Opinion
Civil No. 84-0152 (JBS), [CONSOLIDATED], Civil No. 92-3860 (JBS).
June 21, 2006
Zulima V. Farber Attorney General of New Jersey By: Mark Oshinskie, Deputy Attorney General Department of Law and Public Safety Division of Law Trenton, New Jersey Attorneys for State of New Jersey
Gary J. Lesneski, Esquire Archer Greiner One Centennial Square Haddonfield, New Jersey Attorneys for GEMS Phase II Trust
OPINION
Presently before the Court is plaintiff New Jersey Department of Environmental Protection's Motion in Aid of Litigants' Rights. Through this motion, the State of New Jersey asks the Court to order the GEMS Phase II Trust to make a $400,000 payment from escrow pursuant to a 1995 settlement agreement. GEMS Phase II Trust contests the plaintiff's motion on the merits and argues that it is the proper recipient of the money in question.
At the core of this motion, the Court must undertake the task of determining the parties' intent when they entered into this agreement. The Court has considered this motion on the papers submitted by the parties and without oral argument pursuant to Rule 78, Fed.R.Civ.P. After full consideration of the issue before the Court, plaintiff's motion will be granted for the reasons expressed below.
I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY
A. GEMS Litigation and Global SettlementThe GEMS Superfund litigation was a multi-party hazardous waste suit instituted in the 1980s by the New Jersey Department of Environmental Protection (the "DEP" or the "State"), later joined by the United States Environmental Protection Agency ("USEPA") (collectively the "government plaintiffs") against numerous defendants pursuant to various federal and state environmental protection laws. The suit was in response to the release of hazardous substances deposited at the GEMS Landfill in Gloucester Township, Camden County, New Jersey, a federal Superfund site, owned by Defendant Gloucester Township. Because of the sheer volume of defendants and third-party defendants in the GEMS action, the potentially responsible parties (PRP's) were divided into various defendant groups for purposes of case management and attempting to reach a negotiated global settlement. They included the owner/operator group, of which Gloucester Township was a member; the municipalities group; the transporter/hauler group; and the generator group. At various stages in the litigation, settlement initiatives were undertaken by the parties, under the supervision of court appointed federal mediator, Edward J. Bergman, Esquire, in a court-annexed mediation.
The procedural and factual background of this case is set forth in greater detail in New Jersey Department of Environmental Protection v. Gloucester Environmental Management Services, Inc., 719 F.Supp. 325, 328-30 (D.N.J. 1989).
In March of 1995, the DEP and the USEPA made a final settlement demand. (Pl.'s Ex. 1.) Under the proposed global settlement, all defendants would contribute a total of $30 million for remediation of the GEMS landfill and reimbursement for money already expended by the government for remediation. (Id.) Of that figure, the DEP and the USEPA were to be paid $13.5 million for recovery of past costs and the GEMS Phase II Trust would be funded to be responsible for the operation and maintenance of the remediation program at the landfill for a period of years.
Both parties to this motion agree that actual amount the DEP and the USEPA received in the finalized GEMS settlement was $13,838,000. (Pl.'s Ltr. at 1; Def.'s Ltr. Br. at 3; Def.'s Ltr. at 2.) The government plaintiffs received $13,250,000 for reimbursement of remediation costs, exclusive of the Swamp Pink land purchase and New Jersey Spill Act costs, which were $488,000 and $100,000 respectively. The $13,250,000 figure was $250,000 less than the initial reimbursement demand of $13,500,000, due to a $250,000 conditional concession pertinent to the present dispute. (Pl.'s Br. Ex 1, at ¶ 3.)
The DEP argues that the $488,000 for the Swamp Pink restoration and $100,000 for reimbursement to the Spill Fund were expenses which were unknown at the time of the government's March 1995 demand figure, and are, thus, not part of the $13,500,000. (Pl.'s Aug. 20, 2000 Ltr. at 1.) The GEMS Phase II Trust, on the other hand, claims that the 1995 figure included the Swamp Pink costs. (Def.'s Aug. 24, 2000 Ltr. at 3.)
B. The INA "High/Low" Agreement
As the global settlement negotiations continued into the fall of 1995, it became apparent that one of the issues thwarting settlement was pending state court litigation between Gloucester Township and other operators and various insurance carriers, including Aetna Casualty Surety Company ("Aetna"), which also was alleged to be an insurer of operators of the landfill who were members of the owner/operator group for settlement purposes. Related to, but independent from, the federal GEMS case, litigation to which Gloucester and Aetna were parties was initiated in New Jersey Superior Court as Insurance Co. of North America v. Anthony Amadei Sand Gravel, Inc. Other carriers reached settlement, and the remaining subject of this state litigation was whether Aetna was required to indemnify Gloucester, an owner-operator defendant in the federal GEMS litigation, for any amount it owed with regards to the GEMS landfill environmental remediation costs.
See 162 N.J. 168, 742 A.2d 550 (1999).
Under the proposed global settlement in the GEMS case, Gloucester Township was to contribute a substantial share of the owner/operator group's portion. Thus, since the defendant in the state case was an insurance company for one or more of the defendants in the federal case, the governmental plaintiffs in the federal GEMS litigation, although not parties to the state case, nevertheless had an interest in its outcome as the GEMS parties strove to reach agreement on a suitable settlement amount for the owner/operators.
To keep the negotiations moving forward, Mr. Bergman, the federal mediator, suggested that the parties enter into a "high-low agreement." Under the proposed high-low agreement, Aetna would initially withhold $250,000 from the owner-operator portion of the global settlement agreement. This figure represented part of the money potentially owed by its insured, Gloucester Township. If Aetna prevailed in the state case, Aetna would keep this money and not contribute any further funds to the GEMS Phase II global settlement (the "low"), and Gloucester Township would owe nothing more. (Pl.'s Br. at 2.) Conversely, if Aetna lost the state case, it would be have to contribute twice the amount of what it owed, $500,000, to the global settlement (the "high"), on behalf of Gloucester Township. (Id.)
Thus, before the "high/low" agreement, the total global settlement was for $30,000,000 and afterwards, it was for $29,750,000 plus the contingent amounts of zero or $500,000 from Aetna depending on Aetna's success in the declaratory judgment action in state court. The State was to receive a cash payment for reimbursement of remediation expenses of $6,025,000. (Pl. Ex. 8.) Under the "high/low" agreement, the State was going to receive $250,000 less than this figure, $5,775,000, or $250,000 more (namely, $6,275,000). (Id.)
On October 20, 1995, the parties arrived at an acceptable settlement agreement in INA v. Amadei, which included the $0/$500,000 "high-low" agreement.
The State refers to the "high/low" agreement as a "double or nothing" wager. (Pl.'s Br. at 5.)
On October 20, 1995, having reached an oral agreement, the parties approached this Court so the terms of the settlement could be memorialized into the official court record, prior to the agreement being reduced to writing. (See Oct. 20, 1995 Trans., p. 3, 1. 1-9.) Before the Court, Mr. Bergman described the "high/low" agreement as follows:
In the event that Aetna loses the appeal from the trial court in the state action the following will occur: Aetna will pay the sum of $500,000 to the New Jersey Department of Environmental Protection pursuant to a separate agreement to pay such sum, which agreement will be entered into in the near future in writing.Id. at p. 5, ln. 19-24.
The following month, the high-low agreement was put in writing in section 4A of the "Stipulation of Partial Settlement" in INA v. Amadei, Dkt. No. CAM-L-53855-86, and reads as follows:
Should the above monies be paid, the Township of Gloucester will pay an additional $500,000 to the Phase II settlement, in the NJDEPE vs. GEMS case.
Pl. Ex. 3.
Aetna ultimately lost in the state case. In a subsequent agreement between the parties of the INA v. Amadei case, and later the DEP, Aetna's overall liability was reduced by 20 percent as a compromise of the state appeal, which was acceptable to the State. (Pl.'s Br. at 2.) Thus, under the new terms it was agreed that Aetna would contribute $400,000 to the settlement instead of $500,000 as per the original "high/low" agreement. Accordingly, Aetna, having lost all appeals in its state case, the condition precedent of the "high/low" agreement, paid $400,000 to an interest-bearing escrow account pursuant to Rule 67, Fed.R.Civ.P., held in trust by the GEMS Phase II Trust.
C. The Motion in Aid of Litigants Rights
As early as 1999, the dispute over who the rightful party to the $400,000 was apparent. (See Pl.'s Br., Ex. 4.) In February and March 2000, the DEP sent several demand letters seeking payment to the State. (See Pl.'s Br., Ex. 7-9.) To date, these efforts have proved unsuccessful.
The State has filed a Motion in Aid of Litigants' Rights with this Court. DEP argues that, under the settlement agreement, it is the sole claimant to the $400,000 and therefore seeks an Order requiring the GEMS Phase II Trust to pay $400,000, plus interest. In response to this motion, the GEMS Phase II Trust (the "Trust") claims that it is the proper recipient of the $400,000 in question, and that these funds will be used by the Trust for its purposes under the final settlement agreement for this case, with any amounts left over then eventually reverting to the State under the terms of the final agreement.
In its motion, the State requested that the Court rule only upon the papers it submitted, without requiring the appearance of counsel, under Rule 78, Fed.R.Civ.P. During a telephone conference, both parties agreed to waive their right to argue further or to call witnesses in this matter.
II. DISCUSSION
The State seeks an order requiring the GEMS Phase II Trust to pay the proceeds from Aetna "high/low" agreement be paid to the DEP within seven (7) days. (Pl.'s Proposed Order at 2.) GEMS Phase II Trust opposes such an Order and instead urges that the $400,000 go to the Trust which will eventually revert back to the State when the Trust has completed its remediation obligations at the site. (Def.'s Ltr. Br. at 3.)
A. Applicable Law
A Motion in Aid of Litigants' Rights is a means to compel compliance with a judicial order or to enforce the terms of a settlement agreement. See In re New Jersey State Board of Dentistry, 84 N.J. 582, 586 n. 1, 423 A.2d 640, 642 n. 1 (1980).See also N.J. Rule 1:10-3. Settlement agreements are contracts and, as such, they are subject to the general principles of interpretation governing contract law. Biovail Corp. Int'l v. Hoechst Akiengesellschaft, 49 F. Supp. 2d 750, 774 (D.N.J. 1999); Zuccarelli v. State, 326 N.J. Super. 372, 380, 741 A.2d 599, 604 (N.J.Super. 1999) (citations omitted).
Under New Jersey law, when the language of a contract is plain, unambiguous, and susceptible to only one interpretation, the words contained therein will be given their "plain and ordinary meaning." Nevets C.M., Inc. v. Nissho Iwai Am. Corp., 726 F.Supp. 525, 533 (D.N.J. 1989) (quoting Indep. Oil Workers v. Mobil Oil Corp., 441 F.2d 651, 653 (3d Cir. 1971)); see also County of Morris v. Fauver, 153 N.J. 80, 103 (1998) ("Where a contract is ambiguous, courts will consider the parties' practical construction of the contract as evidence of their intention and as controlling weight in determining a contract's interpretation; where the terms of a contract are clear, however, the court must enforce it as written.") (citations omitted).
Whether a contract provision is clear or ambiguous is a question of law. Assisted Living of Moorestown v. Moorestown Twp., 31 F. Supp. 2d 389, 397 (D.N.J. 1998) (quoting Nester v. O'Donnell, 301 N.J. Super. 198, 210, 693 A.2d 1214 (App.Div. 1997)) (additional citations omitted). A term of the contract is ambiguous if it is susceptible to two reasonable alternative interpretations. See Sumitomo Mach. Corp. v. Allied Signal, 81 F.3d 328, 332 (3d Cir. 1996); Biovail Corp., 49 F. Supp.2d at 754. To determine the existence of ambiguity, a court must "consider the contract language, the meanings suggested by counsel, and the extrinsic evidence offered in support of each interpretation." Biovail, 49 F. Supp. 2d at 754 (quotingTeamsters Indus. Emp. Welfare Fund v. Rolls-Royce Motor Cars, Inc., 989 F.2d 132, 135 (3d Cir. 1993)).
When a term is ambiguous, a court must determine the intent of the parties to ascertain the meaning of the contract. Id. (noting that courts should look to the structure of the contract, the bargaining history, and the conduct of the parties to understand the understanding of the contract's meaning); see also Caruso v. Ravenswood Developers, Inc., 337 N.J. Super. 499, 769 A.2d 979 (2001) (noting that courts are obligated to enforce contracts based on the intent of the parties, the express terms of the contract, and its underlying purpose).
B. Construction of the High-Low Agreement
Both parties agree that the issue before this court is one of contract interpretation. (Pl.'s Br. at 3; Def.'s Br. at 1.) The Court must initially determine whether the agreement contains an ambiguous term. As noted above, the disputed language reads as follows:
Should the above monies be paid, the Township of Gloucester will pay an additional $500,000 to the Phase II settlement, in the NJDEPE vs. GEMS case.
Pl.'s Br., Ex. 3. (INA v. Amadei "Stipulation of Partial Settlement").
The DEP argues that the language, taken in the context of the overall GEMS settlement agreement, means that DEP is owed the money in question. (Pl.'s Br. at 1, 4.) The Gems Phase II Trust, on the other hand, alleges that the words "Phase II settlement" shows the intention of the parties was that the GEMS Trust was to be the recipient. (Def.'s Ltr. Br. at 3.) It is clear to this Court that the sentence, on its face, can be read as meaning either of the two ways suggested by the parties. Thus, the term "pay . . . to the Phase II settlement" is patently ambiguous. As such, the Court is obligated to look to the intent of the parties in order to determine which entity was the intended recipient of the "high-low" proceeds.
The DEP puts forth several factors to support its position that the State, not the GEMS Phase II Trust, is entitled to the money in question. The factors the DEP puts forth to support its argument are specifically, (1) the exchange between the federal mediator and the parties before the Court on October 20, 1995; (2) the risk the DEP took when consented to the "high/low" agreement; (3) various writings and correspondence from other parties; and (4) that the ambiguous language in the agreement should be construed against its drafter.
In this case, the evidence of the parties' subjective intent appears sizable. Having considered the submission of the parties, it is the opinion of the Court that the intention of the parties was that the $500,000, later reduced to $400,000 plus interest, was to go to the NJDEP.
1. October 20, 1995 Memorialization
DEP's first argument is that the exchange between the federal mediator and the parties before the Court prior to the written execution of the agreement in question constitutes evidence that the intent of the parties was for DEP to receive the money from Aetna, as an enhancement of the Gloucester Township share, should Aetna lose the state case. (Pl.'s Br. at 4.) The Court will consider the colloquy in its determination of the intent of the parties, even though the DEP was not present, since courts are permitted to consider the relations of the parties, the attendant circumstances, and the objects they were trying to attain when determining the intent of the parties.See Assisted Living of Moorestown, 31 F. Supp. 2d at 397.
On October 20, 1995, the parties reached an acceptable settlement in INA v. Amadei. Because the INA case was so closely related to the GEMS litigation, the parties requested that their agreement be entered on the record before this Court in the present federal case prior to the agreement being memorialized in written form. (Oct. 20, 1995 Trans., p. 3, ln. 1-9.) Before the agreement was read into the record, the Court noted that "If anyone has any modification, then, of course, it should be made now." (Id. at 4, ln. 12-13.) Mediator Bergman then described the "high/low" agreement as follows:
In the event that Aetna loses the appeal from the trial court in the state action, the following will occur: Aetna will pay the sum of $500,000 to the New Jersey Department of Environmental Protection pursuant to a separate agreement to pay such sum, which agreement will be entered into in the near future in writing.Id. at 5, ln. 19-24 (emphasis added).
Even though he corrected Mr. Bergman moments earlier (see id. at 4, ln. 20-21) when he thought Mr. Bergman was not articulating the agreement properly, Robert Paschon, Esq., counsel for Gloucester Township, did not correct Mr. Bergman after this statement. See id. at 5-6. Additionally, no one else present corrected Mr. Bergman's summary of the agreement. See id.
This exchange between Mr. Bergman and Mr. Paschon was as follows:
MR. BERGMAN: The agreement between the parties is as follows: Aetna will make a payment in the amount of 1.65 million dollars in the case of NJDEP versus GEMS on behalf of the owner/operator group to the EPA.
MR. PASCHON: Excuse me, that is not correct, your Honor. Oct. 20, 1999 Trans. at 4, lines 16-21 (emphasis added).
Mr. Paschon is now a trustee of the GEMS Phase II Trust, (Paschon Aff. at 1), the defendant in this action who is also seeking access to the $400,000 at issue here.
Further, later in the conversation, Mr. Paschon himself refers to the DEP as the recipient of the Aetna funds. Specifically, Mr. Paschon states:
Mr. Bergman mentioned the 500,000 payable to NJDEPE. I would like to point out that that 500,000 is only payable to NJDEPE provided we get an agreement from the NJDEP — which I do not have — I only have a recommendation for the moment, to reduce the GEMS settlement, at least the town's portion of it by a quarter of a million dollars [$250,000], so that that would only be payable to them if that occurred. If it [the agreement from DEP] did not occur, then those moneys would be payable to the Township.Id. at 15, ln. 13-21 (emphasis added.)
Now, Mr. Paschon claims that when he said "NJDEPE" what he really meant was something else. In his affidavit responding to the State's motion, years after the original agreement, Mr. Paschon states:
I can only say to the Court that the reference to the NJDEPE was a generic reference to the settlement, rather than a specification of an additional payment to the NJDEPE outside the confines of the Trust.
(Paschon Aff. at ¶ 7.)
Mr. Paschon goes on to explain that the Court should not worry about allowing the Trust to retain the money because the DEP would receive the remainder of the $400,000 in question when the operation and management of the site comes under state control after the Trust completes its remediation obligations. See id.
Mr. Paschon further denies that the State reduced its settlement payment. See id. at ¶¶ 8-9. This assertion contradicts the position taken on October 20, 1995, when Mr. Paschon stated on the record that the DEP was to be the beneficiary of the "high/low" agreement only if it reduced its amount by $250,000. See Oct. 20, 1995 Trans. at 15, lines 13-21, quoted above.
Thus, the Court finds that the explanatory statement made closest to the agreement in October 1995 is the likely intent of the parties, not the statement made through Mr. Paschon's recollection five years later in an affidavit. Further, as the federal mediator, a neutral party, Mr. Bergman's statement on the record, in the presence of counsel for the parties, must be given considerable weight.
2. Risk Assumed by the DEP
The second argument advanced by the DEP and considered by the Court is that the DEP voluntarily agreed to reduce its payment under the settlement by $250,000, thus, assuming all of the risk that it would get nothing should Aetna have prevailed in the state courts. (Pl.'s Br. at 5; Pl.'s Ltr. at 2.) The Court is persuaded that the DEP did in fact assume this risk in reliance on its expectation that it would ultimately be paid $500,000 should Aetna fail to prevail in its appeal from Judge Davis' ruling in INA v. Amadei.
The settlement agreement, as negotiated, left a $250,000 shortfall. The "high/low" agreement required the DEP to undertake a gamble, for the sake of obtaining an agreement after a long settlement process. The DEP gave up $250,000 of the $30 million total settlement in the hope and belief that it would receive $500,000 later. However, the DEP realized, in agreeing to this arrangement, that it risked losing the $250,000 in its entirety. Both parties, though equally firm of conviction in their estimations of their chance for success, realized the element of risk for the DEP necessarily inherent in such an arrangement. Gloucester Township was also able to cap its exposure in the GEMS Phase II settlement because, if Aetna was successful in the declaratory judgment action, the DEP would not look to Gloucester Township to make up the difference. While the DEP faced the prospect of considerable loss, Aetna reaped "the benefit of this $250,000 swing . . ." (Pl.'s Ltr. Ex 2.) Thus, the Court agrees with the DEP that it assumed considerable risk arising from the agreement.
3. Correspondence from Other Parties
Third, DEP urges that correspondence from parties other than the DEP and the Trust, confirm that the intended recipient of the "high/low" agreement was the State. (Pl.'s Ltr. at 2.) After reviewing the correspondence, the Court accepts this argument since writings executed during the same time period and concerning the same subject matter are creditable evidence of the intent between the parties. Kroblin Refrigerated Xpress, Inc. v. Pitterich, 805 F.2d 96, 107 (3d Cir. 1986) ("It is a general rule of contract law that where two writings are executed at the same time and are intertwined by the same subject matter, they should be construed together and interpreted as a whole, each one contributing to the ascertainment of the true intent of the parties").
Specifically, the Court looks to two letters presented by the plaintiff. First, the DEP points to a July 18, 1996 letter written by Mr. Cellucci, the attorney for Aetna for these purposes. In this letter, written nine months after the signed agreement, Mr. Cellucci characterizes the "high/low" agreement as follows:
We [Aetna] agreed to pay $500,000 to the State based upon [Aetna's] appeal being successful, in lieu of paying $250,000 at the present time.
(Pl.'s Ltr., Ex. 2) (emphasis added).
Another letter, the State's July 23, 1996 response to Mr. Cellucci's letter, reiterates this understanding. (Pl.'s Ltr., Ex. 3) (noting that "the NJDEP requires Aetna to pay $500,000 to NJDEP" depending on the outcome of Aetna's state appeal).
It is important to note that in Mr. Paschon's affidavit he characterizes Mr. Cellucci's involvement as "instrumental in forgoing the [high/low] agreement." (Paschon Aff. at ¶ 4.) Thus, it is clear that Mr. Cellucci was closely involved with the brokering of the "high/low" agreement to understand the intent of the parties to it.
Second, the State offers an August 28, 1996 letter written by John F. Lynch, Jr., Esq. ("Mr. Lynch"), counsel for the generator group defendants. In this letter, written ten months after the written "high/low" agreement was executed, Mr. Lynch states that the settlement reduction amount of $250,000 was "[Gloucester] Township's contingent payment. . . ." (Pl.'s Ltr., Ex. 2.) Thus, as it was apparent to Mr. Cellucci, it was clear to Mr. Lynch, that the $250,000 was withheld from Gloucester's share of the settlement.
Here, we have two parties, neither of which have any claim to the money in question, writing that the DEP was the intended recipient. Further, the NJDEP had contemporaneously confirmed that it was to be the recipient of the Aetna payment. Again, these letters are evidence of the parties' intent since they were written closer to the signing of the settlement agreement. Further, these letters were written prior to the filing of this motion.
4. The Drafter of the High/Low Agreement
The DEP's final argument is that since the language in the "high/low" agreement was written by Mr. Paschon any ambiguity should be construed against his client, Gloucester Township. (Pl.'s Br. at 4-5.)
As the Trust correctly points out, the legal maxim that contracts are to be construed against the drafter is a rule of construction, not a rule of interpretation. (Def. Ltr. Br. at 4, n2. (citing John F. Harkins Co. v. Waldinger Corp., 796 F.2d 657 (3d Cir. 1986), cert denied, 479 U.S. 1059 (1987)).) It should be noted, however, that the Third Circuit has recognized that in circumstances where the intent of the parties cannot be determined by other factors, as a last resort a court may use rules of construction to interpret the contract. See Taylor v. Continental Group Change in Control Severance Pay Plan, 933 F.2d 1227, 1233 (3d Cir. 1991) (quoting Record Club of America, Inc. v. United Artists Records, Inc., 890 F.2d 1264, 1271 (2d Cir. 1989)) (additional citations omitted).
While it is undisputed that Mr. Paschon drafted the agreement in question, this Court finds that the intent of the parties can be determined without having to look to rules of construction as a "last resort" as suggested in Taylor. Thus, the drafter of the agreement is not a factor to the Court's determination of the intent of the parties. If it were, this consideration would likewise militate in favor of payment to the NJDEP rather than retention by the GEMS Phase II Trust.
See Oct. 20, 1999 Trans., p. 19, lines 10-11 ("Mr. Paschon: Your Honor, we'll draft the agreement."); Devine Certification at ¶ 5; Ex. 3, Nov. 14, 1995 letter from Guy Cellucci.
III. CONCLUSION
For the reasons explained above, this Court finds that Plaintiff's Motion in Aid of Litigant's Rights is hereby granted, and that the sum of $400,000 currently held in escrow by the GEMS Phase II Trust shall be paid, together with accrued interest, to the NJDEP. The accompanying Order is entered.
ORDER
THIS MATTER having come before the Court on Plaintiff the State of New Jersey, Department of Environmental Protection's motion in aid of litigant's rights; and the Court having considered the parties' submissions; and for good cause shown for reasons stated in the Opinion of today's date; IT IS this 21st day of June, 2006 herebyORDERED that Plaintiff's motion in aid of litigant's rights be, and hereby is, GRANTED ; and
IT IS FURTHER ORDERED that GEMS Phase II Trust pay Plaintiff $400,000 plus accrued interest within 20 days of the entry of this Order.