The Sixth Circuit Court of Appeals has construed contract language to hold a manufacturing plant’s seller liable for the purchaser’s costs incurred in closing two waste units regulated under the Resource Conservation and Recovery Act (RCRA). Textileather Corp. v. GenCorp Inc., 6th Cir., No. 10-3634 (6th Cir. 9/11/12).

Seller GenCorp operated a vinyl manufacturing facility beginning in the 1950s. Purchaser Textileather acquired the property in 1990 under a contract that stated, “Seller will retain responsibility for: all liabilities, if any, to third persons in respect of the substances, conditions and other matters which are included on the Chemicals List . . . specifically including (A) fines, penalties . . . (B) defense and other responses to any administrative or judicial action . . . and (C) financial responsibility for (i) cleanup costs and injunctive relief . . . and (ii) any other compliance or remedial measures.” The seller indemnified purchaser with respect to the seller’s retained liabilities, and the purchaser assumed all liabilities not retained by seller.

At the time of the sale, the plant included two units that reclaimed solvent waste, both of which were RCRA-regulated. Although the seller had applied for permits for the two RCRA units, the Ohio Environmental Protection Agency (OEPA) had not issued those permits when the transaction closed. Within a few months of acquiring the property, the purchaser took the two RCRA units out of service, triggering requirements to close them. Under the contract, the purchaser notified the seller of the requirements that state regulators imposed on it as part of the closure, including soil and groundwater sampling. The purchaser submitted closure plans to OEPA, which disapproved some aspects of the plans, sending notices of deficiency particularly with respect to soil sampling, site-specific cleanup standards and groundwater monitoring.

The seller asserted that the contract did not require it to reimburse the RCRA closure costs, and purchaser sued seller for breach of contract as well as a claim under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). The district court held that the seller did not retain the RCRA closure costs under the contract, because OEPA did not constitute a “third party” and because the purchaser’s RCRA closure proceedings with OEPA did not constitute a “claim or action.” Essentially, the district court reasoned that a regulatory obligation resulting from a purchaser’s business decisions is not the same as a third-party claim or action.

The Sixth Circuit disagreed, holding that the term “third party” meant anybody not a party to the contract, and thus included OEPA. In addition, according to the court, the contract language including fines and penalties, financial responsibility and defense of administrative actions among the seller’s retained liabilities supported the conclusion that OEPA was a third party under the contract. The court found that the closure requirements, including notices of disapproval as well as the proposal and agency-review process constituted claims or actions within the meaning of the contract. Accordingly, the Sixth Circuit held that the contract required seller to reimburse purchaser’s RCRA closure costs. The court agreed with the district court, however, that the purchaser’s CERCLA cause of action did not state a claim made by a third party and affirmed its dismissal.