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Lasalle National Trust v. ECM Motor Co.

February 5, 1996

LASALLE NATIONAL TRUST, N.A., U/T 116555 NOT INDIVIDUALLY, BUT AS TRUSTEE, AND NARCO TOWER ROAD ASSOCIATES,

PLAINTIFFS-APPELLANTS,

v.

ECM MOTOR CO., ENVIRONMENTAL RISK CONSULTANTS, INC., BRAUN INTERTEC ENVIRONMENTAL, INC., AND HYGIENETICS, INC.,

DEFENDANTS-APPELLEES.



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division.

No. 94 C 4401--Ruben Castillo, Judge.

Before BAUER, KANNE, and DIANE P. WOOD, Circuit Judges.

DIANE P. WOOD, Circuit Judge.

ARGUED SEPTEMBER 11, 1995

DECIDED FEBRUARY 5, 1996

Environmental contamination of property is a common subject of negotiation when parties are contemplating a real estate transaction, not least because of the expansive scope of liability and the costs for clean-up that may be imposed under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), 42 U.S.C. sec. 9601 et seq. In this case, LaSalle National Trust, trustee of an Illinois Land Trust for Narco Tower Road Associates ("Narco"), and ECM Motor Company ("ECM") executed not one but two agreements in conjunction with ECM's sale of property to Narco. Those agreements attempted to address the question of who would bear the responsibility for site clean-up, when clean-up was to occur, and who would bear the cost. After Narco unsuccessfully tried to collect certain clean-up expenses from ECM, it brought suit in federal court raising claims under both CERCLA and state law. The question before us is whether the CERCLA claim was so utterly without merit that the district court lacked federal subject matter jurisdiction. Because we conclude that the allegations exceeded that low threshold, we reverse the district court's jurisdictional dismissal of the case and remand for further proceedings.

I.

On September 9, 1991, Narco and LaSalle National Trust executed a real estate sales contract with ECM, under which Narco was to buy certain property from ECM. Paragraph 9.10 of the contract addressed the problem of possible environmental contamination due to hazardous waste:

The entire Property, all Improvements thereon, and the Personal Property will at closing be free from contamination from any substance or materials presently identified to be toxic or hazardous, including asbestos, ("Hazardous Material") according to any applicable federal, state or local statutes, rule or regulation. . . . Seller agrees to remove any Hazardous Material, including asbestos, which exists on the Property prior to closing in an expeditious manner. . . . In the event that prior to the Closing, any such Hazardous Material is found on the Property or in the improvements, the remedy and termination provisions of Paragraph 9.12 shall apply.

The referenced provision of Paragraph 9.12 stated that "[i]n the event any of the foregoing representations and warranties are not true, correct and accurate as of the closing Date, the Purchaser, at its exclusive discretion, may terminate the transaction. . . ." Section 18.6 of the contract specified that it was to be governed by Illinois law.

Finally, section 14 of the contract detailed the consequences of default by either party. Nothing in section 14 or in any other section of the September 9 agreement indicated that the contractual remedies were to be exclusive.

Before the closing date, ECM retained Braun Intertec ("Braun") to evaluate the extent of contamination on the property. Braun removed some 75 cubic yards of contaminated soil and reported that no further action was necessary. Skeptical, Narco retained its own expert, Hygienetics, to review Braun's findings. Hygienetics eventually concluded that some remaining contamination existed, that it was not a health threat, but that further clean-up work was advisable. It estimated that the recommended measures would cost about $50,000.

Because ECM and Narco did not expect that the additional work would be completed by the planned closing date, they concluded a supplemental agreement on December 31, 1991. In that agreement, ECM acknowledged the existence of further contamination on the property and agreed to complete the clean-up after closing. The parties placed $50,000 in an escrow account to fund the work, and they agreed to seek the approval of the Illinois Environmental Protection Agency ("IEPA") on the question of appropriate remediation levels for the property. Finally, they addressed the subject of remedies in Paragraph 12, which is the primary focus of the case before us:

Purchaser's remedies under this Agreement shall be exclusive and in lieu of, and not in addition to, any remedies or rights which it may have, pertaining to the presence of Hazardous Material on the property, in ...


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