L. Rep. 20,573
AM INTERNATIONAL, INC., Plaintiff-Appellee,
v.
INTERNATIONAL FORGING EQUIPMENT CORPORATION; Euclid
Industries Center, Inc.; and Robert T. Dziak,
Defendants/Third-Party Plaintiffs-Appellants,
Huff & Huff, Inc., Third-Party Defendant-Appellee.
No. 90-3958.
United States Court of Appeals,
Sixth Circuit.
Argued Sept. 10, 1991.
Decided Jan. 7, 1993.
Ronald S. Okada, Baker & Hоstetler, Cleveland, OH, Michael Barry (argued), John W. Watson (briefed), Gardner, Carton & Douglas, Chicago, IL, for AM Intern. Corp.
Michael L. Hardy (argued), John J. Gruttadaurio, David E. Nash (briefed), Thompson, Hine & Flory, Cleveland, OH, for International Forging Equipment Corp.
Michael Barry (argued), John W. Watson, Gardner, Carton & Douglas, Chicago, IL, for Huff & Huff, Inc.
Before: RYAN and NORRIS, Circuit Judges; and DUGGAN, District Judge.*
ALAN E. NORRIS, Circuit Judge.
On June 22, 1988, AM International, Inc. (AMI), filed this action to recover costs incurred in removing environmentally hazardous substances from a site in Euclid, Ohio. AMI sought compensation pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), 42 U.S.C. § 9601 et seq., and pursuant to pendent state law causes of action for unjust enrichment and quasi-contractual damages. It named as defendants the owner of the site, Euclid Industrial Center, Inc. (EIC); the owner of certain equipment at the site, International Forging Equipment Corp. (IFE); the sole shareholder of EIC and principal of IFE, Robert Dziak; and certain others no longer parties to this action. Defendants filed a number of counterclaims and brought a third-party action against the toxic substances disposal contractor hired by AMI to carry out the cleanup.
In a June 29, 1990 opinion published at
I.
Interaction between AMI and defendants EIC, IFE, and Dziak began in 1979, when D & B Realty, of which Dziak was a part owner,1 entered into an agreement with AMI under which AMI leased back approximately 500,000 feet of a one million square foot building on property it agreed to sell to D & B Realty. The area AMI leased from D & B contained the equipment necessary for its manufacturing operations, which consisted of the manufacture of component parts for offset duplicating machines. The facility contained machining, painting, electroplating, and heat-treating production lines, and some of the equipment required for these processes were permanent fixtures. Pursuant to a novation in 1981, EIC assumed the obligations of D & B Realty under the sale-leaseback agreement.
Because it had become cheaper to purchase component parts manufactured elsewhere, AMI announced, in April 1982, that it would cease operations at the facility in October of that year when its lease was to expire. Dziak and AMI discussed the possibility of having EIC step in as operator of the manufacturing processes, but when this plan foundered, Dziak decided to have IFE purchase AMI's assets. IFE and AMI executed an asset sale agreement on October 18, 1982, under which IFE agreed to buy certain of AMI's assets, including the plating and painting operations, on an "as is, where is" basis. A number of contractual disputes subsequently arose between AMI and both IFE and EIC. In April 1984, in an effort to resolve these disputes, the parties entered into a separate agreement pursuant to which EIC paid AMI $2.3 million as accord and satisfaction, and AMI provided a release of all claims to EIC and Dziak.
All of AMI's production employees were terminated by mid-October 1982, although the plant engineer and a clean-up crew stayed on after the cessation of manufacturing operations to dispose of industrial wastes and generally clean up the facility. The clean-uр crew's activities were finished in mid-November 1982. The electroplating baths, the salt pots for heat-treating, and the wastewater treatment plant were left by AMI with the appropriate substances and solutions in them, so that the lines were prepared for an immediate start-up of the facility by a new owner. These solutions were not subject to short-term decomposition.
In the months following the cessation of AMI's operations, Dziak conducted tours of the facility in search of a tenant interested in operating at the site, but after this effort failed, he sold off all of the portable components of the equipment purchased from AMI. The electroplating baths, salt pots, and wastewater treatment plant, which are fixtures, were not sold.
In late 1983, a water main break destroyed the building's sprinkler system and damaged the boiler. Neither the sprinkler nor the boiler was ever repaired, and heat was never restored to the facility. In 1984 or 1985, a section of the roof of the building collapsed and was not repaired; as a result, rain and snow fell into the facility, and each succeeding winter led to freezing and thawing.
In February 1986, following a citation from the local fire prevention bureau and an order from the local building commissioner that the facility be vacated, an official from the Ohio Environmental Protection Agency (OEPA) visited the facility and discovered drums and other containers filled with flammable or toxic substances scattered throughout the building, and a concentration of them in a chemical storage room. The official determined that the on-site chemicals were "hazardous waste" because they were not being cared for properly and created an environmental hazard due to the danger of fire or flooding at the facility. After several attempts to avoid meeting with OEPA, Dziak met with officials of that agency in March 1986. He was ordered to hire a hazardous waste removal contractor to prepare and carry out a remediation plan approved by OEPA. Dziak refused to comply and asserted that AMI was responsible for the hazardous substances at the facility. OEPA referred the matter of Dziak's refusal to the Ohio Attorney General's office, and contacted AMI. AMI agreed to perform the cleanup, and hired a contractor to draft a remedial action plan. The contractor's plan, drawn pursuant to OEPA's order that all chemicals and wastes be removed from the facility, was submitted in April 1986 and, after alterations, approved on May 23 of that year.
Following resistance from Dziak, the contractor gained access to the site in October 1986 and carried out the three-phase clean-up plan over the next year. Upon completion of the operation, OEPA toured the facility and approved the cleanup. AMI then made a demand upon EIC, IFE, and Dziak for reimbursement of the cost of the cleanup. When this was unsuccessful, AMI brought this lawsuit, pursuant to the provisions of CERCLA2 providing for recovery of response costs from responsible parties.
Following the bench trial, held to determine and apportion liability under CERCLA, the district court found that the paint and chemical compounds needed for the electroplating, heat-treating, and wastewater treatment operations were left by AMI "under appropriate conditions," and were left because both parties intended that Dziak or another lessee would use them to continue the operations at the facility. The district court alsо found that Dziak was aware of and responsible for the deteriorating condition of the facility housing these substances. It held that under the circumstances the chemicals could not be said to have created an environmental hazard until after defendants took over the facility from AMI, and therefore defendants were liable for the entire $310,450 in response costs incurred by AMI.
II.
A. Validity of AMI's Release as to Environmental Claims
Defendants first contend that the district court erred in ruling that the release executed pursuant to the April 1984 accord and satisfaction was not effective against the CERCLA cause of action. According to the release, AMI fully released and discharged defendants forever from
any and all manner of actions, causes of action, defenses, counterclaims, suits, debts, accounts, covenants, controversies, agreements, warranties, promises, damages, judgments, executions, claims or demands whatsoever of every kind and description, known or unknown, in law or in equity, which AMI now has or may hereafter have against any of the [defendants] for, upon or by reason of any matter, cause or thing whatsoever
....
The district court examined the effect of the release in two separate contexts. It first confronted the question of whether any release could have the effect of barring AMI's CERCLA cause of action for contribution. It answered that question in the negative. That ruling, of course, did not preclude defendants from relying upon the release as a defense to AMI's state law causes of action. Accordingly, the district court then turned to the language of the release itself, and determined that it was effective to bar the state claims, since the court understood that the general rule under Ohio law is that anticipatory releases are valid.
Defendants contend on appeal that the release barred the CERCLA claim, as well as the state claims. AMI does not appeal the dismissal of its state claims. However, in addition to defending the district court's ruling on the ineffectiveness of a release to bar its CERCLA cause of action, AMI also argues that its judgment can be affirmed on an alternаtive ground should we reverse that ruling.3 According to AMI, even if we were to decide that a properly drafted release could bar its CERCLA claim for contribution, when the release in question is viewed in the context of Ohio law it was not effective because it was not intended to encompass unforeseen environmental issues. AMI thus asserts from a defensive posture that the district court incorrectly concluded that the release was effective under Ohio law to bar unanticipated claims.
1. Validity of Release Under CERCLA
We first take up the ruling of the district court that parties responsible for environmental cleanups under CERCLA may not contractually transfer or allocate CERCLA liability among themselves. The district court's ruling has beеn the subject of comment and analysis by numerous authors4 and has been followed by at least one other district court in our circuit. See CPC Int'l, Inc. v. Aerojet-General Corp.,
The district court examined section 107(e)(1) of the Act,5 and pronounced the language quoted in the margin "internally inconsistent." It concluded that the first sentence "forbids giving effect to releases between tortfeasors in CERCLA contribution suits," and that the only effect of the second sentence is "to permit any person to contract with others not already liable under the act to provide additional liability by way of insurance or indemnity."
However, in a recent opinion releasеd by another panel of this court, the district court's reading of the statute was rejected. In Niecko v. Emro Marketing Co.,
[T]he better interpretation ... is that the first sentence provides that all parties involved are to be jointly and severally liable to the claimant under the statute. Where the claimant is the government, liability may not be transferred. However, as between the parties allegedly responsible ... liability may indeed be transferred. In other words, the first sentence ensures the clean up is performed and those responsiblе cannot escape their liability for cleaning the property. However, in terms of financial liability, the parties may allocate the costs of the clean up between them. Such an interpretation is consistent with the legislative history of CERCLA, See 126 Cong.Rec. 30,984 (1980). This is a more palatable and consistent interpretation ... because it allows the two sentences to be read as internally consistent. The Ninth Circuit came to a similar holding in Mardan Corp. v. C.G.C. Music, Ltd.,
Niecko,
That reading of the two sentences of the statutory language seems to us to make sense both in logic and as a matter of public policy. The underlying purposе of the statutory language under scrutiny is to ensure that responsible parties will pay for the cleanup and that they may not avoid liability to the government by transferring this liability to another. However, this purpose is not inconsistent with parties responsible for the cleanup transferring or allocating among themselves the cost associated with this liability, so long as they remain liable to the third party who can demand the cleanup. This is what is permitted by the second sentence--the shifting or allocation of the risk of the cost of liability between potentially responsible persons, without diluting CERCLA liability for the cleanup itself. Such allocations may then be relied upon to govern the outcome of a later suit for contribution by the responsible party who actually was held responsible for the cleanup. As one commentator has noted:
Section 107(e)(1) prohibits attempts to undermine CERCLA by transferring the liability owed to the CERCLA claimant. By the first sentence of the section, responsible parties are held accountable for their actions and prohibited from escaping CERCLA liability. However, the second sentence provides an exemption which narrows the scope of the first sentence. This sentence exempts agreements to allocate the costs of liability between private responsible parties. These private risk allocations are permitted because they аre consistent with the intent of the first sentence to prevent responsible parties from escaping CERCLA liability....
....
... [P]rivate risk allocations substantially assist in facilitating real estate transactions. Risk shifting provides a mechanism for the parties to minimize exposure to the risk of third-party CERCLA claims. While also protecting against third-party claims, risk shielding primarily represents a means to protect against the risk of claims by the other party to the transaction. These techniques provide flexibility in the negotiating process and facilitate the parties' ability to close real estate transactions successfully. Because of these benefits, private risk allocations may further CERCLA's ultimate goal of cleaning up pollution caused by hazardous substances.
Thaddeus Bereday, Note, Contractual Transfers of Liability under CERCLA Section 107(e)(1): For Enforcement of Private Risk Allocations in Real Property Transactions, 43 Case W.Res.L.Rev. 161, 204, 212 (1992) (citations omitted).
In view of the previous holding of this court in Niecko, the ruling of the district court that a release could not be effective to bar AMI's CERCLA cause of action for contribution, must be reversed.
2. Effect of the Release
Having determined that a release can be effective to allocate among responsible parties the financial burden of CERCLA clean-up liability, we now turn to the specific language of the release at issue in this appeal, to determine whether it opеrates to allocate the cost among these parties. The district judge, applying Ohio law, concluded that the release was effective to bar AMI's state cause of action. If the district court correctly comprehended Ohio law, then we will need to reverse the judgment awarded AMI on its CERCLA cause of action, since Ohio law controls our inquiry concerning the effectiveness of this particular release.6 See Mardan,
In disposing of AMI's state claims, the district court cited American Druggists' Ins. Co. v. Equifax, Inc.,
While we do not disagree with the district court's statement of the general rule of Ohio law concerning the effect of anticipatory releases, we cannot agrеe that it necessarily follows that the release in question was effective under the circumstances of this case. That is because Ohio courts have carved out an important exception to the general rule. In Sloan v. Standard Oil Co.,
1. A release may be avoided where the releasor can establish by clear and convincing evidence that it was executed by mutual mistake, as between himself and the release, of a past or present fact material to the release, as where there was a mutual mistake as to the existence of any injury of the releasor, unless it appears further that the parties intended that claims for all injuries, whether known or unknown at the time of the execution of the release, be relinquished.
2. Whether the parties to a release actually intended to discharge all liability is a question of fact for the trier of the facts.
3. The terms of a release cannot circumvent the powers of equity to correct mistakes.
Id. at 149,
The Ohio Supreme Court set out factors to be considered in determining the intent of the parties:
Certain factors have been judicially recognized as aids whereby the intent of the parties at the time the release was executed may be determined. Stated favorably to the party seeking rescission or cancellation, these factors are: The absence of bargaining and negotiating leading to settlement; the releasee is clearly liable; absence of discussion concerning [the type of injuries suffered]; the contentiоn that the injuries were in fact unknown at the time the release was executed is reasonable; an inadequate amount of consideration received compared with the risk of the existence of unknown injuries; haste by the releasee in securing the release; and the terms of the release exclude the injuries alleged.
Id. at 153,
In a factually similar case, the Ohio Court of Appeals in Woyma v. Ciolek,
These opinions demonstrate that under Ohio case law, even where a release contains unambiguous language that purports to bar claims based on unknown future causes, the release will not be effective where evidence clearly indicates that, at the time they signed the release, the parties had neither foreseen nor considered the specific cause which later gave rise to the claim.
The record before us supports the district court's determination that the source of the environmental hazard was the dilapidated state of the facility's roof and the absence of a sprinkler system. These conditions largely came about near or after the time of the release and, in any case, came well after the possession and ownership of the facility and all the equipment were fully transferred to defendants. The OEPA's intervention did not begin until nearly two years after thе release was signed. However, upon the state of the record, we are unable to say whether, at the time the release was executed, the parties contemplated environmental claims or circumstances that would give rise to such claims. The fact that the events causing the harm upon which liability is predicated had not occurred at the time of the signing of a release is strong evidence that the parties did not intend the release to bar such liability. See Swenson v. Ewy,
Accordingly, we must remand this cause to the district court in order that a record may be developed that will permit the court to address the criteria set out by the Ohio Supreme Court in Sloan and to determine whether the evidence clearly and convincingly establishes that the parties did not intend the release to cover liability for environmental damage in general or the CERCLA cleanup costs in particular.
B. Apportionment of CERCLA Liability
Defendants next contend that even if the release did not bar AMI's CERCLA action, AMI is nonetheless liable for some or all of the clean-up costs under the terms of the Act. Section 107(a) provides that "necessary costs of response incurred by any other person consistent with the national contingency plan" in cleaning up a facility "from which there is a release, or a threatened release ... of a hazardous substance" may be recovered by such other person from liable parties, as defined in that section of the Act. 42 U.S.C. § 9607(a)(4)(B) and (a)(4). Section 113(f) of CERCLA provides for contribution among parties deemed liable under section 107(a), with response costs to be allocated among such parties "using such equitable factors as the court determines are appropriate." 42 U.S.C. § 9613(f)(1). Section 107(a) defines the following as liable parties: (1) owners and operators of a facility at the time of its cleanup; (2) owners and operators of the facility at the time of disposal; (3) generators of waste who arranged for disposal; and (4) transporters who selected the site for disposal. 42 U.S.C. § 9607(a)(1)-(4).
In its unpublished September 20, 1990 Memorandum Opinion and Order following the trial, the distriсt court ruled that AMI was entitled to recover the entire amount of the clean-up costs because it was not a liable party under any of these four categories, whereas defendants were liable under the first two, as present owners of the facility and owners at the time of waste disposal.
Defendants do not dispute the finding that they are liable parties, but argue that AMI is liable as well, under the third category: "[A]ny person who by contract, agreement, or otherwise arranged for disposal or treatment, or arranged with a transporter for transport for disposal or treatment, of hazardous substances owned or possessed by such person ... at any facility...." 42 U.S.C. § 9607(a)(3). Defendants assert that AMI owned the chemicals creating the hazard because the written asset sale contract between IFE and AMI does not list these substances among the assets sold to IFE. Defendants argue that the only evidence supporting a finding that ownership was transferred is parol evidence, which may not be used to contradict or add terms to an unambiguous written contract. They therefore contend that AMI abandoned these chemicals when it left the Babbit Road facility in 1982. Defendants cite case law from another jurisdiction for the proposition that the owner of hazardous substances remains liable, under federal statutory environmental schemes, for damage caused by hazardous substances it abаndons.8 Accordingly, under Ohio law, the release was not valid to bar AMI's CERCLA claim against defendants. See Moreco Energy, Inc. v. Penberthy-Houdaille,
Even if AMI owned the chemicals at issue, it did not incur liability under section 107(a)(3), because it did not "arrange for their disposal." "Disposal" under section 101(29), 42 U.S.C. § 9601(29), is deemed to take place only at the point at which there is a threat that hazardous wastes will be emitted into the environment, air, soil, or groundwater.9 The district court determined that in this case the threat only arose after defendants purchased the entire facility and allowed the building and its sprinkler system to deteriorate. The deterioration of the roof was found to have given rise to flooding that endangered the groundwater, and the broken sprinkler was found to give rise to the threat of fire that would endanger the air. The district court concluded that events at the facility after AMI left it were entirely responsible for the "disposal" of the wastes. In addition, defendants' contention that the chemicals were abandoned was essentially refuted by the district court, which found that these substances were
left by AMI in 1982, under appropriate conditions, because AMI believed that Dziak wanted them. Dziak stated in the supply contract negotiations that he wished the substances used in the processes to be left so that he would have a complete ongoing process. He did not indicate to the contrary during the asset sale negotiations and, until OEPA appeared, acted not only with knowledge of the chemicals, but as if they were his.
District Court's September 20, 1990 Memorandum Opinion and Order at 11. The factual determinations of a district judge sitting without a jury are reviewed only for clear error, Fed.R.Civ.P. 52(a); Pesterfield v. Tennessee Valley Auth.,
Alternatively, if ownership of the substances was transferred to defendants, AMI still cannot be deemed to have arranged for the disposal of hazardous substances.10 The rule relied upon by defendants does not apply to this case. Defendants cite New York v. General Electric Co.,
However, courts interpreting section 107(a)(3) have consistently held that the mere sale of a product is not "arranging for disposal" under the statute. See Kelley v. ARCO Indus. Corp.,
In this case, the district court determined that the chemicals were not left at the facility with disposal in mind: "Both Dziak and AMI intended that the chemicals would be used for the purposes for which they had been bought--the continued operation of the electroplating, heat-treating, and other processes." District Court's September 20, 1990 Memorandum Opinion and Order at 21. Furthermore, the district court specifically found that the chemicals "were useful and had value," and that "[m]any of the compounds were valuable even four years later." Id. at 11. As these determinations are well supported by the record, we cannot hold that they are clearly erroneous. Therefore, even if ownership of the chemicals was transferred by AMI as part of the asset sale, such a transfer was not an arrangement to dispose of hazardous substances under section 107(a)(3).
Because we conclude that the district court properly determined that AMI was not a liable party under section 107(a), we need not address defendants' claim concerning the appropriate apportionment of liability under section 113(f).
III.
The judgment of the district court is affirmed in part and reversed in part, and this cause is remanded to the district court for further proceedings according to law and consistent with this opinion.
Notes
The Honorable Patrick J. Duggan, United States District Judge for the Eastern District of Michigan, sitting by designation
D & B Realty and its other part owner were originally defendants in this action, but were dismissed and are not parties to the appeal
42 U.S.C. § 9607(a)(4)(B)
This court may, of course, affirm on grounds other than those of the district court. Foster v. Kassulke,
E.g., Thaddeus Bereday, Note, Contractual Transfers of Liability under CERCLA Section 107(e)(1): For Enforcement of Private Risk Allocations in Real Property Transactions, 43 Case W.Res.L.Rev. 161 (1992); Lynn E. Richter, Note, AM International v. International Forging Equipment: Does CERCLA Allow Private Parties to Contractually Allocate Liability for Cleaning Up Contaminated Sites?, 22 U.Tol.L.Rev. 1065 (1991); Larry M. Sargent, Case Comment, Environmental Law--AM International, Inc. v. International Forging Equipment: Release Agreements Between Private Parties Under CERCLA, 21 Mem.St.U.L.Rev. 423 (1991)
42 U.S.C. § 9607(e)(1), which provides:
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. 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.
The parties do not dispute the district court's determination that, where the contract is governed by state law, Ohio law controls the efficacy of the release. See American Druggists' Ins. Co. v. Equifax, Inc.,
That court stated: "[A]nticipatory releases are neither unusual nor per se void as a matter of public policy.... In Ohio, an anticipatory release appears to be a valid contract."
They also assert that this proposition is established by the fact that CERCLA's definition of "release" includes "abandonment." See 42 U.S.C. § 9601(22)
"Disposal" is defined under section 101(29) of CERCLA, 42 U.S.C. § 9601(29), by reference to the Solid Waste Disposal Act, 42 U.S.C. § 6903, which defines disposal as "the discharge, deposit, injection, dumping, spilling, leaking, or placing of any solid waste or hazardous waste into or on any land ... so that [it] may enter the environment or bе emitted into the air or discharged into any waters, including ground waters." 42 U.S.C. § 6903(3)
It should be noted that, contrary to defendants' assertion, the district court did not determine that ownership of the chemicals was transferred. It merely determined that defendants were aware that the paint and chemical compounds used for the electroplating, heat-treating and wastewater treatment operations were left by AMI in 1982, and that they were left there because AMI appropriately believed that defendants wanted them. The district court did not need to address the issue of whether ownership of the chemicals was transferred in determining liability under the first two categories of section 107(a), because such liability is predicated on ownership of the "facility" from which hazardous substances are released, not on ownership of the chemicals