Sumitomo Machinery Corp. of America, Inc. v. AlliedSignal, Inc.

• Decision Date: 11 April 1996
• Docket Number: No. 95-5138,95-5138
• Citation: 81 F.3d 328
• Parties: , 26 Envtl. L. Rep. 20,977 SUMITOMO MACHINERY CORPORATION OF AMERICA, INC. v. ALLIEDSIGNAL, INC., Appellant.
• Court: U.S. Court of Appeals — Third Circuit

Page 328

81 F.3d 328

42 ERC 1545, 26 Envtl. L. Rep. 20,977

SUMITOMO MACHINERY CORPORATION OF AMERICA, INC. v. ALLIEDSIGNAL, INC., Appellant.

No. 95-5138.

United States Court of Appeals Third Circuit.

Argued Oct. 10, 1995.

Decided April 11, 1996.

On Appeal From the United States District Court For the District of New Jersey (D.C. Civil Action No. 91-cv-01790).

Mark J. Malone (argued), Lori D. Linskey, Stier, Anderson & Malone, Bridgewater, NJ, for Appellee.

Douglas S. Eakeley (argued), Lowenstein, Sandler, Kohl, Fisher & Boylan, Roseland, NJ, for Appellant.

Before: STAPLETON, McKEE and NORRIS, ^* Circuit Judges.

OPINION OF THE COURT

STAPLETON, Circuit Judge:

In 1991, Sumitomo Machinery Corporation of America ("Sumitomo") and AlliedSignal Inc. ("Allied") settled an environmental lawsuit concerning property sold to Sumitomo by a predecessor of Allied. Their respective responsibilities were delineated in an Environmental Agreement ("Agreement") which incorporated a cleanup plan approved by the New Jersey Department of Environmental Protection ("NJDEP"). ¹ In 1994, NJDEP tightened the radioactive remediation requirements applicable to the property, effectively giving Sumitomo the choice of executing a Declaration of Environmental Restrictions and Grant of Easement ("DER") or remediating to a higher standard than originally approved. A DER attaches to the title of the land and restricts certain future uses without NJDEP approval.

Before the district court, Allied argued that the Agreement unambiguously required Sumitomo to execute the DER, and Sumitomo argued that it unambiguously did not. The district court denied Allied's request for specific performance or declaratory relief, finding that the Agreement unambiguously placed the costs of remediation on Allied and did not require Sumitomo to enter into the DER. We find the Agreement ambiguous and will reverse and remand for further proceedings.

I.

Between 1937 and 1939, the Bendix Corporation ("Bendix") acquired land in Teterboro, New Jersey. At various times since 1939, Bendix used the land for a sewage treatment facility, a thorium/magnesium alloy foundry, a chemical treatment facility to dispose of the radioactive waste magnesium, and storage for various oils and solvents. In 1977 Bendix subdivided its land and sold one parcel to Sumitomo. The current litigation concerns the environmental cleanup of this parcel of land ("Site").

By 1988, government investigation had revealed radioactive contamination on the Site. In 1984 Bendix had merged into Allied, and Allied, as successor, took the lead in formulating a remediation plan for all the land formerly owned by Bendix. Meanwhile, Sumitomo moved its operations out-of-state in 1988 and attempted to sell the Site. To do so, Sumitomo had to institute a cleanup plan approved by NJDEP. See Environmental Cleanup Responsibility Act, N.J. Stat. Ann. §§ 13:1K-6 to 13:1K-13 (West 1991) ("ECRA"), repealed and replaced by Industrial Site Recovery Act of 1993, N.J. Stat. Ann. §§ 58:10B-1 to 58:10B-20 (West Supp.1995) ("ISRA").

Unsatisfied with Allied's efforts, Sumitomo hired Dames & Moore, an environmental consulting firm, to perform various environmental tests and to draw up a cleanup plan to submit to NJDEP. In January 1991 Dames & Moore submitted an "ECRA Remedial Investigation and Cleanup Plan" ("Proposed Cleanup Plan") to NJDEP. According to the plan, radioactive contamination would be remediated to 5 pCi/gm for the first 15 cm. of soil, and 15 pCi/gm for any deeper soil ("5/15 standard"). ² Dames & Moore estimated that the plan would require excavating only 300 cubic feet of dirt to remove the "hot spots" of radiation that pushed the site over the 5/15 standard.

On August 30, 1991, NJDEP approved the Proposed Cleanup Plan in a letter ("Plan Approval"). It unconditionally approved the plan for radiological contamination, and no DER was required. In contrast, NJDEP required a DER for PCBs:

2. PCBs in Soil ...

The proposal is acceptable provided that a deed restriction be placed on properties where elevated levels of contaminants are allowed to remain on-site.... The deed restriction shall not allow contaminated subsurface soil to be brought to the surface (0-2') above allowable levels.

App. at 475. NJDEP similarly required a DER for metals (chromium): "Should the metal results be similar to those found in the earlier samples and the chromium is found to be in the trivalent form, no remedial action other than a deed restriction shall be required." Id.

A model DER was attached to the Plan Approval. It states that by executing a DER, the owner of property "impose[s] certain restrictions upon the use and occupancy of the Property, to restrict certain activities at the Property, and ... grant[s] an easement to NJDEPE." See App. at 301; see also 24 N.J. Reg. 401 (proposed regulation N.J. Admin. Code 7:26D, Appendix A, "Model Document Declaration of Environmental Restrictions and Grant of Easement"). The owner agrees to avoid taking actions that may disturb clean soil covering contaminated land, or that may otherwise cause migration of contaminants. The easement allows NJDEP to enter onto the land, inspect its condition, and do remedial work. The DER is recorded and runs with the property until NJDEP executes and records a release. NJDEP, persons likely to suffer injury, and any citizen of New Jersey are entitled to enforce the DER. Future owners are put on notice by the recordation, and the DER itself requires the owner to notify any lessees of the DER.

In April 1991, Sumitomo sued Allied under the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C.A. §§ 9601-9675 (West 1994), to recover response costs for remediating the site. In September 1991, a month after NJDEP approved Sumitomo's plan, the parties settled the suit, and each parties' responsibilities were laid out in the Agreement. Overall, the Agreement shifted the responsibility and costs of cleaning Sumitomo's land onto Allied. The cleanup was to proceed according to the Proposed Cleanup Plan as modified by the Plan Approval.

Allied attempted to go forward with the remediation, but found that the radiological contamination was more extensive than Dames & Moore had estimated. It discovered soil with both radiological and chemical contamination, "mixed waste," which requires more extensive treatment. The parties dispute what Allied then did, and the propriety of its actions. What is undisputed is that tens of thousands of cubic feet of soil were excavated and stored on site instead of 300. This soil met the plan's 5/15 standard and could be placed back on the Site under the original standard. The remediation has taken much longer than the six months estimated by Dames & Moore.

Due to the delay and extensive excavation of soil, Sumitomo complained about Allied's remediation to NJDEP. Apprised of the new circumstances, NJDEP ordered the remediation to halt and requested an addendum to the Proposed Cleanup Plan. The parties jointly submitted a proposal which suggested the same 5/15 standard ("Plan Addendum").

NJDEP approved the Plan Addendum, but under the more stringent requirements of ISRA, which had been enacted after the Plan Approval. The new legislation established two remediation standards, residential and nonresidential. See § 58:10B-12(c)(1). The residential remediation standard refers to contaminant levels that do not exceed the health risk level appropriate for residential use, as determined by the agency. The nonresidential standard refers to a higher risk level appropriate for uses that are not residential. If a cleanup plan proposes to remediate real property to nonresidential standards, ISRA requires a DER to restrict use of the property to non-residential uses and other uses compatible with the extent of contamination and, in addition, restricts any activities that may bring contaminants above ground. See § 58:10B-13(a)(2).

NJDEP determined that the residential remediation standard for the Site was 3 pCi/gm, based on NJDEP calculations of safe exposure levels for people. It rejected the 5/15 standard as creating too high a health risk for unrestricted use. The approval of the Plan Addendum required the Site to be cleaned to 3 pCi/gm, covered with one foot of uncontaminated fill, and a DER executed to insure that the cover remain in place. Sumitomo and Allied filed formal objections to the new standard in accordance with NJDEP's dispute resolution process. The new standard would be expensive. The tens of thousands of cubic feet of soil stored on the Site could not be placed back onto the land because its contamination exceeded 3 pCi/gm; it would have to be shipped for disposal, a costly proposition. According to Allied, it might also have to raze a warehouse on the property to treat the underlying soil. Exposing the underlying soil would obligate Allied to remediate other contaminants that were otherwise acceptable in place and covered by the warehouse.

Before resolution, Sumitomo withdrew its objection to the new standard and requested NJDEP to enforce it. Nevertheless, Allied pursued dispute resolution, arguing that the agency had improperly calculated the correct residential standard and that the proper standard was the original 5/15 standard. NJDEP eventually agreed that its standard was too stringent, but did not agree that the Site could be unrestricted at the 5/15 standard. In its letter to Allied dated December 1994, NJDEP stated:

The NJDEP agrees with your position that the radiological criteria for this site should be 5 pCi/gm above background in the first six inches of soil and 15 pCi/gm in any subsequent six inch layer for [various radiological contaminants]....

However, the NJDEP does not agree with your proposal regarding the issue of unrestricted use. Be advised that, in accordance with P.L.1993, c. 139, an institutional and/or an engineering control, in the form of a Declaration of...