Korman v. Cumberland

Opinion

USCA1 Opinion

                 United States Court of Appeals

                     For the First Circuit


No. 97-2180



        THE KORMAN COMPANY, AGENT FOR HYMAN KORMAN, INC.,



                            Appellant,



                                v.



                     CUMBERLAND FARMS, INC.,



                            Appellee.



                       ____________________



           APPEAL FROM THE UNITED STATES DISTRICT COURT



                FOR THE DISTRICT OF MASSACHUSETTS



         [Hon. Nathaniel M. Gorton, U.S. District Judge]



                       ____________________



                              Before



                     Selya, Boudin and Lynch,



                         Circuit Judges.



                       ____________________



     Michael H. Landis with whom Smolow & Landis and Bertin C.

Emmons were on brief for appellant.

     Barbara D. Gilmore with whom Kathleen Provost, Sullivan &

Worcester LLP, and Mark G. Howard were on brief for appellee.


April 6, 1998


BOUDIN, Circuit Judge.  The parties to this case sought

to settle a dispute between them, but the settlement agreement they

reached has now given rise to a new dispute.  Our own reading of

the settlement agreement falls somewhere between the conflicting

positions of the parties, but it is impossible to state the issue

without some background and a description of the pertinent terms of

    the agreement.  Most, although not all, of the facts are

                          undisputed.

      The appellant, the Korman Company, leased a parcel of

    land to Chevron U.S.A., Inc., in Bensalem, Bucks County,

 Pennsylvania.  Cumberland Farms, Inc., acquired the lease from

    Chevron in 1986 and used it to operate a gas station and

convenience store.  In 1992, Cumberland filed for bankruptcy in

                Massachusetts under Chapter 11.

     The following year, Korman filed an adversary proceeding

 in the bankruptcy court, see Fed. R. Bankr. P. 7001, to eject

Cumberland from the property, alleging that Cumberland had violated

a provision of the lease.  Cumberland then closed the gas station

and reached a settlement with Korman, which the bankruptcy court

     approved.  The dispute now before us arises out of the

          implementation of this settlement agreement.

    In the settlement agreement, Korman agreed to buy out the

   remainder of Cumberland's lease for $90,000, provided that

Cumberland cleared the property of all structures and eliminated

any unlawful contamination of the soil and groundwater.  Anxious to

regain the property swiftly, Korman agreed to pay $90,000 into an

  escrow account with the understanding that 75 percent of the

account's value would be released to Cumberland when it completed

certain specified tasks.  If Cumberland failed to complete these

tasks by December 31, 1994, the escrow account would be reduced by

$10,000 for each month of delay, so the 75 percent payment--due

 when the specified tasks were completed--would be a declining

amount.  The remaining 25 percent of the escrow account is to be

paid only when Cumberland's "closure report" is approved by the

Pennsylvania Department of Environmental Resources ("DER") at the

conclusion of the cleanup.

     On February 7, 1995, Cumberland informed Korman that it

would satisfy the requirements specified for release of 75 percent

of the escrow account by February 8, 1995.  This occurred somewhat

more than a month after the December 31, 1994, deadline so the

total amount of the escrow was already reduced by somewhat more

than $10,000.  However, Korman refused to agree that any payment

was due to Cumberland from the escrow, and Cumberland then filed a

motion in the bankruptcy court to compel performance under the

settlement agreement.

     Paragraphs 2 and 4(a) of the agreement outline various

tasks that Cumberland must perform to be entitled to the 75 percent

payment.  Korman admits that a number of the requirements were

satisfied (e.g., removal of underground storage tanks and

demolition of buildings).  But Korman denies that Cumberland has

satisfied requirements in paragraph 4(a)(iii) and (iv) relating to

removal of contaminated soil, remediation of contaminated

groundwater and installation of equipment required for long-term

remediation. Paragraph 4(a) describes Cumberland's pertinent

obligations as follows:

          iii) removal and replacement of

     contaminated soil, if any, and the

     commencement of remediation of any

     contaminated groundwater to the extent such

     removal and/or remediation is deemed necessary

     by the appropriate federal or state

     authorities;

          iv) to the extent deemed necessary by

     the appropriate federal or state authorities,

     installation of any equipment and/or systems

     required for a long-term remediation system;

     and

          v) delivery to Korman of written

     certification by a reputable licensed

     environmental consulting engineer that the

     work required in Paragraphs 2(a) through 2(d)

     and Paragraph 4(a)(i)-(iv) hereof has been

     completed.



     In the bankruptcy court, Cumberland argued that, without

any direction from any federal or state agency, it had removed

approximately 440 tons of contaminated soil and had installed

underground piping that would enable future remediation if

required.  To show that it had satisfied the requirements of

subparagraphs (iii) and (iv), Cumberland relied upon a letter from 

a firm of licensed geologists and engineers purporting to certify

that Cumberland had satisfied all the requirements of paragraphs 2

and 4 of the agreement, a certification previously furnished to

Korman.  Cumberland also provided a letter from DER acknowledging

that Cumberland had filed a closure report.

     In response, Korman urged that subparagraphs (iii) and

(iv) required Cumberland to follow procedures set out in DER's

environmental regulations, and it offered an affidavit of a

consulting engineer, experienced in environmental projects, stating

that Cumberland was required to receive DER approval prior to

commencing remediation, and that filing a closure report did not

amount to such approval.  The same affidavit asserted that

contaminants in excess of DER's cleanup standards were still

present in the soil on the property.

     The bankruptcy court held a telephone hearing on June 28,

1995, and issued an order on November 29, 1995, directing that 75

percent of the escrow account (as reduced by the delay penalty) be

paid to Cumberland.  The court reasoned that government approvals

were required only for the second stage's 25 percent payment and

that Cumberland had satisfied its obligations at the first stage by

providing the written certification of its retained engineer as

provided in subparagraph (v) that all work required under

paragraphs 2 and 4 had been completed.  The district court affirmed

the order summarily, and Korman now appeals to us.

     Interpretation of the settlement agreement presents a

legal issue which we resolve de novo.  See Blackie v. State of Me.,

75 F.3d 716, 721 (1st Cir. 1996).  Neither side suggests that there

is any extrinsic evidence bearing on the meaning of the agreement,

so inquiry is limited to the language and context of the agreement

in an effort to ascertain what reasonable parties would have

understood by the use of that language under the circumstances. 

See E.A. Farnsworth, Contracts  5.9, at 510-11 (2d ed. 1990).

     Korman's central position is that the agreement required 

Cumberland, in complying with the removal, replacement,

commencement of remediation and installation requirements of

subparagraphs (iii) and (iv), to obtain prior governmental approval

of Cumberland's remedial actions under the procedures promulgated

by the Pennsylvania DER.  Korman points specifically to the phrase

"to the extent deemed necessary by the appropriate federal or state

authorities," which appears in subparagraphs (iii) and (iv).  We do

not think that this is a sustainable reading.

     The most straightforward reading of the quoted phrase, in 

the context in the two paragraphs, is that removal, replacement,

commencement of remediation and installation must meet the

substantive requirements or standards set by the government.  While

in some contexts this might also imply--although not expressly

state--that Cumberland must obtain clearances from the authorities

before the money is due, there is both a textual and a practical

reason for rejecting that inference in this case.  The textual

reason is the lack of an explicit requirement, coupled with the

presence of a related provision in the agreement--paragraph 8--

expressly requiring governmental approval, but only as a condition

for the second 25 percent payment.

     On the practical side, we agree with the bankruptcy court

that Cumberland would not here have agreed to terms whereby

Cumberland would be penalized for a government agency's delay in

approving a remedial action plan.  The parties entered into the

settlement agreement only on December 13, 1994.  Even assuming that

Cumberland was immediately prepared to file a remedial action plan,

Korman's reading assumes that Cumberland was willing to begin

forfeiting funds at the rate of $10,000 a month if DER required

more than 18 days to approve the plan.

     Korman argues that prior governmental approval of a

remedial action plan was an essential part of its bargain, because

it wanted to warrant to any new tenant that DER would not require

further cleanup actions.  But if agency approval were a

precondition of the first-stage 75 percent payment, it could easily

have been expressed in those terms, as it was in paragraph 8

requiring DER's approval of the closure report.  The difference is

that the approval required in paragraph 8 is a criterion of the

second stage payment of 25 percent and cannot be demanded

prematurely.

     Rejecting Korman's reading of the agreement does not lead

us to embrace Cumberland's.  Cumberland says that subparagraphs

(iii) and (iv) do not require any cleanup because no federal or

state agency has come forward to say that the agency "deemed" such

action necessary.  But what cleanup is "deemed necessary by the

appropriate . . . authorities" can be discerned from their

regulations and standards.  And, on a practical level, we think it

unlikely that Korman would have agreed that no cleanup was required

merely because the government had not gotten around to demanding it

by the payment date.

     In sum, the agreement is a compromise, falling between

the parties' extreme positions.  To secure the 75 percent,

Cumberland had to perform the necessary tasks to whatever

substantive level is required under the law, even if no explicit

order to Cumberland had issued from a government agency.  Only for

the remaining 25 percent did Cumberland have to obtain the final

seal of approval of DER.  Whether the drafters fully understood the

Pennsylvania cleanup process is another matter.

     This brings us to the question whether Cumberland has met

the substantive requirements of subparagraphs (iii) and (iv).  At

oral argument, Cumberland urged that the parties had committed this

determination to the final judgment of the "licensed environmental

consulting engineer" referred to in subparagraph (v).  This might

be an efficient solution for parties to such an agreement, but

Cumberland's reading does not square with the settlement agreement.

     The straightforward language of paragraph 4(a) requires

Cumberland actually to perform the removal, replacement,

commencement and installation as specified in subparagraphs (iii)

and (iv) and then, as specified separately in subparagraph (v), to

deliver the written certification.  Nothing in subparagraph (v)

suggests that the written certification is conclusive.  So far as

the language goes, Korman was free to accept the written

certification as adequate, presumably reserving its right (if any)

to sue the engineer later, or to dispute now that subparagraph

(iii) and (iv) had in fact been satisfied.

     In the bankruptcy court, Korman's supporting affidavit

averred that volatile organic compounds on the property remain "at

levels in excess of DER's cleanup standards."  Cumberland's

certification asserts only that 440 tons of soil were evacuated and

removed and that soil vapor extraction lines were installed.  But

if this implies a view that all regulations have been satisfied,

whether Cumberland in fact satisfied Pennsylvania requirements was

not decided by the bankruptcy court and can hardly be decided by us

in the face of conflicting assertions by experts.

     It follows that the matter must be remanded to the

bankruptcy court to determine whether Cumberland's removal,

replacement, commencement of remediation and installation do meet

the substantive requirements of "the appropriate federal or state

authorities."  This might turn out to be a technical factual issue

about the extent of soil removal or something far more complicated. 

Given the limited dollar amount involved, the parties would be

well-advised to consider a settlement.

     The judgment of the district court affirming the order of

the bankruptcy court is vacated and the matter is remanded for

further proceedings consistent with this opinion.  Each side shall

bear its own costs on this appeal.

     It is so ordered.