UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

_____________________

No. 93-2634

_____________________

UNITED STATES OF AMERICA,

Plaintiff,

VERSUS

RALPH L. LOWE, ET AL.,

Defendants,

and

RALPH L. LOWE,

Cross-Plaintiff/

Appellant,

VERSUS

JOC OIL EXPLORATION COMPANY, INC.,

Cross-Defendant/

Appellee.

____________________________________________________

Appeal from the United States District Court

for the Southern District of Texas

_____________________________________________________

(August 15, 1994)

Before POLITZ, Chief Judge, and DUHÉ and BARKSDALE, Circuit Judges.

RHESA HAWKINS BARKSDALE, Circuit Judge:

This review of a summary judgment concerns the determinative

factors for whether a cor poration is required by its bylaw

(indemnity, under certain conditions, for officers and directors

sued "by reason of" their corporate status) to indemnify an

officer/director, Ralph L. Lowe, for his individua l liability1 Although JOC does not dispute the preceding facts, some of the

following facts regarding the chain of title are described by JOC

as "disputed". It states that "[i]f summary judgment had not been

granted on JOC's motion

..., these facts would have been fully

developed at the district court level."

- 2 - incurred under the Comprehensive Environmental Response

Compensation and Liability Act, 42 U.S.C. § 9601 et seq. (CERCLA).

Apparently because CERCLA permits personal liability to be imposed

against an officer or director, the district court held that Lowe

was not entitled to indemnity. We REVERSE

.

I.

This case arise s out of the disposal of wastes at the Brio

Superfund Site in Texas; the following facts are not in dispute.

From the late 1950s until 1969, the site was ow ned by Hard-Lowe

Company, and its successor Lowe Chemical Company (Lowe I). Lowe,

an investor in Hard-Lowe, became the sole stockholder of Lowe I;

and in 1969, he sold Lowe I to C hemical Pollution Control, Inc.

(CPC). The transaction was financed by Lowe, who took a security

interest in the Brio property. When CPC went bankrupt in 1972,

Lowe foreclosed on the site. 1

In anticipation of the foreclosure, Lowe inco rporated Lowe

Chemical Company (Lowe II). According to Lowe, he exchanged the

Brio Site for stock in Lowe II in May 1972, but the attorneys

handling the transaction "neglected to file and record a deed

reflecting the conveyance of the property, and title to the

property re mained in [Lowe's] name." Due to this claimed

oversight, Lowe was show n as the record owner of the site until

1977. Lowe claims that JOC discovered the error, and a "corrective2 T he settlement occurred shortly after denial of the United

States' motion for summary judgment against Lowe.

- 3 - dee d" was recorded; it "recited that it was given by [Lowe] and

accepted by JOC Oil Aromatics to `evidence the sale and intended

conveyance made on May 2, 1972, and it shall be effective as of and

retroactive to, such date.'"

According to Lowe, the purpose of the corrective deed related

to the 1975 purchase of all of Lowe II's stoc k by JOC at a price

that assumed Lowe II's ownership of the Brio Site. JOC defaulted

on amounts owed Lowe, and conveyed the Brio Site back to him in

1978 in lieu of foreclosu re. Later that year, Lowe conveyed the

property to another entity.

After the Brio Site was declared a superfund site, the

gover nment spent $1.31 million taking remedial action at it, and

then f iled an action against both JOC and Lowe to recover those

costs. In turn, Lowe cross-claimed against JOC for indemnification under the cor porate bylaw in issue. Without admitting

liability, Lowe settled with the government for $400,000. 2 JOC

settled later for $20,000.

On Lowe's cross-claim for indemnification, JOC and Lowe both

moved for summ ary judgment. A magistrate judge recommended

granting JOC's motion and denying Lowe's. After overruling Lowe's

objections to that recommendation, the district court entered

judgment for JOC on Lowe's cross-claim.3 The indemnity clause provided:

Each director and each officer or former

director or officer of this corporation ... shall

be indemnified by the corporation against

liabilities imposed upon him and expenses

reasonably incurred by hi m in connection with any

claim made against him, or any action, suit or proceeding to which he may be a party by reason of

his being or having been such director or officer,

and against such sums as independent counsel

selected by the board of directors sha ll deem

reasonable payment made in sett lement of any such

claim, action, suit or proceeding primarily with a

view of avoiding expenses of litigation; provided,

however, that no director or officer shall be

indemnified with respect to matters as to which he

shall be adjudged in such action, suit or

proceeding to be liable for negligence or misconduct in performance of duty, or with respect

to any matt ers which shall be settled by the

payment of sums which counsel selected by the board

of directors shall not deem reasonable payment made

primaril y with a view to avoiding expenses of

litigat ion, or with respect to matters for which

such indemnification would be against public

policy.

4 It goes without saying that we review a summary judgment de

novo ; it is appropriate only when, viewing the evidence in a light

most favorable to the non-movant, there are no genuine issues of

material fact and the movant is entitled to judgment as a matter of

law. E .g.

, Raju v. Rhodes

, 7 F.3d 1210, 1212 (5th Cir. 1993),

cert. denied

,

___ U.S.

___, 114 S. Ct. 1543 (1994); Fed. R. Civ. P.

56.

- 4 - II.

Pursuant to Lowe II's bylaws, each of its officers and

directors was indemnified for liability and expenses incurred "in

connection with any claim made agains t him, or any action ... to

which he may be a party by reason of

... being" an office r or

director. 3 JOC and Lowe agree that this bylaw governs the

indemnity claim; both assert here that they are entitled to summary

judgment. 4- 5 -

The district court held that Lowe was not sued "by reason of"

his corporate status. The magistrate judge found "it to be of

s ignificance" that the United States b rought this action against

Lowe personally, and held a hearing to ascertain whether the United

States sued Lowe "in his capacity as an officer and director".

After examining the United States' summary judgment submissions in

t he underlying litigation, and having discussions with a

representative of the United States at the hearing, the magistrate

judge concluded that Lowe was sued "because of actions he may have

taken in his personal capacity and not because of actions he may

have taken in his capacity as a director or officer." This

concl usion was driven by Lowe's personal involvement at the Brio

Site and the fact that CERCLA permitted personal liability for such

actions.

A.

Based upo n the complaint in the underlying litigation, and,

alternatively, upon CERCLA, JOC presents several bases for

upholding its summary judgment.

1.

JOC seizes on the wording of the United States' complaint,

contending that the indemnity clause requires that Lowe be made a

party to an action in his capacity as an officer or director.

Thus, JOC urges that we focus on that complaint, and avoid asking

"why or for whom Lowe was involved with hazardous substances at the

Brio Site." We disagree.- 6 -

The parties agree that our interpretation of the inde mnity

clause is governed by Texas law; and under it, because the bylaw is

not claimed to be ambiguous, its construction is a question of law.

University Savings Ass'n. v. Burnap , 786 S.W.2d 423, 425-26 (Tex.

Ct. App. 1990). B urnap a ddressed an issue very similar to that

here: whether a corporate bylaw obligated University Savings to

indemnify Burnap. I d. at 425. Burnap was an officer and director

of University Savings' predecessor, and he was sued by its former

shareholders for "tipping inside information". I d. at 424. Burnap

requested indemnification for his legal fees incurred in defending

the suit, pursuant to a bylaw that indemnified officers and

directors for expenses incurred defending a suit "to which such

person is made a party solely by reason of his being or having been

a director [or] officer ". Id. (emphasis added). The Texas Court

of Appeals held that he was entitled to reimbursement. I d. at 426-

27.

Interestingly, both parties rely on Burnap

. Lowe maintains

that it stands for the proposition that the pleadings are not the

sole determinant for whether one is sued by reason of having been

an officer or director; rather, the facts giving rise to the

complaint must be considered. S ee id. at 426 (interpreting factual

allegations made in complaint against Burnap and assessing trial

testimony, among other things, in ascertaining whether indemnity

clause applied). On the other hand, JOC contends that B urnap

relied solely on what was apparent on the face of the complaint,

and that the citation to trial testimony was "unnecessary" to the5 Two of the justices in Grove participated in Burnap ; the same

justice authored both opinions.

- 7 - decision. S ee id. In fact, the decision did note that its holding

"is consistent with the law concerning an insurance company's duty

to defend under an insurance contract. Under those provisions, the

duty to defend is determined solely from the face of the pleadings

in light of the policy provisions." Id. (citation omitted).

We do not read Burnap to hold that indemnity is triggered

solely by the underlying pleadings reciting that the individual is

being sued as an officer or director. Obviously, this would give

considerable power to artful pleading in the underlying complaint

as to the application of the indemnity provision. Needless to say,

this could, among other things, lead to considerable mischief. The

exami nation of trial testimony and factual interpretation of the

complaint's allegations in Burnap do not appear to have been

surplusage.

In any event, we need not rely solely on Burnap ; we are guided

by a recent decision by the same court that decided Burnap

, Grove

v. Daniel Valve Co.

, 874 S.W.2d 150 (Tex. Ct. App. 1994),

ap plication for writ of error filed (May 11, 1994). 5 The court

interpreted a Delaware statute that permitted indemnification when

an individual is sued "by reason of the fact that he is or was a"

director or officer, id. at 153 (quoting Del. Code Ann. tit. 8, §

145(a) (1991); emphasis deleted). As here, relying on B urnap

, the

appellee urged that the language of the complaint in the underlying

litigation determined indemnification vel non

. I d. at 152. The6 As noted, without admitting liability, Lowe settled with the

United States on its claim against him.

- 8 - court found that reliance misplaced, ruling that "in Burnap we did

not hold so s acred the alignment and naming of parties as to

preclude any other analysis", id. at 156:

Ap pellee's argument proposes a static view of the

litigation process, locking in indemnification

rights at one stage of the process, namely at the

preliminary stage of the proceedings. The pleading

must be a primary part of any follow-up

indemnification suit because it informs a court not

involved in th e original lawsuit of the substance

of the suit, but it cannot be the end-all.

Id. at 158. Accordingly, we agree with the district court that the

absence of a recitation in the United States' complaint that Lowe

was being sued because he was an officer and director of Lowe II is

not fatal to his indemnification claim. But, as discussed infra

,

we part company with the district court as a result of the

determinative effect it apparently gave to CERCLA provid ing for

personal liability for actions taken by Lowe. While CERCLA does

permit such liability, this is not the end of the inquiry; a more

detaile d factual inquiry was required as to Lowe's status during

the relevant period.

2.

JOC asserts that Lowe was personally involved in the operation

at the Brio Site, and thus liable under CERCLA. 6 See 42 U.S.C. §

9607(a)(2) (imposing liability on "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"); R iverside

Mkt. Dev. Corp. v. International Bldg. Prods., Inc.

, 931 F.2d 327,- 9 -

330 (5th Cir. ) (per curiam) ("CERCLA prevents individuals from

hiding behind the corporate shield when, as `operators,' they

themselves actually participate in the wrongful conduct prohibited

by the Act."), cert. denied , ___ U.S. ___, 112 S. Ct. 636 (1991);

United States v. Northeastern Pharmaceutical & Chem. Co.

, 810 F.2d

726, 743-44 (8th Cir. 1986) (government can impose personal

liability on an officer or employee of a corporation as a "person"

within the meaning of CERCLA), cert. denied , 484 U.S. 848 (1987).

JOC contends that Lowe's liability under CERCLA precludes his

liability arising "by reason of" being an officer and director.

We disagree. Although Lowe's liability "was not derivative

but p ersonal", s ee Northeastern Pharmaceutical

, 810 F.2d at 744,

this does not preclude, per se , his being indemnified. A similar

argument was attempted in one of the few reported federal decisions

addressing whether an indemnity clause covered pe rsonal CERCLA

liability, Bowen Engineering v. Estate of Reeve , 799 F. Supp. 467

(D.N.J. 1992). There, the estate of a former officer sought

indemnification from the corporation, which had joine d other

corporations in suing the estate for contribution for CERCLA

damages. In that case, the corporate plaintiffs "contend[ed] that

they [were] suing [the former officer ], through his estate,

personally

for the violation of CERCLA." Id. at 485 (emphasis in

original). Nevertheless, the court concluded that although the

officer (and theref ore his estate) was liable personally under

CERCLA as an "operator" of the site, id. at 474, he was entitled to7 New Jersey law controlled in Bowen

. "In New Jersey a party

may receive indemnification `only if he or she is without fault and

his or her liability is purely constructive, secondary or

vicarious.'" B owen

, 799 F. Supp. at 484 (emphasis in original;

citation omitted). The court noted that strict liability statutes,

suc h as CERCLA, establish "secondary" liability under New Jersey

law. Id. at 484-85.

8 Of course, indemnity may be circumscribed by defenses that can

be raised under the indemnity clause, such as exclusion of

indemnification where the officer "shall be adjudged

... liable for

negligence or misconduct in performance of duty".

- 10 - indemnification under a clause nearly identical to that i n issue

here. See id. at 483-89. 7

We agre e with B owen

. Lowe's CERCLA personal liability does

not, without more, void the indemnity clause. In other words,

althoug h Lowe is personally liable, he may be entitled to

indemnity. C f. G rove , 874 S.W.2d at 154 ("It is true that ...

Grove could be in dividually liable for any negligent design ....

The indemnification statute, however, expressly provides that if an

employee's job exposes him to liability, then the corporation must

indemnify him if the employee is successful on the merits ....")

Indeed, if Lowe II's officers or directors were not subject to

personal liability for ac ts or omissions arising out of their

corporate positions, there would be little reason for the indemnity

clause. Cf. Riverside , 931 F.2d at 330 ("`Corporate officers are

liable for their torts, although co m mitted when acting

officially.'") (quoting 3A S. Flanagan & C. Keating, Fletcher

Cyclopedia of the Law of Private Corporations § 1135 (1986)). As

stated, Lowe's CERCLA personal liability does not preclude per se

indemnification. 89 JOC contends also that CERCLA's policies prohibit

indemnification, even apart from the indemnity clause. JOC's

proposed distinction

-- that indemnity is only permissible for

officers or directors "who are expressly sued as such or who are

not named individually because their involvement with the

contamination is limited to general corporate matters removed from

actual participation in the handling and disposal of the hazardous

sub stances" -- finds no support in the statute. In fact, an

officer or director's individual li ability under CERCLA depends

upon "actual[] participation", i.e.

, "personal participation in the

alleged wrongful conduct". R iverside

, 931 F.2d at 330. Thus,

indemnity would be meaningless if it only covered officers or

directors who were "removed from actual partic ipation", because

they would not be subject to underlying liability.

- 11 - 3.

Alternatively, JOC conten ds that the bylaw's prohibition of

indemni fication where such "would be against public policy"

prohibits it in this instance, asserting that "[a]llowing Lowe to

shirk his responsibility for the contamination he caused violates

CERCLA's policy."

But, assuming arguendo that this issue was raised properly in

d istrict court, JOC does not contend that CERCLA prohibit s

indemnification; to the contrary, it notes "that 42 U .S.C. §

9607(e)(1) freely allows parties to agree to indemnify one another

for liability under CERCLA." That being so, we cannot understand

why Lowe's personal liability un der CERCLA would be contrary to

CERCLA's allowing indemnity. Obviously, indemnification does not

relieve Lowe of his liability vis-a-vis the government; it only

provides a possible source of payment for damages resulting from

that liability. 910 JOC responds that this issue is not before us, stating that

Lowe did not properly raise the issue of the denial of his crossmotion for summary judgment. In the light of our disposition of

this issue, we need not reach this contention. In any event,

Lowe's notice of appeal concerned the district court granting

summary judgment to JOC and denying Lowe's summary judgment motion.

And, the issue L owe presented for review includes whether the

district court erred in denying his summary judgment motion.

Moreover, he concludes his summary of argument by urging that he

"is entitled as a matter of law" to indemnity.

11 In Grove

, the Texas Court of Appeals cited Heffernan with

approval. See Grove , 874 S.W.2d at 153-56.

- 12 - B.

As noted, Lowe does more than merely challenge the adverse

summary judgme nt; he asserts that he is entitled to judgment. 1 0

But, as noted earlier, more factual inquiry into the relationship

between Lowe's CERCLA liability and his status as an officer and

director is required.

The focus of that factual inquiry should be on the "connection

between the complaint and [Lowe's] corporate status". See Grove

,

874 S.W.2d 156. In assessing this connection, we recognize the

b readth with which many courts have interpreted language such as

"by reaso n of". For example, the Seventh Circuit recently

interpreted the Delaware indemnification statute, and concluded

that the "`by reason of the fact that' ph rase is broad enough to

encompass suits against a director in his official capacity as well

as suits against a director that arise more tangentially from his

role, position or status as a director." H effernan v. Pacific

Dunlop GNB Corp. , 965 F.2d 369, 375 (7th Cir. 1992). 11

Keeping the breadth of the bylaw's "by reason of" language in

mind, Lowe's liability may be connected to his status as an officer12 Lowe's settlement with the United States also involved another

superfund site, the "Hardage Site". The district court may also

need to apportion the settlement amount between that resulting from

the Brio Site and that from the Hardage Site if the latter is not

subject to the indemnity clause.

- 13 - and director; much of his liability may have arisen "by reason of"

t hat status. Even JOC offers support for this position. For

example, it st ates that "Lowe personally oversaw the day-to-day

site activities, was actively involved in Lowe Chemical Company's

environmental compliance problems, supervised the initial pit

closure activities, and was involved in and had the authority to

control the disposal of waste generated by Lowe Chemical Company."

(Footnote omitted.) Similarly, JOC recognizes that "Lowe

personally participated in the disposal of styrene tar at the Brio

Site and maintained daily, on-site involvement in decisionmak ing

regarding haz ardous substances at Lowe Chemical Company -- a

company whose fundamental operations involved the use of hazardous

substances it placed in earthen pits." (Footnote omitted.)

Obviously, a number of other issues require exploration by the

district court. First, as discussed, Lowe was sued as both an

"operator" and an "owner" of the Brio Site. Lowe suggests that, to

the extent his liability arose as an "owner" rather than an

"operator", "this theory [of liability] does not entitle [him] to

indemnification." Therefore, there may be a need for apportionment

of Lowe's liability between that occasioned as an "owner" and that

as an "operator". 12

Moreover, Lowe cont ends that he was not liable at all as an

"owner" of th e Brio Site. If this is true, apportioning the- 14 -

liability may be pretermitted (assuming apportionment is

appropriate). Lowe advances two reasons for escaping "owner"

liability. First, he asserts that he is exempt from CERCLA

liability as a foreclosing lienholder. S ee 40 C.F.R. § 300.1100

(1993). Second, he contends that JOC's acceptance of the

"corrective" deed for the Brio Site estops it from asserting that

Lowe owned the Brio Site during the years preceding that deed.

These issues are appropriately first addressed by the district

court.

L ast, assuming apportionment is required, the quest ion of

attorneys' fees arises. Lowe notes that the indemnity clause

covers "expenses

... incurred

... in connection" with claims

subject t o the clause. He contends that expenses include

attorney s' fees, and that they should not be subject to

apportionment. More specifically, he analogizes the expense

provision to an insur er's duty to defend. Under Texas law, "the

insurer is obligated to defend, as long as the complaint alleges at

least one cause of action within the coverage of the policy."

Rhodes v. Chicago Ins. Co. , 719 F.2d 116, 119 (5th Cir. 1983)

(citations omitted); see also Burnap , 786 S.W.2d at 426 (inviting

comparison between indemnity clause and insurer's duty to defend).

On the other hand, Grove directed that, on remand, "the parties

...

apportion in some reasonable manner the monies spent by [Grove]

defending his status as general partner [for which indemnification

was not allowed] and as corporate personnel [for which it was]."

Grove , 874 S.W.2d at 158. We need not clarify Texas law on this- 15 -

issue; until the district court determines whether apportionment of

the liability is necessary, and, if so, how it shou ld be made,

there is no issue before us regarding apportionment of attorneys'

fees. In short, this is another possible issue for the district

court.

III.

For the foregoing reasons, the judgment is REVERSED , and the

case REMANDED for further proceedings consistent with this opinion.

REVERSED and REMANDED