## Facts

- Keywell Corporation purchased a metals-recycling industrial facility from Vac Air Alloys Corporation in December 1987.
- Daniel C. Weinstein and Anthony Boscarino were Vac Air shareholders, officers, and directors and signed the asset purchase agreement.
- The purchase agreement contained environmental warranties, including that there had been no on-site disposal of hazardous substances requiring remediation under applicable law.
- The agreement limited breach-of-warranty claims against Vac Air’s officers/directors/shareholders to two years, while permitting a much longer period for similar claims against Vac Air itself.
- After closing, Keywell and Vac Air executed a separate release in favor of Vac Air’s management, including Weinstein and Boscarino, relinquishing claims arising under the purchase agreement.
- Approximately one year after the release, a grand jury investigation revealed groundwater contamination tied to hazardous waste disposal at the facility.
- Keywell entered into an arrangement with state environmental authorities to remediate the site and then sued Weinstein and Boscarino for cleanup costs under CERCLA and for state-law fraud based on alleged misrepresentations about environmental conditions.
- The district court granted summary judgment to defendants on the CERCLA and fraud claims; Keywell appealed.

## Issues

1. Whether the purchase agreement and subsequent release barred Keywell’s CERCLA cost-recovery and contribution claims against Weinstein and Boscarino by allocating the risk of cleanup liability to Keywell.
2. Whether Keywell’s fraud claims failed as a matter of law because Keywell could not reasonably rely on defendants’ environmental representations given Keywell’s due diligence and environmental audit.

## Decision

- The Second Circuit affirmed summary judgment dismissing the CERCLA claims.
- The court held that the transaction documents showed the parties contractually allocated the risk of CERCLA liability to Keywell and that the release unambiguously foreclosed Keywell’s statutory claims against defendants arising from the transaction.
- The Second Circuit reversed summary judgment dismissing the fraud claims.
- The court held that reasonable reliance was not resolved as a matter of law on this record because a jury could find that Keywell’s audit did not contradict defendants’ representations and that Keywell was not required to conduct additional testing in light of those assurances.
- The case was remanded for further proceedings on the fraud claims.

## Legal Principles

- Private parties may allocate, as between themselves, the ultimate burden of CERCLA response costs through contract, even though such agreements do not limit governmental enforcement against responsible parties.
- An unambiguous release tied to the transaction may bar CERCLA contribution or cost-recovery claims between contracting parties when the contract places environmental liability on one party.
- Under state-law fraud doctrines, reasonable reliance on affirmative representations is generally fact-dependent; undertaking some due diligence does not automatically make reliance unreasonable.
- Summary judgment on fraud is improper where evidence permits competing inferences about whether the plaintiff’s investigation revealed facts that clearly contradicted the alleged misrepresentations.

## Conclusion

The Second Circuit enforced contractual allocation and a release to bar the buyer’s CERCLA claims for remediation costs, but allowed the buyer’s fraud claims to proceed because a factfinder could conclude the buyer reasonably relied on the sellers’ environmental representations despite having conducted an environmental audit.


Keywell Corp. v. Weinstein, 33 F.3d 159 (2d Cir. 1994)