that scenario.
84. This is a good illustration of the meaning of the phrase "hard (i.e., hardship) cases make bad law." Irby v. Republic Creosoting Co., 129 F. Supp. 92 (S.D. Ala.), rev'd, 228 F.2d 195 (5th Cir. 1955) ("[H]ardship cases often make bad law.").
85. 743 F. Supp. at 529, 21 ELR at 20334. CERCLA's liability scheme provides plenty of incentive for parties that are already liable.
86. In this context, one cannot help but reflect on the facts of CPC, 759 F. Supp. at 1269, in which MDNR apparently used a release and indemnity to entice Cordova — an innocent party — into acquiring an orphan site, and then reneged on those assurances and successfully established Cordova's unlimited liability for cleanup of groundwater at the site. See supra text accompanying note 36.
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