Smith Land & Imp. Corp. v. Celotex Corp.

• Citation: 851 F.2d 86
• Decision Date: 01 August 1988
• Docket Number: 87-5741,Nos. 87-5740,RAPID-AMERICAN,s. 87-5740
• Parties: , 57 USLW 2031, 18 Envtl. L. Rep. 21,026 SMITH LAND & IMPROVEMENT CORPORATION, Appellant in 87-5740, v. The CELOTEX CORPORATION. SMITH LAND & IMPROVEMENT CORPORATION, Appellant in 87-5741, v.CORPORATION.
• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)

Page 86

851 F.2d 86

28 ERC 1083, 57 USLW 2031, 18 Envtl.

L. Rep. 21,026

SMITH LAND & IMPROVEMENT CORPORATION, Appellant in 87-5740, v. The CELOTEX CORPORATION.

SMITH LAND & IMPROVEMENT CORPORATION, Appellant in 87-5741, v. RAPID-AMERICAN CORPORATION.

Nos. 87-5740, 87-5741.

United States Court of Appeals, Third Circuit.

Argued March 9, 1988.

Decided June 30, 1988.

Rehearing In Banc Denied Aug. 1, 1988.

R. Stephen Shibla (argued), Joel R. Burcat, Donna M.J. Clark, Rhoads & Sinon, Harrisburg, Pa., for Smith Land & Imp. Corp.

Gilbert F. Casellas (argued), Judith B. Wait, Montgomery, McCracken, Walker & Rhoads, Philadelphia, Pa., for appellees The Celotex Corp. and Rapid-American Corp.

Roger J. Marzulla, Acting Asst. Atty. Gen., Robert L. Klarquist, Elizabeth Ann Peterson, Dept. of Justice, Land & Natural Resources Div., Washington, D.C., for amicus curiae U.S.

Before WEIS, GREENBERG and ALDISERT, Circuit Judges.

OPINION OF THE COURT

WEIS, Circuit Judge. ^*

This is a suit by a purchaser of land seeking contribution toward expenses incurred in the clean-up of a hazardous waste site. The defendant invoked and the district court accepted the defense of caveat emptor. A review of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), 42 U.S.C. Secs. 9601-75, convinces us that caveat emptor, though it may affect the amount of an award, is not a permissible defense to liability. We also conclude that the general doctrine of corporate successor liability is appropriate in CERCLA contribution claims. Accordingly, we will vacate the judgment entered in favor of defendants and remand for further proceedings.

Plaintiff owns a tract of land in Plymouth Township, Pennsylvania, on which is deposited a large pile of manufacturing waste containing asbestos. In July 1984, the Environmental Protection Agency informed plaintiff that unless it took steps to alleviate the asbestos hazard the federal government would perform the work and then pursue reimbursement. Plaintiff proceeded to correct the condition to EPA's satisfaction, allegedly incurring costs of $218,945.44.

Before reaching a settlement with the EPA, plaintiff notified defendants of its intention to seek indemnification. Plaintiff asserts that defendants are corporate successors to the Philip Carey Company (Carey), which had created the large waste pile in the course of manufacturing asbestos products. Carey sold the land to the plaintiff's predecessor in 1963.

When defendants failed to accept responsibility for clean-up, plaintiff filed suit alleging causes of action under CERCLA and various state law theories including nuisance, unjust enrichment, and common law indemnity. Relying on Philadelphia Elec. Co. v. Hercules, Inc., 762 F.2d 303 (3d Cir.), cert. denied, 474 U.S. 980, 106 S.Ct. 384, 88 L.Ed.2d 337 (1985), the district court, holding that caveat emptor applied, entered summary judgment for defendants. The plaintiff's predecessor, wrote the court, "bought the land in an open, arm's-length" transaction, without concealment. "In the eyes of the law, the plaintiff calculated or must be held to have calculated the risk of future clean-up costs into the amount it was willing to pay for the land." That Hercules was precipitated by a state agency acting under state law, from the court's standpoint, did not suffice to distinguish the case from the CERCLA claim at hand.

The court noted that the plaintiff's predecessor was a sophisticated company which had inspected the land on five occasions, known of its past use, and admitted that the pile of waste was a "negative" factor in the decision to purchase the land. Despite the plaintiff's assertion that it lacked knowledge about the hazards of asbestos, the court concluded that the "price plaintiff paid for the land reflected the possibility of environmental risks."

Plaintiff does not now challenge the rulings on the state claims, but appeals only the judgment entered on the federal claim. Plaintiff argues that CERCLA permits only limited and specific defenses and that "caveat emptor" is not among them. Defendants respond that they never owned or conducted any operation on the property and hence cannot be liable. In the alternative, defendants argue that if found responsible on a theory of successor liability, then they may assert the caveat emptor defense against this experienced purchaser.

I.

A number of CERCLA's provisions are pertinent here. Section 9607(a) provides that:

"Notwithstanding any other provision or rule of law, and subject only to the defenses set forth in subsection (b) of this section--

(1) the owner and operator of a ... facility, [and]

(2) any person who at the time of disposal of any hazardous substance owned or operated any facility at which such hazardous substances were disposed of ...

* * *

* * *

shall be liable for--

(A) all costs of ... remedial action incurred by the United States Government or a State ...

(B) any other necessary costs of response incurred by any other person consistent with the national contingency plan...."

42 U.S.C. Sec. 9607(a). Subsection (b) lists available defenses as an act of God, an act of war, or an act or omission of a third party (other than employees or agents of the defendants or in certain contractual relationships with them). Id. Sec. 9607(b).

Section 9613(f)(1) provides that "[a]ny person may seek contribution from any other person who is liable ... under section 9607(a)." Such claims "shall be governed by Federal law." In resolving contribution claims, "the court may allocate response costs among liable parties using such equitable factors as the court determines are appropriate." Id. Furthermore, a person "who has resolved its liability to the United States ... for some or all of a response action ... in an administrative or judicially approved settlement may seek contribution from any person who is not party to a settlement." Id. Sec. 9613(f)(3)(A).

In short, the current owner of a facility as well as the entity that owned the facility at the time the hazardous substance was deposited are liable under CERCLA for the expense of rectifying the condition. The statute does not list caveat emptor as a defense against initial liability. Contribution may be enforced against one who is liable under the Act, but a court may utilize equitable factors in determining the amount allocated.

Setting aside complicating factors for the moment, if defendants had deposited hazardous substances on the land after passage of CERCLA and thereafter sold the tract, then plaintiff could recover an amount deemed equitable for proper expenses in abating the hazardous situation. On this premise, we review the facts and holding in Hercules.

In that case, the state required the landowner to stop the leaching of polluting chemicals from its property in violation of the Pennsylvania Clean Streams Law, Pa.Stat.Ann. tit. 35, Sec. 691 (Purdon 1977 & 1988 Supp.). Having expended substantial sums to comply with state law, the current owner sought indemnification from the successor corporation of the entity that had deposited the offending substances.

We proceeded on the assumption that the parties to the suit acted in the capacity of vendor and vendee of land. We held that under Pennsylvania law the plaintiff had no standing to sue for public nuisance, that caveat emptor barred recovery on a private nuisance theory, and that "essentially the same policy considerations that counsel adherence to the rule of caveat emptor in this situation militate against shifting the loss to [the defendants] on an indemnity theory." Hercules, 762 F.2d at 316, 318.

The record there showed that the plaintiff had carefully inspected the land before purchase and had inquired into its past use. We found it "inconceivable that the price it offered ... did not reflect the possibility of environmental risks." Id. at 314.

"Where, as here, the rule of caveat emptor applies, allowing a vendee a cause of action for private nuisance for conditions existing on the land transferred--where there has been no fraudulent concealment--would in effect negate the market's allocations of resources and risks, and subject vendors who may have originally sold their land at appropriately discounted prices to unbargained-for liability to remote vendees."

Id. at 314-15.

The ruling in Hercules is distinguishable in several significant aspects. Defenses available under state common law are not necessarily allowed by the federal statute. As noted above, CERCLA provides explicitly that contribution claims shall be governed by federal law. The decisions we reached in Hercules sitting in diversity, therefore, cannot be transplanted to a CERCLA claim as a matter of course.

The defenses enumerated in section 9607(b) are not exclusive in suits for contribution. Other sections suggest additional defenses in a broad sense; for example, the Act limits to three years the period in which an action may be brought, 42 U.S.C.A. Sec. 9613(g) (1983 & 1988 West Supp.). A party which has resolved its liability to the government is not liable for contribution; the settlement may reduce the claim pro tanto. See id. Sec. 9613(f)(2). In addition, agreements to indemnify or hold harmless are enforceable between the parties but not against the government. See id. Sec. 9607(e). Moreover, the defenses in section 9607(b) coexist with equitable considerations that may mitigate damages. See H.R.Rep. No. 253(I), 99th Cong., 1st Sess. 1, 80 (1985), reprinted in 1986 U.S.Code Cong. & Admin.News 2835, 2862. See generally Belthoff, Private Cost Recovery Actions Under Section 107 of CERCLA, 11 Colum.J.Envtl.L. 141, 183 (1986).

Although not a defense to a government suit for clean-up costs, caveat emptor if applied between private parties arguably would not contradict the statutory text. Several considerations, however, lead us to conclude that this venerable doctrine is not in keeping with the policies underlying CERCLA....