Your company, Heavy Metal Plating, Inc., operates the Old Alabama Plating Facility. a hard chromium plating plant in Alabama. The prior owner of the plant, Dirty Operators, Inc., operated the Old Alabama Plating Facility as a hard chrome plating facility from 1905 until 1978. In 1978, the Dirty Operators, Inc. sold the Old Alabama Plating Facility to your company, Heavy Metal Plating, Inc. Heavy Metal Plating, Inc. purchased the Old Alabama Plating Facility under an agreement in which your company, as buyer, assumed certain liabilities, but would be indemnified as to other liabilities. At the time, you believed such an arrangement was perfect. You knew exactly what you were responsible for paying, and everything else was the responsibility of Dirty Operators, Inc. The indemnification agreement provided:
Indemnity Against Unassumed Liabilities. Dirty Operators, Inc. hereby indemnifies Buyer against and hereby agrees to hold Buyer harmless from and to reimburse Buyer for any and all liabilities, losses, damages, costs of settlement and expenses which may be imposed upon or incurred by Buyer in connection with any liabilities or obligations of the Old Alabama Plating Facility other than those expressly assumed by Buyer.
In 1990, twelve years after the sale, the United States Environmental Protection Agency ("U.S. EPA") and the Alabama Department of Environmental Management began to investigate the Old Alabama Plating Facility site for toxic substances. No surprise to you, U.S. EPA found multiple solid waste management units from Dirty Operators' operations at the facility. As a result, U.S. EPA asked your company, Heavy Metal Plating, to sign an Administrative Order on Consent (the "Order") requiring Heavy Metal Plating to do a site-wide environmental investigation and eventually cleanup the site. The cost of the testing and clean up is expected to cost ten million dollars. Because you have an indemnification agreement from Dirty Operators, Inc., you inform U.S. EPA that you will not sign the Order. You inform U.S. EPA that Dirty Operators, Inc. is responsible for the cost of the cleanup pursuant to the indemnification agreement, and especially in light of the fact that your company conducted no on site disposal of wastes. U.S. EPA promptly responded by issuing a Unilateral Order against your company, Heavy Metal Plating, Inc., to begin the investigation and clean up.
You immediately consult with your environmental attorney to determine if the Order issued by U.S. EPA can be enforced in light of the indemnification agreement you received from Dirty Operators, Inc. when you purchased the facility. Your environmental attorney informs you that Section 9607(e)(1) of CERCLA 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.
42 U.S.C.A. § 9607(e)(1). After reading the provision several times, you tell your attorney that this provision of CERCLA appears internally inconsistent, and ask how the courts have interpreted this clause. Your attorney explains that the two sentences of Section 9607(e)(1) have been construed by the courts to mean "agreements to indemnify or hold harmless are enforceable between the parties but not against the government." Smith Land & Improvement Corp. v. Celotex Corp., 851 F.2d 86, 89 (3d Cir. 1988), cert. denied, 488 U.S 1029 (1989). In United States v. Hardage, the court held that under section 9607(e)(1) "responsible parties may not altogether transfer their CERCLA liability, [but] they have the right to obtain indemnification for that liability." United States v. Hardage, 985 F.2d 1427, 1433 (10th Cir. 1993). Your attorney further explains that the district court in Hatco Corp. v. W.R. Grace & Co.--Conn., 801 F. Supp. 1309 (D.N.J. 1992) held that:
Because § 9607(e)(1) renders ineffective any attempt to completely "transfer" liability, the most a party can do to limit its liability under CERCLA is to obtain from another an agreement "to insure, hold harmless, or indemnify" it from any liabilities established against it.
Id. at 1317 (quoting 42 U.S.C.A. § 9607(e)(1)).
Thus, Dirty Operators, Inc. could have lawfully agreed to indemnify Heavy Metal Platers, Inc., for its CERCLA liability. However, the indemnification is ineffective as a shield against liability imposed on your company by the government. In essence, an indemnification agreement, explains your attorney, only gives you the potential right to collect from the person who agreed to indemnify you. This means that the indemnification is only as good as the person who gives it; an indemnification will not protect you from governmental liability.
Having concluded that your company is responsible for complying with the Order, your attorney now turns to the issue of whether or not you can shift the responsibility for the compliance to Dirty Operators, Inc. The indemnification agreement that Heavy Metal Plating relies on for shifting liability was executed before CERCLA was enacted. Therefore, your attorney explains, the court must, at the outset, resolve the preliminary issue of whether a contract of indemnity that predates CERCLA can be construed to include indemnity against CERCLA liability. Your attorney explains that the courts that have analyzed pre-CERCLA indemnity provisions and have uniformly held that a pre-CERCLA agreement can, given the right language in the agreement, require one party to indemnify another against CERCLA liability. See, e.g., Kerr-McGee Chem. Corp. v. Lefton Iron & Metal Co., 14 F.3d 321, 327 (7th Cir. 1994); Hatco Corp., 801 F. Supp. at 1317-18; Purolator Prods. Corp. v. Allied-Signal, Inc., 772 F. Supp. 124, 132 (W.D.N.Y. 1991); Mobay Corp. v. Allied-Signal, Inc., 761 F. Supp. 345, 356-58 (D.N.J. 1991). However, your attorney cautions, not all pre-CERCLA promises to indemnify cover CERCLA liability. The court will look to see whether an indemnification provision is either specific enough to include CERCLA liability or general enough to include any and all environmental liability which would, naturally, include subsequent CERCLA claims.
You ask your environmental attorney if the specific indemnification agreement between Heavy Metal Plating, Inc. and Dirty Operators, Inc. can be used to shift your liability to Dirty Operators, Inc. Your attorney informs you that different courts look to different laws to determine if an indemnification agreement is enforceable. Under Alabama State law, if the court finds that the indemnification paragraph is ambiguous under the principles of Alabama law that guides determinations of contracts, Dirty Operators will not be required to indemnify your company as to the clean up. See Reeves Cedarhurst Dev. Corp. v. First Amfed Corp., 507 So. 2d 184, 186 (Ala. 1992). The Alabama courts have held that "An instrument is unambiguous if only one reasonable meaning clearly emerges." Vainrib v. Downey, 565 So. 2d 647, 648 (Ala. Civ. App. 1990). Your attorney warns you that because CERCLA liability was not in existence at the time your compnay entered into the indemnification agreement with Dirty Operators, Inc., the indemnification provision in your agreement is probably subject to more than one reasonable interpretation, i.e., it may or may not have covered liabilities for laws not yet passed. Therefore, the indemnification agreement is not plain enough to be construed as an unambiguous promise by Dirty Operators to indemnify Heavy Metal Plating against all environmental liability associated with the site of the Old Alabama Plating Facility, including liability without fault under laws like CERCLA, which were not yet passed when the agreement was signed. Your attorney explains that expecting Dirty Operators, Inc. to indemnify your company against CERCLA liability does not square with the principle of Alabama law that promises to indemnify are limited to subjects plainly and unambiguously expressed.
Generally, your attorney explains, only indemnity clauses with much broader and more inclusive language than here will shift liability under CERCLA. The Olin Corp. case provides one recent example of what the court expects to see in an indemnification agreement before it will shift liability pursuant to an indemnification agreement. The sale agreement in Olin Corp. provided:
[The buyer] hereby assumes and agrees to be responsible for and to pay, perform, discharge and indemnify [the seller] against, all liabilities (absolute or contingent), obligations and indebtedness of [the seller] related to the Aluminum Assets . . . as they exist on the Effective Time or arise thereafter with respect to actions or failures to act occurring prior to the Effective Time.
Olin Corp., 5 F.3d 12-13 (__ Cir. 19__). The court of appeals held that this provision evidenced a "clear and unmistakable intent" to transfer the seller's environmental liability to the buyer, even future and unknown liability. Olin Corp., 5 F.3d at 15-16. Amazingly, your attorney informs you that the indemnification provision in your Agreement is probably not specific enough to impose on Dirty Operators, Inc. a duty to indemnify Heavy Metal Plating for its CERCLA response costs. Since the indemnification language in your agreement does not clearly state that Dirty Operators, Inc. has agreed to assume all liability for toxic wastes under present or future laws protecting the environment, the best that you can hope for is to sue Old Alabama Plating for a fair contribution to the clean up costs under CERCLA since nothing demonstrates a clear and unambiguous intent to transfer all CERCLA liability to Dirty Operators, Inc. According to the courts anyway, this result reinforces CERCLA policy. "Congress enacted CERCLA, a complex piece of legislation . . . to force polluters to pay for costs associated with remedying their pollution." United States v. Alcan Aluminum Corp., 964 F.2d 252, 258 (3d Cir. 1992). The fact that you were not the polluter, but the victim of the pollution, is irrelevant in the eyes of CERCLA's liability scheme.
I always recommend that anyone purchasing a facility get the broadest indemnification possible as to past, present, future, known and unknown liability, contingent and otherwise. Although not touched upon in this article, I always warn clients to remember that an indemnification is only as good as the person giving it. If Dirty Operators, Inc. had been out of business or bankrupt, the indemnification would have been worthless since there would have been no assets to collect a judgment against. Although many people rely on indemnification agreements when purchasing a site, the reliance is often overstated, especially in light of cases like Beazer East, Inc. v. The Mead Corporation, ____ F. 3d ____ ( 3d Cir. 1994). The Beazer case upon which the above facts were taken, demonstrate just how broad an indemnification must be written before liability will shift.