# Petition for Writ of Certiorari — Donahey v. Livingstone

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 1998
- **Citation:** 524 U.S. 924

## 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,

V.

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

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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 Park, 421 US at 671, citing Smith v. California, 361 U.S. 147,
152 (1959).

19

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

20

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

21

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:

22

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

23

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,

24

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.

25

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

26

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.

A2

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

A3

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.

A4

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

AS

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.
A6

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.
A7

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

A8

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).

A9

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.

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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

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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.

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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.

V.

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.

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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

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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

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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

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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

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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

V.

)

)

)

HELEN L. BOGLE, )
Defendant-Appellee/ )
Cross-Appellant, )

)

SEABOURN S. )
LIVINGSTONE; )
H. GORDON WOOD; )
ST. CLAIR RUBBER )
COMPANY, )
Defendants-Appellees.)

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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.

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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.

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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

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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

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CP Ee a ee ee ee

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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

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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).

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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

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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:

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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

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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.

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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."

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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.

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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

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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).

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Donahey v. Bogle, et al.
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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

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Donahey v. Bogle, et al.
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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.
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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.

© The perception that they were no longer obligated to perform
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.
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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

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Donahey v. Bogle, et al.
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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.

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Donahey v. Bogle, et al.
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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

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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.
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Donahey v. Bogle, et al.
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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.

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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

(C) damages for injury to, destruction of, or
loss of natural resources, including the
reasonable costs of assessing such injury,
destruction, or loss resulting from such a
release.

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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.

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Donahey v. Bogle, et al.
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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

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Donahey v. Bogle, et al.
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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.

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Donahey v. Bogle, et al.
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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

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Donahey v. Bogle, et al.
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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.

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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... .

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Donahey v. Bogle, et al.
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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, Richard
Donahey's failure to comply with the NCP and his failure to
demonstrate the necessity of his activities on the property
constitute a lack of due care under § 9607(b)(3).

In addition to his lack of due care, Richard Donahey
failed to take precautions against the consequences that could
foreseeably result from the acts or omissions of the third
party. With a heavy and dense concentration of hazardous
wastes present, the property presented the potential for great

A71

Donahey v. Bogle, et al.
87-CV-74771

harm to the ecosystem through leaching-and run-off. Richard
Donahey did nothing to guard against these possibilities.
Instead, he consolidated all of the wastes in an above ground
pile, thus exposing the wastes to the local fauna and also
creating an attractive nuisance. Aside from allowing
environmental authorities to conduct some limited testing,
Richard Donahey did nothing constructive to prevent further
environmental harm or to guard against foreseeable
consequences. Had Richard Donahey been concerned with
the potential harm to the local area, he would have complied
with MDNR requests to perform a hydrogeological evaluation
and to dispose of roughly 125 drums (some with hardened
rubber material) in accordance with the Michigan Solid Waste
Management Act. In addition, had Richard Donahey been
concerned with the consequences of the potential harm to the
environment, he would not have aba

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385017_1384%3A1. Public record. Not legal advice.