Petition for Writ of Certiorari — Donahey v. Livingstone

Supreme Court brief1998

Ask Donna

What actually matters in this document.

Text

— Court, U.S.

i ' rf

97 11683 JAN - 9 1998

NO. __ogriee oF THE CLERK

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM 1997

RICHARD M. DONAHEY,

and PATRICIA A. DONAHEY,

Petitioners,

SEABOURN S. LIVINGSTONE, et al.,

Respondents.

On Petition For A Writ OF CERTIORARI

To Tue Untrep States Court Or APPEALS

For Tue Srxtu Circuit

PETITION FOR WRIT OF CERTIORARI

H.G. Sparrow, III

CouNSEL OF RECORD

DICKINSON WRIGHT PLLC

500 WoopwarD AVENUE

SutrE 4000

Detroit, MICHIGAN 48226

(313) 223-3500

ATTORNEYS FOR PETITIONERS

BECKER GALLAGHER LEGAL PUBLISHING, INC., CINCINNATI, OHIO 800-890-5001

QUESTION PRESENTED FOR REVIEW

Should a sole shareholder of a manufacturing corporation

always escape personal liability for environmental

contamination resulting from manufacturing operations (under

the Comprehensive Environmental Response, Compensation,

and Liability Act of 1980, as amended (“CERCLA”), 42

U.S.C. § 9607(a)) unless the “corporate vei!” can be

“pierced” pursuant to principles of state law?

PARTIES BELOW

The parties to the proceedings below are identified in the

caption of the case, except for Respondent Helen L. Bogle

against whom relief is not sought in connection with this

Petition, and who has not joined in this Petition. Additional

parties below include Defendants (1) St. Clair Rubber

Company, a corporation whose charter expired in 1983 (A46)

and which has no known parents or subsidiaries, and (2) H.

Gordon Wood, an individual; neither of these parties was

represented or active in connection with recent appellate

procedures before the Court of Appeals for the Sixth Circuit,

and neither has joined in this Petition to the Court.

ee A Oe LESTE Fee ne

ic os sib eshcaiae aa seaniiicatamnemn mene

TABLE OF CONTENTS

QUESTION PRESENTED FOR REVIEW ......... i

kg Se BRE atest ate ee ere ar a erga a ii

po RT Aes yy. se BERR eee marae ocor irae” iii

TABLE OF AUTHORITIES .... 2... cc eve ccenes V

OPINIONS AND ORDERS BELOW ............ 1

PRUE 6450 Co i sae eave e se ee 8 2

STATUTES INVOLVED ... 20. ce es. 2

STATEMENT Cr ieee CUS ass 5 <b vo 6 wee ae 2

A. Facts Established at Trial ............... 7

B. Appellate Court Decisions .............. 9

REASONS FOR GRANTING THE WRIT ......... 10

A. The Decision of the Court Of Appeals For The

Sixth Circuit Is In Conflict With Decisions By

The Courts Of Appeals For The Second,

Fourth, Fifth, Seventh, Eighth, Ninth And

Eleventh Circuits, On The Same Important

DN obec Re ee eK ES EAR Re 10

1. Second, Eighth, Fourth and Ninth

Cirenait TICS oe Ss 10

ys Fifth, Seventh and Eleventh Circuit

I ot rele 16

CONCLUSION

The Decision of the Court Of Appeals For The

Sixth Circuit Resolves An Important Federal

Question In A Way That Conflicts With

Relevant Decisions Of This Court .......

l. This Court Has Imposed Responsibility

On The Individual Employee For

Important Public Health Concerns

Resulting From Corporate Operations

2. This Court Has Upheld Federal

Legislative Policies Despite Contrary

State Corporate Law Requirements ....

APPENDIX

Appendix A

OPINION - United States Court of Appeals for

the Sixth Circuit (November 17, 1997) ....

Appendix B

JUDGMENT - United States Court of Appeals

for the Sixth Circuit (November 17, 1997) ..

Appendix C

OPINION - United States Court of Appeals for

the Sixth Circuit (March 9, 1993) ........

Appendix D

JUDGMENT - United States Court of Appeals

for the Sixth Circuit (March 9, 1993) .....

o SO, 29,8 Ph 202 OO) SC SR Oe ee eS Oe Se

. 18

A20

| ee metal

Re ee rt er ie een et Cee eee

- PSO ee eee eres ie ¥

Appendix E

ORDER [DENYING REHEARING] - United

States Court of Appeals for the Sixth Circuit

Cae SS Re ks he rw es

Appendix F

ORDER [GRANTING CERTIORARI,

VACATING JUDGMENT AND

REMANDING THE CASE] - United States

Supreme Court (June 15, 1994) .........

Appendix G

MEMORANDUM OPINION AND ORDER -

United States District Court, Eastern District

of Michigan, Southern Division (October 1,

BN ee oe ee Soh wa «OE EE

Appendix H

ORDER [MODIFYING OCTOBER 1, 1991

FINDINGS OF FACT & CONCLUSIONS OF

LAW] - United States District Court, Eastern

District of Michigan, Southern Division

(December 23, 1991) 2... ee eevee

Appendix I

JUDGMENT - United States District Court,

Eastern District of Michigan, Southern

Division (December 23, 1991) ..........

Appendix J

RELEVANT STATUTORY PROVISIONS. .

A97

TABLE OF AUTHORITIES

Cases

Anspec Co, v. Johnson Controls, Inc. ,

992 F.2d 1240 (6" Cir. 1991) .............. 20, 22

Bangor Punta Operations, Inc... et al v.

Bangor & Aroostook Railroad Co., et al,

SUT U.S. Fee teat, bos he RCO Re ere EEO 22, 23

Certain Und Llovd’ St Joe Minerals.

SO F.3d: Grd Gees Gale Be ie ss ai ed Che ha 16

Chi M&SLPRC Mi ,

BET Ae, s DOR CAGE) ok ea eR 23

City of New York v. Exxon,

112: BR: SOO ODA. YT. IO oe eR ER 12

Dedham Water Co. v. Cumberland Farms Dairy, Inc.,

OS F268 106 : Cae TUR ok eo ee eee ee 24

Donahey v. Bogle,

ROE Pe IO) 1, 23, 24, 26

Donahey v. Bogle,

987 F.2d 1250 (6" Cir. 1993) ............ 1, 13, 14

First Nat'l City Bank v. B Para ELC ;

Exterior de Cuba,

She Ui. GEL LISS). ase cece ke eee eee ee 22, 24

Dae ena pate wn ele ea SH EUS

2 Be ee eae te Sel NR and Dy ee

VAN ERA Mc ti

Lie! ae haere a ioe ate Daath

pune. ‘

og age. CR” | er :

conpspeyeorr yg agape iG

org ry oy poem

498 U.S. 1108, 111 S.Ct. 1017,

112 L.Ed.2d 1098 (1991) .................. 5,21

oor ge py geal ae

Tow :

Lansford-Coaldale Joint Water Auth, v._

Tonollli Corp.,

4 F.3d 1209 (3d Cir. 1993) ................. $. Ti

rege ee i ee

2... s

Seas cee

Vii

New York v. Solvent Chem.,

SIS F. SUD. IDES CW ae Bs BOO) vice iec eres vs 12

966 F.2d 837 (4" Cir. 1992), cert. den. sub nom.,

Mumaw v. Nurad, Inc,, 506 U.S. 940,

113 S.Ct. 377, 121 L.Ed.2d 288 (1992) ........ 3,14

tides Caines iicieat haie.

06 F356 1409 CT" Ce. TOR) ee hee ks 4,17

Riverside Mkt. Dev. C

International Building Prods.

931 F.2d 327 (5" Cir.), cert. denied,

502 U.S. 1004, 112 S.Ct. 636,

116 L.E4.2d 654 (1991) .......:..-... 3, 5, 17, 21

peuetciee me 3, 5, 12, 24

BEMATP CRIM ain 211

Siw ee i

ePID eke. 1 i

U.S. v. Cordova Chemical Co. of Michigan.

59 F.3d 584 (6" Cir. 1995),

vacated 67 F.3d 586 (6" Cir. 1995),

SIS PSS Cw. TOOT) ok co ee i aS 13

Viil

AOE id EDA hos

sedecinsioaiia ‘90

U.S. v. Dotterweich,

320 U.S. 277, 64 S.Ct. 134, 88 L.Ed. 48

RS is Se a ee ok EN OV Mae a es 20, 25

U.S. v. Gurley,

SSF 36 108 Or Cw ISO. oo ee ee 13, 17

U.S. v. Kayser-Roth Corp.,

910 F.2d 24 (1" Cir. 1990), cert. den.,

498 U.S. 1084, 111 S.Ct. 957,

bee bg. oi. | APRPanpNe Abra eer era er arene 5, 11

U.S. vy. Park,

421 U.S. 658, 95 S.Ct. 1903, 44 L.Ed.2d 489

CIF eG hb dale ke a ee eR 19, 20, 25

546 F. Supp. 1100 (D. Minn. 1982) ............. 24

U.S. v. TIC Investment Corp.,

68 F.3d 1082 (8" Cir. 1995)

cert, den. US__., 117S Ct. 50,

Boge 8 Fe ee ear eee 4, 5, 12, 13,

BO RE a ee ere ear Re EP re ae a OP a 14, 16, 17

US. v. USX Corp.,

OE PSEC Ce te) ee ees 11

ee Fee ee Chew ERs a a ele ea ee 3, 5, 6, 13

Statutes

Comprehensive Environmental Response,

Compensation, and Liability Act of 1980,

as amended (“CERCLA”),

Gi VAs @ UB i 6 ils cae ee eS 2, 10

§ 102(a), 42 U.S.C. 9602(a).......... BREE GOES 19

§ 104(a)(1), 42 U.S.C. 9604(a)(1) .... 2.2... 19

§ 107(a), 42 U.S.C. 9607(a) ..... 2... ay a1; 29

§ 107(a)(1), 42 U.S.C. 9607(aX{l) .............. 4

§ 107(a)(2), 42 U.S.C. 9607(a)(2) ..... 4, 6, 10, 16, 24

§ 107(a)(3), 42 U.S.C. 9607(a)(3) ..... 4, 6, 10, 16, 24

§ 113(b) and (f), 42 U.S.C. 9613(b) and (f) ....... ve

Federal Food, Drug and Cosmetic Act,

Oh re 208 RR in ee Ree IO 5, 19

Michigan Compiled Laws § 450.1501 ............ 6

Michigan Statutes Annotated § 21.200(501) ........ 6

OPINIONS AND ORDERS BELOW

The en banc opinion of the Court of Appeals for the

Sixth Circuit as rendered November 17, 1997, Donahey v.

Bogle, _—*F.3d ___ (6" Cir. 1997), is included in the

Appendix at Al. The Court of Appeals’ Judgment dated

November 17, 1997 is included at A20. The Court of

Appeals’ earlier opinion (Donahey v. Bogle, 987 F.2d 1250

(6" Cir. 1993)) is included at A22; the March 9, 1993

Judgment associated with that Opinion is included at A34. A

June 15, 1993 Order of the Court of Appeals denying

rehearing in connection with the earlier appellate panel

decision is included at A36, and the Supreme Court’s Order

granting certiorari, vacating judgment and remanding the

case, reported as Livingstone v. Donahey, 512 U.S. 1201

(1994) is included at A38. A copy of the trial court’s

Memorandum Opinion and Order is included at A39; the trial

court’s Order Modifying its October 1, 1991 Findings of Fact

and Conclusions of Law is included at A88, and the trial

court’s Judgment, entered December 23, 1991 is included at

A92.

JURISDICTION

The jurisdiction of this Court is invoked pursuant to 28

U.S.C. 1254(1) and 28 U.S.C. 1651:

§ 1254. Courts of appeals; certiorari; appeal;

certified questions

“Cases in the courts of appeals may be reviewed by

the Supreme Court by the following methods:

“(1) By writ of certiorari granted upon the petition

of any party to any civil or criminal case before or

”

after rendition of judgment or decree; . .

“$1651. Writs

“(a) The Supreme Court and all courts established

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’ Judgment was issued November 17,

1997. This Petition is timely because it is filed “within ninety

days after entry of the judgment.” Rules of the Supreme

Court, Rule 13.

STATUTES INVOLVED

The pertinent sections of CERCLA involved in this

appeal are § 101(20)(A), 42 U.S.C. 9601(20)(A); § 107(a),

42 U.S.C. 9607(a); and § 113(b) and (f), 42 U.S.C. 9613(b)

and (f). Their texts are set forth verbatim beginning in the

Appendix at A97.

STATEMENT OF THE CASE

This is a case involving an individual’s liability under

CERCLA for environmental contamination resulting from the

manufacturing operations of the individual’s wholly-owned

corporation. The question for review is the appropriate

standard to be applied where that individual, Respondent

Seabourn S. Livingstone, was the sole owner of all the

corporate stock and chairman of the corporation’s board of

directors. On December 12, 1997, the Court granted

certiorari as to an opinion of the Court of Appeals for the

Sixth Circuit which raises a comparable issue; namely, the

standard to be applied to determine a parent corporation’s

liability for the environmental transgressions of its wholly-

owned subsidiary. United States of America, Petitioner. v.

CPC International, Inc.; Michigan Department of

Environmental Quality, Petitioner. v. CPC International. Inc..

et al, S. Ct. Docket Nos. 97-296 and 97-454 (“CPC”).

This Petition seeks review of a Judgment of the Court

of Appeals for the Sixth Circuit. That judgment stands alone

among the circuits in declaring that an individual cannot be

held liable, no matter how reprehensible his conduct,’ unless

the corporate veil can be pierced under state law principles.

By contrast, the Second, Fourth, Fifth, Seventh, Eighth,

Ninth and Eleventh Circuits have each rejected defenses based

on the claimed primacy of state corporate law, regarding

individual shareholder liability.”

' As Judge Ryan said in his concurring opinion below, the effect of

the Sixth Circuit's "rather obvious misreading of CERCLA [is] to

protect a 100% shareholder of an ostensible operator corporation

from direct Section 107(1)(2)[sic; should probably say § 107(a)(2)]

liability no matter what the evidence shows as to his activities."

(A14, emphasis added.)

2 New York v. Shore Realty, 759 F.2d 1032 (2d Cir. 1985);

Schiavone v. Pearce, 79 F.3d 248, 255 (2d Cir. 1996); ULS.v.

Carolina Transformer Co., 978 F.2d 832, 836-7 (4" Cir. 1992);

Nurad, Inc, v. William E. Hooper & Sons, Inc., 966 F.2d 837 (4"

Cir. 1992), cert. denied sub, nom., Mumaw v. Nurad, Inc., 506

U.S. 940, 113 S.Ct. 377, 121 L.Ed.2d 288 (1992); Riverside

Market Dev, Corp. v. International Building Products, Inc., 931

F.2d 327, 330 (5" Cir. 1991), cert. den., 502 U.S. 1004, 112 S.Ct.

The rejection of limited liability protection for

individual shareholders, in these CERCLA cases, has largely

resulted from the fact that CERCLA imposes liability not only

on the “owner” of contaminated property but also, and

separately, upon any Ba ane S of contaminated property

(CERCLA § 107(a)(1) and (2)).? Separate categories of liable

parties allow for imposition of liability without involving

corporate veil piercing at all. As Chief Judge Boyce Martin

stated, in his dissenting opinion below, “[t]here is no reason

to discuss piercing the corporate veil when a 100 percent

shareholder can be held directly liable as an operator under 42

U.S.C. § 9607(a)(2).” (A18.) Instead of “speaking in the

wrong idiom” (id.) as the Sixth Circuit did, the Second,

Fourth, Fifth, Seventh, Eighth, Ninth and Eleventh Circuits

have adopted variations of what the Sixth Circuit itself said,

in its first appellate decision in this case; specifically, “that

[Respondent] 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 [under

636, 116 L.Ed.2d 654 (1991); Sidney S. Arst Co. v. Pipefitters

Welfare Educ. Fund, 25 F.3d 417 (7 Cir. 1994); United States v.

TIC Investment Corp., 68 F.3d 1082 (8" Cir. 1995), cert den.,

US. , 117 S.Ct. 50, 136 L.Ed.2d 14 (1996); Kaiser Aluminum

v. Catellus Dev.. 976 F.2d 1338, 1341 (9" Cir. 1992); Redwing

Carriers, Inc. v. Saraland Apts., 94 F.3d 1489, 1503-4 (11" Cir.

1996).

* There is in this case a third relevant category of liable “person,”

(apart from the corporate “owner” of the property), and that is

“any person who ... otherwise arranged for disposal ...” of

contaminants at property “owned ... by another party ....”

CERCLA § 107(a)(3). Petitioners claimed at trial that Respondent

Livingstone was liable under this CERCLA section as well, as

Respondent Helen Bogle at all relevant times owned the

contaminated property. (A43, A69.)

CERCLA].” A8-9, A28.

There is a different (but related) question, which has

recently been accepted for review by this Court. (CPC, S.Ct.

Docket Nos. 97-296 and 97-454.) That question is whether

a parent corporation owning 100% of a subsidiary may be

held liable for environmental contamination resulting from the

subsidiary’s activities. As argued later in this Petition, the

case for a corporate parent's liability is less persuasive than

that of the individual's liability for his wholly-owned

corporation. Yet even as to this parent-subsidiary issue, the

First, Second, Third, Eighth and Eleventh Circuits

specifically reject the claim that the parent is liable only if the

subsidiary’s corporate veil may properly be pierced under

state law.* The Sixth Circuit took the opposite view in CPC,

which is consistent with its latest holding in this case of

Donahey.°

* John S. Boyd Co. v. Boston Gas Co., 992 F.2d 401

(1* Cir. 1993); United States v. Kayser-Roth Corp., 910 F.2d 24

(1" Cir. 1990), cert. den., 498 U.S. 1084, 111 S.Ct. 957, 112

L.Ed.2d 1045 (1991); Schiavone v. Pearce, 79 F.3d 248, 255 (2d

Cir. 1996); Lansford-Coaldale Joint Water Auth. v. Tonollli Corp..,

4 F.3d 1209, 1220-1225 (3d Cir. 1993); United States v. TIC

Investment Corp., 68 F.3d 1082 (8" Cir. 1995); Jacksonville Elec.

Auth. v. Bernuth Corp., 996 F.2d 1107 (11" Cir. 1993).

* The Fifth Circuit requires veil piercing in the parent corporation

context, and thus supports the respondents in CPC. Joslyn Mfg.

Co. v. T.L. James & Co,, 893 F.2d 80 (5" Cir. 1990), cert. den.,

498 U.S. 1108, 111 S.Ct. 1017, 112 L.Ed.2d 1098 (1991).

However, for good and sufficient reason the Fifth Circuit rejects

veil-piercing as to individuals, thus impliedly rejecting the position

of the CPC respondents and expressly supporting Petitioners in this

Riverside Market Dev. Corp. v. International

case of Donahey.

Building Products, Inc., 931 F.2d 327, 330 (5" Cir. 1991), cert.

CPC may well have been wrongly decided. However,

as a matter both of Michigan law and of analogous federal

law,° a parent corporation never has the sort of authority over

its subsidiary that Respondent Livingstone had over his

wholly-owned corporation. Under Michigan law the board of

directors governs the corporation.’ Therefore, by law, the

parent corporation does not govern the subsidiary's operation

even if it does own 100% of the stock. By contrast, where an

individual owns 100% of the corporate stock, the corporate

board of directors is profoundly if not overwhelmingly

influenced by the wishes of the only shareholder --

particularly if that shareholder is the Chairman of the Board,

as Respondent Livingstone was.

In their complaint and at trial, Petitioners sought to

establish that Respondent Livingstone “operated” the St. Clair

Rubber Company “facility” “at the time of disposal of any

hazardous substance” (CERCLA § 107(a)(2)), or that

Livingstone “otherwise arranged for disposal” of St. Clair’s

manufacturing wastes (CERCLA § 107(a (3)).° Trial Court

Opinion at A66.

den., 502 U.S. 1004, 112 S.Ct. 636, 116 L.Ed.2d 645 (1991).

This apparent dichotomy helps to demonstrate the differences

between the parent-subsidiary question, and the stronger arguments

for liability associated with the individual owner-wholly-owned

corporation question.

® See, Section (B)(1) of this Petition, infra.

” Michigan Compiled Laws § 450.1501, Michigan Statutes

Annotated § 21.200(501) provides, in pertinent part, that “[tJhe

business and affairs of a corporation shall be managed by or under

the direction of its board [of directors], except as otherwise

provided in this act or in its articles of incorporation.”

® See Footnote 3.

Re ee ee ee ee amar ae rae

A. Facts Established at Trial

The facts relating to Respondent Livingstone’s liability

or non-liability are not in dispute. Petitioners’ complaint

sought “contribution” (CERCLA § 113(f)) from defendants,

including Mr. Livingstone, for response costs incurred by

them in conducting clean-up operations on real property

(“Site”) purchased in 1981 by Petitioner Richard Donahey on

land contract from Respondent Helen Bogle. (A45-6, A59.)

Unknown to either Donahey or Bogle at the time of purchase

was the existence of five subterranean pits containing

concealed environmental contaminants resulting from

operations by the tenant, St. Clair Rubber Company (“St.

Clair”), which burned aad buried its wastes over a period of

more than twenty years at the Site. (A49, A65-66.)

In papers filed with the Court of Appeals, Respondent

Livingstone himself asserted that at all applicable times, over

two decades, he “was the sole shareholder and Chairman of

the Board of St. Clair, hired the presidents and appointed the

members of the board of the company” and that “the

presidents reported directly to Mr. Livingstone

[Respondent].”’ Respondent Livingstone identified some

chemical solvents by name which were used in St. Clair’s

manufacturing operations, but declared that he was “not a

chemist”'? Admittedly Mr. Livingstone had "hired various

presidents over a period of years" to oversee manufacturing

operations.'’ But St. Clair’s long time secretary and attorney

* See Respondent Livingstone’s June 29, 1992 Brief to the Court of

Appeals, at pp. 28-9; transcript of proceedings, May 6, 1991,

Livingstone Tr. 74-5; A46.

'° May 6, 1991 transcript, Livingstone Tr. 90-91.

'! May 3, 1991 transcript, Wood Tr. 35.

(a partner then recently retired from a large Detroit law firm)

testified that “Mr. Livingstone ran the company [St. Clair] as

a sole proprietorship,” and “absolutely” had ultimate

decision-making authority at the company. The attorney

further testified “it [St. Clair] was a corporation but he

[Livingstone] ran it as his business. And actually he could

hire and fire people as he saw fit as chairman .... Mr.

Livingstone said he [the president] couldn’t fire anybody

without his approval.”

At trial, Livingstone testified that all operational

people “reported to whoever the president was in

Marysville.”"’ Livingstone denied having any knowledge of

any waste disposal at the Site or at St. Clair’s other

manufacturing facility (also in Marysville, Michigan),

declaring “I don’t want to hear about that sort of thing” when

asked if he was told that the City of Marysville had informed

St. Clair that it could no longer burn wastes behind this other

facility.'* Dumping, burning, and the City of Marysville's

demands that these practices be halted are at the core of the

Site's environmental problems. (A4, A45)

? As quoted in Respondent Livingstone's own Brief to the Court of

Appeals, June 29, 1992, at p. 28; also see May 3, 1991 transcript,

Wood Tr. 89, 93-4.

'? May 6, 1991 transcript, Livingstone Tr. 76.

'* May 3, 1991 transcript, Livingstone Tr. 77-8. His full statement

on the point (also quoted in fuller detail by Respondent

Livingstone’s own Brief to the Court of Appeals, November 10,

1995, at pp. 12-13) was this: "I would frankly probably dress him

[the company president] down for [telling me] that [information

about burning wastes] because I don't want to hear about that sort

of thing.”

MUN SRE Rs Mind

UMAR ae eths asre NTI AS iden

The trial court exonerated Livingstone from having

“personally participated in the waste disposal practices of St.

Clair.” (A67) However, the trial court specifically found

“that Livingstone had the authority to control waste disposal

practices [but] he never exercised such authority; it was

delegated to others.” The court also found “no evidence that

Livingstone personally arranged for the disposal of St. Clair’s

industrial waste products.” (A67-68)

B. Appellate Court Decisions

In the first (1993) appeal, the Sixth Circuit reversed

the trial court’s finding of non-liability on the part of Mr.

Livingstone, declaring that “the evidence clearly established

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.” (A28)

That panel decision affirmed the trial court’s conclusion that

no “response costs” would be awarded to Plaintiffs, but

reversed that part of the trial court’s decision which failed to

award to Plaintiffs their “initial investigative” costs and

appropriate attorney fees. Livingstone thereafter petitioned

this Court for certiorari both on the issue of his own liability,

and on the issue of attorney fees. This Court granted

certiorari and vacated the Sixth Circuit panel’s earlier

decision, inviting “further consideration in light of Key

Tronic Corp. v. United States, 511 U.S. 809 (1994).”5 The

Sixth Circuit thereafter heard the matter en banc and as a

result, reinstated and reaffirmed [its earlier decision] except

'S Key Tronic involved private-party attorney fees; it did not

involve any issue of CERCLA liability for scle shareholders of

corporations, whether individual sole shareholders or corporate sole

shareholders.

as to attorney’s fees and § 107(a)(2) operator liability.”

(Al4, A21)

This Petition therefore presents for review the Sixth

Circuit’s most recent pronouncement as to “§ 107(a)(2)

operator liability.” It also presents for review the issue of

Livingstone’s § 107(a)(3) “arranger” liability, which was

denied by the trial court and as to which each of the Sixth

Circuit opinions has been silent. Finally, this Petition is

presented in the context of Petitioners’ having been awarded

their “investigative costs” in the earlier Sixth Circuit panel

opinion, as reinstated and reaffirmed by the Sixth Circuit in

its recent November 17, 1997 judgment. (A14, A31-33)

REASONS FOR GRANTING THE WRIT

A. The Decision Of The Court Of Appeals For The

Sixth Circuit Is In Conflict With Decisions By The

Courts Of Appeals For The Second, Fourth, Fifth,

Seventh, Eighth, Ninth And Eleventh Circuits, On

The Same Important Matter

1. Second, Eighth, Fourth and Ninth Circuit

Decisions

Where individual CERCLA liability is concerned, no

other federal circuit adopts the view that limited shareholder

liability, established under state law, also insulates individuals

from liability under CERCLA. Instead, every federal circuit

having occasion to address the issue has rejected the

immunities and protections of limited liability, in favor of a

finding of “operator” or “arranger” liability under CERCLA,

§ 107(a)(2) or (3). In the seminal case of New York v, Shore

Realty, 759 F.2d 1032 (2d Cir. 1985), the appellate court

applied § 107(a) (2) “operator” liability to the president and

sole shareholder of a corporation owning contaminated

i i ee

| oe ee

property, finding that the individual “is in charge of the

operation of the facility in question, and as such is an

‘operator’ within the meaning of CERCLA.” 759 F.2d at

1052. The court reached this conclusion even though stating

that “it is debatable whether a New York court would hold

LeoGrande personally liable by piercing the corporate veil.”

Id, at 1052."°

The Second Circuit recently carried forward on these

pronouncements in Schiavone v. Pearce, 79 F.3d 248, 255

(2d Cir. 1996):

Although we are not unmindful of the weighty

concerns [favoring “an alternative approach that

strictly adheres to traditional veil-piercing concepts” ]

expressed by the Fifth and Sixth Circuits, we

subscribe instead to the views adopted by the First,

see, ¢.g., ; Kayser-Roth, 910 F.2d 24; Third, see,

€.8., {United States v.] USX Corp. 68 F.3d 811 [3

Cir. 1995)}; EMC Corp. lv, United States], 29 F.3d

833 [3 Cir. (1994)]; Lansford-Coaldale, 4 F.3d

1209; Fourth, see, ¢.g., Carolina Transformer, 978

F.2d 832 (independent, personal operator liability for

corporate principals); Seventh, see, ¢.g.. Sidney S.

‘© Shore Realty also concluded "that an owning stockholder who

manages the corporation” would be liable because of the specific

exception from liability of "a person, who, without participating in

the management of a ... facility, holds indicia of ownership

primarily to protect his security interest in the facility." Id. at

1052; CERCLA § 101(20(A). Chief Judge Boyce Martin,

dissenting in this case of Donahey, made the same point in

concluding that “the explicit exclusion of one class of

shareholders," on the one hand, from managing, "100 percent”

shareholders, on the other, augured for liability on the part of such

an “owning stockholder who manages the corporation..." (A17)

Arst, 25 F.3d 417 (direct operator liability for

corporate officers and directors); Eighth, see, e.g.,

TIC Inv. Corp,, 68 F.3d 1082; and Eleventh Circuits,

see, e.g., Jacksonville Elec., 996 F.2d 1107; and of

several district courts within this circuit, see, e.g.,

[New York v.] Solvent Chem., 875 F. Supp. 1015

[W..D.N.Y. (1995)}; [City of New York v,] Exxon,

112 B.R. 540 [S.D.N.Y. (1990)]. A recognition of

direct operator liability for parent corporations is both

compatible with the statutory language and consistent

with CERCLA’s broad remedial s¢heme."’

A recent Eighth Circuit decision upheld a summary

judgment of individual CERCLA liability, and decried any

rule of law that would allow "a corporate officer, who has

virtually unlimited control over a company and in fact

exercises that control but knows well enough to close his or

her eyes to the specific details of the company’s hazardous

waste disposal practices, ... [to] avoid CERCLA liability ..

United States v. TIC Investment Corp. 68 F.3d 1082, 1089

(8" Cir. 1995) cert, den. _ US__, 117 S.Ct. 50 (1996). The

TIC court grappled directly with the issue that Respondent

Livingstone has most adamantly advanced at trial and in the

Court of Appeals; namely, if Mr. Livingstone played no

direct, hands-on role with his company’s wastes, he should

'7 Although Schiavone itself involved a parent-subsidiary situation,

the authority cited approvingly by that court included several

individual shareholder-wholly owned corporation cases. Schiavone

has subsequently been cited by district courts in the Second Circuit

in cases involving corporate directors and majority shareholders.

See, Idylwoods Associates v. Mader Capital, Inc., 956 F. Supp.

410, 413 (W.D.N.Y. 1997).

have no liability."

Before TIC was decided in late 1995, Respondent

Livingstone had cited and principally relied on an earlier

Eighth Circuit decision, U.S, v. Gurley, 43 F.3d 1188 (8"

Cir. 1994). Gurley among other things had declared that an

individual would not be liable for corporate environmental

misdeeds unless that person "actually exercised" his authority

to determine whether and how hazardous materials would be

disposed of (43 F.3d 1188, 1193). The TIC court declared,

however, that its earlier decision in Gurley was

distinguishable because the individual in that case "was a non-

officer, '? non-director, non-shareholder employee" and that

“language from Gurley" could not be taken "out of context to

conclude that Georgoulis cannot be personally liable ... absent

proof of his personal involvement in the arrangement for

disposal ...". 68 F.3d at 1088-9.”

'® Until mid-summer 1995, when the first CPC decision was

rendered (sub, nom, U.S. v. Cordova Chemical Co, of Michigan,

59 F.3d 584 (6" Cir. 1995)), Livingstone based his arguments only

peripherally on limited liability under state corporate law. His

principal argument was always based on his claim that, except for

exercising his personal right to hire and fire ali corporate

personnel, he delegated all operational responsibilities at his

company.

'? Livingstone was also, at all applicable times, Treasurer of St.

Clair Rubber Company. May 6, 1991 transcript, Livingstone Tr.

74-75.

requirements for review of a summary judgment allegedly

involving undisputed facts, that "neither Georgoulis nor any

employee of the TIC entities [which Georgoulis owned] had

personal knowledge of the contract ... for the disposal," and that

Therefore, when squarely presented with the issue

(and even in a summary judgment setting) the Eighth Circuit

had no hesitation in rejecting the claim that “actual exercise”

of authority by the individual was essential to a finding of

liability. The Fourth and Ninth Circuits have also exactly so

held. See, U.S. v. Carolina Transformer Co,, 978 F.2d, 832,

836-7 (4" Cir. 1992), reiterating an “authority to control”

standard adopted in Nurad, Inc. v, William E. Hooper &

Sons. Inc., 966 F.2d 837 (4" Cir. 1992), cert. denied,

neither he nor any relevant employee had “any personal knowledge

of the disposal practices at the dump site, or was in any way

directly involved in waste disposal matters." 68 F.3d at 1084.

However, it should also be noted that the liability issue in TIC was

whether Georgoulis and other defendants were "arrangers for

disposal" under CERCLA § 107(a)(2). The applicability of TIC’s

reasoning to the circumstances of Respondent Livingstone’s liability

should not be thereby diminished; in fact, the TJC court was at

pains to point out that arranger liability was more difficult to

establish because “operator liability, by contrast, merely requires

that one operate the facility at which hazardous substances are

disposed of, at the time of the disposal; it does not require any

involvement in the disposal activities themselves." 68 F.3d at

1090, footnote 7. Nor did the TIC court disagree with the trial

court’s conclusion that the standards for judging arranger and

operator liability were the same. Id, at 1086. The court also

specifically noted that Georgoulis’ “level of control" would have

been sufficient to impose operator liability if disposal in that case

had not been on land owned and operated by a third party. Id. at

1089, footnote 6. In any event, on the clear authority of TIC

Petitioners respectfully suggest Livingstone’s “arranger” liability

should also be established. (The trial court concluded that

Livingstone was not liable as an “arranger” or an operator (A66-68)

and both the Panel’s Opinion at 987 F.2d 1250, and the November

17, 1997 en bane decision, are silent on the "arranger" issue.)

‘y

{

ae Sets, Uae PON ay cn)

+ eee

idee te

ome

AL See esas wie) aA Uap ehipteall Sel bt

PMAE Miwa

U.S. __, 113 S.Ct. 377 (1992), and Kaiser Aluminum v.

Catellus Dev,, 976 F.2d 1338, 1341 (9% Cir. 1992) (adopting

“authority to control” standard).

Like Respondent in this case, the involved individual

in TIC asserted that he knew nothing of his company’s waste

disposal practices. Also like Respondent, Mr. Georgoulis of

TIC was the sole shareholder and chairman of the board who

hired and fired several persons as president within a few

years’ time. Both avoided any responsibilit, for waste

handling, yet Respondent Livingstone (in contrast to the

reported record involving Mr. Georgoulis) specifically knew

by name some of the exotic solvents which were used in the

manufacturing process by his company.’ Moreover,

Respondent’s protest that he was “not a chemist" does not

gainsay his certain knowledge that chemists were necessary

for manufacturing operations.

The trial court did of course find that Livingstone had

no direct supervision or active participation in waste disposal

practices. But this is a finding of result, in contrast to TIC's

emphasis on cause: "... clos[ing] his .... eyes to the specific

details ofathe company’s hazardous waste disposal practices

..." The issue with Respondent is not so much how he acted

as how he failed to act, how he neglected his responsibilities

by adopting what Judge Martin would describe as a "'don’t

ask, don’t tell’ policy regarding the disposal of environmental

*! See, e.g., May 6, 1991 transcript, Livingstone Tr. 91, where

Respondent Livingstone referred to "MEK" (but he was not able to

confirm "methylethylketone” as what "MEK" meant); and "toluwal

(sp.)" where "somebody said it was a carcinogen or something like

that." Respondent Livingstone’s only expressed concern with

respect to these solvents was "when the price of things went up ..."

Id.

toxins. "”

Petitioners will urge this Court to conclude, as did the

Sixth Circuit Panel hearing the case in 1993, that any 100%

shareholder and Chairman of the Board who would declare "I

don’t want to hear about that sort of thing" with respect to a

violation of municipal waste burning laws, should be held

accountable for his corporation's environmental wrongs.

2. Fifth, Seventh and Eleventh Circuit Decisions

As mentioned above, only the Sixth Circuit declares

that state corporate law trumps federal environmental law (in

the form of CERCLA) when it comes to individual liability

for corporate misdeeds. The other seven Circuits who have

addressed the issue have found § 107(a)(2) “operator” liability

or § 107(a)(3) “arranger” liability, separately, without feeling

hidebound by state corporate law principles.

Subpart A(1) of this argument points out that the

Fourth, Eighth and Ninth Circuits have unequivocally adopted

the “authority to control” test for personal liability. Shore

Realty and Schiavone suggest that the Second Circuit may also

yet take that position, in an appropriate case.”

” A15-16. (The Chief Judge for the Sixth Circuit, Boyce F.

Martin, dissenting from the majority decision below). In context,

Judge Martin first stated that "the majority opinion not only creates

new law, but also offers novel opportunities for the savvy polluter."

He went on to describe the savvy polluter in part as one who "can

play an active role in the company but follow a ‘don’t ask, don’t

tell’ policy regarding the disposal of environmental toxins."

» But see, Certain Underwriters at Lloyd's v. St. Joe Minerals, 90

F.3d 671, 674 (2d. Cir. 1996), in which the court stated, in dicta,

that “it is debatable whether this Court is prepared to go that far”

Cases decided to date in the Fifth, Seventh and

Eleventh Circuits have, on their facts, been more akin to

Gurley than to TIC. Therefore, each of the three decided

cases in these three circuits has spoken in terms of “actual

participation or control” as the test of liability. See,

Riverside Market D C I ‘onal Build

Products, Inc., 931 F.2d 327, 330 (S" Cir. 1991) (the

challenged individual held 85% of the corporate stock with

the other 15% held by the president and chief executive

officer who was on-site while the challenged individual, who

was “secretary of the corporation, consultant and chairman of

the board ... lived in New York and visited the New Orleans

facility only 2-4 times a year” principally for sales purposes

in conjunction with his "consulting activities" [at 328]);

Sidney S. Arst Co, v. Pipefitters Welfare Educ, Fund, 25

F.3d 417 (7" Cir. 1994) (the affected individuals were two

defendants, the president, majority shareholder and director,

on the one hand, and the vice president, on the other; each of

these defendants, in a motion to dismiss situation, had been

alleged in the complaint filed against them to have "knowingly

exercised direct and personal control" [at 421] involving

waste contaminants; the complaint was reinstated by the Court

of Appeals); Redwing Carriers, Inc. v. Saraland Apts., 94

F.3d 1489, 1505 (11 Cir. 1996) (individuals were limited

partners who had “rights [mever exercised] under the

partnership agreement to control the partnership’s affairs" [at

1505]).

Just as the Eighth Circuit refused to apply its own

Gurley test to a TIC situation, there is no reason to believe

that the Fifth, Seventh and Eleventh Circuits would not

themselves apply an “authority to control” test in a proper

case. Once again, Chief Judge Boyce Martin’s comments are

in finding “mere authority to contro!" sufficient to impose liability.

instructive. In dissent, he said:

Federal-state issues aside, this case is not about

imposing liability on the average shareholder. In

discussing ‘shareholder’ liability in this context, I limit

my comments specifically to sole shareholders who

are active in the corporation. I reserve the question of

the liability of people who own less than 100 percent

of a corporation’s shares or who are not active in

management.

(A16-17)

Here, Respondent Livingstone owned 100% of the shares of

his corporation, and was active in its management, and is thus

a clear candidate for liability, under any test except that

articulated by the Sixth Circuit.

The Decision of the Court Of Appeals For The

Sixth Circuit Resolves An Important Federal

Question In A Way That Conflicts With Relevant

Decisions Of This Court

1. This Court Has Imposed Responsibility On

The Individual Employee For Important

Public Health Concerns Resulting From

Corporate Operations

In cases decided under the Federal Food, Drug and

Cosmetic Act, this Court has not hesitated to impose

individual liability where important matters of public health

were concerned.” In U.S. v, Park, 421 U.S. 658, 95 S.Ct.

1903, 44 L.Ed.2d 489 (1975), the individual’s defense to food

contamination charges brought against both him and his

corporate employer was that sanitary conditions at the

corporate food warehouses had been assigned to “dependable

subordinates.” Id. 421 U.S. at 664. The court, looking again

“to the purposes of the act,” rejected the requirement, set by

the Court of Appeals for the Fourth Circuit below, that

“wrongful action” on the part of the individual must be

proved. Id, at 668, 673. Instead, once the Government

showed that the individual “by reason of his position in the

corporation, [has] responsibility and authority to prevent in

the first instance, or promptly to correct, the violation [of the

Act] complained of, and that he failed to do so,” the

individual would be left primarily with the defense that he or

she “was ‘powerless’ to prevent or correct the violation ....”

Id. at 673-4, 673.

The purposes of the Federal Food, Drug and Cosmetic

Act parallel those of CERCLA. The former protects “the

public interest in the purity of its food,”” while the latter

concerns itself e.g. with "substances which, when released

into the environment may present substantial danger to the

public health or welfare or the environment ..." (CERCLA §

102(a)), or “any pollutant or contaminant which may present

an imminent and substantial danger to the public health or

welfare ..." (CERCLA § 104(a)(1)). CERCLA also seeks to

make “those responsible for disposal of chemical poisons bear

—

* CERCLA is contained within Title 42 of the United States Code,

entitled "The Public Health and Welfare;" the Federal Food, Drug

and Cosmetic Act, 21 U.S.C. § 301, et seq., is contained within

Title 21: "Food and Drugs.”

> Park, 421 US at 671, citing Smith v. California, 361 U.S. 147,

152 (1959).

the cost and responsibility for remedying the harmful

conditions they created.” Anspec Co. v. Johnson Controls,

Inc., 992 F.2d 1240, 1247 (6" Cir. 1991). The proofs in

Park showed that the individual (who was chairman of the

corporate board) sought to delegate the contamination matter

to “dependable subordinates;” by contrast, Respondent

Livingstone said “I don’t want to hear about that sort of

thing” and busied himself with the cost of the potentially-

contaminating solvents rather than their proper disposal. The

defendant in Park could escape liability only by showing that

he was “powerless;” Respondent Livingstone, pursuant to the

decision below, escapes liability notwithstanding his "sole

proprietorship" power because, under Michigan law, the

corporate veil cannot be pierced. It is anomalous to impose

criminal sanctions on individuals responsible for corporate

misdeeds affecting public health; and yet, in the civil context

(where due process is not even an issue) absolve the 100%

shareholder of his wholly-owned corporation from any public

health responsibility whatever.

In the Federal Food, Drug and Cosmetic Act context,

the Court has imposed individual liability even in cases where

the responsible individual was regarded as relatively innocent.

See, U.S. v, Dotterweich, 320 U.S. 277, 281, 64 S.Ct. 134,

88 L.Ed. 48 (1943) (“In the interest of the larger good it puts

the burden of acting at hazard upon a person otherwise

innocent but standing in responsible relation to a public

danger.”). Respondent Livingstone fobs off ignorance as

innocence. Yet the consequences of the studiously-ignored

activities of his wholly-owned company, St. Clair Rubber

Company, are grave indeed. On the record below they

involve substantial costs for clean up, subterranean pits

hidden from view until heavy equipment began to sink into

the earth, and public health issues, including the public water

drinking supply. (A6 - footnote 2, A7, including footnote 3,

A41, A43) Petitioners submit that Respondent Livingstone

should be held to no less a standard than defendants Park and

Dotterweich.

The point of individual responsibility is exemplified by

decisional authority from the Court of Appeals for the Fifth

Circuit, on the very point at issue in this case. In Joslyn Mfg,

Co. v. T. L. James & Co,, 893 F.2d 90 (S" Cir. 1990), cert.

den., 498 U.S. 1108 (1991), the Fifth Circuit held that a

parent corporation would not be liable for its subsidiary’s

CERCLA transgressions unless the subsidiary’s corporate veil

could be pierced under state (Louisiana) law. A year later,

the same Circuit decided Riverside Market, which was

another Louisiana case but involving, this time, an individual

owning 85% of the stock. Without citing Joslyn, the

Riverside Market court stated that “the issue presented for our

review may be stated as whether or not Prescott, a majority

shareholder and officer of [BP, may be held personally liable

for clean up costs as owner or operator of the asbestos

manufacturing facility under Section 9607(a) of CERCLA.”

931 F.2d at 329. Even though no liability was found, the

court said “... we can conceive of situations where an

individual director, officer, or employee of a corporation may

be considered an ‘operator’ of a manufacturing facility as

defined by CERCLA... ” Id, at 330.

Petitioners submit that Joslyn and Riverside Market

can be reconciled and that, as reconciled, they point up the

singular importance of individual responsibility where matters

of public health are concerned. The court in Riverside

Market referred to “the principle of limited liability” under

corporate law, but declared that “CERCLA prevents

individuals from hiding behind the corporate shield when, as

‘operators,’ they themselves actually participate in the

wrongful conduct prohibited by the Act.” Id, at 330. It

seems Clear enough that the individual participant, particularly

one who is a 100% shareholder and active chairman of the

board of directors of the corporation, sets the moral tone for

the corporation in a way that a parent corporation, vis-a-vis its

subsidiary, rarely if ever could.

y Fi This Court Has Upheld Federai Legislative Policies

Despite Contrary State Corporate Law

Requirements

As Chief Judge Boyce Martin pointed out in dissent in

Donahey,

A corporation is a product of state law. As such it

should not provide a shield behind which an individual

can flaunt federal law. "[T]he Court has consistently

refused to give effect to the corporate form where it is

interposed to defeat legislative policies." First Nat’]

City Banl B Para ELC bs essing @

Cuba, 462 U.S. 611, 630 (1983). One of the

legislative policies behind CERCLA is to make "those

responsible for disposal of chemical poisons bear the

cost and responsibility for remedying the harmful

conditions they created." Anspec Co. v. Johnson

Controls, Inc,, 992 F.2d 1240, 1247 (6" Cir. 1991).

The en banc majority allows Livingstone to misuse a

state creation, a corporation, to circumvent a federal

policy. (A16)

In Bangor Punta Operations, Inc,, et al v. Bangor &

Aroostook Railroad Co,, et al, 417 U.S. 703 (1974), the

Court of Appeals for the First Circuit had sustained the right

of respondent corporations to maintain a lawsuit against

petitioners where the more-than-99% corporate shareholder

of the plaintiffs-respondents would have been barred from

bringing such a suit. The court had no difficulty in reversing,

saying, at 713:

SNRs ead las Le eRe Ree Io

i CANE Rais

tees

Although a corporation and its shareholders are

deemed separate entities for most purposes, the

corporate form may be disregarded in the interests of

justice where it is used to defeat an overriding public

policy. New Colonial Ice Co. v. Helvering, 292 U.S.

435, 442 (1934); Chicago. M. & St. P. R. Co. v,

Minneapolis Civic Assn., 247 U.S. 490, 501 (1918).

In such cases, courts of equity, piercing all fictions

and disguises, will deal with the substance of the

action and not blindly adhere to the corporate form.

Thus, where equity would preclude the shareholders

from maintaining an action in their own right, the

corporation would also be precluded. (Case citations

omitted).

This case of Donahey presents the reverse of Bangor

Punta; the St. Clair Corporation is liable but the 100%

shareholder is not. Respondent Livingstone’s culpability of

course has been amply demonstrated. Yet culpability has not

equated to liability, because of the Sixth Circuit’s

misapplication of concepts of limited liability under state

corporate law. Petitioners urge the Court to accept this

Petition because, below, “the corporate form ... [has been]

used to defeat an overriding public policy.”

CONCLUSION

“CERCLA is essentially a remedial statute designed by

Congress to protect and preserve public health and the

environment. We are therefore obligated to construe its

provisions liberally to avoid frustration of the beneficial

legislative purposes. ... With this in mind, we join the Second

Circuit in proclaiming that ‘[w]e will not interpret § 9607(a)

in any way that apparently frustrates the statute’s goals, in the

absence of a specific congressional intent otherwise.’ New

York vy. Shore Realty Corp,, 759 F.2d 1032, 1045 (2d. Cir.

1985).” Dedham Water Co, v. Cumberland Farms Dairy,

Inc., 805 F.2d 1074, 1081 (1". Cir. 1986). Numerous other

courts of appeals and district courts have expressed identical

sentiments, both in governmental and (as with Dedham

Water) private party enforcement proceedings. They have

also frequently cited the early case of United States v. Reilly

Tar & Chemical Corp., 546 F. Supp. 1100, 1112 (D. Minn.

1982): “... Congress intended that those responsible for

problems caused by the disposal of chemical poisons bear the

costs and responsibility for remedying the harmful conditions

they created.” To the same effect, see Schiavone, 79 F.2d at

Zz and cases cited.

As this Petition has tried to point out, there are many

reasons to conclude that the Sixth Circuit decision of Donahey

vy. Bogle has compromised the congressional goals as

expressed through CERCLA.

1. Donahey v. Bogle is in conflict with the

decisional authority of seven other Circuit Courts of Appeals.

i The Sixth Circuit decision exalts state corporate

law over established federal policy. "'[T]he court has

consistently refused to give effect to the corporate form where

it is interposed to defeat legislative policies.’" First Nat’| City

Bank v. Banco Para El Comercio Exterior de Cuba, 462 U.S.

611, 630 (1983).” Chief Judge Boyce Martin, in dissent, at

Al6.

7 CERCLA itself separately provides for the

liabilities of the “owner” of contaminated property, the

“operator” of contaminated property, and persons who

“otherwise arranged for disposal” of contaminants on

contaminated property. CERCLA § 107(a)(2) and (3). Thus,

CERCLA does not itself compel challenge to corporate veil

piercing requirements of state law; to conclude that it does is

akin to “speaking in the wrong idiom.” Chief Judge Martin,

in dissent, at A18.

4. Furthermore, because “CERCLA specifically

excludes shareholders who are not involved in the

management of companies from the definition of ‘owners’ and

‘operators,’ CERCLA thereby itself “implies that an owning

stockholder who manages the corporation ... is liable under

CERCLA....’” Chief Judge Martin, in dissent, quoting (in

part) Shore Realty, at Al7.

3, The 100% shareholder’s relationship to the

environmental transgressions of his wholly-owned corporation

presents w stronger case for liability than the parent-subsidiary

situation, for two reasons.

a. Michigan state law commands

governance of a corporation by its board of directions; the

individual owner js the corporation in ways that a parent

corporation could never be in fact or by law.

b. Cases decided under a comparable

public health statute, the Federal Food, Drug and Cosmetic

Act, have not hesitated to impose individual criminal liability

in appropriate cases. See, U.S. v. Dotterweich, 320 U.S.

277, 281, 64 S.Ct. 134, 88 L.Ed. 48 (1943) and U.S. vy,

Park, 421 U.S. 658, 673-4, 95 S.Ct. 1903, 44 L.Ed.2d 489

(1975).

6. None of the seven Circuits finding individual

shareholder liability have demanded that actual control be

shown (as opposed to “authority to control”) in any case

involving a 100% shareholder and chairman of the board who

actively participated in management. "Simply ignoring

environmental misdeeds ... should not be a way of avoiding

CERCLA liability." (A17)

As Chief Judge Martin said in dissent, the Donahey v.

Bogle “majority has turned a blind eye to congressional

intent.” App. A at Al5. This Court should grant Petitioners’

request for a writ of certiorari.

Respectfully submitted,

DICKINSON WRIGHT PLLC

/s/

H. G. Sparrow, III

Attorneys for Petitioners

500 Woodward Ave., Suite 4000

Detroit, Michigan 48226

(313) 223-3500

Dated: January __, 1998

APPENDIX A

RECOMMENDED FOR FULL-TEXT PUBLICATION

Pursuant to Sixth Circuit Rule 24

ELECTRONIC CITATION: 1997 FED App. 0335P

(6th Cir.)

File Name: 97a0335p.06

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

RICHARD M. DONAHEY; )

PATRICIA A. DONAHEY, )

Plaintiffs-Appellants/ )

Cross-Appellees, Nos. 92-1128/1151

Vv.

)

HELEN L. BOGLE, )

Defendant-Appellee/ )

Cross-Appellant, )

)

SEABOURN S. )

LIVINGSTONE; )

H. GORDON WOOD; )

ST. CLAIR RUBBER )

COMPANY, )

Defendants-Appellees.)

Donahey, et al. v. Bogle, et al.

92-1128

Appeal from the United States District Court for the

Eastern District of Michigan at Detroit.

No. 87-74771--Lawrence P. Zatkoff, District Judge.

Argued: December 6, 1995

Decided and Filed: November 17, 1997

Before: MARTIN, Chief Judge; MERRITT, KENNEDY,

MILBURN, NELSON, RYAN, BOGGS, NORRIS, SILER,

BATCHELDER, DAUGHTREY, and MOORE, Circuit

Judges.

COUNSEL

ARGUED: H. G. Sparrow, Ill, DICKINSON, WRIGHT,

MOON, VAN DUSEN & FREEMAN, for Appellants. Mark

A. Goldsmith, HONIGMAN, MILLER, SCHWARTZ &

COHN, Detroit, Michigan, Henry N. Carnaby, BODMAN,

LONGLEY & DAHLING, Troy, Michigan, for Appellees.

ON BRIEF: H. G. Sparrow, Ill, DICKINSON, WRIGHT,

MOON, VAN DUSEN & FREEMAN, for Appellants. Mark

A. Goldsmith, Jay E. Brant, Daniel G. Helton, HONIGMAN,

MILLER, SCHWARTZ & COHN, Detroit, Michigan, Henry

N. Carnaby, BODMAN, LONGLEY & DAHLING, Troy,

Michigan, Louise A. Marcotry, BODMAN, LONG &

DAHLING, Detroit, Michigan, for Appellees. M. Alice

Thurston, U.S. DEPARTMENT OF JUSTICE, LAND &

NATURAL RESOURCES DIVISION, Washington, D.C.,

Anne S. Almy, U.S. DEPARTMENT OF JUSTICE,

Washington, D.C., for Amicus Curiae.

Donahkey, et al. v. Bogle, et al.

92-1128

NORRIS, J., delivered the opinion of the court, in which

MERRITT, KENNEDY, MILBURN, NELSON, BOGGS,

SILER, and BATCHELDER, JJ., joined. RYAN, J. (p. 13),

delivered a separate concurring opinion, in which MOORE,

J., joined. MARTIN, C. J. (pp. 14-17), delivered a separate

dissenting opinion, in which DAUGHTREY, J., joined.

OPINION

ALAN E. NORRIS, Circuit Judge. Like so many

actions brought pursuant to the Comprehensive Environmental

Response, Compensation, and Liability Act of 1980

("CERCLA"), 42 U.S.C. §§ 9601-9675 (1988 & Supp. V

1993), this case illustrates the difficulties that often attend the

apportionment of financial liability for the environmental

damage done to an industrial site. Sitting en banc, this court

recently held that, under CERCLA, a parent corporation is

liable for the environmental harms done by its subsidiary only

if the elements necessary to pierce the corporate veil are

present. United States v. Cordova Chem. Co. of Michigan,

113 F.3d 572, 579-80 (6th Cir. 1997) For the reasons

outlined below, we conclude that the same standard applies to

a 100% shareholder of a corporation.

This case involves an industrial site located in

Marysville, Michigan. On October 31, 1962, defendant Helen

L. Bogle acquired title to the property. That same day she

entered into a ten-year lease with the St. Clair Rubber

Company, also a named defendant. At its expiration, the lease

was renewed for a second ten-year term.

In its post-trial Memorandum Opinion and Order filed

October 1, 1991, the district court made extensive findings of

fact, including the following description of the use to which

Donahey, et al. v. Bogle, et al.

92-1128

St. Clair put the property in question:

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.

One of St. Clair's manufacturing processes involved

the blending of resins, solvents ... and other raw

materials to produce various rubber products and

adhesives ....

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 ....

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 bum the sludge. At the behest of the City of

Marysville, St. Clair stopped its dumping and burning

at the property in the 1970s. |

Mem. Op. at 4-5. In short, the district court concluded that

this and other manufacturing activities conducted by St. Clair

resulted in significant environmental harm to the property.

Donahey, et al. v. Bogle, et al.

92-1128

Throughout the time period relevant to this case,

Bogle's brother, defendant Seabourn S. Livingstone, owned

100% of St. Clair's stock. He also served as chairman of the

board of directors and as treasurer. With respect to his direct

involvement in the pollution caused by St. Clair, however, the

district court made the following factual finding:

[T]here 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 disposal

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 control waste disposal practices,

he never exercised such authority; it was delegated to

others ....

There is also no evidence that Livingstone personally

arranged for the disposal of St. Clair’s industrial waste

products.

Mem. Op. at 28-29 (footnote omitted).

In the fall of 1981, plaintiff Richard Donahey

considered purchasing the property because it was situated

near the manufacturing facility of Daca Manvfacturing,

Incorporated, a company in which he had an interest.

Donahey inspected the property and, based upon his own

Donahey, et al. v. Bogle, et al.

92-1128

experience in manufacturing, recognized that it contained a

dump. Before entering into a land contract with Bogle,

therefore, Donahey first negotiated an agreement with St.

Clair in which the former tenant consented to restore the

property to an environmentally satisfactory condition. St.

Clair also agree to indemnify Donahey for costs resulting

from any dumping on the part of the company.'

On January 6, 1982, Donahey purchased the property,

from Bogle for $115,000, putting $28,750 down and agreeing

to pay the remainder in monthly installments at 11% interest.

Donahey deeded the property to himself and to his wife,

plaintiff Patricia Donahey, on January 28. They then leased

the site to Daca Manufacturing.

Not long after acquiring the property, Donahey had

reason to question his purchase. First, former St. Clair

employees detailed the extent of the company's disposal

practices to the Michigan Department of Natural Resources

("MDNR"). Then, in 1985, a newspaper article described the

pollution of the property.’ Finally, on April 28, 1986, the

MDNR informed the Donaheys that they were required, as its

' The value of this agreement was of limited duration. As the

district court found, “St. Clair’s Michigan Annual Reports for

Profit Corporations for the period spanning 1979-1983 repeatedly

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.” Mem. Op. at 7-8.

? Although all environmental degradation is arguably a matter of

public concern, the pollution present at this particular property was

of particular interest because of its proximity to the local water

supply.

Donahey, et al. v. Bogle, et al.

92-1128

owners, to undertake an environmental evaluation of the

property.

Richard Donahey responded to these developments by

hiring Lawrence Halfen, an environmental consultant, to

devise a remediation plan. Halfen proposed and carried out

a plan at a cost of between $30,000 and $35,000. While

overseeing the clean-up, however, Halfen noticed additional

problems in the form of a "swath of gelatinous material."

When the ground began to sink under the weight of a

backhoe, further investigation revealed buried pits ranging

from six to ten feet in depth. He undertook additional efforts

at remediation in light of this discovery. However, this initial

effort was a temporary solution at best. Consequently, Halfen

proposed a second plan in late 1987 with an estimated price-

tag of $450,000.’

Given the fact that release of solvents into the soil

occurred before his ownership,‘ Donahey understandably

sought a contribution for the clean-up from the previous

owner, Bogle. To that end, he notified her on August 2,

1987, that future payments on the land contract would be

placed in escrow. For her part, Bogle informed plaintiffs that

she was accelerating the payments due under the land

contract.

In a clear demonstration of how the value of the

property had plummeted as the extent of the environmental

damage became clear, plaintiffs attempted to surrender their

> The current cost of such a plan is approximately $1,000,000.

* The district court made an explicit finding on this point. Mem.

Op. at 9.

Donahey, et al. v. Bogle, et al.

92-1128

interest in the property in August of 1990 by tendering

quitclaim deeds to Bogle, an overture that she refused.

Shortly thereafter, Richard Donahey ceased making payments

on the land contract all together and effectively abandoned the

property.

The Donaheys filed an eleven-count complaint on

November 6, 1987, which included a CERCLA claim and

also sought to rescind the land contract. Bogle responded by

filing a counterclaim, as well as a cross-claim against St. Clair

and her brother, Seabourn Livingstone. The district court

conducted a bench trial in 1991, and issued the Memorandum

Opinion and Order cited above on October 1, 1991.

Among other things, the district court held that

1) none of the parties had incurred any recoverable response

costs under CERCLA; 2) Richard Donahey is the current

owner of the property; 3) Richard Donahey is obliged to

perform specifically the land contract within ten days of

judgment, including pre- and post-judgment interest; and,

4) Seabourn Livingstone was not a responsible party as

defined by CERCLA because he took no active role in St.

Clair's environmental activities.

On appeal, this court affirmed in part and reversed in

part. Donahey v. Bogle, 987 F.2d 1250 (6th Cir. 1993). We

agreed that Bogle could demand specific performance despite

plaintiffs’ argument that they were entitled to rescind the land

contract because the environmental contamination constituted

an encumbrance that prevented transfer of clear title to the

property. Jd. at 1254.

With respect to the CERCLA issues, however, we

reasoned that, “the [trial] court erred in concluding that

Seabourn Livingstone was not liable as an owner under

CERCLA. The evidence clearly established that Livingstone

Donahey, et al. v. Bogle, et al.

92-1128

had the authority to prevent the contamination of the property

by his corporation; thus, as a matter of law, Livingstone was

a responsible party."° Id.

Finally, this court granted plaintiffs' request for

attorney's fees and response costs and remanded the matter to

the district court for determination of the appropriate amount

due plaintiffs. Jd. at 1255-56.

The Supreme Court subsequently granted certiorari in

light of Key Tronic Corp. v. United States, 511 U.S. 809

(1994), a case holding that attorney's fees were generally not

recoverable as response costs under CERCLA. The Court

vacated our earlier judgment and remanded the case for

further consideration of the attorney's fees issue. Livingstone

v. Donahey, 512 U.S. 1201 (1994).

Il.

Before the trial court, plaintiffs sought an award of

$279,000 for attorney's fees incurred as necessary expenses

in their attempt to clean up the property. Reversing the trial

court, this court adopted the reasoning of Bolin v. Cessna

Aircraft Co., 759 F. Supp. 692 (D. Kan. 1991), for the

proposition that attorney's fees were recoverable by private

parties under § 107 of CERCLA. Donahey v. Bogle, 987 F.2d

at 1256.

In Key Tronic, the Supreme Court explicitly

considered whether attorney's fees are "necessary costs of

* Although the opinion refers to Livingstone's liability as an owner,

it is clear from the discussion that liability was premised upon his

Status as an “operator.” 42 U.S.C. § 9607(a)(2).

Donahey, et al. v. Bogle, et al.

92-1128

response" within the meaning of § 107(a)(4)(B) of CERCLA,

which would make them recoverable. Key Tronic, 511 U.S.

at 811. The Court concluded that "CERCLA § 107 does not

provide for the award of private litigants’ attorney's fees

associated with bringing a cost recovery action." Jd. at 819.

However, the Court did not absolutely rule out recovery of

some fees paid to attorneys:

The conclusion we reach with respect to litigation-

related fees does not signify that all payments that

happen to be made to a lawyer are unrecoverable

expenses under CERCLA. On the contrary, some

lawyers’ work that is closely tied to the actual cleanup

may constitute a necessary cost of response in and of

itself under the terms of § 107(a)(4)(B). The

component of Key Tronic's claim that covers the work

performed in identifying other potentially responsible

parties falls in this category ....

This reasoning does not extend, however, to the

legal services performed in connection with the

negotiations between Key Tronic and the EPA that

culminated in the consent decree. Studies that Key

Tronic's counsel prepared or supervised during those

negotiations may indeed have aided the EPA and may

also have affected the ultimate scope and form of the

cleanup. We nevertheless view such work as

primarily protecting Key Tronic's interests as a

defendant in the proceedings that established the extent

of its liability. As such, these services do not

constitute "necessary costs of response" and are not

recoverable under CERCLA.

Al0

Donahey, et al. v. Bogle, et al.

92-1128

Id. at 819-21 (footnote omitted).

Plaintiffs concede that litigation-related attorney's fees

are not recoverable in light of Key Tronic, but contend that

the fees generated by their attorneys in attempting to identify

the insurers of St. Clair Rubber qualify under the

"investigative" exception cited above.

We disagree. In our view, Key Tronic contemplates a

narrow exception to the general rule prohibiting the recovery

of attorney's fees. That exception is limited to steps taken to

finger previously unidentified parties that might bear some

_ legal responsibility under the terms of CERCLA for pollution

of the site. In this case, St. Clair had already been identified;

indeed, it was a named defendant. Its insurers, although

perhaps contractually liable for some of the costs related to

the clean-up, are not potentially responsible parties under

§ 107(a) of CERCLA and thus any attorney's fees related to

their identification fall outside the exception and are not

recoverable.°

Accordingly, we affirm the district court's denial of

attorney's fees.

® We note in passing that plaintiffs seek reimbursement of

attorney's fees incurred in deposing Seabourn Livingstone. Yet that

is precisely the type of task that can only be performed by an

attorney, one of the considerations listed by Key Tronic that would

support a denial of fees.

Furthermore, like the environmental studies disallowed in Key

Tronic, the identification of St. Clair's insurers primarily protected

plaintiffs’ interests since they sought monetary compensation from

the company.

All

Donahey, et al. v. Bogle, et al.

92-1128

Til.

In Cordova, this court held that “where a parent

corporation is sought to be held liable as an operator pursuant

to 42 U.S.C. § 9607(a)(2) based upon the extent of its control

of its subsidiary which owns the facility, the parent will be

liable only when the requirements necessary to pierce the

corporate veil are met." Cordova, 113 F.3d at 580. In

determining the requisite standard for piercing the veil,

federal courts must look to state law. Jd. Since both Donahey

and Cordova arose in Michigan, this court's reading of the

Michigan doctrine of veil piercing applies to the case before

us:

Michigan appears to follow the general rule that

requires demonstration of patent abuse of the

corporate form in order to pierce the corporate veil.

There must be such a unity of interest and ownership

that the separate personalities of the corporation and

its Owner cease to exist, and the circumstances must

be such that adherence to the fiction of separate

corporate existence would sanction a fraud or promote

injustice. Organization of a corporation for the

avowed purpose of avoiding personal responsibility

does not in itself constitute fraud or reprehensible

conduct justifying a disregard of the corporate form.

Cordova at 580 (citations and footnote omitted).

Michigan courts recognize that stockholders, like

parent corporations, are shielded from liability unless the

requirements necessary to pierce the corporate veil are

Al2

Donahey, et al. v. Bogle, et al.

92-1128

satisfied: "The corporate form is valid and will be protected

by courts even when there is a single stockholder who is

entitled to dominate the company and receive all of its

profits." Allstate Ins. Co. v. Citizens Ins. Co. of America,

118 Mich. App. 594, 600, 325 N.W. 2d 505, 508 (1982)

(citing Gottlieb v. Arrow Door Co., 364 Mich. 450, 110

N.W.2d 767 (1961)). Given the similar treatment accorded

parent corporations and stockholders with respect to vicarious

liability, it is clear to us that the standard articulated in

Cordova before operator liability can attach should be

extended to stockholders of a corporation. We therefore hold

that a stockholder is not liable as an operator as defined by §

107(a)(2) of CERCLA unless circumstances justify piercing

the corporate veil.’ Because there are no facts present that

would justify such veil-piercing in this case, Livingstone is

not liable as an operator for the clean-up of the property in

question.

Accordingly, the decision of the district court holding that

Seabourn Livingstone is not liable under § 107(a)(2) of

CERCLA is affirmed.

IV.

Finally, Donahey asks us to revisit certain issues

decided by the original panel in addition to those already

discussed. While our "law of the case" doctrine does not

require an en banc court to adhere to the decision of a prior

” Although Cordova also provided for § 107(a)(2) liability for

parent corporations that directly operate the facility, 113 F.3d at

579, that scenario is not before us with respect to Livingstone.

Al3

Donahey, et al. v. Bogle, et al.

92-1128

panel, see 6th Cir. Rule 14(a) ("[T]he effect of the granting of

a rehearing en banc shall be to vacate the previous opinion

and judgment of this court"), we believe that the reasoning of

the prior panel was correct on all issues not otherwise

discussed in this opinion. Accordingly, we reinstate and

reaffirm Donahey v. Bogle, 987 F.2d 1250 (6th Cir. 1992),

except as to attorney's fees and § 107(a)(2) operator liability.

This action is remanded to the district court for

proceedings consistent with this opinion.

CONCURRENCE

RYAN, Circuit Judge, concurring. I concur in the

majority opinion solely because I think | am obligated to do

so by reason of the precedentially binding decision of this

court in United States v. Cordova Chemical Co., 113 F.3d

572 (6th Cir. 1997) (en banc). As I explained in my

dissenting opinion in that case, I think the court was seriously

and obviously mistaken in its conclusion that a parent

corporation could not be held directly liable as an "operator"

under 42 U.S.C. § 9607(a)(2), but only derivatively so, and

then only if, under applicable state law, its corporate veil

could be pierced.

Now, the court extends that rather obvious misreading

of CERCLA to protect a 100% shareholder of an ostensible

operator corporation from direct section 107(1)(2) liability no

matter what the evidence shows as to his activities. The

principle of law governing the two cases is indistinguishable,

and therefore I am constrained to concur in the judgment.

Al4

Donahey, et al. v. Bogle, et al.

92-1128

DISSENT

BOYCE F. MARTIN, JR., Chief Judge, dissenting.

According to the en banc majority opinion, the sole

shareholder of a corporation will escape liability under the

Comprehensive Environmental Response, Compensation, and

Liability Act of 1980, 42 U.S.C. §§ 9601-9675, for

environmental damage unless there are grounds for piercing

the corporate veil. The majority has extended United States

v. Cordova Chem. Co. of Michigan, 113 F.3d 572 (6th Cir.

1997), petition for cert. filed, 66 U.S.L.W. 3157 (U.S. Aug.

8, 1997) (No. 97-296), an opinion on corporate veil piercing

and CERCLA, to protect shareholders from environmental

liability in all but the most extreme cases. I dissented in

Cordova, and I write again to register my continuing

unhappiness that the majority has turned a blind eye to

congressional intent. The en banc majority merely

compounds the error of Cordova and pushes responsibility for

environmental liability onto the wrong parties. The majority

opinion not only creates new law but also offers novel

opportunities for the savvy polluter. Therefore I dissent on

this issue.

The majority opinion relieves defendant Seabourn

Livingstone of CERCLA responsibility, but the larger

problem is the blueprint it provides for future environmental

malfeasors. Facility owners and operators are liable for

pollution under 42 U.S.C. § 9607(a)(1) and (2), but the ruling

of the en banc majority provides the savvy polluter with a way

to avoid that liability. The savvy polluter can form a closely

held corporation of which he holds 100 percent of the shares.

He can play an active role in the company but follow a "don't

ask, don't tell" policy regarding the disposal of environmental

Al15

Donahey, et al. v. Bogle, et all.

92-1128

toxins. This savvy polluter, although he manages the

company and owns all the shares, nonetheless will not be

considered an “owner” or "operator" under the majority's

reading of CERCLA. The only way to reach the savvy

polluter is to pierce the corporate veil and hold him

derivatively liable. Of course, the hypothetical polluter

posited herein is savvy enough to realize that in some states

it is easier to pierce the veil than it is in others. He therefore

will incorporate where he has the greatest protection. In

Michigan, for instance, the savvy polluter will be protected

from veil piercing unless it can be shown that he engaged in

fraud--a difficult evidentiary standard to meet. Cordova, 113

F.3d at 580. In this way, the en banc majority opinion short-

circuits CERCLA.

The majority gives the savvy polluter an opportunity

to play state law off against federal law. A corporation is a

product of state law. As such it should not provide a shield

behind which an individual can flaunt federal law. "[T]he

Court has consistently refused to give effect to the corporate

form where it is interposed to defeat legislative policies."

First Nat 'l City Bank v. Banco Para El Comercio Exterior de

Cuba, 462 U.S. 611, 630 (1983). One of the legislative

policies behind CERCLA is to make “those responsible for

disposal of chemical poisons bear the cost and responsibility

for remedying the harmful conditions they created." Anspec

Co. v. Johnson Controls, Inc., 922 F.2d 1240, 1247 (6th Cir.

1991) The en banc majority allows Livingstone to misuse a

state creation, a corporation, to circumvent a federal policy.

Federal-state issues aside, this case is not about

imposing liability on the average shareholder. In discussing

"shareholder" liability in this context, I limit my comments

specifically to sole shareholders who are active in the

Al6

Donahey, et al. v. Bogle, et al.

92-1128

corporation. I reserve the question of the liability of people

who own less than 100 percent of a corporation's shares or

who are not active in management. I do so because CERCLA

specifically excludes shareholders who are not involved in the

management of companies from the definition of "owners"

and "operators." 42 U.S.C. § 9601(20)(A)(iii). The explicit

exclusion of one class of shareholders from the class of

owners or operators "implies that an owning stockholder who

manages the corporation . . . is liable under CERCLA as an

‘owner or operator.'" New York v. Shore Realty Corp., 759

F.2d 1032, 1052 (2d Cir. 1985). Some degree of control of

the corporation is necessary.

Livingstone does not fall into the class of shareholders

excluded by 42 U.S.C. § 9601(20)(A)(iii)because he exercised

the requisite control. Livingstone owned 100 percent of the

St. Clair Rubber Company's stock. By definition, anyone

who owns all the stock has plenary power to run a company,

but Livingstone's formal role in the company is also well

recorded. Livingstone was active in managing the financial

aspects of the business. He was the treasurer and chairman of

the board. The district court found that although "Livingstone

had the authority to control waste disposal practices, he never

exercised such authority." Mem. Op. at 28-29. Simply

ignoring environmental misdeeds, however, should not be a

way of avoiding CERCLA liability. United States v. TIC Inv.

Corp., 68 F.3d 1082, 1089 (8th Cir. 1995), cert. denied, 117

S.Ct. 50 (1996) (noting, in context of arranger liability, that

it would violate the goals of CERCLA if "[a] corporate

officer, who has virtually unlimited control over a company

and in fact exercises that control but knows well enough to

close his or her eyes to the specific details of the company's

hazardous waste disposal practices, could avoid CERCLA

Al7

Donahey, et al. v. Bogle, et al.

92-1128

liability"). The district court found that the St. Clair Rubber

Company's activities caused environmental harm, but the

buck did not stop with St. Clair because the company was

dissolved in the early 1980s. Mem. Op. at 9. Nor did the

buck stop with Livingstone.

Livingstone, however, should bear responsibility as a

"covered person" under 42 U.S.C. § 9607. In light of his

role as owner and manager, Livingstone is an "operator"

under CERCLA. TIC Inv. Corp., 68 F.3d at 1089 (holding

that arranger liability, which is analogous to operator liability,

for corporate officers is premised on having authority to

control that is exercised directly or indirectly); United States

v. Northeastern Pharm. & Chem. Co., 810 F.2d 726, 743

~~ (8th Cir. 1986); Shore Realty, 759 F.2d at 1052. Because he

had the ability to control waste disposal, it need not be shown

that Livingstone actually was involved in the disposal. A

good analysis is found in Kelley v. Thomas Solvent Co., 727

F. Supp. 1532, 1544 (W.D. Mich. 1989): "[T]he focus on the

inquiry is whether the corporate individual could have

prevented the hazardous waste discharge at issue." We

should adopt a similar view. Livingstone could have stopped

the pollution. He did not.

Given that Livingstone can be considered an

"operator" of the company in the parlance of CERCLA, the

en banc majority is speaking in the wrong idiom when it talks

of piercing the corporate veil in order to hold him derivatively

liable. Under derivative liability, a shareholder would be held

responsible for the environmental sins of his corporation if the

corporate veil could be pierced. There is no reason to discuss

piercing the corporate veil when a 100 percent shareholder

can be held directly liable as an operator under 42 U.S.C.

§ 9607(a)(2). As the district court stated in an unreviewed

Al8

Donahey, et al. v. Bogle, et al.

92-1128

opinion in Kelley: "I believe that CERCLA's statutory scheme

varies the configuration of traditional corporate principles

which prevent individual liability absent a conclusion that an

individual engaged in procedural irregularities justifying a

court in ‘piercing the corporate veil’ .... "727 F. Supp. at

1542.

I am not advocating the total disregard of limited

liability for shareholders. Limited liability is too important to

capital formation to be readily dismissed. My dissent covers

a far more restricted class of persons than the average

shareholder. A holder of one share of stock in a Fortune 500

company need not fear personal liability for the company's

potential environmental liabilities. When, however, a person

owns all the shares in a corporation and plays a management

role, that person should be considered an operator under 42

U.S.C. § 9607(a)(2) and subjected to the corresponding

liability under CERCLA. I therefore respectfully dissent

from the majority opinion. :

Al9

APPENDIX B

NOS' 92-1128: 92-1151

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

FILED

November 17, 1997

LEONARD GREEN, Clerk

RICHARD M. DONAHEY; )

PATRICIA A. DONAHEY, )

Plaintiffs-Appellanis/ )

Cross-Appellees, ) JUDGMENT

)

HELEN L. BOGLE, )

Defendant-Appellee/ )

Cross-Appellant, )

)

SEABOURN S. )

LIVINGSTONE; )

H. GORDON WOOD; )

ST. CLAIR RUBBER )

COMPANY, )

Defendants-Appellees.)

A20

Donahey, et al. v. Bogle, et al.

92-1128

Before: Martin, Chief Judge; Merritt, Kennedy,

Nilburn, Nelson, Ryan, Boggs, Norris, Siler,

Batchelder, Daughtrey, and Moore, Circuit

Judges.

UPON CONSIDERATION of the opinion of the

United States Supreme Court and reconsideration of the

original opinion and judgment of this court of March 9, 1993,

THIS CAUSE was heard and was argued by counsel.

IN CONSIDERATION WHEREOF, it is ORDERED

that Donahey v. Bogle, 987 F.2d 1250 (6th Cir. 1992) is

REINSTATED and REAFFIRMED, except as to attorney's

fees and § 107(a)(2) operator liability. IT IS FURTHER

tq ORDERED that the case is REMANDED for further

proceedings consistent with the opinion of the Court.

ENTERED BY ORDER OF THE COURT

/s/

Leonard Green, Clerk

Issued as Mandate: December 9, 1997 A True copy.

COSTS: NONE Attest:

Filing Fee... . $

Printing. ... $ /s/

Beth Manning

Fe Sos 55 $ Deputy Clerk

A21

APPENDIX C

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 appeals 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

The Honorable Charles M. Allen, Senior United States

District Judge for the Western District of Kentucky, sitting by

designation.

A22

7 Pe ee Pe eT ee

ey Prabhas eee . - suai

Donahey, ei al. v. Bogle, et al.

92-1128

Michigan land purchase law and the rights and liabilities of all

the parties under the Comprehensive 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 declaratory judgment relief for future cleanup of

the property purchased by the Donaheys. Helen 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 Livingstone, 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.

A23

Donahey, et al. v. Bogle, et al.

92-1128

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 concern, 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 property and to restore the land to an

environmentally satisfactory condition. The agreement

included St. Clair's 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 purchased

the property from Bogle for $115,000. Their contract

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 contamination

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 environmental 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 proceed, he

began work in August 1987, collecting and disposing of these

old barrels and other materials . He removed approximately

A24

HR La Da sel its loca K tla tra he SRI isc IT an a as ot taak Rd

58 sd eee

BNE a Be ES

sre A ae

Donahey, et al. v. Bogle, et al.

92-1128

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 contaminated and uncontaminated soils taken

from other areas at the site and placed the mixture in the

lagoon basin. 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 Donaheys

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 environmental situation, and to

recover attorneys fees of more than $279,000 incurred in

these proceedings. By counterclaim, Ms. Bogle alleged a

A25

Donahey, et al. v. Bogle, et al.

92-1128

breach of the land purchase contract and failure to pay the

sums Clue under that contract and she sought a judgment for

the unpaid amounts plus interest. In addition, she asked for

a declaration 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 conclusions, including the following

pertinent to these appeals:

5 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.

2. Richard Donahey, Helen Bogle and St. Clair Rubber

were covered persons under 42 U.S.C. § 9601 et seq.

with respect to the environmental contamination at

issue, but neither Pat Donahey nor Livingstone were

covered persons.

a None of the parties had incurred any recoverable

response costs under CERCLA and the Donaheys

were not entitled to a declaration of future liability

pursuant to 42 U.S.C. § 9613(g)(2).

4. 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

A26

saltedhanmetinaddiahamuneen paerernieme ste aed oe

CP Ee a ee ee ee

ee ae ee ‘Ma

Saaehiz

Donahey, et al. v. Bogle, et al.

92-1128

to Richard Donahey.

5. 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 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

diminishes the value of the title to the property; environmental!

contaminants may diminish the value of the realty, but they do

not constitute an encumbrance because they do not affect title.

Furthermore, the contract 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 Bogle. 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 F. Supp. 370 (W.D.

Mich. 1980), and Brauer v. Hobbs, 151 Mich. App. 769, 391

N.W.2d 482 (1986).

Bogle contends that the trial court erred in calculating

interest on her monetary award and that she is entitled to both

A27

Donahey, et al. v. Bogle, et al.

92-1128

statutory 7 jd contractual interest from March 14, 1989 to the

date of juugment. The only Michigan authority cited on this

point, McGraw v. Parsons, 142 Mich.App. 22, 369 N.W. 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 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 participate in the day-to-day activities of the

corporation and had no knowledge of the environmental

contamination 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 U.S.C. § 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 established 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 F.Supp. 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. Northeastern Pharmaceutical & Chemical Co., 810

F.2d 726 (8th Cir. 1986).

A28

a tact ar a Giiswa Gudeciieiananasns

Donahey, et al. v. Bogle, et al.

92-1128

The trial court rejected the contention that Halfen's

actions were a legitimate "judgment call," and concluded 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 permanent illness or pose a health risk when improp-

erly stored. ENVIRONMENTAL PROTECTION AGENCY

regulations define hazardous waste at 40 C.F.R. 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 C.F.R. § 270.1.1(c)(1)(ii), and 40 C.F.R.

§264.13. The court also found that the Donaheys had failed

to secure the site against unknowing and unauthorized entry

by persons or livestock, 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

A29

Donahey, et al. v. Bogle, et ai.

92-1128

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 portion 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 the costs incurred in employing

Halfen and attempting to improve the environmental condition

of their property, the Donaheys are required to show that the

property on which hazardous substances 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 compliance 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 consolidated 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

A30

ated Do ae hic aos Ia ann bas BS

Donahey, et al. v. Bogle, et al.

92-1128

material mounded in the lagoon, whereas it would have cost

only $178,000 to dispose 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 necessarily

follow that consistency with the NCP is required for recovery

of monitoring or investigative costs. In Carlyle Piermont

Corp. v. Federal Paper Board Co., 742 F.Supp. 814

(S.D.N.Y. 1990), the Court held that such costs are

recoverable without regard to compliance with the NCP. See

also Artesian Water Co. v. Government of New Castle

County, 851 F.2d 643 (3rd Cir. 1988) (monitoring and impact

evaluation costs recoverable regardless of existence of other

compensable response costs). This Court believes the Carlyle

Piermont reasoning on the instant issue is sound, and we will

remand for award of the Donaheys' initial investigation 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 F.Supp. 692 (D. Kan. 1991),

Shapiro v. Alexanderson, 741 F.Supp. 472 (S.D.N.Y. 1990),

and General Electric Co. v. Litton, 920 F.2d 1415 (8th Cir.

1990), cert. denied, _ U.S. _, 111 S.Ct. 1390, 113

L.Ed.2d 446 (1991). The Bolin opinion made the following

persuasive statement:

A31

Donahey, et al. v. Bogle, et al.

92-1128

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 purpose than to require private parties to shoulder

the financial burden of the very litigation that is

necessary to recover these costs.

759 F.Supp. 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 F.Supp. 696 (D.

N.J. 1988); Mesiti v. Microdot, Inc., 739 F.Supp. 57 (D.

N.H. 1990); Regan v. The Cherry Corporation, 706 F.Supp.

145 (D. R.I. 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 light 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:

1. The judgment is reversed insofar as it does not

consider Seabourne Livingstone a responsible party

under CERCLA.

a The judgment is vacated with respect to cost of

investigation, and the matter is remanded for

A32

Donahey, et al. v. Bogle, et al.

92-1128

determination and award of these costs.

F 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 determination

of what constitutes reasonable attorneys fees

recoverable under CERCLA.

A33

APPENDIX D

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 Michigan 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 WHEREOPF, 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.

A34

Donahey, «* al. V. Bogle, et al.

92-1128

ENTERED BY ORDER OF THE COURT

/s/

Leonard Green,

Clerk —

Issued as Mandate: June 25, 1993

COSTS: None

(Certification Omitted)

A35

APPENDIX E

ORDER

(United States Court of Appeals -- Sixth Circuit)

(Filed June 15, 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, 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 submission and

decision of the case. Accordingly, the petition is denied.

A36

Donahey, et al. v. Bogle, et al.

92-1128

ENTERED BY ORDER OF THE COURT

/s/

Leonard Green,

Clerk

(Certification Omitted)

A ye ean TR RS AGEL DEORE REMAN W YS aT ENS pet ~~

* Hon. Charles M. Allen sitting by designation from the

Western District of Kentucky.

A37

APPENDIX F

ORDERS FOR JUNE 13 THROUGH

JUNE 17, 1994

JUNE 13, 1994

Certiorari Granted--Vacated and Remanded

No. 93-428. LIVINGSTONE v. DONAHEY ET AL.

C.A. 6th Cir. Certiorari granted, judgment vacated, and case

remanded for further consideration in light of Key Tronic

Corp. v. United States, 511 U.S. 809 (1994). Reported

below: 987 F. 2d 1250.

A38

APPENDIX G

3 No. 87-CV-74771

é UNITED STATES DISTRICT COURT EASTERN

z DISTRICT OF MICHIGAN SOUTHERN DIVISION

: FILED

4 October 1, 1991

THEBOLT, CLERK

RICHARD M. DONAHEY )

i AND PATRICIA A. )

. DONAHEY, ) HON. LAWRENCE P.

4 Plaintiffs ) ZATKOFF

| )

: v. ) MEMORANDUM

; ) OPINION AND

: HELEN L. BOGLE, ) ORDER

: Defendant and )

fe Counter-Plaintiff, _)

: and )

; SEABOURN S. )

j LIVINGSTONE, )

4 H. GORDON WOOD AND )

‘| ST. CLAIR RUBBER )

4 COMPANY, a Michigan)

4 Corporation, jointly and _—i+)

: severally, )

a Defendants. )

Ds /

Donahey v. Bogle, et al.

87-CV-74771

AT A SESSION of said Court, held in the United States

Courthouse, in the City of Detroit, State of Michigan, on

the 1" 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 U.S.C. §§ 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 weekends. 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 Federal Rules of

Civil Procedure, the Court herein formalizes the findings of

fact and conclusions of law as earlier set forth on the record.

JURISDICTION

Jurisdiction is predicated upon §§ 1331 and 1367 of Title

28, United States Code.

A40

ms. er ae ’

_———s

- - - wit 84 ot 4 oe -

ee eee eS

aa eit Get SnD

ee ee ere ee

Donahey v. Bogle, et al.

87-CV-74771

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.

Defendant-Helen Bogle’ and Seabourn S. Livingstone

are siblings. Their grandfather founded St. Clair Rubber

Company, which their father, Seabourn R. Livingstone,

' Helen Bogle has also had the last names “Howard” and

"Spender."

A41

Donahey v. Bogle, et al.

87-CV-74771

subsequently came to own and operate. During his ownership

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

distribution of assets from H. Scherer & Company, a family

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 creating 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" locased on Michigan Avenue in Marysville, Michigan;

(2) the "adhesives plant" located on Mill Street in Marysville,

Michigan; aia (3) the Will Street “tank plant" (also known as

the "poly plant") located on the property that is the subject of

this case.

) 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

A42

Biases ek ances ksessscsiecvennaeaep creamer meme egmems emamemamas

Donahey v. Bogle, et al.

87-CV-74771

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 substances) 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 containing 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 disposing

of its waste products by burning it on the open ground at the

main plant.

The sludge was routinely submitted for reclamation.

However, reclamation stopped, and St. Clair began disposing

of its waste products in the early 1970s.

A43

Donahey v. Bogle, et al.

87-CV-74771

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 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 Marvsville, 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 property 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.

In the fall of 1981, Richard Donahey was familiar with

the risk of environmental liability posed by the maintenance

and use of industrial realty. This knowledge stemmed from

his liability for polychlorinated butyl ("PCB") contamination

A44

Donahey v. Bogle, et al.

87-CV-74771

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

environmental 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 eventually execute a land

contract with Bogle. In the agreement, St. Clair Rubber

promised to remove any hazardous substances found on the

Property and to restore the land to an environmentally

Satisfactory condition. 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 evidence 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 limited, he

executed the land contract for the sale of the property.

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

A45

Donahey v. Bogle, et al.

87-CV-74771

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

Corporations for the period spanning 1979-1983 repeatedly

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. Bogle 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 responsible party,

and requesting the performance of certain monitoring and

clean-up activities.

In the spring of 1986, the Donaheys hired an

environmental consultant, Lawrence Halfen, to supply

technical assistance in determining their course of action. At

all times relevant hereto, Halfen acted as agent of and on

> Richard Donahey deeded the property to himself and his wife,

Patricia Donahey, on January 28, 1982. On September 7, 1988,

Richard and Patricia Donahey deeded the property to Richard

Donahey.

A46

Donahey v. Bogle, et al.

87-CV-74771

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 concludes 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 samples

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 performed inorganic and

organic analyses on the samples. The test results appeared in

: Ecology and Environment, Inc. is a private corporation that

contracts with EPA and MDNR to provide testing services.

* 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.

A47

Donahey v. Bogle, et al.

87-CV-74771

a Field Investigation Team Report ("FIT Report"), the results

of which were provided 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 material 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 proposal to remove barrels

and wastes on the surface of the property, the Donaheys

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.

A48

Donahey v. Bogle, et al.

87-CV-74771

Halfen first removed the wire fence that partially

surrounded the dump site, some fibrous drums, rubber

deposits, the small rubber pile, and part of the large rubber

pile, totaling 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 operator 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

compounds. 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

A49

Donahey v. Bogle, et al.

87-CV-74771

pits encasing gelatinous material containing solvents 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 problems

caused by the discovery and exposure of the underground pits.

Specifically, Halfen worried about water run-off, fire threat,

and the presence of an attractive nuisance.

At least two surficial locations on the property

evidenced 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 totaled 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 "hazardous 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

consolidated waste pile (and all of its augmentations) rises

ASO

We ce heat a ee eh Ce eee PO. ret aie ake

et San eed ame oe J tae ve

Donahey v. Bogle, et al.

87-CV-74771

three feet above grade.

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 approximating Halfen's initial cost

estimate for the simple surficial clean-up.

On September 1, 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 hazardous

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.

AS1

Donahey v. Bogle, et al.

87-CV-74771

Without invitation, in August of 1990, Richard

Donahey tendered quit claim deeds to Bogle in an effort to

surrender any and all interests he had ~: 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

complaint. 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 rescission claim and

denied Bogle'’s emergency motion for declaratory relief.

CONCLUSIONS OF LAW AND DISCUSSION

: Land Contract Claims®

In his complaint, Richard Donahey claims that because

> The Court considers the land contract issues first because they

impact the Courts subsequent analysis of the parties’ CERCLA

claims, specifically the determination of the current owner under

CERCLA's liability provision found at 42 U.S.C. § 9607(a)(1).

A52

Donahey v. Bogle, et al.

87-CV-74771

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 held in the land by virtue of the land

contract was terminated 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 counterclaim, 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 Donaheys 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, Donahey was

obligated to make monthly installment payments 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 encumbrances, except those listed in the land

AS53

Donahey v. Bogle, et al.

87-CV-74771

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

acknowledgment that he examined the title commitment and

was satisfied with the marketability of the property. The

agreement also indicates that he "examined the . . . premises

... " The land contract provides at paragraph 2(g) that

Bogle's retention of title to the property operates as a security

interest. The land contract 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

foreclose in equity. Michigan common law provides

additional options.

Generally, if a land contract vendee defaults on

contractual obligations, the vendor has various common law

remedies available to her. As stated in Gruskin y. Fisher, 70

Mich. App. 117, 124-25 (1976), rev'd 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, foreclosure 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

AS4

Donahey v. Bogle, et al.

87-CV-7477]

impaired or diminished in the land contract.

i Lasik Bete ct facets of Cates ace

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 effectively blocked any conveyance of an

interest in the property to her. As a result, Richard

Donahey's actions did not 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 equitable interest in the

property and that Bogle, as land contract vendor, held legal

title as security for repayment of the purchase price.

According to Michigan law, a land contract vendor is

not considered a "property owner,” but rather is analogized to

4 mortgagee who holds title to property only to ensure

payment of a debt. In Gilford v. Watkins, 342 Mich. 632

(1955), the Michigan Suoreme 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

AS5

Donahey v. Bogle, et al.

87-CV-74771

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 property.

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 implication, 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 quii

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.

under the terms of the land contract is evidenced by the

correspondence sent by Donaheys’ counsel to Bogle.

AS6

TPP Si a re

Donahey v. Bogle, et al.

87-CV-74771

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 payments 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 proceeding, which has the

effect of returning full ownership 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 contract. She did not attempt to forfeit the

contract and repossess the property or to foreclose in equity.

Therefore, Donahey's argument fails.

B. Avsilebiiicy of Srecifc Port

Bogle seeks specific performance. While a vendor

seeking specific performance must tender a deed to the

vendee, an

anticipatory repudiation eliminates the need to tender the

deed. Robinson vy. Grosse Pointe Shores Realty Co., 281

Mich. 184 (1937) (tender of deed is not a prerequisite 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 contract

Or to wait until .the time of performance to do so. Jackson v,

AS7

Donahey v. Bogle, et al.

87-CV-74771

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

respeci, 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 performance. Accordingly, the Court

finds that Bogle is entitled 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 environmental contamination and/or

the consequent diminution of value of the property constitutes

an encumbrance precluding delivery of an valid warranty

deed.

An encumbrance is a burden upon title. Simons v.

Diamond Match Co,, 159 Mich. 241, 247 (1909) (an

encumbrance is "every right to or interest in the land granted,

to the diminution of the value of the land. . ."); Madhaven

y. Sucher, 105 Mich. App. 284 (1981). The mere diminution

of value is not enough to constitute an encumbrance.

Furthermore, erivironmental contamination 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

A58

Donahey v. Bogle, et al.

87-CV-74771

as required under the land contract.’

II. CERCLA Claims

The following CERCLA claims for costs have been

asserted: (1) the Donaheys' claims against all defendants for

costs and contribution under 42 U.S.C. §§ 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 common legal and _ factual findings.

Accordingly, the Court, below, organizes its anaiysis around

the common issues presented by ail 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

’ 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."

Plaintiffs 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.

A59

Donahey v. Bogle, et al.

87-CV-74771

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) definition 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

Congress’ 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. Cumberland

Farms Dairy, Inc., 805 F.2d 1074, 1078 (Ist Cir. 1986)).

One of CERCLA's general purposes is "to ensure, so far as

possible, that the persons responsible for the creation of

hazardous waste sites be liable for the response costs in

cleaning them up." United States v,. Northeastern

Pharmaceutical and Chemicai Co., Inc. ("“NEPACCO"), 579

A60

Donahey v. Bogle, et al.

87-CV-74771

F. Supp. 823, 848 (W.D. Mo. 1984), aff'd in part. rev'd 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 1 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 otherwise 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 R PC

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 persons"

under § 9607(a)(1)-(4); (2) a release or threatened release of

hazardous substances occurred on the subject site; (3) the

release or threatened release caused the party to incur costs;

(4) such costs were necessary costs of response; and (5) the

*Id., reprinted in 1 Legis. Hist. at 98.

A61

Donahey v. Bogle, et al.

87-CV-74771

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),

aff'd 851 F.2d 643 (3d Cir. 1988).°

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 disposed of there.

All of the defendants argue that the costs incurred by the

Donaheys were neither necessary nor consistent with the

NCP.

L. 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 an, other provision or rule of law,

and subject only to the defenses set forth in subsection

(b) of this section--

* All parties agree and it is clear from the facts that the property at

issue contains hazardous substances as defined by CERCLA.

A62

Donahey v. Bogle, et al.

87-CV-74771

(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 operated any facility

at which such hazardous substance were disposed of,

(3) any person who by contract, agreement, or

otherwise arranged for disposal or treatment, or

arranged 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 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 dispcsal or treatment

facilities or sites selected by such person, form 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 consistent with

the national contingency plan; and

loss of natural resources, including the

reasonable costs of assessing such injury,

destruction, or loss resulting from such a

release.

A63

Donahey v. Bogle, et al.

87-CV-74771

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) ihe person who owned or operated

the facility at the time of a hazardous substance disposal; (3)

the persons who arranged for the treatment or disposal of a

hazardous substance at the facility; and (4) the persons who

transported hazardous substances to the facility. Section 9607

imposes strict liability--that is, without regard to fault--on a

liable party. J.V. Peters & Co, v. EPA, 767 F.2d 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 F.2d

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 materials in the large

lagoon, thus rendering the environmental 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 environmental

10 Under § 9601(21), a “person” is “an individual, firm,

- Corporation, association, partnership, consortium, joint venture,

commercial 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 a corporation--are

“persons” under CERCLA.

A6é4

Donahey v. Bogle, et al.

87-CV-74771

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

surficial materials with the pit materials, they only combined

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.’

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

disposed 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,

'! Patricia Donahey is not a current owner of the property; she

deeded her interest in the property to Richard Donahey in 1988. As

an interim owner, Patricia Donahey does not come within the

definition of a liable party under § 9607(a). Thus, of the

Donaheys, only Richard is jointly and severally liable under

CERCLA.

A65

Donahey v. Bogle, et al.

87-CV-74771

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 self-owned

facilities; thus, St. Clair escapes liability under 9607(a)(3).

c) Livingstone

Donaheys next claim that Livingstone--as an operator

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 maintain that Livingstone--despite his apparently

limited 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 disposal of hazardous substances 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

A66

Donahey v. Bogle, et al.

87-CV-74771

is shown that the individual personally participated in the

wrongful conduct of the corporation. State of New York v,

Shore Realty Corp.,759 F.2d 1032 (2d Cir. 1985); United

States _v. Conservation Chemical Co., 628 F. Supp. 391

(W.D. Mo. 1985).

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 disposal 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 control waste disposal

practices,'* he never exercised such authority; it was delegated

'2 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 CERCLA for the harmful waste disposal practices of

the corporation, the court must find that (1) the corporate officer

had the authority 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 simple 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.

A67

Donahey v. Bogle, et al.

87-CV-74771

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 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, 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) Bogle

Donaheys also claim that Bogle is liable for their

response costs because she allegedly owned the property 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 operated 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 disposal of the hazardous waste and barrels

in the underground 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

A68

Donahey v. Bogle, et al.

87-CV-74771

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

photographs. 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 hazardous substances. The

Court concludes that Bogle did own the property when

hazardous substances, including the material in the pits, were

disposed of on the property; therefore, Bogle is jointly and

'? The Geologic Law of Superpositica, 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" layered 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 predated the photo. This conclusion assumes that the

pits had already been created or layered prior to 1961. The

conclusion, therefore, begs the question.

A69

Donahey v. Bogle, et al.

87-CV-74771

severally liable under § 9607(a)(2).

2. Defenses to Liabil ry :

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

evidence that the release or threat of release of

a hazardous substance and the damages

resulting therefrom were caused solely by --

(3) an act or omission of a third party other

than . . . one whose act or omission occurs in

connection with a contractual relationship,

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 foreseeably result

from such acts or omissions... .

A70

Donahey v. Bogle, et al.

87-CV-74771

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 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

precautions against the consequences that could foreseeably

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 indicating 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 completed 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,

This text is long and has been trimmed here. Open the source document for the complete record.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.