Opinion ID: 764698
Heading Depth: 2
Heading Rank: 2

Heading: Assumption of Liabilities

Text: 18 Alternatively, WCI claims that the district court erroneously determined that the assumption of liabilities provision in the Purchase Agreement is sufficiently broad to transfer to WCI all environmental liability. WCI asserts, contrary to the district court's conclusion, that the one-year grace period for which the parties contracted does not indicate that WCI and Westinghouse foresaw that liabilities arising after the grace period would remain with WCI. We disagree. The district court did not commit reversible error in concluding that WCI assumed liability for subsequently arising environmental liabilities. 19 The Purchase Agreement's assumption and liabilities provision, which addresses the allocation of potential future liabilities associated with the business, provides in pertinent part: 20 9.1 Assumption of Liabilities: Subject to Section 9.2 hereof, WCI hereby assumes, effective as of the Closing, the following liabilities and obligations of Westinghouse ... 21 9.1.5 All obligations and liabilities of the Business, contingent, or otherwise, which are not disclosed or known to Westinghouse on the Closing Date and are not discovered by WCI within a period of one year from the Closing Date. 22 (J.A. at 153, 154). 23 Generally, parties may contract to shift CERCLA and other environmental liabilities by means of an assumption or indemnification agreement. See Olin Corp. v. Yeargin, Inc., 146 F.3d 398, 407 (6th Cir.1998) (citations omitted). This Court has recognized that a provision in an assumption agreement, which contains broad language sufficient to indicate that the parties intended to include all liabilities, will include environmental liabilities as well even without specific reference to an environmental statute such as CERCLA. Id. A broad assumption of liabilities provision therefore transfers CERCLA liability to the purchaser of a business who agrees to the broad assumption. See id. We apply state law to determine whether a particular contract provision allocates responsibility for subsequently arising environmental liabilities. See id. (citing SmithKline Beecham Corp. v. Rohm & Haas Co., 89 F.3d 154, 157 (3rd Cir.1996)). 24 While Ohio law dictates that anticipatory releases are neither unusual nor per se void as a matter of public policy, American Druggists' Ins. Co. v. Equifax, Inc., 505 F.Supp. 66, 68 (S.D.Ohio 1980), Ohio courts have not addressed whether a pre-CERCLA assumption agreement can transfer CERCLA liability to the purchaser of a business. 3 However, other courts confronted with the issue have determined that an agreement entered into prior to the passage of CERCLA can allocate CERCLA liabilities. For example, in Olin Corp. v. Consolidated Aluminum Corp., 5 F.3d 10 (2d Cir.1993), the Second Circuit determined that a purchaser who agreed to assume and ... indemnify [the seller] against all liabilities, obligations and indebtedness of [seller] related to the Aluminum Assets ... as they exist on the Closing Date or arise thereafter with respect to actions or failures to act occurring prior to the Closing Date did in fact assume responsibility for all future arising environmental liabilities. Id. at 12. Moreover, the Third Circuit in Rohm & Haas, relying upon the Second Circuit's decision in Consolidated Aluminum, determined that an indemnity provision which provided that the purchaser assume all losses, liabilities and deficiencies manifested the parties' intent to allocate all present and future environmental liabilities to the purchaser. Rohm & Haas, 89 F.3d at 159-60. Similarly, the Third Circuit has concluded that where the purchaser of a business agreed to assume all of the liabilities and obligations ... of whatsoever nature, the contract language was sufficiently broad to encompass CERCLA liability, thereby allocating to the purchaser the responsibility for the cleanup of the contaminated site. See ALCOA v. Beazer East, Inc., 124 F.3d 551, 556 (3rd Cir.1997). Hence, when determining whether a pre-CERCLA assumption provision transfers responsibility for response costs to a purchaser, courts have found that the provision covers response costs if it is either specific enough to include CERCLA liability or general enough to include any and all environmental liability. See Rohm & Haas, 89 F.3d at 159; Consolidated Aluminum, 5 F.3d at 15-16. 25 WCI's argument that the assumption language in the Purchase Agreement did not transfer the environmental cleanup liability at the Edison facility to WCI is unpersuasive. By contract, WCI assumed [a]ll obligations and liabilities of the Business, contingent, or otherwise, which are not disclosed or known to Westinghouse on the Closing Date and are not discovered by WCI within a period of one year from the Closing Date. (J.A. at 154). By assuming [a]ll obligations and liabilities of the Business, contingent, or otherwise, WCI agreed to assume all potential unknown liabilities related to the business. (J.A. at 154). Thus, absent proof that Westinghouse had knowledge of the contamination or existing environmental liabilities, WCI is solely responsible for future liabilities that arise after the one-year grace period. In accordance with the district court's decision, we find that the Purchase Agreement allocated to WCI the risk of CERCLA losses after the expiration of the one-year indemnification period. See Keywell Corp. v. Weinstein, 33 F.3d 159, 165-66 (2nd Cir.1994) (discussing liabilities under CERCLA after the expiration of a two-year grace period). 26 Finally, WCI claims that the district court's conclusion contradicts tenets of contract interpretation since indemnification agreements must be strictly construed against the indemnitee, particularly where the indemnitee's mistakes cause the underlying liability. We disagree, as we must rely upon the unambiguous language in the Purchase Agreement which indicates that WCI agreed to assume these unknown environmental liabilities when it purchased Westinghouse's business operations. Moreover, where, as here, the Purchase Agreement was entered into by sophisticated companies after arduous negotiations, we will give effect to the parties' freely negotiated terms. See City of Toledo v. Beazer East, Inc., 103 F.3d 128, 1996 WL 683505, at  1 n. 5 (6th Cir. Nov.22, 1996) (unpublished table decision) (citing Glaspell v. Ohio Edison Co., 29 Ohio St.3d 44, 505 N.E.2d 264, 265, 266 (Ohio 1987)) (stating that the general rule that clauses limiting liability of drafter are to be strictly construed need not apply when parties are sophisticated entities); Consolidated Aluminum, 5 F.3d at 16 (noting that the court is not willing to ignore the broad inclusive language of agreements freely entered into by two sophisticated parties).