Opinions of the United 1996 Decisions States Court of Appeals for the Third Circuit
4-11-1996
Sumitomo Machinery v. AlliedSignal Inc Precedential or Non-Precedential:
Docket 95-5138
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Recommended Citation "Sumitomo Machinery v. AlliedSignal Inc" (1996). 1996 Decisions. Paper 193. http://digitalcommons.law.villanova.edu/thirdcircuit_1996/193
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N0. 95-5138
SUMITOMO MACHINERY CORPORATION OF AMERICA, INC.
v.
ALLIEDSIGNAL, INC.,
Appellant
On Appeal From the United States District Court For the District of New Jersey (D.C. Civil Action No. 91-cv-01790)
Argued October 10, 1995
BEFORE: STAPLETON, McKEE and NORRIS,* Circuit Judges
(Opinion Filed April 11, l996)
Mark J. Malone (Argued) Lori D. Linskey Stier, Anderson & Malone 1120 Route 22 East Bridgewater, NJ 08807 Attorneys for Appellee
Douglas S. Eakeley (Argued) Lowenstein, Sandler, Kohl, Fisher & Boylan 65 Livingston Avenue Roseland, NJ 07068 Attorney for Appellant
* Honorable William A. Norris, United States Circuit Judge for
1 the Ninth Circuit, sitting by designation.
2 OPINION OF THE COURT
STAPLETON, Circuit Judge:
In 1991, Sumitomo Machinery Corporation of America
("Sumitomo") and AlliedSignal Inc. ("Allied") settled an
environmental lawsuit concerning property sold to Sumitomo by a
predecessor of Allied. Their respective responsibilities were
delineated in an Environmental Agreement ("Agreement") which
incorporated a cleanup plan approved by the New Jersey Department
of Environmental Protection ("NJDEP").1 In 1994, NJDEP tightened
the radioactive remediation requirements applicable to the
property, effectively giving Sumitomo the choice of executing a
Declaration of Environmental Restrictions and Grant of Easement
("DER") or remediating to a higher standard than originally
approved.
A DER attaches to the title of the land and restricts certain
future uses without NJDEP approval.
Before the district court, Allied argued that the
Agreement unambiguously required Sumitomo to execute the DER, and
Sumitomo argued that it unambiguously did not. The district
court denied Allied's request for specific performance or
declaratory relief, finding that the Agreement unambiguously
1 In 1994, the New Jersey Department of Environmental Protection and Energy ("NJDEPE") shortened its name to New Jersey Department of Environmental Protection.
3 placed the costs of remediation on Allied and did not require
Sumitomo to enter into the DER. We find the Agreement ambiguous
and will reverse and remand for further proceedings.
I.
Between 1937 and 1939, the Bendix Corporation
("Bendix") acquired land in Teterboro, New Jersey. At various
times since 1939, Bendix used the land for a sewage treatment
facility, a thorium/magnesium alloy foundry, a chemical treatment
facility to dispose of the radioactive waste magnesium, and
storage for various oils and solvents. In 1977 Bendix subdivided
its land and sold one parcel to Sumitomo. The current litigation
concerns the environmental cleanup of this parcel of land
("Site").
By 1988, government investigation had revealed
radioactive contamination on the Site. In 1984 Bendix had merged
into Allied, and Allied, as successor, took the lead in
formulating a remediation plan for all the land formerly owned by
Bendix. Meanwhile, Sumitomo moved its operations out-of-state in
1988 and attempted to sell the Site. To do so, Sumitomo had to
institute a cleanup plan approved by NJDEP. See Environmental
Cleanup Responsibility Act, N.J. Stat. Ann. §§ 13:1K-6 to 13:1K-
13 (West 1991) ("ECRA"), repealed and replaced by Industrial Site
Recovery Act of 1993, N.J. Stat. Ann. §§ 58:10B-1 to 58:10B-20
(West Supp. 1995) ("ISRA").
2 Unsatisfied with Allied's efforts, Sumitomo hired Dames
& Moore, an environmental consulting firm, to perform various
environmental tests and to draw up a cleanup plan to submit to
NJDEP. In January 1991, Dames & Moore submitted an "ECRA
Remedial Investigation and Cleanup Plan" ("Proposed Cleanup
Plan") to NJDEP. According to the plan, radioactive
contamination would be remediated to 5 pCi/gm for the first
15 cm. of soil, and 15 pCi/gm for any deeper soil ("5/15
standard").2 Dames & Moore estimated that the plan would require
excavating only 300 cubic feet of dirt to remove the "hot spots"
of radiation that pushed the site over the 5/15 standard.
On August 30, 1991, NJDEP approved the Proposed Cleanup
Plan in a letter ("Plan Approval"). It unconditionally approved
the plan for radiological contamination, and no DER was required.
In contrast, NJDEP required a DER for PCBs:
2. PCBs in Soil. . . The proposal is acceptable provided that a deed restriction be placed on properties where elevated levels of contaminants are allowed to remain on- site. . . . The deed restriction shall not allow contaminated subsurface soil to be brought to the surface (0-2') above allowable levels.
App. at 475. NJDEP similarly required a DER for metals
(chromium): "Should the metal results be similar to those found
in the earlier samples and the chromium is found to be in the
trivalent form, no remedial action other than a deed restriction
shall be required." Id.
2 "pCi/gm" stands for picocuries per gram, a standard of radiological activity.
3 A model DER was attached to the Plan Approval. It
states that by executing a DER, the owner of property "impose[s]
certain restrictions upon the use and occupancy of the Property,
to restrict certain activities at the Property, and . . .
grant[s] an easement to NJDEPE." See App. at 301; see also
24 N.J. Reg. 401 (proposed regulation N.J. Admin. Code 7:26D,
Appendix A, "Model Document Declaration of Environmental
Restrictions and Grant of Easement"). The owner agrees to avoid
taking actions that may disturb clean soil covering contaminated
land, or that may otherwise cause migration of contaminants. The
easement allows NJDEP to enter onto the land, inspect its
condition, and do remedial work. The DER is recorded and runs
with the property until NJDEP executes and records a release.
NJDEP, persons likely to suffer injury, and any citizen of New
Jersey are entitled to enforce the DER. Future owners are put on
notice by the recordation, and the DER itself requires the owner
to notify any lessees of the DER.
In April 1991, Sumitomo sued Allied under the
Comprehensive Environmental Response, Compensation, and Liability
Act, 42 U.S.C.A. §§ 9601-9675 (West 1994), to recover response
costs for remediating the site. In September 1991, a month after
NJDEP approved Sumitomo's plan, the parties settled the suit, and
each parties' responsibilities were laid out in the Agreement.
Overall, the Agreement shifted the responsibility and costs of
cleaning Sumitomo's land onto Allied. The cleanup was to proceed
4 according to the Proposed Cleanup Plan as modified by the Plan
Approval.
Allied attempted to go forward with the remediation,
but found that the radiological contamination was more extensive
than Dames & Moore had estimated. It discovered soil with both
radiological and chemical contamination, "mixed waste," which
requires more extensive treatment. The parties dispute what
Allied then did, and the propriety of its actions. What is
undisputed is that tens of thousands of cubic feet of soil were
excavated and stored on site instead of 300. This soil met the
plan's 5/15 standard and could be placed back on the Site under
the original standard. The remediation has taken much longer
than the six months estimated by Dames & Moore.
Due to the delay and extensive excavation of soil,
Sumitomo complained about Allied's remediation to NJDEP. Apprised
of the new circumstances, NJDEP ordered the remediation to halt
and requested an addendum to the Proposed Cleanup Plan. The
parties jointly submitted a proposal which suggested the same
5/15 standard ("Plan Addendum").
NJDEP approved the Plan Addendum, but under the more
stringent requirements of ISRA, which had been enacted after the
Plan Approval. The new legislation established two remediation
standards, residential and nonresidential. See § 58:10B-
12(c)(1). The residential remediation standard refers to
contaminant levels that do not exceed the health risk level
appropriate for residential use, as determined by the agency. The
5 nonresidential standard refers to a higher risk level appropriate
for uses that are not residential. If a cleanup plan proposes to
remediate real property to nonresidential standards, ISRA
requires a DER to restrict use of the property to non-residential
uses and other uses compatible with the extent of contamination
and, in addition, restricts any activities that may bring
contaminants above ground. See § 58:10B-13(a)(2).
NJDEP determined that the residential remediation
standard for the Site was 3 pCi/gm, based on NJDEP calculations
of safe exposure levels for people. It rejected the 5/15
standard as creating too high a health risk for unrestricted use.
The approval of the Plan Addendum required the Site to be cleaned
to 3 pCi/gm, covered with one foot of uncontaminated fill, and a
DER executed to insure that the cover remain in place. Sumitomo
and Allied filed formal objections to the new standard in
accordance with NJDEP's dispute resolution process. The new
standard would be expensive. The tens of thousands of cubic feet
of soil stored on the Site could not be placed back onto the land
because its contamination exceeded 3 pCi/gm; it would have to be
shipped for disposal, a costly proposition. According to Allied,
it might also have to raze a warehouse on the property to treat
the underlying soil. Exposing the underlying soil would obligate
Allied to remediate other contaminants that were otherwise
acceptable in place and covered by the warehouse.
Before resolution, Sumitomo withdrew its objection to
the new standard and requested NJDEP to enforce it. Nevertheless,
6 Allied pursued dispute resolution, arguing that the agency had
improperly calculated the correct residential standard and that
the proper standard was the original 5/15 standard. NJDEP
eventually agreed that its standard was too stringent, but did
not agree that the Site could be unrestricted at the 5/15
standard. In its letter to Allied dated December 1994, NJDEP
stated: The NJDEP agrees with your position that the radiological criteria for this site should be 5 pCi/gm above background in the first six inches of soil and 15 pCi/gm in any subsequent six inch layer for [various radiological contaminants]. . . .
However, the NJDEP does not agree with your proposal regarding the issue of unrestricted use. Be advised that, in accordance with P.L. 1993, c.139, an institutional and/or an engineering control, in the form of a Declaration of Environmental Restriction, will be required if any concentrations will remain in the soils greater than 5 pCi/gm. This will ensure that any affected soils will not be disturbed. "Unrestricted use" will be approved when soil concentrations are less than 5 pCi/gm throughout the soil column.
App. at 202. In effect, NJDEP had changed the residential
standard applicable to Allied's cleanup from 3 pCi/gm to
5 pCi/gm, but had not altered ISRA's statutory DER requirement.
Thus, Allied could still remediate to the 5/15 standard in the
Proposed Cleanup Plan and Plan Approval, but Sumitomo would have
to agree to execute a DER. Alternatively, Allied could remediate
the entire soil column to 5 pCi/gm.
Despite continued efforts by Allied, NJDEP did not
change its standards any further. Sumitomo would not execute a
7 DER for the 5/15 standard, so Allied requested the district court
to determine, on an expedited basis, whether Sumitomo must do so
under the Agreement. By its terms, the Agreement is governed by
the laws of New Jersey, and the parties did not argue otherwise.
After reviewing the parties' briefs and affidavits accompanying
the motion, the district court ruled for Sumitomo, finding that
under New Jersey law, the Agreement unambiguously did not
obligate Sumitomo to enter into the DER, and to the contrary,
placed the burden of regulatory change upon Allied. This appeal
followed.
Under 28 U.S.C. § 1291, we have jurisdiction to
entertain an appeal from the final order of the district court.
The original suit was brought under the Comprehensive
Environmental Response, Compensation, and Liability Act, which
vests original and exclusive jurisdiction in federal district
courts. See 42 U.S.C. § 9613(b) (1994). In the consent order
filed in conjunction with the settlement, the district court
retained jurisdiction to enforce the Agreement and properly heard
Allied's motion.
Allied asks us to interpret the Agreement unambiguously
to require the DER, or in the alternative, to find the Agreement
ambiguous and remand for an evidentiary hearing. We agree with
Allied's alternative argument and hold that the Agreement is
ambiguous as to whether Sumitomo must execute the radiological
DER, and the factual issue of intent must be resolved on remand.
8 II.
When resolving a contract dispute, the initial
determination is whether the contract is ambiguous concerning the
dispute between the parties, an issue of law afforded plenary
review. See Teamsters Indus. Emp. Welfare Fund v. Rolls-Royce,
989 F.2d 132, 135 (3d Cir. 1993).
A contract is ambiguous "where the contract is
susceptible of more than one meaning." Briggs v. United Shoe
Machinery Corp., 92 N.J. Eq. 277, 287, 114 A. 538, 542 (N.J.),
cert. denied, 254 U.S. 653 (1920). In American Cyanamid Co. v.
Fermenta Animal Health Co., 54 F.3d 177 (3d Cir. 1995), we had
occasion to consider how a New Jersey court would determine
whether there is "more than one meaning": [T]he Supreme Court of New Jersey summarized this area of the law in the following terms:
Evidence of the circumstances is always admissible in aid of the interpretation of an integrated agreement. This is so even when the contract on its face is free from ambiguity. The polestar of construction is the intention of the parties to the contract as revealed by the language used, taken as an entirety; and, in the quest for the intention, the situation of the parties, the attendant circumstances, and the objects they were thereby striving to attain are necessarily to be regarded. . . .
[Atlantic Northern Airlines, Inc. v. Schwimmer, 12 N.J. 293, 301, 96 A.2d 652, 656 (N.J. 1953).]
9 It is important for present purposes to note that extrinsic evidence of the negotiations, conduct and other circumstances of the parties is important to a court's analysis of whether an agreement is ambiguous only to the extent, if any, that such evidence provides "objective indicia that, from the linguistic reference point of the parties, the terms of the contract are susceptible of different meanings." Mellon Bank, N.A. v. Aetna Business Credit, Inc., 619 F.2d 1001, 1011 (3d Cir. 1980). That is, extrinsic evidence is permitted because the law recognizes that the meaning of words can depend on context, and what may seem unambiguous without context (or in the context that the judge may hypothesize, based on his or her own experience) may be ambiguous when understood from the "linguistic reference point of the parties." Id. See 3 Arthur L. Corbin, Corbin on Contracts § 542 (1960). Cf. 4 Samuel Williston & Walter H.E. Jaeger, A Treatise on the Laws of Contracts § 601, at 310-11 (3d ed. 1961).
Id. at 181-82. We now turn to the Agreement to ascertain whether
it is susceptible to more than one meaning.
The district court found that in the Agreement, Allied
unambiguously agreed to pay "all costs" of the required cleanup: 1. Assumption of Cleanup Responsibilities. Subject to the terms and conditions of this Agreement, ALLIED-SIGNAL shall from and after the effective date of this Agreement assume full responsibility for:
. . . .
b) payment of all costs incurred after the effective date of this Agreement relating to or arising from:
10 . . . . (3) the conduct of any work at the Site or compliance with requirements that may be imposed by the NJDEPE or other federal, state or local governmental authorities relating to or arising from such Existing Environmental Conditions, including, but not limited to, the posting of required financial assurances, (the "Work").
App. at 269 (emphasis added). It also undertook the risk and
cost of more stringent regulations: 5. Implementation of Cleanup Plan. . . . If new, more stringent laws or regulations are enacted which require additional work to be performed at the Site with respect to such Existing Environmental Conditions, ALLIED-SIGNAL shall comply with such laws or regulations to the extent required by the NJDEPE. . . .
Id. at 272. Allied acknowledges that the preceding Agreement terms
required it to remediate to the extent required by the NJDEP,
including any requirement based on a change of law. According to
Allied, the ambiguity, if any there be, resides in what
remediation is "required" within the meaning of the Agreement
when the NJDEP gives the landowner an option between (a)
remediating to the standard proposed by the landowner and
accepting a DER limiting future use and (b) remediating to a
substantially higher standard at substantial additional expense.
Allied correctly points out that nothing in the Agreement
expressly speaks to what "required" means in this context. It
argues, however, that Paragraph 6 of the Agreement unambiguously
reflects an understanding between the parties that "any DER which
the NJDEP [might] impose or require for the Site" as a result of
11 their joint proposal would be accepted by Sumitomo, as the
landowner, so that Allied would not be required to perform more
remediation than set forth in that joint proposal. Paragraph 6
provides: 6. Cooperation in Sale or Lease of Site. ALLIED- SIGNAL shall cooperate fully with SUMITOMO in the event of a sale or lease of all or a portion of the Site. . . . SUMITOMO shall provide any such purchaser or lessee with a copy of this Agreement and any "Declaration of Environmental Restrictions and Grant of Easement" ("Deed Restrictions") which the NJDEPE may impose or require for the Site. SUMITOMO or any such purchaser or lessee shall fully comply with the terms of such Deed Restrictions which limit utilization of the Site. ALLIED-SIGNAL shall comply with the terms of such Deed Restrictions that are applicable to its conduct of the Work and shall pay for any portion of the Work required by the NJDEPE as part of any "Deed Restrictions."
Id. at 273-74 (emphasis added). The district court was unpersuaded by Allied's
interpretation of Paragraph 6. It was important to the court
that Sumitomo had never agreed specifically to a radiological DER
and that NJDEP had approved the original remediation plan without
one. Paragraph 6 could not be read to obligate Sumitomo to enter
into the radiological DER because NJDEP had not "imposed or
required" it, and the Agreement plainly referred to only DERs
"imposed or required". As a result of the dispute resolution
process, the radiological DER was one of two alternatives, the
proposed 5/15 remediation standard plus a DER, or remediation to
5 pCi/gm for the entire soil column.
After considering the alternative interpretations of
the Agreement, we find Paragraph 6 ambiguous concerning
12 Sumitomo's obligations with respect to the radiological DER.
While we agree with the district court that Paragraph 6 can
reasonably be read to impose no relevant obligation on Sumitomo,
we also find it reasonable to interpret the paragraph as
reflecting an understanding that Sumitomo would execute a DER
such as the one at issue here. The district court erred in its
interpretation of "imposed and required," and should have found
Allied's interpretation also to be a reasonable one.
It is important at the outset to put Paragraph 6 in the
regulatory context in which it was negotiated. The regulatory
scheme in place at the time the Agreement was negotiated is, of
course, competent extrinsic evidence concerning the meaning the
parties gave to their descriptions of agency action.
ISRA gives the owner of contaminated property a choice
between a DER or a more stringent remediation standard. Property
may be remediated to a standard less stringent than the
residential soil remediation standard if a DER is executed, see
§ 58:10B-13(a), but NJDEP may not impose a DER without the
consent of the owner. See § 58:10B-12(h)(3). If the owner does
not consent, he or she is required to remediate to the
residential soil remediation standard. See § 58:10B-13(b). While
ISRA may properly be viewed as a more "stringent law" within the
meaning of Paragraph 5 of the Agreement, its imposition of a DER
as a condition of utilizing a less strict standard continues the
practice that existed prior to ISRA.
13 The imposition of a DER is a responsive regulatory
process. The owner of contaminated land submits a cleanup plan,
and in response to the proposal, NJDEP may impose or require a
DER. That is what it means to "impose or require" a DER, and the
parties must have understood this meaning at the time of the
Agreement was negotiated and executed. Dames & Moore submitted
the Proposed Cleanup Plan on behalf of Sumitomo in January of
1991, as required by ECRA. In August, NJDEP responded with its
Plan Approval, approving the plans for some contaminants
unconditionally, and imposing DERs on the proposed cleanup of
other contaminants.
NJDEP imposed the radiological DER in the same manner.
Sumitomo proposed the 5/15 standard in the original cleanup plan.
When NJDEP requested the Plan Addendum, Sumitomo, together with
Allied, proposed the 5/15 standard again. In response, NJDEP
imposed much stricter requirements. Through dispute resolution
NJDEP relaxed the new requirements, and in the end only imposed a
DER on the 5/15 standard proposed in the Plan Addendum. The
radiological DER was imposed and required in the responsive
regulatory process typical for a cleanup plan, a process the
parties were aware of when they executed the Agreement.
Sumitomo would read "imposed or required" as meaning
only DERs absolutely imposed or required, with no choice or
option given. This interpretation is untenable. A DER is always
optional in the sense that contaminated land could always be
remediated to such a clean level that no DER could be required.
14 In the Plan Approval, NJDEP required a DER for PCBs so long as
"elevated levels of contaminants are allowed to remain on site."
Impliedly, if Sumitomo had proposed to remediate PCBs below
"elevated levels" throughout the Site, NJDEP would not have
imposed a DER. Where a DER may be required, an owner of land
always has the choice of the DER or remediating to the
residential standard.
If "imposed or required" were read throughout the
Agreement to exclude any regulations or laws imposed in the form
of alternatives, Allied could not be required to remediate to the
more stringent standard. Paragraph 1(b)(3) states that Allied
will pay "all costs . . . arising from . . . compliance with
requirements that may be imposed by the NJDEPE," and Paragraph 5
states that Allied will comply with "more stringent laws or
regulations," but only "to the extent required by the NJDEPE."
(emphasis added). Here, NJDEP required either that a
radiological DER be executed or that the entire soil column be
remediated to the residential standard. Just as the radiological
DER was not absolutely imposed on Sumitomo, neither was the more
stringent standard absolutely imposed on Allied. If we followed
Sumitomo's reading of "imposed or required" to its logical
conclusion, DERs would fall outside the scope of the Agreement.
With this background we return to the key provision of
Paragraph 6: "SUMITOMO shall provide any such purchaser or
lessee with a copy of this Agreement and any "Declaration of
Environmental Restrictions and Grant of Easement" ("Deed
15 Restriction") which the NJDEPE may impose or require for the
Site." If Sumitomo has any obligation to execute a radiological
DER, it arises from this provision.
As the district court found, Paragraph 6 can reasonably
be read to create no obligation on Sumitomo's part to accept a
DER. The paragraph generally concerns the duties of the parties
in the event of a sale or lease of the Site. Read in this
context, Sumitomo may have undertaken only the duty to provide a
purchaser or lessee with copies of any DER that happened to be
attached to the land at the time of transfer. The key provision
in Paragraph 6 refers to a duty to provide a "copy of this
Agreement and any [DER]." The listing of the Agreement as well
as any DER suggests that the clause creates a duty to provide
copies of certain documents, not a duty to execute those
documents. Nowhere in Paragraph 6 is it explicitly stated that
Sumitomo has a duty to execute a DER.
However, it is also entirely reasonable to interpret
Paragraph 6 as creating a duty to execute future DERs. The
paragraph is entitled "Cooperation in Sale or Lease of Site," but
it is also the place in the Agreement where the parties discuss
their obligations with respect to DERs. The second half of the
paragraph not only discusses Sumitomo's promise to provide any
DER imposed or required by NJDEP, but it also discusses each of
the parties' obligations to comply with the terms of any such
DER. Most important, the obligation assumed by Sumitomo in
Paragraph 6 is not stated in terms of "currently existing DERs"
16 or "any DER that Sumitomo may hereafter accept." Sumitomo
commits itself to deliver "any [DER] which the NJDEPE may impose
or require for the Site." Given that the only DER that would be
of any concern to a purchaser of the Site would be those that had
been accepted by Sumitomo, it is not unreasonable to suggest that
the obligation to deliver any DER which NJDEP might impose or
require necessarily presupposed that Sumitomo would accept any
DER that NJDEP might propose as a condition of approving its
proposal.
III.
In connection with their cross motions for summary
judgment, Allied and Sumitomo submitted affidavits of their
representatives during the course of the negotiation of this
Agreement. In his affidavit, James A. Schutt, Allied's
representative, averred that "the parties specifically discussed
the appropriateness of using clean up standards that took into
consideration the future use of the Site as industrial property
and that a DER [might] be required." According to Schutt, the
Sumitomo representatives "agreed that industrial standards were
appropriate, [and] that a DER was acceptable." App. at 211.
Sumitomo's President, William M. Lechler, insisted in this
affidavit, however, that "Sumitomo never committed to entering
into a DER for any kind of contamination." App. at 512. The
extrinsic evidence presented by the parties was thus in conflict.
17 When a contract is ambiguous, the "fact-finder must
attempt to discover what the contracting parties . . . intended
[the disputed provisions] to mean." Teamsters Indus. Emp.
Welfare Fund, 989 F.2d at 136. In order to make such a
determination, "objective evidence in support of [the competing]
interpretation[s] should be considered by the fact finder."
Mellon Bank, 619 F.2d at 1011. When there is a material conflict
in the extrinsic evidence concerning the objective context of the
contract, the trier of fact has no choice but to conduct an
evidentiary hearing and resolve the conflict. On remand, the
district court will hear all relevant extrinsic evidence the
parties wish to tender, will resolve any conflict in that
evidence, and will make findings of fact with respect to the
intent of the parties.
IV.
We will reverse the judgment of the district court
and remand for further proceedings consistent with this opinion.