Emhart Industries, Inc. v. Duracell Intern. Inc.

• Decision Date: 02 July 1987
• Docket Number: 1-85-0088.,No. 1-85-0055,1-85-0055
• Citation: 665 F. Supp. 549
• Parties: EMHART INDUSTRIES, INC., Plaintiff, v. DURACELL INTERNATIONAL INC., and Dart Industries, Inc., Defendants. DURACELL INTERNATIONAL INC., Plaintiff, v. EMHART INDUSTRIES, INC., Defendant.
• Court: U.S. District Court — Middle District of Tennessee

665 F. Supp. 549

EMHART INDUSTRIES, INC., Plaintiff, v. DURACELL INTERNATIONAL INC., and Dart Industries, Inc., Defendants.

DURACELL INTERNATIONAL INC., Plaintiff, v. EMHART INDUSTRIES, INC., Defendant.

Nos. 1-85-0055, 1-85-0088.

United States District Court, M.D. Tennessee, Columbia Division.

July 2, 1987.

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John L. Chambers, Chambers Wyckoff & Beckner, Nashville, Tenn., for plaintiff in 1-85-0055.

Leonard Rivkin, Stanley Pierce, Joseph Ortego, Michael R. Adams, Rivkin, Radler, Dunne & Bayh, Uniondale, N.Y., M. Clark Spoden, Dearborn & Ewing, Nashville, Tenn., for defendants in 1-85-0055.

Warren S. Radler, Rivkin, Radler, Dunne & Bayh, Chicago, Ill., for Emhart.

James D. Miller, King & Spalding, Washington, D.C., for plaintiff in 1-85-0088.

Raymond L. Falls, Jr., David R. Hyde, Eric Hellerman, Cahill, Gordon & Reindel, New York City, for defendant in 1-85-0088.

MEMORANDUM

WISEMAN, Chief Judge.

This is a breach of contract case that involves the sale of the Mallory Components Group by Duracell International Inc. (Duracell) to Emhart Industries, Inc. (Emhart). Some of the facilities transferred in the sale are contaminated with toxic substances: polychlorinated biphenyls (PCBs) and trichloroethylene (TCE). Both the policies of contract law — the law of private ordering — and the policies of environmental law — the protection of the public and of natural resources — are at issue. The Court ordered the trial of this case bifurcated into separate liability and damages trials to the Court. For the reasons that follow the Court holds that Duracell and Dart are liable to Emhart for the cost of clean-up of the facilities and equipment transferred in the sale, for the consequential damages measured by the time necessary to effect a clean-up, for the costs attendant to enforcing the contract, and for some portion of the costs of the third party actions. The Court also holds that Duracell is liable to Emhart for CERCLA response costs.

I. Procedural Background

The case before the Court is actually two consolidated actions. Emhart Industries, Inc. v. Duracell International Inc. and Dart Industries, Inc. was filed in the United States District Court for the District of Connecticut. That action seeks damages for breach of contract, fraud, negligent misrepresentation, nuisance, violation of the Connecticut Unfair Trade Practices Act (CUTPA),¹ and violation of the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA);² it also seeks a declaratory judgment under CERCLA and the sales contract. Duracell, Inc. v. Emhart Industries, Inc. was filed in the United States District Court for the Middle District of Tennessee. It seeks a declaratory judgment under the Toxic Substances Control Act (TSCA)³ and regulations related to TSCA.⁴

By agreement of the parties the Connecticut action was transferred to Tennessee.⁵ The two actions were then consolidated by the Court. No party requested a jury and in the interests of judicial economy the Court bifurcated the case. Fed.R.Civ.P. 42(b). The liability phase of the trial began on December 15, 1986. The stipulated questions submitted to the Court were

(a) whether Duracell or Dart or both of them are liable to Emhart on Counts I to VII, inclusive, of Emhart's Complaint and

whether the affirmative defenses asserted by Dart or Duracell have merit including any related to the use of trichloroethylene;

(b) whether Emhart is entitled to the declaratory judgment Emhart prays for on page 42 of its complaint CERCLA and breach of contract; and

(c) whether Duracell or Dart or both of them are entitled to the declaratory judgment prayed for in their complaint TSCA.⁶

The amount, basis, and method of calculation of Emhart's damages including consistency with the National Contingency Plan⁷ under CERCLA and including the quantum exacerbation by the use of TCE were reserved for the damages trial.

II. Findings of Fact

A. Parties

The parties to this lawsuit are large corporations. Emhart is a Connecticut corporation with its principal place of business in Farmington, Connecticut. Emhart manufactures and distributes a wide variety of products throughout the world.

Dart is a Delaware corporation with its principal place of business in Northbrook, Illinois. Dart manufactures and sells consumer and specialty products. Duracell is a wholly-owned subsidiary of Dart.⁸

Duracell is the current name of a company that Dart acquired in late 1978 and early 1979: P.R. Mallory & Co. Inc. P.R. Mallory was an electronics company that made batteries and electrical components.⁹ In July 1979 Emhart bought the P.R. Mallory facilities that made components: Mallory Capacitor Company, Mallory Timers Company and Mallory Control Company. Together these companies were known as the Mallory Components Group. In February 1980 the remaining part of P.R. Mallory adopted the name Duracell.¹⁰

B. The Sale

In July, 1979, Duracell and Emhart reached an agreement in principle for the sale of the Mallory Components Group. Among the assets to be acquired were three manufacturing plants and a headquarters complex. The three plants were located at Waynesboro, Tennessee; Glasgow, Kentucky; and Greencastle, Indiana. The headquarters complex was in Indianapolis, Indiana. During the negotiations Emhart learned that PCBs had been used in the manufacture of capacitors¹¹ at Waynesboro.¹² Emhart also learned during the negotiations that Duracell was storing PCBs in drums in a building at Waynesboro, and in an underground storage tank there. This tank leaked. PCBs were also discovered in the former boiler room in a subbasement area that was subject to ground water flooding. The parties have stipulated that the use of PCBs before Emhart purchased the plant led to PCB contamination on the floor, roof and ground. Emhart insisted on some contractual protections from liability for PCBs. Emhart also required as a condition precedent to the sale a guarantee of Duracell's promises by Dart.

Emhart drafted the PCB provisions of the purchase agreement. Gregg Dwyer, an officer of Duracell and an attorney licensed to practice law in Indiana, acted as principal attorney for Duracell in the sales negotiations. Mr. Dwyer testified that he had attempted to negotiate some changes in the PCB provisions of the purchase agreement: "I argued for a change to the PCB provisions in the agreement with Emhart's lawyers." T. 553:20-21. He also testified that part of Duracell's reason for accepting the terms was that the agreement "while less than desirable, could be lived with," T. 556:3, and that he saw the deal as remaining advantageous despite the liabilities Duracell and Dart were assuming. T. 556:9-14.

The Purchase Agreement contains numerous provisions concerning PCBs. On page 2, in section 3 Business and Assets to be Transferred, the following paragraph appears:

Notwithstanding any provision in this Agreement to the contrary, the business and assets of the Mallory Components Group to be transferred to Purchaser shall not include any raw materials, inventory, finished goods, work in process, scrap or waste containing or contaminated with any chemical substance containing polychlorinated biphenyls (PCB) located at Seller's Waynesboro, Tennessee plant (the "PCB Materials").

On page 9, as part of section 6, Assumption of Certain Liabilities by Purchaser, the Purchase Agreement states:

Anything in this Agreement to the contrary notwithstanding, it is expressly understood and agreed that the Purchaser does not assume or agree to be responsible for, and Seller hereby agrees to indemnify and hold Purchaser harmless from and against any and all claims, obligations and liabilities and all costs, expenses and attorneys' fees incurred, based upon or arising out of:

. . . . .

(g) Any obligation, liability, loss, damage or expense, of whatever kind or nature, contingent or otherwise, known or unknown, incurred under, or imposed by, any provision of Federal, state or local law or regulation, or common law, pertaining to health, safety or environmental protection and arising out of any act or omission by Seller, its employees or representatives prior to the Closing Date, including without limitation, such laws or regulations pertaining to the storage, transportation, handling, disposal, discharge, presence or use of polychlorinated biphenyls (PCB) or any substance containing PCBs.

In addition, Seller expressly accepts sole responsibility for any raw materials, inventory, finished goods, work in process, scrap, waste, residue or discharge containing or contaminated with PCBs or any substance containing PCBs which Seller has not removed from any premises of the Mallory Components Group as of the Closing Date. At the Closing, Seller agrees to deliver to Purchaser the absolute and unconditional guarantee by Dart Industries Inc. of Seller's obligations as set forth in this subsection (g).

It is understood and agreed that the obligation of each party to indemnify and hold harmless the other party as set forth in this Section 6 shall survive the Closing and shall be a continuing obligation not subject to any of the limitations set forth in Section 26 below.

Section 10 Representatins and Warranties of Seller states:

Seller represents and warrants that, except as provided on the exhibits attached hereto, the numbers of which correspond to the numbers of the applicable subsections contained herein:

. . . . .

(aa) Except as listed in Exhibit 10(aa), the operations of the Mallory Components Group are to Seller's knowledge in compliance with all applicable state and federal laws and regulations pertaining to health, safety or environmental protection. Exhibit 10(aa) also sets forth with respect to the operations of the Mallory Components Group to be purchased hereunder all locations at which polychlorinated biphenyls (PCB) or any substance containing PCBs have at any time

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