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October 26, 1992

USG CORPORATION, a Delaware corporation; and USG INTERIORS, INC., a Delaware corporation, Plaintiffs,
DONALD A. BROWN, an individual; DONALD A. BROWN, as trustee of the Revocable Living Trust dated September 29, 1976; and MANUFACTURERS NATIONAL BANK OF DETROIT, as trustee of the Irrevocable Trust dated July 22, 1976, Defendants.


The opinion of the court was delivered by: JAMES B. MORAN


In this diversity case, plaintiffs USG Corporation and USG Interiors, Inc. (USG) seek indemnification from defendants (Brown), pursuant to a merger agreement, for costs incurred as a result of alleged violations of environmental laws and regulations prior to the merger date. Before us now is USG's motion for summary judgment on the issue of liability under Article 4(d) of the indemnity agreement. For the reasons below, we grant in part and deny in part USG's motion for summary judgment.


 Prior to February 25, 1986, defendants owned D.A.B. Holding Company, the parent of Donn Corporation (Donn) and American Metals Company (AMC). *fn2" Both Donn and AMC have manufacturing plant facilities on a site in Westlake, Ohio (Westlake site).

 On February 25, 1986, USG and Brown agreed to a merger of D.A.B. into USG Interiors, Inc., a subsidiary of USG Corporation. The official merger date was April 9, 1986. As part of the merger, USG and Brown executed an indemnity agreement providing for defendants to indemnify USG under certain conditions for expenses related to any pre-merger noncompliance with environmental laws or regulations.

 As part of the manufacturing process at the Westlake site certain waste was produced. The Westlake site has had a variety of arrangements for the purpose of storing and disposing of waste. Sludge was deposited in a sludge-drying pond until the mid- to late 1960s, when AMC decided to build a new building on the site of the sludge-drying pond. The pond was covered over with dirt and a building was built on top of the old pond. Defendants built a settling basin, a landfill and three surface impoundments to replace the sludge-drying pond as waste disposal and storage areas. The settling basin was also constructed in the mid- to late 1960s and was used to allow water to be separated from any excess sludge. AMC stopped using the settling basin in 1972. The landfill was created during construction of new buildings on the Westlake site as a source of dirt. It was also used until about 1974 to hold sludge from the surface impoundments that was not drying fast enough for off-site disposal. Because of changes in its waste storage and disposal practices, AMC no longer needed or used the surface impoundments as of about 1982. In 1982 AMC removed sludge from the surface impoundments and had it hauled off-site.

 The U.S. Environmental Protection Agency (USEPA) initiated an administrative proceeding against AMC on January 4, 1989. The proceeding was brought pursuant to Section 3008(a)(1) of the Resource Conservation and Recovery Act (RCRA), 42 U.S.C. § 6928(a)(1). The EPA proceeding concerned alleged RCRA violations with respect to the surface impoundments. The USEPA proposed a civil penalty of $ 69,555 for the RCRA violations. On February 22, 1990, AMC (with USG's approval) entered into a consent order with the USEPA (Order I), under which AMC agreed to perform certain actions to bring the Westlake facility into compliance with applicable hazardous waste laws, including instituting a groundwater monitoring program. Also as part of Order I, USG negotiated and paid a lower penalty of $ 45,000.

 The USEPA also initiated a corrective action proceeding against AMC on March 13, 1990 (Order II). Order II had as its purpose for AMC

 (1) to perform a RCRA Facility Investigation (RFI) to determine fully the nature and extent of any release of hazardous wastes and hazardous constituents at or from the Facility; and (2) to perform a Corrective Measures Study (CMS) to identify and evaluate alternatives for the corrective action, if necessary, to prevent or mitigate any migration or releases of hazardous wastes or hazardous constituents at or from the Facility.

 Order II (plfs' ex. 4).

 USG seeks a declaratory judgment on liability requiring defendants to indemnify USG for any pre-merger noncompliance with environmental laws and for resulting costs from Orders I and II "regardless of when such loss, liability, or expense . . . is incurred or assessed."


 The Indemnity Agreement

 Because this is a breach of contract action, we must first examine the provisions of the indemnity agreement. Both sides agree that, per the provisions of the indemnity agreement, Ohio law governs. The indemnity agreement provided that defendants

 shall indemnify and hold harmless USG . . . with respect to any loss, liability or expense . . . incurred in connection with: . . . (d) any noncompliance prior to the Merger Date (whether noticed, cited or otherwise) with applicable environmental laws, ordinances, and regulations, including, but not by way of limitation, the Federal Water Pollution Control Act, the Federal Clean Air Act, the Federal Resource Conservation and Recovery Act, and any state or local counterpart of any of the above laws, and any regulations issued under any of the foregoing; (e) any expenditures, incurred on a basis consistent with USG's past practice, for clean-up of hazardous substances or environmental restoration of any waste disposal site used . . . with respect to such use prior to the Merger Date.

 (Article 4, Indemnity Agreement ("Article 4")). USG, recognizing that resolution of claims under section (e) of Article 4 will probably involve factual determinations not appropriate on a motion for summary judgment, has limited its motion to section (d) of Article 4. USG's section (d) claims stem from post-merger USEPA action taken against USG; USG maintains that the costs it has incurred because of two USEPA orders are due to pre-merger noncompliance by the defendants.

 Other provisions of the indemnity agreement involve notice requirements (Article 6), limitation periods (Article 7), liability limitations (Article 8), the right of defendants to assume the defense of certain matters and the obligations of the parties with respect to settlements (Article 12). *fn3" Also, Article 13 describes the acceptable forms for notice under the agreement.

 USG claims that as a result of USEPA investigations of the Westlake facility both before and after the merger, the USEPA entered two orders against USG. USG seeks a declaratory judgment of liability based on defendants' alleged pre-merger noncompliance with various environmental laws and resulting costs attributable to the two EPA orders. *fn4"

 Defendants respond with numerous legal arguments and representations as to why summary judgment is inappropriate. Defendants maintain that plaintiffs cannot recover because they did not incur a "loss, liability or expense" within the limitation period provided by Article 7. Defendants also deny that plaintiffs complied with the requirements for proper and timely notice under the indemnity agreement. Also, defendants claim that plaintiffs have not demonstrated the lack of a genuine issue of material fact concerning defendants' noncompliance prior to April 9, 1986. Finally, defendants deny that USG has demonstrated a causal connection between any alleged violations and the entry of the two EPA orders.

  Proper Notice Under Article 7

 Both sides agree that Article 7 relieves defendants of liability for an obligation or claim under Article 4 if USG did not provide written notice to defendants by April 9, 1989. Defendants argue that because Article 4 provides for indemnity for a loss, liability or expense incurred in connection with pre-merger noncompliance, any indemnifiable amounts must themselves have been fully incurred within three years of the merger date. Thus, because both EPA orders were entered after April 9, 1989, defendants claim they are not liable under the agreement. This somewhat tricky argument does not reflect a reasonable reading of Articles 7 and 4. Article 7 says nothing about notice only for already incurred expenses; rather, it addresses only written notice of an Article 4 claim. Nothing under Article 4 prevents notice from being given before the claim is fully and finally adjudicated or settled, or before it is paid for by the indemnitee.

 As USG points out, other provisions of the indemnity agreement support this reasoning. Article 12, for example, provides that the indemnitor may elect to assume the defense of matters for which it has received notice. Also, it provides that neither party may settle an Article 4 claim without the consent of the other party. We consider USG's questions:

 What, for example, would be the point of a provision which reserves for the indemnitor, as Article 12 does, the right to assume the defense of a claim if the underlying loss or liability giving rise to the claim has already been established? And, what would be the point of a provision which states that neither party may unreasonably withhold its consent to a settlement of a loss or liability, if the loss has already occurred?

 (plfs' reply at 7). The unambiguous answer to these questions is that there would be no point at all. Provisions of a contract must be read consistently with other provisions so that the document makes sense as a whole. E.S. Preston Assoc., Inc. v. Preston, 24 Ohio St. 3d 7, 492 N.E.2d 441 (Ohio 1986). Indemnity contracts must be read like other contracts, giving the words their plain and ordinary meaning. See Allen v. Standard Oil Co., 2 Ohio St. 3d 122, 443 N.E.2d 497, 499 (Ohio 1982). The Ohio cases upon which defendants rely do not tell us otherwise. Defendants argue that the plain language supports their position, which it does not. We find that there is no reasonable dispute concerning Article 7 -- it does not mean what the defendants want it to, nor is it ambiguous. *fn5"

 We do agree with defendants, however, that proper notice must fully and fairly inform the indemnitor of the claims against it. USG agrees with this proposition as well. See reply, n.3. Defendants argue that the notification sent by USG cannot be considered to have fully and fairly informed defendants because valid claims had not yet accrued. This argument fails, however, because it relies on a reading of the indemnity agreement which we have already rejected above. Defendants could have been fully and fairly informed of an Article 4 claim without the claim being finally decided. *fn6"

 Defendants argue that notification of indemnification for expenses relating to Order I was not valid under the agreement. The January 11, 1989 (defs' ex. L-14) letter from USG to defendants is unequivocally valid notice under the agreement. The letter was sent to defendants certified mail, return receipt requested, within the three-year post-merger period. The letter not only spelled out in detail what the EPA complaint was seeking, but a copy of the EPA complaint (Bardo aff., ex. A) was enclosed. *fn7" The complaint and the letter make clear the claims for which USG was providing notification. USG has demonstrated that the notice as to claims addressed in Order I was proper and timely. Defendants have not rebutted this showing. *fn8"

 However, as to certain claims, USG does extend a somewhat novel concept of full and fair notice. For the alleged instances of noncompliance leading to Order II, USG relies on what may be proper notice of certain claims as proper notice of "outgrowths" of those claims. USG maintains that "EPA Order II identified two bases for the EPA's conclusion that hazardous releases had occurred at the Westlake facility: 1) a July 16, 1987 Preliminary Review (PR)/Visual Site Inspection Report ('VSI Report'); and 2) the previously described AGI Contamination Assessment report performed by AGI" (memo at 37). Further, USG contends that the AGI study was commissioned as part of the risk assessment performed in connection with the closure of the surface impoundments (reply at 320). Thus, according to USG, Order II was an outgrowth (reply at 12 n.6) of investigations resulting from Order I and thus, even though Order II was entered after the three-year period, the notice provisions were satisfied. The theory that full and fair notice of one indemnifiable instance will subject defendants to indemnity liability for all subsequent "outgrowths" of the original instances requires more support at this summary judgment stage than USG musters. *fn9" We note that "under Ohio law, a prospective indemnitee's failure to provide timely notice to a prospective indemnitor will bar an indemnity action." United Services Auto Ass'n v. Barger, 910 F.2d 321, 324 (6th Cir. 1990). USG provides no authority for its approach to notice under the indemnity agreement, except for rather conclusory estoppel arguments. *fn10"

  Also, throughout its briefs USG refers to defendants' actions preventing the EPA from learning about certain matters until after the merger date. Presumably, USG is implicitly arguing that such actions by the defendants should prevent the three-year limitation period from applying or that they should at least toll the period somehow. Unfortunately for USG, this argument is obviously not correct and, in any case, has not been developed by it. For the purposes of this motion, then, it is unavailing to USG. *fn11"

 At this stage we cannot say as a matter of law that USG provided defendants with full and fair notice of the noncompliances related to Order 15. *fn12" Therefore, we deny summary judgment as to these claims.

 Declaratory Relief

 That plaintiffs have provided timely notice of at least some claims does not, however, necessarily entitle them to a declaration of liability. They must also establish, beyond material factual dispute, that there was, indeed, pre-merger noncompliance as claimed and that plaintiffs have incurred costs as a result of that noncompliance. That does not mean that all the costs must now be determined or even incurred. Southland Corp. v. Ashland Oil, Inc., 696 F. Supp. 994, 1000 (D. N.J. 1988). Plaintiffs are not seeking summary judgment on damages issues, only a determination that indemnity is appropriate. Defendants deny both pre-merger noncompliance and any resulting costs. We turn, then, to the specific claims.

 Noncompliance with Environmental Laws and Regulations

 Filing of Notification of Hazardous Wastes and the Part A Interim Status Application.

 42 U.S.C. § 6930, 42 U.S.C. § 6925 and 40 CFR § 270.13 govern notification and permit requirements relating to hazardous waste activity. *fn13" USG claims that defendants did not comply with § 6930 because they did not disclose that the "landfill, the settling basin, and the original 'sludge-drying pond' were hazardous waste treatment and storage sites which should have been described in AMC's Part A permit application" (plfs' memo at 16). *fn14" "Under 42 U.S.C. § 6925, anyone 'owning or operating a facility for the treatment, storage, or disposal of hazardous waste' as of November 19, 1980, must obtain operating permits from the EPA. Environmental Defense Fund, Inc. v. Lamphier, 714 F.2d 331, 335 (4th Cir. 1983); 42 U.S.C. § 6925. There is no dispute that Westlake was such a facility.

 Section 6925(e) allows any person owning or operating such a facility who has complied with § 6930(a) and who has applied for a permit pursuant to § 6925 to achieve "interim status." *fn15" On November 18, 1980, AMC and Donn each submitted the required documents to seek interim status; both filed an EPA Form 1 and Form 3. Form 1 is the notification of hazardous waste (§ 6930) and Form 3 is the permit application (§ 6925). AMC filed an amended Form 1 and 3 on November 3, 1981.

 The application did identify the surface impoundments. USG maintains that neither the required diagrams nor the applications identified the settling basin or the sludge-drying pond as treatment, storage or disposal areas, and that the landfill was identified "only in the most cursory fashion" (memo at 15). Also, the application did not contain an explanation of the contents or purpose of the landfill. USG claims defendants violated 40 CFR § 270.13 by not describing the landfill in terms of its size, use or the contents of hazardous wastes contained in it. Also, the landfill code provided in the key on EPA Form 3 was not used by defendants to describe the landfill (Hauser ex. G).

 Defendants deny that the applications were deficient, claiming that these areas were identified on AMC's initial Part A application. Also, defendants claim that the USEPA was aware of the settling basin and labeled it "abandoned impoundment" on the site diagram prepared by FIT. *fn16" Also, Brown claims that the USEPA and the Ohio Environmental Protection Agency (OEPA) were aware of the landfill and its prior use.

 Defendants also argue that the units which were inactive prior to November 19, 1980, did not need to be disclosed because permit requirements did not apply to them. While it may be true that the inactive units did not require permits, defendants mischaracterize USG's argument. McClellan Ecological Seepage Situation (MESS) v. Cheney, 763 F. Supp. 431 (E.D. Cal. 1989), cited by defendants, addressed the issue of whether a permit was required for an inactive unit prior to November 19, 1980. The issue here is not whether defendants needed a permit for any inactive sites, but rather whether in complying with the requirements for interim status defendants properly disclosed all present and past facilities.

 USG asserts that defendants' failure to comply with the notification provisions in § 6930 and 40 CFR § 270 prevented the USEPA from learning about their existence until after the merger. There is no claim that these alleged noncompliances led in any way to the issuance of Order I. As best as we can tell, USG is suggesting that these alleged violations led to EPA Order II. As discussed above, we deny, for now, summary judgment for claims related to Order II. Because USG has not demonstrated a lack of a genuine issue of material fact with respect to whether notice was proper, we decline to decide whether defendants failed to comply with these RCRA provisions as a matter of law. Therefore, we deny summary judgment as to this claim.

 Noncompliance with Closure Requirements for Surface Impoundments

 When AMC stopped using the surface impoundments in 1982, it sought closure approval under the applicable environmental laws and regulations. Achieving approved closure allows a facility to avoid certain continued monitoring and compliance requirements. USG argues that defendants were not in compliance with the closure regulations prior to the merger. 40 CFR § 265.112 requires that a facility owner have a written closure plan identifying "the steps necessary to completely or partially close the facility during its intended operating life and to completely close the facility at the end of its intended operating life." Also, a facility must be closed in accordance with an approved closure plan, and this fact must be certified by an independent registered professional engineer. 40 CFR § 265.115. AMC submitted a written closure plan for the surface impoundments to the Ohio EPA ("OEPA") on November 15, 1982. At the time, the OEPA was the RCRA-authorized state agency for the USEPA.

 As of the merger date, defendants had not received approval of their closure plan from either the OEPA or the USEPA. In September 1986, OEPA approved AMC's closure plan.

 During 1982, defendants removed sludge from the surface impoundments and had it hauled off-site. In 1987, the USEPA rejected AMC's closure plan because the background material had not been removed to an acceptable level during the sludge removal. According to 40 CFR §§ 264.112 and 264.113(b), a closure plan must be an approved one. AMC ceased operating the surface impoundments, without final approval, until after the merger. Defendants maintain that they had closed the surface impoundments and had an engineer certify to this. However, the undisputed facts show that the USEPA had not approved closure at the merger date. Defendants were not in compliance with closure requirements before the merger.

 USG claims that as a result of AMC's noncompliance with the closure requirements, USG was forced to apply for RCRA closure approval once it learned that the surface impoundments had not been properly "closed." This, in turn, according to USG, led to the issuance of EPA Order I. USG does not make clear in what way defendants' alleged failure to apply with closure requirements led to Order I, except for groundwater monitoring requirements. *fn17"

 Violation of Groundwater Monitoring for Surface Impoundments

 Under 40 CFR § 265.90 et seq., an owner or operator of a facility must implement

 a ground-water monitoring program capable of determining the facility's impact on the quality of ground water in the uppermost aquifer underlying the facility. . . .


 this ground-water monitoring program must be carried out during the active life of the facility, and for disposal facilities, during the post-closure care period as well.

 40 CFR § 265.90(b). According to the complaint leading to Order I, AMC was not in compliance with RCRA groundwater monitoring requirements for a period of six years. According to the USEPA RCRA penalty worksheet (Bardo aff. ex. B),

 Respondent failed to implement a groundwater monitoring program capable of determining impacts of the surface impoundments on the ground and surface water quality.

 There has been no interim status monitoring as cited in the July 29, 1982 and September 9, 1987 inspections.

 The worksheet also notes that the noncompliance continued over a six-year period and the EPA assessed a proposed penalty of $ 44,218. Defendants do not rebut this evidence. USG has demonstrated that groundwater monitoring was not done in compliance with 40 CFR § 265.90 et seq. for the six-year period.

 Defendants claim 40 CFR § 265(c) allows an owner or operator to seek a waiver of these requirements. While true, it is undisputed that defendants never received a waiver; thus, whether a waiver was a theoretical possibility is irrelevant. Also, as of August 17, 1984, defendants claim that the USEPA had not required the facility to institute groundwater monitoring. The support for this argument comes from the mischaracterization of a letter from the EPA. The letter (defs' ex. J) informs AMC that they appear to be a hazardous waste facility and, if so, that they need to comply with the groundwater monitoring requirements. Because there is no dispute that the surface impoundments were used for the treatment, storage or disposal of hazardous waste, groundwater monitoring was required.

 Defendants have failed to rebut USG's evidence that defendants were not in compliance with the RCRA groundwater monitoring requirements, § 265.90 et seq., prior to the merger. As defendants point out, the dates on the EPA worksheet indicate that the violation occurred over a six-year period -- some before and some after the merger. It is nevertheless clear that defendants were not in compliance prior to the merger. We therefore grant summary judgment as to those expenses incurred as a result of defendants' pre-merger noncompliance with RCRA groundwater monitoring requirements. *fn18"

 Violations of Operating Standards

 Owners and operators of treatment, storage and disposal facilities are subject to specific operating standards. 40 CFR Subparts 262 and 265. USG points to an August 16, 1982 letter from the OEPA to AMC, outlining some problems that AMC would need to address before closure approval. See Frescka aff, ex. E. *fn19"

 Defendants claim this letter does not prove noncompliance. They also maintain that the surface impoundments were fenced and signs posted (defs'. ex. C), and that their closure plan provided for the removal of the fence in order to have closure. Also, Brown claims that since 1974, AMC had maintenance and reporting procedures in place which addressed surface water discharges, the sanitary sewer system and the wastewater treatment system (Hauser aff. ex. B).

 USG has submitted other evidence demonstrating that AMC violated certain RCRA operating requirements prior to the merger. From the complaint of the USEPA (Bardo aff. ex. B), it is clear that these violations provided a basis for EPA Order I and constituted a portion of the penalty assessed in connection with that order, *fn20" (reply at 21). However, again, there is the problem that some of the dates given as dates of violation are pre-merger and some are post-merger. USG seems not to address the problem, just claiming that all costs associated with Order I are recoverable. This may ultimately prove to be the case, but on this motion, and without much development from USG, we cannot say as a matter of law that all of the penalties assessed in Order I for noncompliance with operating standards are due to pre-merger noncompliance. *fn21" We therefore grant summary judgment as to those expenses incurred as a result of defendants' pre-merger noncompliance with operating standards.

 Failure to Comply with RCRA Corrective Action Requirements

 On March 13, 1990, the USEPA instituted another proceeding against AMC, pursuant to Section 3008(h) of RCRA, 42 U.S.C. subsection 6928(h), as a result of the USEPA's concern that a release of hazardous waste had occurred at the Westlake facility.

 Section 3004(u) of RCRA, 42 U.S.C. § 6924(u), provides

 that facilities shall be required to take corrective action for all releases of hazardous waste or constituents from any solid waste management unit at a treatment, storage, or disposal facility seeking a permit under this subtitle, regardless of the time at which waste was placed in such unit.

 USG argues that defendants had knowledge of releases and failed to accurately respond to inquiries from both the OEPA and the USEPA. See Plfs' memo at 26-7; Frescka aff. exs. H & K. *fn22" In responding to the OEPA and USEPA inquiries, defendants informed them that they considered the facility closed because the closure plan had been submitted to the OEPA on November 15, 1982 and because their engineer had certified it closed. See Frescka aff. ex. I. As discussed above, the facility was not closed in accordance with EPA regulations.

 In any event, we deny summary judgment on this claim. USG claims that there "can be little question that, had AMC disclosed the information it had regarding hazardous releases, that the USEPA would have initiated the same type of corrective action proceeding against pre-merger AMC as it did later against USG" (reply at 32-33). Almost certainly this is true, but the motion as to this claim suffers from the same deficiency as the other claims relating to Order II above - we cannot say as a matter of law that USG complied with the notice provisions as to these claims.

 CERCLA Violations

 USG also claims that defendants were not in compliance with section 103(c) of CERCLA, 42 U.S.C. § 9601 et seq., requiring hazardous waste facilities to file a notification of hazardous waste site with the USEPA and notify them of any known, suspected or likely releases of hazardous waste. USG maintains that the May 26, 1981, section 103(c) notification was deficient. *fn23" It is unclear what damages USG is claiming as a result of the alleged CERCLA violations. Our best reading of the claim is, however, that it is another branch of the claim that omissions and misrepresentations by defendants delayed USEPA from finding out about certain problems until after the merger. As above, we deny summary judgment on this claim, because it relates to damages resulting from Order II.

 Ohio Law Violations

 USG seeks a determination of liability as to violations of Ohio law as well, which, USG maintains, is parallel to USEPA regulations. USG argues that there is no requirement under the indemnity agreement that a governmental entity make a finding of a violation of an environmental law before defendants' duty to indemnify USG arises. According to USG, it "is sufficient that USG has proven violations of the Ohio statutes and regulations, and eventual damages arising from that activity which has resulted from EPA Orders I and II" (reply at 34).

 We decline to determine whether there were violations of Ohio environmental laws. While it is true that USG can theoretically get indemnification for pre-merger Ohio environmental law violations, we cannot say that because there may have been state law violations that somehow these contributed to the cost incurred in Orders I and II. And USG does not develop this area enough. Moreover, if as USG maintains, Ohio law parallels USEPA law, then as to recovery under the indemnity agreement, a finding of noncompliance with Ohio law does not add anything to the equation that federal law does not already provide. Therefore, we deny summary judgment with respect to Ohio law violations.


 We grant summary judgment as to those expenses incurred as a result of defendants' pre-merger noncompliance with RCRA groundwater monitoring requirements and as to those expenses incurred as a result of defendants' pre-merger noncompliance with operating standards. We deny, for now, summary judgment for claims related to Order II. We deny summary judgment with respect to CERCLA violations and Ohio law violations.


 Chief Judge, U.S. District Court

 October 26, 1992.

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