Mardan Corp. v. C.G.C. Music, Ltd.

• Decision Date: 25 November 1986
• Docket Number: No. 85-1520,85-1520
• Citation: 804 F.2d 1454
• Parties: , 55 USLW 2306, 17 Envtl. L. Rep. 20,209 MARDAN CORPORATION, Plaintiff-Appellant, v. C.G.C. MUSIC, LTD. and Macmillan, Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1454

804 F.2d 1454

25 ERC 1273, 55 USLW 2306, 17 Envtl.

L. Rep. 20,209

MARDAN CORPORATION, Plaintiff-Appellant, v. C.G.C. MUSIC, LTD. and Macmillan, Inc., Defendants-Appellees.

No. 85-1520.

United States Court of Appeals Ninth Circuit.

Argued Aug. 14, 1985.

Submitted Aug. 30, 1985.

Decided Nov. 25, 1986.

Karen L. Florini, Dept. of Justice, Washington, D.C., Renee R. McDermott, Barnes & Thornburg, Indianapolis, Ind., for plaintiff-appellant.

Warren S. Radler, Barbara B. Guibord, Rivkin, Leff, Sherman & Radler, Chicago, Ill., for defendants-appellees.

Appeal from the United States District Court for the District of Arizona.

Before HUG, NORRIS and REINHARDT, Circuit Judges.

NORRIS, Circuit Judge:

This appeal concerns the liability provisions of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), 42 U.S.C. Sec. 9601-9657 (1982), which was enacted in 1980. CERCLA was a response by Congress to the threat to public health and the environment posed by the widespread use and disposal of hazardous substances. Its purpose was to ensure the prompt and effective cleanup of waste disposal sites, and to assure that parties responsible for hazardous substances bore the cost of remedying the conditions they created. 126 Cong.Rec. 31964 (statement of Rep. Florio).

Section 107(a) of CERCLA, 42 U.S.C. Sec. 9607(a), authorizes both governmental and private entities to sue statutorily defined "responsible parties" to recover costs incurred in cleaning up hazardous waste disposal sites. The appeal arises out of a suit brought by one private responsible party against another to recover damages for costs incurred in cleaning up and closing a waste disposal site in Nogales, Arizona, that was subject to regulation under the Resource Conservation and Recovery Act (RCRA), 42 U.S.C. Sec. 6901-6987 (1982).

I

By agreement dated July 10, 1980 (the "Purchase Agreement"), appellant Mardan Corporation ("Mardan") acquired certain assets from appellee Macmillan, Inc. ("Macmillan"). ¹ Among the assets acquired were a plant, equipment and related real property in Nogales, Arizona, used in the manufacture of musical instruments.

Macmillan had manufactured instruments at the Nogales plant for ten years prior to the sale. During that period, Macmillan deposited waste streams from the plant's electroplating operations into a settling pond at the site. Wastes deposited into the settling pond included heavy metals, cyanide, solvents including trichloroethylene and other electroplating wastes. When Mardan acquired the property, it continued to use the plant to manufacture musical instruments, generating many of the same wastes and depositing them in the same settling pond.

In August 1980, prior to the sale of the Nogales plant, Macmillan filed with the United States Environmental Protection Agency ("EPA") a Notification of Hazardous Waste Activity notifying EPA that it generated and disposed of hazardous waste at the plant. When Mardan acquired the plant in November 1980, it qualified for interim status for the settling pond pursuant to RCRA. ²

In November 1981, the parties executed an "Agreement of General Settlement and Release" ("Settlement Agreement") under which Macmillan paid Mardan $995,000 in settlement of a variety of claims arising out of the Purchase Agreement, including claims of former plant employees for vacation and severance pay, various accounts receivable, and "certain other claims ... based upon or arising out of the Purchase Agreement and the transactions contemplated therein." The parties specified that $213,944 of the $955,000 related to liabilities for severance and vacation pay, while the remaining $781,055 related to "other claims asserted under the Purchase Agreement." The language of the Settlement Agreement and the accompanying "General Release and Receipt" (the "Release") encompassed "all actions, causes of action, suits, ... based upon, arising out of or in any way relating to the Purchase Agreement...."

In 1983 the EPA brought administrative enforcement actions against Mardan for violation of the RCRA interim status requirements at the Nogales plant. The administrative actions were resolved by a Consent Agreement between the EPA and Mardan which required Mardan to clean up and close the settling pond. Specifically, Mardan agreed to install a groundwater monitoring system and to raise the level of the dike surrounding the settling pond.

Mardan then brought this action against Macmillan under section 107 of CERCLA, seeking to recover damages for costs incurred and to be incurred by Mardan in cleaning up and closing the waste disposal site. Mardan's complaint alleged that the cost of complying with the Consent Agreement would exceed $500,000 and could run as high as $1,550,000.

The district court granted summary judgment to Macmillan. Although the court ruled that the costs incurred by Mardan in cleaning up and closing the Nogales site constituted "necessary costs of response" within the meaning of section 107(a)(4)(B) of CERCLA and that Macmillan was liable for the response costs incurred by Mardan because it was a "responsible party" within the meaning of section 107(a), it awarded Macmillan summary judgment on two alternative grounds: (1) that Mardan's action under section 107 of CERCLA was barred by the terms of the Release executed by Mardan as part of the 1981 Settlement Agreement, and (2) that Mardan's action was barred by the doctrine of unclean hands. Mardan Corp. v. C.G.C. Music, Ltd., 600 F.Supp. 1049 (D.Ariz.1984).

The district court had subject matter jurisdiction under section 113 of CERCLA, 42 U.S.C. Sec. 9613 (1982). Our jurisdiction rests on 28 U.S.C. Sec. 1291. Because we affirm the summary judgment on the ground that Mardan's CERCLA action is barred by the terms of the Settlement Agreement and the Release, we need not decide whether the doctrine of unclean hands may be invoked as a defense to a private action brought under Section 107 of CERCLA. ³ We review the district court's grant of summary judgment de novo. Lojek v. Thomas, 716 F.2d 675, 677 (9th Cir.1983). Summary judgment is appropriate only if, "viewing the evidence in the light most favorable to the opposing party, ... there is no genuine issue of material fact and the moving party is entitled to a judgment as a matter of law." Id.

II

Before deciding whether Mardan's action under section 107 of CERCLA is foreclosed by the Settlement Agreement and the Release, we must first consider whether the district court was correct in utilizing New York law as the rule of decision or whether it should have developed a uniform federal rule to decide the issue. From the outset, we must be clear that federal law governs the issue, for federal law always governs the validity of releases of federal causes of action. See Dice v. Akron, Canton & Youngstown R.R. Co., 342 U.S. 359, 361, 72 S.Ct. 312, 314, 96 L.Ed. 398 (1952); Salmeron v. United States, 724 F.2d 1357, 1361 (9th Cir.1983); Jones v. Taber, 648 F.2d 1201, 1203 (9th Cir.1981). But that is only the initial step in the analysis. The next step is to determine whether, although federal law governs, state law should be incorporated to provide the content of that federal law. See, e.g., Burks v. Lasker, 441 U.S. 471, 477, 99 S.Ct. 1831, 1836, 60 L.Ed.2d 1404 (1979); United States v. Kimbell Foods, 440 U.S. 715, 727-28, 99 S.Ct. 1448, 1457-58, 59 L.Ed.2d 711 (1979). Clearly the fact that federal law governs does not always mean that federal courts should fashion a uniform federal rule, even if the federal question involves the scope of a federal statutory right or the interpretation of a phrase in a federal statute. See, e.g., Burks, 441 U.S. at 477, 99 S.Ct. at 1836; DeSylva v. Ballentine, 351 U.S. 570, 580-81, 76 S.Ct. 974, 979-80, 100 L.Ed. 1415 (1956); Reconstruction Finance Corp. v. Beaver County, 328 U.S. 204, 209-10, 66 S.Ct. 992, 995, 90 L.Ed. 1172 (1946). Frequently, state rules of decision will furnish an appropriate and convenient measure of the governing federal law. See Kimbell Foods, 440 U.S. at 728, 99 S.Ct. at 1458; DeSylva, 351 U.S. at 580-81, 76 S.Ct. at 980-81; P. Bator, P. Mishkin, D. Shapiro & H. Wechsler, Hart and Wechsler's The Federal Courts and the Federal System 768 (1953).

In a case such as this one, which implicates a federal statute, the predominant consideration must be Congressional intent: the key question is whether Congress intended federal judges to develop their own rules or to incorporate state law to decide which "agreement[s]" would be recognized under section 107(e)(1). Cf. Burks, 441 U.S. at 478, 99 S.Ct. at 1837 (looking at what Congress indicated); DeSylva, 351 U.S. at 580, 76 S.Ct. at 980 (looking to legislative scheme). If Congress had explicitly directed federal judges either to develop uniform federal standards or to adopt state law, then the issue would be settled. See Kimbell Foods, 440 U.S. at 740, 99 S.Ct. at 1464 (noting that the Court's conclusion under the three-part test it applied could be altered by "congressional directive."). In the absence of some clear congressional intent, a court must also decide whether formulating a federal rule would be appropriate as a matter of judicial policy under the three-part test established by Kimbell Foods. Under that test, a court must determine the following: (1) whether the issue requires "a nationally uniform body of law"; (2) "whether application of state law would frustrate specific objectives of the federal programs"; and (3) whether "application of a federal rule would disrupt commercial relationships predicated on state law." Id. at 728-29, 99 S.Ct. at 1458-59 (consolidating various lines of authority into one test). If the federal courts determine that state law should be incorporated as a general matter, this does not necessarily mean that each and every state rule must be adopted--federal courts should still reject specific state rules that are...