735 F.3d 25
1st Cir.2013Background
- Cadlerocks borrowed $1.925M in 1999; loan secured by mortgage and accompanied by a broad Environmental Indemnity Agreement signed by Cadlerocks and guarantor Cadle.
- Pre‑closing (1999) Phase I flagged possible PCE contamination; lender obtained an environmental insurance policy (no authenticated copy at trial).
- Loan matured January 1, 2010; Cadlerocks defaulted, servicer ORIX pursued foreclosure, ordered a 2010 Phase I that again suggested possible PCE.
- Receiver appointed December 2010; ORIX ordered Phase II and air grab tests in March 2011 that detected non‑hazardous levels of PCE; Receiver then authorized additional testing to confirm safety for tenants and to facilitate sale.
- District court awarded ORIX most environmental testing costs under the Indemnity Agreement; appellants appealed.
- First Circuit reversed in part: held some ORIX testing costs outside the Agreement and remanded attorney‑fee/cost awards for reconsideration.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether indemnity covers ORIX's pre‑March 23, 2011 testing costs | ORIX: costs arose from suspected contamination and are covered by the Agreement | Cadlerocks: ORIX incurred those costs on its own; no third‑party claim or demand | Reversed: costs paid by ORIX before Receiver sought reimbursement are not covered because Agreement covers liabilities "sought from or asserted against" Indemnitees |
| Whether Receiver's testing costs are covered under enumerated liabilities | ORIX: second sentence is non‑exclusive examples; tests were "necessary" because PCE present | Cadlerocks: tests not "necessary precautions to protect against release"; were to verify safety/marketability | Reversed: second sentence limits coverage; only costs "required to take necessary precautions to protect against release" are covered; Receiver's tests aimed at confirming safety/marketing, not preventing release, so not covered |
| Proper construction of general vs. specific contract clauses | ORIX: general indemnity language broad, specific list does not limit | Cadlerocks: specific enumerated liabilities should limit general language | Held: specific clause limits the general indemnity; specific examples not non‑exclusive absent "not limited to" language |
| Remedy and remand for fees and costs | ORIX: district court award of environmental costs and fees should stand | Cadlerocks: environmental cost award erroneous; fee award must be revisited given reversal | Held: reversed environmental testing award in part; appellate court awarded appeal costs to appellants and remanded attorney's fees/costs to district court for reconsideration |
Key Cases Cited
- OfficeMax, Inc. v. Levesque, 658 F.3d 94 (1st Cir.) (contract interpretation as question of law when no extrinsic evidence)
- Bukuras v. Mueller Grp., LLC, 592 F.3d 255 (1st Cir.) (contract interpreted to effectuate parties' intent; plain words given ordinary meaning)
- G. T. Schjeldahl Co. v. Local Lodge 1680 of Dist. Lodge No. 64 of Int'l Ass'n of Machinists, 393 F.2d 502 (1st Cir. 1968) (specific specification may limit a preceding general term)
- Cady v. Marcella, 729 N.E.2d 1125 (Mass. App. Ct.) (contracts read in reasonable, practical way; plain words control)