PMC, Inc. v. Sherwin-Williams Co.

• Decision Date: 30 July 1998
• Docket Number: 97-3773,Nos. 97-2884,SHERWIN-WILLIAMS,s. 97-2884
• Parties: , 28 Envtl. L. Rep. 21,568 PMC, INC., Plaintiff-Appellee, v.COMPANY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 610

151 F.3d 610

47 ERC 1185, 28 Envtl. L. Rep. 21,568

PMC, INC., Plaintiff-Appellee, v. SHERWIN-WILLIAMS COMPANY, Defendant-Appellant.

Nos. 97-2884, 97-3773.

United States Court of Appeals, Seventh Circuit.

Argued Feb. 25, 1998.

Decided July 30, 1998.

Kenneth T. Kristl, Timothy Rooney, Jane D. Pigott (argued), Winston & Strawn, Chicago, IL, for Plaintiff-Appellee in docket 97-2884.

T. Timothy Eaton (argued), Ungaretti & Harris, Chicago, IL, for Defendant-Appellant.

Stephen A. K. Palmer, Jenner & Block, Chicago, IL; Jane D. Pigott (argued), Winston & Strawn, Chicago, IL; Nancy MacKimm, Jones, Day, Reavis & Pogue, Chicago, IL, for Plaintiff-Appellee in docket 97-3773.

Before POSNER, Chief Judge, and WOOD, JR., and DIANE P. WOOD, Circuit Judges.

POSNER, Chief Judge.

In 1985, PMC, the plaintiff in this toxic-waste suit, bought from the defendant, Sherwin-Williams, a plant on the south side of Chicago in which Sherwin-Williams had been manufacturing paints, insecticides, and other chemicals for a century or so. Since 1992, PMC has been required by Illinois' environmental protection agency to clean up toxic waste discovered at the site, and it faces the prospect of future costs in an unknown amount to comply fully with the agency's demands. On the authority of sections 107(a) and 113(f)(1) of CERCLA (Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. §§ 9607(a), 9613(f)(1)); RCRA (Resource Conservation and Recovery Act, 42 U.S.C. §§ 6900 et seq.), and the Illinois Contribution Act, 740 ILCS 100/1 et seq., PMC seeks to recover from Sherwin-Williams both the costs that it has incurred and the costs that it will incur. After a bench trial, the district judge awarded essentially all the relief asked for by PMC, including recovery of past costs under the state statute and of future costs under CERCLA; an injunction, largely duplicative of the CERCLA relief, under RCRA directing Sherwin-Williams to assume full responsibility for cleaning up the site; and an award under RCRA of PMC's attorney's fees allocable to obtaining the injunction. Basically, the fight is over five clean ups that PMC has already conducted, one costly environmental site-assessment that it conducted in advance of the clean ups, and the costs of whatever future clean ups PMC may be required to conduct.

Both companies, as respectively the owner of the polluted site and the former owner who polluted it, are liable under CERCLA (see 42 U.S.C. § 9607(a)) and other environmental statutes for the expense of cleaning up the site. Parties are free, however, to allocate such expenses between themselves by contract. See, e.g., 42 U.S.C. § 9607(e)(1); Truck Components Inc. v. Beatrice Co., 143 F.3d 1057, 1059 (7th Cir.1998); Kerr-McGee Chemical Corp. v. Lefton Iron & Metal Co., 14 F.3d 321, 327 (7th Cir.1994). Some cases add that the contract must do this "clearly" to be enforceable. Olin Corp. v. Yeargin Inc., 146 F.3d 398, 407-08 (6th Cir.1998); Lion Oil Co. v. Tosco Corp., 90 F.3d 268, 270 (8th Cir.1996); Tippins Inc. v. USX Corp., 37 F.3d 87, 91-92 n. 4 (3d Cir.1994). The statutes don't say this; nor has this court said it; but the cases we have cited note that contracts by which a tortfeasor seeks to shift the financial responsibility for his torts to another person (unless the other person is an insurance company!) are generally construed narrowly.

Sherwin-Williams does not question this principle of interpretation or its application to CERCLA, and so we need not pursue the matter further. It argues that the contract of sale did clearly allocate to PMC all clean-up costs that accrued more than two years after the sale. It points to a clause which provides that "all representations, warranties, covenants and obligations contained in this Agreement shall terminate twenty-four (24) months after the Closing Date." The district judge, however, pointed to another provision of the contract: "S-W expressly recognizes its responsibility for the following matters"--and the matters then set forth include all environmental harms resulting from toxic waste activities at the site before the sale. The judge found no ambiguity in the language of the contract that would justify taking evidence to determine whether the 24-month cut-off might apply to liability for toxic wastes; he thought it evident from the "expressly recognizes" clause that it did not.

We think he was right. Read naturally, the cutoff provision refers to obligations created by the contract itself, such as warranties, rather than to obligations created by law. The former are obligations "contained" in the contract; the latter are not. Sherwin-Williams didn't want PMC to be bringing a suit for breach of warranty many years after the sale; hence the two-year cut-off. But by the same token PMC didn't want to be stuck with the liabilities that Sherwin-Williams had incurred as a result of operating a chemical plant. Applying the two-year cut-off to Sherwin-Williams's statutory obligations would extinguish PMC's legal rights to obtain from its seller a sharing of the costs of whatever clean-up duties the environmental protection authorities might impose on it. It could be argued that Sherwin-Williams would be unlikely to write PMC a blank check for the cost of cleanup, lest PMC decide to make the site superclean. But against this it could be argued that Sherwin-Williams probably knew better than PMC how polluted the site was and hence could better estimate the cost of cleaning it up, especially since Sherwin-Williams retained ownership of a property, for which it had clean-up responsibilities, contiguous to the property that it sold to PMC. These speculative arguments cancel, leaving us with contractual language unambiguously supportive of PMC's interpretation.

Sherwin-Williams wants to introduce evidence that would create an ambiguity. The doctrine of extrinsic (or latent) ambiguity on which it relies (a doctrine that is a part of Ohio law, which the contract provides shall govern any disputes arising under it) rests on a recognition that a contract which might appear to be perfectly clear to someone who read it in ignorance of its context might, once context was restored, seem either unclear, or clear the opposite way. E.g., Graham v. Drydock Coal Co., 76 Ohio St.3d 311, 667 N.E.2d 949, 952 (1996); Shifrin v. Forest City Enterprises, Inc., 64 Ohio St.3d 635, 597 N.E.2d 499, 501 (1992); Mathews v. Sears Pension Plan, 144 F.3d 461, 466 (7th Cir.1998); Pierce v. Atchison, Topeka & Santa Fe Ry., 65 F.3d 562, 568 (7th Cir.1995). For example, if the contract used common words in a technical sense, as in Mathews v. Sears Pension Plan, supra, 144 F.3d at 466-67; AM Int'l, Inc. v. Graphic Management Associates, Inc., 44 F.3d 572, 575 (7th Cir.1995), and Kerin v. U.S. Postal Service, 116 F.3d 988, 992 and n. 2 (2d Cir.1997), a judge who, ignorant of the technical meaning, took the ordinary to be the intended meaning would be fooled. He would be like a judge who tried to interpret a contract written in French without knowing the French language.

But if the doctrine of extrinsic ambiguity were stretched too far, an important function of a written contract--protecting the parties from the vagaries of a judge's or a jury's weighing of the parties' self-serving testimony as to what they really meant (opposite to what the contract, seemingly clearly, said)--would be thwarted. This is why, to be admissible to create an ambiguity in a clear-seeming written contract, the extrinsic evidence must be objective. Mathews v. Sears Pension Plan, supra, 144 F.3d at 467; Home Ins. Co. v. Chicago & Northwestern Transportation Co., 56 F.3d 763, 768-70 (7th Cir.1995); AM Int'l, Inc. v. Graphic Management Associates, Inc., supra, 44 F.3d at 575. That is, it must be evidence from which an inference about the parties' intentions in making the contract can be drawn with considerably greater confidence than if the parties were merely testifying to their private understandings of what the contract meant but failed to say. See Pierce v. Atchison, Topeka & Santa Fe Ry., supra, 65 F.3d at 568; Home Ins. Co. v. Chicago & Northwestern Transportation Co., supra, 56 F.3d 763, 768. Evidence of trade usage satisfies this criterion because it can be given by people who neither are, nor have any relation to, the parties to the contract. An admission would likewise satisfy the criterion of objectivity.

But it is not enough that a party has some objective evidence to offer on the meaning of the contract. The evidence must create a sufficient doubt about what the contract means to warrant submitting that meaning to determination by a trial, notwithstanding the apparent clarity of the written word. The three bits of evidence sought to be introduced by Sherwin-Williams do not satisfy this test. Cf. Mathews v. Sears Pension Plan, supra, 144 F.3d at 467. The first is a letter from the lawyer for PMC who drafted the contract to an employee of Sherwin-Williams suggesting that the cut-off provision be amended to include an express disclaimer that the provision applies to common law or statutory obligations. The disclaimer was not included in the contract--but for all that anyone knows it was omitted merely as being unnecessary in light of the actual wording of the cut-off ("obligations contained in this Agreement") and retained-liabilities provisions. Second, an expert witness offered to testify that disclaimers of environmental liability were common at the time the contract was made. This says nothing about whether this particular contract contained such a disclaimer. Third, an executive testified that over the course of negotiating the contract the purchase price was cut in half in recognition of Sherwin-Williams's disclaimer of environmental liabilities. This is just the kind of self-serving testimony that the extrinsic-ambiguity doctrine does not permit-the uncorroborated testimony of one of the parties about...