do the buyers and sellers of the solvent recycling business intend to address in their merger agreement that they entered into fifteen years ago were they the unknown as well as the known environmental liabilities of that business that's what we say or were they the environmental liabilities associated with the business where it was located at the time of the merger in one nine hundred ninety on various the road that's what union pacific says that's what the district court help that's the first question the second question is the question the district court did not get to because of the way it resolved the first one which is how does this agreement as it was drafted actually operate to allocate unknown environmental liabilities such as the one at the industrial avenue address where this business was first conducted from seventy one the seventy four council i read the agreement and i couldn't find any reference to industrial avenue whatsoever is was give us some background right why is that the industrial avenue of address we don't know exactly why it was not mentioned in the agreement but we do know that the it was it was a mention in the agreement by reference where and paragraph three point one seven section three point one seven which appeared and there's an attachment to the brief it appears on page seven a series of representations and warranties are made by the the shareholders and former partners my clients if you turn to page twenty eight it roman at two near the top the third line it says quote there are no conditions existing on any of the properties currently owned or occupied were formerly owned or occupied by the company that require a medial action removal or closure by the company under any environmental law now their argument is that notwithstanding  failure to be included expressly the term formally on would include the industrial avenue probably actually would be formally occupied it was the least property but would be formally occupied iraq and the what the district court did is and we believe that the fundamental error of the district court is that it determine what the mutual intent of the parties was to wit and it was to be limited to the activities at the ber solely by virtue of the reference to that one fact of the extrinsic evidence which was that during the period of the pre merger due diligence activities the existence of the industrial avenue address was not specifically mentioned in the  discussions notwithstanding we have language that refers to formerly owned or occupied properties that language according to the lawyer who drafted it who worked for union pacific on the strip a tree z a was put there as it because it was the lawyer who negotiated the strike contract a new man by the name of charles the previa ok he had drafted this language he said that during the course of the negotiations he asked the former partners whether or not there was a formerly occupied property his testimony was that they said there was not that's disputed that's a disputed fact in the record now and are we allowed to peek at that or do we have to confine ourselves under california law to the language of the agreement we believe your honour's that the language of the cow of the agreement is sufficiently clear and explicit the use of the word formally occupied by the company that you don't have to look at the extrinsic evidence but if you do look at  occupied property by the company the only question is what was the company and we believe that everybody's agreeing and practice that the company for the purposes of disclosures was both the partnership and the corporation however your honor if we were to go back into the exp of evidence to see what was the what were the negotiations what was actually said between the parties that places this non discussion about the industrial avenue address in context there's a lot of there's a would be the alternative i don't know of any alternative meaning for this the only area of ambiguity in this rather than warranty that i've been able to see is the specific reference to a defined term company the company is defined in the preamble to the agreement as the corporation however during the course of the negotiations reps and warranties including in the accompanying schedule three point one seven that's the companion to this wrap there are representations and warranties about activities of the partnership and those activities of the partnership are activities where the partnership was actually operating in this case at the berryessa facility from seventy four to eighty and during that period of time there was contamination of the berryessa facility by the partnership in fact an attache entity to the corporation in practical effect yes we don't contend that it is the legal predecessor or contend that the corporation is the legal successor for success or liability purposes to the partnership but in practical practical effect yes your honor the from one nine hundred seventy four to one nine hundred eighty the business was conducted as the solvent service company partnership in one nine hundred eighty eight incorporated the business activities became the business activities of the solvent service company inc the corporation the partnerships role at that point was essentially relegated for the next ten years to providing financing because the individual partners had the financial wherewithal to do that  where i thought judge goodman was taking you and that is trying to understand the role of extrinsic evidence and parole the parole evidence rule in california as i understand the law and correct me if i'm wrong the court may look to extrinsic evidence in order to determine the intent of the parties and as staffing the meaning of the terms that are used in the contract erred here was in looking at an extrinsic have it ends and concluding that the that nobody was thinking about the industrial avenue property and therefore limiting the consider that the language in three point one seven roman at two is reasonably susceptible of an interpretation that it doesn't apply to formerly occupied property which i think is what i was trying to say although not as clearly as you just said thank you any predecessor or successor of the company whatever its legal form close print is there any reference to predecessor any other reference to predecessor in the rest of the agreement that language appears again and paragraph  the previous preceding page in a definition of something called covered business liabilities about midway on page fifty two of the agreement right now is that instructive in any way it is instructive your honor and judge fogel agreed that we had presented at least a genuine issue of material fact that that parent had a call means partnership and we've not seen any indication from union pacific as to any alternative meaning for that paragraph other than the partnership i believe that they say it's boilerplate i don't think this can be characterized as boilerplate having been crafted for this agreement and inserted in it in the way of any other contending predecessor there is no other contending predecessor there are no candidates for the predecessor or successor of the company whatever it legal form other than the partnership the drafting history we believe also supports that as well with the second or for me or next a second or the second error is having made the decision to look at extrinsic evidence the judge ignored the conflicting expense of governance about the mutual intent of the parties with respect essential to the subject matter of this agreement there was one fact that the court analyzed and considering whether or not that the agreement reaches formerly occupied properties like industrial avenue and that was the fact that it was not specifically discussed that's the fact the judge fogel paid attention to but there are other factors that place that in context that we believe that if that is indeed an issue is the scope of this agreement actually reach properties other than various so that is clearly a tribal issue a material fact and the reason for that is that there are factors on both sides there in addition i would i will give union pacific that credit for the fact that it was not discussed we are not contending that it was this difficulty discussed we they have testimony that as mr pretreated testified that he was told that there were no such currently are formally on occupy or occupied propert that's what he says but it's contested in the record the due diligence team from u s p c i takes the position are that your p takes the position that the due diligence team read some documents that they think now told them that the business started in one nine hundred seventy four which was the same year that they knew that they had started the business of various we don't think the documents actually say that we think those documents that they got suggest that the business at various us started in one nine hundred seventy four not that the business started in  what is most significant now is that they did ask the question whether or not formerly occupied properties was within the subject matter of this contract is made clear by mr patrice's own testimony because he did ask he did ask and asked it i don't understand how it can be said by union pacific that union pacific pacific was not on inquiry notice of the existence of previously occupied properties when union pacific inquired they did in fact inquire and having  inquired they said he says that he was told that there were no such properties again that's contested he also testifies and this is in the supplemental excerpts that unit pacific filed that pages to a one to two o two mr previous says that even though he had been told he said that if there were no formerly occupied properties he left that term that rep and warranty in the agreement anyway he left it in the agreement and he said he did so as additional protection for his client so from the very get go this contract clearly embraced an environmental liabilities at four opposite properties whether they were specifically identified or not so long as they were currently or formally owned or now one of the i have a few minutes left let me attempt to address a couple of issues about how the agreement actually operates once we have a rep and warranty what makes this agreement a little bit unusual is the way in which it allocates unknown environmental liabilities are an anticipated environmental liabilities parties allocate unanticipated or unknown liabilities all the time the way that these parties did it was to have the partners make representation representations  that certain facts were true except as scheduled on the accompanying schedule the company schedule if the a company schedule does not include a specific condition for example of requiring remediation the remedy for any breaches except to the extent that a breach is knowing an intentional that is to say if it is the product of fraud which we don't think union pacific is contending in fact they don't say that they say that they're not contending th so we think that the omission of a reference to industrial avenue conditions and that's all they were required to represent about former top former properties by the way as conditions not addresses if the omission of references to conditions about  environmental remediation requirements at formerly occupied properties in this case becomes a breach because it was omitted when it becomes a breach it falls into the basket of shareholder environmental liabilities portion of the former partners obligations for this are escrowed and when that escrow arms out it falls straight squarely within the scope of you piece obligations and that's where it is today and that's where we believe it should have been placed by by the judge  think that if the court agrees that the language is clear enough on its face then it's not necessary to look at extrinsic evidence about was the scope of this contract or my question if i were to agree with you that the language is clear the us on their face then what is the point of looking at the expense of governess to i'd like to see that however there is there is a law that allows a court to look at expense a governess to see if there's an ambiguity in the contract we don't think there's anything ambiguous about the wor right question where in the agreement is there a reference to industrial ave you and mr cooke says that there is only a tangential reference that he relies on and that tangential reference is in the environmental matters section three point one seven he referred the court to page twenty eight and he read that portion and it says there are no conditions existing on any of the properties currently owner occupied or formerly owned or occupied by the company and he concedes that the company means the corporation well kno could also mean the partnership well in the in the agreement it's defined as the corporation i realized heard him say that the parties also agreed that it included the activities of the partners complicated case it's i guess what troubles me about where i think you're going with this argument is that as i understand the state of the record it was the partnership who own the berry of the road property and least to the company precise you acquired the company it certainly intended to acquire the rights to opt continue operating the company at that location right correct your honor and what happened to the partnership interest in the property was that transferred to the corporation the various road property the four adjoining parcels of property and various other properties so that union pacific in acquiring the company acquired those assets as well and the liabilities associated with those assets but i want to distinguish that situation your honor from industrial avenue industrial avenue was never owned by the company corporation that the partners created did not come into existence until nine hundred eighty so so when we go to partners occupied industrial avenue for three years and then  moved to various as a partnership and occupy that for another six years correct all right and so so what's your point i'm not i'm just i'm not following my my my point your honor is that on page twenty eight of the agreement which  mr cooke says is the only tangential reference to prior occupied property it is it is property previously occupied by the company and the company didn't even exist when when industrial avenue was occupied by the party of the right because the u p would want protection from any environmental remediation claims that were brought against the very  property from nine hundred seventy four to nine hundred eighty or nine hundred seventy one thousand nine hundred eighty before there was a formal incorporation wouldn't you bet your honor but but berryessa road and the partnerships involvement transfer of that property to the company that was being acquired by union pacific was fully disclosed it was part of the allocation and so on and so forth to see about that i guess let me ask let me ask you a question that really troubles me about what happened here and that is it seems to me that there was a serious problem with due diligence on the part of union pacific council into wine i don't understand why there wasn't a expressed provision in the agreement that asked for a representation by the sellers that the operations had never been conducted at any other location or that the operation had only been conducted at various and secondly why in the face of the suggestion that there might have been something going on in industrial avenue there were further inquiries during do just due diligence to find out what had gone on to the industrial well your honor the environmental problems with industrial avenue did not come to light until well after the diagnosis and i don't and i don't hear either side arguing that there was any tensional attempt to hide industrial avenue because apparently nobody had any reason to think basically a failure to meet the normal standards that one would expect in due diligence here in adequately investigating what this business had been doing before nine hundred eighty you know i don't i don't think so your honor i think there are some disputed facts with respect to exactly what was asked and what was not asked but to the designated representative and i believe that at the time the president of the company that saw it solvent services company mr nag said he didn't know about industrial action he didn't know about any contamination and so for the designated representative of that of the corporation being acquired to make the concession that he didn't even know about this i think i think calls into question your honour's conclusion that maybe the due diligence wasn't very good but the partners were still active that were the i understand that he was the and it's quoted in a couple of places that union pacific told the sellers that it needed quote complete information about potential environmental liabilities because the information provided by sellers would be used to calculate the value of the environmental escrow shares and because the buyers would not assume the risks of other liabilities that were not in compassed by the environmental escrow and the cautioning allocation that makes perfect sense to me the problem is that the high risk transaction because of the nature of the business that there was and it seems to me and i don't mean to get hung up on this due diligence point but it seems to me that if you're going to buy a  that's in the business of the supposing of hazardous waste you want to do a super due diligence on what kinds of activities have been conducted on the property in any other places that this company may have done business because recognizing that it may be thirty years later but a claim a come from a government regulatory agency or a private party in a p r p action saying you're now a while for something happened that father well i can't disagree with your honor but but i think that union pacific was also entitled to rely reasonably upon the good faith disclosures by by the sellers and this site was not disclosed in fact the business plan the confidential business plan that was presented to potential investors including union pacific talked about the company having its origins in one thousand nine hundred seventy four at various or wrote it didn't make any mention of the company having engaged in business prior to that time and my point at the at the outset your honor was well that's true i suppose because the company didn't exist then the partnership began its operations on very us a road and made it a company but yet you know if we if we if we look at what mr cooke said in his brief he cited a piece of evidence from mr nag about it disappears in the opening brief of mr cook on page twenty and mr mag tell informed my client we perceive the loan on the lens vest property this was a piece of property that disclosed as being essentially a liability that belongs to the corporation the loan amount and is in essence being paid by the corporation the partnership was being used as a vehicle to obtain this loan thus it is our feeling that the debt on this property should be assumed as a debt belonging to the corporation even though it's not reflected on the corporation's balance sheet so there was there was this recognition that at the very yes the property and t lend fest property and so on that that that the corporation and the partnership were were were co existing and indeed the partnership continued to exist after the corporation was created indeed the partnership filed a tax return a year after the merger was accomplished so the partnership continued to exist and and by acquiring the company that bought by my client acquiring this company i think that every reason to believe that it was getting straight information on the disclosures that were being made about the operation of the partnership as i recall from reading your briefs and the record had to do with it actually owned a house or something in their own houses rental houses you know iran or if we if we look at that by analogy there was no disclosure as i recall of the specific information about these houses that the partnership had because they were partnership assets they weren't part of the corporation assets they weren't being acquired there there was that level of distinction but let's assume for a moment that the partners  by a subsequent owner of one of those rental houses from old contamination oil tankers or something like that and the partners say well you know we had those rental properties in the partnership and you know we never told you about those properties because they were partnership assets but we think those are covered too now i lease is it what's the record tell us is the partnership existed and it continued to exist at for a year after union pacific acquired the corporation so the partnership was through the transfer does certain assets but not all of the corporation acquire partnership assets and did not take on partnership liabilities except as judge tolman indicated i think it's fair to assume that with respect to the berryessa road operations there was no effort to determine whether contamination or costs that might be incurred or liabilities that might arise down the road a road is at the time the partnership with operating that property or the corporation because because all of the environmental liabilities with respect to that site were made known to union pacific and evaluated the environmental liabilities on the basis of that in our view your honor the judge fogel got this got this just right it was it was the partnership that contaminated the industrial road property not the company the company didn't even then in essence it seems to me rewrote the agreement and said in the absence of what could have been a line should have been inserted that the only properties covered by the representations and warranties  didn't think about industrial road was a statement from mr cook in his papers that's what the judge cited too and so i believe the judge the judge fogel did the right thing by saying my job is to determine what the intent of the parties  is manifested by this agreement and how could the parties have intended to to allocate liabilities related to a piece of property that was never owned by the corporation that was being acquired and was never even thought of them in the parties went to the scene this enormous difficulty of allocating environmental liabilities with respect to what was disclosed what was known in the in the  environmental investigations being done by by union pacific consultants but if if industrial road wasn't even part of that calculus wasn't even known not even known to  to mr nag pal then it certainly could not have been the intention of the parties to allocate liabilities with respect to that site but that goes back to my question to mr cook and that is how far can you go and before all evidence  california can you look at that little experience of evidence and conclude in the face of language which doesn't seem to me to be ambiguous that that it must mean industrial avenue is excluded well it doesn't say that it's included either your honor and i and i think it is the judge's responsibility to to look at what the parties intended based upon that agreement and i agree with mr cook that some extensive is appropriate with the language of the california supreme court is that basically say the parties are stuck with the language of the agreement that they wrote and we can all now see that there was a better clearer way to write this contract that would have avoided this entire law thing but that's not what they wrote well you know i agree with the parties are kind of stuck with the agreement that they wrote with the language that they are and i don't view judge fogel as having rewritten  i think he was interpret ing it to reflect the intent of the parties the second argument i wanted to make sure i was not only the judge fogel got this right but the notion that a party's representations and warranties can be used to think fairly read the agreement doesn't contemplate that i think it's a distortion of the agreement to do that the third issue i'm running out of time here is that mr cook is has just a the court to assume that there has been and by the plaintiffs a breach of a representation and more and i don't i don't first of all i don't think that non disclosure is a  breach it's it's not that they misrepresented something it is that they did not they did not disclose the the prior operations of the partnership at this at this prior location and and finally we as we argued in the brief the the the warranties and representations expired five years after the mergers effective date and i'd be happy to that that comment about the partnership took me by surprise i somehow assume that the partnership ended when the corporation was founded but that is not true as the partnership filed its final text return in one thousand nine hundred one the the transaction transferred to the corporation those were sold in their one of them was sold and one of them was retained by the the individuals but not as partners the partnership has not continued to exist since one thousand nine hundred one the last act of the partnership affectively was to file its final tax return in the wake of the closure of this transaction in december of one thousand nine hundred and that's all that's covered by the way on page the existed throughout that the decade of the one nine hundred eighty s what it funk what it was fundamentally did was to provide financing and it owns some of the real real properties and it provided financing capabilities to the corporation as as indicated in the partnership as well as the corporation i think we addressed that before the brief that union pacific filed that at page fifty three says this follows the reps and warranties in section three point one seven and the alleged environmental violations disclosed in schedule point one seven implicitly relate implicitly related both to the companies and the partnerships operations that's what union pacific says and they're right they just become too restrictive given the nature of this contract when they finish the sentence and say berryessa road property well that's the gloss that's being added to this lawsuit and was added by the court below to a contract that doesn't say this just as the contract doesn't say it doesn't call it industrial avenue as these partners are retiring and want to get out of the business that's how it works union pacific is part is protected in the event that there's fraud but that fraud is not alleged here so it does cover them for their own breach and that's how they allocated unknown liabilities my time is