William Farley v. Eaton Corp., 701 F. App'x 481

Background

Eaton bought a Bethel, CT plant on August 8, 1986; the site had a known unlined lagoon and solvent contamination disclosed before the sale.
Connecticut DEP issued a 1982 Letter of Deficiency and a 1984 Notice of Violation; a DEP enforcement complaint was pending in May 1986; a formal DEP remediation order issued to Eaton in February 1987.
1986 Asset Purchase Agreement required sellers (Condec/Consolidated Controls) to indemnify Eaton for cleanup costs “resulting from non‑compliance prior to Closing … with any applicable laws, regulations, orders, or other requirements of governmental authorities.”
After Condec’s successor bankruptcies, Farley assumed personal obligations under a 1998 Amended & Restated Payment Procedures Agreement (Exhibit A explicitly references Bethel soil and groundwater contamination).
Eaton sought reimbursement multiple times; AIG (insurer Farley procured) paid Eaton in 2010; arbitration followed over 2010–2013 payments and a 2014 claim.
Arbitrator awarded Eaton damages, interest, and fees; district court confirmed the award; Farley appealed arguing the indemnity required a governmental order existing on or before Aug. 8, 1986 and the arbitrator exceeded his authority. Court of Appeals affirmed.

Issues

Issue	Farley’s Argument	Eaton’s Argument	Held
Whether indemnity is triggered only if a governmental law/regulation/order/requirement existed on or before Aug 8, 1986	The clause requires an actual government order/requirement existing by Aug 8, 1986 (no such order for groundwater then)	The language ("or other requirements") and surrounding documents show the parties intended to cover preexisting contamination even absent a formal order by that date	Arbitrator’s construction was arguably within his authority; indemnity covers the Bethel groundwater cleanup despite the 1987 DEP order
Whether the arbitrator exceeded his powers by looking beyond plain contract text	Arbitrator disregarded explicit contractual cutoff and rewrote the agreement	Arbitrator reasonably interpreted ambiguous language and relied on contemporaneous documents and parties’ conduct	Award not vacated; review is extremely deferential—arbitrator arguably construed the contract
Whether prior admissions, Form III certification, and payments can be used to interpret intent	Such admissions by sellers (and past payments) cannot bind Farley or rewrite a clear contract	Those documents and the parties’ course of conduct illuminate intent and are proper to consider when language is ambiguous	Arbitrator permissibly relied on Form III, prior reimbursements, and the 1998 Agreement context to interpret Exhibit A
Whether equitable concerns (open‑ended liability) require limiting Farley’s indemnity	Farley invoked unfairness and unforeseeable future liability	No timely arbitral or contractual basis was asserted in arbitration to limit liability (e.g., foreseeability)	Court declined to create an equitable limitation; Farley did not raise such a contractual limit below

Key Cases Cited

United Paperworkers Int’l Union v. Misco, Inc., 484 U.S. 29 (1987) (arbitral construction is highly deferential; courts may not overturn awards merely for serious error)
Hall St. Assocs. v. Mattel, Inc., 552 U.S. 576 (2008) (sections 10 and 11 of the FAA provide the exclusive grounds for judicial review of arbitration awards)
UHL v. Komatsu Forklift Co., 512 F.3d 294 (6th Cir. 2008) (describing the FAA’s narrow standard of review and deference to arbitrators)
Beacon Journal Publ’g Co. v. Akron Newspaper Guild, Local No. 7, 114 F.3d 596 (6th Cir. 1997) (award must be vacated if based on general fairness rather than contract terms)
Major League Baseball Players Ass’n v. Garvey, 532 U.S. 504 (2001) (reinforces limits on judicial review of arbitral decisions)
Int’l Paper Co. v. United Paperworkers Int’l Union, 215 F.3d 815 (8th Cir. 2000) (arbitrator may consult external evidence to interpret ambiguous contract language)