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New Supreme Court Decision Discourages Voluntary
Clean-Up Under CERCLA

By MICHAEL MAZZONE, JEFF CIVINS and JOHN ELDRIDGE

On December 13, the United States Supreme Court, in Cooper Industries, Inc. v. Aviall Services, Inc., issued an opinion that could significantly deter potentially responsible parties or PRPs (i.e., those liable under the Comprehensive Environmental Response, Compensa-tion and Liability Act or CERCLA) from voluntarily addressing contaminated sites. No. 02-1192, ___ U.S. ___, 125 S.Ct. 577, 2004 U.S. LEXIS 8271, 2004 WL 2847713 (Dec. 13, 2004).
Aviall voluntarily cleaned up a site that both it and its predecessor, Cooper, had contaminated. Aviall later sought reimbursement from Cooper under section 113 of CERCLA. Cooper asserted that Aviall’s contribution claim was statutorily precluded because Aviall had never been the subject of civil action to compel remediation or to obtain recovery for costs of that remediation. The Supreme Court agreed. Reversing an en banc court decision by the Fifth Circuit, the Supreme Court held that a PRP could not maintain a contribution action unless that PRP sought contribution during or after a Superfund action filed in federal court, or had resolved its liability to the state or federal government in an administrative or judicial settlement.
The decision of the Supreme Court was not inconsistent with the express language of the statute, but arguably the same could be said about the en banc court’s decision, which the Court reversed. By finding the statutory language to be “clear,” the Court avoided having to look at the purposes or legislative history of CERCLA. As a practical matter, in states like Texas that have their own Superfund statutes that allow contribution actions after a voluntary cleanup, PRPs can still obtain contribution. But in states that do not have comparable provisions, PRPs may be reluctant to voluntarily clean up a contaminated site, requiring EPA to invest resources in bringing federal claims to achieve cleanups that, before the Supreme Court’s decision, may well have been undertaken voluntarily.

Michael Mazzone is a member of the editorial board for The Houston Lawyer and a partner with the Houston office of Haynes and Boone, LLP. Jeff Civins and John Eldridge are partners in Haynes and Boone’s Austin office.

Fifth Circuit Considers Texas Law On Negligent Misrepresentation

By FRED A. SIMPSON

On In Compass Bank v. King, Griffin & Adamson P.C., 388 F.3d 504 (5th Cir. 2004), the Fifth Circuit affirmed a decision from the Dallas Division that interpreted Texas law as imposing liability for negligent misrepresentation only if the defendant actually knows a party will rely on the statement in question in an identified transaction. Because the defendant accounting firm had no such knowledge, summary judgment for the defense was appropriate.
The plaintiff (a bank claiming it loaned money based on financial statements prepared by the accountants) appealed on grounds that Texas law was undecided on the issue of whether an “actual knowledge” test should be used, or if there is also a “foreseeability requirement.” The bank asked the Fifth Circuit to certify the question to the Texas Supreme Court. The Fifth Circuit found sufficient Texas law and therefore refused certification as a “panacea” for resolving complex state law questions, relying on the logic of a recent case from the Dallas Court of Appeals and the “cogent and sound arguments of the district court” in this case.
Key to the decision is that Texas applies Restatement (Second) Section 552 to lawyers under the “actual knowledge” test and gives indications that Section 552 should be applied uniformly to all professionals, including ccountants.
The dissenting opinion by Justice DeMoss urged certification as “a preferable course of action to
our trying to make an Erie guess as to the question of state law involved.”

Fred A. Simpson is a litigation partner at Jackson Walker L.L.P. He is a member of the editorial board of The Houston Lawyer.

The Texas Supreme Court Holds that ‘Like Kind and Quality’
Can Include A More-Expensive-Than-Identical Replacement

By JAMES L. CORNELL

In Republic Underwriters Insurance Co. v. Mex-Tex, Inc., the Texas Supreme Court held that the phrase “like kind and quality” in an insurance policy can include a replacement that is more expensive than the identical, original part. No. 03-0662, 2004 Tex. LEXIS 1247, 2004 WL 2625017 (Tex. Nov. 19, 2004).
On May 25, 1999, Mex-Tex’s roof was damaged by a hail storm. Mex-Tex reported the damage to its insurance carrier, Republic Underwriters Insurance Company (“Republic”). While Republic was investigating the claim, Mex-Tex hired a contractor to replace the roof at a cost of $179,000. The replacement roof was different than the original roof in that it was affixed to the structure mechanically, not by ballast (gravel), as the original roof had been.
Republic initially offered $22,000 to repair what it thought was minimal damage, but when Mex-Tex rejected that offer, on August 20, 1999, Republic offered $145,460, an amount its expert had calculated would replace the roof with an identical new roof.
Mex-Tex originally returned the check, but eventually kept the check as a partial payment. Meanwhile, Mex-Tex sued Republic for breach of the policy and violation of the Prompt Payment of Claims Act under article 21.55 of the Texas Insurance Code. The trial court found that Republic had breached the policy and violated article 21.55, and calculated the 18 percent penalties on the full amount of the replacement cost, $179,000, allowing no credit to Republic for the offer of $145,460. The Amarillo Court of Appeals affirmed the judgment. 106 S.W.3d 174 (Tex. App.–Amarillo 2003).
The Texas Supreme Court reversed and remanded. Significantly, the Texas Supreme Court upheld the trial court’s finding that even though Republic had offered to pay for an identical roof, Republic nevertheless breached the policy by refusing to pay for the higher priced replacement roof that was mechanically attached. Under the policy, Republic had the option of replacing the roof with “like kind and quality” “of comparable material and quality.” The trial court found that “comparable” did not mean and was not limited to “identical.” In other words, the more expensive replacement roof was “comparable” and of “like kind and quality.” In interpreting this language, the Supreme Court held that the “plain language of the policy neither restricted nor required Republic to pay for the cost to replace the roof with an identical one.”
The Supreme Court also held that the penalty under article 21.55 should have been based on the difference between the amount that Republic offered to pay and the amount of the claim ultimately found by the trial court, not on the full amount claimed by Mex-Tex.
Finally, although the Supreme Court stated that a conditional offer to pay would not stop the assessment of penalties under article 21.55, in this case, the Court held that Republic’s offer was not conditional. After reviewing the evidence upon which the trial and appellate courts relied, the Supreme Court held that such evidence did not support the finding that the offer was conditional.

James L. Cornell is a partner at Cornell & Pardue. His practice includes insurance coverage and complex commercial litigation.

Texas Supreme Court Holds That Forum Selection Clauses Prevail

By FRED A. SIMPSON

In a recent per curiam decision, the Texas Supreme Court revisited the validity of forum selection clauses chosen by contracting parties, an issue the Court examined in a 5-4 panel opinion three months earlier. In re Automated Collection Techs., Inc., No. 03-0280, 2004 Tex. LEXIS 1250, 2004 WL 2754650 (Tex. Dec. 3, 2004); In re AIU Ins. Co., 148 S.W.3d 109 (Tex. 2004). In Automated Collection, the Court granted mandamus relief based on the parties’ forum selection clause, relief that the Dallas Court of Appeals refused to grant. See In re Automated Collection Techs., Inc., No. 05-03-0152-CV, 2003 WL 788845, 2003 Tex. App. LEXIS 1957 (Tex. App.–Dallas March 6, 2003, orig. proceeding). The earlier Supreme Court opinion – in a case of first impression – also granted mandamus relief. In re AIU Ins. Co., 148 S.W.3d 109 (Tex. 2004).
Assuming that the Court’s Automated Collection is ultimately released for publication, the Court will have left little doubt about whether contracting parties have the right to select the forum in which they wish to have disputes resolved. Based on the Court’s opinions, three rules emerge:

1. Enforcement by a court of forum-selection clauses is mandatory unless the party opposing enforcement clearly shows that enforcement would be unreasonable and unjust, or that the clause was invalid for such reasons as fraud or overreaching.

2. It is almost impossible for a party to waive the right to have forum selection clauses enforced by that party’s full-fledged participation in litigation before the party attempts to have such a clause enforced.

3. Failure of a trial court to enforce the forum selection clause of a valid contract is an abuse of discretion for which there is no adequate remedy by appeal.

Fred A. Simpson is a litigation partner at Jackson Walker L.L.P. Also, he is a member of the editorial board for The Houston Lawyer.

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