ELR Citation: ELR 20475
No(s). C-90-0169 EFL (N.D. Cal. Nov 20, 1990)

The court holds that an indemnity clause in a 1970 agreement between the supplier of raw materials and the manufacturer of wood preservatives bars the manufacturer's action against the supplier for contribution under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). The court first holds that California contract law governs the court's interpretation of the clause. The agreement containing the clause was executed in California, and the parties were to perform their obligations under the agreement in California. Application of California law does not lead to an outcome that is hostile to federal interests. The court next rules that an indemnity agreement may bar CERCLA liability. Under the law of the Ninth Circuit, private parties may contractually distribute the risks of CERCLA liability amongst themselves. California's public policy against indemnification in products liability cases does not apply, and no other California public policy would prohibit indemnification agreements for CERCLA liability. The first sentence of CERCLA §107(e)(1) seems to prohibit indemnification for CERCLA liability, whereas the second sentence of that subsection seems to permit it. Relying on California and Ninth Circuit court decisions, the court next holds that the indemnity agreement in this case bars CERCLA liability even though it was entered in 1970 and thus did not contemplate CERCLA-type liability. The agreement provides that plaintiff must indemnify defendant for all damages resulting from violation of the law. Finally, the court holds that the supplier's alleged active negligence does not bar its right to indemnification. Under California law, the dispositive inquiry is whether the language of the contract provides for indemnification under the circumstances, not whether a party claiming contractual indemnification was actively or passively negligent.

Counsel for Plaintiff
James R. Arnold
Pettit & Martin
101 California St., 35th Fl., San Francisco CA 94111
(415) 434-4000

Council for Defendants
James L. Meeder
Brobeck, Phleger & Harrison
Spear Street Tower, One Market St., San Francisco CA 94105
(415) 442-0900