In re Hemingway Transport, Inc., Civ. A. No. 90-12408-Z.
| Decision Date | 26 March 1991 |
| Docket Number | Civ. A. No. 90-12408-Z. |
| Parties | In re HEMINGWAY TRANSPORT, INC., and Bristol Terminals, Inc. WOBURN ASSOCIATES v. Herbert C. KAHN, Trustee for Hemingway Transport, Inc. and Bristol Terminals, Inc. |
| Court | U.S. District Court — District of Massachusetts |
Thomas V. Urmy, Jr., Michelle H. Blauner, Shapiro, Grace & Haber, Boston, Mass., for Woburn Associates, appellant.
William Francis Macauley, Martin P. Desmery, Craig & Macauley, Boston, Mass., for Herbert C. Kahn, Trustee for Hemingway Transport, Inc., and Bristol Terminals, Inc., appellee.
Louis N. Massery, Cooley, Manion, Moore & Jones, Boston, Mass., for Juniper Development Group, appellee.
This appeal and cross-appeal arise out of an adversary proceeding commenced in Bankruptcy Court, wherein Herbert C. Kahn, Trustee of Hemingway Transport, Inc. and Bristol Terminals, Inc. (collectively "Hemingway"), filed a third-party complaint against Woburn Associates for contribution under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA"), 42 U.S.C. § 9606(a) (1988). Woburn in turn filed a counterclaim against the Trustee for indemnification under a pre-petition lease agreement.
The undisputed facts are as follows: In June of 1974, Woburn, through its nominee, Burnwo Realty, Inc., purchased property located at 60 Olympia Avenue, Woburn, Massachusetts (the "Property") from an affiliate of Hemingway. Under an agreement dated June 26, 1974 (the "Lease"), Burnwo immediately leased the property back to Hemingway and then sold it to Woburn subject to the Lease. On July 29, 1980, Woburn conveyed the Property to Bristol, a wholly owned subsidiary of Hemingway. In connection with that sale, Bristol executed and delivered to Woburn a note in the amount of $100,000 plus interest, and granted Woburn a second mortgage on the Property.
In July 1982, Hemingway and Bristol filed for bankruptcy under Chapter 11 of the Bankruptcy Code. The cases were converted to Chapter 7 in November, 1983. In April, 1983, Hemingway sold the Property to Juniper Development Group.
On February 7, 1986, the United States Environmental Protection Agency issued an order pursuant to section 106(a) of CERCLA, directing Juniper to remove certain drums containing hazardous waste from the Property. Juniper complied with the order. In May of that year, Juniper brought suit against the Trustee seeking reimbursement or contribution under CERCLA for the cost of removing the drums. The Trustee, in turn, filed a third party complaint against Woburn on September 28, 1987 for contribution under CERCLA. Woburn answered the Trustee's third-party complaint and filed a two-count counterclaim. In its counterclaim, Woburn asserted (1) that it was entitled to be indemnified for all attorneys' fees and response costs by the Chapter 7 Trustee under the 1974 Lease, and (2) that it was entitled to damages for breach of the Lease.
Woburn subsequently filed a motion for summary judgment. On December 18, 1989, the Bankruptcy Court allowed Woburn's motion as to the Trustee's claims, holding that Hemingway "agreed in the Lease to indemnify and save harmless Woburn Associates against and from all liabilities relating to the Property ..., and that the language used by the parties evidences a clear and unequivocal intent to redistribute risks under CERCLA." In re Hemingway Transport, Inc., 108 B.R. 378 (Bankr.D.Mass.1989) (). In a decision dated July 31, 1990, the court (also on Woburn's summary judgment motion) next held that Woburn was entitled to indemnification for attorneys' fees and response costs (Count I of Woburn's counterclaim). The court ruled, however, that Woburn's claim for attorneys' fees was not entitled to administrative expense priority under the Bankruptcy Code; moreover, any claim for future response costs was disallowed pursuant to 11 U.S.C. § 502(e)(1)(B) (1988).
The Trustee appeals the December 18, 1989 decision of the court below, arguing (1) that the indemnity provisions of the Lease are inadequate to support recovery by Woburn, and (2) in any event, Woburn cannot recover on any claim arising from the Lease because it failed to file the necessary Proof of Claim against the Trustee in a timely fashion. Woburn, on the other hand, appeals the July 31 decision, specifically the Court's rulings that their claim for attorneys' fees is not entitled to administrative expense priority, and the disallowance of its claim for future response costs.
A district court, sitting in review, considers a bankruptcy court's decision to grant summary judgment de novo. In re Two "S" Corp., 875 F.2d 240, 242 (9th Cir.1989). The standard for granting summary judgment in an adversarial bankruptcy proceeding is the same as in Rule 56(c). Bankruptcy Rule 7056, 11 U.S.C. (1988). Summary judgment is appropriate if, in viewing the evidence in the light most favorable to the party opposing the motion, the court finds that there is no genuine issue of material fact. Fed.R.Civ.P. 56(c); see also General Office Prods. Corp. v. A.M. Capen's Sons, Inc., 780 F.2d 1077, 1078 (1st Cir.1986).
As a preliminary matter, it is clear that private parties may contract to transfer financial responsibilities under CERCLA. 42 U.S.C. § 9607(e)(1) (1988); Mobay Corp. v. Allied-Signal, Inc., 761 F.Supp. 345 (D.N.J.1991). Moreover, a contract signed before the enactment of CERCLA in 1980 may act to waive claims under that statute. Mobay, at 355-357. Most courts facing the issue have found that very broad contractual provisions entered into before 1980 can constitute a waiver of CERCLA liability, if the contract demonstrates a clear intent to finally settle all liability issues arising from the sale of the property in question. See, e.g., FMC Corp. v. Northern Pump Co., 668 F.Supp. 1285, 1292 (D.Minn.1987), appeal dismissed, 871 F.2d 1091 (8th Cir.1988); United States v. South Carolina Recycling & Disposal, Inc., 653 F.Supp. 984, 1011-13 (D.S.C.1984), aff'd in part and vacated in part sub nom. United States v. Monsanto Co., 858 F.2d 160 (4th Cir.1988), cert. denied, 490 U.S. 1106, 109 S.Ct. 3156, 104 L.Ed.2d 1019 (1989). On the other hand, courts have agreed that purchases of a business "as is," without more, do not demonstrate this clear intent, and therefore do not absolve a seller from CERCLA liability. See, e.g., Amland Properties Corp. v. Aluminum Co. of Am., 711 F.Supp. 784, 803 n. 20 (D.N.J.1989). Some courts have gone even further, holding that a more specifically targeted waiver of environmentally based claims is necessary to transfer CERCLA liability. See, e.g., Mobay, at 355-357. This stricter view, however, may in some situations lead to a result that does not reflect the intent of the parties. The better approach is that which allows broad, unambiguous transfers of liability to stand in those cases where the intent of the parties is clear.
The Lease in the instant case contains a very broadly worded indemnification clause. It provides, in relevant part:
In re Hemingway Transport, Inc., No. 86-1081, slip op. at 3 (Bankr.D.Mass. July 31, 1990).
The Lease does not contain any specific reference to environmentally based liability. Nevertheless, the inclusive and unequivocal language demonstrates a clear intent to transfer all liability to Hemingway. The circumstances surrounding the execution of the agreement also corroborate Woburn's interpretation of the Lease. In an uncontroverted affidavit supporting Woburn's motion, Henry Pearce (one of Woburn's former partners) describes Woburn as a partnership formed solely for the purpose of entering into a sale/leaseback transaction with Hemingway. According to Mr. Pearce, the transaction between Woburn and Hemingway was essentially a financing transaction, in which Woburn was a passive investor; at no time did Woburn use, operate or have actual control over the Property.
The Trustee also advances two related arguments regarding the indemnity provision in the Lease. First, he contends that, under the common law in Massachusetts and elsewhere, a clause exempting a lessor from liability is presumed not to apply to liability outside the scope of the landlord-tenant relationship. The cases cited by the Trustee in support of his argument do not demonstrate the existence of such a presumption. Instead, they focus on the landlord-tenant relationship as evidence of the intent of the parties. That is, courts will define an indemnity agreement of uncertain scope with an eye toward the "basic objective" of the agreement; in a lease, that objective is the definition of ...
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