ELR Citation: ELR 21476
No(s). 93-7994 (2d Cir. Aug 23, 1994)

The court affirms a district court decision dismissing claims by the purchaser of a contaminated site under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) against two shareholders, officers, and directors of the seller, but reverses and remands the district court's dismissal of fraud claims against the two individuals. The court first holds that New York law governs its interpretation of the site purchase agreement. The court next turns to the purchaser's claims that defendants fraudulently misrepresented that no on-site disposal of hazardous substances had occurred and that waste generated at the plant had been disposed of properly. The court holds that a reasonable jury could find that the purchaser had reasonably relied on the defendants' statements. A report by environmental consultants warning of contamination and advising further testing did not place the purchaser on guard or face it with facts so that its reliance on defendants' representations was unreasonable as a matter of law. The contamination revealed in the report was consistent with incidental spillage of solvents that could be expected at any metals recycling plant and did not contradict defendants' representations. Also, defendants' representations that there had been no on-site disposal may have influenced the purchaser's decision to reject the report's recommendation for further testing. A reasonable jury could conclude that the purchaser, having conducted environmental due diligence and received a report that was consistent with the defendants' representations, had no obligation to investigate further. The court holds that the purchaser raised genuine issues of fact as to whether the consultants' environmental findings were consistent with the defendants' representations, and whether the purchaser should have undertaken additional testing given the representations made to the consultants during its investigation and the defendants' willingness to make those representations in the purchase agreement. The court holds that the district court erroneously dismissed the fraud claims on the alternative basis that the purchaser was not entitled to rescind the contract. A defrauded party is permitted to affirm a contract and seek relief in damages.

Turning to the purchaser's CERCLA claims, the court holds that the purchaser gave up its right to assert those claims by signing an agreement that released defendants from claims under the purchase agreement. Also, the purchase agreement and a contemporaneous indemnity agreement, both of which defendants signed, unambiguously allocated to the purchaser the risk of CERCLA losses after the expiration of a two-year period.

Counsel for Plaintiff
Stuart A. Smith
Piper & Marbury
31 W. 52d St., New York NY 10019
(212) 261-2000

Counsel for Defendants
Thomas E. Lippard
Thorp, Reed & Armstrong
One Riverfront Ctr., Pittsburgh PA 15222
(412) 394-7711

Before Walker and Carman,^* JJ.