Indemnification agreements under CERCLA.

Since CERCLA was enacted, the majority of courts to consider the question have given effect to indemnification and hold harmless agreements allocating responsibility for the cleanup of hazardous substances. Recently, however, several courts have interpreted CERCLA [section] 107(e) and its legislative history to prohibit such agreements. The best reading of the section is that while it prohibits transfer of liability, it allows transfer of responsibility. In other words, any potentially responsible party under CERCLA is legally liable to a CERCLA claimant, but parties may transfer responsibility among themselves to pay for the cleanup. This is the only interpretation of the seemingly ambiguous [section] 107(e) that makes sense if courts are to give full force and credit to each sentence in [section] 107(e) and if the public policy of freedom of contract is to be supported. Because courts disagree in their application of [section] 107(e), Congress should amend the section for clarification.

I. Introduction

Even after ten years of implementation of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA),(1) new interpretations of its provisions still arise. One controversial provision is [section] 107(e), which states:

(1) No indemnification, hold harmless, or similar agreement or conveyance shall be effective to transfer from the owner or operator of any vessel or facility or from any person who may be liable for a release or threat of release under this section, to any other person the liability imposed under this section. Nothing in this subsection shall bar any agreement to insure, hold harmless, or indemnify a party to such agreement for any liability under this section.

(2) Nothing in this subchapter, including the provisions of paragraph (1) of this subsection, shall bar a cause of action that an owner or operator or any other person subject to liability under his section, or a guarantor, has or would have, by reason of subrogation or otherwise against any person.(2)

On its face, [section] 107(e) is ambiguous because the first sentence of [section] 107(e)(1) seems to contradict the second sentence and also [section] 107(e)(2). Some courts have interpreted the first sentence to prohibit indemnification agreements against the government, and have held that the government can recover damages from any responsible party under CERCLA.(3) These courts have determined, however, that the second sentence of [section] 107(e)(1) means that private parties can contract to indemnify their financial responsibility. Other courts have simply allowed indemnification agreements based upon the general public policy of freedom of contract, without reference to [section] 107(e)(1).(4) The majority of courts, however, have interpreted [section] 107(e) to allow parties to contractually allocate financial responsibility for hazardous materials cleanup.(5)

The validity and enforceability of indemnification provisions are important issues because private parties find it extremely valuable to be able to allocate the risk of hazardous materials cleanup. If courts decide to disallow indemnification agreements between contracting parties, as some courts have,(6) the bargaining position between these parties will change.

Section II of this Comment describes the conflict in the case law interpreting [section] 107(e). Section III discusses how the legislative history of [section] 107(e) supports both interpretations. Section IV reviews policy reasons in favor of indemnification agreements. Section V concludes that [section] 107(e) either should be interpreted to allow such agreements, or should be amended to clearly allow parties to utilize indemnification and hold harmless agreements.

II. CASES

A. Mardan Corp. v. C.G.C. Music, Ltd.

Until recently most courts have upheld agreements allocating the risk of hazardous materials cleanup. The primary case in this area is Mardan Corp. v. C.G.C. Music, Ltd.(7) In Mardan, Macmillan, Inc. sold certain assets to Mardan Corporation, including a plant, equipment, and related property used in the manufacture of musical instruments.(8) During the ten years prior to sale, Macmillan had deposited wastes generated by the plant's electroplating operations into a settling pond at the site.(9) Mardan continued this practice.(10)

The parties executed a settlement agreement in which Macmillan paid Mardan $995 thousand for settlement of a variety of claims, and for a general release that included "all actions, causes of action, [and] suits, . . . based upon, arising out of or in any way relating to the Purchase Agreement . . . ."(11) Two years later EPA brought administrative enforcement actions against Mardan for RCRA violations.(12) These actions were resolved by an agreement between Mardan and EPA which required Mardan to clean up and close the settling pond.(13) Mardan then brought suit against Macmillan under CERCLA [section] 107 to recover damages for Mardan's costs of cleanup.(14)

The Ninth Circuit Court of Appeals affirmed the district court's grant of summary judgment to Macmillan.(15) The Ninth Circuit stated that "section 107(e)(1) expressly preserves agreements to indemnify a party held liable under section 107(a)."(16) The court explained that "[b]y preserving such agreements, Congress seems to have expressed an intent to preserve the associated body of state law under which agreements between private parties would normally be interpreted."(17) The court also discussed how

[s]uch agreements cannot alter or excuse the underlying liability, but can only change who ultimately pays that liability. Moreover, regardless of how . . . these agreements are interpreted, the result cannot prejudice the right of the government to recover cleanup or closure costs from any responsible party, including either Mardan, Macmillan, or both.(18)

The court further reasoned that

nothing in CERCLA suggests that it was intended to offer special protection to unwary purchasers of businesses. Moreover, since CERCLA releases are likely to be entered into by major companies, there is little need for a special federal rule to protect releasors of CERCLA recovery rights from their own ignorance or weak bargaining power. . . . [W]e are convinced that application of a federal rule [that is different than common law] would disrupt commercial relations predicated on state law.(19)

B. AM International, Inc. v. International Forging Equipment

In 1990 the United States District Court for the Northern District of Ohio departed from the majority view by holding that the vendor-purchaser indemnification agreement at issue was ineffective.(20)

In AM International, the plaintiff, AM International, executed a sale and partial lease-back agreement of its plating, heat-treating, and painting operations to D & B Realty.(21) Later a co-owner of D & B Realty, Mr. Robert T. Dziak, doing business as Eucid Industrial Center ("EIC"), assumed the obligations of D & B Realty to AM International.(22) When AM International ceased operations at the end of its lease, another of Dziak's corporate entities, International Forging Equipment ("IFE"), entered into an asset purchase agreement with AM International.(23) The contractual relationship between AM International and the other parties ended when EIC paid AM International $2.3 million as accord and satisfaction for AM International's release of all claims to EIC and Dziak.(24)

Two years later the Ohio Environmental Protection Agency (Ohio EPA) notified Dziak that remedial action would be required to clean up toxic wastes at the property.(25) Dziak refused, so the Ohio EPA requested AM International to clean up the site.(26) AM International paid over $350 thousand for the cleanup and brought suit against D & B Realty, EIC, IFE, Dziak, and Donald Diemer (D & B's other co-owner) for contribution under CERCLA and for quasi-contractual damages under state law.(27) Defendants counterclaimed for indemnification under the release agreement.(28) A voluntary dismissal was entered as to D & B Realty and Diemer, and the remaining defendants moved for summary judgment.(29) The court granted summary judgment regarding the state law claims but denied summary judgment regarding the CERCLA contribution claims.(30)

The AM International court described [section] 107(e) as internally inconsistent on its face, but determined that the legislative history explained Congress' intent.(31) The court stated:

In sum, Congress intended subsection 107(e)(1) to prevent the parties from contractually relieving themselves of liability under the act, whether that liability is enforced by action of the government or in a suit by a person who performed the clean-up and sues others for contribution under the act. In addition, by the second sentence, Congress intended to permit any person to contract with others not already liable under the act to provide additional liability by way of insurance or indemnity.

This conclusion is supported by subsection 107(e)(2), which specifically directs that subsection 107(e)(1) does not bar causes of action by another person liable under the act or his guarantor against any other person for subrogation or contribution. Since the second sentence of subsection 107(e)(1) authorizes a limited right to contract regarding liability, and since subsection 107(e)(2) expressly directs that such contracts may not limit suits against persons liable under the act, the inescapable conclusion is that such contracts cannot be enforced to prevent suits between tortfeasors under the act.(32)

Thus, the AM International court decided that the legislative history supported a reading of [section] 107(e) which did not allow potentially responsible parties under CERCLA to utilize indemnification or hold. harmless agreements. The court also reasoned that its interpretation of [section] 107(e) was consistent with the underlying policy of CERCLA: to encourage cleanup initiative on the part of the responsible parties.(33) The court explained that "[p]arties would be less likely to take the initiative if a mutual release were in effect among them, since the release would confine the costs to any party which acted.(34)

Two noteworthy cases followed AM International.(35) In Jones-Hamilton, plaintiff and defendants had a written agreement whereby plaintiff used raw materials provided by defendants to formulate wood preservation compounds.(36) The agreement contained a provision in which plaintiff agreed to follow all applicable laws and to indemnify defendants against all damages resulting from plaintiff's failure to do so.(37) Plaintiff violated its permit, was ordered by the Water Quality Board to clean up the site of illegal disposal, and spent in excess of $2 million on cleanup.(38) Plaintiff sued defendants for contribution.(39)

The court found the indemnification clause valid, and held that the plaintiff was responsible for all clean-up costs associated with its conduct, and that the defendants had no responsibility of contribution.(40) The court stated that while a majority of courts faced with the question had upheld contractual allocation of the risk of hazardous materials cleanup, it preferred the AM International interpretation of legislative history(41) but was bound by the Ninth Circuit to validate the contract.(42)

In C.P.C. International, Aerojet and its Cordova Chemical Company division ("Cordova") purchased a site which suffered from widespread groundwater contamination at the time of purchase.(43) The Michigan Department of Natural Resources (MDNR) and Cordova signed a stipulation and consent order in which Cordova agreed to pay MDNR $600 thousand for cleanup, and MDNR agreed to indemnify and hold Cordova harmless from any additional costs or damages incurred for cleanup.(44)

MDNR cross-claimed against the Cordova defendants for contribution for clean-up costs above $600 thousand.(45) The court allowed the claim, and in so doing adopted the AM International interpretation of [section] 101(e), which forbade the application of releases to bar CERCLA liability.(46) The court stated that this outcome was consistent with the "statute's broad policies of encouraging cleanups and placing the burden of" paying for them on those who are responsible for the problems.(47)

The interpretation of the statute in AM International and the cases that followed is well reasoned but based on ambiguous legislative history.(48) The AM International court focused on the term "liability" as used in the statute. Because CERCLA makes it clear that liability may not be transferred the AM International court strictly construed this to include the transfer of financial responsibility after liability has been found. The real issue is whether responsibility for costs of cleanup may be transferred by indemnification agreements.

C. Subsequent Cases Contrary to the AM International Line

After the AM International, Jones-Hamilton, and C.P.C. International courts did not give effect to indemnification contract rights under [section] 107(e), two other district courts did.(49)

In Niecko, the purchasers of real property sued the vendors for the clean-up cost of gasoline leakage on the property.(50) Plaintiffs admitted they knew that a gas station had previously been operated on the property and that they had conducted a "surface inspection."(51) The purchase contract stated that

Buyer acknowledges that he has inspected and is familiar with the condition of the property; that Seller has not made and makes no warranties or representations as to the condition of said property, including, but not limited to soil conditions . . . [and] that he assumes all responsibility for any damages caused by the conditions on the property upon transfer of title (emphasis added).(52)

The court upheld the agreement based on its interpretation of [section] 107(e):

The first sentence of Section 107[(e)] clearly assumes the joint and several liability of liable parties to any party that, under the Act, has a right to demand cleanup and redress of damages, e.g., the government. It is this joint and several liability to which Congress is clearly referring when it speaks of "the liability imposed under this section" in the last words of the first sentence of the section.

With this premise firmly in mind, the first and second sentences of Section 107(e)(1) are not contradictory, but rather clear in their scope and intent. The first sentence simply voids any attempted transfer of joint and several liability to another party. . . . Congress intended to protect the rights of the claimant against attempts by owners or operators to escape liability to claimants through private contractual devices. . . . There is nothing in the first sentence that purports to prevent liable parties under the Act from apportioning, allocating, or even shifting completely among themselves the liability that each party will owe the CERCLA claimant, so long as each contracting party understands that it will remain jointly and severally liable to that CERCLA claimant. An interpretation to the contrary would effectively burden all contractual exchanges involving property that may fall under CERCLA'S purview.(53)

The court explained that the second sentence of [section] 107(e)(1) makes clear that "insurance, indemnification, or hold harmless agreements are valid so long as they do not transfer liability from an owner or operator to a third party."(54) In other words, "[t]he liability remains with the transferor; the transferee simply agrees to fund the cleanup on behalf of the transferor."(55) The court further explained that [section] 107(e)(2) supports this interpretation. Its language ensures that [section] 107(e)(1) will not be interpreted to disallow contractual agreements for indemnification or contribution.(56)

Second, in Purolator Products, a purchaser of property brought a CERCLA action against the vendor to recover environmental response costs incurred in connection with a federally mandated investigation and cleanup of chemical wastes generated by defendant's predecessor.(57) In considering [section] 107(e)(1), the court explained that

the statute itself states specifically that it does not bar agreements to indemnify parties for CERCLA liability. The only restriction the statute places on such agreements is that they may not be used to transfer liability. In other words, liable parties can contractually shift responsibility for their response costs among each other, but they may not thereby escape their underlying liability to the Government or another third party. . . . [T]he vast majority of the courts which have considered the question . . . hold, and this court agrees, that CERCLA does not allow parties to contract out of liability vis-a-vis the Government, but does allow them to do so vis-avis other private parties.(58)

The court went on to describe CERCLA's purpose for establishing liability, as a mechanism for prompt recovery for monies expended by the government.(59) The court stated that allowing indemnification agreements does not interfere with this pertinent CERCLA goal because the government could still recover from any responsible party.(60) The court found that the indemnity provisions at issue were broad enough to encompass CERCLA liability insofar as that liability related to the assets transferred by the agreement.(61)

III. Legislative History

The legislative history of CERCLA supports two interpretations of Congress' intent. The House of Representatives worked for six years to enact legislation dealing with liability for damages resulting from the release of hazardous substances, and the Senate worked three years, before CERCLA was enacted.(62) Yet CER- CLA was enacted as a rush compromise within the closing hours of the 96th Congress, without much debate, so the final intent of Congress is difficult to ascertain.

One early version of [section] 107(e) is found in H.R. 7020 as passed by the House on September 23, 1980."(63) It states: "Nothing in this section shall affect the liability of any other person, including a guarantor, by reason of subrogation, indemnification agreement or otherwise, to a person held liable under this section."(64) This indicates that the House at that time intended to give effect to indemnification agreements by persons held liable under the statute.

The AM International court found a similar piece of legislative history in the final debates before the Senate passed the bill.(65) AM International interpreted the dialogue between Senator Randolph, a sponsor of the bill, and Senator Cannon to indicate that Congress intended [section] 107(e) to prohibit indemnification or hold harmless agreements in any situation except where an additional party is made contractually liable and that party could not originally be liable under CERCLA."(66) However, these Senators were speaking in terms of liability, not financial responsibility between contracting parties. If both sentences of [section] 107(e)(1) are to be given full effect, the meaning must be that there can be no transfer of liability to the government or to anyone else; but financial responsibility can be transferred.

Additionally, it seems there were two important purposes for the language used in [section] 107(e). One goal was to prevent contracts of adhesion. This legitimate concern was brought to light in the above Senate debate between Senator Cannon and Senator Randolph.(67) The other purpose was to guard against situations of nondisclosure as a result of misrepresentation or concealment by the other party.(68) This concern was evidenced by a provision the Senate added to a draft of the bill, which the AM International court used to support its interpretation of [section] 107(e).(69) This version read:

No indemnification, hold harmless, conveyance, or similar agreement shall be effective to transfer from the owner or operator of a facility, or from any person who may be liable for a release under this section, to any other person the liability imposed under this section: Provided, That this subsection shall not apply to transfer in a bona fide conveyance of a facility or site (1) between two parties not affiliated with each other in any way, (2) where there has been an adequate disclosure in writing ... of all facts and conditions (including potential economic consequences) material to such liability, and (3) to a transferor who can provide assurances of financial responsibility and continuity of operation consistent with the degree and duration of risks associated with such facility or site.(70)

A plain reading of this section is that indemnification agreements may not be used by a responsible party to transfer liability unless there is a transfer of property and three requirements are met.(71) These requirements are: (1) no collusion between the parties, (2) full disclosure of all material facts, and (3) a responsible buyer.(72) By this provision Congress did not intend to ban indemnification agreements. Nevertheless, the AM International court stated that this "provision as initially conceived . . . disfavored releases [from liability] except under strict conditions."(73) The better reading is one that allows for exceptions, rather than strict interpretation, because freedom to contract is an important policy in law and society.(74) In addition, even if this version conveys an intent to disfavor releases of liability, Congress changed the version to provide for indemnification agreements, demonstrating that Congress' final intent was to allow and enforce indemnification agreements.

Another version of [section] 107(e) carved a specific exception for indemnification agreements. It provided that an indemnification agreement should be upheld where the holder of a lease or permit for oil exploration agrees to indemnify the owner or operator of a vessel or facility engaged in an activity on behalf of the holder.(75) Even though this is a very limited exception, this provision shows that Congress did not intend to preclude all indemnification agreements.

There is room for a difference of opinion regarding the interpretation of [section] 107(e). While H.R. 7020 as passed by the House on September 23, 1980 evinces a one-time intent to give effect to indemnification agreements, the AM International court's legislative history interpretation that Congress did not intend to give effect to these agreements may be the least strained conclusion. However, the ambiguious legislative history does not overcome the only interpretation of [section] 107(e) that makes sense: that even though potentially responsible parties cannot transfer liability, they can transfer responsibility.

IV. Why CERCLA [section] 107(E) Should Be Interpreted To

Allow Indemnification Agreements

A. Parties Affected by Differing Interpretations

CERCLA [section] 107(a) imposes liability on three general categories of persons:

(1) Past and present owners and operators of vessels and facilities requiring cleanup;

(2) Persons who by contract, agreement, or otherwise arranged for disposal or treatment of hazardous substances at the vessel or facility requiring cleanup; and

(3) Persons who transported hazardous waste if they involved themselves in the site selection process.(76) This creates a broad group of offenders who can be held liable under CERCLA.(77)

The courts have determined that CERCLA imposes strict liability,(78) thus CERCLA claimant does not have to prove fault as an element of holding a party liable.(79) Furthermore, CERCLA liability is joint and several, meaning that the claimant can pursue one or all potentially liable parties to pay the full amount of clean-up cost.(80) Because the standard under CERCLA is strict liability, and parties can be both jointly and severally liable, a new landowner who had nothing to do with the hazardous material being deposited on the property can be held responsible for paying for the total cost of the cleanup.(81)

Because purchasers face this kind of potential liability, real estate is no longer purchased without consideration for hazardous waste.(82) The parties to a buy-sell agreement or land sale contract often bargain for an indemnification clause. In so doing, consideration will be paid and exchanged-usually by an adjustment in the purchase price. It is important that parties to a real estate transaction be able to freely contract to include risk allocation as they see fit. Consideration for the bargain is one reason to allow parties the freedom to contract.(83)

Generators are strictly liable under CERCLA, even though they may be fully complying with other applicable law. In this situation, indemnification agreements are the only relief from strict liability.

In regard to the effect of courts' interpretation of CERCLA [section] 107(e) on landlords and tenants, it has been stated:

[T]he majority of problems involving hazardous substances in or under real property will likely involve tenants.... The government is taking the position that not only the owner of the property but also the existing tenant is a [potentially responsible partyl under CERCLA as owner (because the tenant maintains control over and has such responsibility for the use of the property that it essentially |stands in the shoes of an owner') and as an operator.(84)

Under common law, when a written lease was given effect, the landlord's responsibility was to deliver possession of the property and a leasehold interest to the tenant, and the tenant's responsibility was to maintain the property.(85) If, however, a dangerous condition or nuisance was found to exist on the property at the time the lease was executed, the landlord would be responsible for remedying the situation.(86) Otherwise, tenants were responsible for most liabilities.(87) Due to the common law's general favoring of landlords, parties to commercial leases usually negotiate for contractual provisions allocating responsibility for things like hazardous materials cleanup in exchange for consideration.(88) "As a result of the development of commercial leases as complete statements of the rights, duties and liabilities of landlords and tenants, the parties to such leases have, until recently, felt secure in the knowledge of the extent of their rights and liabilities under any particular lease."(89) Commercial landlords and tenants should be able to make and rely on indemnification and hold harmless agreements.

B. Public Policy and Freedom of Contract

Another reason why parties should be allowed to contract for indemnification of costs associated with hazardous materials cleanup is that freedom of contract is an essential public policy. There has been a presumption of freedom of contract under our legal system since the country's beginning. Article I, Section 10 of the Federal Constitution provides that "[n]o state . . . shall pass any law impairing the obligation of contracts . . ."(90) Furthermore, it has been suggested that "[t]he judicial formulation of the concept of freedom of contract' [was developed] as part of substantive due process" as found in the Fifth Amendment to the Federal Constitution and in Section 1 of the Fourteenth Amendment.(91)

Sir George Jessell stated eloquently in Printing and Numerical Registering Co. v. Sampson:

If there is one thing more than any other which public policy requires, it is that men of full age and competent understanding shall have the utmost liberty of contracting, and that contracts, when entered into freely and voluntarily shall be held good and shall be enforced by courts of justice.(92) Thus there is a societal expectation that a person will keep his or her word, and if this does not occur, the court will enforce the contract.

The United States' free-market system is based on the notion that goods and services can be freely exchanged-that voluntary exchanges are permitted. "And to be able to exploit the factors of production in the most efficient way, enterprisers had (and still have) to be able to bargain for goods and services to be delivered in the future and to rely on promises for future delivery."(93) This is the essence of freedom of contract. In order for a free-market economy to operate effectively, contracting, as a way to efficiently allocate goods, services, and risks, is essential. This includes indemnity contracts under CERCLA.

C. Common Law

Another reason why CERCLA [section] 107(e) should be interpreted generally to allow contracts for indemnification is that preclusion is not necessary. As the legislative history shows, the primary purposes behind [section] 107(e) were the prevention of adhesion contracts and the protection of parties from nondisclosure.(94) Because adhesion contracts are addressed by common law it is unnecessary to provide for them in CERCLA [section] 107(e). The AM International result is overprotective in this regard. Additionary, CERCLA itself has been amended to provide that in situations of nondisclosure no defense will be available.(95)

Federal courts have determined that state law applies in interpreting individual contract provisions.(96) State common law has developed over time to address concerns regarding adhesion contracts.

Under the common law, undue influence and duress were the predecessors to the modern doctrine of business compulsion, all of which contributed to the law pertaining to adhesion contracts. Adhesion contracts are generally described as those in which one party has superior bargaining power, and thus compels the other party to accept terms which would otherwise not be accepted. "[U]ndue interference with the conduct of a business or occupation may constitute duress. Many states have adopted the modern doctrine of |business compulsion' or what is sometimes referred to as |economic duress or compulsion.'"(97) Undue influence can render a transaction void when the "free agency of the person influenced was taken from him or destroyed, and in its place the will of another person substituted."(98) Undue influence can prevent the formation of a contract, cause a contract to be voidable, and is available as a defense in a contract action.(99) Therefore, the concern to prevent adhesion contracts has been met by common law safeguards and does not justify invalidating indemnification agreements under CERCLA [section] 107(e).

V. CONCLUSION

The majority view of upholding and enforcing indemnification clauses in cases involving liability under CERCLA should continue. The legislative history of CERCLA [section] 107(e) is considered ambiguous. Some argue it tends to support the AM International interpretation of the first sentence of CERCLA [section] 107(e)(1), which is that parties may not contractually relieve themselves of liability under thi Act. The better result is that which follows the Ninth Circuit's interpretation of legislative history, which gives effect to indemnification and hold harmless agreements. Regardless of which view is correct, the majority of courts have allowed indemnification agreements since CERCLA was enacted.

Dramatic consequences due to the harshness of the strict liability scheme of CERCLA dictate that indemnification agreements are necessary. Freedom of contract as a public policy is essential to our society and must be upheld. The two reasons why Congress wanted to limit contracting rights between private parties were concern over contracts of adhesion and situations of nondisclosure of material facts. These situations are adequately addressed by the common law and CERCLA itself; there is no need to limit allocation of risks between private parties.

The statute should be interpreted to allow transfer of responsibility for clean-up costs between parties, but not transfer of liability under the statute. However, because of its importance and impact on contracting parties, Congress should amend [section] 107(e) to clearly state its intent that indemnification and hold harmless provisions are valid methods to allocate risk. (1.) Pub. L. No. 96-510, 94 Stat. 2767 (codified at 42 U.S.C. [sub-section] 9601-9675 (1988)). CERCLA was amended by the Superfund Amendments (codified in various sections of 10, 26, 29, 33 and 42 U.S.C. (1988)) and Reauthorization Act of 1986 (SARA), Pub. L. No. 99-499, 100 Stat. 1613. (2.) 42 U.S.C. [section] 9607(e) (1988). (3.) E.g., Mardan Corp. v. C.G.C. Music, Ltd., 804 F.2d 1454, 1459 (9th Cir. 1986); Rodenbeck v. Marathon Petroleum Co., 742 F. Supp. 1448, 1456 (N.D. Ind. 1990); Central Ill. Pub. Serv. Co. v. Industrial Oil Tank, 730 F. Supp. 1498, 1507 (W.D. Mo. 1990); Southland Corp. v. Ashland Oil, 696 F. Supp. 994, 1000 (D. N.J. 1988). (4.) E.g., American Nat'l Can Co. v. Kerr Glass Mfg. Corp, No. 89 C 0168, 1990 WL 125368 (N.D. Ill. Aug. 22, 1990); Versatile Metals v. Union Corp., 693 F. Supp. 1563, 1573 (E.D. Pa. 1988); Chemical Waste Management v. Armstrong World Indus., 669 F. Supp. 1285, 1289 (E.D. Pa. 1987). (5.) See, e.g., C.P.C. Int'l. v. Aerojet-General Corp., 759 F. Supp. 1269, 1282 (W.D. Mich. 1991) ("release agreements may bar CERCLA claims even if the agreements predate the statute") quoting United States v. Monsanto Co., 858 F.2d 160 (4th Cir. 1988), cert. denied, 490 U.S. 1106 (1989); FMC Corp. v. Northern Pump Co., 668 F. Supp. 1285 (D. Minn. 1987). (6.) AM International v. International Forging Equip., 743 F. Supp 525 (N.D. Ohio 1990); C.P.C. International v. Aerojet-General Corp., 759 F. Supp. 1269 (W.D. Mich. 1991); and Jones-Hamilton Co. v. Kop-Coat, 750 F. Supp. 1022 (N.D. Cal. 1990). (7.) 804 F.2d 1454 (9th Cir. 1986). (8.) Id. at 1456. (9.) Id. (10.) Id. (11.) Id. (12.) Mardan Corp. v. C.G.C. Music, Ltd., 804 F.2d 1454, 1456 (9th Cir. 1986). (13.) Id. (14.) Id. (15.) Id. at 1463. (16.) Id. at 1458. (17.) Mardan Corp. v. C.G.C. Music, Ltd., 804 F.2d 1454, 1458 (9th Cir. 1986). Thus with state common law being used to interpret indemnification agreements, the agreements will be honored. Common law prevents contracts of adhesion and contracts brought into effect by misrepresentative nondisclosure. See infra notes 94-99 and accompanying text. (18.) Id. at 1459. (19.) Id. at 1460. This court decision supports the proposition that common law takes care of the concerns that provide the rationale for not allowing indemnification agreements. See infra notes 94-99 and accompanying text. (20.) AM International v. International Forging Equip., 743 F. Supp. 525, 530 (N.D. Ohio 1990). (21.) Id. at 526. (22.) Id. (23.) Id. (24.) Id. (25.) AM International v. International Forging Equip., 743 F. Supp. 525, 526 (N.D. Ohio 1990). (26.) Id. (27.) Id. (28.) Id. (29.) Id. (30.) AM International v. International Forging Equip., 743 F. Supp. 525, 526 (N.D. Ohio 1990). (31.) Id. (32.) Id. at 529. (33.) Id. (34.) Id. (35.) C.P.C. Int'l. v. Aerojet-General Corp., 759 F. Supp. 1269 (W.D. Mich. 1991); Jones-Hamilton Co. v. Kop-Coat, 750 F. Supp. 1022 (N.D. Cal. 1990). (36.) Jones-Hamilton Co., 750 F. Supp. at 1023. (37.) Id. (38.) Id. at 1024. (39.) Id. at 1023. (40.) Id. at 1029. (41.) Jones-Hamilton Co. v. Kop-Coat, 750 F. Supp. 1022, 1025-26 (N.D. Cal. 1990). (42.) Id. at 1026-27 (citing Mardan Corp. v. C.G.C. Music, Ltd., 804 F.2d 1454, 1458 (9th Cir. 1986)). (43.) C.P.C. Int'l. v. Aerojet-General Corp., 759 F. Supp. 1269, 1273 (W.D. Mich. 1991). (44.) Id. at 1273-75. (45.) Id. at 1275. (46.) Id. at 1282-83. (47.) Id. at 1282. (48.) See infra notes 62-75 and accompanying text. (49.) Niecko v. Emro Mktg. Co., 769 F. Supp. 973 (E.D. Mich. 1991); Purolator Prods. Corp. v. Allied-Signal, Inc., 772 F. Supp. 124 (W.D. N.Y. 1991). See also Danella Southwest Inc. v. Southwestern Bell Tel. Co., 775 F. Supp. 1227 (E.D. Mo. 1991) (adopting the Ninth Circuit rule that all responsible parties remain fully liable to the government, but private parties are free to contractually allocate the risks of liability). (50.) Niecko, 769 F. Supp. at 976. (51.) Id. (52.) Id. at 985. (53.) Id. at 988-89. (54.) Id. at 989. (55.) Niecko v. Emro Mktg. Co., 769 F. Supp. 973, 989 (E.D. Mich. 1991). (56.) Id. (57.) Purolator Prods. Corp. v. Allied-Signal, Inc., 772 F. Supp. 124, 126 (N.D. N.Y. 1991). (58.) Id. at 129. (59.) Id. (60.) Id. (61.) Id. at 131. (62.) The Environmental Law Institute, Superfund: A Legislative History xiii (Helen Cohn Needham & Mark Menefee, eds., 1983)[hereinafter Legislative History]. H.R. 7020 was sponsored by Representative James Florio and introduced on April 2, 1980. Id. at xv. After being passed by the House and sent to the Senate, it died in another Senate committee. Id. at xvi. S. 1480 was introduced by Senators Edmund Muskie and John Culver on July 11, 1979, and revised until it became clear that S. 1480 would not be adopted by the Senate as reported. Id. at xvii-xviii. The Senate would not enact the Housepassed versions of H.R. 85 or H.R. 7020, so interested members of Congress met and introduced a new compromise, the Stafford-Randolph substitute. Id. at xviiixx. The Senate passed this version of S. 1480, then changed its designation to H.R. 7020 because, according to the Constitution, bills with tax provisions have to originate in the House. Id. at xii. The House also passed H.R. 7020 as amended by the Stafford-Randolph substitute, and on December 11, 1980, the President signed the bill into law (Public Law 96-510). Id. (63.) Id. at 213. (64.) Id. at 214. There are several documents preceding H.R. 7020 as passed by the House, which contain the same version of [section] 107(e) as H.R. 7020 as passed by the House. One is H.R. 7020 as reported out of the House Committee on Ways and Means on June 20, 1980. Legislative History, supra note 62, at 229. Another is H.R. 7020 as reported out of the House Committee on Interstate and Foreign Commerce on May 16, 1980. Id. at 230-31. Finally, H.R. 7020 as introduced on April 2, 1980 contained identical provisions. Id. at 232-33. (65.) Mr. CANNON. Section 107(e)(1) prohibits transfer of liability from the owner or operator of a facility to other persons through indemnification, hold harmless, or similar agreements or conveyances. Language is also included indicating that this prohibition on the transfer of liability does not act as a bar to such agreements, in particular to insurance agreements. The net effect is to make the parties to such an agreement, which would not have been liable under this section, also liable to the degree specified in the agreement. It is my understanding that this section is designed to eliminate situations where the owner or operator of a facility uses its economic power to force the transfer of its liability to other persons, as a cost of doing business, thus escaping its liability under the act all together. Mr. RANDOLPH. That is correct. Legislative History, supra note 62, at 171. (66.) AM International v. International Forging Equip., 743 F. Supp. 525, 529 (N.D. Ohio 1990). (67.) See supra note 65. (68.) See infra note 72, regarding CERCLA [section] 101(35)(C). (69.) AM International, 743 F. Supp. at 528. (70.) Id. There are several different documents containing this version of the current [section] 107(e). One is S. 1480 as reported out of the Senate Committee on Environment and Public Works on July 11, 1980. Legislative History, supra note 62, at 181, 184. Senate Rep. No. 96-848, which accompanied S. 1480 and was issued by the Senate Committee on Environment and Public Works on July 13, 1980, provided a brief statement of clarification: Nothing in [this] section . . . is intended to prohibit the purchase of insurance by common carriers to cover the liability imposed by [this] section, nor is it intended to prohibit agreements among common carriers or between common carriers and shippers by which one or several parties agree to indemnify the indemnitee for losses incurred as a result of liability imposed by [the act]. Id. at 186, 191. S. 1480 Staff Working Paper No. 2, by the Senate Committee on Environment and Public Works, dated June 2, 1980, contained the same provision as S. 1480 did as reported out of the committee. Id. at 194, 197. It is interesting to note that S. 1480 Staff Working Paper No. 1, by the Senate Committee on Environment and Public Works, dated February 1, 1980, contained only the first sentence of the later versions. Id. at 197, 200. It stated: "No indemnification, hold harmless, conveyance, or similar agreement shall be effective to transfer from the owner or operator of a facility, or from any person who may be liable for a release under this section, to any other person the liability imposed under this section." Id. The fact that the second part was purposefully added, specifying that the provision against indemnification agreements was not to be all-inclusive, indicates that it was important and meant to be given due weight. (71.) Transfer of property is one of the most common situation where parties contract to allocate risk of hazardous materials cleanup by bargaining for indemnification or hold harmless clauses. Another common situation is landlord/tenant and leasing agreements. These and other situations in which CERCLA [section] 107(e) plays a part will be discussed in Section IV. (72.) Keep in mind that this provision was changed, and in CERCLA [section] 9601(35)(C) Congress provided for its concern regarding vendors: Nothing in this paragraph or in section 9607(b)(3) shall diminish the liability of any previous owner or operator of such facility who would otherwise be liable under this chapter. Notwithstanding this paragraph, if the defendant obtained actual knowledge of the release or threatened release of a hazardous substance at such facility when the defendant owned the real property and then subsequently transferred ownership of the property to another person without disclosing such knowledge, such defendant shall be treated as liable under section 9607(a)(1) and no defense under section 9607(b)(3) shall be available to such defendant. 42 U.S.C. [section] 9601(35)(C) (1988). (73.) AM International v. International Forging Equip., 743 F. Supp. 525, 528 (N.D. Ohio 1990). (74.) See infra notes 90-93, and accompanying text. (75.) Specifically, the subsection provides, with insubstantial variation in a number of documents: No indemnification, hold harmless, or similar agreement shall be effective to transfer from the owner or operator of a facility, to any other person, the liability imposed under [this section), other than as specified in this title: Provided, That this provision does not preclude an agreement whereby the holder of a leasehold interest or permit for the exploration of oil agrees to indemnify for, or hold harmless from, such liability, the owner or operator of a vessel or facility which is, by contract or other agreement, engaged in activity on behalf of the holder of the leasehold interest or permit. S. 1341 as introduced on June 14, 1979, Legislative History, supra note 62, at 202, 204; H.R. 85 as reported out of the House Committee on Ways and Means on June 20, 1980, Id. at 253; H.R. 85 as reported out of the House Committee on Public Works and Transportation on May 16, 1980, Id. at 253, 256, 261; H.R. 85 as amended and passed by the House on September 19, 1980, Id. at 233, 237, 240-41; H.R. 85 as reported out of the Subcommittee on Water Resources of the House Committee on Public Works and Transportation on May 6, 1980, Id. at 262, 265, 268-69; H.R. 85 as reported out of the House Committee on Merchant Marine and Fisheries on May 15, 1979, Legislative History, supra note 62, at 269, 272; H.R. 85 as reported out of the Subcommittee on Coast Guard and Navigation of the House Committee on Merchant Marine and Fisheries on April 17, 1979, Id. at 275, 278; and H.R. 85 as introduced on May 15, 1979, Id. at 279, 282. (76.) 42 U.S.C. [section] 9607(a)(1)-(4) (1988). (77.) In addition to gonerators of hazardous waste and vendors and purchasers of contaminated real estate, [t]he courts have broadly construed the categories of "owner and operator" and "person who arranged for disposal" to include the following persons as [Potentially Responsible Parties]: 1. Leaseholders of property. 2. Officers, directors, shareholders, and employees who actively participated in the management of a facility. 3. Successor corporations. 4. A secured creditor. 5. Trustee in bankruptcy. 6. Trustee of real estate. David R. Tripp, Environmental Issues in Real Estate and Other Business Transactions, 60 J. Kan. B. Ass'n 23, 25 (Jan. 1991) citations omitted). (78.) See, e.g., United States v. Monsanto Co., 858 F.2d 160 (4th Cir. 1988), cert. denied, 490 U.S. 1106 (1989); Idaho v. Bunker Hill Co., 635 F. Supp. 665 (D. Idaho 1986); New York v. Shore Realty Corp., 759 F.2d 1032 (2d Cir. 1985). For an example of when strict liability may be overridden, see infra note 95. (79.) United States v. Stringfellow, 661 F. Supp. 1053 (C.D. Cal. 1987); Artesian Water Co. v. New Castle County, 659 F. Supp. 1269 (D. Del. 1987); New York v. Shore Realty Corp., 759 F.2d 1032 (2nd Cir. 1985). (80.) United States v. A & F Materials Co., 578 F. Supp. 1249,1253-57 (S.D. Ill. 1984); United States v. Wade, 577 F. Supp. 1326, 1337-39 (E.D. Pa. 1983); United States v. Chem-Dyne Corp., 572 F. Supp. 802 (S.D. Ohio 1983). (81.) See, e.g., New York v. Shore Realty Corp., 759 F.2d 1032 (1985). (82.) There are numerous law review articles cautioning about potential liability for hazardous materials cleanup when purchasing property. See, e.g.,Tripp, supra note 77; Debra L. Baker & Lance L. Shea, How to Avoid Environmental Liability in Business Transactions, 43 Sw. L.J. 957 (Feb. 1990); Turner T. Smith, Jr., et al., Environmental Considerations in Project Financing, 345 PLI/Real 591 (Mar. 5, 1990); James W. Moorman & Lawrence S. Kirsch, Environmental Compliance Assessments: Why Do Them, How to Do Them, and How Not to Do Them, 26 Wake Forest L. Rev. 97 (1991). (83.) In addition to prospective purchasers, lenders should be aware of their possible liability for cleanup of hazardous waste sites. If the borrower is purchasing a piece of real estate and EPA orders that borrower to pay for cleanup which the borrower did not fully anticipate and cannot afford, generally the cost of cleanup will exceed the purchase price of the property. In that situation the borrower may forfeit the property to the lender. The lender, in turn, will be left with paying for cleanup, or negotiating for another purchaser who will accept responsibility for cleanup. (84.) Thomas A. Larsen & Carol R. Boman, Environmental Liability Respecting Landlord-Tenant Issues, 342 PLI/Real 685, 685-86 (Dec. 1, 1989) (85.) Dorothy M. Helms & Nancy R. Jefferies, Liabilities of Landlords and Tenants Under CERCLA, 41 S.C.L. Rev. 815, 815 1990). (86.) Id. at 815-16. (87.) Id. at 816. (88.) Id. (89.) Id. (90.) LAW in Society: An Introduction to Freedom of contract 566 (Harold Shepherd & Byron D. Sher, eds., The Foundation Press, Inc. 1960). (91.) Id. at 568-71 The Fifth Amendment provides in part that "no person shall . . . be deprived of life, liberty or property without due process of law"; Section 1 of the Fourteenth Amendment provides that: All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside. No State shall make or enforce any law which shall abridge the privilege or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws. Id. (92.) Id. at 147 (citing L.R. 19 Eq. 462, 465 (1875)). (93.) Id. at 571-72 quoting Friedrich Kessler & Malcolm Pitman Sharp, Cases and Material on Contracts 2 (1953). (94.) See supra notes 62-75 and accompanying text. (95.) 42 U.S.C. [section] 9601(35)(C). See supra note 72 for the text of this section. Another guard against nondisclosure in commercial real estate transactions is found in CERCLA, which allows for an innocent purchaser defense. An owner or operator will be held strictly liable for response costs under Superfund, except that a new owner or operator can escape liability if: (i) At the time the defendant acquired the facility the defendant did not know and had no reason to know that any hazardous substance which is the subject of the release or threatened release was disposed of on, in, or at the facility. (ii) The defendant is a government entity which acquired the facility by escheat, or through any other involuntary transfer or acquisition, or through the exercise of eminent domain authority by purchase or condemnation. (iii) The defendant acquired the facility by inheritance or bequest. 42 U.S.C. [section] [sub section] 9601(35)(A)(i)-(iii), 9607(b)(3) (1988). See also Tripp, supra note 77, at 30-31. Congress enacted the innocent landowner defense in the 1986 amendments to CERCLA. Thus, in a situation of true nondisclosure, where the new owner or operator has no knowledge of hazardous materials problems for which it could be held liable, that now owner or operator will not be held liable under CERCLA. (96.) See, e.g., Mardan Corp. v. C.G.C. Music, Ltd., 804 F.2d 1454,1457-60 (9th Cir. 1986); Lyncott Corp. v. Chemical Waste Management, 690 F. Supp. 1409, 1417 (E.D. Pa. 1988). (97.) 25 Am. Jur. 2D Duress and Undue Influence [section] 6 (1966). (98.) Id. at [section] 36. (99.) Id. at [section] 39.