El Paso Refinery, Lp v. Trmi Holdings, Inc

302 F.3d 343 (5th Cir. 2002)

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Nature of the Case

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Facts

Texaco built the Refinery in 1929 and operated it until 1984 when it spun off most of its refineries to a wholly-owned subsidiary. The subsidiary was eventually called D. D agreed to assume all responsibility for environmental contamination. D sold the Refinery a number of times to different entities in what can only be described as shill transactions. The eventual Purchase Agreement and D Deed to P included warranties, representations, and indemnification provisions regarding environmental contamination at the Refinery. In particular, both documents include covenants preventing any subsequent owner from seeking contribution from D, or from compelling D to take any remedial action. In 1992, P filed for Chapter 11, and operations at the Refinery ceased. The Term Lenders and the bankruptcy examiner executed a two-page agreement, the terms of which allowed the Term Lenders to foreclose upon and sell the Refinery, in exchange for the payment of money into the bankruptcy estate and the assumption of certain responsibilities by the buyer. The 'Term Sheet,' included provisions governing the allocation of environmental liability between the buyer and the Estate. The Term Lenders formed RHC and then gave written notice that it intended to assert contribution and environmental claims against D and Texaco. In defense, D cited the provisions in the Purchase Agreement entitling D to indemnification by P. D and the Trustee entered into a settlement agreement over RHC's objection, which granted D an allowed claim against the Estate for any amount for which D might be found liable to RHC. D and Texaco asserted that provisions in the Purchase Agreement and the D Deed created binding obligations on RHC with respect to the environmental liability, and absolved D from any responsibility for the environmental conditions at the Refinery. RHC brought this action for declaratory relief in the bankruptcy court to clarify how the Term Sheet, the Purchase Agreement, and the D Deed allocated environmental responsibility among the parties. The court held that RHC assumed full responsibility for undiscovered environmental contamination at the Refinery and impliedly indemnified the Estate against all [environmental liability by operation of the 'circuity of action' doctrine. It held that the covenants in the Purchase Agreement and the D Deed did not create binding obligations on RHC with respect to the environmental contamination. The district court reversed the bankruptcy court's determination with regard to RHC's obligations under the Term Sheet, holding that the Term Sheet did not bar RHC from seeking contribution from D or Texaco, but affirmed the bankruptcy court's holding concerning third-party beneficiary status of D and Texaco (they weren't third party beneficiaries) and the covenants in the D Deed. This appeal resulted.