Last week, the U.S. District Court for the District of New Jersey denied Alcoa Domestic LLC’s request that the court dismiss claims against it regarding a previously owned site, finding that Alcoa may be in breach of the Purchase and Sales Agreement for the site and thus still liable for contamination caused by the removal of materials from the site. The case, Borough of Edgewater v. Waterside Construction, LLC et al., Civil Action No. 14-5060 (D.N.J. December 14, 2016), concerns the Borough of Edgewater’s endeavor to remediate contamination at Veteran’s Field in Edgewater, New Jersey in 2012. A New Jersey contractor, Defendant Waterside Construction, LLC (and several other interrelated companies, collectively, “Waterside”), was awarded the contract for the remediation, which required Waterside to import clean stone to be used as fill in certain areas of the Veteran’s Field site. Subsequent inspections revealed that the fill was contaminated, and Waterside admitted that the fill material originated from the former Alcoa Site, which is contaminated.

The Borough filed suit against Waterside and Alcoa, as well as the current owner and developer of the Alcoa Site, North River Mews Associates, LLC (“North River”) and River Road Improvement Phase II, Inc. (“RRIP”), seeking remediation costs under the Comprehensive Environmental Response, Compensation, and Liability Act, the New Jersey Spill Act, and common law. North River had purchased the property from Alcoa in 1997 and RRIP was part of a local government redevelopment plan to revitalize the area, including the Alcoa Site. North River, RRIP, and Waterside asserted various cross-claims against Alcoa for contribution and indemnification.

Seeking to escape liability, Alcoa filed a motion for partial judgment on the pleadings, arguing that the Purchase and Sale Agreement with North River “unambiguously” released it from all claims related to the sale of the Alcoa Site. Specifically, Alcoa pointed to a provision titled “Release of Seller,” in which North River expressly released Alcoa from any response costs or claims relating to the Alcoa Site, except in the event that Alcoa remained in default on any payment obligation after receiving notice of such default and the opportunity to cure it. Alcoa also referenced an indemnification provision which provided that North River “shall indemnify, defend and hold [Alcoa] harmless from any and all claims” relating to the Alcoa Site. Further, Alcoa argued that the Purchase and Sales Agreement along with another agreement, known as the Multi-Party Agreement, required North River and RRIP to fund Alcoa’s defense of the claims at issue. In response, North River and RRIP argued that Alcoa “fraudulently induced [them] into the alleged contract by intentionally concealing a known environmental hazard.” They further argued that even if the agreements were valid, Alcoa had not performed pursuant to the agreements and therefore its claim must fail.

The court determined that the “plain terms” of the Purchase and Sale Agreement were not as clear and ambiguous Alcoa suggested. Indeed, another section of the Purchase and Sales Agreement provided that Alcoa would pay up to $2.5 million for the cost of disposing contaminated material at the site. And, as noted above, the Purchase and Sales Agreement did not release Alcoa if it was in default of any payment obligation. Alcoa admitted that it had not made this payment, but argued that it could not be in default because North River had never requested this payment nor notified Alcoa of any default. The court found that it could not “divine” from the pleadings, the agreements, or from the parties’ representations whether Alcoa was in default, and therefore held that discovery was necessary to determine the “threshold question” of whether Alcoa was in default of its payment obligations. This threshold question could prove to be a double whammy – if Alcoa is found to be in default, it appears that it could be liable for the $2.5 million under the Purchase and Sales Agreement as well as contribution to the other parties in the case.