On December 12, 1997, Jerome B. Simandle, U.S.D.J., held that a party to an agreement-in-principle to fund a Superfund site settlement may not "pull the rug out" from under other parties to the settlement should it later determine that a settlement would not be in its best interest.
In United States v. Jerome Lightman, the United States alleged that, pursuant to the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), a group of defendants was strictly liable, jointly and severally, for the costs incurred in responding to a release and/or threatened release of hazardous substances deposited at the D'Imperio Property Superfund Site in Hamilton, New Jersey. The Court had stayed the litigation to allow mediation to determine the proper allocation of response costs amongst defendants. After the first mediation session, all defendant and third-party defendant generators of waste, except Stepan Company ("Stepan"), agreed to an allocation of responsibility for response costs and agreed to coordinate their defense by forming a Joint Defense Group. Stepan disputed the mediator's recommended allocation of responsibility and elected not to join the Joint Defense Group.
Under the supervision of the Court, the defendants entered into settlement negotiations with the government. The United States proposed to reduce its claim for past costs from $8.7 million to $7.1 million. The United States' proposal was contingent upon the immediate payment of the $7.1 million settlement. To facilitate this resolution, the Joint Defense Group and Stepan commenced negotiations that would preserve their rights against each another while allowing for the funding of the settlement with the government.
The negotiations between the Joint Defense Group and Stepan resulted in an agreement-in-principle to fund the joint settlement of the government's claims for past costs. Specifically, counsel for Stepan proposed a settlement that required the defendants immediately to pay a portion of the $7.1 million, with the remainder to be paid after final resolution of the contribution claims among the defendants. The parties subsequently refined the terms of the agreement, but the essential elements of the settlement were not changed. Several months later, counsel for Stepan advised the United States that it would no longer participate in the settlement.
The Joint Defense Group filed a motion in federal court to enforce what it contended was a binding agreement between all defendants, including Stepan. In response, Stepan argued that there was no enforceable funding agreement since it was understood that the agreement would not be binding unless all parties signed the document. In support of its position, Stepan cited a specific provision in the agreement that required the signature of all parties for the agreement to take effect.
Magistrate Joel B. Rosen prepared a report for the District Court recommending enforcement of the agreement. Specifically, Magistrate Rosen found that: a) Stepan's counsel had either implied actual authority or apparent authority to enter into a binding settlement agreement; b) the conduct of Stepan's counsel indicated an intent to be bound by the agreement; c) substantial acts in furtherance of the agreement were performed by all sides; and d) the Joint Defense Group, the United States and the Court had relied on Stepan's assurances that an agreement was in place.
Judge Simandle agreed with Magistrate Magistrate Rosen's findings. In its ruling, the District Court stressed that public policy favors the enforcement of the agreement. The Court held that "[t]he public interest in enforcing a funding agreement-in-principle among potentially responsible parties is especially clear in multi-party hazardous waste litigation under CERCLA." Moreover, "n New Jersey, even leaving aside the public interest in settling Superfund claims, parties that agree to act collectively for the mutual benefit of each other owe [to each other] a duty of good faith and fair dealing." The Court observed that it would be unfair for one party to "propose a joint funding agreement to obtain the acceptance of all other parties, induce reliance . . . then after seven months, renounce its own agreement merely because it changes its mind regarding whether the agreement is in their best interest." The District Court concluded, "n this situation, absent some compelling change of circumstance not present here, no one party can pull the rug out from under all other parties which relied on the mutual agreement-in-principle."
This case suggests the need for extreme care in entering into settlements, even when thought to be only "in principle."
