BOROUGH OF EDGEWATER v. WATERSIDE CONSTRUCTION, LLC et al

Filing 184

OPINION. Signed by Judge John Michael Vazquez on 12/14/16. (sr, )

UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
Not for Publication
BOROUGH OF EDGEWATER,

Plaintiff
v.

Civil Action No. 14-5060

WATERSIDE CONSTRUCTION, LLC; 38
COAH, LLC; DAIBES BROTHERS, INC.;
NORTH RIVER MEWS ASSOCIATES, LLC:’
FRED
A.
DAIBES;
TERMS
ENVIRONMENTAL
SERVICES,
INC.;
ALCOA INC. (formerly known as “Aluminum
Company of America”); ALCOA DOMESTIC
LLC, as successor in interest to A.P. NEW
JERSEY. INC.; JOHN DOES 1-100; and ABC
CORPORATIONS 1-100,

Defendants,
and
WATERSIDE CONSTRUCTION. LLC; 38
COAH, LLC; DAIBES BROTHERS, INC.;
NORTH RIVER MEW’S ASSOCIATES. LLC;
and FRED A. DAIBES.

Defendants/Third-Party Plaintiffs,
V.

NEGLIA ENGINEERING ASSOCiATES,
TI? ird-Party Defendant,
and
ALCOA DOMESTIC LLC, as successor in
interest to A.P. NEW JERSEY, INC.,

OPINION

Defendant/Third-Parry Plaintiff
V.

COUNTY OF BERGEN and RIVER ROAD
IMPROVEMENT PHASE II, INC.,

TIi ird-Party Defendants.

John Michael Vazguez, U.S.D.J.
S

This matter comes before the Court on Defendant/Third-Party Plaintiff Alcoa Domestic
LLC’s (“Alcoa”) motion for partial judgment on the pleadings pursuant to Federal Rule of Civil
Procedure 12(c). Defendant North River Mews Associates, LLC (“North River”), and Third-Party
Defendant River Road Improvement Phase II, Inc. (“RRIP”) (collectively “Defendants”) oppose
this motion) The Court held oral argument on September 13, 2016 pursuant to Rule 78 of the
Federal Rules of Civil Procedure and Local Civil Rule 78.1.

D.E. 172 (Transcript of Oral

Argument). The Court has considered all submissions as well as the parties’ oral arguments. For
the reasons stated below, the Court denies Alcoa’s motion.

Alcoa’s Brief in support of its Motion will be referred to hereinafter as “Alcoa Br.” (D.E. 110),
Defendants’ Opposition to Alcoa’s brief will be referred to hereinafter as “Def. Opp’n” (D.E. 128),
and Alcoa’s Reply Brief in support of its Motion will be referred to hereinafter as “Alcoa R.Br.”
(D.E. 130).
7

I.

BACKGROUND

A. General Background

In 2011, Plaintiff, the Borough of Edgewater (“Edgewater”), began the Veteran’s Field
Project (the “Project”), an endeavor to remedy the contamination of Veteran’s Field in Edgewater,
New Jersey.

SAC

111

l922.2

In 2012, Defendant Waterside,3 a New Jersey contractor, was

awarded the contract for the Project. Id.

¶ 29.

The contract required that “certified stone from a

quarry or crushed virgin stone be used as fill in certain areas of the [s]ite.” Id.

¶ 28.

Waterside

worked on Veteran’s Field from the summer of 2012 through October 20l3, when the site was
closed to assess contamination on the site from the fill used by Waterside. Id.

¶ 30, 46.

Despite strict fill requirements for the Project, Plaintiff alleges that “Waterside had
previously and continued to utilize
the fields on the site.” Id.

¶ 43.

[1

suspect fill materials in the parking lot areas and throughout

Subsequent inspections revealed that fill materials throughout the

site were contaminated and contained PCB-contaminated crushed concrete.5 Id.

¶ 44, 45.

After

the contamination was identified, “Waterside admitted that the contaminated fill materials that it
imported to the [s]ite came from the former Alcoa site.” Id.
2

¶ 54.

The “Alcoa Site” is contaminated

“SAC” refers to Plaintiffs Second Amended Complaint. (D.E. 61)..

Defendant Waterside is one of a group of Defendants collectively referred tO as the “Waterside
Defendants.” These Defendants are all related companies that are owned and/or controlled by
Fred A. Daibes, and consist of: Waterside Construction, LLC (“Waterside”); North River, 38
COAH Associates, LLC; Daibes Brothers, Inc.; Fred A. Daibes; and Third-Party Defendant RRIP.
Id. ¶2; Alcoa Br. at2 nI.
There was a brief break in Waterside’s work during that period due to Superstorm Sandy. Id.
33.

¶

Polychiorinated Biphenyls (“PCBs”) are a type of chemical contaminant that are regulated by the
New Jersey Department of Environmental Protection (“NJDEP”) and were detected at Veteran’s
Field. Id. 7j1 18, 19.

3

property located at River Road, Edgewater, New Jersey, and is currently owned by 38 COAH. Id.

¶ 3,

54-55. In 1997, North River purchased the Alcoa Site from Alcoa.
On August 12, 2014, Edgewater filed the Complaint in the present action against North

River, RRIP, other Waterside Defendants, and Alcoa, among others, seeking remediation costs
under the Comprehensive Environmental

Response,

Compensation,

and

Liability Act

(“CERCLA”); the New Jersey Spill Act; and the common law to clean up Veteran’s Field. D.E.
1. Subsequently, Plaintiff filed its Second Amended Complaint (“SAC”) on May 6,2015. D.E.
61

6

Thereafter, North River, RRIP, and the other Waterside Defendants asserted various cross-

claims against Alcoa for contribution and indemnification pursuant to CERCLA, the Spill Act, and
the common law. D.E. 24.
On November 21, 2014, Alcoa filed its cross-claim against North River seeking defense
costs and indemnification pursuant to three agreements: (1) the Purchase and Sale Agreement, (2)
the Multi-Party Agreement; and (3) the Environmental Indemnity Agreement.

D.E. 20.

Subsequently, on December 5, 2014, Alcoa filed a Third-Party Complaint against RRIP seeking
defense costs and indemnification pursuant to the Multi-Party and Environmental Indemnity
Agreements. D.E. 23.

6

Plaintiffs SAC is comprised of nine counts: Count I Contribution under the Spill Act (as to
Waterside, Fred Daibes, Daibes Brothers, 38 COAH, North River, ALCOA, TERMS, ALCOA
DOMESTIC, John Does 1-100 and ABC Corporations 1-100); Count II Cost Recovery Under
CERCLA (as to Waterside, Fred Daibes, Daibes Brothers, 38 COAH, North River, ALCOA,
ALCOA DOMESTIC, TERMS, John Does 1-100 and ABC Corporations 1-100); Count III
Breach of Contract (as to Waterside); Count IV Fraud (as to Waterside and Fred Daibes), Count
V Negligence (as to Waterside); Count VI Unjust Enrichment (as to Waterside, ALCOA,
ALCOA DOMETIC and 38 COAH); Count VII Violations of the New Jersey Consumer Fraud
Act (as to Waterside and Fred Daibes); Count VIII Breach of Contract (as to TERMS); and Count
IX Negligence (as to TERMS).
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4

B. The Three Agreements and the Parties’ Positions
The Aweements
As noted, North River bought the Alcoa Site from Alcoa7 in 1997. Alcoa Br. at 4. In
conjunction with the sale of the property. Alcoa and North River entered into a Purchase and Sale
Agreement in June 1997. Id. Ex. I [hereinafter “Purchase and Sale”]. This purchase was part of
a local government redevelopment plan to widen River Road in Edgewater and to revitalize the
surrounding areas, including the Alcoa Site. Id.
Also in June 1997, and pursuant to the redevelopment plan, North River, RRIP, and Alcoa
entered into the Multi-Party Property Acquisition Agreement. icI. Ex. 2 [hereinafter “Multi-Party
Agreement”]. The Multi-Party Agreement assumed that all of the buildings on the Alcoa Site
would be demolished. Id. Ex. 2 at 7

¶2

(“North River and RRIP agree that they will cause to be

demolished and removed from the [Alcoa] property all structures and improvements currently
existing on the property.”). Building 12 on the Alcoa Site, however, was not razed. As a result,
North River, Alcoa and RRIP entered into a March 13, 1999 Environmental Indemnity Agreement.
Id. Ex. 3 [hereinafter “Environmental Agreement”].

This agreement relieved Alcoa of its

obligation for all claims related to Building 12, stating that:
[t]o the extent that Building 12 is not demolished. North River and
River Road shall indemnify, defend and hold [Alcoa] harmless from
any and all claims, demands, causes of action, and suit or suits,
including all foreseeable and unforeseeable consequential damages,
occurring at any time before, during or after North River’s
ownership of the property, relating to Building 12 and the land under
and adjacent thereto, arising under Applicable Law (as defined in
the Purchase Agreement), including but not limited to, remediation
and disposal costs and expenses related to PCBs.

Alcoa was not the named party in the three agreements. Instead, the party was A.P. New
Jersey, Inc. Alcoa is a successor in interest to A.P. For ease of reference, the Court refers to the
selling party as Alcoa.
5

Id. Ex. 3,

¶

1. The parties represent that Building 12 has now been demolished. Def. Opp’n at 3;

D.E. 172, Transcript of Oral Argument, at 50:14-I 8.8
Of the three agreements, the Purchase and Sale is central to the present dispute. Section
Five of the Purchase and Sale, titled “Warranties and Representations” provides that:
OTHER THAN THE REPRESENTATION AND WARRANTY
SET FORTH IN THIS SECTION, [NORTH RIVERI
SPECIFICALLY ACKIOWLEDGES THAT IALCOAI IS
SELLENG AND INORTH RIVERI IS PURCHASING THE
PROPERTY ON AN “AS IS, WITH ALL FAULTS” BASIS
AND THAT INORTH RIVERI SHALL HAVE AN
OPPORTUNETY TO INSPECT THE PROPERTY AND IS
NOT RELYING ON ANY REPRESENTATIONS OR
WARRANTIES OF ANY KIND WHATSOEVER, EXPRESS
OR IMPLIED, FROM IALCOAI, ITS AGENTS, OR
MATTERS
TO
ANY
REPRESENTATIONS
AS
CONCERNING THE PROPERTY, INCLUDING WITHOUT
LIMITATION:
(iii) the existence, quality, nature, adequacy and physical condition
of the property;
(vii) the presence or removal of hazardous or toxic materials,
substances or wastes in, on, under, or about the Property or the
adjoining or neighboring property
(emphasis in original) (hereinafier “as is clause”).
Additionally, Section Six provides for Alcoa to pay for certain remediation costs. Section
6(a)(ii)(2) states that Alcoa “will be responsible for costs of disposal of material contaminated with
PCB’s at concentrations greater than 50 ppm at approved TSCA landfills if those disposal costs
exceed 5250.000 up to a maximum of S2,500.000.” Alcoa also promised to pay S9,500,00 in
demolition costs, with a total cap of $1 2000,000 for both demolition and disposal costs.

Alcoa initially argued in its brief that “Building 12 is not actually and frilly demolished.” Sec
Alcoa R.Br. at 10 n.3. However, both parties acknowledged during oral argument that Building
12 had, in fact, been torn down. D.E. 172 at 50:14-18.
6

Section Seven of the Purchase and Sale is entitled “Environmental Conditions.” This
Section defines numerous terms and conditions relating to the environmental situation of the
property. Section 7(a) defines “hazardous substances,” which includes “any substance, chemical
or waste that is listed or defined as hazardous, toxic, or dangerous under Applicable Law.” Section
7(b) goes on to define the “Applicable Law” in the contract, which includes CERCLA as well as
the Spill Act and numerous other environmental laws and regulations.
The contract then turns to environmental reports regarding the condition of the property.
Section 7(c) requires that Alcoa make available to North River all environmental reports
concerning the condition of the property (the “Environmental Reports”). The parties thrther agree
that the Environmental Reports, along with any reports prepared by the North River, will make up
the “known environmental condition” of the property. Section 7(d) provides that North River, “at
its sole cost and expense, may conduct an environmental transfer assessment of the [p]roperty prior
to closing.”
Sections 7(1) and 7(g) concern indemnification and a release, which are at the heart of the
current motion. Section 7(f) discusses the indemnification of Alcoa, the seller, by North River,
the buyer, stating:
Indemnification of Seller. Buyer shall indemnify, defend and hold
Seller harmless from any and all claims, demands, causes of action,
and suit or suits, including all foreseeable and unforeseeable
consequential damages, occurring on or after the Closing Date
arising under Applicable Law related to Buyer’s (or, during Buyer’s
ownership of the Property, any operators’ or any third parties’) use
of the Property and/or any and all activities relating thereto.
Purchase and Sale, § 7(1).
Section 7(g) then sets forth the circumstances surrounding the release of Alcoa:
Release of Seller. Except in the event that Seller remains in default
on any payment obligation after receiving notice of such default and
7

opportunity to cure as set forth in Section 8, Buyer expressly
releases Seller and agrees to waive all rights that it may have to seek
contribution from Seller for any response costs or claims that may
arise as a result of the actions or inactions of Seller and any previous
owner, operator or third party on or with respect to the property
relating to Hazardous Substances. Nothing in this provision shall
alter or expand the parties’ rights or obligations under the Multi
Party Agreement.
Purchase and Sale,

§ 7(g).

As noted, Alcoa agreed to pay up to S2,500.000 in disposal costs. Sections 8(a) and 12 of
the Purchase and Sale are also relevant to the present matter. Section 8(a) addresses default by
Alcoa. It states that if Alcoa “fails to perform any of its obligations under this Agreement or the
Multi[-j Party Agreement, the same shall constitute a default of this Agreement and thereupon,
[North River], at its option, may declare a forfeiture by written notice to seller.” Purchase and
Sale,

§ 8(a). The Section goes on to explain the notice requirements concerning Alcoa’s default,

and states that “where the default is not capable of being remedied in forty-five (45) days, [North
River] may declare this Agreement null and void.” Id.
Lastly, the contract contains an integration clause, which states that “[ajIl understandings
and agreements heretofore had between the parties, oral or written, are merged into this
Agreement, which alone thIly and completely expresses their understanding.” Purchase and Sale,

§ 16 [hereinafter the “integration clause’1].
The Multi-Party Agreement also contains a hold harmless and duty to defend clause:
It is understood and agreed that North River and RRIP shall defend
and save the County and [Alcoa] harmless from any and all claims
that may be filed in any Court arising from the performance of this
Agreement. In connection with the defense of any claim, the County
and [Alcoa] shall be entitled to select their own counsel. The County
and [Alcoa] shall fully cooperate in any such litigation provided,
however, that neither the County nor [Alcoa] shall be under any
‘

The county referred to is Bergen County, in which Edgewater is located.
8

obligation to expend any funds for any purpose whatsoever in
connection with such litigation. Should the County or [Alcoa] be
named as a party in any court, administrative or other action
proceeding, North River and RRIP agree to reimburse the County
and/or [Alcoa] (as applicable) for the cost of any legal, expert or
other fees expended by the County and/or [Alcoa] in such action of
proceeding.
Multi-Party Agreement,

§

16. The Multi-Party Agreement also expressly refers to the Purchase

and Sale between North River and Alcoa. Multi-Party Agreement,

§

I.

Parties’ Arguments
Alcoa argues that the Purchase and Sale unambiguously release it from all claims related
to the sale of the Alcoa Site. Alcoa Br. at 3. Further, Alcoa contends that the agreements (the
Purchase and Sale as well as the Multi-Party Agreement) require North River and RRIP to fund
Alcoa’s defense of the present claims. Id. Therefore, Alcoa asks the Court to enforce the tents
of the agreements by: “(I) dismissing the North River cross-claims asserted against Alcoa; (2)
requiring North River and RRIP to reimburse Alcoa for all legal costs that Alcoa has incurred to
defend itself in this lawsuit, plus interest; (3) requiring North River and RRIP to pay Alcoa’s future
defense costs in full on a current basis; and (4) requiring North River and RRIP to indemnify Alcoa
for any judgment entered against it.” Id. at 16-17.
Defendants, in response, argue that Alcoa “fraudulently induced North River and RRIP[’°]
to enter into the alleged contract by intentionally concealing a known environmental hazard.” Def.
Opp’n at I. Further, Defendants argue that even if the agreements were valid when entered, Alcoa
has not performed pursuant to the agreements and therefore its claim must fail. Id.

Lastly,

Defendants allege that “the contracts that Alcoa claims provide for release and indemnity are

‘°

The Court notes that RRIP is a party to the Multi-Party Agreement but not to the Purchase and
Sale.
9

inapplicable in this matter.” Id. Defendants assert that “the validity of the contracts between Alcoa
and Defendants is a factual question and therefore inappropriate for resolution of a Fed.R.Civ.P.
12(c) motion for judgment on the pleadings.” Id.
II. STANDARD OF REVIEW
Federal Rule of Civil Procedure 12(c) provides: “[a]fier the pleadings are closed
enough not to delay trial

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but early

a party may move for judgment on the pleadings.” A motion for

judgment on the pleadings is reviewed pursuant to the same standard as a motion to dismiss.

Wyndham Constr., LLC i’. Columbia Cas. Ins. Co., No. 15-7667, 2016 WL 5329585, at *2 (D.N.J.
Sept. 21, 2016). Thus, under Rule 12(c), “a court must take all allegations in the relevant pleading
as true, viewed in the light most favorable to the non-moving party.” N.J. Physicians United
Reciprocal Exch. v. Boynton &Boynton, Inc., 141 F. Supp. 3d 298, 302 (D.N.J. 2015). However,
the Court is not required to accept “unsupported conclusions, unwarranted inferences, or sweeping
legal conclusions cast in the form of factual allegations.” Allah v. Brown, 351 F. Supp. 2d 278,
280 (D.N.J. 2004).
The motion should not be granted “unless the moving party has established that there is no
material issue of fact to resolve, and that it is entitled to judgement as a matter of law.” Perez v.
Griffin, 304 Fed. Appx. 72, 74 (3d Cir. 2008) (internal quotation marks omitted). In deciding a
Rule 12(c) motion, courts may consider the allegations in the pleadings as well as “exhibits
attached to the complaint, matters of public record, and undisputedly authentic documents if the
plaintiff’s claims are based upon those documents.” Syndicate 1245 at Lloyd’s v. Walnut Advisozy

Coip., 721 F. Supp. 2d 307, 314 (D.N.J. 2010). As a result, in this matter, the Court has not only
considered the pleadings but also the three relevant agreements.

10

lit. ANALYSIS
A. Contractual Provisions
“The principal goal of contract interpretation is to ‘ascertain and effectuate the objectively
manifested intentions of the contracting parties.” Heffron v. Adanzar of N.J., I,ic.. 270 F. Supp.
2d 562, 570 (D.N.J. 2003) (quoting Pacitti

i’.

Macvs. 193 F.3d 766, 773 (3d Cir. 1999)).

In

determining the “objective intent’? of the parties, the first step is to determine “whether the relevant
terms and provisions of the contract are clear or ambiguous.” Id. The determination of whether a
contract or a specific term therein is clear or ambiguous is a question of law for the court to decide.
Nevets CM.. Inc.

i.

NissholwaiAm. Corp., 726 F. Supp. 525, 531 (D.N.J. 1989). An ambiguity

exists if a contract is “susceptible to two reasonably alternative interpretations.” Id. Generally,
the interpretation of ambiguous contract terms is a question of fact.

Id.

In determining the

objective intent of the parties, “the terms of the contract must be given their plain and ordinary
meaning.” Kaufman

i’.

Provident Life & (‘as. Ins. C’o., 828 F. Supp. 275, 283 (D.N.J. 1992), affd,

993 F.2d 877 (3d Cir. 1993) (internal quotation marks omitted).
Alcoa argues that the terms of the Purchase and Sale unambiguously release Alcoa from
any claims arising under CERLA, the Spill Act, or any other state law predicated on contamination
at the Alcoa Site. Alcoa Br. at 11-12. Additionally, Alcoa cites to Section 7(g). which requires
North River and RRIP to “indemnify, defend and hold Seller harmless from any and all claims”
arising under environmental law, including those at issue here. Id. at 13. Alcoa similarly asserts
that the Multi-Party Agreement is unambiguous and requires both North River and RRIP to defend
Alcoa. Alcoa Br. at 13-14. Thus, Alcoa argues that the contracts are unambiguous and require a
dismissal of all claims asserted against Alcoa by Defendants, and ftirther requires that Defendants
pay for Alcoa’s defense costs and indemnify Alcoa against any judgment. Jd. at 17.

II

In the Court’s view, the plain tents of the Purchase and Sale do not seem as clear and
unambiguous as Alcoa suggests. Alcoa is correct that Section 7W addresses indemnification and
apparently supports its position.

However, the clarity of the provision is clouded by related

provisions in the Purchase and Sale. Section

or) saddles Alcoa with the financial responsibility,

up to 2.5 million dollars, for the costs of disposing of contaminated material. Purchase and Sale,

§ 6(a)(ii)(2). North River submits that Alcoa is in violation of this provision. Alcoa admits that it
has not made this payment but argues that it is not in default because North River never requested
it nor notified Alcoa of default. Section 7(g) then addresses North River’s release of Alcoa, stating:
[cJxcept in the event that [Alcoa] renauzs in default on ally payment
obligation after receiving notice of such default and opportunity to
cure as set forth in Section 8, [North River) expressly releases
[Alcoa) and agrees to waive all rights that it may have to seek
contribution from [Alcoa) for any response costs or claims that may
arise as a result of the actions or inactions of [Alcoa] and any
previous owner, operator or third party on or with respect to the
property relating to Hazardous Substances.
Id. § 7(g) (emphasis added). Therefore, it appears that Section 7(g) only applies when Alcoa is
not in default. In other words, a reasonable reading of the provision could be that if Alcoa is in
default, North River may seek contribution from Alcoa. This provision seems to be at odds with
the indemnification provision, which is addressed in the paragraph, Section 7(0, immediately
preceding Section 7(g).”

As a result, the Purchase and Sale may be ambiguous due to the apparent conflict of these two
sections. The Court is not, however, reaching the issue because the question of Alcoa’s default
must first be resolved. Similarly, the Purchase and Sale and the Multi-Party Agreement, when
read together, raise a potential ambiguity. On the one hand, North River may be permitted to
seek contribution from Alcoa pursuant to the Purchase and Sale (if Alcoa is in default of the
contract). On the other, North River and RRLP may nevertheless have a duty to defend Alcoa
pursuant to the Multi-Party Agreement. Again, the Court is not reaching this issue until the
inquiry concerning Alcoa’s default under the Purchase and Sale is decided.
12

The threshold question is, thus, whether or not Alcoa is in default of its payment
obligations. As noted, North River maintains that Alcoa failed to make its required disposal
payments under the contract and is therefore in default. Def. Opp’n at 15-16. In its brief, Alcoa
did not directly contest this, but responded that it is not in default because “once the parties entered
into the Environmental Indemnity Agreement, any obligations that Alcoa may have had
concerning remediation in the Multi-Party Agreement ceased.” Alcoa R.Br. at 9. Additionally, at
oral argument, Alcoa indicated that it was not in default because it was never asked for money nor
notified of any default, as required by the Purchase and Sale. See D.E. 172, Transcript of Oral
Argument, at 58:6 to 60:5.
As to Alcoa’s first argument, the Court cannot discern any language in the Environmental
Indemnity Agreement to support a finding that the indemnity agreement completely extinguished
Alcoa’s prior obligations, under either the Purchase and Sale or the Multi-Party Agreement. The
Environmental Indemnity Agreement concerned a discrete part of the Alcoa Site, Building 12, and
only to the extent the building was “not demolished” as originally contemplated by the parties.
Since Building 12 has actually been demolished, the Environmental Indemnity Agreement no
longer appears relevant and the Purchase and Sale as well as the Multi-Party Agreement remain in
fill force and effect.
The information as to whether Alcoa was, or is, in default comes solely from the parties’
oral and written representations to the Court. Alcoa R.Br. at 9; Def. Opp’n at 15-16. There has
been no discovery on the issue. The Court cannot divine from the pleadings, the three agreements,

13

or from the parties’ representations whether Alcoa was or is in default. Therefore, the motion is
denied and the parties are permitted to take discovery as to Alcoa’s alleged default.’2
8. Fraud

Defendants allege that “Alcoa fraudulently induced North River and RRIP to enter into the
alleged contracts by intentionally concealing a known environmental hazard.” Def. Opp’n at I.
In this regard, Defendants refer to the Purchase and Sale Agreement, to which RRIP is not a party.
Alcoa provided North River with environmental reports that purported to establish “the known
environmental condition of the property.” Id. at 2. These reports indicated that there were five
underground storage tanks (UST5) on the Alcoa Site, which were removed from the property prior
to its sale. Id. North River later discovered two additional USTs underneath Building 12. Id.
Defendants allege that “[t]he [two additional] USTs were buried in a subterranean vault beneath
two floor slabs of concrete with the second, newer floor slab constructed in a way to conceal the
access man-ways for the USTs, thereby effectively hiding any indication of the existence of the
USTs.” Id. at 3. Thus, Defendants argue that in failing to disclose the two additional USTs, “Alcoa
perpetuated a fraud on Defendants and fraudulently induced Defendants to purchase the property.”
Id. at 10.

“In order to establish a claim for fraudulent inducement, five elements must be shown: ‘(I)
a material representation of a presently existing or past fact; (2) made with knowledge of its falsity;
and (3) with the intention that the other party rely thereon; (4) resulting in reliance by that party;

12

The Court notes that the issue concerning Alcoa’s alleged default may ultimately involve a
genuine issue of material fact, depending upon the proof, in which case the Court will rule as to
how the ultimate resolution of the default issue should be presented to the trier-of-fact. On the
other hand, depending upon discovery, the issue of default may be a legal question or present no
genuine issue of material fact, in which case the Court will rule upon it before turning to the
questions of indemnification, contribution, and duty to defend pursuant to the Purchase and Sale
as well as the Multi-Party Agreement.
14

(5) to his detriment.” RaVCSvs., Inc.
2012) (quoting Mdcx Mfg. Corp.

i’.

i’.

Modern Tech. Grp., Inc., 861 F. Supp. 2d 436,451 (D.N.J.

Munson, No. 05—2948, 2008 WL 877870, at 44(D.N.J. Mar.

28, 2008)). In New Jersey, a party can bring a claim for fraud in the inducement as an equitable
remedy that results in rescission of a contract. TekDoc Sen’s., LLC

i

3i-hifotech Inc., No. 09-

6573,2013 WL2182565,at*21 n.18(D.N.J. May2O,2013).
Alcoa challenges Defendants’ fraudulent inducement allegation on two grounds: (I) the
affirmative defense of fraud is insufficiently pled: and (2) the fraud claim is barred by the terms of
the Purchase and Sale. Alcoa R.Br. at 2-8.
As to the sufficiency of the pleading, Alcoa indicates that the fraud claim is not properly
pled and cannot be considered by the Court. Id. at 6-8. Defendants’ affirmative defense of fraud
states that Alcoa’s “[c]ross-claims are barred or subject to reduction by Alcoa’s misrepresentations
and/or fraud in the inducement of contract.” Def. Opp’n. Ex. K (Defendants’ Answer to Alcoa’s
Cross-claims). At oral argument Defendants argued that since they asserted fraud as an affirmative
defense to Alcoa’s cross-claims, they only need to meet the notice standard of pleading rather than
the Iqbal/Twornbly plausibility standard)3 D.E. 172 at 69:17-23. Additionally, Defendants point
out that Alcoa did not make a Rule 12(0 motion to strike the affirmative defense as an insufficient
pleading. Id. at 69:10-16.
Courts in this District have generally found the Jqbal/Titvi;thlv plausibility standard
inapplicable to the pleading of affirmative defenses under Rule 8(c). See Newborn Bros., C’o., Inc.
“.

Albion Eng ‘g C’o.,299 F.R.D. 90, 97 (D.N.J. 2014) (“This Court joins those courts in the District

of New Jersey and other district courts within the Third Circuit which have held that the heightened
Twomblv/Iqbal standard is not applicable to the pleading of affirmative defenses under Rule

u See Ashcroft v. Iqbul, 556 U.S. 662 (2009); Bell
At!. Corp. v Twomblv, 550 U.S. 544 (2007).
15

8(c).”). Instead, affirmative defenses are insufficiently pled only where “the defense could not
possibly prevent recovery under any pleaded or inferable set of facts.” Id. at *7
In F. TC v. Hope New Modifications, LLC. Chief Judge Simandle concluded that “the
pleading standards of Twomblv and Jqbal do not apply to affirmative defenses under Rule 3(c).”
No. 09-1204, 2011 WL 883202, at *4 (D.N.J. Mar. 10, 2011). There, the court discussed the
persuasive textual analysis of Rule 8(c), which requires a plaintiff to “show” he is entitled to reliet
while merely requiring parties asserting an affirmative defense to “state” that defense. Id. at *2.
Additionally, Chief Judge Simandle addressed the rationale behind adopting a lower pleading
standard for affirmative defenses than for other pleadings, stating that “the concern for notice to
plaintiffs [is] of a lesser concern” when pleading affirmative defenses. Id. at *3 This rationale,
combined with the “persuasive textual analysis,” was sufficient to place Rule 8(c) outside the ambit
of Twonthlv and Jqbal. Id.
Yet, even when cases determine that affirmative defenses in general are not subject to the
plausibility requirement, courts have indicated that they are nevertheless subject to Rule 9(b)
requirements when asserting fraud. See e.g., Tvco Fire Prod. [P

,

Vidazilic C’o., 777 F. Supp. 2d

893, 905 n.7 (E.D. Pa. 2011) (finding allegations of fraud subject to Rule 9(b)’s particularized
pleading standard whether they are pled in the Complaint or through an affirmative defense.).
The Court does not reach the Iqbal/Tnvn b/v or Rule 9(b) issue in this matter for a simple
reason: Alcoa has not moved to strike Defendants’ affirmative defense pursuant to Rule 12(f).
Instead, Alcoa mentioned the alleged faulty pleading in response to Defendants’ arguments. Thus,
at this stage, Defendants’ affirmative defense of fraud remains in the case.
Next, Alcoa argues that when Defendants signed the Purchase and Sale, they agreed to take
the property on an “AS IS, WITH ALL FAULTS’ BASIS.” Alcoa R.Br. at 2-3 (emphasis in

16

original). The Purchase and Sale goes on to state that the North River “is not relying on any
representations or warranties of any kind whatsoever, express or implied, from [Alcoa], its agents,
or representative as to any matters concerning the property.” Id. Additionally, the integration
clause provides that “[a]ll understandings and agreements heretofore had between the parties, oral
or written are merged into this Agreement, which alone filly and completely expresses their
understanding.” Id.

Since the Purchase and Sale establishes that North River purchased the

property “as is,” the integration clause waived all warranties, and North River had an opportunity
to conduct its own due diligence, Alcoa concludes that “North River’s would-be fraud claims are
plainly barred by the Purchase and Sale Agreement.” Id. at 5.
An “as is” clause can bar a claim for breach of contract. Allied Corp.

i’.

Fm/a, 730 F. Supp.

626,630 (D.N.J. 1990). However, such a clause does not necessarily extinguish all tort, as opposed
to contract, claims.

Id.

Here, Defendants have alleged fraud in the inducement, which can

potentially exist even if the “as is” clause bars contract actions.
Elements three and four of fraud in the inducement turn on the issue of reliance. See Ii a/id
Yalanda for irene (‘outtur, inc., 425 N.J. Super 171, 180 (App. Div. 2012).

Thus, what

constitutes reasonable reliance “is a critical element of plaintiffs cause of action.” Id. The
determination of reliance often turns on whether a buyerjustijiablv relied on a seller’s information.
Id. at 181 (quoting The Restatement (Second) of Torts

§ 537 (1977) (emphasis added)). When a

contract contains an “as is” or “no representation” clause, the language does not create an absolute
defense to reliance on the part of the seller. Id. at 185. This is especially true where the “allegedly
misrepresented facts are peculiarly within the misrepresenting party’s knowledge.” Id. at 186
(internal quotation marks omitted). In such cases, even a specific disclaimer “will not undermine

17

another party’s allegation of reasonable reliance on the misrepresentation.” Id. (internal quotation
marks omitted).
Nevertheless, even if a fraud in the inducement claim survives the “as is” clause argument,
there are additional hurdles that can still bar the claim. Two such hurdles are (1) the economic
loss doctrine; and (2) an integration clause. The Court will address each issue in turn.
“The economic loss doctrine prohibits plaintiffs from recovering in tort economic losses to
which their entitlement only flows from contract.” Clien v. HD Dimension Corp., No. 10-863,
2010 WL 4721514, at *8 (D.N.J. Nov. 15. 2010). Thus, “whether a tort claim can be asserted
alongside a breach of contract claim depends on whether the tortious conduct is extrinsic to the
contract between the parties.” Id. A party may bring claims based on fraud in the inducement, as
long as the “underlying allegations involve misrepresentations unrelated to the performance of the
contract,” such as those that “precede the actual commencement of the agreement.” id.; see also
RNC Sys., Inc., 861 F. Supp. 2d at 452 (finding the alleged misrepresentations to directly relate to
plaintiffs performance under the contract and, as a result, that the fraud claim was barred by the
economic loss doctrine).
Here, the economic loss doctrine does not appear applicable since Defendants are alleging
that the fraudulent omission on which they relied was the failure of Alcoa to disclose the two
additional liSTs.

According to Defendants, the material omission preceded the entry of the

Purchase and Sale Agreement. Moreover, Defendants indicate that as a result of the fraudulent
inducement, they are seeking rescission of the contract rather than attempting to recover damages
coextensive with a breach of contract claim. See D.E. 172, Transcript of Oral Argument, at 103:01

-

20. Therefore, the economic loss doctrine. which applies only when a party is seeking to recover
purely economic losses that would be covered in a breach of contract action, is not presently

IS

applicable.

Central to this finding is Defendants’ representation that they are only seeking

rescission of the Purchase and Sale.
Another potential hurdle to permitting the fraud claim to proceed is the integration clause
contained in the Purchase and Sale. “In general, where a contract contains an integration clause,
the parol evidence rule bars the introduction of evidence of extrinsic negotiations or agreements
to supplement or vary its terms.” CDK Glob., LLC

i’.

71,11ev Auto. Gip., Inc., No. 15-3103, 2016

WL 1718100, at *3 (D.N.J. Apr. 29, 2016). An exception exists for fraud in the inducement of the
contract itself. however, but “[t]he alleged fraud

[] must concern a matter not addressed in the

agreement.” Id. When the alleged fraudulent misrepresentations concern terms of the contract,
“the claim becomes one for breach of contract, not fraudulent inducement.” Id. In such cases, the
integration clause bars the fraud claim. See RNC Sys., Inc., 861 F. Supp. 2d at 455 (finding the
fraudulent inducement claim to concern matters “expressly addressed in the integrated writing”
and therefore holding the misrepresentations inadmissible under the integration clause and the
parol evidence rule). However, when the underlying claims are extrinsic to the contract and can
support a claim of fraudulent inducement, an integration clause does not act to bar those counts.
See CDK Glob., LLC, 2016 WL 1718100, at *4 (finding that the allegations supported a claim for
fraudulent inducement and therefore were not barred by the integration clause).
The Purchase and Sale contains an integration clause which states that “[ajil
understandings and agreements heretofore had between the parties, oral or written, are merged into
this Agreement, which alone fully and completely expresses their understanding.” Purchase and
Sale,

§ 16. This clause is not as extensive as those in other cases in which integration clauses

bared claims for fraud in the inducement. See e.g. RiVC Si’s., Inc., 861 F. Supp. 2d at 454-55
(integration clause superseding “all prior or simultaneous represeiztations, discussions,

19

negotiations, letters, proposals, agreements and understandings between the Parties” barred
evidence of prior misrepresentations) (emphasis added); Blanos

1’.

Penn Mitt. Life Ins. Co., No.

09-5 174, 2010 WL 143670, at *6 (D.N.J. Jan. 12, 2010) (finding an integration clause to bar a
fraud claim where it stated that it “supersede[d] and replace{d] all prior negotiations, proposed
agreements and agreements, written or oral,” and explicitly provided that neither party had “made
any promise, represenuution or warranty whatsoever, express or implied, not contained” in the
contract.) (emphasis added). The integration clauses in those matters are broader than the one in
the current case because they account for representations prior to the contract.
The Court will not decide the issue concerning the viability of the fraudulent inducement
claim, as potentially barred by the integration provision, at this juncture. Although Alcoa briefly
cited to the integration clause in its brief, its argument relied largely on the “as is” clause in the
Purchase and Sale. As noted, the “as is” clause is not an absolute defense under the law. Since
the Court is denying Alcoa’s motion in light of the contractual language concerning default and
the consequences flowing therefrom, it will not reach the fraud in the inducement question vis-à
vis the integration clause. To be clear, the Court has not made any determination as to whether
the integration clause will bar a fraud in the inducement claim.

Moreover, the Court is not

foreclosing either party from, in the ffiture. making any arguments concerning the validity or
futility of the fraud in the inducement claim.

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IV.

CONCLUSION
The Court finds that Alcoa’s motion for partial judgment on the pleadings is DENIED. An

appropriate order accompanies this opinion.

Date: December 14,2016

QoflJ

JOI1’IS MICHAEL V&MJEZ
UNITED STATES DISTRICT JUDGE

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