ELR Citation: ELR 21533
No(s). 92-5394 (E.D. Pa. Jun 6, 1994)

The court holds that the seller of an animal health products business is contractually liable to the purchaser of the business for Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) response costs attributable to the seller's conduct of the business. Under the purchase agreement, the seller indemnified the purchaser against all material liabilities relating to the conduct of the business before the first closing date. The court first holds that the seller is liable under CERCLA for its equitable share of the costs of cleaning up the site, because the seller has acknowledged this liability. The court next holds that a contractual indemnification clause may be applied to CERCLA liability. The court holds inapplicable the principle of New Jersey common law that bars indemnification of parties that are not without fault, because the purchaser seeks contractual, not common-law, indemnification. Also, the purchaser seeks indemnification only for those liabilities for which it is without fault—the liabilities related to the acts of prior site owners. Applying New Jersey law, the court next holds that the purchase agreement's indemnification clause covered CERCLA liability even though the parties entered into the agreement before CERCLA's enactment, because the clause clearly expresses the parties' intent to allocate between themselves all present and future liabilities. The court rejects the argument that the agreement does not cover liability that would not have arisen but for some postsale conduct. This interpretation would preclude indemnification for any liability of the purchaser and would render the indemnification clause meaningless, because every possible liability related to the seller that attaches to the purchaser would have necessarily arisen out of the purchaser's postsale conduct of owning the business. Also, it would contradict the terms of the contract, because the indemnification clause specifically includes, but is not limited to, product liability claims that arose out of the purchaser's sale of the product after it purchased the business. The court also rejects the argument that the purchaser's CERCLA liability cannot be divided based on presale and postsale conduct. CERCLA does not require that indemnification contracts be for the entire CERCLA liability, nor does it prohibit parties from agreeing to indemnify each other only for those CERCLA liabilities caused by the indemnifying party, as was done in this case.

The court next holds that the purchaser's indemnification claim is not governed by the contract's property warranties provision, under which any claim would now be time barred, because the purchaser's claim is not based on warranties. Also, the CERCLA liability at issue is related to the conduct of the business and thus is within the indemnification clause. The court also holds the property warranties provision inapplicable because the purchaser's claim did not arise out of a breach of the contract, but out of a third-party claim against the purchaser by the government. The court holds inapplicable the contract's provision on environmental warranties, because the CERCLA liability at issue is not based on whether an environmental law or regulation was violated at the time the parties signed the contract. The court further holds that the purchaser's notice to the seller of a possible indemnification claim within nine months of the government's expressed intent to pursue CERCLA actions was reasonably prompt. The purchaser was not required to notify the seller of a possible indemnification claim when the purchaser learned of the site contamination, because the government's claim, not the presence of the contamination, was the fact or circumstance that triggered the duty to notify. Furthermore, under New Jersey law, an indemnitor may not refuse indemnification based on late notice unless there is a likelihood of appreciable prejudice to the indemnitor, and the seller has not presented any evidence that it was prejudiced by the purportedly late notification. Finally, the court denies summary judgment for the purchaser on liability for business conduct occurring before the seller acquired the business, because the contract language suggests that the term "business" refers to the operations that the seller's subsidiaries conducted.

Counsel for Plaintiff
David P. Bruton
Drinker, Biddle & Reath
Philadelphia National Bank Bldg.
1345 Chestnut St., Philadelphia PA 19107
(215) 988-2700

Counsel for Defendants
Philip J. Katauskas
Pepper, Hamilton & Scheetz
3000 Two Logan Sq., 18th & Arch Sts., Philadelphia PA 19103
(215) 981-4000