Seventh Circuit Interprets Pre-CERCLA Plant Construction Agreement to Void Cost Recovery Lawsuit


On September 21, 2015, the U.S. Court of Appeals for the Seventh Circuit issued an important Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), cost recovery lawsuit ruling relating to a contractual release of liability that pre-dated CERCLA.  The case is The Peoples Gas Light and Coke Company v. Beazer East, Inc.

The plaintiff, Peoples Gas Light and Coke Company (Peoples), entered into three Administrative Orders on Consent with EPA to evaluate and remediate, through CERCLA response actions, the “Crawford Station” site in Chicago, Illinois.  According to the Court of Appeals, Peoples has, to date, incurred more than $70 million in cleanup costs. Consequently, in 2014, Peoples filed a two-count CERCLA cost recovery lawsuit against Beazer East, Inc., the successor to Koppers, which had entered into an agreement with Peoples in 1920 to build and operate a by-product coke plant for the manufacture of carbureted water gas; the facility was known as the Chicago By-Product Coke Company.  In 1928, Peoples acquired the assets of the company, but Koppers continued to operate the plant until 1938, when Peoples took over the operations, and it continued to operate the facility until 1956. In its defense, Beazer East argued that the 1920 agreement contractually released Koppers and, therefore, Beazer, from all liability for the operation of the Coke plant; Peoples thus had no claim to any reimbursement from Beazer East under CERCLA.

To decide this case, the Court of Appeals was obliged to interpret the 1920 agreement in light of the 1980 enactment of CERCLA. Applying the Illinois law regarding the construction and interpretation of contracts, and the well-established approach taken by the courts when confronting claims of CERCLA liability that pre-date the enactment of CERCLA, the Court of Appeals agreed with Beazer East that Peoples could not maintain this lawsuit. While a party “may indemnify another party for liability arising out of a law not in existence at the time of contracting”, when a contractual assignment of liability pre-dates CERCLA, the “courts will look to see whether an indemnification agreement 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”.  The Court of Appeals agreed with Beazer East that the contractual provisions agreed to in 1920 had the effect of releasing Koppers and also Beazer East from all future claims including environmental liability, arising from Koppers’ operation of the plant.