1996 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

7-17-1996

SmithKline Beecham v. Rohm & Haas Co

Precedential or Non-Precedential:

Docket 95-1644

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Recommended Citation

"SmithKline Beecham v. Rohm & Haas Co" (1996). 1996 Decisions. Paper 102.

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 UNITED STATES COURT OF APPEALS 

 FOR THE THIRD CIRCUIT 

 ___________ 

 No. 95-1644 

 ___________ 

 SMITHKLINE BEECHAM CORPORATION 

 v. 

 ROHM AND HAAS COMPANY 

 v. 

 BUCKEYE PIPE LINE COMPANY 

 Rohm and Haas Company, 

 Appellant 

 _______________________________________________ 

 On Appeal from the United States District Court 

 for the Eastern District of Pennsylvania 

 (D.C. Civil Action No. 92-cv-05394) 

 ___________________ 

 Argued March 13, 1996 

 Before: STAPLETON, SCIRICA and COWEN, Circuit Judges 

 (Filed July 17, 1996) 

 JOHN G. HARKINS, JR., ESQUIRE (ARGUED) 

 Harkins Cunningham 

 1800 One Commerce Square 

 2005 Market Street 

 Philadelphia, Pennsylvania 19103-7042 

 Attorney for Appellant 

 DAVID P. BRUTON, ESQUIRE (ARGUED) 

 Drinker, Biddle & Reath 

 Philadelphia National Bank Building 

 1345 Chestnut Street 

 Philadelphia, Pennsylvania 19107-3496 

 Attorney for Appellee, 

 SmithKline Beecham Corporation 
 __________________ 

 OPINION OF THE COURT 

 __________________ 

SCIRICA, Circuit Judge. 

 Plaintiff SmithKline Beecham Corp. ("SKB") brought this 

declaratory judgment action against the defendant, Rohm and Haas 

Co. ("R&H"), seeking equitable apportionment of the costs of the 

clean-up of a contaminated site in Myerstown, Pennsylvania under 

the Comprehensive Environmental Response, Compensation, and 

Liability Act ("CERCLA"), 42 U.S.C.  9601-75 (1988 & Supp. V). 

Alternatively, SKB sought apportionment of the clean-up costs in 

accordance with the indemnification provisions of a Purchase 

Agreement between SKB and R&H. 

 In 1978, SKB purchased Whitmoyer Laboratories, Inc. 

("New Whitmoyer") from R&H under a Purchase Agreement containing 

certain indemnification provisions. Although R&H and SKB 

discharged toxic wastes, most of the contamination at the 

Myerstown site occurred before 1964, when the site was owned by 

R&H's predecessor ("Old Whitmoyer"). 

 The able and experienced district court held the 

indemnifications in the Purchase Agreement covered CERCLA 

liability arising from R&H's ownership of the site. In addition, 

the court held the doctrine of corporate successor liability by 

de facto merger brought CERCLA liability arising from the conduct 

of Old Whitmoyer within the scope of the indemnity clauses of the 

Purchase Agreement. Consequently, the court allocated all of the 

clean-up costs for CERCLA liability arising from the conduct of 

Old Whitmoyer to R&H. R&H brought this appeal. 

 On appeal, we must determine whether the contractual 

indemnity provisions of the Purchase Agreement were intended to 

allocate the environmental liability of Old Whitmoyer, the 

original owner of the property. Because the Purchase Agreement 

does not indemnify for CERCLA clean-up costs arising prior to New 

Whitmoyer's ownership of the Myerstown site, we will reverse the 

district court. In addition, we believe that under the facts of 

this case the doctrine of de facto merger cannot be used to 

modify an indemnity provision drafted by two sophisticated 

corporations. 

 I. Facts 

 In 1931, Dr. Clarence W. Whitmoyer founded a veterinary 

feedstock and pharmaceutical business based in Myerstown, 

Pennsylvania. Incorporated as "Whitmoyer Laboratories, Inc." in 

1934, the corporation went public in 1961 ("Old Whitmoyer"). 

From 1957 to 1964, Old Whitmoyer deposited large quantities of 

arsenic-laden hazardous waste on the grounds of its Myerstown 

plant. 

 In 1964 defendant Rohm and Haas ("R&H") created W-L, 

Inc., a Delaware corporation, as a wholly owned subsidiary. W-L 

Inc. purchased the assets of Old Whitmoyer and assumed certain 

specified balance sheet liabilities in exchange for 50,000 R&H 
shares. Subsequently, Old Whitmoyer changed its name and took 

steps to dissolve, distributing the R&H stock to its 

shareholders. R&H did not know of the contamination at the 

Myerstown site when its subsidiary purchased the assets of Old 

Whitmoyer. 

 W-L Inc., took the name Whitmoyer Laboratories, Inc. 

("New Whitmoyer") and continued to run the business of Old 

Whitmoyer. New Whitmoyer retained the same CEO as Old Whitmoyer, 

manufactured the same products under the same name, and sold 

those products to the same customers. From 1964 to 1978, New 

Whitmoyer disposed of additional arsenic-contaminated waste at 

the Myerstown site. But New Whitmoyer also undertook efforts to 

remediate groundwater contamination. Shortly after acquisition, 

it supplied bottled water to over twenty neighbors of the plant 

whose wells had been contaminated with arsenic. In 1965, New 

Whitmoyer removed over three million pounds of contaminated 

wastes and soil skimmings from the existing waste lagoon and 

stored them in a concrete vault built specially for that purpose. 

In addition, New Whitmoyer devised a method to monitor and remove 

arsenic waste from the groundwater. Between 1965 and 1971, 

almost 450,000 pounds of arsenic were removed from the 

groundwater at the site. 

 On March 31, 1978, R&H sold its entire animal health 

products business, including all the stock of New Whitmoyer, to 

Beecham Inc., a predecessor of the plaintiff SmithKline Beecham 

Corporation. Before completing the transaction, R&H notified 

SKB of the bottled water obligation, showed SKB executives the 

vault and told them it contained arsenic wastes, and gave them 

free access to all records at New Whitmoyer. 

 The Purchase Agreement that governed the sale between 

SKB and R&H ("1978 Purchase Agreement") contains a broad 

indemnification clause in which R&H indemnified SKB against 

"[a]ll material liabilities relating to the conduct of the 

Business prior to the First Closing Date." In addition, SKB 

agreed to indemnify R&H for all losses and liabilities "resulting 

from the operation of the Business by the Buyer after the First 

Closing Date." During SKB's ownership of New Whitmoyer, arsenicladen waste continued to be released into the environment at the 

Myerstown site. 

 Congress enacted CERCLA in 1980. Two years later, SKB 

sold New Whitmoyer to Stafford Laboratories, Inc. ("Stafford"). 

Stafford was a small, undercapitalized company with limited 

assets and no experience in chemical manufacturing operations. 

Its president was a felon with two prior convictions for grand 

theft and embezzlement. Stafford has since filed for bankruptcy 

and has not been named as a party in this action. 

 In 1986, the federal government placed the Myerstown 

site on the Superfund National Priorities List under  105 of 

CERCLA. 42 U.S.C.  9605. Both R&H and SKB were deemed 

"potentially responsible parties" liable for the contamination at 

the Myerstown site under CERCLA. In 1992, the United States 

settled its CERCLA liability claims against R&H and SKB, 

resulting in the entry of a consent judgment. United States v. 

Rohm and Haas Co., Civ. No. 92-CV-1295 (M.D. Pa.). Although Old 
Whitmoyer caused the majority of the contamination before New 

Whitmoyer owned the Myerstown site, under the consent decree R&H 

and SKB are jointly and severally liable for the entire cost of 

its remediation because of their successive ownership of New 

Whitmoyer. Estimated clean-up costs total $123 million. 

 SKB brought this action against the R&H seeking an 

equitable apportionment of clean-up costs under sections 107(a) 

and 113(f) of CERCLA, 42 U.S.C.  9607(a) and 9613(f), and 

enforcement of the indemnity provisions of the 1978 Purchase 

Agreement. 

 On cross-motions for summary judgment, the district 

court held R&H liable for clean-up of wastes dumped during the 

period when New Whitmoyer was an R&H subsidiary--1964 to 1978-- 

based on the indemnification provision of the 1978 Purchase 

Agreement. SmithKline Beecham Corp. v. Rohm and Haas Co., 854 F. 

Supp. 1201, 1214-15 (E.D. Pa. 1994). But it did not allocate 

liability for Old Whitmoyer's share of clean-up costs because "at 

this stage of the proceedings, the court cannot find as a matter 

of law that [the indemnification] includes conduct of [Old] 

Whitmoyer Laboratories before R & H purchased it in 1964." Id.at 1214. 

 The district court took testimony on the 

indemnification provision in the 1978 Purchase Agreement. It 

found it unnecessary to determine whether the indemnification 

expressly included Old Whitmoyer's contamination because it 

determined New Whitmoyer was liable for Old Whitmoyer's 

contamination as its corporate successor under Pennsylvania's de 

facto merger doctrine. It then found the indemnification 

provision required R&H to indemnify SKB for all New Whitmoyer's 

pre-closing liabilities, including successor liability for Old 

Whitmoyer's conduct. SmithKline Beecham Corp. v. Rohm and Haas 

Co., No. 92-5394 (E.D. Pa. March 17, 1995). 

 On appeal, R&H argues the indemnity provision of the 

1978 Purchase Agreement does not indemnify against environmental 

liabilities arising under CERCLA. Even if the provision covers 

CERCLA liability, R&H contends it does not indemnify SKB for Old 

Whitmoyer's conduct. Finally, R&H claims the district court 

should not have applied the de facto merger doctrine to make R&H 

liable for Old Whitmoyer's contamination of the Myerstown site. 

 We exercise plenary review of the district court's 

construction of the 1978 Purchase Agreement. Vanguard 

Telecommunications, Inc. v. Southern New England Tel. Co., 900 

F.2d 645, 650 (3d Cir. 1990). We also have plenary review of the 

district court's interpretation and prediction of Pennsylvania's 

de facto merger doctrine. Wiley v. State Farm Fire & Casualty 

Co., 995 F.2d 457, 459 (3d Cir. 1993). We have jurisdiction to 

review the district court's final judgment under 28 U.S.C.  1291 

(1994). 

 II. Discussion 

 A. The Indemnity Covers CERCLA 

 1. 

 Under  107(e)(1) of CERCLA, parties may provide 

indemnifications for environmental response costs. Section 

107(e)(1) provides: 
 No indemnification, hold harmless, or similar 

 agreement or conveyance shall be effective to 

 transfer from the owner or operator of any

 vessel or facility or from any person who may 

 be liable for a release or threat of release 

 under this section, to any other person the 

 liability under this section. Nothing in 

 this subsection shall bar any agreement to

 insure, hold harmless, or indemnify a party 

 to such agreement for any liability under 

 this section. 

42 U.S.C.  9607(e)(1). We have reconciled these apparently 

inconsistent provisions by interpreting them to mean "agreements 

to indemnify or hold harmless are enforceable between the parties 

but not against the government." Beazer East, Inc. v. Mead 

Corp., 34 F.3d 206, 211 (3d Cir. 1994) (quoting Smith Land & 

Improvement Corp. v. Celotex Corp., 851 F.2d 86, 89 (3d Cir. 

1988), cert. denied, 488 U.S. 1029 (1989)), cert. denied, 115 S. 

Ct. 1696 (1995). Thus responsible parties can lawfully allocate 

CERCLA response costs among themselves while remaining jointly 

and severally liable to the government for the entire clean-up. 

 We apply state law to determine whether a particular 

indemnification provision encompasses CERCLA response costs. 

Hatco Corp. v. W.R. Grace Co., 59 F.3d 400, 405 (3d Cir. 1995); 

Beazer East, 34 F.3d at 214. In this case, the 1978 Purchase 

Agreement provides, and the parties agree, that the indemnity 

provision "will be governed by and construed in accordance with 

the laws of the State of New Jersey." Accordingly we must 

determine whether, under New Jersey law, the parties intended to 

indemnify for CERCLA response costs. 

 Contract interpretation is usually a question of law in 

New Jersey. Dome Petroleum Ltd. v. Employers Mut. Liab. Ins. 

Co., 767 F.2d 43, 47 (3d Cir. 1985). Under New Jersey law, 

courts should interpret a contract considering "the objective 

intent manifested in the language of the contract in light of the 

circumstances surrounding the transaction." Id. 

 2. 

 In this case the parties could not have expressly 

included CERCLA liabilities in the indemnification clause because 

the 1978 Purchase Agreement pre-dates the enactment of CERCLA. 

But an agreement can require one party to indemnify another 

against CERCLA response costs even if it was executed before the 

enactment of CERCLA. Beazer East, 34 F.2d at 211. A pre-CERCLA 

indemnification provision covers response costs if it is either 

"specific enough to include CERCLA liability or general enough to 

include any and all environmental liability . . . ." Id. 

 The district court held the indemnification provisions 

in the 1978 Purchase Agreement are broad enough to incorporate 

CERCLA response costs. Section 3 of the 1978 Purchase Agreement, 

entitled "Allocation of Liability/Indemnification," contains 

three subsections allocating potential liabilities between SKB 

and R&H. Subsection 3.1 is entitled "Allocation of Liability." 

Under this subsection SKB agreed to assume "as of the First 

Closing Date" certain specified liabilities of R&H pertaining to 
the Business. These liabilities do not include costs for 

environmental clean-up. The remaining two subsections provide 

the parties' indemnifications. In subsection 3.2(a) R&H agreed 

to indemnify and hold SKB harmless from: 

 (a) All material liabilities relating to the 

 conduct of the Business prior to the First

 Closing Date (regardless when the related 

 claim may be asserted), whether accrued, 

 absolute, contingent or otherwise, which are 

 not assumed by the Buyer under Subsection 3.1 

 . . . . 

Subsection 3.3(a) is a reciprocal provision in which SKB 

indemnifies R&H for: 

 (a) All losses, liabilities, damages or 

 deficiencies to Seller resulting from the 

 operation of the Business by the Buyer after 

 the First Closing Date . . . . 

 These indemnity provisions divide "all" of the 

"liabilities" concerning the "operation of the Business" between 

SKB and R&H. This sort of broad language in pre-CERCLA contracts 

has been construed by courts to encompass CERCLA liability. For 

example, in Olin Corp. v. Consolidated Aluminum Corp., 5 F.3d 10, 

15-16 (2d Cir. 1993), the Court of Appeals for the Second Circuit 

held an indemnity provision covering "all liabilities, 

obligations and indebtedness of [the business] as they exist on 

the Closing Date or arise thereafter with respect to actions or 

failures to act occurring prior to the Closing Date" was 

sufficiently broad to encompass CERCLA liability. 

 Similarly, the District Court for the Western District 

of New York held a provision indemnifying for "all liabilities 

and obligations . . relating to or arising out of the Assets" was 

expansive enough to include CERCLA liability insofar as such 

liability related to or arose out of assets transferred. 

Purolator Products Corp. v. Allied-Signal, Inc., 772 F. Supp. 

124, 131 (W.D.N.Y. 1991); see also, American Nat'l Can Co. v. 

Kerr Glass Mfg. Corp., No. 89-C-0168, 1990 WL 125368, *3 (N.D. 

Ill. August 22, 1990) (indemnity provision covering "any claim of 

any kind or nature whatsoever with respect to the business . . . 

arising out of facts or events occurring prior to the Closing 

Time" was sufficiently broad to encompass CERCLA liability), 

reconsidered in part, No. 89-C-0168, 1990 WL 129657 (N.D. Ill. 

August 30, 1990) (reaffirming this holding). 

 We believe the language in the 1978 Purchase Agreement 

indemnity provisions clearly expresses the parties' intent to 

allocate all present and future liabilities. Environmental 

liabilities are among the future unknown liabilities allocated by 

the parties. Accordingly we agree with the district court that 

the indemnity provisions are general enough to evidence the 

parties intent to include CERCLA response costs. 

 B. Temporal Scope of the Indemnity 

 1. 

 Although we have found the 1978 Purchase Agreement 

indemnity provisions encompass CERCLA response costs, we must 

still determine whether R&H indemnified SKB for those clean-up 
costs attributable to Old Whitmoyer before R&H, through its 

wholly-owned subsidiary, New Whitmoyer, purchased the assets of 

that company in 1964. SKB believes it is indemnified against all 

liabilities that arose prior to its purchase of New Whitmoyer. 

Accordingly, it argues R&H is responsible for all of Old 

Whitmoyer's CERCLA response costs. In contrast, R&H claims the 

indemnity provisions do not include Old Whitmoyer's liabilities 

and, consequently, those liabilities must be apportioned 

equitably under CERCLA. 

 In subsection 3.2(a) R&H indemnified SKB for the 

liabilities of the Business "prior to the First Closing Date." 

SKB indemnified R&H for the corresponding liabilities "after the 

First Closing Date" in subsection 3.3(a). SKB argues these 

provisions clearly divide all liabilities between the parties 

according to the date of sale of New Whitmoyer to SKB in 1978. 

According to SKB, R&H is responsible for all liabilities 

resulting from activities before the 1978 closing date, including 

liabilities arising from the conduct of Old Whitmoyer before New 

Whitmoyer's purchase of the assets of that company in 1964. 

 R&H argues the dividing line of the date of sale only 

allocated risks relating to the conduct of the business by New 

Whitmoyer, not Old Whitmoyer. In subsection 3.2(a), R&H agreed 

to indemnify SKB only for "material liabilities relating to the 

conduct of the Business" prior to the date of sale. R&H claims 

the definition of "Business" does not include Old Whitmoyer and 

therefore R&H never agreed to indemnify SKB for the conduct of 

Old Whitmoyer. 

 The definition of "Business" appears in the first 

recital to the 1978 Purchase Agreement: 

 WHEREAS, Seller manufactures and sells, and 

 conducts research relating to, a line of 

 animal health products . . . and such 

 business is conducted primarily by Whitmoyer 

 Laboratories, Inc., a Delaware corporation

 ("WL"), WL's "Affiliated Laboratories" and

 "Barker, Moore, and Mein" divisions and 

 certain foreign subsidiaries and distributors 

 . . . The worldwide operations of such 

 business, together with all the assets 

 relating thereto . . . are referred to herein 

 as "Business". 

R&H emphasizes "Business" is defined in this passage as 

"Whitmoyer Laboratories, Inc., a Delaware Corporation" and 

affiliates of R&H. This language suggests the term "Business" is 

limited to New Whitmoyer and other subsidiaries owned by R&H at 

the time of the 1978 transaction. Since R&H never owned Old 

Whitmoyer, R&H concludes Old Whitmoyer is not included in the 

definition of "Business." 

 SKB contends this clause is "actually more of a 

description than a 'definition'," serving only to differentiate 

R&H's animal health products business from other R&H operations 

not included in the sale. SKB examines the 1978 Purchase 

Agreement as a whole and argues R&H's proposed definition of 

"Business" is inconsistent with the general usage of the term 
throughout the agreement. Specifically, SKB notes the term 

"Business" is modified in several locations by the words "by 

Seller" and "by Buyer." According to SKB, this modification 

would not be necessary if "Business" meant "business run by New 

Whitmoyer and certain other R&H subsidiaries." 

 2. 

 Regardless of whether "Business" is conceived of as a 

"definition" or a "description," the term clearly does not 

encompass Old Whitmoyer. If the parties intended a more general 

usage of "Business," they could have specifically included Old 

Whitmoyer in the first recital. Alternatively, the parties could 

have excluded the defining provision from the 1978 Purchase 

Agreement altogether. Instead R&H and SKB chose to capitalize 

the term "Business" and give it a particular, restricted meaning. 

 We cannot ignore the express language of the contract. 

See e.g, Communications Workers of America, Local 1087 v. 

Monmouth County Bd. of Social Servs., 476 A.2d 777, 782 (N.J. 

1984) ("The starting point in ascertaining [the parties'] intent 

is the language of the contract."). The 1978 Purchase Agreement 

explicitly provides the "Business" is "Whitmoyer Laboratories, 

Inc. a Delaware corporation ("WL")." Section 9.3 of the 1978 

Purchase Agreement states "WL is a corporation duly organized, 

validly existing and in good standing" under Delaware law, with 

its certificate of incorporation, as amended, "attached hereto as 

Exhibit T." That exhibit contains a certificate of incorporation 

for the corporation formed June 12, 1964, not the predecessor 

corporation that was incorporated in 1934. 

 Nowhere in the "definition" or "description" of 

"Business" is there a suggestion that the meaning of "Business" 

incorporates the predecessors of, or the prior owners of the 

assets of New Whitmoyer. SKB contends the use of the term in 

other sections of the 1978 Purchase Agreement indicates the 

parties intended a broader meaning than the one they expressly 

provided. It argues modification of "Business" with the words 

"by Buyer" creates an oxymoron under R&H's reading. In addition, 

it claims modification of "Business" with "by Seller" is 

redundant if "Business" is limited to "the business owned by 

R&H." 

 But SKB admits "in the large majority of instances, the 

Agreement uses the words 'the Business' without express reference 

to Buyer or Seller." We do not think the explicit definition of 

"Business" should be disregarded because in a few instances the 

term was used in an incongruous or redundant manner. Examination 

of the contract as a whole confirms that the term was used 

appropriately throughout the document. We will not contravene 

the parties' apparent "objective intent" on the basis of a few 

isolated phrases. See Joseph Hilton & Assocs., Inc. v. Evans, 

492 A.2d 1062, 1070 (N.J. Super. Ct. App. Div.) ("In construing 

the contract the court does not focus on an isolated phrase but 

reads the contract as a whole . . . .") cert. denied, 501 A.2d 

977 (N.J. 1985). Reading the contract to avoid ambiguities, we 

conclude the parties intended "Business" to mean exactly what 

they said, "Whitmoyer Laboratories, Inc., a Delaware 

corporation." See United States Bronze Powders, Inc. v. Commerce 
& Indus. Ins. Co., 611 A.2d 667, 670 (N.J Super. Ct. Law Div. 

1992) ("The court should read [contract] provisions so as to 

avoid ambiguities, if the plain meaning of the contract 

permits."). 

 The first recital of the 1978 Purchase Agreement 

provides a specific, and restricted, explanation of the term 

"Business." There is no indication in this explanation, or in 

any other provision of the contract, that the term "Business" 

includes Old Whitmoyer. The few minor inconsistencies 

highlighted by SKB do not justify a rewriting of the contract, 

particularly since the term is used appropriately throughout. 

Viewing the contract as a whole, we hold the term "Business" does 

not include Old Whitmoyer. 

 C. De Facto Merger Doctrine 

 The district court did not decide whether the term 

"Business" included Old Whitmoyer because it held New Whitmoyer 

liable for Old Whitmoyer's CERCLA response cost under 

Pennsylvania's de facto merger doctrine. The court held New 

Whitmoyer incurred Old Whitmoyer's tort liabilities by virtue of 

the 1964 asset purchase transaction and New Whitmoyer subsequent 

conduct of the business. Even under R&H's interpretation of 

"Business," the court found the indemnity R&H gave for the 

liabilities of New Whitmoyer included successor liability for the 

conduct of Old Whitmoyer. Consequently, the court held R&H must 

indemnify SKB for remediation costs relating to Old Whitmoyer's 

conduct. 

 R&H does not dispute that the factors indicative of a 

de facto merger are present in this case. But it argues the 

doctrine should not be applied to alter the temporal scope of the 

indemnification clause. In addition, R&H contends application of 

successor liability in this case conflicts with policy 

considerations underlying CERCLA and the de facto merger 

doctrine. 

 1. 

 R&H claims the parties should be able to allocate 

liability through contractual indemnities without the hindrance 

of judge-made doctrine. Because the parties did not allocate Old 

Whitmoyer's liabilities in the indemnification provisions, it 

argues against application of the de facto merger doctrine to 

hold it responsible for Old Whitmoyer's clean-up costs. 

 In Philadelphia Elec. Co. v. Hercules, Inc., 762 F.2d 

303, 318 (3d Cir.), cert. denied, 474 U.S. 980 (1985), we held 

the de facto merger doctrine will not shift environmental 

liabilities where the parties were in a position to protect 

themselves through a contractual provision. Hercules, 762 F.2d 

at 317-18. In Hercules, we found the requirement of an express 

indemnification is particularly important where, as here, the 

parties are two sophisticated corporations of roughly equal 

resources. Id. at 313 (where "corporations of roughly equal 

resources contract for the sale of an industrial property, and 

especially where the dispute is over a condition on the land 

rather than a structure, caveat emptor remains the rule.") 

(footnote omitted). 

 In this case, the parties drafted an indemnification 
provision that excluded successor liability. SKB and R&H chose 

to define "Business" and limit its meaning to New Whitmoyer. 

Under these circumstances, we believe it was not appropriate for 

the district court to apply the de facto merger doctrine to alter 

the effect of the indemnification provision. See American Nat'l 

Can Co. v. Armstrong World Indus., Inc., No. 89-C-0168, 1990 WL 

125368 (N.D. Ill. Aug. 22, 1990) (no indemnification because 

indemnity did not specifically apply to predecessor corporation's 

liabilities) (applying Pennsylvania law), reconsidered in part, 

No. 89-C-0168, 1990 WL 129657 (N.D. Ill., August 30, 1990) 

(addressing de facto merger). 

 Our holding does not alter the general applicability of 

corporate successor doctrines in CERCLA contribution claims. SeeSmith 

Land & Improvement Corp. v. Celotex Corp., 851 F.2d 86 (3d 

Cir. 1988) (statutory merger) (successor corporation was liable 

for prior corporation's CERCLA liability in the absence of an 

indemnification clause), cert. denied, 488 U.S. 1029 (1989). But 

where two sophisticated corporations drafted an indemnification 

provision that excluded the liabilities of a predecessor 

corporation, we will not use the de facto merger doctrine to 

circumvent the parties' objective intent. 

 2. 

 R&H also contends application of the de facto merger 

doctrine would undermine CERCLA's remedial policies. Under 

CERCLA, the cost of remediation is allocated equitably if the 

parties have not apportioned it by contract. 42 U.S.C. 

9613(f)(1). Of course, the parties here have allocated their 

responsibilities under the contractual indemnification 

provisions, which exclude the liabilities of Old Whitmoyer. 

 In this case, the parties agree each is responsible for 

the costs of cleaning up their own contamination. But neither 

party caused Old Whitmoyer's contamination. Applying the de 

facto merger doctrine to require R&H to fund all of the clean-up 

expenses for Old Whitmoyer's contamination would contravene the 

express terms of the indemnification provision and incidentally 

would "frustrate[] Congress' desire to encourage clean-up by any 

responsible party," id., and force R&H to pay for the entire 

response cost despite the relative culpability of the parties, 

see id. (refusing to apply the doctrine of caveat emptor to a 

CERCLA cost recovery action because the doctrine "bar[s] relief 

regardless of the degree of culpability of the parties, [and 

therefore does] not comport with congressional objectives."). 

Our refusal to apply the de facto merger doctrine to alter the 

terms of the indemnity provision leaves both SKB and R&H 

responsible for their fair share of the clean-up costs of the 

Myerstown site. See Beazer East, 34 F.2d at 219 (CERCLA policy 

favors equitable apportionment of remediation costs). 

 3. 

 In In re Penn Cent. Sec. Litig., 367 F. Supp. 1158, 

1170 (E.D. Pa. 1973), the United States District Court for the 

Eastern District of Pennsylvania held "the de facto merger 

doctrine is a judge-made device for avoiding the patent injustice 

which might befall a party simply because a merger has been 

called something else." The doctrine is an equitable rule, a 
judicial creation to protect a particular class of plaintiffs 

from the consequences of a transaction over which they have no 

control. The doctrine should conform to the rule's remedial 

purpose. See Hercules, 762 F.2d at 312 ("We believe that the de 

facto merger doctrine is supported by 'social policy 

considerations' independent of any particular cause of action . . 

. .") (citations omitted). 

 In this case SKB (together with R&H) had control over 

the assignment of environmental liability through the negotiation 

of the 1978 Purchase Agreement. Thus, there is no third party 

whose interests have been impaired by forces beyond their 

control. We decline to apply de facto merger doctrine under 

these circumstances. SKB is not within the class of plaintiffs 

that were intended to benefit from the de facto merger doctrine 

and use of the doctrine would contravene CERCLA's remedial 

purpose. 

 III. 

 For these reasons we will reverse the judgment of the 

district court and remand to determine the parties relative 

responsibilities for Old Whitmoyer's contamination under CERCLA's 

equitable apportionment provisions. 

SMITHKLINE BEECHAM CORPORATION. V. ROHM AND HAAS COMPANY V. 

BUCKEYE PIPE LINE COMPANY - NO. 95-1644 

STAPLETON, J., Dissenting: 

 I join Sections I and II-A of the court's opinion. I 

would affirm, however, because I conclude that the 1978 purchase 

agreement unambiguously requires R&H to indemnify SKB for the 

costs of the cleanup of pre-1964 contamination. 

 The relevant provisions of the agreement are quite 

straightforward. Not surprisingly, the agreement begins by 

describing in its preamble the business being transferred from 

the "Seller" to the "Buyer." That business is described in terms 

of business "operations" and the assets associated therewith. 

The preamble recites that "Seller manufactures and sells, and 

conducts research and development relating to, a line of animal 

health products, including veterinary pharmaceuticals, vaccines 

and diet supplements." It states that "such business" is 

currently "conducted primarily by" New Whitmoyer and its 

affiliates and then lists a number of products, projects, and 

rights that are included in "such business." Finally, the 

preamble stipulates that "[t]he worldwide operations of such 

business, together with all of the assets relating thereto 

. . . , are referred to herein as the 'Business'." 

 In section 3.1 of the agreement, the Buyer assumes 

specifically described liabilities. In subsection 3.2, R&H 

"indemnifies and holds Buyer . . . harmless from and against and 

in respect of: 

 (a) All material liabilities relating 

 to the conduct of the Business prior to the 
 First Closing Date (regardless when the 

 related claim may be asserted) whether 

 accrued, absolute, contingent, or otherwise, 

 which are not assumed by Buyer pursuant to

 Subsection 3.1." 

In a reciprocal section, section 3.3, Buyer "indemnifies and 

holds RandH and its officers, directors and stockholders harmless 

from and against and in respect of: 

 (a) All losses, liabilities, damages or 

 deficiencies to seller resulting from the 

 operation of the Business by the Buyer after 

 the First Closing Date . . . ." 

 As the opinion of the court acknowledges "the language 

in the 1978 Purchase Agreement indemnity provisions clearly 

expresses the parties' intent to allocate all present and future 

liabilities" relating to the business being transferred. (Maj. 

Op. at 11.) Putting aside the liabilities specifically assumed 

in section 3.1, R&H is to bear the ultimate responsibility for 

"all material liabilities relating to the conduct of the 

Business" prior to the closing date and SKB is to bear the 

ultimate responsibility for all liabilities "resulting from the 

operation of the Business by the Buyer" after that date. Insofar 

as liabilities arising from the business being transferred before 

the closing date are concerned, the responsibility of R&H is not 

limited to liabilities arising out of its operation of the 

business being transferred. This is in sharp contrast to the 

responsibility of SKB which is limited to liabilities "resulting 

from the operation of the Business by Buyer." (Emphasis 

supplied.) 

 I do not understand R&H to dispute that the preamble of 

the agreement describes the business that is being transferred. 

Moreover, it acknowledges, as it must, that the business 

conducted by Old Whitmoyer from 1957 to 1964 is a part of the 

business being transferred. It necessarily follows, I believe, 

that the liabilities at issue here were "material liabilities 

relating to the conduct of the Business prior to the" closing 

date. 

 The court fails to focus on the obvious fact that 

"Business" as defined or described in the preamble consists of 

the operations and assets being transferred by the agreement. 

Understandably, those operations and associated assets are 

identified in part by reference to the legal entities that were 

conducting most of those operations at the time the agreement was 

entered. But as the parties were aware, those operations had 

been conducted for a number of years and R&H's responsibilities 

under section 3.2 were obviously not intended to be limited to 

liabilities arising out of the conduct of those operations at the 

time the agreement was entered. R&H, of course, acknowledges 

this. At the same time, however, it tries to limit its 

responsibility to those liabilities arising out of its conduct of 

the business between 1964 when it purchased the business and the 

closing date in 1978. Neither the text of section 3.2 nor 

anything else in the agreement provides a basis for such a 

limitation. R&H's indemnity responsibilities under the agreement 
are simply not limited to liabilities relating to the conduct of 

the operations being transferred while those operations and 

assets were under its control. The parties did not leave pre1964 liabilities of the business out of their agreement for 

future resolution by a court. R&H unequivocally committed itself 

to indemnify SKB for "all material liabilities relating to the 

conduct of [the operations and assets being transferred] prior to 

the . . . Closing Date." The liabilities at issue here are 

clearly among those liabilities.