Mardan to clean up and close the settling pond. Mardan then sued Macmillan under Section 107 of CERCLA seeking to recover part of the costs of the cleanup. Macmillan denied liability, claiming that the settlement agreement signed two years earlier had included a release of CERCLA liability. Mardan denied that the parties had intended the agreement to include such a release.
On appeal, the Ninth Circuit was called upon to determine whether the settlement agreement constituted an agreement "to insure, hold harmless, or indemnify a party" for liability under Section 107(a), as allowed by Section 107(e).
In making this determination, the court addressed the issue of whether state or federal law should govern the interpretation of the agreement. "From the outset, we must be clear that federal law governs the issue, for federal law always governs the validity of releases of federal causes of action." Mardan at 1457, citing Dice v. Akron, Canton & Youngstown R.R. Co., 342 U.S. 359, 361, 96 L. Ed. 398, 72 S. Ct. 312 (1952); Salmeron v. United States, 724 F.2d 1357, 1361 (9th Cir. 1983). The court went on to conclude, however, that in interpreting the meaning and scope of the agreement as intended by the parties, "state law should provide the general content of federal law on the validity of releases of claims for cost-recovery under CERCLA." Id. at 1460. The court qualified its holding by noting that, even if state law is incorporated as a general matter, courts should reject specific state rules that are aberrant or hostile to federal interests. Id. at 1458.
Applying New York law, the court concluded that the parties had clearly intended the settlement agreement to include all possible claims related to the property, including possible claims under CERCLA. Id. at 1461. In reaching this conclusion, the court emphasized the importance of the parties' knowledge of the settling pond and its toxic contents, the fact that the parties specifically addressed the possibility that corrective action would be required, and the fact that CERCLA had been in existence for over a year at the time the settlement agreement was executed. Id.
The facts in the Mardan case differ from the facts in this case in two significant ways. First, the parties to the settlement agreement in the Mardan case not only knew that the property contained a hazardous waste dump, but also were aware of and discussed the possibility of EPA enforcement action. In this case, the purchasers of the contaminated property had no knowledge, actual or constructive, of the presence of hazardous waste. Furthermore, neither of the parties could have anticipated the possibility of liability for response costs under CERCLA; the land was conveyed five years prior to the enactment of the statute. Second, the agreement subject to interpretation in Mardan was a comprehensive settlement and release, entered into subsequent to and separate from the purchase agreement, and intended to settle all disputes between the parties arising out of the purchase agreement. In contrast, the "as is" clause in this case, was standard, boiler-plate language routinely included in every contract and deed for the transfer of property owned by NL Industries. See, Admirand Declaration, para. 4. It is not even clear from the record that the "as is" clause was a negotiated term of the land sale contract. Moreover, as NL admits, the purpose of inserting the "as is" clause in all deeds was to protect NL from "any claim by the purchaser that the land or any improvements were defective." Admirand Declaration, para. 4 (emphasis added). In other words, the clause protected NL from claims for breach of warranty. The clause was not, and could not have been at that time, intended to release NL from statutory causes of action arising out of its contamination of the property.
Contrary to NL's assertions, the holding in Mardan does not require this Court to apply California law in order to determine whether the "as is" clause in the deed conveying the property at issue operated as a release of liability under CERCLA. As the Ninth Circuit cautioned in the Mardan case, "federal law always governs the validity of releases of federal causes of action." Mardan, 804 F.2d at 1457. This Court cannot apply state rules of interpretation that would frustrate specific objectives of a federal statute. See, Mardan at 1458, United States v. Kimbell Foods, 440 U.S. 715, 728-29, 59 L. Ed. 2d 711, 99 S. Ct. 1448 (1979).
The provisions of Section 107(a), which apply "notwithstanding any other provision or rule of law," demonstrate that Congress clearly intended former owners of contaminated property to be liable to current owners for any contamination that occurred during the time they owned the property. See, 42 U.S.C. § 9607(a)(2). The statute also provides that liability under Section 107(a) is strict, subject only to certain enumerated defenses. § 9607(b). These defenses do not include a sale of property subject to an "as is" provision. Although Section 107(e) allows parties to enter contracts affirmatively to insure or to indemnify against CERCLA liability, the statute also states explicitly that no general hold harmless agreement or conveyance is effective to transfer liability under Section 107(a) away from a responsible party. § 9607(e)(1). Courts have repeatedly noted that one of the primary objectives of CERCLA is to require responsible parties to bear the costs of remedying the conditions they created. See, Mardan at 1455.
In view of these provisions, and the intent of Congress in enacting the CERCLA statute, the Court holds that allowing an otherwise "responsible party" to avoid liability under Section 107, based on an "as is" clause in the deed conveying the property, would clearly circumvent both the intent and the language of the statute. This is particularly true when the conveyance occurred prior to the enactment of CERCLA and the purchasers had no knowledge of the contamination. In reaching this conclusion, the Court has relied solely upon federal law, finding it unnecessary to draw upon any provisions of state law.
This holding is in accordance with decisions of other district courts which have held that an "as is" clause precludes only claims for breach of warranty, and does not operate to release strict liability arising under a statutory cause of action created by CERCLA. See, e.g., Mardan Corp. v. C.G.C. Music, Ltd., 600 F. Supp. 1049, 1055 (D.Ariz. 1984) (aff'd on other grounds); International Clinical Laboratories, Inc. v. Stevens, 710 F. Supp. 466, 469-470 (E.D.N.Y. 1989); Southland Corp. v. Ashland Oil, Inc., 696 F. Supp. 994, 1001 (D.N.J. 1988); Channel Master Satellite Systems, Inc. v. JFD Electronics Corp., 702 F. Supp. 1229, 1232 (E.D.N.C. 1988); In re Sterling Steel Treating, Inc., 94 Bankr. 924, 930 (Bkrtcy.E.D.Mich. 1989); Amland Properties Corp. v. Aluminum Company of America, 711 F. Supp. 784, 803 n. 20 (D.N.J. 1989).
Without resorting to the application of state law, the Court holds that the provisions of the CERCLA statute preclude a party from avoiding strict liability under CERCLA by relying on an "as is" provision contained in a deed transferring contaminated land. Accordingly, the Court hereby DENIES NL Industries' motion for summary judgment.
DATED: April 18, 1990