between the parties. CERCLA liability is among the unanticipated future liabilities which the parties allocated between themselves. The court finds, therefore, that the agreement included the allocation of CERCLA liability based on whether that liability related to pre-sale or post-sale conduct.
3. Did R&H indemnify SKB against CERCLA liability?
Even though the agreement allocates CERCLA liability between the parties, the plaintiff's CERCLA liability with respect to the clean up of the Myerstown site may not have been allocated to the defendant. Under section 3.2(a), R&H indemnified SKB only for those liabilities "relating to the conduct of the Business prior to the First Closing Date." The issue, then, is whether SKB's CERCLA liability relates to pre-sale or post-sale conduct.
R&H contends that SKB's CERCLA liability is not indemnified under section 3.2(a) because it arose after the date of the sale when SKB first disposed of hazardous materials at the Whitmoyer site during its ownership of the Business. (Def.'s Mem. at 21-27). As a former owner of a contaminated site, SKB is liable under CERCLA only if contamination to the site occurred during its ownership of the site. See 42 U.S.C. § 9607(a)(2). R&H claims that SKB's CERCLA liability arose when it released arsenic waste into the environment at the Whitmoyer site. But for SKB's post-sale disposal of hazardous substances at the Whitmoyer site, R&H argues, SKB would not have had any CERCLA liability. Therefore, according to defendant's argument, SKB's CERCLA liability is not indemnified under the contract because it relates to post-sale conduct.
Essentially, the defendant interprets the agreement's phrase "all material liabilities relating to the conduct of the Business prior to the . . . sale" as not applying to any liabilities that would not have arisen "but for" some post-sale conduct. This interpretation is flawed because it would preclude indemnification of SKB for any liability. Every possible liability related to Whitmoyer Laboratories that attaches to SKB would have necessarily arisen out of SKB's "post-sale conduct" of owning the Business. "But for" that ownership, there would be no liability. This interpretation would then render the indemnification clause meaningless.
Other courts which have faced this same argument have held that the fact that CERCLA liability initially attached to the indemnitee because of its own actions did not mean that the liability could not also be related to the activities of the indemnitor. In New York v. SCA Servs., Inc., 844 F. Supp. 926, 1994 WL 66931 (S.D.N.Y., 1994), the court held that a waste generator which arranged for the disposal of hazardous waste could be indemnified for its CERCLA liability under an agreement with the transporter of the waste. The indemnification agreement stated that the generator was indemnified for any liabilities "in any way  associated" with the activities of the transporter. Id. at*2. The court reasoned that although the generator's CERCLA liability arose out of the fact that it arranged for the disposal of its own hazardous substances, that liability was "associated" with the activities of the transporter and therefore within the scope of the indemnification clause. Id. Similarly, although SKB's CERCLA liability initially arose out its own disposal of hazardous substances during its ownership of Whitmoyer, the portion of that liability attributable to the conduct of the Business prior to its purchase falls within the scope of the indemnification clause of the purchase agreement. Similarly, in American Nat'l Can Co. v. Kerr Glass Mfg. Corp., 1990 U.S. Dist. LEXIS 10999, * 2- * 5 (N.D. Ill. August 20, 1990), the court held that the seller indemnified the buyer's CERCLA liability based on an indemnification clause which divided responsibility based on whether the liability arose out of pre-sale or post-sale events. The court held the seller liable for the all the clean up costs attributable to its conduct when it owned the business. Id.
Furthermore, defendant's interpretation is contradicted by the very language of the contract. In section 3.2(a), R&H indemnifies SKB for all liabilities relating to the pre-sale conduct of the Business, such liabilities "specifically include, but are not limited to . . . product liability claims not resulting from Buyer's own negligence and relating to products manufactured or sold by Seller prior to the [sale of the company], provided such products if sold by Buyer are sold within the applicable Federal Food and Drug Administration expiration dating limit." (Pl.'s Ex. 48 at 8-9). Under the terms of the contract, then, SKB would be indemnified for a product liability claim that "arose out of" its own post-sale conduct of selling the product. The product liability claim would not have come about but for SKB's post-sale conduct of selling the product, just as SKB's CERCLA liability would not have come about but for its disposal of hazardous substances. Under R&H's interpretation of the indemnification clause, however, it would seem that SKB would not be indemnified for such a product liability claim because the liability arose out of SKB's post-sale conduct. R&H's interpretation of the indemnification clause as not covering any liability which in any way arose out of post-sale conduct, is undermined by the fact that the contract specifically includes among indemnified liabilities one which arises out of post-sale conduct. A basic tenet of contract law is that a contract should be interpreted as a whole in a manner which does not render the contract internally inconsistent. See Nevets C.M., Inc. v. Nissho Iwai Am. Corp., 726 F. Supp. 525, 533 (D.N.J. 1989). An interpretation which gives reasonable meaning to all parts of the contract must be selected over an interpretation which annuls part of the contract. Blake Constr. Co. v. United States, 987 F.2d 743, 747 (Fed. Cir. 1993). R&H's proposed interpretation of the indemnification clause would make the contract internally inconsistent. That interpretation, therefore, must be rejected in favor of SKB's proposed interpretation that section 3.2(a) indemnifies SKB for those clean up costs which are related to pre-sale conduct of the Business.
R&H also argues that SKB's CERCLA liability cannot be divided. (Def.'s Reply Mem. at 6-7). Courts customarily impose joint and several liability for CERCLA claims. United States v. Alcan Aluminum Corp., 964 F.2d 252, 268-69 (3d Cir. 1992). The defendant argues that because CERCLA liability is joint and several, SKB cannot divide its clean up costs for which it is liable based on whether they are related to pre-sale or post-sale conduct. R&H maintains that SKB must be either liable for the entire clean up or for none of it. This view, however, ignores the statutory language found in section 107(e)(1) of CERCLA that has been interpreted to give parties the freedom to allocate CERCLA liability among themselves while remaining jointly and severally liable to the government for the clean up of the contaminated site. See, e.g., Olin, 5 F.3d at 14; John S. Boyd Co., 992 F.2d at 405; Purolator Products, 772 F. Supp. at 129; Mobay, 761 F. Supp. at 355 (D.N.J. 1991). Even though R&H has indemnified SKB for the liabilities caused by pre-sale conduct of the Business, SKB remains jointly and severally liable to the government for the entire clean up of the Whitmoyer site. Section 107(e)(1) states that "nothing in this subsection shall bar any agreement to . . . indemnify a party to such agreement for any liability under this section." 42 U.S.C. § 9607(e)(1). This allows parties to freely indemnify each other for CERCLA liability. It does not require that such indemnification be for the entire CERCLA liability, nor does it prohibit parties from agreeing to indemnify each other only for those CERCLA liabilities caused by the other, as was done in this case.
4. Is section 3.2(a) the appropriate indemnity provision for SKB's CERCLA liability?
R&H claims that section 9 of the purchase agreement precludes SKB's indemnification action. Section 9, titled "RandH's Representations", states that "all representations contained in this Section 9 shall survive the First Closing Date until December 31, 1980." (Pl.'s Ex. 48 at 23). SKB did not bring the present indemnification action until September 16, 1992. Section 9 contains two representations, sections 9.22 and 9.36, which R&H argues are the only feasible clauses within the agreement upon which SKB can base an indemnity claim for its CERCLA liability. If these are the only bases for bringing an indemnity action for CERCLA liability, then SKB has filed its claim too late.
Under section 9.22, entitled "Condition of Property", R&H represents that
"the properties relating to the Business (whether owned or leased), the improvements thereon and the machinery and equipment therein, taken as a whole, are in good operating condition, free from any known defects except such defects as do not materially interfere with the continued use thereof in the normal course of the operations of the Business as heretofore conducted. Seller has maintained the plant and equipment relating to the Business in accordance with good business practices."
(Pl.'s Ex. 48 at 36). This representation may be enforced through the indemnity provision contained in section 3.2(c) which states that R&H indemnifies SKB for "all losses, liabilities, damages or deficiencies to Buyer . . . resulting . . . from any material misrepresentation . . . or nonfulfillment of any agreement or covenant on the part of Seller under any provision" of the purchase agreement.
(Id. at 10). R&H argues that the CERCLA liability imposed on SKB does not relate to the pre-closing "conduct of the Business" as set forth in section 3.2(a), but rather relates only to a condition of the property as set forth in section 9.22. R&H concludes that because SKB did not bring the indemnification action for misrepresentation under section 9.22 prior to the expiration date for such actions in 1980, SKB has no indemnity claim for its CERCLA liability.
R&H's interpretation is flawed for several reasons. First and foremost, the warranties found in section 9 are not the basis of SKB's claim. The claim is based upon the indemnity provision of section 3.2(a). Second, R&H's argument that CERCLA liability does not "relate to the conduct of the Business" ignores the fact that the contamination of the property was a direct result of the operations of Whitmoyer Laboratories. R&H argues that because the liability is based on contamination of the ground at the Myerstown site, the liability must relate only to a condition of the property. The obvious flaw in this reasoning is that the contamination was released into the grounds of the Myerstown site through the conduct of the Business at the site. Clearly, the disposal of hazardous waste is business conduct when that waste was produced by the business' manufacturing process. Therefore, CERCLA liability is related to conduct of the Business and within the indemnification coverage of section 3.2(a).
Furthermore, section 9.22 is inapplicable to the present action because SKB seeks indemnification for liability which arose not out a breach of contract by the seller but out of a third party claim against SKB by the government. Section 9 and its corresponding indemnification provision at 3.2(c) deal exclusively with the buyer's remedy for the seller's breach of the agreement. Section 9 provides a means for the buyer, SKB, to seek remedies for a breach of a promise or a misrepresentation by the seller, R&H. In contrast, section 3.2(a) provides the buyer protection from liabilities arising out of third party claims against the buyer. The representations found in section 9 describe the business being bought. If that description proves to be inaccurate, the buyer has a remedy under section 3.2(c) for breach of promise. No third party is involved in such a claim. Because CERCLA liability is a third party claim and does not involve any misrepresentation or breach of promise by R&H, section 9 is not the appropriate section upon which SKB could base its indemnification claim. Thus, the indemnification provision in 3.2(a), not section 3.2(c), applies to SKB's CERCLA liability.
Likewise, the representation under section 9.36 is also inapplicable to SKB's CERCLA liability. Under section 9.36, R&H represented that it "does not have any reason to believe that any operation of the Business currently violates any [environmental] law or regulation in any material respect." (Pl.'s Ex. 48 at 49). Like section 9.22, this representation is not relevant to the indemnification of third party claims such as SKB's CERCLA liability. Furthermore, although this section alludes to environmental laws, it is irrelevant to SKB's CERCLA liability. This section merely states that R&H believes the Business to be in compliance with current environmental laws. The CERCLA liability involved in the present case is not based on whether an environmental law or regulation was violated in 1978. CERCLA liability is based on the status of the site, not on whether a previous owner was in compliance with the environmental laws in effect at that time.
R&H claims that if section 3.2(a) is interpreted to include indemnification of CERCLA claims, then sections 9.22 and 9.36 would be rendered superfluous. These sections would not be superfluous, however, because they serve a different purpose than section 3.2(a). Sections 9.22 and 9.36 provide the basis for a claim of misrepresentation against R&H. Section 3.2(a) indemnifies SKB against third party liability. This interpretation is supported by extrinsic evidence which demonstrates that the parties intended section 3.2(a) to indemnify third party claims even if those claims were based on a misrepresentation within section 9. In 1978, shortly after the sale of the Business to SKB, a number of lawsuits were brought against Whitmoyer for the death of animals caused by the product Sansalid, a veterinary drug produced by Whitmoyer. SKB sought indemnification from R&H for the claims asserted against SKB by third parties, for the loss of projected profits based on R&H's failure to disclose adverse tests of the drug and for breach of many of its representations found in section 9 of the purchase agreement. R&H and SKB settled the claim and entered into a settlement agreement which released R&H from liability for:
1. Claims in respect of Sansalid product liability;
2. Claims in respect of the diminished value of the Sansalid patents and the capital stock of Whitmoyer Laboratories, Inc. arising from the imminent FDA withdrawal of the Sansalid NADA; and