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VERSATILE METALS, INC. v. UNION CORP.

June 15, 1988

Versatile Metals, Inc., and Versatile Oxide, Inc.
v.
The Union Corporation and The Metal Bank of America



The opinion of the court was delivered by: KELLY

 JAMES MCGIRR KELLY, UNITED STATES DISTRICT JUDGE.

 This action arose from a dispute concerning a contract for the sale of assets and the lease/purchase of real property located at 6801 State Road in Philadelphia, Pennsylvania, which was discovered to be substantially contaminated with polychlorinated biphenyls (PCBs) six months into the tenancy of the plaintiffs-tenants Versatile Metals, Inc. and Versatile Oxide, Inc. Plaintiffs (referred to hereinafter collectively as "Versatile Metals") filed their Complaint on July 16, 1985 alleging substantial damages for a breach of express warranties, breach of implied warranties, breach of contract, and fraudulent misrepresentation due to the presence of the contamination at the property. On September 4, 1985 defendants The Union Corporation and The Metal Bank of America (referred to hereinafter collectively as "Metal Bank") filed their answer and counterclaimed for breach of contract, breach of lease, breach of an indemnification clause, waste, fraud, and an action for cost recovery under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. §§ 9601 et seq. (1982).

 From December 2, 1987 to February 5, 1988 this case was tried before this Court and a jury. This court reserved judgment on defendant's counterclaim under CERCLA. On the thirty-ninth day of trial, the jury returned its verdict consisting of answers to the special interrogatories submitted by this Court on February 8, 1988. The parties were directed to submit proposed forms of judgment to be rendered based on the jury's answers to the special interrogatories. This Memorandum and Order represents this Court's judgment on the verdict returned by the jury pursuant to Rule 58 of the Federal Rules of Civil Procedure and the findings of fact and conclusions of law as to the defendant's counterclaim under CERCLA pursuant to Rule 52.

 The substantive law of Pennsylvania has been applied to the state law claims. Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S. Ct. 817, 82 L. Ed. 1188 (1938). Pennsylvania contracts for the sale of goods are governed by the Uniform Commercial Code. 13 Pa.Cons.Stat. § 2101 (1980). The sale and lease of real estate is governed by the law of Pennsylvania.

 The parties are in agreement that the issue of whether the terms of the subject contracts constitute certain express warranties is a matter for this court. The language of the contracts is clear and unambiguous. The interpretation of a written contract that is clear and unambiguous is for the court. Chuy v. Philadelphia Eagles Football Club, 595 F.2d 1265, 1271 (3d Cir. 1979); Baltimore Bank For Cooperatives v. Farmers Cheese Cooperative, 612 F.2d 151, 153 (3d Cir. 1979).

 Plaintiffs contend that Sections 2.04, 2.06 and 4.05 of the Asset Purchase Agreement and Section 5 of the Lease Purchase Agreement constitute express warranties. Plaintiffs state that these warranties were breached because the equipment and inventory purchased and the land leased by plaintiff under the agreement were contaminated by PCBs.

 In deciding whether the terms of a contract constitute express warranties, the Court must look to 13 Pa.Cons.Stat. § 2313 (1980). It is not necessary for the creation of an express warranty that the seller use formal words such as "warrant" or "guarantee" or that he have a specific intention to make a warranty, but an affirmation merely of the value of the goods or a statement purporting to be merely the opinion of the seller or commendation of the goods does not create a warranty. 13 Pa.Cons.Stat. § 2313(b)(1980).

 Three fundamental issues are presented. First, the Court must determine whether the statement constitutes an "affirmation of fact or promise" or "description of the goods". Second, assuming the court finds the language used susceptible to the creation of a warranty, it must then be determined whether the statement was "part of the basis of the bargain." If it was, an express warranty exists. Sessa v. Riegle, 427 F. Supp. 760, 765 (E.D. Pa. 1977), aff'd 568 F.2d 770 (3d Cir.1978).

 
4.05 Environmental Matters. Seller and Union jointly and severally represent and warrant to Buyer that as of November 26, 1984 the land included in the Leased Premises was free of contamination in violation of any applicable federal, state or local law or regulation relating to the protection of health, safety and environment. Seller and Union jointly and severally agree to indemnify and hold Buyer harmless from any and all costs, damages, liabilities and expenses resulting from hazardous waste in the Inventory existing on and the land included in the Leased Premises at November 20, 1984, provided that, with respect to the Inventory, Buyer acts in the following manner:
 
(a) Buyer shall keep all Inventory purchased hereunder segregated from any other inventories of Buyer;
 
(b) Buyer shall give seller prompt telephone notice (tel. 412-362-1700, attention Raymond Beacha or Raymond T. Royko, or to such other number or persons as Seller may direct by written notice to Buyer) upon discovery of capacitors or other items in such inventory that may contain hazardous waste and shall at the sole expense, risk and liability of Seller cooperate with Seller in Seller's removal and shipment of such items; and
 
(c) Buyer shall act in a reasonable manner both before and after discovery of items containing hazardous wastes in order to prevent leakage and otherwise minimize contamination or other damage.

 A careful reading of this section produces the following understanding of its terms. First, it contains an express warranty that the land included in the "Leased Premises" is free of any contamination which would be violative of applicable laws or regulations. Defendants do not contest the import of this statement. Secondly, the Seller agreed to indemnify and hold Buyer harmless from any damage resulting from the presence of hazardous waste in the Inventory and the land on or before November 20, 1984 providing Buyer complied with the aforementioned conditions. The Court submitted special interrogatories to the jury based on this finding.

 In response to the Special Interrogatories submitted by the Court, the jury found that the property at 6801 State Road was substantially contaminated both before and after the plaintiffs took possession of the property on November 20, 1984. The contamination that occurred after November 20, 1984, or while the plaintiffs were in possession, resulted from hazardous waste material, including items which contained PCB contaminants, already on the site prior to their tenancy and purchase. The jury did not find that the contamination was due to any additional hazardous waste material which was brought on the site by the plaintiffs after they took possession.

 The jury found that Versatile Metals failed to substantially comply with paragraphs (a), (b) and (c) of Section 4.05 of the Asset Purchase Agreement, and this failure to comply substantially prejudiced the defendants. When asked to apportion the fault between the parties, the jury found that Versatile Metals was fifty-five percent responsible and Metal Bank forty-five percent responsible for the contamination. The reasonable clean-up costs incurred by Metal Bank attributable to Versatile Metals' actions was found to be $ 1,107,489. Further, the jury found that the contamination at the site was not a substantial factor in bringing about the harm Versatile Metals claimed in this case.

 The following is this Court's interpretations of the factual findings of the jury.

 Since the property was found to be substantially contaminated before Versatile Metals took possession pursuant to the Agreement, Metal Bank materially breached the express warranty. Since Metal Bank materially breached the contracts, recovery on the contract under the counterclaims for breach of contract and breach of the lease is barred.

 Metal Bank's fraud claim must necessarily fail as well. Defendants' counterclaim for fraud alleges that Versatile Metals fraudulently entered into the Agreement and Lease with the intention of breaching it. Since Versatile Metals could validly cancel the Agreement due to Metal Bank's breach, there could not be any fraud.

 The State Road property was found to have been substantially contaminated after Versatile Metals took possession. This contamination occurred from the mishandling of the hazardous waste in the inventory which was left on the site by the defendants. However, the jury found that Versatile Metals failed to fulfill the conditions on the express warranty as to any damage resulting from the presence of hazardous waste material in the inventory. The failure of Versatile Metals to fulfill the conditions in Section 4.05 is a bar to recovery on their claim for indemnification and breach of contract under the agreements. Versatile Metals is barred from recovering on their breach of contract claim since they failed to give notice of the breach, and failed to act reasonably upon discovering the contamination. Versatile Metals' failure to comply with the conditions of the warranty substantially prejudiced Metal Bank.

 Versatile Metals alleged fraudulent misrepresentation by Metal Bank for their alleged failure to disclose the material fact that the land was contaminated at the time the agreement was signed. However, since Versatile Metals failed to prove that the actions of Metal Bank were a proximate cause of their harm, Versatile Metals' fraud claim must similarly fail.

 Versatile Metals' claim for constructive eviction fails. The covenants for quiet possession relate only to the acts of the lessor and those acting under him and do not extend to the "conduct of other persons by which the value or the comfort of the leasehold may be diminished." No. 14 Coal Co. v. Pennsylvania Coal Co., 416 Pa. 218, 206 A.2d 57, 58 (1965). Since Versatile Metals substantially contributed to the contamination, they cannot claim for constructive eviction.

 Defendants alleged a claim for waste. Under Pennsylvania law, an implied covenant exists to return a leasehold premises in substantially the same condition in which it existed when received, except for usual wear and tear, and uninjured by any willful or negligent act of the lessee. U.S. Gypsum Co. v. Schiavo Bros. Inc., 450 F. Supp. 1291 (1978), aff'd in part, rev'd in part, 668 F.2d 172 (3d Cir.1981), cert. denied, 456 U.S. 961, 72 L. Ed. 2d 485, 102 S. Ct. 2038 (1982), quoting Earle v. Arbogast, 180 Pa. 409, 36 A. 923 (1897); 22 P.L.E. Landlord and Tenant 823 § 237. The jury's finding that Versatile Metals contributed to the contamination of the leasehold by failing to use reasonable care upon the discovery of hazardous waste materials entitled Metal Bank to recover the cost of necessary repairs incurred to restore the property to its former condition before the tenancy. The jury found that the amount of reasonable clean-up costs incurred by Metal Bank as a result of Versatile Metals' actions was $ 1,107,489.

 Versatile Metals contends that they are entitled to a return of net monies received by Metal Bank on the resale of certain equipment owned by Versatile Metals but left behind on the site. The special interrogatories submitted to the jury, as structured, did not allow the jury to take this matter into account when awarding damages to Metal Bank. Therefore, a new trial will be held solely for the purpose of determining the amount of net monies received by Metal Bank on the resale of equipment owned by Versatile Metals, if any. The parties are of course free to stipulate to an appropriate figure in order to expedite the entry of judgement in this matter.

 Defendants have moved for delay damages pursuant to Pennsylvania Rule of Civil Procedure 238. Rule 238 is applicable solely to tort actions and does not provide for delay damages for contract claims. Reliance Universal Inc. of Ohio v. Ernest Renda Contracting Co., 308 Pa. Super. 98, 107, 454 A.2d 39, 44 (1982). Therefore, defendants' motion is denied.

 CERCLA Claim

 In Count V of the counterclaim, defendants allege a private party action for contribution for costs they incurred in performing removal or remedial actions at the State Road property pursuant to Section 104(a) of the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. § 9607(a)(1) (1982). Defendants allege that as operators of the facility at the State Road property, plaintiffs are "responsible parties" under CERCLA. Defendants, as owners and past operators of the facility, allege that they are entitled to contribution for clean-up costs defendants were obligated to incur to remedy the release or threat of release of PCBs and other hazardous substances caused or substantially contributed to by plaintiffs. Defendants seek contribution in the form of compensatory, consequential, incidental, and punitive damages as well as attorney's fees and costs.

 Background

 Plaintiff, Versatile Metals, Inc., (Versatile Metals), is a corporation incorporated under the laws of the state of Kentucky and has its principal place of business in Schaumberg, Illinois. Plaintiff, Versatile Oxides, Inc. (Versatile Oxide), was incorporated on or about December 28, 1984 in the state of Delaware and has its principal place of business in Schaumberg, Illinois. Defendant, the Union Corporation (Union), is a corporation incorporated in 1962 under the laws of the state of New Jersey and has its principal place of business in Norwalk, Connecticut. Defendant, The Metal Bank of America, Inc., a Pennsylvania corporation, is a wholly-owned subsidiary of Union. I will refer to plaintiffs collectively as "Versatile Metals" and defendants as "Metal Bank".

 Beginning in approximately 1969, Metal Bank was involved in the processing of used transformers to reclaim the copper cores and iron casings. Operations were carried out at Metal Bank's site which they owned at 6801 State Road in Philadelphia, Pennsylvania. In the fall of 1984, Metal Bank and Versatile Metals entered into negotiations for the lease/purchase of the State Road property and the sale of the assets, including the inventory, equipment, and machinery located on the subject property. A letter of Intent was signed between Versatile Metals and Metal Bank on November 20, 1984 which contemplated the execution of a formal agreement.

 Versatile Metals paid Metal Bank $ 50,000 on November 21, 1984 and took sole possession of the property on that date. Versatile Oxide was incorporated in late December, 1984. Pursuant to Section 7.07 of the Asset Purchase Agreement, Metal Bank tendered to Versatile Oxide a Bill of Sale for certain equipment at the property which had been used in the production of oxides by Metal Bank. Versatile Oxide continued in the production of copper oxides with this equipment.

 The transaction closed on January 4, 1985 with the execution of the Asset Purchase Agreement and the Lease/Purchase Agreement. Between November 21, 1984 and May, 1985, when Versatile Metals left the site, Versatile Metals was engaged in the sale of scrap metal inventory and items of equipment and machinery at the property.

 In late April, Versatile Metals discovered substantial areas of oily ground. Versatile Metals' representative, David Berkowitz, directed Metal Bank's chemist to take samples of certain areas of the property. The samples revealed substantial PCB contamination. Metal Bank requested that Versatile Metals vacate the property because of the suspected contamination. Versatile Metals vacated the property.

 Metal Bank reported the sample results to the National Response Center, EPA Region III, the City of Philadelphia, and the Pennsylvania Department of Environmental Resources. In mid-May, Metal Bank hired Dr. Kleppinger as a consultant to recommend a proper course of action for ridding the site of the contamination. A preliminary assessment of the site revealed substantial contamination that was the result of both long-term and recent spills of PCB contaminants onto the ground, presumably leakage from capacitors and transformers which were present in the piles of inventory. Capacitors and transformers contain amounts of PCB's which spill out when they are broken or crushed.

 A private party response action was initiated by Metal Bank in May and continued until approximately March, 1986. Versatile Metals did not participate in the response initiative, but filed this action in July, 1985.

 A. LIABILITY UNDER CERCLA

 Section 107 of CERCLA provides in pertinent part:

 
Notwithstanding any other provision or Rule of law, and subject only to the defenses set forth in subsection (b) of this section -
 
the owner and operator of a vessel (otherwise subject to the jurisdiction of the United States) or a facility . . ., from which there is a release, or a threatened release which causes the incurrence of response costs, of a hazardous substance, shall be liable for . . . any other necessary costs of response incurred by any responsible person consistent with the national contingency plan . . .

 42 U.S.C. § 9607(a)(1982).

 Metal Bank, as an admittedly "responsible party" under the Act, undertook the clean-up, and now seeks contribution for the "necessary costs of response" under 42 U.S.C. § 9607(a)(4)(B). A potential "responsible person under the Act" may sue for contribution for the necessary costs of clean-up even though the federal or state governments have not yet chosen to commence an action against the liable parties. See City of Philadelphia v. Stepan Chemical Co., 544 F. Supp. 1135 (E.D.Pa.1982). "Responsible" persons may be held liable jointly and severally for, inter alia, private response costs which are incurred "by any other person" consistent with the national contingency plan. City of Philadelphia v. Stepan Chemical Co., 544 F. Supp. at 1140-1141. Section 113(f)(1) provides:

 
"Any person may seek contribution from any other person who is liable or potentially liable under Section 9607(a) of this title . . ."

 42 U.S.C. § 9613(f)(1).

 As a former operator of the State Road "facility" from which a "release" of a hazardous substance occurred which prompted the incurrence of response costs, Versatile Metals and Versatile Oxides are both "responsible persons" under the Act. Defendants Union Corporation and Metal Bank are also "responsible persons" as owners and operators of the facility. The harm suffered is indivisible since it is not possible to distinguish contamination due solely to the acts of either party. Therefore, since Versatile Metals and Metal Bank are responsible persons and the harm is indivisible, they are jointly and severally liable for the costs incurred for the necessary response actions that were consistent with the National Contingency Plan (the "NCP").

 B. Defenses to Liability

 1. Equitable Defenses

 Section 107(a) imposes strict liability on responsible parties "notwithstanding any other provision or rule of law, and subject only to the defenses set forth in subsection (b) of this Section . . ." *fn2" 42 U.S.C. § 9607(a)(1982)(emphasis added). City of Philadelphia v. Stepan Chemical Co., 544 F. Supp. 1135, 1140 n.4 (E.D.Pa.1982); U.S. v. Tyson, 25 ERC 1897, 1899-1900 (E.D.Pa.1986); New York v. Shore Realty Corp., 759 F.2d 1032 (2d Cir.1985); Developments in the Law-Toxic Waste Litigation, 99 Harv.L.Rev. 1458, 1518-19 (1986); U.S. v. Stringfellow, 661 F. Supp. 1053, 1062 (C.D.Cal.1987); Artesian Water Co. v. Gov. of New Castle County, 659 F. Supp. 1269, 1277 (D.Del.1987). I find the reasoning and analysis of City of Philadelphia persuasive and adopt it as the law of this case.

 Assuming the equitable defense of "unclean hands" is available to Versatile Metals in this case, I find that since Versatile Metals caused and contributed to the level of the release of the hazardous substance the defense would be unavailing. In the course of their operations on the site, Versatile Metals negligently handled the capacitors and transformers and caused leakage of the contaminated contents. Evidence of recent spills was presented. Versatile Metals failed to promptly notify the environmental authorities of the release, or Metal Bank - as required under the contract. Therefore, Versatile Metals does not appear with the requisite "clean hands" in order to invoke any "unclean hands" defense.

 Section 113(f)(1) provides:

 
"Any person may seek contribution from any other person who is liable or potentially liable under Section 9607(a) of this title . . . In resolving contribution claims, the court may allocate response costs among liable parties using such equitable factors as the court determines are appropriate . . ."

 42 U.S.C. § 9613(f)(1)(1982). Versatile Metals' claims of relative fault and innocence relate, if at all, to the apportionment of damages, or in determining the nature of the remedy sought. Chemical Waste Management, Inc. v. Armstrong World Industries Inc., 669 F. Supp. 1285, 1292 (E.D.Pa.1987). Therefore, Versatile Metals' assertions as to relative ...


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