A federal district court recently granted a purchaser’s motion to dismiss a seller’s third party complaint demanding indemnification for over $841,000 of response costs incurred by U.S. EPA.

In United States v. ARG Corporation, Case No. 10-311 (N.D. Ind. 2011), ARG owned an industrial site for 6 years, and then sold it to the City of South Bend.  Within days after the closing, the City notified U.S. EPA that it feared hazardous substances left on the property presented an imminent danger to public health.  The Government sued ARG under CERCLA for reimbursement of over $841,000 in response costs.  ARG filed a third party complaint against the City for indemnification based upon the City’s purchase agreement, claiming that the City was responsible to pay for the cleanup.  Neither party argued that the contract language was ambiguous, just that the language should be interpreted in their favor.

The contract language at issue stated as follows:

The Seller shall remain solely financially responsible for the Remediation Activities arising from the Seller’s ownership, use or operation of the property prior to the Closing Date, provided however, that the Purchaser covenants not to execute against the Seller’s assets to satisfy the Seller’s financial responsibilities for remediation of pre-closing environmental damage except for the proceeds of recoveries under the general liability policies issued to the seller prior to closing.

The Purchaser shall be solely financially responsible for the Remediation Activities arising from the Purchaser’s ownership, use or operation of the property after the Closing Date.

The court explained that its goal was to ascertain the intent of the parties as determined by first looking to the plain and ordinary meaning of the contract language.  Clear and unambiguous language is given its plain and ordinary meaning.  So merely because the parties disagreed about how the language should be interpreted, did not create an ambiguity.

The court held that this language unambiguously stated that ARG was solely responsible for remediating hazardous substances on the property arising from ARG’s ownership, use, or operation prior to the closing, while the City was solely responsible for such activities after the closing.

The court also held that the provision that the City would only seek recovery from ARG’s insurers did not mean that the City agreed to indemnify ARG if ARG was forced to pay the Government for remediating hazardous substances.

Finally, the Court held that ARG’s claim that the parties’ pre-contract negotiations that the City would fully pay for any remediation costs was irrelevant given the clear language in the contract and the contract’s merger provisions; i.e., the agreement embodies the entire agreement between the parties, it cannot be varied except by written agreement of the parties, and “no representation, promise, or inducement not included in this agreement shall be binding on the parties hereto.”