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Caldwell Trucking PRP v. Rexon Technology Corp.

421 F.3rd 234 (3rd Cir. 2005)

INDEMNIFICATION—Interpretation and enforcement of hold harmless agreements should be governed by the intention of the parties and provide for insurance and a division of risk.

A trucking company provided liquid waste disposal services. From1948 to 1974, its “waste was deposited in several lagoons on [its] site, but, beginning in 1975, it was stored in tanks and from there taken to ocean disposal facilities.” Beginning in 1960, one of its customers used the trucking company for “waste disposal for all types of materials in the septic tanks on [the customer’s] properties.” The trucking company’s property was listed as a Superfund Site and remediation was required. The trucking company and others entered into a consent decree “providing for remediation and reimbursement to federal and state governments for previously incurred expenses.” In this particular suit, the group was seeking contribution from many of the customers of the trucking company. Most of the claims were settled, “but because of a dispute over the interpretation of an [acquisition agreement] between “the customer described above and buyer of that company, the claim involving those two companies continued.” In particular, the successor company bought this particular customer and then sold all of the stock to a new parent company. The new parent company continued operations under the customer’s name until the business was dissolved.

The District Court entered summary judgment on liability in favor of the trucking company and the related parties, and against both the customer and its purchaser. “The critical dispute in that phase of the case was the interpretation of the provision in [a] 1989 stock purchase agreement assigning responsibility for environmental claims against” the customer and the company that purchased it. Under a section captioned “Seller’s Retention of Certain Liabilities,” the buyer agreed “to assume and become liable for, and pay, perform and discharge and to indemnify… .” The District Court construed the agreement to mean that “the parties intended to attribute direct liability to [the buyer] for a wide range of costs associated with violations of, or noncompliance with, ‘environmental laws as of or prior to the closing date’ of the sale in 1989.” The claims by the trucking company and related parties were not based on any parent/subsidiary relationship. Instead, they were based on the buyer’s “contractual assumption of responsibility.” The buyer appealed, contending “that under the stock purchase agreement, it did not indemnify [the company it had bought] or assume its liabilities other than those existing at its own premises, that [the trucking company had] no right to a direct action, and that the allocation [of contribution share made by the lower court] was erroneous.”

The Court of Appeals noted that “[a]lthough federal law underli[ed] the cause of action, state law applies to interpreting a contract that affects CERCLA liability.” The buyer conceded that the “disposal arrangements with [the trucking company] were of a nature or character as to give rise to an allegation of an ‘actual or alleged violation of or non-compliance’ by [the company it bought].” Under CERCLA, a customer whose waste was carted “may not divest itself of liability for its pollution activity,” but “[a]lthough it may not escape liability to the government, a participant in a contamination activity may secure contribution from other responsible parties or indemnification.” To the Court, it appeared that the buyer was contending “that the retention of liabilities clause would apply if [the company it bought] paid its share of remediation expenses incurred by the state or federal governments pursuant to [CERCLA], but not if those costs had been incurred by the polluters themselves.” The Court rejected such a construction by finding that the contractual indemnification provision was “far more sweeping.” It covered “[a]ny and all liabilities and obligations ... arising out of or relating to ... (B) any actual or alleged violation of or non-compliance by [the company that was purchased] with any Environmental Laws as of or prior to the Closing Date (including without limitation, Superfund liabilities or similar liabilities for other sites…).” The text had no limitation applicable only to matters brought under CERCLA. Further, reference to “Superfund liabilities or similar liabilities for other sites,” was, itself, “broad enough to cover all of [the acquired company’s] environmental liabilities.” Essentially, the cited section of the stock purchase agreement had “a more expansive scope than a mere indemnification provision.” Under New Jersey law, “courts should interpret a contract considering ‘the objective intent manifested in the language of the contract in light of the circumstances surrounding the transaction.’” Further, under New Jersey law, the “interpretation and enforcement of hold harmless agreements should be governed by the intention of the parties and provid[e] for insurance and a division of risk.” The stock purchase agreement also contained a hold harmless agreement.

The Court of Appeals also rejected the argument that the trucking company was not entitled to recover “because it [was] a third -party beneficiary excluded from recovery” by a specific term of the 1989 stock purchase agreement. The Court rejected that argument, holding that the “general, boilerplate language ... must yield to the specific direction of” the provision in the indemnification clause beginning with “[a]nything contained herein ... to the contrary notwithstanding.”

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