United States of America et al v. NCR Corporation et al

Filing 349

ORDER signed by Judge William C Griesbach on 4-10-12 granting 286 Motion for Reconsideration. (cc: all counsel) (Griesbach, William)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN
UNITED STATES OF AMERICA,
Plaintiff,
v.

Case No. 10-C-910

NCR CORP. and APPLETON PAPERS INC.,
Defendant.

DECISION GRANTING MOTION FOR RECONSIDERATION

On July 5, 2011, this Court denied the government’s motion for a preliminary injunction
against Defendants NCR and Appleton Papers Inc. (“API”) on the basis that the government was
unlikely to prove Appleton Papers was a liable party. In a December 19, 2011 decision, I denied
API’s motion for summary judgment on that point and instead accepted the government’s argument
that it appeared API had in fact agreed by contract to assume CERCLA liability when it purchased
the Appleton Papers Division from NCR. API soon moved to reconsider, citing several points of
error. For the reasons given below, I agree with API to the extent that the purchase agreement in
question was not drafted broadly enough to encompass API’s direct liability for the CERCLA
liability at issue in this case. The motion for reconsideration will therefore be granted in part.
To recall, the result reached in my December 19, 2011 Decision and Order was based on two
discrete conclusions. First, I concluded that NCR’s continued existence did not per se preclude an
agreement to create liability to a third party such as the government. Although it was not a
traditional “successorship” liability situation (because NCR did not go out of business), I found that

there was nothing within CERCLA that would preclude parties, as a matter of contract, from
effectively creating additional liability under CERCLA (although presumably that would be a rare
scenario). The second aspect of my decision required interpretation of the purchase agreement,
between NCR and API’s predecessor, for NCR’s Appleton Papers Division. I concluded that the
language and matters disclosed in Schedule A to that agreement were broad enough to encompass
the CERCLA liability at issue in this case. Because I now conclude otherwise, I do not address the
first prong of that decision, which is now moot.
I. The 1978 Agreement
In 1978 NCR sold its Appleton Papers Division to API’s predecessor, which for ease of
understanding will be referred to simply as API. A key clause in that agreement provided that API
agreed to “assume, pay, perform, defend and discharge . . . all of Seller’s obligations and liabilities
of any kind, character or description relating to the period subsequent to the Closing Date which
arise out of or in respect of any state of facts, matter, event or disclosure set forth on an attachment
to the agreement that was designated as Schedule A.” (Section 1.4.4; Dkt. # 139, Ex. 3 at 19.)
Schedule A contains the following clause:
Seller has reason to believe that the facilities of Appleton Papers Division
located in Pennsylvania and Wisconsin may be operating; in violation of applicable
federal, state, local and other governmental environmental and pollution control
laws, ordinances, regulations, rules and standards.
APD receives and has received notices from time to time from various
federal, state, local and other governmental authorities claiming violation of
environmental and pollution control laws, ordinances, regulations, rules and
standards (collectively “laws”). These claims may result, and have resulted in fines
and corrective action.
(Dkt. # 195, Ex. 3 at 4.)
In my previous decision, I concluded that because NCR had disclosed that the Appleton
Papers Division “receives” (present tense) notice of various environmental violations, which “may

result” (in the future) in corrective action, the buyer was accepting liability for the Division’s
“proclivity” for environmental violations. In other words, the buyer was on the hook not just for
specific past violations but for any future environmental issues as well.
A. The present liability does not arise from any “violation” of law or any “compliance” issue
I am now convinced that there are at least two problems with the approach taken at the
summary judgment stage. First, the clauses that trigger liability require notice of the “violation” of
environmental laws and standards, as well as past and potential fines for those violations. API notes
that no one has argued that the PCB pollution at issue in this case was the product of any legal or
regulatory violations. CERCLA did not yet exist in 1978, of course, and the PCBs were released
into the environment primarily in the 1960s before they were regulated. In fact, as noted in the
parallel contribution action, No. 08-C-16, in more recent years PCBs were released in smaller
quantities at least partly with governmental acquiescence due to the difficulty in separating them
from recyclable paper.
In response, the government now attempts to bolster my earlier ruling by citing, for the first
time, the federal Refuse Act, as well as Wisconsin law barring the unauthorized disposition of
refuse into waterways. 33 U.S.C. § 407. It also cites the Clean Water Act, 33 U.S.C. § 1311(a),
which regulates discharge of pollutants. Because the Appleton Papers Division may have been
operating in violation of those laws, the government argues, that should trigger the liability clause
in Schedule A.
API notes that these are new arguments and, as such, are waived. Even if the argument is
not waived, however, the violations of various environmental laws now alleged would not be
enough to create CERCLA liability under the terms of the 1978 agreement. To recall, Schedule A
discloses that the Division may have been operating in violation of various environmental laws and

regulations, and thus the buyer would be assuming any liability arising out of those violations.
Here, the massive CERCLA liability at issue, which is based on the discharge of PCBs, does not
“arise out of” any Clean Water Act, Refuse Act or other state or federal statutory or regulatory
violations.

First, for the period in question the release of PCBs was not known to be

environmentally toxic, and so their release would not have given rise to any statutory or regulatory
violations.1 Second, violations of laws like the Clean Water Act are not a precondition to CERCLA
liability, which is strict. Put another way, the liability that CERCLA creates does not depend on any
“violations” of, or compliance with, then-existing environmental laws. Thus, even if the Division
had been operating in violation of, say, the Refuse Act, that does not mean that CERCLA liability
“arises out of” those violations. CERCLA liability is its own creature.
Moreover, Schedule A appears to premise liability on receipt of a “notice” of a violation.
Schedule A tells the buyer that the Division has received notices of noncompliance with laws and
regulations and might receive similar notices in the future. This creates liability for those “claims”
and anything “arising” from them. The clause underscores the fact that the liability being assumed
is not open-ended environmental liability but is instead linked to specific claims and notices of
environmental violations. Needless to say, the Appleton Papers Division had never received a
“notice” that it was “violating” CERCLA. Had the parties wanted to draft a broader clause, it would
have been much easier to simply say so in the text of the agreement itself. Instead, by drafting a
schedule, the parties were clearly limiting liability to the particular circumstances disclosed therein.
The government also cites other sections of the purchase agreement (§§ 1.4.3 and 1.4.9) that
create liability arising out of “compliance” with applicable environmental laws. It argues that the

1

1960s.

With the exception that certain insiders began to appreciate the risks of PCBs in the late

present CERCLA enforcement action is itself an action to assure “compliance” with CERCLA’s
requirement that liable parties clean up pollution sites. That is, the government appears to argue that
this lawsuit is itself a trigger for liability because it is being brought to ensure compliance with
CERCLA.
The claim that the government, simply by bringing a lawsuit, has the power to trigger the
very liability it is seeking to enforce is a wholly circular argument. That is, the government’s
argument begs the question of API’s liability: this is only an action to enforce “compliance” with
CERCLA to the extent API is actually liable under CERCLA, and of course that is one of the
centerpiece questions being adjudicated in this lawsuit. It makes little sense to argue that the very
act of suing someone under CERCLA makes a defendant “non-compliant” with CERCLA.
Accordingly, I cannot find that liability exists on the basis of any compliance issues.
In sum, even if the Appleton Papers Division were operating in violation of certain
environmental laws, I am unable to conclude that CERCLA liability “arises out of” such laws. The
various environmental laws now cited by the government have their own provisions for liability and
their own remedies, none of which are integral to a CERCLA action. The government has not
explained how, for example, violating the Clean Water Act could make a party liable to pay for the
billion-dollar cleanup of a large river. Because liability under CERCLA is distinct from these other
provisions, it does not arise out of (or even relate to) those alleged violations. And, as API points
out, had the parties wanted to include all environmental liability, it would have been simple enough
to do so.
B. At a Minimum, the Contractual Language is Silent, Which Means No Liability
Ultimately, perhaps the most important point is that the 1978 agreement is silent about
CERCLA liability and lacks a broad “catch-all” environmental liability clause. The question of

API’s liability has a long history. In 1995 NCR sued API in the Southern District of New York to
resolve liability for the PCB cleanup. In a brief ruling, the district court concluded that it was
unable to determine from the 1978 asset purchase agreement whether API had, in fact, assumed
liability for PCB cleanup expenses. (Dkt. # 208, Ex. 2 at 8.) It found that the contract was
negotiated before CERCLA came into existence and that none of the clauses in the asset purchase
agreement was conclusive as to liability. The parties agreed to arbitrate the matter, and an
arbitration panel also concluded that the agreement was unclear. The arbitration panel concluded
that API pay 60% and NCR 40% of any expenses in excess of $75 million. The panel found, like
the district judge, that the contractual language “is not sufficiently clear and unambiguous with
respect to the issue of responsibility for the environmental costs at issue to permit an award based
solely on the contract language.” (Dkt. # 208, Ex. 1 at 4.) Thus, three judicial bodies (including
this one) have now concluded that there is no clear language indicating that API’s successor agreed
to assume liability to the government for any CERCLA claims. At most, as the arbitrators found,
API agreed to indemnify NCR for a portion of such liability.
The contract’s silence on the point is enough to support a finding that API did not agree to
assume direct CERCLA liability. In Olin Corp. v. Consolidated Aluminum Corp., the Second
Circuit noted that indemnification agreements are interpreted strictly under New York law (which
applies here at the agreement of the parties). 5 F.3d 10, 15 (2d Cir. 1993). If an arbitration panel
and another district court could not even conclude that API had agreed to indemnify NCR for its
CERCLA liability, it should go without saying that the notion that API had agreed to become liable
to a third party is even more tenuous. In Olin, where the Second Circuit found an assumption of
liability, the district court had noted that “One would be hard pressed to draft broader or more
inclusive indemnification provisions than those entered into by Conalco and Olin.” 807 F.Supp.

1133, 1142 (S.D.N.Y. 1992). Here, the opposite is true. The parties drafted a number of
indemnification and liability clauses, but each of those clauses contains limitations linking liability
to Schedule A or compliance with applicable regulations and the like. They are not the narrowest
of clauses, but neither are they the “extremely broad language” at issue in Olin. 5 F.3d at 15.
Ultimately, API’s overarching point remains salient: if the parties had wanted to make the buyer
liable for all future unknown environmental liabilities, it would have been much easier to simply
use the kind of broad language used in Olin and the other cases. That lawyers and courts have
spilled so much ink on the question for more than seventeen years is itself suggestive of an intent
not to create CERCLA liability.
C. Given NCR’s continued viability, the negating clause precludes the creation of additional
CERCLA liability to third parties
API has also cited what it describes as the purchase agreement’s negating clause, which in
its view bars the government from seeking to enforce the contract as a third party beneficiary. That
clause provides that “Nothing in this Agreement, express or implied, is intended to confer upon any
other person not a party to this Agreement any rights and remedies hereunder.” (Dkt. # 139, Ex. 4
at § 10.10.) The government asserts that this is not a true negating clause and, in any event, it could
not operate to bar the federal government from suing a party under CERCLA.
I agree with the government in part. Specifically, I conclude that a negating clause (or “no
third parties” clause) cannot be dispositive of the issue of successor liability in cases in which the
seller ceases its existence. Otherwise, a simple negating clause could leave both the seller and the
buyer off the hook for CERCLA liability, even if the buyer would otherwise be deemed a successor.
Clearly that would not be a satisfactory result, as private parties cannot simply “contract out” of
CERCLA liability to the government.

But where, as here, the seller remains in existence, we are not dealing with successorship
in an equitable sense, we are dealing with successorship in a contractual sense, which means we
must explore the question of the parties’ contractual intentions. In that context, a negating clause
is dispositive. Ultimately, the clause underscores the point made above: if the parties had intended
to create liability to the government, surely they would have done so more clearly. They would not
have transferred very specific environmental liabilities referenced in Schedule A and then used a
negating clause to make clear that they wanted no third parties to be able to benefit from the
contract. Thus, even though a negating clause could not be determinative of the issue in a
traditional successorship context, I conclude here that it precludes any reading of the Agreement that
would make API directly liable to the government for CERCLA-type liability.
D. No estoppel applies
The government and some of the other Defendants in this action argue that the arbitration
order, which was confirmed by the New York district court, means that API is estopped from
arguing that it is not liable under CERCLA. Yet the arbitration panel, like the district court, was
not persuaded that API had actually assumed CERCLA liability through the asset purchase
agreement. Instead, the arbitration was the product of a settlement between NCR and API, a
settlement made advisable for the principal reason that API’s actual liability was not crystal clear
(as the district court found). In dividing responsibility 60/40 between the parties, the panel was not
concluding that API was directly liable under CERCLA or that it had become a successor to NCR’s
liability. Instead, the 60/40 division appears to have been the result of a number of quasi-equitable
factors that pointed to requiring API to bear a larger share of responsibility.
More importantly, the arbitration and the award itself were an assessment of how much each
party should pay, which is an entirely different question than whether API had assumed direct

CERCLA liability. No one ever posed that question to the arbitrators, and in fact it is doubtful that
private arbitration could ever resolve a question involving one party’s liability to the federal
government. Accordingly, it would be improper to view the arbitration award as having any kind
of estoppel effect on API’s ability to argue that it never agreed to become directly liable under
CERCLA.2
II. Conclusion
For the reasons given above, I conclude that the terms of the 1978 assumption agreement
are not broad enough to encompass the CERCLA liability at issue here. Accordingly, the motion
for reconsideration is GRANTED in part, and API is entitled to summary judgment that it is not
a liable party under CERCLA. All claims against API are DISMISSED.
SO ORDERED this 10th day of April, 2012.

/s William C. Griesbach
William C. Griesbach
United States District Judge

2

In previous briefing, the other Defendants opposing API’s motion argued (the
government does not join this argument) that summary judgment would have been improper
because there are countless documents and witnesses that have not been produced in discovery.
But these Defendants do not explain how additional discovery would shed any light on any
terms in the 1978 agreement. Most importantly, they do not even identify any of the terms they
believe to be ambiguous. The Rule 56(d) declaration lists numerous categories of information
that have not been subject to discovery, but that is irrelevant if the contract not ambiguous.
Here, I am not concluding that any specific term is “ambiguous,” I am simply concluding
that because the contract is silent as to CERCLA liability, because it lacks a broad enough
liability assumption provision, and especially because it contains a negating clause, API did not
assume direct liability under CERCLA. Thus, I do not believe additional discovery could shed
light on the question of the parties’ intent, particularly given that CERCLA had not even been
enacted at the time.