Contract Fails To Protect Seller From CERCLA Liability After Expiration Of Indemnity For Environmental Claims

Posted on June 14, 2011 by Jose R. Allen

Since the passage of CERCLA, practitioners have been keenly aware of the necessity to negotiate contractual provisions allocating responsibility for environmental liabilities in the purchase and sale of industrial facilities. Such agreements typically include provisions aimed at protecting the buyer from liability for pre-purchase environmental claims and limiting the length of time that the seller may be obligated to indemnify the buyer for such claims.

A recent federal district court decision, Stimson Lumber Co. v. Int'l Paper Co., CV 10-79-M-DWM-JCL (D. Mont. 2011), illustrates the importance of not only including provisions in purchase and sale agreements for indemnity as to pre-closing conditions, but ensuring that such provisions unambiguously reflect the parties’ intentions regarding CERCLA statutory liability. On April 22, the court in Stimson Lumber held that the buyer of a lumber mill could sue the seller of the mill for costs incurred under CERCLA even though the period of seller's contractual indemnity for environmental claims had expired under the terms of the sale contract.

A 1993 asset purchase agreement (the "APA") pursuant to which Stimson Lumber Company bought a lumber mill from Champion International provided an indemnity for environmental claims relating to pre-closing conditions for a period of ten years. In 2008, after the indemnity had expired, Stimson filed suit against Champion's successor, International Paper, for costs incurred to clean up contamination at the mill. International Paper argued that the lawsuit was barred under the terms of the APA because the contractual period for indemnity for environmental claims had run. The court disagreed, finding that a provision setting forth the purchase price could have signaled the parties' intention that statutory CERCLA liability remains with the seller. The court found that the wording of the provision created an ambiguity regarding whether the parties intended for the buyer to assume the seller's statutory liabilities after the contractual indemnification obligations expired.

The court distinguished Armotek Industries, Inc. v. Freedman, 790 F. Supp. 383 (D. Conn. 1992), in which the purchase agreement had included a proviso that after the expiration of the indemnity period, "no claim for indemnification for losses . . . shall be made against Seller." The court in Aromtek found that this provision reflected the parties' unambiguous agreement that the seller's CERCLA liability had shifted to the buyer after the indemnity period expired. In reviewing the Stimson Lumber agreement, the court found no similar bar to claims after the expiry of the indemnity period, and held that the ambiguity in the terms of the APA precluded summary judgment for the seller.

The Stimson Lumber decision serves as a useful reminder that in drafting environmental provisions, the words must be either very broad and quite absolute in the allocation of future liabilities or very specific and complete in reflecting sometimes subtle distinctions between indemnity for and assumption of liability. Years after the fact, when the participants in the initial transaction are long gone and the cold words on a sheet of paper are the only guide to the parties’ intentions, only truly unambiguous language will protect against the revival of old liabilities thought extinguished long ago.

California Takes Dead Aim at Global Warming

Posted on November 22, 2010 by Jose R. Allen

One of the most striking campaign ads to hit the air waves during the run-up to the recent mid-term elections was the "Dead Aim" ad aired by Joe Manchin, the Senator-elect from West Virginia. The ad featured Manchin walking through an open field with a rifle cradled in his arms. He stops, deliberately loads a single cartridge into the firing chamber of the rifle, takes aim at a distant target and fires. The camera then zooms in on the target of Manchin's single, clean shot: a fictitious Senate bill titled, "Cap and Trade." The ad ends with Manchin staring directly into the camera and promising that, "I will take dead aim at the Cap and Trade bill because it is bad for West Virginia." 



In California voters were far more hospitable to climate change regulation in general and a cap-and-trade program in particular. Just days before California voters went to the polls to defeat a ballot initiative aimed at delaying implementation of California's landmark global warming law (AB 32), the California Air Resources Board (ARB) released for public comment proposed regulations to implement a state-wide cap-and-trade program. The cap-and-trade program would place an overall cap on the amount of GHG that can be emitted by all sources covered by the program. The ARB would then issue allowances equal to the cap to regulated sources. The cap would be gradually reduced between 2013 and 2020 to achieve the GHG gas emissions reduction target established by AB 32. Sources subject to the cap-and-trade program would have to reduce their GHG emissions to achieve their allocated emissions limits or use offset credits to satisfy a portion of their compliance obligations. 



What was used for target practice in a Senate campaign in West Virginia is used in California as the key part of the strategy to reduce GHG emissions. Only time will tell whether it will be open season on cap-and-trade programs or whether such programs are the wave of the future.