Horsehead v. Paramont Comm Inc ( 2001 )

Opinions of the United
2001 Decisions States Court of Appeals
for the Third Circuit
7-17-2001
Horsehead v. Paramont Comm Inc
Precedential or Non-Precedential:
Docket 99-3865
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Filed July 17, 2001
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
NO. 99-3865
HORSEHEAD INDUSTRIES, INC.,
Appellant
v.
PARAMOUNT COMMUNICATIONS, INC.
On Appeal From the United States District Court
For the Middle District of Pennsylvania
(D.C. Civil Action No. 3:CV-94-0298)
District Judge: Honorable Edwin M. Kosik
Submitted Under Third Circuit LAR 34.1(a)
October 25, 2000
Before: BARRY, AMBRO and GREENBERG,
Circuit Judges*
(Filed July 17, 2001)
_________________________________________________________________
*This matter was argued on June 22, 2000 befor e the panel of the
Honorable Maryanne Trump Barry and Morton I. Greenberg, Circuit
Judges, and the Honorable Louis F. Ober dorfer, Senior United States
District Judge for the District of Columbia, sitting by designation. The
case was reassigned on June 30, 2000 to the above panel due to the
recusal of Judge Oberdorfer.
OPINION OF THE COURT
AMBRO, Circuit Judge.
The issue presented in this appeal is whether a state
court judgment, which requires Horsehead Industries, Inc.
("Horsehead") contractually to indemnify Paramount
Communications, Inc. ("Paramount") for all environmental
costs arising from Horsehead's purchase of certain
Paramount operations, subsequently can be used by
Paramount collaterally to estop Horsehead's federal
CERCLA contribution claim. As a threshold matter, we
conclude that, under New York law, the state court
declaratory judgment requiring Horsehead to indemnify
Paramount is sufficiently final to be given pr eclusive effect,
despite the fact that damages have yet to be decided.
Applying New York's principles of collateral estoppel, we
find that the scope of the indemnity provision is sufficiently
broad to encompass the identical issues in the federal
CERCLA contribution case, and that the parties had a full
and fair opportunity to litigate the issue befor e the New
York courts. We therefore affirm the decision of the United
States District Court for the Middle District of Pennsylvania
("District Court") granting preclusive ef fect to the judgment
of the New York Supreme Court, Appellate Division.
I. Background
At the heart of this appeal is the interplay between two
sources of liability for the cost to remedy environmental
damage -- a contractual indemnification pr ovision and
statutory liability under the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980
("CERCLA"), found at 42 U.S.C. SS 9601-9627, 9651-9675,
6911a; and 26 U.S.C. SS 4611-12, 4661-62. W ith respect to
the former, parties to a contract can indemnify each other
for the costs stemming from environmental liabilities, and
those clauses will be interpreted under traditional contract
law principles. Where sufficient consideration exists --
either as a benefit to the promisor, or a detriment to the
promisee -- the indemnification clause is enforceable. See
2
Holt v. Feigenbaum, 419 N.E.2d 332 (N.Y. 1981) (holding
that a written promise to indemnify co-shar eholders against
disproportionate loss was supported by legally sufficient
consideration and therefore was enfor ceable).
Parties may also be statutorily liable to the federal
Government for cleanup costs under CERCLA, a
determination made in a suit filed by the Government
against potentially responsible parties. The purpose of
CERCLA is "to assure that the current and future costs
associated with hazardous waste facilities, including post-
closure costs, will be adequately financed and, to the
greatest extent possible, borne by the owners and operators
of such facilities." See 42 U.S.C. S 9607; OHM Remediation
Services v. Evans Cooperage Co., Inc., 116 F .3d 1574 (5th
Cir. 1997) (noting CERCLA's broad, r emedial purpose to
facilitate prompt cleanup of hazardous waste sites and to
shift costs of environmental response fr om taxpayers to
parties who benefitted from wastes that caused harm). To
effect this purpose, Congress cast the liability net wide to
capture all potentially responsible parties.1
Under CERCLA, if a purchaser were found liable for
cleanup costs, it could then seek cost recovery or
_________________________________________________________________
1. Section 107 of CERCLA creates four categories of potentially
responsible defendants:
1. The current owner and operator of a vessel or facility;
2. Any person who at the time of disposal of any hazardous
substance owned or operated any facility at which such hazardous
substances were disposed of;
3. Any person who by contract, agreement, or otherwise arranged
for disposal or treatment, or arranged with a transporter for
transport for disposal or treatment, of hazar dous substances owned
or possessed by such person, by any other party or entity, at any
facility or incineration vessel owned or operated by another party
or
entity and containing such hazardous substances;
4. Any person who accepts or accepted any hazar dous substances
for transport to disposal or treatment facilities, incineration
vessels
or sites selected by such person.
Frank B. Cross, Federal Environmental Regulation of Real Estate, P 2.03
(1993) (citations omitted); 42 U.S.C. S 9607(a)(1)-(4).
3
contribution from the seller absent an indemnification
agreement to the contrary. See Nicholas A. Robinson,
Environmental Regulation of Real PropertyS 22.03[2]
(1998). Where such an indemnity agreement was entered
into, contractual and statutory liability for r emediation co-
exist. In this context, CERCLA recognizes the parties' right
contractually to indemnify each other, although S 107(e)(1)
does not permit the transfer of statutory liability vis a vis
the Government:
No indemnification, hold harmless, or similar
agreement or conveyance shall be effective to transfer
from the owner or operator of any vessel or facility or
from any person who may be liable for a r elease or
threat of release under this section, to any other
person the liability under this section. Nothing in this
subsection shall bar any agreement to insur e, hold
harmless, or indemnify a party to such agr eement for
any liability under this section.
42 U.S.C. S 9607(e)(1). While the parties r emain jointly and
severally liable for cleanup responsibility, the statute
permits, inter alia, the allocation of the costs for cleanup
via indemnification agreements. See SmithKline Beecham
Corp., v. Rohm and Haas Co., et al., 89 F .3d 154, 158 (3d
Cir. 1996) (citing Beazer East, Inc., v. Mead Corp., 34 F.3d
206, 211 (3d Cir. 1994)). Of course, "statutory liability
under CERCLA endures even if contractual liability is later
determined to be non-existent." GNB Battery Technologies,
Inc., v. Gould, Inc., 65 F.3d 615, 621 (7th Cir. 1995).
In this appeal, the contractual liability and statutory
liability for the remediation of environmental damage are
allegedly in conflict because the New York state courts
determined the contractual liability, including CERCLA
contribution claims, to flow one way -- to Horsehead --
while the statutory liability is joint and several.
II. Factual and Procedural History
With this background, we turn to the facts before us.2
_________________________________________________________________
2. A thorough history is presented in the New York Supreme Court,
Appellate Division case titled Paramount Communications, Inc. v.
Horsehead Industries, Inc., 660 N.Y.S.2d 718 (App. Div. 1997). It is this
state court judgment that Paramount used collaterally to estop
Horsehead's CERCLA contribution claim in the District Court.
4
Since the late 19th century, the New Jersey Zinc Company
("NJZ") conducted zinc ore smelting operations in the
vicinity of Palmerton, Pennsylvania.3 These smelting
operations did not employ air emissions contr ol equipment
or devices to prevent the leaching of hazar dous wastes into
the soil, groundwater or watercourses."As a result, the
areas in which the smelting took place suf fered drastic on-
site and off-site contamination and degradation, including
the formation of slag heaps permeated with heavy metals,
known as `cinder banks', which, at Palmerton alone,
contained approximately 30 million tons of r esidue."
Paramount Communications, Inc. v. Horsehead Industries,
Inc., 660 N.Y.S.2d 718, 719 (App. Div. 1997).
In the late 1970s, Gulf and Western Industries, Inc.
(G&W), Paramount's predecessor in inter est, purchased
NJZ. Shortly thereafter, Congress passed CERCLA. As a
result, "the cinder banks became a r egulatory concern
because heavy metals were leaching into the soil and into
nearby waterways." Id. The financial consequences of
remediation were steep. For example, estimates for the
encapsulation of the Palmerton cinder banks in cement to
prevent further discharge exceeded $50,000,000. Although
G&W permanently closed the zinc smelting operations in
December of 1980, it still performed other manufacturing
processes at Palmerton. Because CERCLA imposes joint
and several liability on past as well as curr ent owners or
operators, "simply selling [NJZ's] assets would not relieve
[G&W] of these liabilities. Consequently, G&W's preferable
course of action was to sell a still viable operation." Id. at
722.4
_________________________________________________________________
3. NJZ also subsequently operated zinc smelting operations in the
vicinity of DePue, Illinois. The appeal befor e us is limited to the
Palmerton site.
4. The Court in Paramount noted that
while some regulatory compliance costs wer e immediate and
ongoing, CERCLA permitted the bulk of expenditures at either of the
sites, including Palmerton, to be postponed until NJZ closed down
operations at the site completely, at which point full scale,
sitewide
remediation and satisfaction of statutory closure obligations would
be required.
Paramount, 660 N.Y.S.2d at 719.
5
Because of the difficulty in arranging financing for the
transfer of such a huge environmental liability, former
officials of G&W's Natural Resources Division formed
Horsehead in 1981 to purchase certain assets at the
Palmerton site.5 The Asset Pur chase Agreement ("APA")
between G&W and Horsehead was entered on September
15, 1981. Given the potential environmental cleanup costs
at Palmerton, G&W included an indemnity provision, found
at Paragraph I.F (2) of the APA, under the heading
"Assumption of Liabilities."6 The indemnity provision
specifically requires Horsehead to
pay, perform and discharge only the following
obligations of Seller: . . . [a]ll commitments, obligations
and requirements imposed upon Seller by virtue of any
environmental, safety and health, reclamation or other
law, rule, regulation, action or proceeding by any
governmental agency and any order emanating
therefrom and all liabilities, damages, costs, obligations
and requirements imposed upon Seller by virtue of any
action or proceeding brought by any person, firm or
corporation under any environmental, safety and
health or reclamation law (statutory or common), rule
or regulation relating to the maintenance or operation
of the Purchased Assets or to the conduct of the
Seller's Business7 at any time prior to or after the
_________________________________________________________________
5. The agreement of sale transferred"all of seller's right, title and
interest
in and to all real property located in the County of Carbon, Pennsylvania
[where the Palmerton facility is located], the County of Sussex, New
Jersey and the County of Bureau, Illinois [where the DePue site is
located] . . . ." Id. at 720. Again, this appeal is concerned with the
transfer of assets at the Palmerton facility.
6. In addition, G&W and Horsehead agreed that Horsehead would pay
annual environmental compliance and maintenance costs of
approximately $200,000. G&W also purchased insurance for any
additional environmental cleanup costs. See Paramount, 660 N.Y.S.2d at
719-20.
7. "Seller's Business" is described in the APA as
the business of mining, manufacturing and selling zinc oxide, zinc
powder, zinc dust, zamak and other alloys, secondary materials,
special anodes, rolled zinc, copper-based and other metal powders,
special oxides, zinstabe, cadmium, ammonia and carbon dioxide
and . . . the operation of Palmer Water Company and Chestnut
Ridge Railway Company and, through NJZ Alloys, partnership, . . .
the manufacture and sale of indium metal . . . .
6
Transfer Date including, but not limited to, those
matters disclosed in Schedule VIII.
Schedule VIII, entitled "Defaults, Litigation, Claims,
Environmental Matters, Etc.," contained a detailed listing of
existing or potential legal obligations or liabilities for which
some official action, investigation or study had already
begun at the time of the APA, including those related to the
discontinued operations of the metal circuits 8 purchased by
Horsehead. See Paramount, 660 N.Y.S.2d at 720.
The APA further provided that, except as identified in the
indemnification provision, Horsehead would assume no
other liability or obligation of the seller arising from the
Seller's Business. See id. In addition, Subparagraphs[a]-[f]
of Paragraph I.F(2) in the APA (directly following the
indemnification provision) listed those contingent liabilities
that Horsehead expressly did not assume9 and those
particular legal or enforcement actions under which (1)
Paramount would reimburse Horsehead, (2) the parties
would share the costs, or (3) Horsehead would assume the
performance and all related costs.
That the parties had contemplated CERCLA liability is
evidenced by the reference in Schedule VIII to a
memorandum attached thereto discussing CERCLA
reporting requirements, which stated in part:
_________________________________________________________________
8. The APA transferred, among other things, the assets comprising the
metal circuits, which included the property, plant and equipment used
in the production of primary zinc metal at the Palmerton facility.
9. Under Subparagraph I.F(2)[d], Horsehead expressly did not assume
certain contingent liabilities in Schedule VIII. One such contingent
liability is found in Schedule VIII-A2(a), which states:
Because applicable law gives administrative agencies discretion to
bring enforcement actions against closed facilities, and because
the
U.S. Environmental Protection Agency ("EPA") was, at the time of
closing the primary zinc metal circuit at Palmerton, threatening to
bring such an action against Seller to recover civil penalties for
past
alleged violations of applicable air-pollution control laws
(primarily
in respect of sulfur-oxide and particulate emissions), Seller
recognizes this state of fact as repr esenting a contingent
liability.
. . .
7
"The Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. 9601 et
seq., commonly known as the `Superfund' legislation,
requires reporting of all unper mitted releases into the
environment of hazardous substances fr om facilities
(42 U.S.C. 9603[a]), and requires pr esent and past
owners to report existing and abandoned hazar dous
waste disposal facilities that do not have appr oval or
interim status under [the Resource Conservation and
Recovery Act] (42 U.S.C. 9603[c]). `Superfund' also
establishes funding for cleanup of existing hazar dous
waste facilities, imposes liability for hazar dous waste
spills, and sets financial responsibility r equirements for
operators of hazardous waste treatment, storage and
disposal facilities (42 U.S.C. 9607, 9611).
"If a hazardous waste site is subject to`Superfund', the
obligation to report hazardous waste sites survives the
transfer of the site. Both present and past pr operty
owners who disposed of hazardous waste must r eport
the existence of the site. 42 U.S.C. 9603(c). The former
owner may be liable for cleanup and disposal costs
under 42 U.S.C. 9607(a). The former owner may not
use an indemnification agreement to shift liability to any
other person, but may obtain insurance against his own
liability."
Paramount, 660 N.Y.S.2d at 721 (quoting Memorandum
dated September 22, 1981, attached to and made a part of
the APA) (emphasis added in opinion).
On September 8, 1983, the United States Envir onmental
Protection Agency (the "EPA"), after an investigation begun
in 1979, listed Palmerton on the CERCLA National Priority
List. Since then, Horsehead claims to have incurr ed
significant costs from studies and remediation of the
environmental conditions at Palmerton. In September,
1985, Horsehead entered into an Administrative Order by
Consent (the "Consent Order") with the EP A wherein
Horsehead agreed to fund a Remedial Investigation and
Feasibility Study of the Palmerton site. In September, 1987,
the EPA issued a Record of Decision ("ROD") for the Blue
Mountain Operable Unit,10 which, according to the EPA,
_________________________________________________________________
10. Operable Unit 1 is an area of Blue Mountain located south of
Horsehead's East Plant at Palmerton.
8
was denuded of vegetation as a result of years of smelting
operations. Horsehead agreed to design and fund the re-
vegetation of a portion of the Mountain. In June, 1988,
after EPA issued a ROD for the Cinder Bank Operable Unit,11
Horsehead agreed to perform five additional studies to
identify alternate response actions. On February 11, 1992,
in a second amendment to the Consent Order , Horsehead
agreed to undertake additional response actions related to
the removal of lead from homes in Palmerton. Id. at 11-12.
Litigation of statutory liability under CERCLA began with
regard to the Palmerton site in 1992, when the United
States filed an action against Horsehead Resour ce
Development Company, Inc.12 and Horsehead alleging
violation of certain environmental laws. United States v.
Horsehead Resource Dev. Co., et al., 92-CV -0008.13 On
October 8, 1993, Horsehead filed a motion for leave to file
a third-party complaint against Paramount to r ecover its
remediation costs. Horsehead's motion to file its third-party
complaint was subsequently denied.
In light of the Government's CERCLA action, and
pursuant to a choice of law clause in the AP A, Paramount
filed a contract action for damages and for declaratory
judgment in the Supreme Court of New York, Trial Division,
on October 14, 1993, seeking an interpretation of the
contractual indemnification provision as it applied to
environmental claims. The New York trial court ruled on
_________________________________________________________________
11. The Cinder Bank Operable Unit (Operable Unit 2) consists of more
than 30,000,000 tons of smelter residue deposited along the base of Blue
Mountain. The cinder bank is approximately 2 miles long, 500 to 1,000
feet wide, and 100 to 200 feet high. The remaining Operable Units have
been designated by the EPA as Operable Unit 3, consisting of the surface
soils in the Palmerton area, and Operable Unit 4, consisting of the
groundwater in the same area.
12. Horsehead Resource Development Company, Inc. ("HRDC") is a
wholly-owned subsidiary of Horsehead Industries, Inc.
13. Ultimately, the EPA's suit was settled by consent decree with
Horsehead and HRDC. Subsequently, on April 17, 1998, the United
States filed a CERCLA liability and cost r ecovery action in the Middle
District of Pennsylvania against Horsehead, HRDC, Paramount and
nearly 200 other parties. See United States v. Horsehead Industries, Inc.,
et al., No. 3:CV 98-0654.
9
April 24, 1996 that the contractual indemnification
provision obligated Horsehead to indemnify Paramount for
certain environmental costs, but did not transfer CERCLA
liability costs.
Both parties appealed the New York trial court decision,
and on July 10, 1997 the New York Supr eme Court,
Appellate Division, agreed with the Trial Division's ruling
that as a matter of law Horsehead is requir ed to indemnify
Paramount pursuant to the indemnification pr ovision for
certain environmental costs. But unlike the T rial Division,
the Appellate Division held that the indemnification
provision included those remediation costs that Horsehead
is currently seeking under CERCLA. The Appellate Division
refused re-argument and refused to grant Horsehead leave
to appeal. Horsehead then filed a motion for leave to appeal
directly in the New York Court of Appeals. The motion was
dismissed on the ground that the order of the Appellate
Division did not finally determine the action. Paramount
Communications, Inc. v. Horsehead Industries Inc., 691
N.E.2d 634 (Table, December 22, 1997).
Notwithstanding the New York state court action,
Horsehead filed a complaint in the United States District
Court for the Middle District of Pennsylvania on Mar ch 1,
1994 against Paramount for contribution under S 113(f) of
CERCLA, which provides that "[a]ny person may seek
contribution from any other person who is liable or
potentially liable . . . . In resolving contribution claims, the
court may allocate response costs among liable parties
using such equitable factors as the court deter mines are
appropriate." 42 U.S.C. S 9613(f). The amended complaint
included four counts. Counts I and II sought r ecovery from
Paramount pursuant to S 107(a)(4) of CERCLA, 42 U.S.C.
S 9607(a)(4). Count III sought contribution fr om Paramount
under S 113(f) of CERCLA, 42 U.S.C. S 9613(f). Count IV
sought cost recovery and also alleged public nuisance
under the Pennsylvania Hazardous Sites Cleanup Act
("HSCA"), 35 Pa. C.S.A. SS 6020.101-1305. Paramount
moved for summary judgment on June 4, 1999, asking that
the District Court, as an affirmative defense to Horsehead's
claims, give full faith and credit to the decision of the New
York Supreme Court, Appellate Division. The District Court
10
did so, and entered summary judgment in Paramount's
favor on October 21, 1999. This appeal followed.
Jurisdiction was proper in the District Court under 42
U.S.C. S 9613(b), which vests exclusive jurisdiction of
CERCLA claims in the federal courts, and under 28 U.S.C.
SS 1331 and 1367. Appellate jurisdiction is proper in this
Court pursuant to 28 U.S.C. S 1291.
III. Legal Analysis
As noted at the outset of this opinion, we must decide
whether the District Court properly invoked New York's
collateral estoppel law to give preclusive ef fect to the state
court judgment rendering Horsehead contractually liable for
the costs stemming from environmental damage at the
Palmerton site, including CERCLA claims. If so, Horsehead
may not proceed on its CERCLA contribution claim against
Paramount in the District Court.
We review the District Court's entry of summary
judgment de novo. See Armbruster v. Unisys Corp., 32 F.3d
768, 777 (3d Cir. 1994). We also r eview the District Court's
interpretation, application, and prediction of state law de
novo. See InfoComp, Inc. v. Electra Pr oducts, Inc., 109 F.3d
902, 905 (3d Cir. 1997). Rule 56(c) of the Federal Rules of
Civil Procedure "mandates the entry of summary judgment,
after adequate time for discovery and upon motion, against
a party who fails to make a showing sufficient to establish
the existence of an element essential to that party's case,
and on which that party will bear the burden of proof at
trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
"Where the record taken as a whole could not lead a
rational trier of fact to find for the non-moving party, there
is no `genuine issue for trial.' " Matsushita Elec. Indus. Co.
v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (citing First
National Bank of Arizona v. Cities Serv. Co., 391 U.S. 253,
289 (1968)). We recognize that when considering a motion
for summary judgment, all evidence submitted must be
viewed in a light most favorable to the party opposing the
motion. See Matsushita, 475 U.S. at 587.
A. Collateral Estoppel Under New York Law
The doctrine of collateral estoppel provides that "once a
court has decided an issue of fact or law necessary to its
11
judgment, that decision may preclude relitigation of the
issue in a suit on a different cause of action involving a
party to the first case." Allen v. McCurry , 449 U.S. 90, 94
(1980). By federal statute, "judicial proceedings . . . shall
have the same full faith and credit in every court within the
United States and its Territories and Possessions as they
have by law or usage in the courts of such State . .. ." 28
U.S.C. S 1738.
The parties agree that New York law governs this issue.
"In adjudicating a case under state law, we ar e not free to
impose our own view of what state law should be; rather,
we are to apply existing state law as interpr eted by the
state's highest court in an effort to pr edict how that court
would decide the precise legal issues befor e us." Koppers
Co., Inc. v. Aetna Cas. and Sur. Co., 98 F.3d 1440, 1445 (3d
Cir. 1996) (citing Kowalsky v. Long Beach Township, 72
F.3d 385, 388 (3d Cir. 1995)). Given that we are faced with
an absence of guidance from New York's highest court, we
must look to decisions of state intermediate appellate
courts and of federal courts interpreting New Y ork law. Id.Neither party disputes that 28 U.S.C. S 1738 r equires
federal courts, in cases where state law applies, to give
preclusive effect to state court judgments whenever courts
of the state from which the judgment emanated would do
so. What the parties dispute is whether the state court
judgment in this case meets the New York collateral
estoppel test such that the District Court can give it
preclusive effect as a matter of law.
The District Court cited to Hickerson v. City of New York,
146 F.3d 99 (2d Cir. 1998), for New Y ork's collateral
estoppel principles. Although a federal court decision,
Hickerson explained and applied New York collateral
estoppel law, stating that "an issue may not be r elitigated
if the identical issue was necessarily decided in a previous
proceeding, provided that the party against whom collateral
estoppel is being asserted had a full and fair opportunity to
litigate the issue in the prior action." 146 F .3d at 104
(relying on In re Sokol, 113 F .3d 303, 306 (2d Cir. 1997);
Ryan v. New York Tel. Co., 467 N.E.2d 487, 490-91 (N.Y.
1984)). As to these two elements -- the identical issue and
a full and fair opportunity to litigate -- "[t]he party seeking
12
the benefit of collateral estoppel has the bur den of
demonstrating the identity of the issues in the pr esent
litigation and the prior determination, wher eas the party
attempting to defeat its application has the bur den of
establishing the absence of a full and fair opportunity to
litigate the issue in the prior action." In r e Juan C. v.
Cortines, 679 N.E.2d 1061, 1065 (N.Y. 1997) (citing
Kaufman v. Lilly & Co., 482 N.E.2d 63, 66 (N.Y . 1985)). In
addition to whether the issues are identical and whether a
full and fair opportunity to litigate is affor ded, embodied in
New York's collateral estoppel rule is the concept of finality
of judgments, i.e., that the judgment in the prior
proceeding, and on which the claim to collateral estoppel is
based, is final. See In re Juan C., 679 N.E.2d at 1063. Each
of these principles, beginning with finality, is discussed
below.
(1) Finality
New York law incorporates the threshold concept of
"finality" of judgments into its collateral estoppel standard.14
The previous proceeding must result"in a final and valid
judgment in which the party opposing estoppel had a full
and fair opportunity to litigate." See In r e Juan C., 679
N.E.2d at 1063. However, contrary to Horsehead's
argument, finality does not requir e that all appeals be
completed. "The finality of a judgment for the purposes of
appealability is not the same as its finality for collateral
estoppel purposes." State Bank of Albany v. McAuliffe, 485
N.Y.S.2d 139, 141 (App. Div. 1985); see also Matter of
Amica Mut. Ins. Co., 445 N.Y.S.2d 820, 822 (App. Div. 1981)
("The rule in New York, unlike that in other jurisdictions, is
that the mere pendency of an appeal does not pr event the
use of the challenged judgment as the basis of collaterally
estopping a party to that judgment in a second
proceeding."). Accordingly, the possibility that this
judgment may be overturned during the pr oper course of
_________________________________________________________________
14. Of course, a prerequisite to finding finality is that the judgment
relied upon for collateral estoppel purposes be valid. Restatement
(Second) of Judgments S 1 (1982). Neither party disputes the validity of
the judgment of the New York Supreme Court, Appellate Division.
13
appellate review does not prohibit r esort to collateral
estoppel.
The District Court cited Lummus Co. v. Commonwealth
Oil Refining Co., 297 F.2d 80 (2d Cir . 1962), cert. denied
sub nom. Dawson v. Lummus Co., 368 U.S. 986 (1962), for
the distinction between finality for purposes of appeal and
finality for purposes of collateral estoppel. Judge Henry J.
Friendly in Lummus was interpreting New York law when he
stated:
Whether a judgment, not "final" in the sense of 28
U.S.C. S 1291, ought nevertheless be consider ed "final"
in the sense of precluding further litigation of the same
issue, turns upon such factors as the natur e of the
decision (i.e., that it was not avowedly tentative), the
adequacy of the hearing, and the opportunity for
review. "Finality" in the context her e relevant may
mean little more than that the litigation of a particular
issue has reached such a stage that a court sees no
really good reason for permitting it to be litigated
again.
297 F.2d at 89 (internal citations omitted); accord, Sherman
v. Jacobson, 247 F. Supp. 261, 268 (S.D.N.Y. 1965) (" `final'
in the res judicata or collateral estoppel sense is not
identical to `final' in the rule governing the jurisdiction of
appellate courts"). In Sherman, as in this case, the decision
on which collateral estoppel rested remained open for
appeal. Significantly, as the District Court in our case
pointed out, the court in Sherman concluded that a
judgment may be final as to some matters, even though the
litigation continues as to others, and "the decision may
have adjudicated liability only, leaving the assessment of
damages in abeyance." Sherman, 247 F. Supp. at 268; see
also Zdanok v. Glidden Co., Durkee Famous Foods Div. , 327
F.2d 944, 955 (2d Cir. 1964) ("The mere fact that the
damages of the Zdanok plaintiffs have not yet been
assessed should not deprive that ruling of any ef fect as
collateral estoppel it would otherwise have."), cert. denied,
377 U.S. 934 (1964).
The District Court noted that while the New Y ork
approach outlined in Lummus departs fr om the traditional
14
view of finality, it continues to garner support. See
Metromedia Co. v. Fugazy, 983 F.2d 350, 366 (2d Cir. 1992)
("The mere fact that the damages awar ded to the plaintiff
have not been yet calculated, though normally precluding
an immediate appeal, . . . does not prevent use of a final
ruling on liability as collateral estoppel."); In re Brown, 951
F.2d 564, 569 (3d Cir. 1991) ("In this case, the order of the
state court granting summary judgment on liability was not
final for purposes of appeal, but that does not deny it
preclusive effect in the bankruptcy court."); Hennessy v.
Cement and Concrete Worker's Union, 963 F. Supp. 334,
339 (S.D.N.Y. 1997) ("The fact that Hennessy could have
appealed the order but chose to await a decision on the
damages on the counterclaim before appealing from the
dismissal of his claim does not change the conclusive effect
of the final disposition of the claim.").
Applying the factors that Judge Friendly consider ed
relevant, e.g., the nature of the decision, the adequacy of
the hearing, and the opportunity for review, the District
Court found that the New York indemnification order was
sufficiently final. We agree. Horsehead fully litigated the
indemnification agreement before both the New York trial
court and the intermediate appellate court. Thus, the
hearing and opportunity for review affor ded Horsehead were
adequate. The decision rendered by the New York Supreme
Court, Appellate Division, is binding on the T rial Division.
Although not final for purposes of an appeal to the New
York Court of Appeals given that damages r emain to be
litigated, the nature of the New York Appellate Division
decision as to liability is in no way tentative. Therefore, we
conclude that, for purposes of collateral estoppel, the
decision is final.
(2) Identical Issues
Under New York law, the burden r ests on Paramount to
demonstrate that the issues litigated in the separate
proceedings were identical. See Ryan, 467 N.E.2d at 490.
For an issue to be identical, "it must be the point actually
to be determined in the second action or pr oceeding such
that `a different judgment in the second would destroy or
impair rights or interests established by thefirst.' " Id. The
15
issue in the New York Supreme Court, Appellate Division,
proceeding was whether Paramount was entitled to
indemnification for liability for certain envir onmental claims
pursuant to its indemnification agreement with Horsehead.
The state appellate court made an express finding that the
indemnification provision included CERCLA contribution
claims. See Paramount, 660 N.Y.S.2d at 723. The threshold
issue in the District Court proceeding seeking contribution
from Paramount for response costs under CERCLA is
whether the scope of the indemnification pr ovision covers
CERCLA liability costs. If it does, then the issue in the state
contract and federal CERCLA contribution proceedings is,
for our purposes, identical.
Courts that have considered the issue r ecognize that "the
questions of CERCLA liability and the interpr etation of any
indemnification agreement among the parties liable for the
clean-up are inextricably related." GNB Battery
Technologies, Inc. v. Gould, Inc., 65 F .3d 615, 621 (7th Cir
1995) (citing Kerr-McGee Chem. Corp. v. Lefton Iron & Metal
Co., 14 F.3d 321 (7th Cir. 1994)). Moreover, in the context
of asset purchase or transfer agreements, courts (including
this Court) have held that CERCLA claims are subsumed
within broad contractual indemnification pr ovisions. See,
e.g., SmithKline Beecham Corp. v. Rohm and Haas Co., et
al., 89 F.3d 154, 160 (3d Cir. 1996) (holding that the
language in the Purchase Agreement indemnity provisions
is general enough to evidence the parties' intent to include
CERCLA response costs, even though not specifically
enumerated); GNB Battery Technologies, 65 F.3d at 622(concluding that the plain language of the assumption
agreement was sufficiently broad to encompass any
CERCLA liabilities that may arise, even though no specific
reference to CERCLA was made); Beazer East, Inc. v. Mead
Corp., 34 F.3d 206, 211 (3d Cir. 1994) ("we must look to see
whether an indemnification provision is either specific
enough to include CERCLA liability or general enough to
include any and all environmental liability which would,
naturally, include subsequent CERCLA claims"). Applying
New York law to indemnity and release pr ovisions, courts
have reached similar conclusions. See Olin Corp. v.
Consolidated Aluminum Corp., 5 F.3d 10, 14 (2d Cir. 1993)
(concluding that an agreement transferring"all liability"
16
transfers responsibility for all CERCLA liability, even if it
does not expressly reference CERCLA); see also Purolator
Prods. Corp. v. Allied-Signal, Inc., 772 F. Supp. 124, 130
(W.D.N.Y. 1991) (concluding that, under two broad
indemnity clauses, the purchaser clearly agr eed to take the
assets along with any liabilities, including CERCLA
liabilities, that might attach to them).
Thus, in a CERCLA contribution action where the parties
entered into an indemnification agreement, the proper
inquiry is whether the indemnification provision "is either
specific enough to include CERCLA liability or general
enough to include any and all environmental liability which
would, naturally, include subsequent CERCLA claims."
Beazer East, Inc., 34 F.3d at 211. The interpretation of the
scope of the contractual indemnity provision in this case is
guided by state law, and the parties agree that New York
law applies. See SmithKline Beecham Corp., 89 F.3d at 158-
59 ("We apply state law to determine whether a particular
indemnification provision encompasses CERCLA response
costs.") (citing Hatco Corp. v. W.R. Grace & Co., 59 F.3d
400, 405 (3d Cir. 1995)); Olin Corp., 5 F.3d at 15(concluding that federal courts should incorporate state law
when interpreting contractual agreements allocating
CERCLA liability).
The Court in Olin summarized the relevant principles of
New York contract law developed by the New Y ork Court of
Appeals in Slatt v. Slatt, 477 N.E.2d 1099, 1100 (N.Y.
1985). Under that law, "it is our function to`discern the
intent of the parties to the extent their intent is evidenced
by their written agreement.' " Olin, 5 F.3d at 15 (citing
Commander Oil Corp. v. Advance Food Serv. Equip., 991
F.2d 49, 51 (2d Cir. 1993) (quoting Int'l Klafter Co. v.
Continental Casualty Co., 869 F.2d 96, 99 (2d Cir. 1989)
(citing Slatt, 477 N.E.2d at 1100 (N.Y . 1985)))). "Where the
intention of the parties is clearly and unambiguously set
forth, effect must be given to the intent as indicated by the
language used." Slatt, 477 N.E.2d at 1100. However, we
note that "in New York[,] indemnification agreements are
strictly construed; a court cannot find a duty to indemnify
absent manifestation of a `clear and unmistakable intent' to
indemnify." Commander Oil, 991 F.2d at 51 (citing
17
Heimbach v. Metropolitan Transp. Auth. , 553 N.E.2d 242,
246 (N.Y. 1990)).
The District Court's discussion of this issue is
unfortunately conclusory:
[R]egardless . . . whether the New Y ork action can or
cannot be characterized as one seeking CERCLA
damages, the thrust of the New York pr oceeding was
exclusively an action on a contract to deter mine if
Paramount was entitled to indemnity from [Horsehead]
under the contract provision dealing with
environmental damage claims in Palmerton,
Pennsylvania and elsewhere for which Paramount may
be liable. Accordingly, there are no factual issues over
environmental damages which would preclude
summary judgment on the indemnity question.
Dist. Ct. Op. at 7. The District Court granted summary
judgment in favor of Paramount, concluding that"[w]e can
find no reason for proceeding with this second case
between the parties when in the first case in New York
there is a claim which was litigated and may very well moot
this action." Id. at 10. The District Court, in reading the
Paramount decision of the Appellate Division of the New
York Supreme Court, was satisfied that the indemnification
provision encompassed all of the environmental claims,
including the CERCLA contribution claims befor e it, such
that the identical issue was present to pr eclude litigating
the CERCLA contribution claim in the District Court.
The indemnification provision in this case is considerably
broad, holding Horsehead responsible for the costs
associated with all environmental liabilities stemming from
"Seller's Business" and the "Purchased Assets" at the
Palmerton site. Specifically, Horsehead must indemnify
Paramount for "all liabilities, damages, costs, obligations
and requirements . . . under any envir onmental, safety and
health or reclamation law." The indemnification provision
applies to "the maintenance or operation of the Purchased
Assets or to the conduct of the Seller's Business at any
time prior to or after the Transfer Date."
This provision shows a clear and unmistakable intent to
include all environmental claims, including claims for
18
contribution under CERCLA. The circumstances
surrounding the transfer of assets, most notably that
Horsehead was formed by officials of Paramount's
predecessor for the purpose of transferring the
environmental liability associated with the Palmerton site,
id. at 719, confirm that intent. W e agree with the New York
Supreme Court, Appellate Division, which made a thorough
inquiry as to the scope of the indemnification pr ovision,
that "[t]he language of the broad indemnification clause
itself clearly and unambiguously requir es indemnification
for all liabilities arising from environmental laws and
regulations, without any exclusion of CERCLA liabilities."
Id. at 722.
However, the indemnification provision was accompanied
by contractual limitations on Horsehead's liability.
Horsehead argues that these limitations, notably the
exceptions enumerated under Subparagraphs I.F(2)[a]-[f] of
the APA and Schedule VIII appended to it, defeat the
identicality between contractual liability and CERCLA
liability. Contractually, Horsehead would not be r esponsible
for certain contingent liabilities it expressly declined. See
supra, note 9. Yet under CERCLA's statutory liability,
Horsehead posits that it may be responsible for those same
contingent liabilities. Horsehead contends that the District
Court's decision in this case sidesteps CERCLA's
contribution mechanism and requires Horsehead to
reimburse Paramount for all CERCLA claims, even those
expressly excepted in the APA and those associated with
the assets not purchased by Horsehead. In other words,
Horsehead argues that the universe of CERCLA liabilities
may exceed those liabilities for which Horsehead must
reimburse Paramount under the indemnification
agreement, and thus the requisite identicality of issues is
missing.
Where an indemnification agreement exists, the threshold
inquiry in a CERCLA contribution case is the same as the
inquiry the New York Supreme Court, Appellate Division,
undertook: whether the scope of the indemnification
provision is broad enough to encompass liability for
CERCLA response costs. With respect to Horsehead's
arguments, we first note that Horsehead is confusing the
19
determination of CERCLA liability with the function of an
indemnification agreement, which covers the allocation of
cleanup costs among its parties. Similar to an insurance
policy, the indemnification agreement transfers the
responsibility for who pays the response costs regardless of
liability. Moreover, CERCLA recognizes the parties' right to
indemnify each other by agreement for r esponse costs, as
they have done. See SmithKline Beecham Corp., 89 F.3d at
158 ("Thus responsible parties can lawfully allocate
CERCLA response costs among themselves while r emaining
jointly and severally liable to the government for the entire
clean-up.").
We have also reviewed the limitations on Horsehead's
liability in Subparagraphs I.F(2)[a]-[f] of the APA and
Schedule VIII attached thereto, and find nothing that
changes the intent of the parties or renders the
indemnification provision ambiguous such that it would not
include CERCLA response costs. In GNB Battery
Technologies, a case with relevant similarities, the Seventh
Circuit held that the plain language of the assumption
agreement unambiguously transferred all of seller's
liabilities, including CERCLA liabilities, despite the fact that
specific exemptions from liability wer e enumerated. 65 F.3d
at 623. The Court concluded that "[t]he enumeration of
these exemptions indicates that the parties intended to
exempt only the situations that they specifically itemized."
Id. Therefore, because CERCLA liabilities specifically were
not itemized as exemptions, they were intended to be
included by the parties. Moreover, the fact that the
exemptions existed did not operate to defeat the inclusion
of CERCLA liabilities.
In this case, Horsehead argues that the CERCLA
liabilities and the exceptions listed in Schedule VIII overlap.
Under Subparagraphs I.F(2)[a], [b],[c], and [e] of the APA,
Horsehead assumes the full performance and costs
associated with specific litigation or consent or ders except
where Paramount agrees to reimburse Horsehead for some
portion of those costs. In Subparagraph I.F(2)[d], Horsehead
expressly declines any contingent liability associated with
certain fugitive emissions at the Palmerton site. In
Subparagraph I.F(2)[f], Horsehead declines liability from an
20
industrial accident not related to the Palmerton site. These
limitations on liability will likely be consider ed in the
damages phase of the New York litigation. However, they do
not alter our holding here that the plain language of the
APA demonstrates the intent that Horsehead indemnify
Paramount for all environmental claims, including claims
for contribution under CERCLA.
Moreover, that these exceptions to Horsehead's liability
do not specifically mention CERCLA liability supports the
view that the parties intended that CERCLA liability be
included within the broad scope of envir onmental claims for
which indemnification exists. As the New Y ork appellate
court noted, "the parties' failure to include CERCLA
liability, by name, does not render the agr eement
ambiguous where the broad language of the agreement
clearly encompasses all environmental liabilities of which
CERCLA is one. More significant is the fact that CERCLA
liability is not listed in [Subparagraphs] I.F(2)[a]-[f], which
delineates certain limitations on the liabilities that were
otherwise assumed by Horsehead . . . ." Paramount, 660
N.Y.S.2d at 723.
Further support for this view comes from the other side
of the same coin. That the parties to the AP A knew well of
CERCLA, and thus could have dealt with it by name in the
APA, is made clear by the memorandum attached to
Schedule VIII specifically mentioning CERCLA. While the
Trial Division of the New York Supr eme Court found the
language in the memorandum mentioning CERCLA, and
declaring that "[t]he former owner may not use an
indemnification agreement to shift liability to any other
person, but may obtain insurance against his own liability,"
to create an ambiguity as to the parties' intent to include
CERCLA costs within the broad indemnity pr ovision, the
Appellate Division disagreed. "[The memorandum] merely
makes a correct statement of the applicable law, as set
forth in the statute. . . . Thus, this sentence[quoted in this
paragraph, above] does not conflict with, or override, the
clearly delineated obligations set forth in the
indemnification clause, to which Horsehead agr eed." Id. at
722-723.
21
In sum, we are satisfied that the broad indemnification
provision here includes CERCLA contribution claims.
Therefore, for collateral estoppel purposes the issue
litigated in the New York state courts is identical to the
issue that was before the District Court. For the District
Court to have concluded otherwise would thwart
Paramount's right to indemnification for CERCLA costs
established in the first action in the New Y ork state courts.
(3) Full and Fair Opportunity to Litigate
Under New York law, the doctrine of collateral estoppel
applies to preclude relitigation of an issue where it is found
that the litigant against whom preclusion is sought in the
current proceeding had a full and fair opportunity to litigate
the issue in the prior proceeding. See Gilberg v. Barbieri, 53
N.Y.2d 285, 291 (1981). "The party attempting to defeat the
application of collateral estoppel has the bur den of
establishing the absence of a full and fair opportunity to
litigate the issue in the prior action." In r e Juan C. v.
Cortines, 679 N.E.2d 1061, 1065 (N.Y. 1997).
As already noted, Horsehead has fully litigated the
interpretation of the indemnity clause in the New York trial
and appellate courts. Even though this judgment may later
be overturned during the proper course of appellate review
of damages, New York law does not prohibit the application
of collateral estoppel. While we acknowledge that the courts
of New York have refused to give pr eclusive effect to an
interlocutory order, see, e.g., Morley v. Quinones, 208
A.D.2d 813 (N.Y. App. Div. 1994), this line of decisions did
not confront the situation where the or der was reviewed by
at least one appellate court. The case befor e us more
closely resembles a pending appeal wher e finality can be
found than an interlocutory order in which the parties had
no opportunity to file an appeal.
* * * * *
Accordingly, we conclude that all three r equisite elements
of New York collateral estoppel law exist-- finality, identical
issues, and a full and fair opportunity to litigate-- and we
affirm the decision of the District Court on this issue.
22
B. Rule 60(b)(5)
Horsehead also argues that the District Court erred by
proactively invoking Rule 60(b)(5) of the Federal Rules of
Civil Procedure to shield its decision-making, suggesting
that if its decision were wrong, it could easily be reopened.
Rule 60(b)(5) provides:
On motion and upon such terms as are just, the court
may relieve a party . . . from a final judgment, order,
or proceeding for the following reasons: (5) the
judgment has been satisfied, released, or discharged,
or a prior judgment upon which it is based has been
reversed or otherwise vacated, or it is no longer
equitable that the judgment should have prospective
application.
Fed. R. Civ. P. 60(b)(5).
We agree with Horsehead that this Rule should not be
relied on by district courts when facing difficult decisions.
However, the District Court in this case did no such thing.
Analyzing the case before it under New Y ork law, the
District Court found adequate grounds to give preclusive
effect to the New York appellate court's judgment. Its
reference to Rule 60(b)(5) was to note that the Rule
specifically contemplates relief wher e a judgment given
preclusive effect was subsequently r eversed, the very
situation complained of by Horsehead. The District Court
did not misuse Rule 60(b)(5), and we are not persuaded by
Horsehead's argument on this point.
IV. Conclusion
For the reasons stated, we affirm the District Court's
entry of summary judgment in favor of Paramount based on
the preclusive effect of the New Y ork Supreme Court,
Appellate Division, decision in Paramount Communications,
Inc. v. Horsehead Industries, Inc., 660 N.Y .S.2d 718 (App.
Div. 1997).
23
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
24