ELR Citation: ELR 21406
No(s). H-88-497 (JAC) (D. Conn. Mar 13, 1992)

The court holds that the buyer of a corporation, pursuant to a stock purchase agreement that bars claims by the buyer against the seller for indemnification of environmental-type liabilities if not presented to the seller within three years or by October 31, 1982, is time barred from bringing breach of contract and other indemnification claims against the seller for costs incurred in assessing and remediating contamination caused by the seller at the corporation's plant. The court also holds that the agreement's time bar was sufficiently specific to transfer liability under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) to the buyer after the three-year notice deadline. The court holds that some claims were also barred under Connecticut's two-year statute of limitations, and an officer and shareholder of the seller is not liable for cleanup costs incurred by the buyer, absent a showing that she participated in, and actually controlled, the corporation. The buyer did not give the seller notice of any claims for indemnification for environmental liabilities until March 22, 1985, over two years after the October 31, 1982, agreement deadline. The buyer subsequently brought a seven-count complaint against the seller for indemnification, alleging breach of warranty; fraudulent representation; common-law tortious harm to real estate and the environment; negligence; strict liability for abnormally dangerous activities; liability pursuant to Connecticut environmental statutes; and CERCLA liability.

The court first holds that because the buyer conceded at oral argument and in its papers that summary judgment is appropriate with respect to the breach of warranty, fraud, and Connecticut environmental law counts, summary judgment is granted for sellers on those counts. The court next holds that the buyer's interpretation that the stock purchase agreement is a limit only on contractual claims, is not sufficiently reasonable to render the agreement ambiguous with respect to the kinds of claims it limits, because it clearly and unambiguously limits "claims for indemnification." Regardless of how the count is framed, whether as negligence in Count Four or as strict liability in Count Five, each count seeks indemnification for the costs incurred by the buyer. Thus, all of the counts are barred because the buyer failed to meet the contractual deadline for asserting any claim for indemnification for environmental liabilities.

The court next holds that the stock purchase agreement is specific enough to constitute a transfer of CERCLA liability from the seller to the buyer after the deadline passed, even though the agreement does not refer specifically to any environmental laws, regulations, or ordinances, including CERCLA. The test is not whether the parties referred to CERCLA in the agreement, but whether the agreement conveys an intention of the parties to allocate CERCLA-type environmental liability. The agreement's unambiguous language reveals that the parties allocated the risk of all liabilities arising from violations of environmental laws, regulations, and ordinances. Specifically, to the seller for a period of three years after the sale of the corporation, and only thereafter to the buyer. This is sufficient to transfer liability under CERCLA to the buyer after October 31, 1982. Further, the court notes that no claim under CERCLA has been made against the buyer by either the government or any other party. Rather, the costs the buyer has incurred to date were spent in order to comply with an order of the Connecticut Department of Environmental Protection.

The court holds that, even if the stock purchase agreement did not explicitly limit claims of tortious harm to real estate and environment, negligence, and strict liability, these claims would be barred by the applicable Connecticut statute of limitations. Connecticut law requires that actions must be brought within two years from the date when the injury or damage complained of is discovered, or in the exercise of reasonable care should have been discovered. The court finds that although a material issue of fact exists regarding whether the buyer had discovered the elements of actual injury and causation by the two-year March 22, 1985, statutory deadline, the record shows that the buyer had knowledge of facts that would put a reasonable person on notice that he was injured and that the injury was caused by the wrongful conduct of another. In light of all of the facts known to the buyer by March 22, 1985, reasonable investigation would have led to the discovery of all of the elements of the claims, and thus, the buyer's counts in negligence, strict liability, and tortious harm are barred.

Finally, the court holds that although the claims against individual sellers have been disposed of as barred by the stock purchase agreement and as untimely, the buyer has presented no facts creating a genuine issue of material fact for trial on the issue of whether an individual seller benefitted from the allegedly illegal activity. The buyer is not entitled to additional discovery on the issue of an individual seller's involvement in the operation and control of the corporation's activities prior to the stock purchase, because the buyer has not filed an affidavit as required under Rule 56(f) of the Federal Rules of Civil Procedure. Even if the buyer had requested further discovery in its memorandum, which it did not, a memorandum is not a substitute for an affidavit under Rule 56(f).

Counsel for Plaintiff
Ann McClure
Day, Berry & Howard
City Place, 185 Asylum St., Hartford CT 06103
(203) 275-0100

Counsel for Defendants
Marie A. Casper, David R. Schaefer
Brenner, Saltzman, Wallman & Goldman
271 Whitney Ave., P.O. Box 1746, New Haven CT 60507
(203) 772-2600