                                                                                                                           Opinions of the United
1996 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


7-17-1996

SmithKline Beecham v. Rohm & Haas Co
Precedential or Non-Precedential:

Docket 95-1644




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             UNITED STATES COURT OF APPEALS
                 FOR THE THIRD CIRCUIT

                      ___________

                      No. 95-1644
                      ___________


             SMITHKLINE BEECHAM CORPORATION

                          v.

                 ROHM AND HAAS COMPANY

                          v.

               BUCKEYE PIPE LINE COMPANY


                          Rohm and Haas Company,
                                           Appellant

  _______________________________________________

  On Appeal from the United States District Court
      for the Eastern District of Pennsylvania
        (D.C. Civil Action No. 92-cv-05394)
                ___________________

                 Argued March 13, 1996

Before:   STAPLETON, SCIRICA and COWEN, Circuit Judges

                 (Filed July 17, 1996)


                   JOHN G. HARKINS, JR., ESQUIRE (ARGUED)
                   Harkins Cunningham
                   1800 One Commerce Square
                   2005 Market Street
                   Philadelphia, Pennsylvania 19103-7042

                      Attorney for Appellant


                   DAVID P. BRUTON, ESQUIRE (ARGUED)
                   Drinker, Biddle & Reath
                   Philadelphia National Bank Building
                   1345 Chestnut Street
                   Philadelphia, Pennsylvania 19107-3496

                      Attorney for Appellee,
                      SmithKline Beecham Corporation
                          __________________

                          OPINION OF THE COURT
                           __________________


SCIRICA, Circuit Judge.

         Plaintiff SmithKline Beecham Corp. ("SKB") brought this
declaratory judgment action against the defendant, Rohm and Haas
Co. ("R&H"), seeking equitable apportionment of the costs of the
clean-up of a contaminated site in Myerstown, Pennsylvania under
the Comprehensive Environmental Response, Compensation, and
Liability Act ("CERCLA"), 42 U.S.C.    9601-75 (1988 & Supp. V).
Alternatively, SKB sought apportionment of the clean-up costs in
accordance with the indemnification provisions of a Purchase
Agreement between SKB and R&H.
         In 1978, SKB purchased Whitmoyer Laboratories, Inc.
("New Whitmoyer") from R&H under a Purchase Agreement containing
certain indemnification provisions. Although R&H and SKB
discharged toxic wastes, most of the contamination at the
Myerstown site occurred before 1964, when the site was owned by
R&H's predecessor ("Old Whitmoyer").
         The able and experienced district court held the
indemnifications in the Purchase Agreement covered CERCLA
liability arising from R&H's ownership of the site. In addition,
the court held the doctrine of corporate successor liability by
de facto merger brought CERCLA liability arising from the conduct
of Old Whitmoyer within the scope of the indemnity clauses of the
Purchase Agreement. Consequently, the court allocated all of the
clean-up costs for CERCLA liability arising from the conduct of
Old Whitmoyer to R&H. R&H brought this appeal.
         On appeal, we must determine whether the contractual
indemnity provisions of the Purchase Agreement were intended to
allocate the environmental liability of Old Whitmoyer, the
original owner of the property. Because the Purchase Agreement
does not indemnify for CERCLA clean-up costs arising prior to New
Whitmoyer's ownership of the Myerstown site, we will reverse the
district court. In addition, we believe that under the facts of
this case the doctrine of de facto merger cannot be used to
modify an indemnity provision drafted by two sophisticated
corporations.
                            I. Facts
         In 1931, Dr. Clarence W. Whitmoyer founded a veterinary
feedstock and pharmaceutical business based in Myerstown,
Pennsylvania. Incorporated as "Whitmoyer Laboratories, Inc." in
1934, the corporation went public in 1961 ("Old Whitmoyer").
From 1957 to 1964, Old Whitmoyer deposited large quantities of
arsenic-laden hazardous waste on the grounds of its Myerstown
plant.
         In 1964 defendant Rohm and Haas ("R&H") created W-L,
Inc., a Delaware corporation, as a wholly owned subsidiary. W-L
Inc. purchased the assets of Old Whitmoyer and assumed certain
specified balance sheet liabilities in exchange for 50,000 R&H
shares. Subsequently, Old Whitmoyer changed its name and took
steps to dissolve, distributing the R&H stock to its
shareholders. R&H did not know of the contamination at the
Myerstown site when its subsidiary purchased the assets of Old
Whitmoyer.
         W-L Inc., took the name Whitmoyer Laboratories, Inc.
("New Whitmoyer") and continued to run the business of Old
Whitmoyer. New Whitmoyer retained the same CEO as Old Whitmoyer,
manufactured the same products under the same name, and sold
those products to the same customers. From 1964 to 1978, New
Whitmoyer disposed of additional arsenic-contaminated waste at
the Myerstown site. But New Whitmoyer also undertook efforts to
remediate groundwater contamination. Shortly after acquisition,
it supplied bottled water to over twenty neighbors of the plant
whose wells had been contaminated with arsenic. In 1965, New
Whitmoyer removed over three million pounds of contaminated
wastes and soil skimmings from the existing waste lagoon and
stored them in a concrete vault built specially for that purpose.
In addition, New Whitmoyer devised a method to monitor and remove
arsenic waste from the groundwater. Between 1965 and 1971,
almost 450,000 pounds of arsenic were removed from the
groundwater at the site.
         On March 31, 1978, R&H sold its entire animal health
products business, including all the stock of New Whitmoyer, to
Beecham Inc., a predecessor of the plaintiff SmithKline Beecham
Corporation. Before completing the transaction, R&H notified
SKB of the bottled water obligation, showed SKB executives the
vault and told them it contained arsenic wastes, and gave them
free access to all records at New Whitmoyer.
         The Purchase Agreement that governed the sale between
SKB and R&H ("1978 Purchase Agreement") contains a broad
indemnification clause in which R&H indemnified SKB against
"[a]ll material liabilities relating to the conduct of the
Business prior to the First Closing Date." In addition, SKB
agreed to indemnify R&H for all losses and liabilities "resulting
from the operation of the Business by the Buyer after the First
Closing Date." During SKB's ownership of New Whitmoyer, arsenic-
laden waste continued to be released into the environment at the
Myerstown site.
         Congress enacted CERCLA in 1980. Two years later, SKB
sold New Whitmoyer to Stafford Laboratories, Inc. ("Stafford").
Stafford was a small, undercapitalized company with limited
assets and no experience in chemical manufacturing operations.
Its president was a felon with two prior convictions for grand
theft and embezzlement. Stafford has since filed for bankruptcy
and has not been named as a party in this action.
         In 1986, the federal government placed the Myerstown
site on the Superfund National Priorities List under   105 of
CERCLA. 42 U.S.C.    9605. Both R&H and SKB were deemed
"potentially responsible parties" liable for the contamination at
the Myerstown site under CERCLA. In 1992, the United States
settled its CERCLA liability claims against R&H and SKB,
resulting in the entry of a consent judgment. United States v.
Rohm and Haas Co., Civ. No. 92-CV-1295 (M.D. Pa.). Although Old
Whitmoyer caused the majority of the contamination before New
Whitmoyer owned the Myerstown site, under the consent decree R&H
and SKB are jointly and severally liable for the entire cost of
its remediation because of their successive ownership of New
Whitmoyer. Estimated clean-up costs total $123 million.
         SKB brought this action against the R&H seeking an
equitable apportionment of clean-up costs under sections 107(a)
and 113(f) of CERCLA, 42 U.S.C.    9607(a) and 9613(f), and
enforcement of the indemnity provisions of the 1978 Purchase
Agreement.
         On cross-motions for summary judgment, the district
court held R&H liable for clean-up of wastes dumped during the
period when New Whitmoyer was an R&H subsidiary--1964 to 1978--
based on the indemnification provision of the 1978 Purchase
Agreement. SmithKline Beecham Corp. v. Rohm and Haas Co., 854 F.
Supp. 1201, 1214-15 (E.D. Pa. 1994). But it did not allocate
liability for Old Whitmoyer's share of clean-up costs because "at
this stage of the proceedings, the court cannot find as a matter
of law that [the indemnification] includes conduct of [Old]
Whitmoyer Laboratories before R & H purchased it in 1964." Id.at 1214.
         The district court took testimony on the
indemnification provision in the 1978 Purchase Agreement. It
found it unnecessary to determine whether the indemnification
expressly included Old Whitmoyer's contamination because it
determined New Whitmoyer was liable for Old Whitmoyer's
contamination as its corporate successor under Pennsylvania's de
facto merger doctrine. It then found the indemnification
provision required R&H to indemnify SKB for all New Whitmoyer's
pre-closing liabilities, including successor liability for Old
Whitmoyer's conduct. SmithKline Beecham Corp. v. Rohm and Haas
Co., No. 92-5394 (E.D. Pa. March 17, 1995).
         On appeal, R&H argues the indemnity provision of the
1978 Purchase Agreement does not indemnify against environmental
liabilities arising under CERCLA. Even if the provision covers
CERCLA liability, R&H contends it does not indemnify SKB for Old
Whitmoyer's conduct. Finally, R&H claims the district court
should not have applied the de facto merger doctrine to make R&H
liable for Old Whitmoyer's contamination of the Myerstown site.
         We exercise plenary review of the district court's
construction of the 1978 Purchase Agreement. Vanguard
Telecommunications, Inc. v. Southern New England Tel. Co., 900
F.2d 645, 650 (3d Cir. 1990). We also have plenary review of the
district court's interpretation and prediction of Pennsylvania's
de facto merger doctrine. Wiley v. State Farm Fire & Casualty
Co., 995 F.2d 457, 459 (3d Cir. 1993). We have jurisdiction to
review the district court's final judgment under 28 U.S.C.    1291
(1994).

                         II. Discussion
                A.   The Indemnity Covers CERCLA
                                1.
         Under   107(e)(1) of CERCLA, parties may provide
indemnifications for environmental response costs. Section
107(e)(1) provides:
         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 release 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
         insure, hold harmless, or indemnify a party
         to such agreement for any liability under
         this section.
42 U.S.C.   9607(e)(1). We have reconciled these apparently
inconsistent provisions by interpreting them to mean "agreements
to indemnify or hold harmless are enforceable between the parties
but not against the government." Beazer East, Inc. v. Mead
Corp., 34 F.3d 206, 211 (3d Cir. 1994) (quoting Smith Land &
Improvement Corp. v. Celotex Corp., 851 F.2d 86, 89 (3d Cir.
1988), cert. denied, 488 U.S. 1029 (1989)), cert. denied, 115 S.
Ct. 1696 (1995). Thus responsible parties can lawfully allocate
CERCLA response costs among themselves while remaining jointly
and severally liable to the government for the entire clean-up.
         We apply state law to determine whether a particular
indemnification provision encompasses CERCLA response costs.
Hatco Corp. v. W.R. Grace Co., 59 F.3d 400, 405 (3d Cir. 1995);
Beazer East, 34 F.3d at 214. In this case, the 1978 Purchase
Agreement provides, and the parties agree, that the indemnity
provision "will be governed by and construed in accordance with
the laws of the State of New Jersey." Accordingly we must
determine whether, under New Jersey law, the parties intended to
indemnify for CERCLA response costs.
         Contract interpretation is usually a question of law in
New Jersey. Dome Petroleum Ltd. v. Employers Mut. Liab. Ins.
Co., 767 F.2d 43, 47 (3d Cir. 1985). Under New Jersey law,
courts should interpret a contract considering "the objective
intent manifested in the language of the contract in light of the
circumstances surrounding the transaction." Id.
                                2.
         In this case the parties could not have expressly
included CERCLA liabilities in the indemnification clause because
the 1978 Purchase Agreement pre-dates the enactment of CERCLA.
But an agreement can require one party to indemnify another
against CERCLA response costs even if it was executed before the
enactment of CERCLA. Beazer East, 34 F.2d at 211. A pre-CERCLA
indemnification provision covers response costs if it is either
"specific enough to include CERCLA liability or general enough to
include any and all environmental liability . . . ." Id.
         The district court held the indemnification provisions
in the 1978 Purchase Agreement are broad enough to incorporate
CERCLA response costs. Section 3 of the 1978 Purchase Agreement,
entitled "Allocation of Liability/Indemnification," contains
three subsections allocating potential liabilities between SKB
and R&H. Subsection 3.1 is entitled "Allocation of Liability."
Under this subsection SKB agreed to assume "as of the First
Closing Date" certain specified liabilities of R&H pertaining to
the Business. These liabilities do not include costs for
environmental clean-up. The remaining two subsections provide
the parties' indemnifications. In subsection 3.2(a) R&H agreed
to indemnify and hold SKB harmless from:
         (a) All material liabilities relating to the
         conduct of the Business prior to the First
         Closing Date (regardless when the related
         claim may be asserted), whether accrued,
         absolute, contingent or otherwise, which are
         not assumed by the Buyer under Subsection 3.1
         . . . .
Subsection 3.3(a) is a reciprocal provision in which SKB
indemnifies R&H for:
         (a) All losses, liabilities, damages or
         deficiencies to Seller resulting from the
         operation of the Business by the Buyer after
         the First Closing Date . . . .
         These indemnity provisions divide "all" of the
"liabilities" concerning the "operation of the Business" between
SKB and R&H. This sort of broad language in pre-CERCLA contracts
has been construed by courts to encompass CERCLA liability. For
example, in Olin Corp. v. Consolidated Aluminum Corp., 5 F.3d 10,
15-16 (2d Cir. 1993), the Court of Appeals for the Second Circuit
held an indemnity provision covering "all liabilities,
obligations and indebtedness of [the business] as they exist on
the Closing Date or arise thereafter with respect to actions or
failures to act occurring prior to the Closing Date" was
sufficiently broad to encompass CERCLA liability.
         Similarly, the District Court for the Western District
of New York held a provision indemnifying for "all liabilities
and obligations . . relating to or arising out of the Assets" was
expansive enough to include CERCLA liability insofar as such
liability related to or arose out of assets transferred.
Purolator Products Corp. v. Allied-Signal, Inc., 772 F. Supp.
124, 131 (W.D.N.Y. 1991); see also, American Nat'l Can Co. v.
Kerr Glass Mfg. Corp., No. 89-C-0168, 1990 WL 125368, *3 (N.D.
Ill. August 22, 1990) (indemnity provision covering "any claim of
any kind or nature whatsoever with respect to the business . . .
arising out of facts or events occurring prior to the Closing
Time" was sufficiently broad to encompass CERCLA liability),
reconsidered in part, No. 89-C-0168, 1990 WL 129657 (N.D. Ill.
August 30, 1990) (reaffirming this holding).
         We believe the language in the 1978 Purchase Agreement
indemnity provisions clearly expresses the parties' intent to
allocate all present and future liabilities. Environmental
liabilities are among the future unknown liabilities allocated by
the parties. Accordingly we agree with the district court that
the indemnity provisions are general enough to evidence the
parties intent to include CERCLA response costs.
               B. Temporal Scope of the Indemnity
                                1.
         Although we have found the 1978 Purchase Agreement
indemnity provisions encompass CERCLA response costs, we must
still determine whether R&H indemnified SKB for those clean-up
costs attributable to Old Whitmoyer before R&H, through its
wholly-owned subsidiary, New Whitmoyer, purchased the assets of
that company in 1964. SKB believes it is indemnified against all
liabilities that arose prior to its purchase of New Whitmoyer.
Accordingly, it argues R&H is responsible for all of Old
Whitmoyer's CERCLA response costs. In contrast, R&H claims the
indemnity provisions do not include Old Whitmoyer's liabilities
and, consequently, those liabilities must be apportioned
equitably under CERCLA.
         In subsection 3.2(a) R&H indemnified SKB for the
liabilities of the Business "prior to the First Closing Date."
SKB indemnified R&H for the corresponding liabilities "after the
First Closing Date" in subsection 3.3(a). SKB argues these
provisions clearly divide all liabilities between the parties
according to the date of sale of New Whitmoyer to SKB in 1978.
According to SKB, R&H is responsible for all liabilities
resulting from activities before the 1978 closing date, including
liabilities arising from the conduct of Old Whitmoyer before New
Whitmoyer's purchase of the assets of that company in 1964.
         R&H argues the dividing line of the date of sale only
allocated risks relating to the conduct of the business by New
Whitmoyer, not Old Whitmoyer. In subsection 3.2(a), R&H agreed
to indemnify SKB only for "material liabilities relating to the
conduct of the Business" prior to the date of sale. R&H claims
the definition of "Business" does not include Old Whitmoyer and
therefore R&H never agreed to indemnify SKB for the conduct of
Old Whitmoyer.
         The definition of "Business" appears in the first
recital to the 1978 Purchase Agreement:
         WHEREAS, Seller manufactures and sells, and
         conducts research relating to, a line of
         animal health products . . . and such
         business is conducted primarily by Whitmoyer
         Laboratories, Inc., a Delaware corporation
         ("WL"), WL's "Affiliated Laboratories" and
         "Barker, Moore, and Mein" divisions and
         certain foreign subsidiaries and distributors
         . . . The worldwide operations of such
         business, together with all the assets
         relating thereto . . . are referred to herein
         as "Business".
R&H emphasizes "Business" is defined in this passage as
"Whitmoyer Laboratories, Inc., a Delaware Corporation" and
affiliates of R&H. This language suggests the term "Business" is
limited to New Whitmoyer and other subsidiaries owned by R&H at
the time of the 1978 transaction. Since R&H never owned Old
Whitmoyer, R&H concludes Old Whitmoyer is not included in the
definition of "Business."
         SKB contends this clause is "actually more of a
description than a 'definition'," serving only to differentiate
R&H's animal health products business from other R&H operations
not included in the sale. SKB examines the 1978 Purchase
Agreement as a whole and argues R&H's proposed definition of
"Business" is inconsistent with the general usage of the term
throughout the agreement. Specifically, SKB notes the term
"Business" is modified in several locations by the words "by
Seller" and "by Buyer." According to SKB, this modification
would not be necessary if "Business" meant "business run by New
Whitmoyer and certain other R&H subsidiaries."
                                2.
         Regardless of whether "Business" is conceived of as a
"definition" or a "description," the term clearly does not
encompass Old Whitmoyer. If the parties intended a more general
usage of "Business," they could have specifically included Old
Whitmoyer in the first recital. Alternatively, the parties could
have excluded the defining provision from the 1978 Purchase
Agreement altogether. Instead R&H and SKB chose to capitalize
the term "Business" and give it a particular, restricted meaning.
         We cannot ignore the express language of the contract.
See e.g, Communications Workers of America, Local 1087 v.
Monmouth County Bd. of Social Servs., 476 A.2d 777, 782 (N.J.
1984) ("The starting point in ascertaining [the parties'] intent
is the language of the contract."). The 1978 Purchase Agreement
explicitly provides the "Business" is "Whitmoyer Laboratories,
Inc. a Delaware corporation ("WL")." Section 9.3 of the 1978
Purchase Agreement states "WL is a corporation duly organized,
validly existing and in good standing" under Delaware law, with
its certificate of incorporation, as amended, "attached hereto as
Exhibit T." That exhibit contains a certificate of incorporation
for the corporation formed June 12, 1964, not the predecessor
corporation that was incorporated in 1934.
         Nowhere in the "definition" or "description" of
"Business" is there a suggestion that the meaning of "Business"
incorporates the predecessors of, or the prior owners of the
assets of New Whitmoyer. SKB contends the use of the term in
other sections of the 1978 Purchase Agreement indicates the
parties intended a broader meaning than the one they expressly
provided. It argues modification of "Business" with the words
"by Buyer" creates an oxymoron under R&H's reading. In addition,
it claims modification of "Business" with "by Seller" is
redundant if "Business" is limited to "the business owned by
R&H."
         But SKB admits "in the large majority of instances, the
Agreement uses the words 'the Business' without express reference
to Buyer or Seller." We do not think the explicit definition of
"Business" should be disregarded because in a few instances the
term was used in an incongruous or redundant manner. Examination
of the contract as a whole confirms that the term was used
appropriately throughout the document. We will not contravene
the parties' apparent "objective intent" on the basis of a few
isolated phrases. See Joseph Hilton & Assocs., Inc. v. Evans,
492 A.2d 1062, 1070 (N.J. Super. Ct. App. Div.) ("In construing
the contract the court does not focus on an isolated phrase but
reads the contract as a whole . . . .") cert. denied, 501 A.2d
977 (N.J. 1985). Reading the contract to avoid ambiguities, we
conclude the parties intended "Business" to mean exactly what
they said, "Whitmoyer Laboratories, Inc., a Delaware
corporation." See United States Bronze Powders, Inc. v. Commerce
& Indus. Ins. Co., 611 A.2d 667, 670 (N.J Super. Ct. Law Div.
1992) ("The court should read [contract] provisions so as to
avoid ambiguities, if the plain meaning of the contract
permits.").
         The first recital of the 1978 Purchase Agreement
provides a specific, and restricted, explanation of the term
"Business." There is no indication in this explanation, or in
any other provision of the contract, that the term "Business"
includes Old Whitmoyer. The few minor inconsistencies
highlighted by SKB do not justify a rewriting of the contract,
particularly since the term is used appropriately throughout.
Viewing the contract as a whole, we hold the term "Business" does
not include Old Whitmoyer.
                   C. De Facto Merger Doctrine
         The district court did not decide whether the term
"Business" included Old Whitmoyer because it held New Whitmoyer
liable for Old Whitmoyer's CERCLA response cost under
Pennsylvania's de facto merger doctrine. The court held New
Whitmoyer incurred Old Whitmoyer's tort liabilities by virtue of
the 1964 asset purchase transaction and New Whitmoyer subsequent
conduct of the business. Even under R&H's interpretation of
"Business," the court found the indemnity R&H gave for the
liabilities of New Whitmoyer included successor liability for the
conduct of Old Whitmoyer. Consequently, the court held R&H must
indemnify SKB for remediation costs relating to Old Whitmoyer's
conduct.
         R&H does not dispute that the factors indicative of a
de facto merger are present in this case. But it argues the
doctrine should not be applied to alter the temporal scope of the
indemnification clause. In addition, R&H contends application of
successor liability in this case conflicts with policy
considerations underlying CERCLA and the de facto merger
doctrine.
                                1.
         R&H claims the parties should be able to allocate
liability through contractual indemnities without the hindrance
of judge-made doctrine. Because the parties did not allocate Old
Whitmoyer's liabilities in the indemnification provisions, it
argues against application of the de facto merger doctrine to
hold it responsible for Old Whitmoyer's clean-up costs.
         In Philadelphia Elec. Co. v. Hercules, Inc., 762 F.2d
303, 318 (3d Cir.), cert. denied, 474 U.S. 980 (1985), we held
the de facto merger doctrine will not shift environmental
liabilities where the parties were in a position to protect
themselves through a contractual provision. Hercules, 762 F.2d
at 317-18. In Hercules, we found the requirement of an express
indemnification is particularly important where, as here, the
parties are two sophisticated corporations of roughly equal
resources. Id. at 313 (where "corporations of roughly equal
resources contract for the sale of an industrial property, and
especially where the dispute is over a condition on the land
rather than a structure, caveat emptor remains the rule.")
(footnote omitted).
         In this case, the parties drafted an indemnification
provision that excluded successor liability. SKB and R&H chose
to define "Business" and limit its meaning to New Whitmoyer.
Under these circumstances, we believe it was not appropriate for
the district court to apply the de facto merger doctrine to alter
the effect of the indemnification provision. See American Nat'l
Can Co. v. Armstrong World Indus., Inc., No. 89-C-0168, 1990 WL
125368 (N.D. Ill. Aug. 22, 1990) (no indemnification because
indemnity did not specifically apply to predecessor corporation's
liabilities) (applying Pennsylvania law), reconsidered in part,
No. 89-C-0168, 1990 WL 129657 (N.D. Ill., August 30, 1990)
(addressing de facto merger).
         Our holding does not alter the general applicability of
corporate successor doctrines in CERCLA contribution claims. SeeSmith
Land & Improvement Corp. v. Celotex Corp., 851 F.2d 86 (3d
Cir. 1988) (statutory merger) (successor corporation was liable
for prior corporation's CERCLA liability in the absence of an
indemnification clause), cert. denied, 488 U.S. 1029 (1989). But
where two sophisticated corporations drafted an indemnification
provision that excluded the liabilities of a predecessor
corporation, we will not use the de facto merger doctrine to
circumvent the parties' objective intent.
                                2.
         R&H also contends application of the de facto merger
doctrine would undermine CERCLA's remedial policies. Under
CERCLA, the cost of remediation is allocated equitably if the
parties have not apportioned it by contract. 42 U.S.C.
9613(f)(1). Of course, the parties here have allocated their
responsibilities under the contractual indemnification
provisions, which exclude the liabilities of Old Whitmoyer.
         In this case, the parties agree each is responsible for
the costs of cleaning up their own contamination. But neither
party caused Old Whitmoyer's contamination. Applying the de
facto merger doctrine to require R&H to fund all of the clean-up
expenses for Old Whitmoyer's contamination would contravene the
express terms of the indemnification provision and incidentally
would "frustrate[] Congress' desire to encourage clean-up by any
responsible party," id., and force R&H to pay for the entire
response cost despite the relative culpability of the parties,
see id. (refusing to apply the doctrine of caveat emptor to a
CERCLA cost recovery action because the doctrine "bar[s] relief
regardless of the degree of culpability of the parties, [and
therefore does] not comport with congressional objectives.").
Our refusal to apply the de facto merger doctrine to alter the
terms of the indemnity provision leaves both SKB and R&H
responsible for their fair share of the clean-up costs of the
Myerstown site. See Beazer East, 34 F.2d at 219 (CERCLA policy
favors equitable apportionment of remediation costs).
                                3.
         In In re Penn Cent. Sec. Litig., 367 F. Supp. 1158,
1170 (E.D. Pa. 1973), the United States District Court for the
Eastern District of Pennsylvania held "the de facto merger
doctrine is a judge-made device for avoiding the patent injustice
which might befall a party simply because a merger has been
called something else." The doctrine is an equitable rule, a
judicial creation to protect a particular class of plaintiffs
from the consequences of a transaction over which they have no
control. The doctrine should conform to the rule's remedial
purpose. See Hercules, 762 F.2d at 312 ("We believe that the de
facto merger doctrine is supported by 'social policy
considerations' independent of any particular cause of action . .
. .") (citations omitted).
         In this case SKB (together with R&H) had control over
the assignment of environmental liability through the negotiation
of the 1978 Purchase Agreement. Thus, there is no third party
whose interests have been impaired by forces beyond their
control. We decline to apply de facto merger doctrine under
these circumstances. SKB is not within the class of plaintiffs
that were intended to benefit from the de facto merger doctrine
and use of the doctrine would contravene CERCLA's remedial
purpose.
                               III.
         For these reasons we will reverse the judgment of the
district court and remand to determine the parties relative
responsibilities for Old Whitmoyer's contamination under CERCLA's
equitable apportionment provisions.

SMITHKLINE BEECHAM CORPORATION. V. ROHM AND HAAS COMPANY V.
BUCKEYE PIPE LINE COMPANY - NO. 95-1644



STAPLETON, J., Dissenting:
         I join Sections I and II-A of the court's opinion. I
would affirm, however, because I conclude that the 1978 purchase
agreement unambiguously requires R&H to indemnify SKB for the
costs of the cleanup of pre-1964 contamination.
         The relevant provisions of the agreement are quite
straightforward. Not surprisingly, the agreement begins by
describing in its preamble the business being transferred from
the "Seller" to the "Buyer." That business is described in terms
of business "operations" and the assets associated therewith.
The preamble recites that "Seller manufactures and sells, and
conducts research and development relating to, a line of animal
health products, including veterinary pharmaceuticals, vaccines
and diet supplements." It states that "such business" is
currently "conducted primarily by" New Whitmoyer and its
affiliates and then lists a number of products, projects, and
rights that are included in "such business." Finally, the
preamble stipulates that "[t]he worldwide operations of such
business, together with all of the assets relating thereto
. . . , are referred to herein as the 'Business'."
         In section 3.1 of the agreement, the Buyer assumes
specifically described liabilities. In subsection 3.2, R&H
"indemnifies and holds Buyer . . . harmless from and against and
in respect of:

              (a) All material liabilities relating
         to the conduct of the Business prior to the
         First Closing Date (regardless when the
         related claim may be asserted) whether
         accrued, absolute, contingent, or otherwise,
         which are not assumed by Buyer pursuant to
         Subsection 3.1."
In a reciprocal section, section 3.3, Buyer "indemnifies and
holds RandH and its officers, directors and stockholders harmless
from and against and in respect of:
              (a) All losses, liabilities, damages or
         deficiencies to seller resulting from the
         operation of the Business by the Buyer after
         the First Closing Date . . . ."
         As the opinion of the court acknowledges "the language
in the 1978 Purchase Agreement indemnity provisions clearly
expresses the parties' intent to allocate all present and future
liabilities" relating to the business being transferred. (Maj.
Op. at 11.) Putting aside the liabilities specifically assumed
in section 3.1, R&H is to bear the ultimate responsibility for
"all material liabilities relating to the conduct of the
Business" prior to the closing date and SKB is to bear the
ultimate responsibility for all liabilities "resulting from the
operation of the Business by the Buyer" after that date. Insofar
as liabilities arising from the business being transferred before
the closing date are concerned, the responsibility of R&H is not
limited to liabilities arising out of its operation of the
business being transferred. This is in sharp contrast to the
responsibility of SKB which is limited to liabilities "resulting
from the operation of the Business by Buyer." (Emphasis
supplied.)
         I do not understand R&H to dispute that the preamble of
the agreement describes the business that is being transferred.
Moreover, it acknowledges, as it must, that the business
conducted by Old Whitmoyer from 1957 to 1964 is a part of the
business being transferred. It necessarily follows, I believe,
that the liabilities at issue here were "material liabilities
relating to the conduct of the Business prior to the" closing
date.
         The court fails to focus on the obvious fact that
"Business" as defined or described in the preamble consists of
the operations and assets being transferred by the agreement.
Understandably, those operations and associated assets are
identified in part by reference to the legal entities that were
conducting most of those operations at the time the agreement was
entered. But as the parties were aware, those operations had
been conducted for a number of years and R&H's responsibilities
under section 3.2 were obviously not intended to be limited to
liabilities arising out of the conduct of those operations at the
time the agreement was entered. R&H, of course, acknowledges
this. At the same time, however, it tries to limit its
responsibility to those liabilities arising out of its conduct of
the business between 1964 when it purchased the business and the
closing date in 1978. Neither the text of section 3.2 nor
anything else in the agreement provides a basis for such a
limitation. R&H's indemnity responsibilities under the agreement
are simply not limited to liabilities relating to the conduct of
the operations being transferred while those operations and
assets were under its control. The parties did not leave pre-
1964 liabilities of the business out of their agreement for
future resolution by a court. R&H unequivocally committed itself
to indemnify SKB for "all material liabilities relating to the
conduct of [the operations and assets being transferred] prior to
the . . . Closing Date." The liabilities at issue here are
clearly among those liabilities.
