Petition for Writ of Certiorari — Livingstone v. Donahey
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93-425 I sep 13 wes
OF Five vr Int
Inu The
Supreme Court of the United States
* October Term, 1993 +
SEABOURN S. LIVINGSTONE,
Petitioner,
Vv.
RICHARD M. DONAHEY and PATRICIA A. DONAHEY,
Plaintiff/ Respondents,
and
HELEN L. BOGLE,
Third Party Plaintiff/ Respondent.
PETITION FOR WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
A oe
> AND APPENDIX <
RICHARD D. ROHR
Counsel of Record
BODMAN, LONGLEY & DAHLING
34th Floor, 100 Renaissance Center
Detroit, Michigan 48243
(313) 259-7777
Attorneys for Petitioner
Interstate Brief & Record Company, a division of North American Graphics, Inc.
1629 West Lafayette Boulevard, Detroit, MI 48216 (313) 962-6230
nd
i
QUESTIONS PRESENTED FOR REVIEW
MAY A PRIVATE PARTY, WHO BRINGS A CONTRIBUTION
ACTION TO RECOVER COSTS OF RESPONDING TO ENVIRON-
MENTAL CONTAMINATION UNDER SECTIONS 107(a) AND
113(f)(1) OF THE COMPREHENSIVE ENVIRONMENTAL
RESPONSE, COMPENSATION AND LIABILITY ACT, AS
AMENDED (“CERCLA”), 42 US.C. §§ 9607(a) AND 9613(f)(1),
RECOVER LITIGATION COSTS AND ATTORNEYS’ FEES AS PART
OF ITS RESPONSE COSTS?
MAY A CORPORATE SHAREHOLDER, WHO DID NOT PARTICI-
PATE IN, MANAGE OR CONTROL THE DAY TO DAY OPERA-
TIONS OF THE CORPORATION (INCLUDING ITS WASTE
DISPOSAL OPERATIONS), BE HELD LIABLE UNDER SECTION
107(a) OF CERCLA, 42 U.S.C. 9607(a), AS AN “OWNER” OR
“OPERATOR” OF A FACILITY LEASED TO THE CORPORATION ?
ii
PARTIES BELOW
The parties to the proceedings below are identified in
the caption of the case. Additional parties below include
defendants St. Clair Rubber Company and H. Gordon
Wood, an individual, neither of whom has joined in this
petition to the Court.
a ee ee ee ee EEE
iii
TABLE OF CONTENTS
Page
QUESTIONS PRESENTED FOR REVIEW ..........cccccccceceeeeeeees i
ise retcneintenevinesnanedenrstbiiee ii
SITIES BUI Socscvecevectevcesisnovescstesscsnscesecesesctores iv
OPINIONS AND ORDERS BELOW .0..00......c.cccccccccceceeseeeseeees |
SE TD ]
I eoniupenien 2
CONCISE STATEMENT OF THE CASE. ...........cccccccceceeeeseeees 2
a Re) od) et 3
ll. THE APPELLATE COURT DECISION .............0:cccccceceeeeess 6
ARGUMENT FOR GRANTING THE WRIT. ...0..0..0.0cccccccccee. 8
1. THE RECOVERY OF ATTORNEYS’ FEES AS RESPONSE
IE EID icccseceesecdsssincectoeveveovececvévecneeseveeee 9
ll. THE STANDARD FOR CERCLA LIABILITY OF A COR-
PORATE SHAREHOLDER FOR THE LIABILITY OF
I a ET a 13
A. The Sixth Circuit's Decision Is Not Sup-
ported by The Authorities On Which It
SN ETE SIRs RR Boe A Oe 14
B. The Sixth Circuit's Decision Conflicts With
Decisions Of Other Courts Of Appeals. ......... 16
C. The Sixth Circuit Decision Must Be Re-
versed On Policy Grounds As Well. ................ 17
1. The Donahey opinion provides no guid-
ance for district Courts. .........0...:cccccccceeeeeeee 17
2. The Sixth Circuit's decision is contrary
to settled principles of corporate law. ...... 19
EE SRE ESR A eee eee CeO 21
iv
Page(s)
APPENDIX:
OPINION - United States Court of Appeals for the
Sheree Civcuslt CRRBICI S FSGS) cvcececrecccscceencccevesessocesess A-1
JUDGMENT - United States Court of Appeals for the
Sixth Circuit (March 9, 1993) .....ccccssccccccrssscecssseseers A-12
ORDER [DENYING REHEARING] - United States Court
of Appeals for the Sixth Circuit (June 15, 1993) .. A-13
MEMORANDUM OPINION AND ORDER - United States
District Court, Eastern District of Michigan,
Southern Division (October 1, 1991) ..........0000000004- A-14
:
RELEVANT STATUTORY PROVISIONS ............::::0eceeeeeeeees A-58
:
OPINION IN KELLEY. ET AL. v. TISCORNIA. ET AL. -
United States District Court, Western District of
Michigan, Southern Division (April 24, 199.3) ..... A-63
OPINION IN FMC CORP, ET AL. v. AERO INDUSTRIES.
INC., ET AL. - United States Court of Appeals for
the Tenth Circuit (sly 9 199) .....ccccecccssccssesesroress A-81
TABLE OF AUTHORITIES
Cases:
Allied Towing Corp. v. Great Eastern Petroleum Corp..,
642 FSupp. 1339 (E.DiVa. 1986) ...............cccccceserccseseees 1]
Alyeska Pipeline Co. v. Wilderness Society, 421 US.
rk fe ES. eee 6, 9, 12, 13
Bolin v. Cessna Aircraft Co., 759 F Supp. 692 (D.Kan.
BE wcischinsciaapeiidhdehscmoacinbeiiapaainardlaaskiedibeniaiaaniieadenbeiin 7.1
Central Ill. Pub. Serv. v. Industrial Oil Tank, 730
Fe. BESS COIR. 19D) 2.00. .cccccesecgenrecersesccceserceses 13
em im tn eo Nt NE nt Nae ata i
Do edt
Page(s)
CPC Int'l, Inc. v. Aerojet-General Corp., 777 FSupp.
549 (W.D.Mich. 1991) oo. eeeeeeecctecesteeesrecesseeceeeeeteeees 16
Dedham Water Co., Inc., v. Cumberland Farms Dairy,
Inc., 972 F2d 453 (1st Cir. 1992) wee eeeeeeeees 10
Donahey v. Bogle, 987 F2d 1250 (6th Cir. 1993) ...... 1, 7,
8, 14
FMC Corp. v. AERO Ind., __ F2d __, 1993 WL 246442
COE is FED > Rbidivvccinccctinssnenidesiniscatbinioneancitititate 10, 11
Fallowfield Dev. Corp. v. Strunk, 766 FSupp. 335
CG. TED. sasoccmisicstiinbicicecbannichaigssiidsuptedinddaiidimmatenesinath 10
General Electric Co. v. Litton Industrial Automation Sys-
tems, Inc., 920 F2d 1415 (8th Cir. 1990) ... 8, 10, 11, 13
Jacksonville Elec. Auth. v. Eppinger & Russell Co.,
776 FSupp. 1542 (M.D.Fla. 1991)... eee 16, 17
John Boyd Co. v. Boston Gas Co., 775 FSupp. 435
SG SUED citislcetnaccnasdsniiacibciactedammsainasdishamunmsnieann 16
Juniper Dev. Group v. Kahn (In re Hemingway |
Transp., Inc.), 993 F2d 915 (1st Cir. 1993) 0.0.0.0... 10
Kelley v. Arco Industries Corp., 723 FSupp. 1214
Eee a are 15
Kelley v. Thomas Solvent Co., 727 FSupp. 1554 (W.D.
SOUR: MITE: cisebaisinincbicancianosbsibneapesaiaetalisdanameiieateemlaiatiady 15
Kelley v. Tiscornia, Case No. 5:90-CV-62 (W.D.Mich.,
GOCGEE, RATE ZS, TEGS) savissicsesrersinciaceccsscsananssecsperepers 18
Key Tronic Corp. v. United States, 984 F2d 1025 (9th
COE, TUE; saccabepesinedpuptiesaciodivescustacndabapmadidiensiiastaammundadaaiann 10
Klager v. Robert Meyer Co., 415 Mich. 402, 329 NW.2d
FEE MAMIE scinccowrcisinnwemsntounscstncrmseanivsanhaaadinaiaaimadaiatires 19
Levin Metals Corp. v. Parr-Richmond Terminal Co.,
781 FSupp. 1454 (N.DCal. 1991) oe eeeeeeeee 16
Page(s)
Mass. v. Blackstone Valley Elec. Co., 777 FSupp. 1036
GBR, TBGE) <ccreerevcecececcsstsnsntsuicnsnisciiventiiadiiotitianaiionse 16
Mesiti v. Microdot, Inc., 739 FSupp. 57 (D.N.H. 1990) .... 11
Mobay Corp. v. Allied-Signal, Inc., 761 FSupp. 345
CATES. SBGED . critinvstissininisriisinciiocssitacinitididaiiiteiditdgialinasineiin 16
New York v. SCA Services, Inc.,754 FSupp. 995 (S.D.
FE, BED sencecccctncnveciensssveceivicencepsicsinintelatsalaiaiiiets 1, 15
Nurad, Inc. v. William E. Hooper & Sons Co., 966 F2d
GST CGR CR TD cttcccicnesasctccissteecantenitiebanitliadianiinss 17
Regan v. Cherry Corp., 706 FSupp. 145 (D.R.1. 1989) ...... ll
Riverside Market Dev. Corp. v. Int'l Bldg. Products,
Inc., 931 F2d 327 (5th Cir. 1991), cert. den., River-
side Market Ltd. Partner v. Prescott, __ US. —, 112
S.Ct. 636, 116 L.Ed.2d 684 (1991) ....... eee 4, 16
Rockwell Int'l Corp. v. 1U Int'l Corp., 702 ESupp. 1384
CRREAEEE TD cccceeerecesmnepianscescspiicmitncniicaaiiiainaiibiiatadaae 16
Runyan v. McCrary, 427 US. 160, 96 S.Ct. 2586 (1976) .... 6,
9, 12, 13
Shapiro v. Alexanderson, 741 F. Supp. 472 (S.D.NY.
SETUP ccvniovcvcuveseniupinneisecusstiiediniamniecaenaitananiaantanitaliaabiae 8
Stanton Road Assoc. v. Lohrey Enterprises, 984 F.2d
BERD Cte. CO, TD cecnctesiveescccntennstnisensianaialoninns 10, 12
New York v. Shore Realty Corp., 759 F.2d 1032 (2d
COR, FE chtervisctervemsectssctidiataniniileaaas 4, 15, 16
T&E Industries, Inc. v. Safety Light Corp., 680 EFSupp.
GS CIF IUD. cvcniincensevetsiesnisemuttidasteiicamenaadliinies ll
U.S. v. Carolina Transformer, Inc., 739 FSupp. 1030
CEERI BOOED <etewcessssnmvisicnsnetcninhacascapiniaallabiitibinateenie 16
U.S. v. Conservation Chemical Co., 628 ESupp. 391
CRUE: IED ccincisnsniniosnecsssdiactenieeuusscuiabeienameamainiinans 4, 16
a ee Oe
————
vii
U.S. v. Hardage, 982 F.2d 1436 (10th Cir. 1992) .............. 10
U.S. v. Northeastern Pharmaceutical & Chemical Co.,
Inc., 810 F2d 726 (8th Cir. 1986) ............00.... 14, 16, 19
U.S. v. Northernaire Plating Co., 670 FSupp. 742 (W.D.
Mich. 1987), aff, U.S. v. RW. Meyer, Inc., 889 F2d
SEE Ce ee BI cetittidernitetnitasinitentninnicmenen i6
U.S. v. Wade, 577 F. Supp. 1326 (E.D.Pa. 1983) ............... 16
U.S. v. Ward, 618 F. Supp. 884 (E.D.N.C. 1985) «0.0.0... 15
Statutes:
ED siicetyeihilasiovnpuinennseinpistsomieitietisteiiicistinidion 1
ERLE Sa Cae ee I a ELT 2
Oe Re Rs I ai cennecccnccesvcsnsemcsonvecnensnnenatin 2
CERCLA § 107, 42 USC. 9607(a) ..........cececeeseeseeteeeees 2, 17
Ce Me Be BIE vcrrcevcececnsveesorsonssivnrvenmncenietecn 2
NA cil scinacsnsishiocssnnesedseteitoimesceccanebiinn 9
loo occ inecsindentassiansccvomvenrevabindiasscstonnnin 9
I sneer stscnutionnrenienioteuninuenentetaneth 10
re a dahecscticedeivinereicicniventuncabsicharsabemeaaah 5
I cals, ciettiinsascidiisiesmeniniianiesnealii 4,5
Oe I iditaintictsnenintiictnincissenistsinhianiindipinnctnnilonsin 5
iar iniiaseiesnteisnoedioseioeeeisnmiiniabheatineeuatini 10
Miscellaneous Authority:
Mason, Note, Contribution, Contribution Protection,
and Nonsettlor Liability Under CERCLA: Following
Laskin's Lead, 19 B.C.Env.Aff.L.Rev. 73, 88 (1991) .... 13
ee a ee ee
Sane TR RL ane ERE Palle Lo a 68 >
No.
Iu The
Supreme Court of the United States
*> October Cerm, 1993 «
—vew
SEABOURN §S. LIVINGSTONE,
Petitioner,
Vv.
RICHARD M. DONAHEY and PATRICIA A. DONAHEY,
Plaintiff/Respondents,
and
HELEN L. BOGLE,
Third Party Plaintiff/Respondent.
PETITION FOR WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
OPINIONS AND ORDERS BELOW
The opinion of the court of appeals is reported as
Donahey v. Bogle, 987 F.2d 1250 (6th Cir. 1993). A copy of
the opinion is included in the Appendix at A-1. The court
of appeals’ order, denying petitioner Livingstone’s petition
for rehearing with suggestion for rehearing en vanc, is in-
cluded in the Appendix at A-13. The court of appeals’ judg-
ment is included at A-12. A copy of the trial court's
memorandum opinion and order is included at A-14.
JURISDICTION
The jurisdiction of this Court is invoked pursuant to
28 USC. 1254(1) and 28 USC. 1651:
Ҥ 1254. Courts of appeals; certiorari; appeal;
certified questions
“Cases in the courts of appeals may be reviewed
by the Supreme Couri by the following methods:
2
“(1) By writ of certiorari granted upon the peti-
tion of any party to any civil or criminal
case before or after rendition of judgment
or decree; ...”
Ҥ 1651. Writs
“(a) The Supreme Court and all courts estab-
lished by Act of Congress may issue all
writs necessary or appropriate in aid of
their respective jurisdictions and agreeable
to the usages and principles of law.
“(b) An alternative writ or rule nisi may be issued
by a justice or judge of a court which has
jurisdiction.”
The court of appeals’ Order was issued on March 9, 1993.
That court denied a timely petition for rehearing with sug-
gestion for rehearing en banc on June 15, 1993, A-13, and
the mandate thereto issued on June 25, 1993, A-12.
STATUTES INVOLVED
The pertinent sections of CERCLA involved in this
appeal are § 101, 42 USC. 9601; § 107(a), 42 US.C. 9607(a);
and § 113(f), 42 US.C. 9613(f). Their texts are set forth
verbatim in the appendix at A-58-A-62.
CONCISE STATEMENT OF THE CASE
This case presents questions of (1) the appropriate
standard for imposing liability under CERCLA on a share-
holder of a corporation, and (2) whether a private liti-
gant, who is a liable party under CERCLA, may recover
attorneys’ fees it incurs in bringing a contribution
action against other potentially liable parties to recover
3
part of its response costs under CERCLA. CERCLA itself is
silent as to these questions, and its silence has resulted
in the proliferation of conflicting decisions at all levels
of the federal courts.
Only the Fourth and Sixth Circuits have decided that
mere ownership of corporate stock can serve as the basis
for liability under CERCLA. This has created a conflict
among the courts of appeals on this crucial issue. The
First, Second, Fifth, Eighth and Eleventh Circuits would re-
quire direct involvement of an officer, director or share-
holder in the corporation's waste management activities,
regardless of the number of shares owned, before liability
would be imposed.
The Sixth and Eighth Circuits would award attorneys’
fees to a private litigant seeking to recover response costs
under CERCLA. In contrast, the First, Ninth and Tenth
Circuits have followed this Court's rulings that attorneys’
fees are not recoverable unless specifically authorized by
the governing statute and therefore have denied attorneys’
fees to private litigants under CERCLA. Again, a conflict
now exists among the courts of appeals on a significant
issue under CERCLA, which this Court should resolve: \
I.
THE TRIAL COURT DECISION
In this action, plaintiffs/respondents Richard and
Patricia Donahey brought, inter alia, a contribution
action to recover costs they allegedly incurred in
responding to contamination on property they had pur-
chased from Helen Bogle. They sought these response
costs from Helen Bogle and, as well, from petitioner
Seabourn S. Livingstone, the sole shareholder and a
former director of the St. Clair Rubber Company, whose
operations were alleged to have caused the contamina-
4
tion. The Donaheys argued that Livingstone, individu-
ally, was the “owner or operator” of the facility, and
should therefore be held liable under 42 U.S.C. 9607
(a)(2). The costs the Donaheys sought to recover
included $53,000 spent “cleaning up” the site, and over
$279,000 in attorneys’ fees incurred primarily in liti-
gating their action under CERCLA.
CERCLA does not establish a standard for determining
the liability of a corporate shareholder, director or officer.
Riverside Market Dev. Corp. v. Int'l Bldg. Products, Inc.,
931 F2d 327, 330 (5th Cir. 1991), cert. denied, Riverside
Market Ltd. Partner v. Prescott, __ US. __, 112 S.Ct. 636,
116 L.Ed.2d 684 (1991). However, in deciding whether an
officer, director or shareholder of a corporation may be
held liable equally with the corporation as an “owner or
operator” of a facility, the trial court, Judge Zatkoff of
the Eastern District of Michigan, relied on New York v.
Shore Realty Corp., 759 F2d 1032 (2d Cir. 1985) and US.
v. Conservation Chemical Co., 628 FSupp. 391 (W.D.Mo.
1985), and stated:
“A stockholder, director, or officer may be per-
sonally liable under § 9607(a)(2) of CERCLA in sit-
uations where it is shown that the individual
personally participated in the wrongful conduct
of the corporation.” Judge Zatkoff's Memorandum
Opinion and Order, October 1, 1991, p. 28. A-39.
Following a full trial, Judge Zatkoff weighed all of the
testimony and other evidence, and specifically found
that Livingstone participated only in the financial
aspects of St. Clair Rubber Company. Day to day opera-
tions of the business were delegated to managers and
supervisors who did not need (nor ever obtain) Living-
stone’s approval to execute their tasks. As the court
found, there was no credible evidence (a) that Living-
stone personally participated in or directed the waste
5
disposal practices of St. Clair Rubber, or (b) that he per-
sonally arranged for the disposal of its waste products.
Id., at 28-29, A-39-A-40. The court ruled that Livingstone
was not liable as an “owner or operator” [under 42
U.S.C. 9607(a)(1) or (2)] or as one who arranged for the
disposal of St. Clair’s hazardous substances [under 42
U.S.C. 9607(a)(3) }.
“In this case, there is no credible evidence
that Livingstone personally participated in the
waste disposal practices of St. Clair. No witness
testified that Livingstone gave explicit or implicit
instructions to dispose of wastes in a specific
manner. The testimony at trial clearly indicated
that Livingstone personally participated in only
the financial aspects of St. Clair’s operations, and
that the day to day affairs, including waste dis-
posal practices, were handled by managers and
supervisors who did not need approval from
Livingstone to execute their duties. While it is
true that Livingstone had the authority to con-
trol waste disposal practices, he never exercised
such authority; it was delegated to others.
Livingstone is not liable under § 9607(a)(2).
“There is also no evidence that Livingstone
personally arranged for the disposal of St. Clair’s
industrial waste products. Former St. Clair
employees Nuss and Aldrich provided uncontro-
verted testimony that their participation as
employees in St. Clair’s waste disposal practices
on the property was not under the direction of
Livingstone. Both former employees testified
that managers and supervisors directed their
activities and that they had no reason to believe
that Livingstone was involved at all. Thus, Living-
stone is not liable under sec 9607(a)(3) as a
6
person who arranged for the treatment or dis-
posal of St. Clair’s waste materials.” Judge
Zatkoff’s Memorandum Opinion and Order,
October 1, 1991, pp 28-29, A-39-A-40. Footnote
omitted.
The trial court also ruled that attorneys’ fees
incurred in a private party's contribution action for
response costs were not recoverable as response costs.
In reaching this conclusion, the court relied on the
“American Rule”, which provides that in the absence of
explicit congressional authorization attorneys’ fees are
not recoverable costs, combined with the lack of any
statutory provision in CERCLA authorizing such
recovery. Memorandum Opinion and Order, October 1,
1990, p. 36, A-48. See, Runyan v. McCrary, 427 US. 160,
185, 96 S.Ct. 25856, 2602 (1976); Alyeska Pipeline Co. v.
Wilderness Society, 421 US. 240, 247, 95 S.Ct. 1612 (1975).
Il.
THE APPELLATE COURT DECISION
Richard Donahey appealed the triai court's decision
to the court of appeals for the Sixth Circuit. On March
9, 1993, the panel assigned to this action issued its
opinion reversing the trial court on both of the above
issues.
With regard to whether Livingstone personally was
liable as an owner or operator of the facility, the court
merely states that “Seabourn Livingstone [was] the sole
stockholder of all the stock of St. Clair Rubber Com-
pany.” /d., 987 F2d at 1252, A-2. The Court also noted the
district court’s finding that Livingstcne did not partici-
pate in the company’s day to day activities and that
Livingstone was unaware of the contamination the Com-
pany had created. /d. 987 F2d at 1254, A-7.
7
The Sixth Circuit used that lone fact (sole ownership
of stock) as a sufficient basis to hold Livingstone liable
personally, merely because he thereby had the same
authority as any other majority shareholder in a corpo-
ration, the ultimate power to exert his influence:
“* * * However, the [trial] court erred in con-
cluding that Seabourne Livingstone was not
liable as an owner under CERCLA. The evidence
clearly established that Livingstone had the
authority to prevent the contamination of the
property by Ais corporation; thus, as a matter of
law, Livingstone was a responsible party. Kelley
v. Thomas Solvent Co., 727 FSupp. 1532 (W.D.
Mich. 1989); New York v. Shore Realty Corp., 759
F.2d 1032, 1043 (2d Cir. 1985); U.S. v. Ward, 618
F.Supp. 884 (E.D.N.C. 1985); and U.S. v. North-
eastern Pharmaceutical & Chemical Co., 810 F2d
726 (8th Cir. 1986).”
Donahey v. Bogle, 987 F.2d 1250, 1254 (6th Cir. 1993),
(emphasis supplied), A-7.
Beyond the statement cited above, the court of
appeals did not analyze or discuss the appropriate
standard for holding a corporate shareho'der liable
under CERCLA. The opinion included no other discus-
sion of or findings of fact related to Livingstone’s lia-
bility. None of Judge Zatkoff’s factual findings were
modified or reversed in the court's opinion.
The court of appeals also reversed the trial court’s
finding that attorneys’ fees were not recoverable in a
private CERCLA action. While it acknowledged the trial
court's reasoning, the court of appeals ignored this
Court's teachings and the contrary authority of the
First, Ninth and Tenth Circuits. Instead, the court fol-
lowed the reasoning of Bolin v. Cessna Aircraft Co., 759 F
8
Supp. 692 (D. Kan. 1991), Shapiro v. Alexanderson, 741 F.
Supp. 472 (S.D.NY. 1990), and General Electric Co. v.
Litton Industrial Automation Systems, 920 F.2d 1415 (8th
Cir. 1990), cert. den., __ U.S. —, 111 S. Ct. 1390, 113
L.Ed.2d 446 (1991). In particular, the court found persua-
sive the Bolin court’s reasoning: that requiring private
parties to bear the financial burden of their cost
recovery suits would defeat CERCLA’s purpose of pro-
viding a powerful incentive for parties to expend their
own funds without waiting for the responsible persons
to take action. Donahey v. Bogle, 987 F.2d at 1256, A-10-
A-ll. The court of appeals reversed the trial court's
denial of attorneys’ fees, and remanded for determina-
tion of what constituted reasonable attorneys’ fees
recoverable under CERCLA in relation to plaintiffs’
degree of success in the litigation. /d.
The Donaheys, Bogle and Livingstone filed timely peti-
tions for rehearing with suggestion for rehearing en
banc, which were denied. The court of appeals’ judg-
ment, filed on March 9, 1993, was issued as mandate on
June 25, 1993.
This petition for writ of certiorari followed.
ARGUMENT FOR GRANTING THE WRIT
The Sixth Circuit’s decision would undermine the cor-
nerstone of corporate law — that a shareholder's per-
sonal liability is limited to the amount invested. The
First, Second, Fifth, Eighth and Eleventh Circuits all
have ruled that mere stock ownership is not enough.
Instead, to be liable personally under CERCLA a corpo-
rate shareholder must participate in the corporation's
waste handling or disposal activities. There is therefore
a conflict among the Circuits on this crucial issue,
which only this Court can resolve.
9
The Sixth Circuit's decision that attorneys’ fees are
recoverable under CERCLA without express congres-
sional authorization is in conflict with the decisions of
this Court. The Eighth Circuit also has ruled in this
fashion. In contrast, the First, Ninth and Tenth Circuits
have ruled, consistent with this Court’s precedent, that
attorneys fees are not recoverable. As a consequence, a
conflict exists among the courts of appeal on this issue
as well.
Both issues are of paramount importance because of
the vast numbers of CERCLA actions in which these
questions arise, the huge financial liability associated
with them, and the need for a uniform national treat-
ment of potentially responsible parties under the
statute. The sheer number of conflicting opinions
demonstrates both the importance of the issues them-
selves and the need for a clear statement from this
Court settling these questions.
THE RECOVERY OF ATTORNEYS’ FEES
AS RESPONSE COSTS UNDER CERCLA
The Sixth Circuit's decision that attorneys’ fees are
recoverable as response costs by a private litigant in a
CERCLA action is inconsistent with authority of this Court
that a party may not recover attorneys’ fees and costs of
litigation absent a specitic statutory authorization for
such recovery. Runyan v. McCrary, 427 U.S. 160, 185, 96
S.Ct. 2586, 2602 (1976); Alyeska Pipeline Co. v. Wilderness
Society, 421 US. 240, 262, 95 S.Ct. 1612 (1975). CERCLA does
not confer that right. CERCLA allows recovery only of a
private litigant’s costs of remedial actions and response.
However, the statute's definitions of “remedial action” and
“response”, see, 42 U.S.C. 9601(24), 9601(25), do not
include litigation by private parties. Therefore, attorneys’
fees are not authorized for recovery.
10
Congress was aware of the option to make attorneys’
fees recoverable. CERCLA specifically provides for
recovery of attorneys’ fees by the government in 42 U.S.C.
9604(b)(1). As well, CERCLA authorizes an attorney fee
award to private litigants under its narrowly crafted “cit-
izen’s suit” provisions. See, 42 U.S.C. 9659(f). Thus, when
Congress intended to create a right to recover the costs of
litigation, it did so explicitly. Although it had the opportu-
nity to provide for the recovery of attorneys’ fees by pri-
vate parties seeking contribution for response costs in the
extensive 1986 amendments to CERCLA, it did not do so.
The Sixth Circuit's decision is also in conflict with
several decisions by other circuit courts of appeals. See,
Juniper Dev. Group v. Kahn (In re Hemingway Transp.,
Inc.), 993 F.2d 915 (1st Cir. 1993) (litigation fees not
recoverable); Stanton Road Assoc. v. Lohrey Enterprises,
984 F2d 1015 (9th Cir. 1993) (CERCLA does not authorize
the recovery of litigation costs by private litigants); Key
Tronic Corp. v. United States, 984 F.2d 1025 (9th Cir.
1993), reh. sought (same); Dedham Water Co., Inc., Vv.
Cumberland Farms Dairy, Inc., 972 F2d 453 (1st Cir. 1992)
(litigation related expenses not recoverable as response
costs incurred by private parties under CERCLA section
107); FMC Corp. v. AERO Ind., —— F.2d —_, 1993 WL
246442 (10th Cir. 1993), attached at A-81 (private party
may not recover attorneys’ fees arising from litigation of
private recovery action); U.S. v. Hardage, 982 F.2d 1436
(10th Cir. 1992), reh. en banc den. (defensive litigation
costs not recoverable); contra, General Electric Co. v.
Litton Industrial Automation Systems, Inc., 920 F2d 1415
(8th Cir. 1990), cert.den., 111 S.Ct. 1390 (1991), (attorneys
fees recoverable as component of enforcement activities
associated with clean-up).!
| There are also numerous federal district court decisions on
both sides. See, e.g., Fallowfield Dev. Corp. v. Strunk, 766 F.Supp. 335
(concluded on page 11)
1]
yee
These courts based their decisions on the American
Rule as stated in this Court’s opinions cited above. As
stated by the Tenth Circuit in FMC Corp.:
ak.
“We simply cannot agree with those courts
that find an explicit authorization for the award
of litigation fees from the fact that response
costs include related enforcement activities. We
recognize that CERCLA is designed to encourage
private parties to assume the financial responsi-
bility of cleanup by allowing them to seek
recovery from others. It may be true that
awarding the litigation fees incurred in that
recovery would further this goal. Nonetheless,
the efficacy of an exception to the American Rule
is a policy decision to be made by Congress, not
; the courts. The desirability of a fee-shifting pro-
vision cannot substitute for the express autho-
rization mandated by the Supreme Court. See,
i Alyeska Pipeline Serv. Co. v. Wilderness Society,
421 US. 240, 263-264 (1975). Accordingly, we con-
clude that a private party may not recover attor-
neys fees arising from the litigation of a private
recovery action.” FMC Corp. v. AERO Ind., Inc., —
F.2d __, 1993 WL 246442,*5 (10th Cir. 1993), A-90.
The Ninth Circuit also criticized the approach taken by
the Eighth Circuit in General Elec. Co. v. Litton Indus. Auto-
mation Sys., Inc., 920 F.2d 1415 (8th Cir. 1990), cert den.,
US. —, 111 S.Ct. 1390 (1991), and followed in Donahey:
Sree ee ee)
(continued from page 10)
(E.D.Pa. 1991) (attorneys’ fees not recoverable response cost under
CERCLA); New York v. SCA Services, Inc., 754 F.Supp. 995 (S.D.N.Y.
1991) (same); Mesiti v. Microdot, Inc., 739 F.Supp. 57 (D.N.H. 1990)
(atiorneys’ fees not recoverable); Regan v. Cherry Corp., 706 F.Supp.
145 (D.R.I. 1989) (same); T&E Industries, Inc. vy. Safety Light Corp.,
680 F.Supp. 696 (D.N.J. 1988) (same); contra, Bolin v. Cessna Aircraft
Co., 759 F.Supp. 692 (D.Kan. 1991) (attorneys’ fees recoverable );
Allied Towing Corp. v. Great Eastern Petroleum Corp., 642 F.Supp. 1339
(E.DVa. 1986) (attorneys’ fees recoverable).
12
“The Eighth Circuit's reliance on the policy
underlying CERCLA to support its conclusion that
Congress must have intended that litigants may
recover attorneys’ fees in a private response
cost action is also misplaced. We cannot imply
authority to award attorneys’ fees because we
determine that such a rule would enhance public
policy.” Stanton Road, 984 F2d at 1020.
The court of appeals ignored Runyan, McCrary and the
decisions of the other courts of appeals, based solely
on the policy rationale that requiring private parties to
shoulder the financial burden of litigation would defeat
the purpose of providing private parties with a cause of
action for response costs. The court stated that
awarding attorneys’ fees would encourage private par-
ties to initiate cleanup of hazardous wastes without
waiting for the responsible parties to act. The same can
be said for any private cause of action created by
statute and does not obviate this Court's mandate that
such fees are recoverable only where authorized by
statute:
“* * * a court is not free to fashion drastic
new rules with respect to the allowance of attor-
neys’ fees to the prevailing party in federal litiga-
tion or to pick and choose among plaintiffs and
the statutes under which they sue and to award
fees in some cases but not in others, depending
upon the court's assessment of the importance
of the public policies involved in particular
cases.” Stanton Road, 984 F.2d at 1018. citing,
Alyeska, 421 US. at 269, 95 S.Ct. at 1627.
Even if its decision to rely on policy alone were per-
missible, however, the court of appeals ignored other
equally important, countervailing policy considerations
underlying the contribution provisions of CERCLA, such
nnn nein
o>
On BAM Bbw ete 4 th nh arte.
(et Ft es te
oo
13
as the encouragement of settlements. See, Central Jl.
Pub. Serv. v. Industrial Oil Tank, 730 FSupp. 1498, 1504
(W.D.Mo. 1990); Mason, Note, Contribution, Contribution
Protection, and Nonsettlor Liability Under CERCLA: Follow-
ing Laskin's Lead, 19 B.C.Env.Aff.L.Rev. 73, 88 (1991). The
prospect that they may recover their fees removes
much of the incentive for litigants to settle, thereby
delaying cleanup. Encouraging settlements preserves
parties’ and EPA’s resources which can then be
expended to achieve the real goal — cleanup.
The position that attorneys’ fees are recoverable as
enforcement costs is clearly a minority view articulated
by one other circuit court (in General Elec., supra) and
which the Sixth Circuit followed merely by citing to a
district court opinion without engaging in any reasoning
of its own. The majority view, adopted by the First,
Ninth and Tenth Circuits, follows the rule laid down in
Alyeska and McCrary and should be confirmed by this
Court in this case.
THE STANDARD FOR CERCLA LIABILITY OF A CORPORATE
SHAREHOLDER FOR THE LIABILITY OF
THE CORPORATION
In effect, the Sixth Circuit has held in this case that
the sole shareholder of a corporation is personally
liable for the corporation’s CERCLA liability, even though
he had no direct participation in, involvement in or
knowledge of the day to day operations of the business
other than financial matters. Mr. Livingstone had no
knowledge of or involvement in St. Clair Rubber’s dis-
posal practices. He invested his wealth in a limited lia-
bility venture, a corporation, and properly delegated its
operations to officers and managers hired to conduct
the business.
14
Mr. Livingstone’s CERCLA liability was based solely on
his stock ownership and the theoretical power to control
the corporation's disposal practices, whether exercised
or not, that stock ownership implied. This is the broadest
standard for CERCLA liability adopted by any federal court
to date. In so holding, the Sixth Circuit is in direct conflict
with decisions of other courts of appeals. More impor-
tantly, this decision tears apart the fabric of corporate
law in this country, without any legislative authorization.
A. The Sixth Circuit’s Decision Is Not Supported By
The Authorities On Which It Relies.
All of the cases cited in the opinion below require
more than mere authority or power to control the cor-
poration’s waste disposal practices to impose liability.
In U.S. v. Northeastern Pharmaceutical & Chemical Co.,
810 F2d 726 (8th Cir. 1986), for example, the Eighth Cir-
cuit held that a corporate officer could be held individ-
ually liable because he personally participated in
conduct that caused contamination. The court reiter-
ated that he was individually liable because he person-
ally arranged for the transportation and disposal of
hazardous substances on behalf of corporation and
thus actually participated in the acts that made the cor-
poration liable. Northeastern Pharmaceutical, at 744.?
2 In the same case, however, the Eighth Circuit held a sole
shareholder liable under the Resource Conservation and Recovery
Act, 42 U.S.C. 6973(a) et. seq., 7003(a), stating:
“* « * Unlike Lee, Michaels was not personally involved
in the actual decision to transport and dispose of the haz-
ardous substances. As NEPACCO's corporate president and
as a major NEPACCO shareholder, however, Michaels was
the individual in charge of and directly responsible for al!
of NEPACCO’s operations, including those at the Verona
plant, and he had the ultimate authority to control the dis-
posal of NEPACCO’s hazardous substances.” /d., at 745.
Based on this, Northeastern Pharmaceutical has been cited as authority
for the proposition that authority or power to control is a sufficient
basis for imposing CERCLA liability. See, e.g., Donahey, at 1254.
15
In New York v. Shore Realty Corp., 759 F2d 1032 (2d
Cir. 1985), the court specifically did not determine
whether an individual may be held liable personally
merely because he was a shareholder and officer of a
corporation “for it is beyond dispute that LeoGrande
specifically directs, sanctions, and actively participates
in Shore's maintenance of the nuisance.” Shore Realty, at
1052. The court pointed out that a corporate officer
who controls corporate conduct and thus is an active
participant in that conduct is liable for the torts of the
corporation.
In Kelley v. Thomas Solvent Co., 727 FSupp. 1554, 1561-
1562 (W.D.Mich. 1989); Kelley v. Arco Industries Corp., 723
FSupp. 1214, 1219-1220 (W.D.Mich. 1989), Judge Enslen
expressly stated that “it requires more than mere status
as a corporate officer or director” to impose liability
upon an individual. /d. Richard Thomas was the sole
shareholder of Thomas Solvent Company but was not
held to be liable for contamination resulting from the
company’s operations on motion for summary judg-
ment. Thomas Solvent, 727 FSupp. at 1545. Instead,
Judge Enslen fashioned a fact-intensive test which
imposes liability only if an individual (1) has the author-
ity as part of his job duties to control the corporation's
waste handling practices and (2) negligently or inten-
tionally fails to prevent unlawful hazardous waste dis-
posal. Judge Enslen’s standard, although broader than
that advocated by Mr. Livingstone, at least imposes lia-
bility as a function of all facts and circumstances of a
given case, rather than solely because an individual is
the major shareholder of a corporation. /d. See, also,
U.S. v. Ward, 618 F Supp. 884, 890-891, 895 (E.D.N.C. 1985)
(president, chief operating officer, director and majority
shareholder was personally liable because he personally
participated in securing waste disposal contract which
resulted in contamination).
16
B. The Sixth Circuit’s Decision Conflicts With Deci-
sions Of Other Courts Of Appeals.
The Sixth Circuit applied a standard of shareholder
liability which conflicts with the standards enunciated
by the First, Second, Fifth and Eighth Circuits. Each of
these courts requires that the person actually and per-
sonally participate in the corporation’s waste disposal
practices before liability will result. New York v. Shore
Realty Corp., 759 F.2d 1032 (2d Cir. 1985); Riverside
Market Dev. Corp. v. Int'l Bldg. Products, Inc., 931 F.2d 327
(5th Cir. 1991), cert. denied, Riverside market Ltd. Partner
v. Prescott, __ U.S. __, 112 S.Ct. 636, 116 L.Ed.2d 684
(1991); U.S. v. Northeastern Pharmaceutical & Chemical
Co., Inc., 810 F2d 726, 744 (8th Cir. 1986), cert. denied,
484 US. 848 (1987).*
In addition, the Eleventh Circuit held that the
trustees of Tufts College were not liable as operators of
a wood treatment facility owned by the college, stating
that to be an operator requires more than merely com-
plete ownership and the concomitant general authority
3 Likewise, numerous trial court decisions require personal par-
ticipation by a corporate officer, director or shareholder before lia-
bility will be imposed on such individuals under CERCLA. Mass. v.
Blackstone Valley Elec. Co., 777 F.Supp. 1036, 1039 (D.Mass. 1991);
Jacksonville Elec. Auth. v. Eppinger & Russell Co., 776 F.Supp. 1542,
1546-1548 (M.D. Fla. 1991); Levin Metals Corp. v. Parr-Richmond Ter-
minal Co., 781 F.Supp. 1454, 1457 (N.D.Cal. 1991); CPC Int1, Inc. v.
Aerojet-General Corp., 777 F.Supp. 549, 573 (W.D. Mich. 1991); Mobay
Corp. v. Allied-Signal, Inc., 761 F.Supp. 345, 353-354 (D.N.J. 1991);
John Boyd Co. v. Boston Gas Co., 775 F.Supp. 435 (D. Mass. 1991);
U.S. vy. Carolina Transformer, Inc., 739 F.Supp. 1030, 1036-37
(E.D.N.C. 1989); Rockwell Int'l Corp. v. 1U Int'l Corp., 702 F.Supp.
1384, 1390 (N.D.Il. 1988); U.S. v. Northernaire Plating Co., 670
F.Supp. 742, 747, (W.D. Mich. 1987), aff'd sub nom U.S. v. R. W.
Meyer, Inc., 889 F.2d 1497 (6th Cir. 1989), cert. denied, _ U.S. _,
110 S.Ct. 1527 (1990); U.S. v. Conservation Chemical Co., 628 F.Supp.
391, 419-20 (W.D.Mo. 1985); U.S. v. Wade, 577 F.Supp. 1326, 1341
(E.D.Pa. 1983).
4 Please see note 2, supra at p. I4.
or. ON ee ee ee en ete een no Te ey ee Re eal
a es PE Bi el aime Oc 4
17
or ability to control that comes with ownership. Jack-
sonville Elec. Authority v. Bermuth Corp., 996 F.2d 1107,
1110 (ilth Cir. 1993), citing, U.S. v. Kayser-Roth Corp., 910
F2d 24, 27 (ist Cir. 1990). It continued:
“CERCLA imposes cleanup liability on ‘any
person who at the time of disposal of any haz-
ardous substance ... operated any facility at
which such hazardous substances were disposed
of. 42 US.C. § 9607(a). * * * The plain language
of the statute leads to the conclusion that a
person is liable as an ‘operator’ when that
person actually supervises the activities of the
facility. That is, the person must play an active
role in the actual management of the enterprise.”
/d., at 1110. Emphasis in original.
The Circuits have split on this issue as well, however.
In Nurad, Inc. v. William E. Hooper & Sons Co., 966 F.2d
837, 842 (4th Cir. 1992) the court held that active partici-
pation in waste disposal practices was not required to
impose operator liability. Authority to control waste
practices sufficed, so that a party who possessed
authority to abate the damage but who declined actu-
ally to exercise that authority by undertaking cleanup
efforts is not absolved of CERCLA liability.®
C. The Sixth Circuit Decision Must Be Reversed On
Policy Grounds As Well.
1. THE DONAHEY OPINION PROVIDES NO GUIDANCE FOR
DISTRICT COURTS.
Not only is the Sixth Circuit's opinion in this case in
conflict with decisions in other courts of appeals, but it
5 Although the Nurad court stated this broad standard of lia-
bility, only the corporation was held liable. Two officers and share-
holders with theoretical power to control were held not liable
because their father dominated them.
18
also is unclear and provides no guidance for district
courts attempting to apply CERCLA in similar cases.
This is amply demonstrated by Kelley v. Tiscornia, Case
No. 5:90-CV-62, (W.D. Mich., decided, April 23, 1993).
There, the district court found itself unable to discern
any useful standard from Donahey:
“The cases cited by the court [in Donahey]
stand for differing principles. * * * The court's
citation to this incongruous line of cases pro-
vides no thread of reasoning through which this
court is able to discern the standard by which a
corporate officer is liable under CERCLA as an
operator.” Kelley v. Tiscornia, Memorandum
Opinion and Order, at p. 10, n. 8.
“* * * [T]his Court is unable to discern any
additional guidance from the holding in
Donahey * * *” Id., at p. 10., A-72.
As a result, the 7Jiscornia court refused to hold Lester
Tiscornia (the 83% shareholder) liable under CERCLA
even though he clearly had ultimate power to control
the corporation and its waste disposal practices, distin-
guishing Donahey on the ground that it involved a sole
shareholder as opposed to Tiscornia’s three share-
holders. The district court even went on to adopt the
“direct control or participation” standard for imposing
corporate shareholder liability, as did Judge Zatkoff at
the trial level in this case.
As evidenced by the number of decisions involving
this issue, it is essential that a clearly articulated stan-
dard for holding shareholders liable be enunciated by
this Court (1) to establish a legal rule for future guid-
ance and (2) to ensure the uniformity of decisions
within the federal courts. Clarification by this Court will
enable the federal courts to achieve uniformity and con-
tinuity among their decisions.
19
2. THE SIXTH CIRCUIT'S DECISION IS CONTRARY
TO SETTLED PRINCIPLES OF CORPORATE LAW.
The Sixth Circuit found only that Mr. Livingstone held
an investment in the shares of St. Clair Rubber Com-
pany. Based solely on the authority those shares con-
ferred (presumably to elect a board of directors, which
would appoint officers, who in turn would hire man-
agers and other employees), the court presumed Living-
stone could and should have acted as a watchdog to
insure that the corporate managers did their jobs and
no contamination occurred. Rather than being able to
rely on his managers and the limited liability nature of
his investment, Mr. Livingstone now faces the prospect
of paying personally for every mistake made by
everyone at the company.
Individuals who buy shares of stock in a corporation
do so with the knowledge that they put at risk their
investment in those shares, but nothing more. Klager v.
Robert Meyer Co., 415 Mich. 402, 411, 329 NW.2d 721
(1982). A shareholder is not liable for the acts, debts or
status of the corporation except in very rare circum-
stances (e.g., if standards for piercing the corporate veil
are met) or unless the individual has participated in the
acts giving rise to liability. U.S. v. Northeastern Pharma-
ceutical & Chemical Co., Inc., 810 F2d 726, 744 (8th Cir.
1986). It is the limited liability feature of corporate
stock ownership that leads to investment in new, finan-
cially risky businesses. The corporate form allows indi-
viduals to choose how much they are willing to gamble
in such enterprises. If investors in innovative enter-
prises had to bear personally the risk of failure, by pro-
viding a guarantee for the debts and liabilities of the
company, capital would be very difficult to attract.
The Sixth Circuit's decision flouts these settled princi-
ples of corporate law and the realities of the business
20
world. It penalizes those individuals who invest in entre-
preneurial or innovative small businesses who may hold
a controlling interest. Such an individual may run afoul
of the Sixth Circuit’s judgment and become liable for
huge CERCLA cleanup costs if the managers hired by the
company fail to do their jobs properly and cause envi-
ronmental contamination.
Moreover, practical considerations make the Sixth Cir-
cuit’s power-to-control standard for liability impossible
to evaluate and apply in a consistent fashion. A 100%
stock ownership may be necessary to have sufficient
power to control one corporation, whereas in another
51% or even 10% may be enough. Therefore, one would
be hard-pressed to predict what level of stock owner-
ship crosses the threshold from “limited liability” to
complete liability.
The Sixth Circuit’s premise appears to be that the
controlling shareholder can assure that ail environ-
mental hazards will be prevented, absolutely, by appro-
priate corporate safeguards. Even a sole shareholder
does not have the power to control every act by a cor-
porate employee to assure that environmental contami-
nation does not occur. If a mistake is made and
thousands of gallons of hazardous substances spill on
the ground, resulting in cleanup costs beyond the cor-
poration’s means, the damage could not be prevented. It
already would have been done. And, the liability by the
Sixth Circuit’s judgment would be absolute.
Nowhere does CERCLA state or even suggest that it is
intended to supplant the corporate law of Michigan and
the other states. Yet, that would be the effect if this
decision stands. As a policy matter, the courts should
not attempt such a wholesale change in the relationship
between federal and state law (and the resulting effect
on the regulated public) without a clear mandate to do
so from congress.
21
CONCLUSION
To resolve the conflicts among the courts of appeals
on these important issues, and to correct a decision
which construes CERCLA in a way which is inconsistent
with the plain language of the statute and prior deci-
sions of this Court, this Court should grant petitioner's
request for a writ of certiorari.
Respectfully submitted,
BODMAN, LONGLEY & DAHLING
By: /s/ RICHARD D. ROHR
Counsel of Record
and
FREDRICK J. DINDOFFER
HENRY N. CARNABY
LOUISE-ANNETTE MARCOTTY
For Defendant/Petitioner
Seabourn S. Livingstone
100 Renaissance Center, 34th Floor
Detroit, Michigan 48243
(313) 259-7777
Dated: September 9, 1993
A-l
APPENDIX TO PETITION FOR CERTIORARI
OPINION
(United States Court of Appeals — Sixth Circuit)
(Argued November 20, 1992; Decided March 9, 1993)
(Richard M. DONAHEY and PATRICIA A. DONAHEY, Plaintiffs-
Appellants, Cross-Appellees, v. Helen L. BOGLE,
Defendant-Appellee, Cross-Appellant, Seabourne [sic] S.
Livingstone; H. Gordon Wood; St. Clair Rubber Company, a
Michigan corporation, jointly and severally, Defendants-
Appellees — Nos. 92-1128, 92-1151)
Before: KEITH and JONES, Circuit Judges;
and ALLEN, Senior District Judge.*
CHARLES M. ALLEN, Senior District Judge.
The appeals and cross appeais of the parties arise
out of a judgment entered following a lengthy bench
trial and a 48-page Findings of Fact and Conclusions of
Law. The issues presented to the trial court and to this
Court involve the respective rights of the Donaheys and
Helen Bogle under Michigan land purchase law and the
rights and liabilities of all the parties under the Com-
prehensive Environmental Response Compensation and
Liability Act (hereinafter CERCLA), 42 U.S.C. § 9601 et seq.
The Donaheys appealed from the judgment of the
trial court holding that Richard Donahey was liable
under his land purchase contract to Helen Bogle. In
addition the Donaheys appealed from the judgment of
the trial court that their claims under CERCLA were
without merit and that they were not entitled to
* The Honorable Charles M. Allen, Senior United States District
Judge for the Western District of Kentucky, sitting by designation.
A-2
declaratory judgment relief for future cleanup of the
property purchased by the Donaheys. Heien Bogle
appeals from the judgment which held that she was a
“responsible party” under CERCLA and she contends
that she is entitled to a monetary judgment in excess of
that awarded by the trial court. Both Helen Bogle and
the Donaheys challenge the findings of the court that
Seabourne Livingstone was not a “responsible party”
under CERCLA.
In 1962, St. Clair Rubber Company rented Marysville.
Michigan property for a period of ten years. The lessor
was Helen Bogle, who is the sister of Seabourne Living-
stone, the sole stockholder of all the stock of St. Clair
Rubber Company. The property was again leased in
1972 for another ten year period.
St. Clair’s manufacturing processes left a waste
product that was combined with a solvent. This mixture
was drained into 55 gallon drums and designated as
sludge. In the early 1970s, St. Clair transported 12 to 20
barrels or drums of sludge to the property every six
months for disposal. After allowing the sludge to drain
from the barrels for approximately one week. the
employees returned to burn the sludge. Some time in
the 1970s, St. Clair stopped its dumping and burning at
the property.
In 1981, Bogle listed the property for sale. Donahey.
the majority stockholder of a manufacturing firm.
inspected the property and charted an area used as a
dump. His attorney sent a letter to Bogle expressing
concern over the presence of a “dump.” To allay con-
cern, St. Clair and Donahey entered into an “Agreement
to Clean Up Dump”, in which St. Clair promised to
remove any hazardous substances found on the prop-
erty and to restore the land to an environmentally satis-
factory condition. The agreement included St. Clair’s
A-3
promise to indemnify Donahey for costs resulting from.
St. Clair’s contamination of the land.
On the same day in 1982 on which Donahey and St.
Clair executed the clean up agreement, Donahey pur-
chased the property from Bogle for $115,000. Their con-
tract provided for a down payment of $28,750, with the
balance of the purchase price to be paid over a period
of ten years at 11% interest in monthly installments of
$980.31.
In 1985, following the publication of a newspaper
article revealing the existence of environmental contam-
ination at the site, the Michigan Department of Natural
Resources (hereinafter “MDNR”) sent letters designating
each party to this law suit a “potentially responsible
party. and requesting certain monitoring and clean-up
activities. In 1986, the Donaheys employed an environ-
mental consultant, Lawrence Halfen, to advise them
with respect to the contaminated property.
Dr. Halfen’s preliminary investigation found a number
of rusting and corroding barrels and non-hazardous
waste materials which posed no immediate threat to
the environment. After receiving authorization to pro-
ceed, he began work in August 1987, collecting and dis-
posing of these old barrels and other materials. He
removed approximately 350 cubic yards of material
from the site at a cost of approximately $28,000.
However, at the end of the third day of removing the
barrels and scraping the site, workers discovered five
pits that contained hazardous substances. Dr. Halfen
decided to address the problem on a temporary basis.
He removed the materials from the pits so that he could
assess their nature and volume. After draining the
lagoon, he consolidated the pit materials with contami-
nated and uncontaminated soils taken from other areas
at the site and placed the mixture in the lagoon basin.
A-4
He placed a cap over the mound of materials, erected a
snow fence around the area, and obstructed roadway
access to the site.
Dr. Halfen characterized his treatment of the materials
as a judgment call in the face of an immediate threat.
He did not seek the advice of the MDNR. He completed
his operations in late August 1987, and on September 1,
1987, he telephoned the MDNR representative to explain
what he had found and what he had done. The MDNR
never communicated to Donahey or to Dr. Halfen any
protests about the work that Dr. Halfen did.
Subsequently, Dr. Halfen proposed further clean up
measures at an estimated cost of $447,500. Unwilling to
undertake the cost of further clean up efforts, the Dona-
heys abandoned the property in 1990.
The Donaheys filed suit asserting statutory and
common law causes of action against Bogle, St. Clair
Rubber and Seabourne Livingstone. They sought to
rescind the purchase contract with Bogle, to recover
costs incurred in attempting to clean up the environ-
mental situation, and to recover attorneys fees of more
than $279,000 incurred in these proceedings. By coun-
terclaim, Ms. Bogle alleged a breach of the land pur-
chase contract and failure to pay the sums due under
that contract and she sought a judgment for the unpaid
amounts plus interest. In addition, she asked for a dec-
laration that she was not a covered party under
CERCLA, and that Livingstone, Mr. Donahey and Mrs.
Donahey were all covered parties.
The matter of rescission was first addressed on a
summary judgment motion by District Judge Harvey.
who found that the Donaheys were not entitled to
rescission. After trial, District Judge Zatkoff reiterated
that ruling, and made additional findings and conclu-
A-5
sions, including the following pertinent to these
appeals:
1.
to
VI
Mrs. Bogle was entitled to judgment for the
unpaid balance owing on the land purchase
contract plus interest on past due payments
at the rate of 11% per year from June 8, 1987
until March 14, 1989 (the date of filing of the
counterclaim), together with pre-judgment
interest from March 14, 1989 to the date of
the judgment and judgment interest after the
date of judgment.
Richard Donahey, Helen Bogle and St. Clair
Rubber were covered persons under 42 U.S.C.
§ 9601 et seq. with respect to the environ-
mental contamination at issue, but neither
Pat Donahey nor Livingstone were covered
persons.
None of the parties had incurred any recov-
erable response costs under CERCLA and the
Donaheys were not entitled to a declaration
of future liability pursuant to 42 USC.
§ 9613(g)(2).
Richard Donahey was required to accept title
to the property and if he failed to do so,
Mrs. Bogle was entitled to present the
judgment as deed of ownership to Richard
Donahey.
Mrs. Bogle had no cause of action against St.
Clair Rubber, Livingstone, and the Donaheys
under CERCLA.
Before reaching the question of who is responsible
for the cost of clean up, we must first dispose of the
argument of Donahey that he is entitled to rescind the
contract for the purchase of the land. He argues that
A-6
the environmental contaminants that he discovered
after the purchase contract was executed constituted
an encumbrance that prevented Bogle’s transferring
clear title to the property. The trial judge properly held
that an “encumbrance” is a mortgage or a mechanics
lien or tax lien or something of that nature that dimin-
ishes the value of the title to the property; environ-
mental contaminants may diminish the value of the
realty, but they do not constitute an encumbrance
because they do not affect title. Furthermore, the con-
tract between Donahey and St. Clair, by which St. Clair
agreed to clean up the environmental contamination
provided the trial court with ample evidence to support
the determination that Donahey knew before purchase
that there were environmental contaminants on the
property.
The trial judge was also correct in finding that
Donahey had breached the contract with Bogie. The
record clearly shows that as early as 1987 Donahey
stated that he would not make any further payments on
the real estate contract. This was anticipatory breach
under Michigan law. Jackson v. American Can Co., Inc.,
485 ESupp. 370 (W.D. Mich. 1980), and Brauer v. Hobbs,
151 Mich. App. 769, 391 NW.2d 482 (1986).
Bogle contends that the trial court erred in calcu-
lating interest on her monetary award and that she is
entitled to both statutory and contractual interest from
March 14, 1989 to the date of judgment. The only
Michigan authority cited on this point, McGraw v.
Parsons, 142 Mich.App. 22, 369 NW.2d 251 (1985), fully
supports Bogle’s position.
We turn next to the issues raised under CERCLA.
First, the trial court held that the Donaheys were not
entitled to recover any costs under CERCLA for the
actions which they took in an attempt to cleanup the
A-7
property. Secondly, it held that Richard Donahey, Bogle,
and St. Clair Rubber were responsible parties for the
contamination of the property under 42 U.S.C. § 9607 but
also held that Seabourne Livingstone was not liable as
an owner or operator because he did not actively par-
ticipate in the day-to-day activities of the corporation
and had no knowledge of the environmental contamina-
tion created by it. In addition Bogle appeals from the
findings that she was a responsible party as a former
owner of the property, and also appeals from the
court's findings that Patricia Donahey was not a covered
person under 42 USC. § 9607(a).
The trial court correctly found that Richard Donahey
and Helen Bogle and St. Clair were “responsible parties”
under 42 U.S.C. § 9607(a). However, the court erred in
concluding that Seabourne Livingstone was not liable as
an owner under CERCLA. The evidence clearly estab-
lished that Livingstone had the authority to prevent the
contamination of the property by his corporation: thus,
as a matter of law, Livingstone was a responsible party.
Kelley v. Thomas Solvent Co., 727 FSupp. 1532 (W.D.
Mich. 1989); New York v. Shore Realty Corp., 759 F.2d
1032, 1043 (2d Cir. 1985); US. v. Ward, 618 FSupp. 884
(E.D. N.C. 1985); and U.S. v. Northeastern Pharraceutical
& Chemical Co., 810 F2d 726 (8th Cir. 1986).
The trial court rejected the contention that Halfen’s
actions were a legitimate “judgment call.” and con-
cluded that the Donaheys were not entitled to recover
any of their costs incurred in the attempt to clean up
the property. In making that determination, the court
relied upon evidence that the substances discovered at
the property were hazardous wastes within the meaning
of Resource Conservation and Recovery Act (RCRA), 42
U.S.C. § 6903(5). Section 6903(5) defines hazardous
waste as a compound that may cause death or serious
A-8
permanent illness or pose a health risk when improp-
erly stored. ENVIRONMENTAL PROTECTION AGENCY regula-
tions define hazardous waste at 40 C.FR. 261.31, and
among the chemicals so designated are benzene,
toluene, and xylene, substances used in St. Clair’s
rubber manufacturing processes and in churn-washing
procedures at St. Clair. Halfen’s testimony corroborated
the Judge's finding with reference to hazardous wastes.
The trial court found that the Donaheys clean up
effort did not comply with RCRA regulations in that
Donahey failed to obtain an RCRA permit and failed to
conduct a detailed physical and chemical analysis of a
representative sample. See 40 CER. § 270.1(c)(1)(ii), and
40 C.ER. § 264.13. The court also found that the
Donaheys had failed to secure the site against
unknowing and unauthorized entry by persons or live-
stock, and based his finding on evidence that the
Donaheys had merely placed a snow fence around the
consolidated pile in the large lagoon. The court also
found that the Donaheys did not receive a permit or
permit waiver for their storage of hazardous waste.
The trial court further relied on evidence that the
Donaheys provided no drainage control, and that the
consolidation of the wastes in the large lagoon
increased the surface area of waste exposed to top soil
by 50%. The court also found that by relocating the
waste from the rubber pile to the large lagoon, Halfen
spread the contamination to a relatively untainted por-
tion of the property. Based on these factors, the trial
court held that the Donaheys’ actions did not facilitate
the goals underlying CERCLA nor did they in any way
improve the condition of the defiled property.
In order to recover tive costs incurred in employing
Halfen and attempting to improve the environmental
condition of their property, the Donaheys are required
a
A-9
to show that the property on which hazardous sub-
stances were contained was a facility under CERCLA’s
definition of that term, that the release or threatened
release of any hazardous substance from the facility
had occurred, that such release or threatened release
caused them to incur response costs that were neces-
sary and consistent with the National Contingency Plan
(NCP), and that defendant was one of the statutory
classes of persons subject to liability. 3550 Stevens
Creek Assoc. v. Barclays Bank, 915 F.2d 1355 (9th Cir.
1990). In applying these standards to this case, the trial
judge correctly held that an element of the Donaheys’
prima facie case was a showing that the response costs
incurred were consistent with or substantially in com-
pliance with the NCP.
The trial court's findings that the cleanup work
attempted by Halfen actually did more damage than
benefit is substantiated by the testimony of Hunt, an
expert witness, who stated that when Halfen consoli-
dated non-hazardous material with hazardous material
he contaminated the nonhazardous so that it would all
have to be treated as hazardous. That, in turn, would
make disposal much more complicated and expensive.
Hunt estimated that it would have cost $305,000 in 1987
to dispose of the 1200 yards of material mounded in the
lagoon, whereas it would have cost only $178,000 to dis-
pose of the 800 yards of material actually taken from
the pits. Additionally. Hunt testified that Halfen had
increased the health risks by creating an attractive nui-
sance and by necessitating repeated human contact
with the hazardous material.
Although consistency with the NCP is a necessary
element for recovery of remedial costs, it does not nec-
essarily follow that consistency with the NCP is
required for recovery of monitoring or investigative
a ee ie es -
A-10
costs. In Carlyle Piermont Corp. v. Federal Paper Board
Co., 742 FSupp. 814 (S.D. NY. 1990), the Court held that
such costs are recoverable without regard to compli-
ance with the NCP. See also Artesian Water Co. v. Gov-
ernment of New Castle County, 851 F.2d 643 (3rd Cir.
1988) (monitoring and impact evaluation costs recover-
able regardless of existence of other compensable
response costs). This Court believes the Carlyle Pier-
mont reasoning on the instant issue is sound, and we
will remand for award of the Donaheys’ initial investiga-
tion costs.
Plaintiffs appealed from the decision of the trial court
refusing to award them attorneys fees of $279,000. The
trial court's refusal rests primarily on the American
Rule, although he also points out that there is specific
statutory authorization for the government to recover
attorneys fees and no such specific authorization for
private parties. However, this Court prefers to follow the
reasoning of cases such as Bolin v. Cessna Aircraft Co.,
759 ESupp. 692 (D. Kan. 1991), Shapiro v. Alexanderson,
741 FSupp. 472 (S.D. NY. 1990), and General Electric Co.
v. Litton, 920 F.2d 1415 (8th Cir. 1990), cert. denied, ——
US. —, 111 S.Ct. 1390, 113 L.Ed.2d 446 (1991). The Bolin
opinion made the following persuasive statement:
By providing private parties with a federal cause
of action for the recovery of necessary expenses
in the cleanup of hazardous wastes, Congress
intended § 107 as a powerful incentive for these
parties to expend their own funds initially
without waiting for the responsible persons to
take action. [citations omitted]. The court can
conceive of no surer method to defeat this pur-
pose than to require private parties to shoulder
the financial burden of the very litigation that is
necessary to recover these costs.
A-11
759 FSupp. at 710.
In following cases cited immediately above, we recog-
nize that there are several cases to the contrary, such
as T & E Industries, Inc. v. Safety Light Corp., 680 FSupp
696 (D. N.J. 1988); Mesiti v. Microdot, Inc., 739 FSupp. 57
(D. N.H. 1990); Regan v. The Cherry Corporation, 706
FSupp. 145 (D. R.1. 1989).
We recognize that the Donaheys’ complaint included
ten causes of action, and that the only recovery they
have achieved is the very small amount awarded for
investigative costs. We remand to the district court the
question of amount of attorneys fees in tight of the
above observations.
In conclusion, the judgment of the trial court is
affirmed as to all aspects of the case except for the
following:
l. The judgment is reversed insofar as it does not
consider Seabourne Livingstone a responsible
party under CERCLA.
2. The judgment is vacated with respect to cost of
investigation, and the matter is remanded for
determination and award of these costs
3. The judgment is vacated with respect to the
interest recoverable by Helen Bogle. and the
matter is remanded for determination and award
of statutory and contractual interest from March
14, 1989 to the date of judgment in lieu of the pre-
judgment interest which the trial judge awarded
her for that period of time.
4. The judgment denying attorneys fees in toto is
vacated, and the matter remanded for determina-
tion of what constitutes reasonable attorneys fees
recoverable under CERCLA.
A-12
JUDGMENT
(United States Court of Appeals — Sixth Circuit)
(Filed March 9, 1993)
(RICHARD M. DONAHEY; PATRICIA A. DONAHEY, Plaintiffs-
Appellants/Cross-Appellees, v. HELEN L. BOGLE, Defendant-
Appellee/Cross-Appellant, SEABOURN S. LIVINGSTONE;
H. GORDON WOOD; ST. CLAIR RUBBER COMPANY, a Mich-
igan corporation, jointly and severally, Defendants-
Appellees — NOS: 92-1128: 92-1151; ON APPEAL from the
United States District Court for the Eastern District of
Michigan at Detroit.)
Before: Keith and Jones, Circuit Judges:
Allen, Senior District Judge.
THIS CAUSE was heard on the record from the district
court and was argued by counsel.
ON CONSIDERATION WHEREOF, it is ordered that the
judgment of the district court is affirmed in part,
reversed in part, vacated in part, and the case is
remanded for further proceedings in accordance with
the opinion.
ENTERED BY ORDER OF THE COURT
/s/ Leonard Green,
Clerk
Issued as Mandate: June 25, 1993
COSTS: None
(Certification Omitted)
A-13
ORDER
(United States Court of Appeals — Sixth Circuit)
(Filed June 15, 1992)
(RICHARD M. DONAHEY; PATRICIA A. DONAHEY, Plaintiffs-
Appellants/Cross-Appellees, v. HELEN L. BOGLE, Defendant-
Appellee/Cross-Appellant, SEABOURN S. LIVINGSTONE;
H. GORDON WOOD; ST. CLAIR RUBBER COMPANY, Defendants-
Appellees — Nos. 92-1128/1151)
BEFORE: KEITH and JONES, Circuit Judges;
ALLEN, Senior United States District Judge.
The court having received a petition for rehearing en
banc, and the petition having been circulated not only
to the original panel members but also to all other
active judges of this court, and less than a majority of
the judges having favored the suggestion, the petition
for rehearing has been referred to the original hearing
panel.
The panel has further reviewed the petition for
rehearing and concludes that the issues raised in the
petition were fully considered upon the original submis-
sion and decision of the case. Accordingly, the petition
is denied.
ENTERED BY ORDER OF THE COURT
/s/ Leonard Green,
Clerk
(Certification Omitted)
* Hon. Charles M. Allen sitting by designation from the Western
District of Kentucky.
A-14 \
MEMORANDUM OPINION AND ORDER
(United States District Court —
Eastern District of Michigan —
Southern Division)
(Dated October 1, 1991)
(RICHARD M. DONAHEY AND PATRICIA A. DONAHEY,
Plaintiffs, vs. HELEN L. BOGLE, Defendant and Counter-
Plaintiff, and SEABOURN S. LIVINGSTONE, H. GORDON WOOD
AND ST. CLAIR RUBBER COMPANY, a Michigan Corpora-
tion, jointly and severally, Defendants — CASE NO. 87-CV-
74771; HON. LAWRENCE P. ZATKOFF)
AT A SESSION of said Court, held in the United States
Courthouse, in the City of Detroit, State of Michigan,
on the Ist day of October, 1991.
PRESENT: THE HONORABLE LAWRENCE P. ZATKOFF,
UNITED STATES DISTRICT JUDGE.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
INTRODUCTION
This matter is before the Court on plaintiffs’ civil
action under the Comprehensive Environmental
Response Compensation and Liability Act (“CERCLA”),
42 USC. §§ 9601 et seg. to recover costs expended in an
alleged clean-up of environmentally contaminated realty.
Defendant Helen Bogle filed a counterclaim against
plaintiffs for contribution and filed crossclaims against
the other defendants for contribution. A bench trial was
conducted from May 2 to May 15, 1991, excluding week-
ends. Upon the Court’s request, each party filed post-
trial proposed findings of fact and conclusions of law
and supplemental briefs on select legal and factual
issues raised at trial. Pursuant to Rule 52(a) of the Fed-
eral Rules of Civil Procedure, the Court herein formal-
A-15
izes the findings of fact and conclusions of law as ear-
lier set forth on the record.
JURISDICTION
Jurisdiction is predicated upon §§ 1331 and 1367 of
Title 28, United States Code.
FINDINGS OF FACT
Based upon the record established in this case and
upon proofs presented to the Court at trial, the Court
makes the following findings of fact:
The property that is the subject of this civil action is
located at 2408 Wills, in the City of Marysville, St. Clair
County, Michigan. Such property shall hereinafter be
referred to as “the property.” The property is near the
St. Clair River.
The City of Marysville draws its drinking water from
the St. Clair River. The surface water intake is located
one and one half miles upstream from the property.
Approximately 3000 people in the area use private wells
for their drinking water supplies. The geology of the
area is characterized by a ninety foot thick layer of clay
overlying a glacial sand and gravel aquifer from which
private wells draw. The property is also near a wetland.
The property can be viewed from Carlton Street, which
is west of Wills.
Numerous rusted, corroded drums and rubber piles
are present on the property.
In 1942, the Dow Chemical Company first developed
the property for industrial production. In 1959, H.
Scherer & Company acquired title to the property from
Fort Diecasting Company.
A-16
Defendant-Helen Bogle! and Seabourn S. Livingstone
are siblings. Their grandfather founded St. Clair Rubber
Company, which their father, Seabourn R. Livingstone,
subsequently came to own and operate. During his own-
ership of the company, Seabourn R. Livingstone acted
as president and chief executive officer.
On August 16, 1961, Seabourn R. Livingstone died.
Shortly thereafter, his son, defendant-Seabourn S.
Livingstone, acquired all of the outstanding stock of St.
Clair Rubber Company.
Defendant St. Clair Rubber Company (“St. Clair”) began
operating a rubber manufacturing facility in the mid
1950s at the Will Street property.
On October 31, 1962, defendant Helen L. Bogle
(“Bogle”) acquired title to the property as part of a dis-
tribution of assets from H. Scherer & Company, a tamily
holding company.
On October 31, 1962, St. Clair Rubber Company leased
the property from Helen Bogle (“Howard” at the time)
for a term of ten years. The parties subsequently
renewed the lease for a period of ten years, thereby cre-
ating a continuous landlord-tenant relationship for a
twenty year period. St. Clair Rubber’s regular monthly
rent payments to Bogle terminated in 1979.
Throughout the time period relevant to this case, St.
Clair Rubber operated three industrial facilities: (1) the
“main plant” located on Michigan Avenue in Marysville,
Michigan, (2) the “adhesives plant” located on Mill
Street in Marysville, Michigan, and (3) the Will Street
“tank plant” (also known as the “poly plant”) located on
the property that is the subject of this case.
1 Helen Bogle has also had the last names “Howard” and
“Spender.”
A-17
St. Clair’s manufacturing processes utilized various
organic compounds, including aromatic compounds
such as, but not limited to, methyl-ethyl-ketone (“MEK”),
benzene, xylene, hexane, toluene and various other
compounds such as resins and rubber raw materials.
From October 31, 1962 to January 6, 1982, as landlord,
Bogle never personally inspected nor caused anyone on
her behalf to visit or inspect the property, despite
having retained the right to conduct inspections under
both leases.
One of St. Clair’s manufacturing processes involved
the blending of resins, solvents (for example, MEK,
toluene. benzene, and other aromatic organic sub-
stances) and other raw materials to produce various
rubber products and adhesives. These materials were
blended in large industrial churns. This blending process
was originally performed in a churn room located at the
main plant. However, the churn room was subsequently
relocated to the adhesives plant at Mill Street.
The blending process left a waste product on the
churns that St. Clair removed by treating the churns
with additional solvent. The waste product combined
with the additional solvent, and the resulting “sludge”
was drained off into 55 gallon drums. The drums con-
taining the sludge were marked to indicate the type of
washing solvent used and the fact that they were waste
products. The sludge stored in the drums was multi-
colored — green, black, red, orange and yellow.
In 1955 at the main plant, 55 gallon drums of sludge
were emptied on to flat ground on a large site and their
contents were burned as a method of disposal. The city
of Marysville subsequently prohibited St. Clair from dis-
posing of its waste products by burning it on the open
ground at the main plant.
A-18
The sludge was routinely submitted for reclamation.
However, reclamation stopped, and St. Clair began dis-
posing of its waste products in the early 1970s.
In the early 1970s, at the subject property, St. Clair
created a pond measuring 60 feet in length, 60 feet in
width and 2 feet in depth. The pond was located west
of the only building located on the property — between
the building and the power lines.
Typically, St. Clair employees transported 12 to 20
barrels or drums of sludge from the adhesive plant to
the property every six month{[s] for disposal. The
employees allowed the sludge to drain from the barrels
for approximately one week, after which they returned
to burn the sludge. At the behest of the City of
Marysville, St. Clair stopped its dumping and burning at
the property in the 1970s.
In 1981, Bogle listed the property for sale. Craig
Mercier (“Mercier”) was Bogle’s agent. In the fall of 1981,
Craig Mercier (“Mercier”), then a salesperson with
Schostak Bros. & Co., Inc., visited the property in order
to calculate a sale price. To this end, Mercier inspected
the building, but not the western portion of the prop-
erty where the dumping and burying of hazardous
wastes occurred.
In the fall of 1981, Richard Donahey expressed an
interest in purchasing the property. Richard Donahey is
the majority stockholder in a closely held corporation,
United Brass Works, Inc., which owns a subsidiary,
Daca, Inc. His interest in the property arose out of its
close proximity to Daca manufacturing facilities.
Richard Donahey inspected the property, and based
on his inspection, charted an area on the property used
as a dump.
sey ee
A-19
In the fall of 1981, Richard Donahey was familiar with
the risk of environmental liability posed by the mainte-
nance and use of industrial realty. This knowledge
stemmed from his liability for polychlorinated butyl
(“PCB”) contamination on Daca, Inc. land that was
acquired by United Brass Manufacturing, Inc.
On December 11, 1981, Edward Schulte, acting as
Richard Donahey’s attorney, sent a letter to Bogle
expressing concern over the presence of a “dump” on
the property.
To allay Richard Donahey’s concern over the environ-
mental condition of the property, St. Clair, the former
tenant of the property, entered into an “Agreement to
Clean Up Dump” (“the agreement” — trial exhibit 6)
with Richard Donahey. which was executed on January
6, 1982. the same day that Richard Donahey would even-
tually execute a land contract with Bogle. In the agree-
ment, St. Clair Rubber promised to remove any
hazardous substances found on the property and to
restore the land to an environmentally satisfactory con-
dition. Additionally, the agreement includes St. Clair
Rubber’s promise to indemnify Donahey for costs
resulting from St. Clair Rubber’s defilement of the land.
Before he purchased the property, Richard Donahey
knew that the land may have been environmentally
defective, may have presented federal environmental
violations, and had the potential of spawning a lawsuit.
Richard Donahey also knew that the property had been
used as an industrial dump. As indicated by the evi-
dence introduced at trial, particularly but not limited to
the “agreement to clean up dump,” despite Richard
Donahey’s understanding that his knowledge of
the environmental condition of the property was limi-
ted, he executed the land contract for the sale of the
property.
A-20)
Mercier was aware that the Donaheys learned of the
dump after the purchase agreement was executed on
November 10, 1981.
On January 6, 1982, Richard Donahey purchased the
property from Bogle on a land contract.? The purchase
price for the property was $115,000, with $28,750 paid
down, and the balance of the purchase price at 11%
interest to be paid in monthly installments of not less
than $980.31.
From 1962 to 1982, defendant-Seabourn S. Livingstone
was the sole shareholder, chairman of the board of
directors, and treasurer of St. Clair Rubber Company.
St. Clair’s Michigan Annual Reports for Profit Corpora-
tions for the period spanning 1979-1983 repeatediy and
consistently indicate that its term of existence was to
expire on March 18, 1983. In the early 1980s, St. Clair
Rubber dissolved and ceased to exist as a Corporation.
Former employees of St. Clair provided the Michigan
Department of Natural Resources (“MDNR”) with
detailed accounts of St. Clair’s waste disposal practices.
A December 1985 newspaper article publicly revealed
the existence of environmental contamination on the
property for the first time. Boyle and Richard Donahey
learned of the article shortly after it was published.
Soon thereafter, the MDNR sent each party to this
suit a letter designating each as a potentially respon-
sible party, and requesting the performance of certain
monitoring and clean-up activities.
In the spring of 1986, the Donaheys hired an environ-
mental consultant, Lawrence Halfen, to supply technical
2 Richard Donahey deeded the property to himself and his wife.
Patricia Donahey, cn January 28, 1982. On September 7. 1988, Richard
and Patricia Donahey deeded the property to Richard Donahey.
——— a ”
A-21
assistance in determining their course of action. At all
times relevant hereto, Halfen acted as agent of and on
behalf of the Donaheys.
Halfen met Richard Donahey on the property in June
of 1986 to inspect, survey and photograph the land. The
photos painted a picture of a piece of land that was
clearly used as an industrial dump site: corroded
drums, hardened rubber-like deposits and surface
lagoons dotted the landscape. Halfen also collected
samples of water from the western portion of the large
lagoon, rubber samples from the small rubber pile
within the fenced area, and rubber samples from the
large rubber pile outside the fenced area. Halfen also
noted the small and large rubber piles that were inside
and outside the fenced area, respectively.
Based on the totality of the circumstances — the
appearance of the drums and barrels, the hardened
rubber deposits on the surface that Halfen believed to
have once contained solvents, and the test results
obtained by environmental! officials — the Court con-
cludes that a “release” of solvents occurred before
Richard Donahey purchased the property.
In August, 1986, the EPA and MDNR authorized
Ecology and Environment. Inc. (“EE”)? to test soil sam-
ples from the property. Halfen met EE employees on the
property and accompanied them in order to obtain split
samples.’ EE took five split samples that day. EE per-
formed inorganic and organic analyses on the samples.
The test results appeared in a Field Investigation Team
Report (“FIT Report”), the results of which were pro-
3 Ecology and Environment, Inc. is a private corporation that
contracts with EPA and MDNR to provide testing services.
4 To achieve “split samples,” a sample is literally split into two
portions so that the test results obtained from one sample can be
verified by running an independent analysis on the other sample.
A-22
vided to the Donaheys’ attorney at that time, David
Maurer, and Halfen.
On August 3, 1987, plaintiffs notified Bogle that all
future payments on the land contract would be placed
in escrow.
Plaintiffs have failed or refused to pay any monthly
installments due under the land contract since July,
1987, inclusive.
The belief that a release had occurred, the FIT
Report, and pressure from the MDNR compelled Halfen
to recommend that the visible surface contamination be
transported to and disposed of in a landfill, and that
the surface lagoons be drained and filled. In this
respect, Halfen prepared a proposal for the Donaheys’
review. Halfen’s proposal included plans for collecting
the surficial rubber deposits and trash, securing a
license for disposal, loading and transporting the mate-
rial to a landfill, and restoring the topography of the
site. The approximate cost of the surficial clean-up was
$ 30,000-35,000.
After reviewing Halfen’s proposai to remove barrels
and wastes on the surface of the property, the Dona-
heys decided to permit Halfen to perform a “surficial”
clean-up of the western portion of the property. On
behalf of the Donaheys, attorney Maurer instructed
Halfen to execute the proposed clean-up. As part of the
clean-up, Halfen planned to fill two lagoons that were on
the property. The larger lagoon measured about 100 feet
in length by 40 feet in width, by 5 feet in depth. The
smaller lagoon was approximately the same depth and
measured 27 feet long and 22 feet wide.
Halfen was on the property from August 24, 1987 to
August 28, 1987.
A-23
Halfen first removed the wire fence that partially sur-
rounded the dump site, some fibrous drums, rubber
deposits, the small rubber pile, and part of the large
rubber pile, totalling 350 cubic yards of hazardous
materials. The materials, tainted by the hazardous
wastes, were sent to landfills for disposal.
While directing a backhoe in the surficial clean-up
effort, Halfen noticed a swath of gelatinous material —
about six to twelve inches wide, six to eight feet long,
and six inches deep — along the backhoe's tire track.
Halfen also heard complaints from the machine oper-
ator that the ground was less than stable and was not
adequately supporting the great weight of the backhoe.
Halfen grew suspicious and probed the nearby ground
with a six foot metal rod. The rod easily penetrated the
ground, and when extracted, bore the distinctive and
strong odor of solvents and aromatic organic com-
pounds. Halfen decided to explore the region around
the area of exposure and instability by digging with the
backhoe and, in doing so, discovered buried “pits”
ranging from six to ten feet deep. These pits contained
corroded drums and large quantities of multi-colored,
gelatinous material composed of solvents and aromatic
organic compounds of the type used by St. Clair in its
manufacturing processes. The western boundary of the
pit area was ten feet from the eastern border of the
large lagoon.
Halfen’s actions resulted in the discovery of five
buried pits. These pits were separate and distinct from
the large and small lagoons situated on the surface of
the property, although the small lagoon did sit over
part of the pit area. Together, the five pits contained
800 cubic yards of hazardous material.
At that point, the property presented Halfen with five
pits encasing gelatinous material containing solvents
A-24
and aromatic organic compounds, two lagoons, and part
of the large rubber pile.
After consulting with and receiving the approval of
the Donaheys, Halfen decided to excavate the pits and
place their contents in the large lagoon. To achieve this
result, Halfen drained the large lagoon of its water and
packed rubber deposits from the large rubber pile
around the perimeter of the large (and drained) lagoon.
Halfen used the backhoe to transfer the contents of the
pits into the large lagoon. Clean fill dirt was then used
to fill the pit area, and pit area was restored to an even
grade.
According to Halfen, the consolidation effort stemmed
from his concern for site safety and containment prob-
lems caused by the discovery and exposure of the
underground pits. Specifically, Halfen worried about
water run-off, fire threat, and the presence of an attrac-
tive nuisance.
At least two surficial locations on the property evi-
denced solvent contamination: the bottom of the large
lagoon was dotted with rubber deposits that had the
distinct odor of solvents, and the southern half of the
large rubber pile had a definite solvent odor.
The consolidated waste pile, not including cover
materials, in the large lagoon totalled 1200 cubic yards.
To this was added soil from the large rubber pile area.
A black plastic tarp was used to cover the entire
mound, and clean fill was placed over the tarp to keep
it in place. Halfen erected a snow fence bearing “haz-
ardous waste” warning stickers around the entire pile.
The total volume of the consolidated waste pile —
including the dirt from the large rubber pile, the clean
fill, and the tarp — is 1600 cubic yards, and the consoli-
dated waste pile (and all of its augmentations) rises
three feet above grade.
A-25
Despite the additional time and effort necessitated by
the discovery and consolidation of the underground
pits, the added risk of handling hazardous materials,
and the altered nature of the clean-up effort, the actual
cost of the clean-up was $33,000, very closely approxi-
mating Halfen’s initial cost estimate for the simple surfi-
cial clean-up.
On September !, 1987, Halfen reported his activities
on the property to the MDNR.
In late 1987, Halfen prepared a second proposal for
cleaning-up the property and it included consideration
of the gelatinous waste material discovered in the five
pits. The estimated cost of the second clean-up was
approximately $450,000. The Donaheys never approved
the second proposal. Because of changes in the law
since 1987, the current cost of cleaning-up the property
approximates $ 1,000,000.
Donaheys’ claimed response costs consist of two
components: (1) $53,195.97 for consulting fees, including
$33,000 paid to Halfen for the consolidation of the haz-
ardous materials in one mound on the subject property.
and (2) $279,366.80 for attorney fees, most of which were
generated by the Detroit based law firm of Dickinson.
Wright et al. for legal services provided up to, but not
including preparation for, trial.
In July of 1987, plaintiffs stopped making payments on
the land contract. Instead, they deposited an amount
equivalent to the monthly payments in an escrow
account in the hope that such monies could be used to
finance a clean-up of the property.
On March 14, 1989, Bogle informed plaintiffs that she was
accelerating the payments due under the land contract.
Without invitation, in August of 1990, Richard Donahey
tendered quit claim deeds to Bogle in an effort to sur-
A-26
render any and all interests he had in the property.
Bogle did not assent to the delivery of the deeds.
Richard Donahey knew that the grantee, Bogle, did not
assent to the delivery of the quit claim deeds.
After Richard Donahey’s attempt to convey his
interest in the property to Bogle by way of quit claim
deed, he assumed that the land contract no longer
imposed a duty on him to make monthly payments and
to pay for insurance and utilities. As a result, in October
of 1990, Richard Donahey ceased depositing monthly
payments in escrow, stopped insurance payments,
stopped utility payments, and abandoned the property.
In November of 1989, the Donaheys filed their com-
plaint. Judge Harvey, the Judge to whom this case was
originally assigned, partially granted Bogle’s motion to
dismiss all of the claims in the Donaheys’ complaint,
leaving only the CERCLA claim. Prior to trial, this Court
denied the Donaheys’ motion to reinstate their rescis-
sion claim and denied Bogle’s emergency motion for
declaratory relief.
CONCLUSIONS OF LAW AND DISCUSSION
L
LAND CONTRACT CLAIMS®
In his complaint, Richard Donahey claims that
because he is merely a land contract vendee holding
only an equitable interest in the land, he does not hold
legal title to the property and, therefore, cannot be the
current owner of the property. Furthermore, Richard
Donahey contends that whatever ownership interest he
5 The Court considers the land contract issues first because
they impact the Courts subsequent analysis of the parties's CERCLA
claims, specifically the determination of the current owner under
CERCLA's liability provision found at 42 U.S.C. § 9607(a)(1).
i
—_—-
—— a
A-27
held in the land by virtue of the land contract was ter-
minated when he delivered quit claim deeds to Bogle.
Bogle alleges that although she holds legal title as the
land contract vendor, she holds such merely as security
on the debt and, therefore, cannot be considered the
current owner of the property. With respect to Richard
Donahey’s tender of the quit claim deeds, Bogle argues
that no interest in the property passed to her because
she never accepted the deeds. Additionally, in her coun-
terclaim, Bogle argues that the Donaheys breached the
land contract by halting payments on the land contract
in July of 1987. Bogle further claims that as a result of
plaintiffs’ breach of contract, she rightfully accelerated
the payments on the land contract in March of 1989.
Bogle claims that she is entitled to specific performance
of the land contract and recovery of the accelerated
amount due, $104,499.00. Bogle also claims that the Don-
aheys must accept a deed to the property.
A. The Land Contract
The land contract executed by Bogle and Richard
Donahey is unambiguous and clearly states each party's
rights and obligations. Under the land contract, Don-
ahey was obligated to make monthly installment pay-
ments of $980.31 for ten years. Upon receiving all
payments, defendant-Bogle was obligated to tender a
‘good and sufficient’ warranty deed free from all encum-
brances, except those listed in the land contract. The
land contract further provides that Richard Donahey
was to pay all taxes and was to insure the building on
the premises. The agreement bears Richard Donahey’s
acknowledgement that he examined the title commit-
ment and was satisfied with the marketability of the
property. The agreement also indicates that he “exam-
ined the ... premises ... .” The land contract provides
at paragraph 2(g) that Bogle’s retention of title to the
A-28
property operates as a security interest. The land con-
tract also provides Bogle with two rights in the event of
a default: (1) the right to forfeit the contract; and
(2) the right to accelerate the balance owed and fore-
close in equity. Michigan common law provitles addi-
tional options.
Generally, if a land contract vendee defaults on con-
tractual obligations, the vendor has various common
law remedies available to her. As stated in Gruskin v.
Fisher, 70 Mich. App. 117, 124-25 (1976), revd on other
grounds, 405 Mich. 51 (1979),
“{a] dozen remedies traditionally have been
available, and some were or are still available in
Michigan, to a vendor under a defaulted land
contract. Those remedies include action for
breach of contract, ejectment, eviction, foreclo-
sure rescission, self-help, peaceful repossession,
suit for purchase money, specific performance,
summary proceedings and action to quiet title.”
A land contract vendor also has the right to accelerate
payments upon a breach or anticipatory breach of a
land contract by a vendee. Carpenter v. Smith, 147 Mich.
App. 560, 564-65 (1985). This common law right was not
impaired or diminished in the land contract.
B. Legal Effect of Delivery of Quitclaim Deeds
It is well settled law that a grantor cannot convey an
interest in realty without the assent of the grantee.
Gibson v. Diamond, 281 Mich. 137 (1937). Bogle never
accepted the deeds, and Richard Donahey knew that
Bogle did not assent to delivery of the quit claim deeds.
Bogle’s refusal to assent to the transfer eifectively
blocked any conveyance of an interest in the property
to her. As a result, Richard Donahey’s actions did not
A-29
upset the status quo. The conveyance of quit claim
deeds was a legal nullity.
C. Ownership of the Property
In determining legal ownership of the land, the Court
must look to the position of the parties effectuated by
the execution of the land contract alone — irrespective
of Richard Donahey’s attempt to convey his interest in
the land by serving quit claim deeds on Bogle. In this
regard, it is clear that Richard Donahey held an equi-
table interest in the property and that Bogle, as land
contract vendor, held legal title as security for repay-
ment of the purchase price.
According to Michigan law, a land contract vendor is
not considered a “property owner,” but rather is analo-
gized to a mortgagee who holds title to property only
to ensure payment of a debt. In Gilford v. Watkins, 342
Mich. 632 (1955), the Michigan Supreme Court held that
a land contract vendor, such as Bogle, retains legal title
only as security for the purchase price. After execution
of the land contract, all other rights of ownership pass
to the vendee. Gilford, 342 Mich. at 637. Under Michigan
law, after she entered into the land contract, Bogle
could not be considered the owner of the property.
Richard Donahey is the current owner of the prop-
erty. Under the terms of the contract, Richard Donahey
has the right of possession and the right to secure
profits. As discussed below, under CERCLA, Bogle is not
the owner of the property. Thus, by necessary implica-
tion, Richard Donahey, as the land contract vendee, and
under the explicit provisions of the land contract, must
be considered the current owner of the property.
D. Party in Breach
Richard Donahey contends that because he no longer
held an interest in the property following service of the
A-30
quit claim deeds, he was no longer obligated to make
monthly payments for which the parties contracted.®
Bogle contends that because Richard Donahey failed to
effectively convey his interest in the land to her,
Richard Donahey’s status as a vendee under the land
contract continued, and she therefore remained entitled
to payments in monthly installments, as specified in the
land contract. Because the Court has determined that
Richard Donahey’s attempted conveyance was a legal
nullity, Richard Donahey continues to have an interest
in the property as a vendee and is obligated to make
the agreed upon payments in monthly installments.
Thus, the Court concludes that Richard Donahey’s
refusal to perform according to the terms of the land
contract — manifest in his refusal to make the monthly
payments — constituted a breach of contract for which
he is liable. Because Bogle rightfully accelerated pay-
ments due under the contract in response to Richard
Donahey’s breach of contract, Donahey must pay Bogle
the entire outstanding debt.
Richard Donahey contends that Bogle’s acceleration
of the debt upon his refusal to make further payments
constituted an attempt to initiate a forfeiture pro-
ceeding, which has the effect of returning full owner-
ship rights to the party who initiated the forfeiture. As
stated above, Bogle merely exercised her common law
right to accelerate the payments due under the con-
tract. She did not attempt to forfeit the contract and
repossess the property or to foreclose in equity. There-
fore, Donahey’s argument fails.
E. Availability of Specific Performance
Bogle seeks specific performance. While a vendor
seeking specific performance must tender a deed to the
6 The perception that they were no longer obligated to perform
under the terms of the land contract is evidenced by the correspon-
dence sent by Donaheys’ counsel to Bogle.
A-31
vendee, Bradway v. Netzorq, 298 Mich. 198 (1941), an
anticipatory repudiation eliminates the need to tender
the deed. Robinson v. Grosse Pointe Shores Realty Co.,
281 Mich. 184 (1937) (tender of deed is not a prerequi-
site to an action for specific performance when the
vendee attempts to rescind the contract, attempts to
recover payments made, and tenders a quitclaim deed).
Under the doctrine of anticipatory breach, if a party to
a contract, before performance is due, unequivocally
declares his intent not to perform, the innocent party
has the option to sue immediately for breach of con-
tract or to wait until the time of performance to do so.
Jackson v. American Can Co., Inc., 485 F Supp. 370 (W.D.
Mich. 1980), Brauer v. Hobbs, 151 Mich. App. 769 (1986).
In July of 1987, Richard Donahey unequivocally
expressed his intent not to make future payments to
Bogle on the land contract. Nothing in the land contract
allowed him to divert future payments to an escrow
account. In this respect, Bogle was deprived of the
benefit of the bargain. Donahey anticipatorily breached
the land contract, which obviated Bogle’s duty to tender
a deed as a prerequisite to filing suit for specific perfor-
mance. Accordingly, the Court finds that Bogle is enti-
tled to specific performance of the valid land contract,
and pursuant Bradway and Robinson, Richard Donahey
must accept a deed to the property according to the
terms of the contract.
Donahey argues that Bogle cannot deliver a deed in
conformity with the provisions of the land contract. The
land contract requires Bogle to deliver a warranty deed
free of all encumbrances except for those listed in the
contract. Richard Donahey argues that the environ-
mental contamination and/or the consequent diminution
of value of the property constitutes an encumbrance
precluding delivery of an valid warranty deed.
A-32
An encumbrance is a burden upon title. Simons v. Dia-
mond Match Co., 159 Mich. 241, 247 (1909) (an encum-
brance is “every right to or interest in the land granted,
to the diminution of the value of the land .. .”), Mad-
haven v. Sucher, 105 Mich. App. 284 (1981). The mere
diminution of value is not enough to constitute an
encumbrance. Furthermore, environmental contamina-
tion does not affect title to the land and therefore
cannot be considered an encumbrance. Thus, plaintiffs
argument must fail. The Court holds that Bogle is able
to convey title free of encumbrances as required under
the land contract.’
Il.
CERCLA CLAIMS
The following CERCLA claims for costs have been
asserted: (1) the Donaheys claims against all defend-
ants for costs and contribution under 42 USC.
§§ 9607(a) and 9613(f)(1), and for declaratory relief
under § 9613(g)(2); (2) Bogle’s counterclaim against the
Donaheys for response costs (i.e., attorney fees) under
§ 9607(a) and for contribution under § 9613(f); and
(3) Bogle’s crossclaims against St. Clair and Livingstone
for contribution under § 9613(f). These claims share
7 By operation of law, the United States reserved the right to
any uranium and thorium on the property. However, the claim has
been statutorily released. 42 U.S.C. § 2098(b). As a result, plaintiffs
cannot claim that the United States has an interest in the property
that precludes delivery of a deed free from encumbrances.
Plaintiff also raised the issue of a lien against the property
arising from the presence of hazardous wastes. Plaintiffs argued
that a statutory lien arose by virtue of “any expenditures made by
the State of Michigan from the hazardous waste service fund, such
expenditures give rise to a lien against the property, and against
Counter-Plaintiff as its owner, pursuant to M.C.L.A. 299.543.” Plain-
tiffs Amended Reply to Defendants Counterclaim, at p. 7. Plaintiffs
failed to substantiate such a claim at trial. In fact, plaintiffs failed
to prove the existence of any encumbrance precluding tender of a
good and sufficient warranty deed.
——
A-33
common legal and factual findings. Accordingly, the
Court, below, organizes its analysis around the common
issues presented by all the claims rather than around
the particular claim asserted. Because all the rights to
the property belong to the Donaheys, they are the
owners of the property.
A. Ownership of the Property under CERCLA
As a threshold matter, it is necessary to determine
the legal ownership of the property at issue. Under
CERCLA, one holding indicia of ownership only to secure
payment of a debt falls outside the § 9607(a)(1) defini-
tion of a current owner. 42 U.S.C. § 9601(20)(A)(iii),
United States v. Nicolet, Inc., 712 F Supp. 1193, 1204-05
(E.D. Pa. 1989). In this case, as a land contract vendor
— holding legal title under Michigan law only to secure
a debt — Bogle is not a current owner under
§ 9607(a)(1). Accordingly, under both Michigan common
law and CERCLA, Bogle is not the current owner of the
property.
B. Statutory Background
CERCLA’s liability provision has its genesis in Con-
gress desire to craft “a comprehensive response to the
problems of hazardous waste,” (United States v. Bliss,
667 F Supp. 1298, 1304 (E.D. Mo. 1987)), and to provide
“an array of mechanisms to combat the increasingly
serious problem of hazardous substance releases.”
United States v. Monsanto Co., 858 F.2d 160 (4th Cir.
1988), cert. denied, 109 S. Ct. 3156 (1989) (quoting
Dedham Water Co. v. Cumberiand Farms Dairy, Inc., 805
F2d 1074, 1078 (1st Cir. 1986)). One of CERCLA’s general
purposes is “to ensure, so far as possible, that the per-
sons responsible for the creation of hazardous waste
sites be liable for the response costs in cleaning them
up.” United States v. Northeastern Pharmaceutical and
Chemical Co., Inc. (“NEPACCO”), 579 FE Supp. 823, 848
A-34
(W.D. Mo. 1984), aff'd in part, revd in part on other
grounds, 810 F.2d 726 (8th Cir. 1986), cert. denied, 484
U.S. 848 (1987). Congress wished to ensure “that those
responsible for any damage, environmental harm, or
injury from chemical poisons bear the costs of their
actions,” S. Rep. No. 848, 96th Cong., 2d Sess. at 13,
reprinted in | Legis. Hist. at 320, and that
“society should not bear the costs of protecting
the public from hazards produced in the past by
a generator, transporter, consumer, or dumpsite
owner, or operator who has profited or other-
wise benefitted from commerce involving these
substances and now wishes to be insulated from
any continuing responsibilities from the present
hazards to society that have been created.”*
To this end, Congress designed a very broad reaching
liability scheme under CERCLA.
C. Prima Facie Case for Recovery of Costs
To recover response costs under § 9607 of CERCLA, a
private party must prove that (1) the defendant(s) falls
within one or more of the categories of “covered per-
sons” under § 9607(a)(1)(4); (2) a release or threatened
release of hazardous substances occurred on the sub-
ject site; (3) the release or threatened release caused
the party to incur costs; (4) such costs were necessary
costs of response; and (5) the party's response actions
were consistent with the national contingency plan
(“NCP”). Artesian Water Co. v. New Castle County, 659 F
Supp. 1269, 1278-79 (D. Del. 1987), affd 851 F2d 643 (3d
Cir. 1988).9
8 Id., reprinted in 1 Legis. Hist. at 98.
9 All parties agree and it is clear from the facts that the prop-
erty at issue contains hazardous substances as defined by CERCLA.
A-35
Bogle claims that Donaheys’ action is barred by the
equitable doctrine of unclean hands and caveat emptor.
Bogle also argues that Richard Donahey assumed the
risk that hazardous materials had been released on the
property. Furthermore, Bogle contends that she did not
own the property when hazardous substances were dis-
posed of there. All of the defendants argue that the
costs incurred by the Donaheys were neither necessary
nor consistent with the NCP.
1. Liabili
Under CERCLA, the group of potentially responsible
parties (“PRPs”) represents a broad class. Liability
under CERCLA is carefully prescribed in a statutory
scheme found at 42 U.S.C. § 9607. Section 9607 states
clearly the categories of PRPs, the circumstances under
which they will be held liable for response costs, and
the limited nature of defense available to defendants in
cost recovery actions. The relevant statutory section
provides:
“Notwithstanding any other provision or rule of
law, and subject only to the defenses set forth in
subsection (b) of this section —
(1) the owner and operator of a vessel or a
facility,
(2) any person[,] who at the time of disposal of
any hazardous substance[,} owned or oper-
ated any facility at which such hazardous
substance were disposed of,
(3) any person who by contract, agreement, or
otherwise arranged for disposal or treat-
ment, or arranged with a transporter for
transport for disposal or treatment, of haz-
ardous substances owned or possessed by
such person, by any other party or entity,
A-36
at any facility owned or operated by
another party or entity and containing such
hazardous substances, and
(4) any person who accepts or accepted any
hazardous substance for transport to
disposal or treatment facilities or sites se-
lected by such person, form [sic] which there
is a release, or a threatened release which
causes the incurrence of response costs, of
a hazardous substance, shall be liable for —
~*~ * *
(B) any ... necessary costs of response
incurred by any other person consis-
tent with the national contingency plan:
and |
(C) damages for injury to, destruction of,
or loss of natural resources, including
the reasonable costs of assessing such
injury, destruction, or loss resulting
from such a release.”
Essentially, liability under § 9607 extends to four
classes of persons:'® (1) the current owner or operator
of a facility at which there is a release or threatened
release of a hazardous substance; (2) the person who
owned or operated the facility at the time of a haz-
ardous substance disposal; (3) the persons who
arranged for the treatment or disposal of a hazardous
substance at the facility; and (4) the persons who trans-
ported hazardous substances to the facility. Section
10 Under § 9601(21), a “person” is “an individual, firm, corpo-
ration, association, partnership, consortium, joint venture, commer-
cial entity, United States Government, State, municipality,
commission, political subdivision of a state, or any interstate body.”
All of the parties in this case — individuals and 4 corporation —
are “persons” under CERCLA.
A-37
9607 imposes strict liability — that is, without regard to
fault — on a liable party. / V Peters & Co. v. EPA, 767 F2d
263, 266 (6th Cir. 1985). Liability is joint and several when
the environmental harm is indivisible and is proportionate
when the harm is divisible. United States v. Meyer, Inc., 889
F2d 1497, 1507 (6th Cir. 1989). Liable parties are given only
limited statutory defenses. 42 U.S.C. § 9607(a), (b).
In this case, the harm to the property is indivisible.
The land has been defiled by the parties’ protracted
and habitual waste disposal practices and neglect. It is
defendants’ contention that the Donaheys increased the
volume of hazardous substances on the property by
mixing non-hazardous materials with hazardous mate-
rials in the large lagoon, thus rendering the environ-
mental harm to the property divisible according to pre-
and post-Donahey site activities.
Contrary to the defendants’ allegations, the Donaheys
are not responsible for distinct aspects of the environ-
mental harm to the property. The Court notes that the
Donaheys did not exacerbate the condition of the land
by translocating the wastes from the pits to the large
lagoon — because all of the property, both surficially
and subterraneously, was tainted by hazardous wastes
(i.e., as mentioned above — toluene, xylene, styrene,
phenol etc.). Thus, when the Donaheys mixed the surfi-
cial materials with the pit materials, they only com-
bined substances that were already contaminated.
a) The Donaheys
As noted above, Richard Donahey is the current legal
owner of the site. Therefore, under § 9607, Richard
Donahey is Jointly and severally liable for all the costs
of clean-up."
Il Patricia Donahey is not a current owner of the property, she
deeded her interest in the property to Richard Denahey in 1988. As
(concluded on page A-38)
A-38
b) St. Clair
Donaheys claim that St. Clair is liable for response
costs under § 9607(a)(2) because it was an owner and
operator of a facility at which hazardous substances
were disposed, and under § 9607(a)(3) as a transporter.
St. Clair operated the site at the time waste were dis-
posed of. It is clear that St. Clair had an ongoing policy
of dumping barrels of hazardous waste products onto
its industrial land as a method of waste disposal. It is
also clear, considering the totality of the circumstances
and all of the testimony adduced at trial, that St. Clair
buried barrels and drums of hazardous waste products
on the property. Under 9607(a)(2), St. Clair is jointly
and severally liable as an owner or operator.
St. Clair is not liable as a transporter of hazardous
substances. Under 9607(a)(3), a person must transport
or arrange for the transport of hazardous substances to
a facility owned by another. In this case, the evidence
indicates that St. Clair only transported or arranged for
transport to se/fowned facilities; thus, St. Clair escapes
liability under 9607(a)(3).
c) Livingstone
Donaheys next claim that Livingstone — as an oper-
ator at the time of disposal under § 9607(a)(2) and as
an individual arranging for the transport of hazardous
substances under § 9607(a)(3) — is liable for clean-up
costs. The Donaheys’ assertion of operator liability with
respect to Livingstone does not rely on a theory of
piercing the corporate veil; rather, the Donaheys main-
tain that Livingstone — despite his apparently limited
(continued from page A-37}
an interim owner, Patricia Donahey does not come within the defini-
tion of a liable party under § 9607(a). Thus, of the Donaheys, only
Richard is jointly and severally liable under CERCLA.
A-39
status as a shareholder — exercised direct control over
the waste management activities of St. Clair, and that
therefore he is directly liable as an operator.
Livingstone correctly argues that there is no evidence
that he arranged for the disposai of hazardous sub-
stances as defined under 9607(a)(3). Livingstone also
argues that his status alone as sole shareholder and
officer/director of St. Clair does not confer liability for
response costs under 9607(a){2). The Court agrees.
A stockholder, director, or officer may be personally
liable under § 9607(a)(2) of CERCLA in situations where
it is shown that the individual personally participated in
the wrongful conduct of the corporation. State of New
York v. Shore Realty Corp., 759 F2d 1032 (2d Cir. 1985),
United States Conservation Chemical Co., 628 F Supp. 391
(W.D. Mo. 1985).
In this case, there is no credible evidence that Living-
stone personally participated in the waste disposal!
practices of St. Clair. No witness testified that Living-
stone gave explicit or implicit instructions to dispose of
wastes in a specific manner. The testimony at trial!
clearly indicated that Livingstone personally partici-
pated in only the financial aspects of St. Clair’s opera-
tions, and that the day to day affairs, including waste
disposal practices, were handled by managers and
supervisors who did not need approval from Living-
stone to execute their duties. While it is true that
Livingstone had the authority to control waste disposal
practices,"* he never exercised such authority; it was
12 The Donaheys and Bogle argue that Livingstone is liable under
the test articulated in United States v. Thomas Solvent Co., 727 F. Supp.
1532 (W.D. Mich. 1989). In Thomas, the court fashioned a two part
test for determining the personal liability of a corporate director
under CERCLA: to hold a corporate officer personally liable under
(concluded on page A40)
A-40
delegated to others. Livingstone is not liable under
§ 9607(a)(2).
There is also no evidence that Livingstone personally
arranged for the disposal of St. Clair’s industrial waste
products. Former St. Clair employees Nuss and Aldrich
provided uncontroverted testimony that their participa-
tion as employees in St. Clair’s waste disposal practices
on the property was not under the direction of Living-
stone. Both former employees testified that managers
and supervisors directed their activities and that they
had no reason to believe that Livingstone was involved
at all. Thus, Livingstone is not liable under § 9607(a)(3)
as a person who arranged for the treatment or disposal
of St. Clair’s waste materials.
d) Bogie
Donaheys also claim that Bogle is liable for their
response costs because she allegedly owned the prop-
erty when hazardous substances were disposed of. This
claim against Bogle relies on 42 U.S.C. § 9607(a)(2),
which provides that “any person who[,} at the time of
disposal of any hazardous substances[,] owned or oper-
ated any facility at which such hazardous substances
were disposed of ... shall be liable for” response costs.
Relying on a witness’ (Joel Hunt) interpretation of aerial
photographs, Bogle counters by arguing that the dis-
posal of the hazardous waste and barrels in the under-
(continued from page A-39)
CERCLA for the harmful waste disposal practices of the corpora-
tion, the court must find that (1) the corporate officer had the
authorit, to direct waste disposal practices, and that (2) he either
acted intentionally or negligently to produce the environmental
harm. The Thomas test marks the broadest reading of the term
“operator,” but it reaches beyond the intent underlying CERCLA by
imposing what amounts to a simpie negligence standard that is not
indicated in the statutory scheme, nor supported by the structure
or history of CERCLA. Therefore, the Court rejects the Thomas test
as excessively broad and ill-founded.
A-41
ground pits occurred before she acquired legal title to
the property.
Clearly, Bogle owned the property when hazardous
substances were disposed of on the property. Hunt's
testimony regarding the creation of the underground
pits was not credible. Based upon his reliance on the
geological “law of superposition,”' Hunt testified that
aerial photographs revealed that the underground pits
were created prior to March or May of 1961. Bogle
acquired title in August of 1961. Such testimony ignores
important facts. For example, the known area of the
underground pits — as revealed on aerial photos and as
extracted from the testimony of Halfen and others —
did not correspond with the area in which Hunt claimed
the pits were created. Simply put, Hunt's opinion was
not supported by a fair interpretation of the aerial pho-
tographs. Also, Bogle has ignored the testimony of
Aldrich and Nuss to the effect that St. Clair dumped
hazardous substances. and transported and abandoned
barrels to the property throughout the 1970s. That fact
alone would sustain a finding that Bogle is liable under
§ 9607(a)(2) as an owner at the time of disposal of haz-
ardous substances. The Court concludes that Bogle did
own the property when hazardous substances, including
the material in the pits, were disposed of on the prop-
13 The Geologic Law of Superposition, as Hunt characterized it,
provides that when natural or man-made deposits are layered, the
most recent deposit constitutes the top layer —- not an altogether
remarkable concept.
Hunt was asked on direct examination when the pits were created.
Hunt testified that the aerial photo of the property, taken in 1961
before Bogle owned the property, showed “water or materials” lay-
ered above what Hunt referred to as the pit area, which Hunt
claimed was under the water or materials. Based on this observation
and the law of superposition, Hunt concluded that the pit area pre-
dated the photo. This conclusion assumes that the pits had already
been created or layered prior to 1961. The conclusion. therefore,
begs the question.
A-42
erty, therefore, Bogle is jointly and severally liable
under § 9607(a)(2).
2. Defenses to Liability
a) The Donaheys
Richard Donahey argues that pursuant to § 9607(b)(3)
of CERCLA, he is entitled to assert a “third party”
defense. Section 9607(b) and (b)(3), taken together.
state:
[t}here shall be no liability under subsection (a)
of this section for a person otherwise liable who
can establish by a preponderance of the evi-
dence that the release or threat of release of a
hazardous substance and the damages resulting
therefrom were caused soiely by —
(3) an act or omission of a third party other
than ... one whose act or omission occurs
in connection with a contractual relation-
ship, existing directly or indirectly, with the
defendant ... if the defendant establishes
by a preponderance of the evidence that
(a) he exercised due care with respect to
the hazardous substance concerned, taking
into consideration the characteristics of
such hazardous substances, in light of
all relevant facts and circumstances, and
(b) he took precautions against foreseeable
acts or omissions of any such third party
and the consequences that could foresee-
ably result from such acts or omissions ... .
The Court is persuaded that Richard Donahey may
not properly avail himself of the third party defense
delineated in § 9607(b)(3). While it is true that a third
party without any relevant contractual relationship with
the Donaheys (i.e., St. Clair and/or Bogle) was directly
A-43
responsible for the release and/or threat of release
of hazardous substances on the property, Richard
Donahey’'s actions do not fall within the purview of
§ 9607(b)(3) because he did not exercise due care with
respect to the hazardous wastes and did not take pre-
cautions against the consequences that could foresee-
ably result from the acts or omissions of the third
party.
Richard Donahey did not use due care in the handling
of the wastes on the property. He disrupted the settled
wastes by transferring them to the large lagoon. By indi-
cating that the property was insulated from the ground
water by a 100 feet thick layer of clay, the E&E report
belies his claim that there was a need to consolidate
and “to stabilize.” as Halfen claims, the wastes in the
large lagoon. It is not persuasive that Halfen claims to
have been ignorant of the E&E report when it was com-
pleted well before he executed his planned clean-up.
Nonetheless. if Halfen was truly ignorant of the E&E
report before executing the clean-up, then his effort (on
behalf of Richard Donahey) certainly lacked the due
care required under § 9607(b)(3). More broadly, Richard
Donahey’s failure to comply with the NCP and his failure
to demonstrate the necessity of his activities on the
property constitute a lack of due care under § 9607
(b)(3).
In addition to his lack of due care, Richard Donahey
failed to take precautions against the consequences that
could foreseeably result from the acts or omissions of
the third party. With a heavy and dense concentration
of hazardous wastes present, the property presented
the potential for great harm to the ecosystem through
leaching and run-off. Richard Donahey did nothing to
guard against these possibilities. Instead, he consoli-
dated all of the wastes in an above ground pile, thus
A-44
exposing the wastes to the local fauna and also creating
an attractive nuisance. Aside from allowing environ-
mental authorities to conduct some limited testing,
Richard Donahey did nothing constructive to prevent
further environmental harm or to guard against foresee-
able consequences. Had Richard Donahey been con-
cerned with the potential harm to the local area, he
would have complied with MDNR requests to perform a
hydrogeological evaluation and to dispose of roughly
125 drums (some with hardened rubber material) in
accordance with the Michigan Solid Waste Management
Act. In addition, had Richard Donahey been concerned
with the consequences of the potential harm to the
environment, he would not have abandoned the prop-
erty after making a clearly futile attempt to quitclaim
his interest to a knowingly unreceptive Bogle. Such con-
duct can hardly provide the basis for applying the third
party defense under § 9607(b)(3).
In sum, after considering all relevant facts and cir-
cumstances, the Court holds that because Richard
Donahey failed to use due care in his handling of the
hazardous wastes on the property and failed to guard
against foreseeable consequences, the third party
defense under § 9607(b)(3) is not available to him.“
b) Bogle
Bogle also claims that the third party defense pursuant
to § 9607(b)(3) absolves her of liability under § 9607(a).
For reasons even more compelling than those applicable
to Richard Donahey’s assertion of a third party defense,
Bogle’s alleged third party defense must fail.
14 The Donaheys second alleged defense is technically not a
defense, but rather a factually based argument against liability. The
Donaheys argue that because they were merely interim owners-from
1982 to 1990 — they do not fall within the four classes of poten-
tially liable parties in § 9607(a). As the Court has noted above, the
Donaheys are the current owners of the property, therefore, the
“interim owner” claim lacks merit.
A-45
Bogle did not use due care with respect to the haz-
ardous wastes that were discharged onto the property.
Under Bogle’s lease agreements with St. Clair, she
specifically reserved the right to inspect the property.
She never did. Essentially, Bogle was an absentee land-
lord who failed to adequately monitor the use of the
property, even after City of Marysville officials insisted
that St. Clair stop its practice of incinerating organic
wastes on the property. In addition, like the Donaheys,
Bogle did not comply with MDNR requests to perform a
hydrogeological survey and to remove barrels.
It is clear that Bogle failed to take precautions against
St. Clair’s waste disposal practices and failed to take
precautions against the foreseeable consequences of St.
Clair’s actions.
In sum, because Bogle did not use due care and did
not take precautions against the foreseeable conse-
quences of St. Clair’s actions, she cannot successful
assert the third party defense under § 9607(b)(3).
Bogle has also asserted the defenses of unclean
hands, caveat emptor, and assumption of risk. Her
claims do not stand scrutiny. CERCLA’s liability provi-
sion limits available defenses to only those stated in
§ 9607(b)(3) an act of God, an act of war, and a third
party defense (or a combination of the three). Although
the concepts of unclean hands, caveat emptor, and
assumption of risk may be appropriate in apportioning
liability under § 9613(g), they are not defenses to lia-
bility under CERCLA.
3. Release
A “release” means any spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting,
escaping, leaching, dumping or disposing into the envi-
ronment.” 42 U.S.C. § 9601(22). Nuss and Aldrich, former
A-46
St. Clair employees, testified that St. Clair’s practice of
dumping occurred as early as 1955 and occurred specif-
ically at the subject property in the early 1970s. Further-
more, the expert testimony established that the
hazardous materials at the property continue to leach
into top soil. Thus, the Court concludes that a ‘release”
occurred, and that a threat of release continues at the
property.
4. Nature of the Response Costs
Both the Donaheys and Bogle claim that attorney fees
associated with the response action and incurred in the
prosecution of their private actions for contribution are
recoverable “response costs’ within the meaning of
CERCLA. The Court disagrees.
The American Rule provides that each party bears
the burden of its own legal costs, and that “absent
explicit congressional authorization, attorney fees are
not recoverable costs of litigation.” Runvan v. McCrary,
427 US. 160, 185 (1976); Accord Alveska Pipeline Co. v.
Wilderness Society, 421 US. 240, 247 (1975). Although
CERCLA specifically allows the government to seek an
award of attorney fees, a pa Jlel statutory provision for
private parties does not exist. The Sixth Circuit Court of
Appeals has not addressed the issue of whether
attorney fees incurred by a private party constitute
recoverable response costs under CERCLA.
Many Courts faced with the issue have determined
that in private cost recovery actions, attorney fees are
not recoverable response costs. T&E Industries, Inc. v.
Safety Light Corp., 680 F. Supp. 696 (D. N.J. 1988): Mesiti v.
Microdot, Inc., 739 F. Supp. 57 (D. N.H. 1990), Regan v.
Cherry Corp., 706 FSupp. 145 (D. R.1. 1989), /n re Heminyg-
way Transport, Inc., 108 B.R. 378 (Bankr. D. Mass. 1989).
The Eighth Circuit Court of Appeals has held to the
contrary. In General Electric Co. v. Litton Business Sys-
ee
A-47
stems, Inc., 920 F2d 1415 (8th Cir. 1990), the court inter-
preted the definition of “response” in 42 U.S.C.
§ 9601(25) to include attorney fees. Accord Allied Towing
Corp. v. Great Eastern Petroleum Corp., 642 F Supp 13339,
1349 (E.D. Va. 1986). The court stated that because a
‘response” under § 9601(25) includes “enforcement”
activities, recoverable response costs must include
enforcement costs. The court went on to say that
attorney fees incurred in the prosecution of a private
action are enforcement costs, and are therefore recover-
able response costs.'®
Litton is not persuasive. The court did not explain
how its interpretation of § 9601(25) harmonized with
the longstanding American Rule regarding recovery of
attorney fees. This omission is particularly important
when one considers the resulting internal incongruity of
CERCLA, providing explicit and unequivocal language
allowing the government to seek attorney fees under
§ 9604(b)(1), but providing only a circumsc.ibed textual
basis, as stated in Litton, for granting the same right to
private parties."* What is more, the holding in Litton
does not consider Congress’ failure to include a provi-
sion for recovery of attorney fees by private party liti-
gants in the comprehensive amendments to CERCLA
passed in 1986. See Regan v. Cherry Corp., 706 F. Supp.
145, 149 (D. R.I. 1989).
Litton presents other problems as well. If attorney fees
are response costs, then to recover such costs under
§ 9607, a party must establish that such expenditures
15 CERCLA does not define “enforcement activities.”
16 The inclusion of a section specifically addressing the govern-
ment's ability to recover attorney fees strongly suggests that Con-
gress was well aware of the need — given the Runyan and Alyeska
rationales — to unequivocally declare a party's right to recover
attorney fees under CERCLA, which they did not do for private
party littgants.
A-48
were consistent with the NCP, which is silent with respect
to the criteria a court would employ in determining the
legitimacy of attorney fees. Once again, to consider
attorney fees recoverable response costs strains the
statutory and regulatory language and design. This
Court declines to give CERCLA such an interpretation.
While the Court is well aware of the Judicial tendency
to interpret CERCLA expansively in the hope of effecting
its remedial goals, it nonetheless believes that such an
ambitious effort with respect to the issue of attorney
fees would be disingenuous and would denigrate settled
rules of statutory interpretation and the integrity of the
statutory scheme. The Court declines to invigorate the
Litton court’s achievement of an expansion of — rather
than an interpretation of — the term “response.”
Based upon the well-settled American presumption
against allowing recovery of attorney fees, and based
upon the lack of explicit congressional authorization for
recovery of attorney fees in the statute, the Court con-
cludes that attorney fees in private actions are not
recoverable “response costs” under CERCLA. Accord-
ingly, Donaheys’ request to recover $279,366.80 in attor-
ney fees as response costs, as a matter of law, fails.
Bogle’s claim for attorney fees suffers the same legal
defect.
As a factual matter, Donaheys’ request for attorney
fees also fails. Donaheys’ complaint included ten claims
or theories of recovery, only one of which invoked
CERCLA. After hearing a motion for summary judgment,
the Honorable James Harvey, to whom this case was
originally assigned, dismissed nine of the ten claims in
the Donaheys’ complaint, leaving only the CERCLA claim
for trial. At trial, Donaheys submitted summaries of the
attorney billings and the original billings, both of which
failed to specify the exact type of service performed.
A-49
The proofs failed to indicate whether the attorney fees
were expended in defense of the CERCLA claim or the
other federali statuteny and state common law claims
that wene dismissed) The proofs did not indicate iff the
attorney fees wene imeurred in receivimg counselling,
prosecuting and/or defending the CERCLA claim,
defending the other ciaims, or preparing for trial.
Because the Donaheys did not itemize the various
attorney fees incurred over time, the Court is unable to
determine the exact amount incurred in the prosecution
and defense of their CERCLA claim, in receiving coun-
selling on compliance with CERCLA, and in orchestrating
the legalities involved in the actual response effort. At
best, then, as a factual matter, Donaheys’ claim for
attorney fees is speculative.
5. Compliance with the NCP
Defendants contend that the response costs incurred
by the Donaheys — namely the costs associated with
plaintiffs’ efforts in August of 1987 — were neither nec-
essary nor consistent with the NCP. The NCP can be
found at 40 C.ER. 300.61 et seg. The NCP is a compila-
17 In their post-trial proposed findings of fact and conclusions
of law, plaintiffs have requested a supplemental hearing following a
determination of liability, at which time they plan to supplement
their proofs on damages. Although in form plaintiffs have indicated
that they do not want a bifurcated trial, in substance it is exactly
what they are requesting. Plaintiffs request was denied at trial
because, inter alia, one element of plaintiffs’ prima facie case is a
detailed presentation of the type, propriety, and necessity of
response actions taken, thus, no finding of liability could be made
in the absence of sufficient proof of damages. The Court hereby
affirms its prior ruling at trial denying plaintiffs’ request for a
bifurcated trial.
In addition to the attorney fees and the costs associated with
Halfen’s activities, plaintiffs also seek to recover approximately
$ 20,000.00 expended for the services of “consultants.” Plaintiffs
have not produced any evidence to support recovery for such con-
sultant fees.
{BEST AVAILABLE COPY
A-50
tion of rules and regulations designed to implement the
federal government's general plan or framework for
guiding and managing responses to hazardous sub-
stance releases. Although the NCP was not intended to
provide complex and detailed decision making criteria,
50 Fed. Reg. 47920 (Nov. 20, 1985) (preamble to NCP), it
does contain guidance for private response actions. 40
C.ER. 300.61(e)(2). The NCP incorporates all appiicable
federal, state, and local environmental regulations, 40
C.ER. § 300.71(a)(4), including sections of the Resource
Conservation and Recovery Act (“RCRA”), 42 U.S.C.
§ 6901 ef seg.. concerning treatment of hazardous
wastes. For the reasons stated below. the Court con-
cludes that Donaheys’ August. 1987 actions were incon-
sistent with the NCP and, therefore, are not recoverable
under CERCLA.
Based on the testimony of plaintiffs’ expert. Lawrence
Halfen, the Court concludes that the hazardous sub-
stances discovered at the property are “hazardous
wastes” within the meaning of RCRA, 42 USC. § 6903(5).
thereby causing RCRA regulations to be incorporated
into the NCP and to be applied in this case. Section
6903(5) defines a hazardous waste as a compound that
may cause death or serious permanent illness, or pose
a health risk when improperly stored. EPA regulations
further define hazardous wastes at 40 C.FER. § 261.31.
Benzene, toluene, and xylene are variously defined
under § 261.31 as “F” series hazardous wastes. It is
undisputed that these chemicals were used in St. Clair’s
rubber manufacturing processes throughout the period
in question and that they were utilized in churn-washing
procedures at St. Clair. Furthermore, Halfen’s testimony
clearly establishes that he detected these compounds
surficially and subterraneously in appreciable concen-
trations, leading him to the conclusion that his intended
clean-up effort would be inadequate and that instead,
A-51
he would need to prepare a plan to clean-up “hazardous
wastes.” Indeed, Halfen’s testimony was rife with refer-
ences to “hazardous wastes.” Accordingly, because naz-
ardous wastes were known to exist on the property,
RCRA regulations regarding the treatment of hazardous
wastes are applicable to this case via incorporation into
the NcPp'5 [sic, 18]
Plaintiffs’ clean-up effort did not comply with RCRA
regu.ations. A party handling or processing hazardous
wastes must obtain a RCRA permit. 40 C.FR. § 270.1(c)
(1)(ii). Plaintiffs failed to meet the permit requirement
under § 270 when they allowed their agent, Haifen, to
excavate the pits and consolidate the hazardous wastes
into the large lagoon. Treatment and storage of haz-
ardous wastes must be preceded by a detailed physical
and chemical analysis of a representative sample. 40
CER. § 264.13. Although plaintiffs’ agent, Halfen, knew he
was handling hazardous materials, he did not obtain the
requisite analyses mandated by § 264.13. An owner or
operator of a facility must secure the site against
unknowing and unauthorized entry by persons and/or
livestock. 40 C.F.R. § 265.14. A 24 hour surveillance
system, or a fence in good repair combined with a
means to control entry. constitute the two permissible
15 |sic, 18] Plaintiffs have maintained, independent of the testi-
mony of Halfen, that the property contained hazardous wastes. At
paragraph 48 of plaintiffs’ complaint, plaintiffs state that “(some
of the hazardous and dangerous substances released from the Wills
Street site into the soils, and ground and surface waters are ‘haz-
ardous wastes’ as defined in 42 U.S.C. Sec. 6903(5).” In their brief
in support of their motion to reinstate Count XI of the complaint,
dated November 27, 1990, at pp 8-9, plaintiffs claimed that
“|s|upporting Plaintiffs’ rescission argument is a record
demonstrating that neither contracting party had any know-
ledge of the presence of a separate area on the property
containing hazardous waste contamination ... . Plaintiffs
obviously did not enter into this contract with the intent to
purchase a piece of property contaminated by hazardous
waste pits.”
A-52
methods of satisfying § 265.14. Plaintiffs’ did neither.
Plaintiffs’ placement of a wood-slat snow fence around
the consolidated pile in the large lagoon does not pre-
sent any real barrier to intrusion at the property. The
snow fence, even in perfect condition, could be over-
come with minimal effort.'®'*«: 8] Hazardous wastes
cannot be stored for more than 90 days without
obtaining a permit or a permit waiver. 40 C.ER. § 262.34.
Plaintiffs never received a permit or a permit waiver for
their storage of hazardous wastes on the property,
storage that now approximates four years.
Based on all of the foregoing, it is clear that haz-
ardous wastes are present on the property and that
plaintiffs have not acted in compliance with RCRA, and
hence the NCP.
Plaintiffs’ actions violated other NCP provisions, sepa-
rate and independent from the violation of regulations
incorporated into the NCP. The NCP favors actions “nec-
essary to monitor, assess, and evaluate the release or
threat of release of hazardous substances” and the
taking of “other actions as may be necessary to pre-
vent, minimize, or mitigate damage to the public health
or welfare or the environment which may otherwise
result from such release or threat of release.” 40 C.ER.
300.64. The NCP includes a list of removal actions that
are appropriate in certain circumstances and that are
relevant to this case:
(1) providing fences, warning signs, or other
security or site control precautions —
where humans or animals have access to
the release;
16 [sic, 19] Photographs of the snow fence show it in a dilapi-
dated condition.
A-53
(2) constructing drainage controls (e.g., run-off
or run-on diversions) — where precipitation
or run-off from other sources (e.g., flood-
ing) may enter the release area from other
areas;
(3) stabilization of berms, dikes, or impound-
ments — where needed to maintain the
integrity of the structure;
(4) capping of contaminated soils or sludges-
where needed to reduce migration of
hazardous substances or pollutants or cont-
aminants into soil, ground water, or air:
(5) removal of contaminated soils from areas —
where such removal reduces the spread of
contamination;
(6) removal of barrels and drums that contain
or may contain hazardous substances, pol-
lutants, or contaminants — where it will
reduce the likelihood of spillage, leakage,
exposure to humans, animals, or food chain,
or fire or explosion.
Plaintiffs actions did not substantially comply with
the NCP requirements listed above. Plaintiffs actions,
through their agent Halfen, made a bad situation worse.
Plaintiffs dismantled a wire fence that surrounded the
pit area, facilitating rather than impeding access to the
site. After consolidation of the hazardous wastes in the
large lagoon, plaintiffs erected a snow fence that pro-
vided no real barrier to entry. Plaintiffs placed “haz-
ardous waste” stickers on the snow fence. The paper
stickers have since disintegrated. Plaintiffs provided no
drainage control. Stabilization of the large lagoon was
only necessitated by plaintiffs’ consolidation of wastes
in the lagoon. According to Halfen’s own calculations
ES
A-54
(see exhibit 65-B), the consolidation of the wastes in
the large lagoon increased the surface area of wastes
exposed to top soil by 50%." !*: 2°| The mollifying effect
of covering the waste pile with a tarp and top soil is
negated by the greater access to the wastes above
ground as opposed to below ground in the pits. Thus, in
addition to enhancing the possibility of migration into
soil, the mounding of the wastes eased access and
increased the chances of contact with the hazardous
wastes. Also, by translocating the wastes from the pits
to the large lagoon, plaintiffs spread the contamination
to a relatively untainted portion of the property. Consid-
ering the fact that plaintifis removed very little haz-
ardous materials from the property, and that plaintiffs.
according to their own admissions, knew little about the
exact characteristics of the materials they were dealing
with, it is impossible to say that plaintiffs actions facili-
tated the goals underlying CERCLA or in any way
improved the condition of the defiled property. Plain-
tiffs’ actions on the property in August of 1987 did not
comply, strictly or substantially. with the NCP. Thus. the
costs incurred by plaintiff for their August 1987 activi-
ties are not recoverable under CERCLA.
Halfen testified at trial that his actions were meant
to reduce the presence of an attractive nuisance on
the property. Apparently it was plaintiffs contention
that underground, invisible pits — with approximately
seven square feet modestly exposed in a tire track
made by a backhoe weighing thousands of pounds —
posed an attractive nuisance, more so than the con-
spicuous 1600 cubic yards of wastes piled into the
large lagoon and surrounded by a three foot snow
17 |sic, 20} According to Halfen’s measurements in exhibit 65-B.
the total surface area of the pits was approximately 2700 square
feet, the total surface area of the large lagoon after consolidation
was approximately 4000 square feet.
A-55
fence bearing warning stickers. Common sense belies
plaintiffs’ contention.
Halfen also testified that consolidation of the wastes
was necessary to reduce or minimize the threat of fire
allegedly created by the exposure of the flammable sol-
vents in the pits. Halfen did not detect solvent odor
emanating from the pit area until he probed the area
with a long metal rod. There was no evidence that the
mere discovery of solvents underground created a risk
of fire. In fact, the excavating action of the backhoe
released solvents into the air, agitated and disturbed
the settled state of the wastes, and caused the backhoe
to directly contact the wastes (increasing the likelihood
that the mechanics of the backhoe or the collision of
metal barrels with the backhoe would create sparks).
Halfens actions increased the risk of fire by releasing
vapors, concentrating the flammable materials in one
place, and bringing the backhoe into close proximity to
the flammable materials.
It is also difficult to understand exactly what made
plaintiffs actions “necessary.” Halfen identified the loca-
tion of the pits and could have measured the volume of
the pits without excavating them. He also could have
taken samples without performing a wholesale excava-
tion of the pits. What is more, the Court does not
understand how anyone could take constructive action
absent a reliable analytical characterization of the mater-
ials in the pits.
The Court holds that Halfen’s actions over the course
of six days in August of 1987, and performed upon plain-
tiffs’ request, were neither necessary nor consistent
with the NCP. Accordingly. the Court finds that plaintiffs
have failed to prove an essential element of their cause
of action.
A-56
D. {sic, 6.) Declaratory Relief under §9613(g)(2)
for F Liabilit
In their complaint, the Donaheys seek declaratory
relief regarding liability for future response costs
incurred. The Court holds that such relief is not avail-
able when the party seeking declaratory relief has failed
to incur recoverable response costs. See Southland
Corp. v. Ashland Oil, Inc., 696 F Supp. 994, 999, 1003 (D.
N.J. 1988), O'Neil v. Picillo, 682 F Supp. 706, 730 (D. R.1.
1988), aff'd, 883 F.2d 176 (Ist Cir 1989). Because the
plaintiffs have not incurred recoverable response costs,
declaratory relief is not available.
CONCLUSION'® '**: #41
With respect to the land contract issues in this case,
the Court finds that (1) the Donaheys breached the iand
contract by, inter alia, failing to make installment pay-
ments; and (2) Helen Bogle is entitled to specific perfor-
mance of the land contract, and the Donaheys must
accept a deed to the land.
The notion of an absentee landlord, the externaliza-
tion of production costs, the demonstrated human ten-
dency to conceal environmental defects and to evade
liability — separately and collectively — provided the
impetus for the passage of an austere statute like
CERCLA, which in this case, has produced the following
results: for all the reasons stated above, the Court
holds that (1) all parties, save Seabourn S. Livingstone,
are Jointly and severally liable under CERCLA for the
environmental contamination located in the large
lagoon area of the property located at 2408 Wills:
(2) the alleged response costs incurred by Bogle and
18 [sic, 21] The “conclusion” shall not be construed to limit or
modify the specific findings of fact and conclusions of law con-
tained in the body of this opinion.
A-57
the Donaheys are not recoverable under CERCLA;
(3) declaratory relief is not available in this case;
(4) the Donaheys are the current owners of the prop-
erty at 2408 Wills, and Helen Bogle holds legal title
merely to secure Donaheys’ indebtedness.
The parties are hereby ORDERED to submit a joint
proposed judgment not inconsistent with this opinion
by October 11, 1991.
IT IS SO ORDERED.
/s/ LAWRENCE P. ZATKOFF
UNITED STATES DISTRICT JUDGE
(Certification Omitted )
A-58
RELEVANT STATUTORY PROVISIONS
SUBCHAPTER | — HAZARDOUS SUBSTANCES
RELEASES, LIABILITY, COMPENSATION
x* * *
§ 9601. Definitions
For purpose of this subchapter —
x * *
(20)(A) The term “owner or operator” means (i) in
the case of a vessel, any person owning, operating. or
chartering by demise, such vessel, (ii) in the case of an
onshore facility or an offshore facility. any person
owning or operating such facility. and (iii) in the case of
any facility, title or control of which was conveyed due
to bankruptcy, foreclosure, tax delinquency. abandon-
ment, or similar means to a unit of State or local gov-
ernment, any person who owned, operated or otherwise
controlled activities at such facility immediately before-
hand. Such term does not include a person, who.
without participating in the management of a vessel or
facility, holds indicia of ownership primarily to protect
his security interest in the vessel or facility.
oe & <@
(23) The terms “remove” or “removal” means the
cleanup or removal of released hazardous substances
from the environment, such actions as may be
necessary” taken in the event of the threat of release of
hazardous substances into the environment. such
actions as may be necessary to monitor. assess. and
evaluate the release or threat of release of hazardous
substances, the disposal of removed material. or the
taking of such other actions as may be necessary to
| Printer’s Note|: Footnote omitted in this reproduction.
A-59
prevent, minimize, or mitigate damage to the public
health or welfare or to the environment, which may
otherwise result from a release or threat of release. The
term includes, in addition, without being limited to,
security fencing or other measures to limit access, pro-
vision of alternative water supplies, temporary evacua-
tion and housing of threatened individuals not
otherwise provided for, action taken under section
9604{b) of this title, and any emergency assistance
which may be provided under the Disaster Relief and
Emergency Assistance Act [42 US.C.A. § 5121 et seq.].
(24) The terms “remedy” or “remedial action” means
those actions consistent with permanent remedy taken
instead of or in addition to removal actions in the event
of a release or threatened release of a hazardous sub-
stance into the environment, to prevent or minimize the
release of hazardous substances so that they do not
migrate to cause substantial danger to present or future
public health or welfare or the environment. The term
includes, but is not limited to, such actions at the loca-
tion of the release as storage. confinement, perimeter
protection using dikes, trenches, or ditches, clay cover,
neutralization. cleanup of released hazardous sub-
stances or contaminated materials, recycling or reuse,
diversion, destruction. segregation of reactive wastes,
dredging or excavations, repair or replacement of
leaking containers, collection of leachate and runoff,
onsite treatment or incineration, provision of alternative
water supplies, and any monitoring reasonably required
to assure that such actions protect the public health
and welfare and the environment. The term includes the
costs of permanent relocation of residents and busi-
nesses and community facilities where the President
determines that, alone or in combination with other
measures, such relocation is more cost-effective than
and environmentally preferable to the transportation,
A-60
storage, treatment, destruction, or secure dispos tion
offsite of hazardous substances, or may otherwise be
necessary to protect the public health or welfare; the
term includes offsite transport and offsite storage, treat-
ment, destruction, or secure disposition of hazardous
substances and associated contaminated materials.
(25) The terms “respond” or “response” means
remove, removal, remedy, and remedial acton, all such
terms (including the terms “removal” and “remedial
action’) include enforcement activities related thereto.
* * *
§ 9607. Liability
(a) Covered persons; scope; recoverable costs and
damages; interest rate; “comparable maturity” date
Notwithstanding any other provision or rule of law.
and subject only to the defenses set forth in subsection
(b) of this section —
(i) the owner and operator of a vessel or a facility,
(2) any person who at the time of disposal of any
hazardous substance owned or operated any
facility at which such hazardous substances were
disposed of,
(3) any person who by contract, agreement, or other-
wise arranged for disposal or treatment, or ar-
ranged with a transporter for transport for
disposal or treatment, of hazardous substances
owned or possessed by such person, by any other
party or entity, at any facility or incineration vessel
owned or operated by another party or entity and
containing such hazardous substances, and
(4) any person who accepts or accepted any haz-
ardous substances for transport to disposal or
A-61
treatment facilities, incineration vessels or sites
selected by such person, from which there is a
release, or a threatened release which causes the
incurrence of response costs, of a hazardous sub-
stance, shall be liable for —
(A) all costs of removal or remedial action in-
curred by the United States Government or a
State or an Indian tribe not inconsistent with
the national contingency plan;
(B) any other necessary costs of response in-
curred by any other person consistent with
the national! contingency plan;
(C) damages for injury to, destruction of, or loss
of natural resources, including the reasonable
costs of assessing such injury, destruction, or
lost resulting from such a release: and
(D) the costs of any health assessment or health
effects study carried out under section
9604(i) of this title.
The amounts recoverable in an action under this
section shall include interest on the amounts
recoverable under subparagraphs (A) through (D).
Such interest shall accrue from the later of (i) the
date payment of a specified amount is demanded
in writing, or (ii) the date of the expenditure con-
cerned. The rate of interest on the outstanding
unpaid balance of the amounts recoverable under
this section shall be the same rate as is specified
for interest on investments of the Hazardous Sub-
stance Superfund established under subchapter A
of chapter 98 of Title 26. For purposes of applying
such amendments to interest under this sub-
section, the term “comparable maturit\” shall
be determined with reference to the date on
A-62
which interest accruing under this subsection
commences.
§ 9613. Civil proceedings
~*~ * *
(b) Jurisdiction; venue
Except as provided in subsections (a) and (h) of this,
section, the United States district courts shall have
exclusive original jurisdiction over all controversies
arising under this chapter, without regard to the citizen-
ship of the parties or the amount in controversy. Venue
shall lie in any district in which the release or damages
occurred, or in which the defendant resides, may be
found, or has his principal office. For the purposes of
this section, the Fund shall reside in the District of
Columbia.
(f) Contribution
(1) Contribution
Any person may seek contribution from any other
person who is liable or potentially liable under section
9607(a) of this title, during or following any civil action
under section 9606 of this title or under section 9607(a)
of this title. Such claims shall be brought in accordance
with this section and the Federal Rules of Civil Proce-
dure, and shall be governed by Federal law. In resolving
contribution claims, the court may allocate response
costs among liable parties using such equitable factors
as the court determines are appropriate. Nothing in this
subsection shall diminish the right of any person to
bring an action for contribution in the absence of a civil
action under section 9606 or section 9607 of this title.
A-63
MEMORANDUM OPINION AND ORDER
(United States District Court —
Western District of Michigan — Southern Division)
(Filed April 24, 1993)
(FRANK J. KELLEY, Attorney General of the State of
Michigan, ex rel, MICHIGAN NATURAL RESOURCES COMMIS-
SION, MICHIGAN WATER RESOURCES COMMISSION, and
DAVID F. HALES, Director of the Michigan Department of
Natural Resources, Plaintiffs, v. LESTER TISCORNIA, JAMES
W. TISCORNIA, EDWARD C. TISCORNIA, LOREN GERBER,
Defendants, and MANUFACTURERS NATIONAL BANK OF
DETROIT, Defendant and Third-Party Plaintiff, v. UNITED
STATES OF AMERICA, Third-Party Defendant — Case
No. 5:90-CV-62; HON. DAVID W. MCKEAGUE)
The action is brought pursuant to the Comprehensive
Environmental Response, Compensation, and Liability
Act (“CERCLA”), 42 U.S.C. § 9601 et seg., and the Michi-
gan Environmental Response Act (“MERA”), M.C.L.A.
299.601 et seq. The plaintiffs are seeking compensation
for expenses incurred cleaning up two sites: the Auto
Specialties Manufacturing Company (“AUSCO”) facility
located in St. Joseph. Michigan (the “St. Joseph
Facility’) and the facility located in Benton Harbor,
Michigan (the “Riverside Facility”). Counts I and II of
the Second Amended Complaint seek relief under
CERCLA and allege that the Tiscornias owned or oper-
ated the sites during times when hazardous substances
were released. Counts Ill and IV seek relief under MERA
and allege that the Tiscornias owned or operated the
sites at the time of disposal of a hazardous substance.!
| Because the provisions set forth in MERA were modeled after
CERCLA, the analysis as to MERA liability is coextensive. The
(concluded on page A-64)
NT ee
A-64
This matter is before the Court on cross-motions for
summary judgment. Plaintiffs move for partial summary
judgment as to the liability of defendants Edward,
Lester and James Tiscornia (“the Tiscornia defend-
ants”)* The Tiscornias also move for summary judg-
ment. The Court has reviewed the pleadings and
exhibits, heard oral argument, and finds the matter
ready for disposition.
FACTS
Lester, James and Edward Tiscornia held all of the
voting stock of AUSCO, a closely-held corporation.
Lester held 83%. James and Edward held the balance,
although the precise division between the two is
unclear from the pleadings. Each of the Tiscornias was
also a member of the Board of Directors and an officer
of the corporation. Since 1977, each of the Tiscornia
defendants served as a member of the AUSCO Executive
Committee. The committee, comprised of four individ-
uals, made decisions for the corporation. Under the cor-
porate by-laws, the Executive Committee exercised “the
powers of the Board of Directors in the management of
the business affairs and property of the corporation.”
The Executive Committee acted and the Board then
approved the Executive Committee minutes or actions.
Minutes from the meetings of the Executive Com-
mittee show that the members reviewed and discussed
the Notice of Violations that AUSCO facilities received
(continued from page A-63)
Michigan courts have authorized this approach. “Where a statute is
adopted from another jurisdiction, it is presumed that the Legisla-
ture intended that the statute be construed in accordance with the
judicial construction given by such other jurisdiction.” Greek v.
Bassett, 112 Mich. App. 556, 564 (1982).
2 The case has been bifurcated and at this time only liability
issues are before the Court.
A-65
from the Environmental Protection Agency (“EPA”) and
the Michigan Department of Resources (“MDNR").3 In
1979, three different letters were sent to AUSCO indi-
cating that the Company's landfill operations were not
in compliance with state regulations. Each letter sent
from the MDNR was routed to the Executive Committee
through an internal AUSCO memo. The Committee
reviewed the memorandum and made arrangements to
locate an attorney with whom to consult regarding envi-
ronmental issues. According to the defendants, the
Executive Committee merely set policy and ensured
that people were in place to comply with the estab-
lished policy. The decisions on specific waste disposal
practices were made by employees hired for the pur-
pose of handling these responsibilities.
In turning to each Tiscornia individually, it is undis-
puted that Lester Tiscornia became a director of the
Company in 1951, Executive Vice President of Manufac-
turing in 1961, and President and Chairman of the Board
in 1964. According to the defendants, Lester served in
an executive capacity and never directed the actual
operation of the Company. Lester Tiscornia testified in
deposition that his knowledge of environmental matters
was limited to information presented in Executive Com-
mittee meetings. He semiretired in 1975, although he
continued to serve on the Executive Committee.
After Lester became less active in AUSCO, James Tis-
cornia acted as Chief Operations Officer until 1986. In
this capacity, he oversaw four plants, including the two
which are the subject of this action. Plant managers
3 Exhibit 436 contains the minutes of a meeting held 11-20-78,
see paragraph 7; exhibit 437 contains the minutes of a meeting held
11-27-78 and mentions a Riverside Consent Order. EPA notice of vio-
lations and the St. Joseph Water Discharge Permit-Non-Compliance
Notice. Similar matters are included in the minutes contained in
Exhibits 439 and 441.
iat.
A-66
were in place at each site, however, as were employees
responsible for environmental concerns. According to
the organizational chart, three levels of supervision
separated James Tiscornia from the environmental
employees.
Edward Tiscornia served as Division Manager of St.
Joseph and Manager of the Castings Division during the
1970s. He reported directly to the Plant Manager. In
1979, Edward moved into sales and remained sales man-
ager until 1986.
In the late 1970s and early 19
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