Opinion ID: 597450
Heading Depth: 2
Heading Rank: 1

Heading: Validity of AMI's Release as to Environmental Claims

Text: 12 Defendants first contend that the district court erred in ruling that the release executed pursuant to the April 1984 accord and satisfaction was not effective against the CERCLA cause of action. According to the release, AMI fully released and discharged defendants forever from 13 any and all manner of actions, causes of action, defenses, counterclaims, suits, debts, accounts, covenants, controversies, agreements, warranties, promises, damages, judgments, executions, claims or demands whatsoever of every kind and description, known or unknown, in law or in equity, which AMI now has or may hereafter have against any of the [defendants] for, upon or by reason of any matter, cause or thing whatsoever 14 .... 15 The district court examined the effect of the release in two separate contexts. It first confronted the question of whether any release could have the effect of barring AMI's CERCLA cause of action for contribution. It answered that question in the negative. That ruling, of course, did not preclude defendants from relying upon the release as a defense to AMI's state law causes of action. Accordingly, the district court then turned to the language of the release itself, and determined that it was effective to bar the state claims, since the court understood that the general rule under Ohio law is that anticipatory releases are valid. 16 Defendants contend on appeal that the release barred the CERCLA claim, as well as the state claims. AMI does not appeal the dismissal of its state claims. However, in addition to defending the district court's ruling on the ineffectiveness of a release to bar its CERCLA cause of action, AMI also argues that its judgment can be affirmed on an alternative ground should we reverse that ruling. 3 According to AMI, even if we were to decide that a properly drafted release could bar its CERCLA claim for contribution, when the release in question is viewed in the context of Ohio law it was not effective because it was not intended to encompass unforeseen environmental issues. AMI thus asserts from a defensive posture that the district court incorrectly concluded that the release was effective under Ohio law to bar unanticipated claims.
17 We first take up the ruling of the district court that parties responsible for environmental cleanups under CERCLA may not contractually transfer or allocate CERCLA liability among themselves. The district court's ruling has been the subject of comment and analysis by numerous authors 4 and has been followed by at least one other district court in our circuit. See CPC Int'l, Inc. v. Aerojet-General Corp., 764 F.Supp. 479 (W.D.Mich.1991). 18 The district court examined section 107(e)(1) of the Act, 5 and pronounced the language quoted in the margin internally inconsistent. It concluded that the first sentence forbids giving effect to releases between tortfeasors in CERCLA contribution suits, and that the only effect of the second sentence is to permit any person to contract with others not already liable under the act to provide additional liability by way of insurance or indemnity. 743 F.Supp. at 529-30. According to the district court, then, defendants' reliance on the release given by AMI is misplaced. Id. at 530. 19 However, in a recent opinion released by another panel of this court, the district court's reading of the statute was rejected. In Niecko v. Emro Marketing Co., 973 F.2d 1296 (6th Cir.1992), that panel, in construing a Michigan statute utilizing language essentially identical to the portion of CERCLA under consideration, did not read the two sentences as being inconsistent: 20 [T]he better interpretation ... is that the first sentence provides that all parties involved are to be jointly and severally liable to the claimant under the statute. Where the claimant is the government, liability may not be transferred. However, as between the parties allegedly responsible ... liability may indeed be transferred. In other words, the first sentence ensures the clean up is performed and those responsible cannot escape their liability for cleaning the property. However, in terms of financial liability, the parties may allocate the costs of the clean up between them. Such an interpretation is consistent with the legislative history of CERCLA, See 126 Cong.Rec. 30,984 (1980). This is a more palatable and consistent interpretation ... because it allows the two sentences to be read as internally consistent. The Ninth Circuit came to a similar holding in Mardan Corp. v. C.G.C. Music, Ltd., 804 F.2d 1454, 1460 (9th Cir.1986). We, therefor [sic], join with the Ninth Circuit in its interpretation of these clauses under CERCLA.... 21 Niecko, 973 F.2d at 1300-01 (emphasis in original). 22 That reading of the two sentences of the statutory language seems to us to make sense both in logic and as a matter of public policy. The underlying purpose of the statutory language under scrutiny is to ensure that responsible parties will pay for the cleanup and that they may not avoid liability to the government by transferring this liability to another. However, this purpose is not inconsistent with parties responsible for the cleanup transferring or allocating among themselves the cost associated with this liability, so long as they remain liable to the third party who can demand the cleanup. This is what is permitted by the second sentence--the shifting or allocation of the risk of the cost of liability between potentially responsible persons, without diluting CERCLA liability for the cleanup itself. Such allocations may then be relied upon to govern the outcome of a later suit for contribution by the responsible party who actually was held responsible for the cleanup. As one commentator has noted: 23 Section 107(e)(1) prohibits attempts to undermine CERCLA by transferring the liability owed to the CERCLA claimant. By the first sentence of the section, responsible parties are held accountable for their actions and prohibited from escaping CERCLA liability. However, the second sentence provides an exemption which narrows the scope of the first sentence. This sentence exempts agreements to allocate the costs of liability between private responsible parties. These private risk allocations are permitted because they are consistent with the intent of the first sentence to prevent responsible parties from escaping CERCLA liability.... 24 .... 25 ... [P]rivate risk allocations substantially assist in facilitating real estate transactions. Risk shifting provides a mechanism for the parties to minimize exposure to the risk of third-party CERCLA claims. While also protecting against third-party claims, risk shielding primarily represents a means to protect against the risk of claims by the other party to the transaction. These techniques provide flexibility in the negotiating process and facilitate the parties' ability to close real estate transactions successfully. Because of these benefits, private risk allocations may further CERCLA's ultimate goal of cleaning up pollution caused by hazardous substances. 26 Thaddeus Bereday, Note, Contractual Transfers of Liability under CERCLA Section 107(e)(1): For Enforcement of Private Risk Allocations in Real Property Transactions, 43 Case W.Res.L.Rev. 161, 204, 212 (1992) (citations omitted). 27 In view of the previous holding of this court in Niecko, the ruling of the district court that a release could not be effective to bar AMI's CERCLA cause of action for contribution, must be reversed.
28 Having determined that a release can be effective to allocate among responsible parties the financial burden of CERCLA clean-up liability, we now turn to the specific language of the release at issue in this appeal, to determine whether it operates to allocate the cost among these parties. The district judge, applying Ohio law, concluded that the release was effective to bar AMI's state cause of action. If the district court correctly comprehended Ohio law, then we will need to reverse the judgment awarded AMI on its CERCLA cause of action, since Ohio law controls our inquiry concerning the effectiveness of this particular release. 6 See Mardan, 804 F.2d at 1460. However, we are unable to agree with the district court's holding, since we conclude that Ohio's view of the law of mutual mistake in the context of releases of this nature may prevent our giving effect to the release to the extent that it would bar unanticipated environmental claims. Consequently, while we disagree with the basis of the district court's holding that the release is valid under Ohio law, the result of our conclusion that it may be invalid under Ohio law ultimately could be the affirmance of the court's holding that the release cannot be given effect to bar AMI's CERCLA claims for reimbursement for the money it expended to clean up defendants' facility. 29 In disposing of AMI's state claims, the district court cited American Druggists' Ins. Co. v. Equifax, Inc., 505 F.Supp. 66, 68 (S.D.Ohio 1980), for the proposition that anticipatory releases are valid under Ohio law. 7 30 While we do not disagree with the district court's statement of the general rule of Ohio law concerning the effect of anticipatory releases, we cannot agree that it necessarily follows that the release in question was effective under the circumstances of this case. That is because Ohio courts have carved out an important exception to the general rule. In Sloan v. Standard Oil Co., 177 Ohio St. 149, 203 N.E.2d 237 (1964), the Ohio Supreme Court held that verbatim terms of a general release are not controlling under circumstances where the parties to a release did not actually intend to discharge all liability. The court set out the Ohio rule for avoiding releases in the syllabus to that opinion: 31 1. A release may be avoided where the releasor can establish by clear and convincing evidence that it was executed by mutual mistake, as between himself and the release, of a past or present fact material to the release, as where there was a mutual mistake as to the existence of any injury of the releasor, unless it appears further that the parties intended that claims for all injuries, whether known or unknown at the time of the execution of the release, be relinquished. 32 2. Whether the parties to a release actually intended to discharge all liability is a question of fact for the trier of the facts. 33 3. The terms of a release cannot circumvent the powers of equity to correct mistakes. 34 Id. at 149, 203 N.E.2d at 238 (citation omitted). The court went on to point out that [t]he dispositive inquiry in each case is what did the parties intend? ... Because intent is a question of fact, it is necessary in each case to examine all the circumstances surrounding the execution of the release. Id. at 152-53, 203 N.E.2d at 240. 35 The Ohio Supreme Court set out factors to be considered in determining the intent of the parties: 36 Certain factors have been judicially recognized as aids whereby the intent of the parties at the time the release was executed may be determined. Stated favorably to the party seeking rescission or cancellation, these factors are: The absence of bargaining and negotiating leading to settlement; the releasee is clearly liable; absence of discussion concerning [the type of injuries suffered]; the contention that the injuries were in fact unknown at the time the release was executed is reasonable; an inadequate amount of consideration received compared with the risk of the existence of unknown injuries; haste by the releasee in securing the release; and the terms of the release exclude the injuries alleged. 37 Id. at 153, 203 N.E.2d at 240 (citations omitted). In Sloan, the plaintiff was in a car accident and had experienced only headaches and a stiff neck prior to signing a release and receiving a check for the cost of repairing his car; twelve months after the accident, the plaintiff underwent an operation for a ruptured cervical disc that was found to have resulted from the automobile accident. The court held that because the settlement represented the cost of the plaintiff's car repairs and neither party realized or discussed the possibility that the plaintiff had sustained a severe personal injury at the time the release was signed, the release did not bar plaintiff's claim for the personal injury despite contract language indicating that the plaintiff discharged and released the defendant from all liability, claims, demands, controversies, damages, actions, and cause of action whatsoever, either in law or equity, which the undersigned ... have or may have, now or hereafter by reason of or in any wise incident to or resulting from the accident hereinbefore mentioned. Id. at 150, 203 N.E.2d at 238-38. 38 In a factually similar case, the Ohio Court of Appeals in Woyma v. Ciolek, 11 Ohio App.3d 288, 465 N.E.2d 486 (1983), reached the same conclusion, upholding a $22,500 jury award to compensate the plaintiff for a latent injury that resulted in severe neck, arm, and shoulder pain, dizzy spells, and the inability to stand up straight, but which was undiagnosed and unknown at the time the plaintiff signed a release and received $15 to compensate her for three days of headaches and neck pain. The release in that case stated that it was to terminate all claims for both known and unknown injuries and damages [of] whatever nature, including all future developments thereof, in any way growing out of or connected with or which may hereafter in any [way] grow out of or be connected with said accident.... Id. at 290, 465 N.E.2d at 488. In applying the factors set out in Sloan, that court emphasized that the negotiations centered on subjects other than the plaintiff's personal injuries, and did not appear to involve any attempts to bargain or negotiate a sum for the relinquishment of all future physical injury claims. Instead, [plaintiff and defendant's insurance company] only discussed the medical bills already incurred. Id. 39 These opinions demonstrate that under Ohio case law, even where a release contains unambiguous language that purports to bar claims based on unknown future causes, the release will not be effective where evidence clearly indicates that, at the time they signed the release, the parties had neither foreseen nor considered the specific cause which later gave rise to the claim. 40 The record before us supports the district court's determination that the source of the environmental hazard was the dilapidated state of the facility's roof and the absence of a sprinkler system. These conditions largely came about near or after the time of the release and, in any case, came well after the possession and ownership of the facility and all the equipment were fully transferred to defendants. The OEPA's intervention did not begin until nearly two years after the release was signed. However, upon the state of the record, we are unable to say whether, at the time the release was executed, the parties contemplated environmental claims or circumstances that would give rise to such claims. The fact that the events causing the harm upon which liability is predicated had not occurred at the time of the signing of a release is strong evidence that the parties did not intend the release to bar such liability. See Swenson v. Ewy, 54 Ohio St.2d 470, 475, 377 N.E.2d 519, 523 (1978). 41 Accordingly, we must remand this cause to the district court in order that a record may be developed that will permit the court to address the criteria set out by the Ohio Supreme Court in Sloan and to determine whether the evidence clearly and convincingly establishes that the parties did not intend the release to cover liability for environmental damage in general or the CERCLA cleanup costs in particular.