Opinion
Nos. C-1-97-307, C-1-97-308.
December 29, 2005
OPINION and ORDER
Pursuant to Fed.R.Civ.P. 52, this matter is before the Court following a trial to the Court held from February 7, 2005, to February 9, 2005, on Cross-Claim Plaintiff Oxy USA Inc. ["Oxy"]'s cross-claim against Cross-Claim Defendant Borden, Inc. ["Borden"]. Based upon the evidence presented during that bench trial and upon the parties' post-trial briefs (see Docs. 385, 386), the Court finds in favor of Defendant Borden and against Plaintiff Oxy as to all claims.
Findings of Fact
1) Plaintiff Oxy is a Delaware corporation that is a successor in interest to Cities Service Co. ["Cities"] for the purposes of this action.
2) Defendant Borden is a New Jersey corporation with its principal place of business in Ohio.
3) Prior to January 31, 1974, Cities' holdings included the Levey Division, which operated an ink manufacturing facility on Glendale-Milford Road in Cincinnati, Ohio ["the Woodlawn facility"], as well as other ink manufacturing facilities in Philadelphia and Chicago.
4) For some period of time between 1965 and 1970, the Woodlawn facility generated waste materials containing hazardous substances which were disposed of at the Skinner Landfill in West Chester, Ohio, pursuant to arrangement with that landfill's operator. Such disposal did not violate any then-existing federal, state or local laws relating to the disposal of wastes.
5) At no time did either Cities or Oxy ever own or operate the Skinner Landfill.
6) After fire destroyed Cities' ink manufacturing facilities in Philadelphia and Chicago, Cities began negotiations with Borden for the sale of the Woodlawn facility and certain other Levey Division assets. Such negotiations continued from November of 1973 through January 31, 1974.
7) Cities was represented in such negotiations by its then vice president Langley Hellwig; Borden was represented by its then vice president Jon Casey and in-house counsel Paul Josenhans.
8) The parties' negotiations were memorialized in an Agreement of Purchase and Sale ["APA"], which evolved through various drafts over the course of those negotiations.
9) The first draft of the APA, dated December 5, 1973, contained the following provision:
7. ASSUMPTION AND INDEMNIFICATION. Except as otherwise expressly provided herein or in Exhibits hereto, Borden shall assume no obligation or liability whatsoever of Cities pertaining to Cities' ownership, possession, use or operation of the Levey Division to the Closing Date. Except as aforesaid, Cities will pay, and indemnify Borden against, and hold it harmless with respect to, all liabilities and obligations (including accrued liabilities and obligations) of, and all claims against, Cities or Borden (both before and after the transfer to Borden), which existed on the Closing Date or are based on any action taken or omitted by Cities or its affiliates prior to the Closing Date and relating to the Levey Division and Borden will pay, and indemnify Cities against, and hold it harmless with respect to, all liabilities and obligations (including accrued liabilities and obligations) of, and all claims against, Cities, the Levey Division or Borden (both before and after transfer to Borden), which are based on any action taken or omitted by Borden or its affiliates after the Closing Date and relating to the business, properties or operations of the Levey Division.
10) Cities' counsel Richard Nugent thereafter proposed that the APA be modified to contain the following provision:
Cities makes no representations as to the condition of the assets transferred being in compliance with any federal, state or local law . . . and . . . Cities shall have no obligations or liabilities based on events arising out of such condition on and after the Closing Date whether or not such condition was a result of the action taken or omitted by Cities or its affiliates before or after the Closing Date.
That warranty language, however, was not incorporated into the APA.
11) A subsequent draft of the APA, dated January 8, 1974, contained the following provisions:
7. TRANSFER OF ASSETS
(a) GENERAL TRANSFER. On the Closing Date, subject to the terms and conditions set forth in this Agreement, Cities will sell, convey, assign, transfer and deliver to Borden, all the assets and properties of every kind, character and description, whether tangible or intangible, and whether real or personal, wherever located, of the Levey Division (except cash, accounts receivable, claims against third parties and inventories of finished products consisting of finished ink and related products, lithographic plates and lithographic chemicals, in existence and owned by Cities on the Closing Date, and except as otherwise specifically stated herein), free and clear of all liabilities and obligations, except only those liabilities and obligations which are to be assumed by Borden as provided herein; . . . As of the consummation of the Closing, except as otherwise provided in this Agreement, and except to the extent Cities has failed to perform all covenants and obligations of Cities hereunder or has breached any warranty made by Cities hereunder, Borden will assume all of the obligations of Cities, arising from events occurring after the Closing Date relating to the business or assets of the Levey Division. Cities will continue to be responsible for all obligations arising out of events occurring prior to the Closing Date and relating to the business or assets of the Levey Division.
* * *
11. ASSUMPTION AND INDEMNIFICATION. Except as otherwise expressly provided herein or in Exhibits hereto, Borden shall assume no obligation or liability whatsoever of Cities' pertaining to Cities' ownership, possession, use or operation of the Levey Division to and including the Closing Date. Except as aforesaid, Cities will indemnify, defend and hold Borden harmless at all times after the date of this Agreement with respect to all claims, actions, suits, proceedings, demands, assessments, judgments, costs and expenses (including without limitation reasonable attorney's fees), liabilities and obligations of any nature, asserted or brought against Cities or Borden (both before and after the transfer to Borden), (i) existing on the Closing Date; (ii) arising out of any action or actions known to have been taken or omitted by Cities or its affiliates, and relating to the business, properties or operation of the Levey Division; and (iii) in the case of contracts or agreements and alleged tortuous acts or omissions of Cities, its agents or employees, existing or arising out of, any action or actions taken or omitted by Cities or its affiliates and Borden will indemnify, defend and hold Cities harmless with respect to all claims, actions, suits, and proceedings, demands, assessments, judgments, costs and expenses (including without limitation reasonable attorney's fees), liabilities and obligations of any nature asserted or brought against Cities or Borden arising out of any action or actions taken or omitted by Borden or its affiliates after the Closing Date and relating to the properties sold, transferred and conveyed pursuant to this agreement or to the business or operation of the Levey Division as conducted by Borden. Cities makes no representations as to the condition of the assets transferred being in compliance with any federal, state or local laws provided, however, that Cities represents and warrants that Cities has received no notice of any violation of any such law and the management of Cities including the Levey Division management has no actual knowledge thereof. Subject to the foregoing, Cities shall have no obligations or liabilities arising out of failure of such assets to have been in compliance prior to the closing, with any federal, state or local law.
Cities shall bear the risk of loss for all assets and properties to be conveyed and transferred hereunder up to and including the date of the transfer of title to such assets and properties, which transfer shall take place as of the consummation of the Closing as provided in Paragraph 6 hereof.
12) A January 16, 1974, draft of the APA modified and consolidated those provisions to provide as follows:
11. ASSUMPTION AND INDEMNIFICATION. Except if and as otherwise provided in this Agreement, subject to and as of the consummation of the Closing, Borden hereby assumes all the obligations of Cities, arising out of events occurring after the Closing Date relating to the business or assets of the Levey Division transferred hereunder, except to the extent that any such obligation arises from a breach by Cities of the warranty or covenant. Cities will continue to be responsible for all obligations arising out of events occurring prior to and on the Closing Date relating to the business or assets of the Levey Division. Cities makes no representations as to the condition of the assets transferred being in compliance with any federal, state or local laws, provided, however, that Cities represents and warrants that Cities has received no notice of any violation or any claim of any violation of any such law and the management of Cities including the Levey Division management has no actual knowledge thereof. Cities shall have no obligations or liabilities arising out of failure of such assets to have been in compliance prior to the Closing, with any federal, state or local law except to the extent that any such obligation arises from a breach by Cities of the foregoing warranty or any other warranty or covenant.
Cities shall bear the risk of loss for all assets and properties to be conveyed and transferred hereunder up to and including the date of the transfer of title to such assets and properties, which transfer shall take place as of the consummation of the Closing as provided in Paragraph 6 hereof.
13) The APA did not define the term "events" as used in the foregoing provision.
14) In an internal Cities' memorandum dated January 25, 1974, Charles Marshall, risk manager for Cities, expressed the following concerns with respect to the language of Section 11 of the January 16, 1974 draft of the APA:
Should the title of this section continue to contain the word "indemnification." The clause no longer contains the indemnity provisions . . . I am still concerned that the draft language could operate to place liability on Cities for events which Borden could successfully claim arose out of Cities' actions prior to closing. It would appear to me that Borden should be responsible for any accident occurring after the closing whether or not it arose out of some action of Cities' relative to assets. Possibly the confusion is that the word "events" could be either accidents or the filing of a claim. Obviously if an accident occurs prior to closing, the claim would be properly against Cities, but if the accident occurred after closing, it would be against Borden.
15) Following risk manager Marshall's expressed concerns, the subject Section 11 language was modified only slightly, stating as follows in the final version of the APA:
11. ASSUMPTION. Except if and as otherwise provided in this Agreement, subject to and as of the consummation of the Closing, Borden hereby assumes all the obligations of Cities, arising out of events occurring after the Closing Date relating to the business or assets of the Levey Division transferred hereunder, except to the extent that any such obligation arises from a breach by Cities of a warranty or covenant. Cities will continue to be responsible for all obligations arising out of events occurring prior to and on the Closing Date relating to the business or assets of the Levey Division. Cities makes no representations as to the condition of the assets transferred being in compliance with any federal, state or local laws provided, however, that Cities represents and warrants that Cities has received no notice of any violation or claim of violation of any such law and the management of Cities including the Levey Division management has no actual knowledge thereof. Cities shall have no obligations or liabilities arising out of the failure of such assets to have been in compliance prior to the Closing with any federal, state or local law except to the extent that any such obligation arises from a breach by Cities of the foregoing warranty.
Cities shall bear the risk of loss for all assets and properties to be conveyed and transferred hereunder up to and including the date of the transfer of title to such assets and properties, which transfer shall take place as of the consummation of the Closing as provided in Paragraph 6 hereof.
14) On January 31, 1974, Cities and Borden entered into the final APA and closed on the transaction, whereby Borden purchased the Woodlawn facility as well as certain other assets of Cities' Levey Division.
15) Pursuant to Section 7 of the APA, Cities agreed to transfer to Borden the Woodlawn Facility and other Levey Division assets expressly identified in the APA and exhibits thereto "free and clear of all liabilities and obligations, except only those liabilities which are to be assumed by Borden herein."
16) Under the APA, Borden did not purchase from Cities and Cities did not transfer to Borden certain assets of the Levey Division, including cash, accounts receivable, claims against third parties, insurance claims, inventories of finished products, and a contract between Cities and Safran Printing Company.
17) Under the APA, Borden did not purchase from Cities and Cities did not transfer to Borden certain properties or liabilities and obligations, including any contract or agreement between Cities and the Skinner Landfill for disposal of waste, Levey's fire-ravaged Philadelphia and Chicago facilities, and Cities' accounts payable and debts accruing prior to the Closing Date.
18) In Section 2(I) of the APA, Cities represented and warranted that "[e]xcept as shown on the exhibits hereto, Cities is not a party to any other material oral or written agreement which relates to the Levey Division."
19) No exhibit to the APA shows or lists a contract, agreement or arrangement between Cities and the Skinner Landfill for the disposal of waste from the Woodlawn facility at the Skinner Landfill.
20) Section 11 of the APA, headed "Assumption," contains the following language: Except if and as otherwise provided in this Agreement, subject to and as of the consummation of the Closing, Borden hereby assumes all of the obligations of Cities, arising out of events occurring after the Closing Date relating to the business or assets of the Levey Division transferred hereunder, except to the extent that any such obligation arises from a breach by Cities of a warranty or covenant. Cities will continue to be responsible for all obligations arising out of events occurring prior to or on the Closing Date relating to the business or assets of the Levey Division.
21) No section of the APA specifically states that Borden assumed Cities' "environmental obligations" relating to the Levey Division assets.
22) No section of the APA specifically states that Borden assumed Cities' "future obligations" relating to the Levey Division assets.
23) No section of the APA specifically states that Borden assumed Cities' "unknown obligations" relating to the Levey Division assets.
24) In 1980, approximately six (6) years after the Closing Date, Congress enacted the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ["CERCLA"].
25) On March 28, 1997, the Dow Chemical Company and others ["the Dow Plaintiffs"] filed a contribution action under CERCLA against OXY and more than 80 other potentially responsible parties ["PRPs"] to recover response costs incurred in the cleanup of the Skinner Landfill. The Dow Plaintiffs' claims against OXY were based upon waste disposed of by the Woodlawn facility at the Skinner Landfill prior to the Closing Date.
26) On April 3, 2001, OXY entered into a Consent Decree with the United States relative to that CERCLA matter, OXY also entered into a settlement agreement with the Dow Plaintiffs, pursuant to which OXY has incurred cleanup costs in an amount alleged to be in excess of $2,000,000 as of the date of trial.
27) Subsequent to the Closing Date, Borden has assumed responsibility for remediating problems related to hazardous waste occurring on property acquired and owned by Borden as a result of its purchase of the Woodlawn facility, and/or generated by Borden through its post-closing operation of the Woodlawn facility.
Analysis
The sole issue before the Court is whether Borden is liable to indemnify Oxy for costs incurred by Oxy in the CERCLA-mandated cleanup of the Skinner Landfill. It is undisputed that all such costs relate to incidents that transpired prior to CERCLA's enactment, when hazardous materials generated by Cities Service Company at its Woodlawn facility were disposed of by Cities at the Skinner Landfill, before Cities (as Oxy's predecessor in interest) conveyed the Woodlawn facility to Borden. The resolution of this matter turns on interpretation of the contract through which Cities transferred certain assets and liabilities of its Levey Division to Borden in 1974.
Parties may shift CERCLA and other environmental liabilities by means of an indemnity agreement. Olin Corp. v. Yeargin Inc., 146 F.3d 398, 407 (6th Cir. 1998) (citing 42 U.S.C. § 9607(e)(1); Niecko v. Emro Mktg. Co., 973 F.2d 1296, 1300-01 (6th Cir. 1992)). Whether a particular agreement in fact has shifted such liabilities is a question of state law. Id.
The parties agree that the relevant Agreement of Purchase and Sale ["APA"] provides that their rights and obligations thereunder are to be construed under the laws of New York. Under New York law, "indemnification agreements are strictly construed," meaning that "a court cannot find a duty to indemnify absent manifestation of a `clear and unmistakable intent' to indemnify." Commander Oil Corp. v. Advance Food Serv. Equip., 991 F.2d 49, 51 (2d Cir. 1993). Indeed, at least one New York appellate court has held in interpreting an assumption agreement that "[t]he mere existence of more than one interpretation requires a finding that indemnification was not the unmistakable intent of the parties." Ruhland v. John W. Cowper Co., 422 N.Y.S. 2d 182, 183 (N.Y. 1980). Moreover, courts applying New York law abide by the "widely accepted principle" that "indemnity agreements which purport to indemnify the indemnitee for its own fault are to be strictly construed." See Olin Corp., 146 F.3d at 407-08 (citing Purolator Prods. Corp. v. Allied-Signal, Inc., 772 F.Supp. 124, 131 (W.D.N.Y. 1991)).
Applying such legal principles to the matter before us, the Court concludes that Cross-Plaintiff Oxy USA Inc. has failed to sustain its burden of demonstrating that the APA in question manifests a `clear and unmistakable intent' to require Borden to assume liability for the environmental hazard at Skinner Landfill. To the contrary, the most reasonable interpretation of the contract language as illuminated by the evidence presented at trial would suggest that as to all liabilities not specifically enumerated therein, the parties contemplated that the Closing Date would serve as the demarcation line for determining future liability, with Cities to retain responsibility for all liabilities arising from activity that took place on or before the transfer date, and Borden assuming responsibility for all liabilities arising from activity occurring thereafter. That conclusion is consistent with Section 11 of the final APA, which states on its face, in plain language, that "Borden hereby assumes all the obligations of Cities, arising out of events occurring after the Closing Date relating to the business or assets of the Levey Division transferred hereunder," and that "Cities will continue to be responsible for all obligations arising out of events occurring prior to and on the Closing Date relating to the business or assets of the Levey Division."
Oxy's various efforts to advance a more favorable reading of the contract terms do not dissuade us from that conclusion. First, contrary to Oxy's assertion, the Court concludes that Borden did not purchase "the on-going business of the Levey Division," but rather purchased only selected assets of that entity. Oxy concedes that certain assets, including inventories of finished products and at least one existing contract, were withheld from the transaction between Cities and Borden. In addition, the evidence presented at trial suggested that even Cities' own counsel, Richard Nugent, had opined contemporaneously that the entire Levey business was not being sold. These facts undercut Oxy's premise that the Levey Division was sold as a going concern. As the Skinner Landfill clearly was not an asset transferred to Borden under the APA, and as under only the broadest construction could Oxy's disposal of waste some three to nine years prior to the sale be deemed to "relat[e] to the business or assets of the Levey Division transferred" to Borden, the Court determines that Borden did not assume liability for such waste disposal by virtue of that provision.
The Court also is not persuaded by Oxy's argument that "the ordinary and routine disposal of waste by the Levey Division . . . was not an `event'" within the meaning of the APA. In the context of this legal action, Oxy's description of such disposal as "an action which was of no consequence" ( see Doc. 385, p. 4) seems particularly ironic. Inconsequential as it may have seemed at the time, Cities' disposal of hazardous waste spawned this multi-million dollar litigation, and certainly qualified as an "event" consistent with that word's commonly accepted usage. Oxy's suggestion — that actions which later give rise to liability do not qualify as "events" under the terms of a contract if they lacked obvious significance when they occurred — strains credulity, and is not accepted by this Court. We therefore find that Cities' disposal of hazardous substanceswas an "event" within the meaning of the contract.
"Something that takes place; a happening or an incident." See Funk Wagnalls Standard College Dictionary (1975).
Third, Oxy's assertion that Cities would not have retained responsibility for obligations about which it did not know is not well taken, given that Borden could be said to have been equally unlikely to have willingly assumed responsibility for obligations about which it did not know, especially when those obligations were not of its own creation. Particularly telling in this regard is evidence that Cities' own risk manager alerted other Cities' representatives to his concern that the contract language left Cities open to exposure "for events which Borden could successfully claim arose out of Cities' actions prior to closing." Despite such notice, Cities failed to take measures to address that perceived loophole in the final version of the APA. As such, Oxy is responsible for those obligations retained by Cities.
The Court's decision in that regard also is not altered by Oxy's emphasis on Borden's exercise of due diligence prior to purchasing the Woodlawn facility. The Court again notes that the Skinner landfill was not a Cities' asset and therefore was neither purchased by Borden nor contemplated by either party as part of the transaction. Additionally, the fact that a party purchasing assets had the opportunity to inspect the property to be acquired and was satisfied that the assets were in acceptable condition does not imply that the purchaser "accepted liability for hazardous chemical remediation." Buffalo Color Corp v. AlliedSignal, Inc., 129 F. Supp. 2d 409, 424 (W.D.N.Y. 2001). This Court likewise concludes that Borden's performance of due diligence relative to its purchase of certain Levey Division assets did not amount to an assumption of Oxy's future CERCLA obligation at the Skinner Landfill property which Borden was not even acquiring.
Finally, the Court also rejects Oxy's suggestion that Borden's assumption of responsibility for abating certain environmental hazards at the Woodlawn facility somehow demonstrates that Borden is legally responsible for the cleanup at the Skinner Landfill as well. The record clearly demonstrates that the three surface impoundments at the Woodlawn facility which were closed by Borden and as to which Borden undertook remediation efforts were located on property acquired by Borden from Cities in the January 31, 1974 transaction, and were used by Borden in its post-closing operations at that site. As the presence of hazardous substances in those impoundments undeniably did involve "events occurring after the Closing Date relating to the business or assets of the Levey Division transferred" to Borden within the meaning of the APA, Borden's assumption of responsibility as to those impoundments is not inconsistent with its denial of responsibility as to the Skinner Landfill.
Similarly, the cleanup costs assumed by Borden relative to water discharge at the Woodlawn facility in the early 1980s also related to hazardous materials generated by Borden on property that it owned, and Borden's actions with respect thereto also are consistent with both the APA and its position herein.
Conclusions of Law
1) Under the law of New York which the parties agree governs this action, in order to establish a breach of contract claim, a party must demonstrate (i) the existence of a contract, (ii) performance of the contract by one party, (iii) breach of the contract by the other party, and (iv) damages. Bank Itec N.V. v. J. Henry Schroder Bank Trust Co., 612 F.Supp. 134, 137-38 (S.D.N.Y. 1985); Rexnord Holdings, Inc. v. Bidermann, 21 F.3d 522, 525 (2d Cir. 1994).
2) In interpreting a contract, a court must give effect to the parties' intent as indicated by clear and unambiguous language within the written agreement. Slatt v. Slatt, 64 N.Y.2d 966, 967, 477 N.E.2d 1099, 110 (1985).
3) Contract provisions should not be read in isolation, but rather, "the entire contract must be considered, and all parts of it reconciled." Terwilliger v. Terwilliger, 206 F.3d 240, 245 (2d Cir. 2000).
4) As to ambiguous contracts, a court may consider facts and circumstances extrinsic to the written agreement in order to discern the parties' intent, including parol evidence of conversations, negotiations and agreements made prior to or contemporaneously with the contract in question.
5) Whether an indemnity agreement has shifted particular parties' CERCLA liabilities is a question of state law. Olin Corp. v. Yeargin Inc., 146 F.3d 398, 407 (6th Cir. 1998); 42 U.S.C. § 9607(e)(1); Niecko v. Emro Mktg. Co., 973 F.2d 1296, 1300-01 (6th Cir. 1992).
6) Under New York law, indemnification agreements are strictly construed, and a court cannot find a duty to indemnify absent manifestation of a clear and unmistakable intent. Commander Oil Corp. v. Advance Food Serv. Equip., 991 F.2d 49, 51 (2d Cir. 1993); Ruhland v. John W. Cowper Co., 422 N.Y.S. 2d 182, 183 (N.Y. 1980).
7) Under New York law, indemnity agreements which purport to indemnify the indemnitee for its own fault are to be strictly construed. Purolator Prods. Corp. v. Allied-Signal, Inc., 772 F.Supp. 124, 131 (W.D.N.Y. 1991).
IT THEREFORE IS ORDERED that judgment is entered in favor of Cross-Claim Defendant Borden, Inc. and against Cross-Claim Plaintiff Oxy USA Inc. on Oxy's cross-claims against Borden; that Oxy's requests for declaratory judgment and indemnification are denied and its cross-claims against Borden are dismissed with prejudice; and that all costs are assessed against Oxy USA Inc. Per said parties' stipulation ( see Doc. 353, p. 2, ¶ IIIA), this finding regarding liability obviates the need for further proceedings to assess damages.
IT IS SO ORDERED.