REGENTS OF UNIVERSITY OF MINNESOTA v. UNITED STATES (2020)

ORDER

This matter is before the court upon the cross motions for partial summary judgment by defendant United States of America (Government) and plaintiff Regents of the University of Minnesota (University). Based on a review of the file, record, and proceedings herein, and for the following reasons, the court denies the Government's motion and grants the University's motion.

BACKGROUND

I. The GOW

This environmental dispute arises out of a contract between the University and the Government. During World War II, the Government operated the Gopher Ordinance Works (GOW), a facility “designed to produce smokeless cannon and rifle powder, oleum and other materials used in the manufacture of smokeless powder.” Compl. ¶¶ 3, 21. The GOW was located on 13,600 acres of land in Rosemount, Minnesota (Site). Id. ¶¶ 2, 29. The GOW was designed, constructed, and operated by defendant E.I. du Pont de Nemours and Company (DuPont). Id. ¶¶ 4, 30-31. Between November 1944 and August 1945, the GOW produced “an estimated 29 million pounds of smokeless powder, 80 million pounds of oleum and 51 million pounds of nitric acid.” Id. ¶ 33.

II. The Parties’ Agreement

After the war, the Government determined that it no longer needed the GOW and transferred the Site to the University through two quitclaim deeds and corresponding contracts for sale. Id. ¶¶ 6, 38. The first deed, executed in 1947, conveyed a 4,687-acre parcel consisting largely of open space (1947 Parcel). Id. ¶ 43; Countercl. ¶ 28. The second deed, executed in 1948, conveyed a 3,320-acre parcel that “contained most of the buildings, infrastructure, and equipment transferred to the University” (1948 Parcel). Compl. ¶ 43; Countercl. ¶ 28. The instant motions only involve the 1948 Parcel. The deed conveying the 1948 Parcel (1948 Deed) contains the following indemnification provision:

[T]he [University] herein covenants and agrees for itself and its successors and assigns to assume all risk for all personal injuries and property damages arising out of ownership, maintenance, use and occupation of the foregoing property, and further covenants and agrees to indemnify and save harmless the ․ United States of America ․ against any and all liability claims, causes of action or suits due to, arising out of, or resulting from, immediately or remotely, the possible contaminated condition, ownership, use, occupation or presence of the [University], or any other person upon the property lawfully or otherwise.

Answer and Countercl. Ex. 2, at 5.

The corresponding contract for sale (1948 Contract) includes the following provision:

The [University] acknowledges that the above-described property may be contaminated and it assumes all liability and responsibility which may arise out of the said contaminated condition, decontamination and use and occupancy of the said property. The [University] further agrees that it will perform at its sole expense any and all decontamination work or functions found necessary in order to render the above-described property free of any and all dangers of explosives and suitable for general usage.

Id. Ex. 5, at 4.

III. Environmental Cleanup of the Site

Since the mid-1980s, the Site has been subject to numerous environmental studies and investigations, which have revealed the release or threatened release of hazardous materials at the Site. See Compl. ¶¶ 52-81; Countercl. ¶¶ 73-74. The Minnesota Pollution Control Agency has identified the University, the United States Army Corps of Engineers, and DuPont as “responsible persons” under the Minnesota Environmental Response and Liability Act (MERLA). Compl. ¶¶ 75-76. According to the University, it has incurred more than $3 million in “environmental investigation and other necessary response costs in connection with the release or threatened release of hazardous substances at the Site” and expects that amount to increase. Id. ¶ 82. The University has unsuccessfully demanded reimbursement from the Government. Id. ¶ 83.

The University has received, however, $732,695.84 from its lessee Dakota Aggregates, LLC to cover “certain environmental, development, engineering and legal expenses,” including the environmental cleanup at issue. Dostal Decl. ¶ 3; id. Ex. 1 § 3.4. The University maintains that the sums received from Dakota Aggregates were advances that it has largely repaid, rather than reimbursement for expended cleanup costs. See id. ¶ 4; id. Ex. 2. The lease between the University and Dakota Aggregates refers to the payments as “Expense Reimbursement” and notes that the payments are “non-refundable” and that they may be made “directly to the governmental bodies for costs and expenses ․ payable to such bodies.” Id. Ex. 1 § 3.4.

IV. This Action

On August 11, 2017, the University commenced this suit seeking damages and declaratory relief from the Government and DuPont under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) and from DuPont under MERLA. On November 17, 2017, the Government answered the complaint and filed counterclaims alleging that (1) the University breached the 1948 Deed and 1948 Contract by seeking reimbursement for environmental response costs and failing to indemnify the Government against all lawsuits and claims relating to the 1948 Parcel; (2) the University should be apportioned at least some of any response costs found to be due under CERCLA; and (3) the University should be held liable for all response costs incurred or that may be incurred in connection with the Site. Answer and Countercl. ¶¶ 106-22. DuPont answered the complaint, but did not file counterclaims or cross-claims.¹

The Government moved for partial judgment on the pleadings as to its defense to the University's CERCLA claim relating to the 1948 Parcel and its breach-of-contract counterclaim. The Government specifically requested that the court hold that the University is not entitled to recover its response costs relating to the 1948 Parcel and that the University is obligated to indemnify and hold harmless the Government for all past, current, and future response costs relating to the 1948 Parcel. The court denied the motion, concluding that the parties’ agreement is ambiguous insofar as the indemnification provision is concerned:

The court finds that the contracts, read as a whole, support both parties’ interpretations and therefore are ambiguous. Neither contract clearly states that the University assumed liability relating to environmental contamination. However, it is also not clear that environmental liability is not encompassed within the provisions at issue. Indeed, the provisions are broadly written to suggest the intent to include liability beyond the risks presented by residual explosives.

Order, ECF No. 57, at 7 (citations omitted). The court noted that it would be better positioned to assess the scope of the indemnification provision when presented with relevant extrinsic evidence. See id. (concluding that “whether environmental liability is included cannot be determined on the present record absent additional factual development”). After engaging in discovery, the parties filed the instant cross motions for partial summary judgment relating to the Government's counterclaim for breach of contract based on the indemnification provision and its corresponding affirmative defense. The Government also seeks a determination that the University is precluded from recovering environmental response costs for which is has already been reimbursed.

V. Extrinsic Evidence

Among the evidence submitted includes documents showing that harmful effects from smokeless powder plants was generally known at the time the parties entered into the relevant agreements. See, e.g., Gov't Ex. 1,² ECF No. 94-1, at 4-5, 15 (noting that the production of explosives and ammunition during World War I led to the poisoning of 17,000 people, 475 of whom died, and that the War Department instituted an “extensive industrial health and hygiene program” to avoid the same outcome in World War II); Gov't Ex. 2, ECF No. 94-2, at 5 (commenting that DNT's “toxicity [to people] is similar to that of TNT”). Other contemporaneous studies showed the harmful effect of lead and mercury on people. See Gov't Mem., ECF No. 93, at 4-5.

Other documents show that the Government was aware that the GOW was contaminated with toxic substances beyond explosive materials. Specifically, the Army acknowledged in December 1945, that ordinance plants such as the GOW included “toxic hazards” that were a danger to “life or health.” Gov't Ex. 3, ECF No. 94-3, at 2. Further, documents detailing the War Department's decontamination of the GOW to “stand-by condition” in the summer of 1946, made clear that the GOW was not necessarily free of all hazards or safe for use other than for its constructed purpose. Gov't Ex. 4, ECF No. 94-4, at 2. Indeed, that decontamination process included ridding, to the extent possible, the Site of hazardous non-explosive materials such as sulfuric acid, nitric acid, ammonia, and DNT.³ See Gov't Ex. 5, ECF No. 94-5, at 6-8, 34-35.

The University was aware that the GOW was contaminated with non-explosive toxic substances when it purchased the Site. See, e.g., Second Kubler Decl., ECF No. 105, Ex. 11, at 2; id. Ex. 12, at 2-3; id. Ex. 13, at 2-3; id. Ex. 14, at 5. In September 1946, for example, the Government notified the University that certain “buildings, structures, equipment and areas will probably require additional decontamination.” Gov't Ex. 12, ECF No. 94-12, at 2. The University appears to have understood that additional decontamination was required but believed that “there would be very little involved” based on the Government's decontamination report. Gov't Ex. 15, ECF No. 94-15, at 3. In May 1947, the Government represented to the University that the decontamination report “show[ed] only a few scattered instances of any remaining evidences of contamination, which would not involve any additional expense on the University's part for further work.” Gov't Ex. 16, ECF No. 94-16, at 2. But an April 1947 decontamination report noted that “certain areas of the [GOW] have not been properly decontaminated” given that small quantities of DNT, smokeless powder, and acids remained in different locations at the GOW. Gov't Ex. 17, ECF No. 94-17, at 2-9. The report estimated that it would take a total of 1,230 hours to “complete decontamination of [the GOW].” Id. at 9. It is unclear whether the University was privy to that report.

In December 1946, before it purchased the GOW, the University obtained a permit to use the Site. In the permit, the University acknowledged that the Site was used to manufacture explosives and “other war materials” that “are or may be harmful or dangerous to health and life.” Gov't Ex. 18, ECF No. 94-18, at 5. The University further acknowledged that the Site may still be contaminated and that “actual or potential hazards may still exist.” Id. The University agreed to assume the risk with respect to such hazards. Id.

In October 1947, while the parties were negotiating the conveyance of the 1948 Parcel, the University drafted a Contract of Agreement under which the University could maintain possession of the Site. The Contract of Agreement contained the following indemnification clause:

The University will indemnify and hold the War Assets Administration harmless from any and all claim, loss, damage, injury, or cause of action which may arise from a lack of proper decontamination of acid, explosive and/or other destructive materials remaining upon the premises or the personal property presently located thereon. It is further agreed that any and all further decontamination deemed necessary by the parties hereto will be performed by the University at its expense.

Kubler Decl. Ex. 8, ECF No. 99-8, at 4. According to the University, this language establishes that the parties only contemplated that the Site was contaminated with explosive materials. The Government denies that the parties ever executed the Contract for Agreement and argues that it is therefore of dubious relevance. The record does not definitively clarify whether the agreement was ever finalized by the parties.

According to the University, the indemnification provision in the 1948 Deed was broadened at the last minute to insulate the Government from Federal Tort Claims Act (FTCA) liability. The FTCA was enacted in 1946 and, in September 1946, an internal Government memorandum discussed the impact of the FTCA on the conveyance of contaminated surplus property like the GOW. See Gov't Ex. 4, ECF No. 94-4, at 2, 7, 9 (recognizing the Government could be subject to tort liability for personal injuries or property damage under the FTCA when it was previously immune and therefore recommending that the Government disclose any “hazards of contaminated property” before conveying property to a third party).

A March 5, 1948, Government document concurred, stating that the University should be forewarned that the Site has been contaminated with hazardous material and recommended that the Deed include recitals to that effect and an indemnification provision to protect the Government. Second Kubler Decl. Ex. 21, ECF No. 105-11, at 3. As noted above, the parties ultimately agreed to the indemnification provision at issue.

DISCUSSION

I. Standard of Review

“The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a); see Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). A fact is material only when its resolution affects the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A dispute is genuine if the evidence is such that it could cause a reasonable jury to return a verdict for either party. See id. at 252, 106 S.Ct. 2505.

On a motion for summary judgment, the court views all evidence and inferences in a light most favorable to the nonmoving party. Id. at 255, 106 S.Ct. 2505. The nonmoving party, however, may not rest upon mere denials or allegations in the pleadings, but must set forth specific facts sufficient to raise a genuine issue for trial. Celotex, 477 U.S. at 324, 106 S.Ct. 2548. A party asserting that a genuine dispute exists - or cannot exist - about a material fact must cite “particular parts of materials in the record.” Fed. R. Civ. P. 56(c)(1)(A). If a plaintiff cannot support each essential element of a claim, the court must grant summary judgment because a complete failure of proof regarding an essential element necessarily renders all other facts immaterial. Celotex, 477 U.S. at 322-23, 106 S.Ct. 2548.

II. Scope of Indemnification Provision

The primary issue before the court is whether the parties intended the indemnification provision to include liability for CERCLA-type injury to the environment at the Site, or whether the provision was limited to hazards to human health and safety.⁴

CERCLA governs liability for the disposal of hazardous waste that harms or threatens to harm the environment. CERCLA was enacted in 1980 to address at least two congressional concerns:

First, Congress intended that the federal government be immediately given the tools necessary for a prompt and effective response to problems of national magnitude resulting from hazardous waste disposal. Second, Congress intended that those responsible for problems caused by the disposal of chemical poisons bear the costs and responsibility for remedying the harmful conditions they created.

FMC Corp. v. N. Pump Co., 668 F. Supp. 1285, 1289 (D. Minn. 1987) (quoting United States v. Reilly Tar & Chem. Corp., 546 F. Supp. 1100, 1112 (D. Minn. 1982)). “[L]iability may be found under CERCLA extending to all potentially responsible parties.” Id. A “person that is liable under the terms of the Act may by agreement be held harmless or indemnified by another party.” Id. (citing 42 U.S.C. § 9607(e)(1)). Further, courts have recognized that a “pre-CERCLA agreement can require one party to indemnify another against CERCLA liability.” Beazer E., Inc. v. The Mead Corp., 34 F.3d 206, 211 (3d Cir. 1994); see also Kerr-McGee Chem. Corp. v. Lefton Iron & Metal Co., 14 F.3d 321, 326-27 (7th Cir. 1994) (same); Armotek Indus., Inc. v. Freedman, 790 F. Supp. 383, 391 (D. Conn. 1992) (“[c]ontract provisions allocating CERCLA-type liabilities are ․ enforceable when those contracts have been entered into prior to the enactment of CERCLA.”).

To determine whether the pre-CERCLA agreement covers CERCLA liability, courts “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.” Beazer, 34 F.3d at 211. “The clause must be clear and unequivocal.” Elf Atochem N. Am. v. United States, 866 F. Supp. 868, 870 (E.D. Pa. 1994). “The key is whether there is language limiting the indemnity and whether the language shows an intent to allocate all possible liabilities among the parties. If there is limiting language, the clause does not cover CERCLA.” Id. at 870-71.

Here, the court finds that the indemnification provision does not specifically include liability of the type contemplated under CERCLA. The provision does not mention environmental liability, expressly or impliedly. The extrinsic evidence submitted to the court does not indicate that the parties were aware of or contemplated the possibility of future environmental damage or cleanup at the Site. Indeed, the 1948 Deed predated CERCLA by more than three decades and there is no indication in the record that the parties were even cognizant of that kind of environmental harm or liability.

This determination does not mean that the indemnification provision is not broad enough to include the environmental cleanup costs at issue, however. As noted, a pre-CERCLA indemnification provision may be broad enough to include CERCLA-type liability.

In relevant part, the indemnification provision states that the University:

agrees to indemnify and save harmless the ․ United States of America ․ against any and all liability claims, causes of action or suits due to, arising out of, or resulting from, immediately or remotely, the possible contaminated condition, ownership, use, occupation or presence of the [University], or any other person upon the property lawfully or otherwise.

Answer and Countercl. Ex. 2, at 5. The provision itself is undeniably broadly worded. But the court must assess the ambiguous and limiting term “possible contaminated condition,” through the filter of the extrinsic evidence to determine its breadth.⁵ In other words, the court must determine what the parties understood “contaminated” to mean when they signed the 1948 Deed.

According to the Government, the evidence shows that the University understood that the Site was still contaminated with explosives and other toxic substances such as sulfuric acid, nitric acid, ammonia, and DNT. The government argues that because the contamination included non-explosive toxic substances that could plainly harm the environment, the University knowingly agreed to assume all potential environmental liability, including CERCLA-type liability. The University contends that the evidence shows that the parties were primarily concerned about residual explosives and therefore did not contemplate environmental liability. The court finds that the facts land somewhere in between the parties’ positions.

As set forth above, and consistent with the Government's interpretation, the evidence shows that the parties did in fact understand that the Site was contaminated with toxic substances beyond that of residual explosives. The evidence does not show, however, that the parties were aware of or concerned about the potential environmental impact of that contamination. None of the documents submitted addresses environmental harm or decontamination relating to the environment. Nor does the evidence tie the toxic substances at the Site to environmental harm. At most, the parties appear to have been concerned about the potential harm to human health and safety. Thus, although the Government is correct that “contamination” included not only explosive contamination but also other “toxic substances,” the court cannot conclude that it broadly includes environmental contamination of any kind, let alone the kind of environmental harm contemplated by CERCLA.

Based on the foregoing, the court is persuaded that the breadth of the indemnification provision as a whole can be explained by the Government's desire to insulate itself from tort liability for personal injuries and property damage under the recently enacted FTCA rather than a desire to cover environmental liability.

In sum, the evidence submitted to the court does not support a finding that the parties were aware of or contemplated the possibility of future environmental cleanup relating to the Site. As a result, the court cannot conclude that the indemnification provision broadly indemnifies the Government from environmental liability.

III. Double Recovery

Concerned with potential double recovery, the Government argues that the University should be precluded from recovering $732,695.84 in response costs should it prevail in this case because it has already been reimbursed in that amount by its lessee Dakota Aggregates. According to Jon Dostal, the University's Director of Leasing and Property Management for Real Estate, Dakota Aggregates advanced the University $732,695.84 to cover “certain environmental, development, engineering and legal expenses,” including the environmental cleanup at issue. Dostal Decl. ¶ 3; id. Ex. 1 § 3.4. Dostal attests that the University has largely repaid that amount to Dakota Aggregates and that it was scheduled to repay the remaining balance in the first quarter of 2020. See id. ¶ 4; id. Ex. 2. The Government has submitted no evidence to refute Dostal's statements or to otherwise cast doubt on their veracity. As a result, the court cannot conclude that the University is positioned to recover more than what it has expended in environmental cleanup costs. Because this litigation is ongoing, the court will, however, allow further argument on this topic if appropriate.

IV. DuPont's Claims against the Government

The Government argues that the DuPont's claims against it are also covered by the indemnification provision. The Government acknowledges that this argument hinges on the court's finding with respect to the breadth of the indemnification provision. Given the court's ruling above, it must conclude that DuPont's claims are not covered by the indemnification provision.

CONCLUSION

Accordingly, based on the above, IT IS HEREBY ORDERED that:

1. The Government's motion for partial summary judgment [ECF No. 92] is denied;

2. The University's motion for partial summary judgment [ECF No. 96] is granted;

3. The Government's counterclaim one for breach of contract is dismissed; and

4. The Government's corresponding affirmative defense number seven is stricken.

FOOTNOTES

1.   In January 2015, DuPont submitted a claim to the United States requesting reimbursement for response costs and attorney's fees incurred under CERCLA relating to the Site. Countercl. ¶ 88. In September 2017, DuPont requested indemnification from the United States relating to this case. Id. ¶ 89. Those claims remain pending.

2.   The parties cite the bates stamped pages of their exhibits. Rather than follow their convention, the court will use the page numbers provided by the court's CM/ECF filing system when citing to a particular page of an exhibit.

3.   “Decontamination” in this context was defined to mean “the complete removal or destruction by flashing, of explosive materials; the neutralizing and cleaning out of acid or corrosive materials; and the removal, destruction, or neutralizing of toxic substances.” Gov't Ex. 9, ECF No. 94-9, at 6; see also Gov't Ex. 8, ECF No. 94-8, at 10 (same); Gov't Ex. 10, ECF No. 94-10, at 4 (defining “decontamination” to include, among other things, the “removal, destruction or neutralizing of toxic substance[s]”).

4.   The scope of CERCLA liability relating to the Site is not at issue in the instant motions and will not be discussed.

5.   There is some disagreement between the parties as to whether the court can revisit its determination that the indemnification provision is ambiguous. The court will not revisit that determination, but it may consider extrinsic evidence to resolve the identified ambiguity. See Schortmann v. United States, 82 Fed. Cl. 1, 10 (Fed. Cl. 2008) (internal quotation marks and citations omitted) (“[W]hen a provision in a contract is susceptible to more than one reasonable interpretation, it is ambiguous and, in such an instance, the court may then resort to extrinsic evidence to resolve the ambiguity.”). The court expressly contemplated that it would be better positioned to assess the scope of the indemnification provision when presented with relevant extrinsic evidence. See Order, ECF No. 57, at 7. (concluding that “whether environmental liability is included cannot be determined on the present record absent additional factual development”).

DAVID S. DOTY, Judge