Petition for Writ of Certiorari — Onan Corp. v. Industrial Steel Container Co.

Iu the

Supreme Court of the United States

October Term, 1990

ONAN CORPORATION,

a Delaware corporation,

Petitioner,

Vs.

INDUSTRIAL STEEL CONTAINER COMPANY,

a Minnesota corporation,

Respondent.

Petition for Writ of Certiorari to the

United States Court of Appeals

for the Eighth Circuit

PETITION FOR WRIT OF CERTIORARI

MACLAY R. HYDE, Counsel of Record -

Gregory Merz

Gray, Plant, Mooty, Mooty & Bennett, P.A.

3400 City Center

33 South Sixth Street

Minneapolis, Minnesota 55402

Telephone: (612) 343-2800

Attorneys for Petitioners

1990 — Bachman Legal Printing, 835 Second Ave. So., Mpls., MN 55402 — (612) 339-9518 @

FAX 612-337-8053

QUESTION PRESENTED FOR REVIEW

" Does the Comprehensive Environmental

Response, Compensation and Liability Act,

which provides that persons responsible for

releasing hazardous wastes into the

environment shall be liable for the costs

of environmental clean-up,

"{nJotwithstanding any other provision or

rule of law,” preempt state law limiting

the capacity of a dissolved corporation to

be sued?

6205H

Pv ee) eel Ae

TABLE OF CONTENTS

Question Presented for Review

Table of Authorities

Opinion Below

Jurisdiction

Statutes Involved

Rule 29.1 Statement . ..

Statement of the Case

Reasons for Granting the Petition

I. Introduction: The Scope

Of The Hazardous Waste

Problem And The Federal

Solution.

II. The Rule Followed By The

Eighth Circuit Encourages

Manipulation Of State

Corporate Law To Avoid

Environmental Liability

IIt. The Rule Followed By The

Eighth Circuit Threatens

The Future Progress Of

Hazardous Waste Cleanup

Efforts By Discouraging

Voluntary Private

Participation

IV. Certiorari Should Be

Granted To Review The

Eighth Circuit's Erroneous

Holding That CERCLA Does

Not Preempt State Law

Rendering A Dissolved

Corporation Immune From

Suit.

Page

14

14

20

23

28

Conclusion

=

Appendix

6205H

36

37

Cases

Solvents

Alli ic tj p

Reclaiming. Inc., No. 86-C-20377, Slip.

Op. (N.D. Ill. July 6, 1990)

Aloha Airli ; :

Taxation, 464 U.S. 7 (1983) . 8

Artesian Water Co. v. Government of

New Castle County, 659 F. Supp. 1269

(D. Del. 1987) ie ee «6k ee

Chemical Waste Management v. Armstrong

World Industries, 669 F. Supp. 1285

(E.D. Pa. 1987) oe ae

462 U.S. 151 (1983)

Exxon Corp. v. Hunk. 475 U.S. 355

(1986) oe af eT er ae ae

Fidelity Fea "oo ] en

v. De la Cuesta, 458 U.S. 141 (1982).

, 22 U.S. €9 Wheat.)

1 (1824) a eee oe ee oo

Hillsborough County v. Automated

Medical Laboratories, Inc., 471 U.S.

707 (1985). “er Sa tat ae

701) eres 312 U.S. 52

(1941) i a ode

, 430

U.S. 519, 524 (1977) a

vi Vv

Terminal, 817 F.2d 1448 (th Cir.

1987) : ; ;

Page

19

29

17

18

35

29

28

28

33

28

19

Merry v. Westinghouse, 684 F. otal

852 (M.D. Pa. 1988) . . . 35

Met Lit Life I “

Massachusetts, 471 U.S. 724 (1985). 29

Occidental Life Ins. Co. v. EEOC,

§ Ss te Be .. > IR Peete 35

Pennsylvania v. Union Gas Co.,

U.S. , 57 U.S.L.W. 4662 (1989). 17

ECS) eee 463

= Mat Bi | Bee ; 28

Silkwood v. Kerr-McGee Corp., 464

Rs a I see gegen eee a 33

United Stat : 63 a

Co., 628 F. Supp. 391 (W.D. Mo. 1985) 18

United States v. Moore, 703 F. Supp.

Fs ee | OP eee ee 35

United States v. Mottolo, 695 F. Supp.

ay Ci BE «0c 6. ec ectie < 20,

23,35

United States v. Sharon Steel] Corp.

681 F. Supp. 1492 (D. Utah 1987) .. 19

Statutes

i a ee 32

28 U.S.C. § 1284(1) . . 2... ew wee 3

CERCLA § 101(21), 42 U.S.C. § 9601(21) 32

CERCLA § 107(a), 42 U.S.C.§ 9607(a) . 31,32

CERCLA § 113(£) (1), 42 U.S.C.

TY Pe ene eer,

ii

itt anegiii

lalla ee

CERCLA § 113(f£)(2), 42 U.S.C.

§ 9613(£)(2) ‘se © a

CERCLA § ee 42 U.S.C.

§ 9613(g9) (3) ; 2 8

CERCLA § 122(a), 42 U.S.C. § 9622(a).

CERCLA § 122(d)(1)(A), 42 U.S.C.

§ 9622(d) (1) (A) eee

CERCLA § 122(f), 42 U.S.C. § 9622(f).

Minn. Stat. § 115B.17, subd. 3

Minn. Stat. § 300.59

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i 1

26,31

fy

+

No.

IN THE

SUPREME COURT OF THE UNITED STATES

October Term, 1990

ONAN CORPORATION,

a Delaware corporation,

Petitioner,

Vv.

INDUSTRIAL STEEL CONTAINER COMPANY,

a Minnesota corporation,

Respondent.

Petition for Writ cf Certiorari to the

United States Court of Appeals

for the Eighth Circuit

PETITION FOR WRIT OF CERTIORARI

Petitioner Onan Corporation ("Onan")

respectfully requests this Court to issue a

Writ of Certiorari to review the opinion

and order of the United States Court of

Appeals for the Eighth Circuit dated June

5, 1990.

OPINION BELOW

The opinion of the United States Court

of Appeals for the Eighth Circuit was filed

on June 5, 1990 and is unreported. That

Opinion is attached hereto as Appendix

("App.") at A-l. The opinion of the United

States District Court for the District of

Minnesota granting respondent's motion to

dismiss was dated June 21, 1989 and is

unreported. That opinion is attached here-

to as App. at A-6.

JURISDICTION

The judgment of the United States

Court of Appeals for the Eighth Circuit

affirming the district court's dismissal of

petitioner's claims against the respondent

was entered on June 5, 1990. Petitioner

timely filed this Petition for Writ of

Certiorari and the jurisdiction of this

Court is invoked pursuant to 28 U.S.C.

§ 1254(1).

STATUTES INVOLVED

Relevant parts of the following sta-

tutes are set forth in App. at A-18:

42 U.S.C. §§ 9601, 9607, 9613, 9622 and

Minn. Stat. § 300.59.

RULE 29.1 STATEMENT

Onan Corporation is owned by Onan

Holding, Inc. and Hawker-Siddeley Overseas

Investments Ltd. Onan's subsidiaries are:

Onan Canada, ltd.; Onan Far East PTE.,

Ltd.; Onan International B.V.; Onan Power

Systems, Inc.; Power Products (U.K.) Ltd.;

Cummins Power Products Far East PTE., Ltd.;

Ona Corporation; Newage Engineers, Inc.;

Newage Int'l, Ltd.; Onan FSC Ltd.; Onan New

England, Inc.; Dunlite Power Generation

Pty. Ltd.

ain

hls a I a

STATEMENT OF THE CASE

This case presents the issue of a

dissolved corporation's capacity to be sued

under the Comprehensive Environmental

Response, Compensation and Liability Act of

1980 ("CERCLA") and whether CERCLA preempts

state law_that would otherwise render a

dissolved corporation immune from liability

for hazardous waste clean-up. Onan Corpo-

ration commenced this action against re-

spondent, Industrial Steel Container

Company (“Industrial Steel"), to recover

costs incurred in connection with the

Clean-up of a hazardous waste site located

in Andover, Minnesota (the "Waste Disposal

Engineering” or “WDE” site), a clean-up

necessitated at least in part by Industrial

Steel's disposal of hazardous wastes at the

Site. The WDE site is listed on the

National Priorities List and the State List

of Permanent Priorities.

The Andover landfill first opened in

1963. In 1968, Waste Disposal Engineering

("WDE") purchased the landfill, and a re-

lated company, Waste Control, Inc., trans-

ported waste materials to the site. A

number of companies, including Onan and

Industrial Steel, contracted with Waste

Control, Inc. for the disposal of waste

materials. In 1970, WDE applied for and

received a permit to operate a hazardous

waste disposal site at the landfill. The

hazardous waste pit opened in 1972. The

Minnesota Pollution Control Agency ("MPCA")

ordered the waste pit closed effective

February 1, 1974, because of a change in

regulations and the high potential for

groundwater pollution.

In January 1983, the Minnesota Depart-

ment of Health issued a well advisory warn-

ing of contamination from the WDE hazardous

waste pit. On July 26, 1983, the MPCA

issued a formal Request for Information

4

-

S

<

i

.

("RFI") to Industrial Steel, pursuant to a

provision of the Minnesota Environmental

Response and Liability Act that authorizes

the MPCA to make such requests to "[a]ny

person who the agency has reason to believe

is responsible for a release or threatened

release [of a hazardous substance]." Minn.

Stat. § 115B.17, subd. 3. The RFI sought

information regarding Industrial Steel's

use of Waste Control, Inc. as a disposer of

hazardous waste and its use of the landfill

operated by Waste Disposal Engineering.

On September 2, 1983, approximately ‘

month and a half after receiving the RFI,

Industrial Steel initiated corporate disso-

lution proceedings by adopting a resolution

of voluntary dissolution. Industrial Steel

has claimed that at the time it commenced

dissolution proceedings, it had been out of

business for four years.

The MPCA notified Industrial Steel on

October 20, 1983 that Waste Control, Inc.

had failed to conduct any remedial action

and that the MPCA was requesting the United

States Environmental Protection Agency

("EPA") to undertake a remedial investiga-

tion and feasibility study to determine the

cleanup alternatives for the WDE waste

site. The notification letter also stated

that the MPCA was taking action to secure

federal funding for the cleanup efforts.

On October 28, 1983, eight days after

learning that Waste Control, Inc. had

failed to take remedial action and that the

MPCA was seeking federal funding for the

clean-up, Industrial Steel filed its cer-

tificate of voluntary dissolution.

On November 23, 1983, the MPCA noti-

fied Industrial Steel that it was a poten-

tially responsible party with respect to

the WDE waste site, and thus was potential-

ly liable for cleanup costs. The MPCA's

November 23 letter also invited Industrial

Steel to attend an informational meeting to

discuss EPA-funded actions at the site. In

response to this letter, George Rutman,

Industrial Steel's president, represented

to both the MPCA and the EPA that Indus-

trial Steel had been “out of business for

the past several years” and that the corpo-

ration was liquidated and dissolved.

In March of 1984, Onan and twelve

other companies, collectively known as the

SW-28 Group, entered into a stipulated

settlement (the "Consent Order") with the

MPCA and the EPA. Under the provisions of

the Consent Order, the SW-28 Group agreed

to carry out an investigation of the WDE

site and comply with the administrative

process for determining the nature and

extent of contamination, studying possible

remedial actions, and selecting and design-

ing a remedial action plan. On March 16,

1984, the MPCA provided Industrial Steel

with information relating to the SW-28

Group's settlement.

Industrial Steel refused to

participate in those efforts. However, by

a letter dated April 30, 1984, George

Rutman admitted that Industrial Steel had

done business with Waste Control, Inc.

Indeed, it appears that Industrial Steel's

involvement with Waste Control, Inc. was

substantial. Information provided by In-

dustrial Steel to the MPCA indicates that

Industrial Steel may have disposed of as

many as 89,100 gallons of waste per year in

its use of Waste Control, Inc. as its haz-

ardous waste hauler, or 891,000 gallons

over the documented ten years of operation

of the site. Such disposal would make

Industrial Steel one of the largest genera-

tors at the site.

On July 30, 1984, the MPCA issued a

Request for Response Action ("RFRA") which

required Industrial Steel to provide addi-

tional information, implement a remedial

investigation, conduct a feasibility study,

nk Rie

and implement a remedial action.

Industrial Steel responded by summarizing

its dealings with Waste Control, Inc.

In late 1984 or early 1985, Industrial

Steel, aware of the claims against it for

cleanup costs for the WDE hazardous waste

site, commenced action against its insur-

ance carriers, seeking a declaratory judg-

ment of insurance coverage for losses

sustained in connection with clean-up at

the WDE waste site. That action was ulti-

mately resolved on January 28, 1988, when

two of the insurance carriers settled with

Industrial Steel, admitting coverage for

Claims against Industrial Steel arising

from contamination from the WDE waste site.

Meanwhile, a joint investigation of

the WDE waste site carried out by the EPA,

the MPCA, and the SW-28 Group ultimately

led to the agencies' issuance of a Record

of Decision, dated December 31, 1987, de-

fining the remedy to be implemented. In

Sint

cooperating with the EPA and the MPCA, Onan

and other members or the SW-28 Group have

incurred approximately $2,000,000.00 in

response costs relating to the first phase

of the cleanup efforts.

The next phase of remedy design and

implementation began on July 11, 1989 with

the EPA's issuance of a Special Notice

Letter under CERCLA § 122 triggering the

commencement of negotiations toward a

Consent Decree to complete the design and

implementation of the remedy. During this

period of negotiation, a number of the

potentially responsible parties have at-

tempted to put together a group to share

the cost and carry out the remedy. As of

the date of this petition, the Consent

Decree negotiations with the EPA and the

efforts to create a group continue. The

cost of remedial action is presently esti-

mated at $14,700,000 and the aggregate cost

is expected to exceed $16,700,000.

a

Onan commenced this action on October

28, 1988, seeking contribution from Indus-

trial Steel under CERCLA for costs incurred

in connection with the clean-up of the WDE

hazardous waste site. In lieu of an an-

swer, Industrial Steel brought a motion to

dismiss on the ground that Industrial Steel

had filed a certificate of voluntary disso-

lution more than three years before the

commencement of this action, and therefore,

under Minnesota law, lacked capacity to be

sued. The district court granted Indus-

trial Steel's motion, rejecting Onan's

argument that CERCLA preempts state law

that might otherwise render a dissolved

corporation immune from suit. Onan brought

a timely appeal of the district court's

order before the United States Court of

Appeals for the Eighth Circuit. The Eighth

Circuit, in a two and a half page opinion,

affirmed the district court on the basis of

the reasoning set out in the district court

opinion. App. at A-2. Onan filed a timely

petition for issuance of a writ of certior-

ari by this Court.

CERCLA represents a federal law solu-

tion to a national problem. The importance

of CERCLA for federal environmental policy

can hardly be overstated. In enacting

CERCLA in 1980 as a means of funding the

cost of hazardous waste cleanups, Congress

cited EPA statistics estimating that as

many as 30,000 to 50,000 inactive and un-

controlled hazardous waste sites existed.

H.R. Rep. No. 96-1016, 96th Cong. 2d Sess.

18, reprinted in 1980 U.S. Code Cong.

§ Ad. News 6119, 6120. Of these, between

1,200-2,000 were, at that time, believed to

present a serious risk to public health.

Id. In reauthorizing and amending CERCLA

in 1986 to extend its coverage, Congress

==

bieeeeeeeeeeeereeeeereeeeessteammmemammeceemmmmmmaiaaaieel

described the protection of the public from

hazardous substances as one of the nation's

most pressing environmental problems and

called CERCLA “one of this Nation's most

important environmental programs designed

to protect human health and the environ-

ment.“ H.R. Rep. No. 253, 99th Cong. 2d

Sess. 59, reprinted in 1986 U.S. Code

Cong. § Ad. News 2835, 2836 (cited herein-

after as “House Report"). In 1986,

Congress believed that there might be as

many as 10,000 hazardous waste sites across

the nation in need of some form of remedial

efforts. Jd. at 2837. Congress estimated

at that time that such efforts could ulti-

mately cost as much as $100 million and

take decades to complete. Id. More recent

estimates suggest that there may be as many

as 50,000 contaminated waste sites and that

the cost of cleanup of only 10,000 of these

sites will be as much as several hundred

billion dollars over the next fifty years.

See Ferrey, The Toxic Time Bomb: Municipal

Liability £ the C] eH i

Waste, 57 Geo. Wash. L. Rev. 197, 211

(1988). The EPA has so far been able to

address only the tip of the iceberg, with

the National Priorities List currently

listing 1,082 hazardous waste sites autho-

rized to receive federal funding for clean-

up efforts. 40 C.F.R. 300. This listing

includes the WDE site.

In addition to authorizing the use of

"Superfund" monies to finance hazardous

waste cleanup activities, Congress sought

to encourage cooperation from the private

sector by providing companies that pay more

than their share of cleanup costs with a

cause of action for contribution from other

responsible parties. See CERCLA

§ 113(£)(1), 42 U.S.C. § 9613(f£)(1i). In

this way, CERCLA expresses Congress's in-

tent that those responsible for releasing

hazardous wastes into the environment bear

the financial responsibility of

environmental cleanup. Justice Brennan, in

his opinion in Pennsylvania v. Union Gas

Co., .v.8. —., 37 U.8.L.4. 4662

(1989), emphasized these broad remedial

purposes of CERCLA as follows:

The remedy that Congress felt it

needed in CERCLA is sweeping:

everyone who is potentially re-

sponsible for hazardous-waste

contamination may be forced to

contribute to the cost of clean-

up. See, e.g., 42 U.S.C.

§ 9613(£)(1)(1986 ed., Supp.

IV). Congress did not think it

enough, moreover, to permit only

the Federal Government to recoup

the costs of its own cleanups of

hazardous-waste sites: the

Government's resources being

finite, it could neither pay up

front for the necessary cleanups

nor undertake many different

projects at the same time. Some

help was needed, and Congress

sought to encouréege that help by

allowing private parties who

voluntarily cleaned up hazardous-

waste sites to recover a propor-

tionate amount of the cost of

cleanup from the other potential-

ly responsible parties.

57 U.S.L.W. at 4667; U.S. at

(emphasis in the original). See also

Artesian Water Co. v. Government of New

Castle County, 659 F. Supp. 1269, 1276 (D.

Del. 1987) ("Wherever possible,

CERCLA places the ultimate financial burden

of toxic waste cleanup on those responsible

for creating harmful conditions.");

Chemical Waste Management v. Armstrong

World Industries, 669 F. Supp. 1285, 1291

(E.D. Pa. 1987) ("A theme running through-

out CERCLA’s legislative history is that

all parties involved in hazardous wante

disposal must share the costs thereof.");

628 F. Supp. 391, 401-02 (W.D. Mo. 1985)

("{T)he Court reads the legislative history

of CERCLA to impose upon the judiciary an

obligation to apportion responsibility in a

fair and equitable manner.”")

Preemption of state laws that enable

corporations to avoid environmental liabil-

ity is critical to CERCLA’s success. If

corporations are permitted to rely on state

law as a shield to avoid environmental

liability, the federal policies underlying

CERCLA will be thwarted. In addition to

the Eighth Circuit, three other courts have

addressed the issue of CERCLA's preemption

of state law relating to the legal capacity

of dissolved corporations. The Ninth

Circuit, like the Eighth Circuit, held in

Levin Metals Corp, v. Parr-Richmond

Terminal, 817 F.2d 1448 (9th Cir. 1987),

that CERCLA does not preempt state law.

The federal district courts in Utah and the

Northern District of Illinois reached the

opposite conclusion, holding that CERCLA,

both by virtue of its express language and

its underlying purposes, does preempt state

law limiting the liability of a dissolved

corporation for hazardous waste cleanup.

681 F. Supp. 1492 (D. Utah 1987); Allied

Corporation v. Acme Solvents Reclaiming, -

inc., No. 86-C-20377, Slip. Op. (N.D. I1l.

July 6, 1990) (attached hereto as App. at

A-24). Given the significant policy

interests at strike and the conflicting

conclusions reached by the federal courts,

the issue of a dissolved corporation's

liability under CERCLA merits this Court's

attention.

Ii. The Rule Followed By The Eighth

State Corporate Lav To Avoid

The Eighth Circuit's decision in this

case draws the blueprint for corporations

who wish to avoid potential liability for

the cost of hazardous waste clean-up.

Polluters now need only dissolve and rein-

corporate to at least "start the clock

running” on any potential contribution

action. To the extent that corporations

are able to escape liability through such a

ploy, Congress's intent that polluters be

forced to pay the costs associated with

their actions will be frustrated.

In a similar context, the court in

United States v. Mottolo, 695 F. Supp. 615

atte

(D.N.H. 1988), refused to allow the

manipulation of state corporation law to

avoid environmental liability. In Mottolo,

the defendant incorporated following his

3 deposit of hazardous materials at a waste

site. The court held that the act of in-

corporating did not exempt the defendant

from liability:

[OJ]ne of CERCLA's expressed goals

is to ensure that those responsi-

ble for problems caused by the

disposal of chemical poisons bear

the costs and responsibility for

remedying the harmful conditions

they created. This goal would be

frustrated if the mere act of

incorporation were allowed to

impede the recovery of response

costs, for a nonincorporated

violator could avoid liability

simply by changing company struc-

ture. Furthermore, the absence

of explicit statutory language

addressing the effect of incorpo-

ration, the Act's strict liabili-

ty scheme, and the broad and

encompassing categories of poten-

tially responsible parties ine-

luctably lead the Court to the

conclusion that CERCLA places no

importance on the corporate form.

695 F. Supp. at 624 (citations omitted).

In contrast to the well-reasoned analysis

=

of the court in Mottolo, the Eighth

Circuit's interpretation of CERCLA will

encourage corporations to “avoid liability

simply by changing company structure.”

The particular facts of this case

demonstrate the dangers inherent in the

Eighth Circuit's decision. In this case

the responsible party has made calculated

use of state law dissolution procedures for

the very purpose of avoiding liability for

environmental clean-up. Although Indus-

trial Steel claims that it ceased doing

business sometime in 1979, it waited four

years, until after being informed of its

potential liability with respect to the WDE

waste site, to take the first steps toward

corporate dissolution. The obvious infer-

ence is that Industrial Steel was motivated

to dissolve by the likelihood that it would

be held financially accountable for its use

of the hazardous waste site and by its

desire to escape its financial

—

obligations. Moreover, Industrial Steel

used the corporate form to secure insurance

coverage that would protect it from the

financial consequences of its actions.

Yet, Industrial Steel has been able to

successfully contend that it lacks capacity

to be sued, rendering that insurance cover-

age unavailable for the very purpose for

which it was intended.

III. The Rule Followed By The Eighth

7 it 7 The Ful OE

Hazardous Waste Cleanup Efforts

. . -

Sark ielteat ian . Tivate

As noted above, the problem of hazard-

ous waste contamination is one of immense

proportions. Yet, the governmental re-

sources available to deal with this problem

are sharply limited. Recognizing this,

Congress stated that "Negotiated private

party actions are essential to an effective

program for cleanup of the nation’s hazard-

ous waste sites and it is the intent of

[CERCLA] to encourage private party cleanup

at all sites." House Report at 101.

=e

To this end, Congress enacted certain

provisions into CERCLA that are designed to

encourage cooperation of private parties

with federal cleanup efforts. First,

CERCLA authorizes contribution actions by

parties who voluntarily clean up hazardous

waste sites to recover a proportionate

amount of the cost of clean-up from other

responsible parties. CERCLA § 113(£)(1);

42 U.S.C. § 9613(£)(1). Second, CERCLA

provides protection against contribution

actions for parties who are able to reach a

voluntary settlement with the government

that provides for hazardous waste clean-

up. CERCLA § 113(f)(2), 42 U.S.C.

§ 9613(£)(2).

Third, CERCLA allows the EPA to pro-

vide settling parties with a covenant not

to sue concerning any liability to the

United States, including future liability

resulting from a release or threatened

release of a hazardous substance addressed

-25-

by a remedial action. CERCLA § 122(f), 42

U.S.C. § 9622(f£). The availability of a

covenant not to sue depends in part on

whether the remedial action will be carried

out in whole or in significant part by the

responsible parties themselves. CERCLA

§ 122(£)(4)(G) 42 U.S.C § 9622(£)(4)(G).

Fourth, the EPA can enter into a consent

decree allowing the potentially responsible

parties to carry out the response action

usually at a cost substantially less than

that incurred in a government conducted

Cleanup. CERCLA § 122(a), 42 U.S.C.

§ 9622(a).

The "carrots" of contribution protec-

tion, covenants not tc sue and private

oerty cleanup, must be incorporated in a

consent decree approved by the Attorney

General of the United States and entered in

the appropriate United States District

Court. CERCLA § 122(d)(1)(A), 42 U.S.C.

§ 9622(d)(1)(A). As illustrated by the

yo

instant case, which began with the site

investigation in 1984 and is still, in

August 1990, in the stage of negotiating a

final consent decree incorporating these

"carrots", the process is arduous and

long. If the parties are diverted by ac-

tions against a single potentially respon-

sible party to prevent the running of

corporate dissolution statutes of limita-

tions such as Minn. Stat. 300.59, the

cleanup process would be delayed until the

contribution liahility of each and every

PRP is determined in an action in Federal

District Court. The “carrot” of contribu-

tion protection would no longer have mean-

ing. The cooperation necessary to

negotiate a consent decree would be lost.

Even though the government has its enforce-

ment powers under CERCLA § 106, the poten-

tial loss of a major contributor to a

hazardous waste site would force the other

parties to detour the process through a

lengthy and unnecessary contribution action.

In authorizing private contribution

actions, Congress stated:

The section should encourage

private party settlements and

cleanups. Parties who settle for

all or part of a cleanup or its

costs, or who pay judgments as a

result of litigation, can attempt

to recover their portion of their

: expenses and obligations in con-

4 tribution litigation from parties

who were not sued in the enforce-

ment action or are not parties to

the settlement. Private parties

may be more willing to assume the

financial responsibility for some

or all of the cleanup if they are

assured that they can seek con-

tribution from others.

House Report at 80. The Eighth Circuit's

decision forces parties to seek contribu-

tion prematurely where a major contributor

seeks to use state dissolution law to avoid

liability before the lengthy negotiation

and cleanup process can be completed,

thereby undermining hazardous waste site

cleanup.

The Supremacy Clause of Article VI of

the Constitution invalidates any state laws

that “interfere with, or are contrary to"

federal law. Hillsborough County v.

Automated Medical Laboratories, Inc., 471

U.S. 707, 712 (1985); Gibbons v. Ogden, 22

U.S. (9 Wheat.) 1, 211 (1824). As this

Court stated in Shaw v. Delta Air Lines,

Inc., 463 U.S. 85 (1983), “Preemption may

be either express or implied, and is com-

pelled whether Congress’ command is explic-

itly stated in the statute's language or

implicitly contained in its structure and

purpose.” 463 U.S. at 95 (citing Jones v.

Rath Packing Co., 430 U.S. 519, 524

(1977)); accord Fidelity Federal Savings &

Loan Ass‘*n v,. De la Cuesta, 458 U.S. 141,

152-53 (1982). The touchstone of the

Court's analysis is Congress' intent.

nie

Massachusetts, 471 U.S. 724, 738 (1985).

When a federal statute unambiguously

precludes certain types of state legisla-

tion, as CERCLA does, the Court need look

no further than the statutory language to

find preemption. Exxon Corp. v. Hunt, 475

U.S. 355, 362 (1986); Aloha Airlines, Inc.

v. Director of Taxation, 464 U.S. 7, 12

(1983). However, in dismissing Onan's

Claims against Industrial Steel, based on

state law regarding the capacity of dis-

solved corporations, neither the district

court nor the Eighth Circuit made any men-

tion of the plain language of CERCLA, which

expressly preempts any state law that would

otherwise limit liability for hazardous

waste clean-up. Here both the district

court and the Eighth Circuit overlooked the

best evidence of Congress‘ intent to

preempt any state law that might act to

limit environmental liability.

CERCLA expressly provides for

preemption of any inconsistent law that

would limit the financial responsibility of

a party liable for the costs of environmen-

tal clean-up. That statute provides, in

relevant part:

(a) Notwithstanding any other

isi , and

subject only to the defenses set

forth in subsection (b) of this

section -

x * &®

(3) any person who by con-

tract, agreement, or other-

wise arranged for disposal

Or treatment, or arranged

with a transporter for

transport for disposal or

treatment, of hazardous

substances owned or pos-

sessed by such person, by

any other party or entity,

at any facility or incinera-

tion vessel owned or oper-

ated by another party or

entity and containing such

hazardous substances,

the national contingen-

cy plan.

42 U.S.C. § 9607(a) (emphasis supplied).

The very first phrase of this section,

which imposes liability under CERCLA

"[nJotwithstanding any other provision or

rule of law,” unambiguously demonstrates

Congress's intent that CERCLA preempt any

state law that would bar action against any

party that could otherwise fall within its

provisions. Minnesota Statute § 300.59,

the state law relied on by respondent as

the basis for its lack of capacity defense,

which limits the capacity of dissolved

corporations to be sued, clearly limits the

reach of CERCLA, and is therefore expressly

preempted.

CERCLA, consistent with its broad

remedial purpose, defines “person” very

broadly as “an individual, firm, corpora-

tion, association, partnership, consortium,

joint venture, commercial entity, United

States Government, State, municipality,

commission, political subdivision of a

State, or any interstate body.” 42 U.S.C.

§ 9601(21). Unlike the Sherman Act, which

defines a “person” to include "corporations

and associations existing under or autho-

rized by the laws of any state,” 15 U.S.C.

§ 7, CERCLA does not distinguish between

existing and dissolved corporations.

CERCLA specifically does not rely on state

recognition of corporate existence for its

application. Indeed, a “person” under

CERCLA expressly includes unincorporated

"commercial entit[ies]." Under this broad

definition, Industrial Steel is a “covered

person” under CERCLA, pursuant to 42 U.S.C.

§ 9607(a). As a covered person, Industrial

Steel is liable for cleanup costs notwith-

standing any other provision or rule of law.

Moreover, under the circumstances of

this case, or any case where a dissolved

corporation might be held liable for costs

eAte

of environmental clean-up, there arises a

direct conflict between federal and state

law. In the face of such a direct con-

flict, state law must give way to federal.

See Silkwood v. Kerr-McGee Corp., 464 U.S.

238, 248 (1984); Hines v. Davidowitz, 312

U.S. 52, 67 (1941). CERCLA provides its

own statute of limitations for the com-

mencement of contribution actions for re-

covery of cleanup costs. Pursuant to

CERCLA § 113(g)(3):

No action for contribution_for any

response costs or damages may be com-

menced more than three years after --

(A) the date of judgment in any

action under this chapter for

recovery of such costs or dam-

ages, Or

(B) the date of any administrative

order under Section 9622(g) of

this title (relating to de min-

imes settlements) or 9622(h) of

this title (relating to cost

recovery settlements) or entry of

a judicially approved settlement

with respect to such costs or

damages.

42 U.S.C. § 9613(g)(3).

ntti

Under this provision, which was added

to CERCLA as part of the Superfund Amend-

ments and Reauthorization Act of 1986

("SARA"), Pub. L. 99-499, § 113, 100 Stat.

1647, Onan's action is timely. At the time

Onan commenced this action, the SW-28 Group

had not yet reached a final settlement with

the EPA and the MPCA with respect to the

cleanup phase of the project, nor had any

administrative or judicial order been en-

tered concerning the parties' liability for

cleanup costs. Accordingly, the limita-

tions period provided for by CERCLA for

Onan's contribution action against Indus-

trial Steel had not yet even begun to run.

The state law corporate dissolution

statute operates as a de facto statute of

limitations for CERCLA actions against

dissolved corporations. This Court has, in

other contexts, declined to apply state

statutes of limitations where application

of the state limitations period would

uiie

interfere with federally created rights.

See, e.g., Del Costello v. International

Bhd. of Teamsters, 462 U.S. 151, 161

(1983); Occidental Life Ins. Co, v. EEOC,

432 U.S. 355, 367 (1977). The interference

with Onan‘s right under CERCLA to recover

environmental cleanup costs is no less

here. Even before the enactment of

CERCLA's statute of limitations, as part of

SARA, lower federal courts had held state

statutes of limitations inapplicable to

actions under CERCLA. United States v.

Moore, 703 F. Supp. 455, 457 (E.D. Va.

1988); Merry v. Westinghouse, 684 F. Supp.

852, 857 (M.D. Pa. 1988); United States v.

Mottoio, 605 F. Supp. 898, 902 (D.N.H.

1985). In this case, the Eighth Circuit

has approved the application of a different

state law limitations period to actions

against dissolved corporations, which is in

direct conflict with federal law. The

state law limiting the period in which a

dissolved corporation must be sued is

therefore preempted.

CONCLUSION

On the basis of the foregoing argu-

ments and authorities, Onan respectfully

requests that its petition for a writ of

certiorari be granted.

Respectfully submitted this 3lst day

of August, 1990.

GRAY, PLANT, MOOTY,

MOOTY & BENNETT, P.A.

Counsel for Petitioner

MACLAY R. HYDE

GREGORY MERZ

6022H/7687£

x)=

INDEX TO APPENDIX

' Page

Onan Corporation v. Industrial Steel

1990) A-1

- bi bienkcia’ Biba)

‘

,

1989) A-6

42 U.S.C. § 9601(21) A-30

42 U.S.C. § 3607(a) A-30

42 U.S.C. § 9613(£) A-32

42 U.S.C. § 9613(g) A-24

42 U.S.C. § 9622(a) A-35

42 U.S.C § 9622(d)(1) (A) A-36

42 U.S.C. § 9622(f£)(1) A-37

Minn. Stat. § 300.59 A-37

j Vv Vv

Reclaiming, Inc., No. 86-C-20377

(N.D. Ill. July 6, 1990) A-39

6022H/7687£

atin

UNITED STATES COURT OF APPEALS

For The Eighth Circuit

_No,. 89-5387

Onan Corporation, a

Delaware Corporation,

Appellant,

Appeal from the

United States

District Court

for the District

of Minnesota.

( UNPUBLISHED)

Vv.

Industrial Steel

Corporation, a Minnesota

Corporation, George J.

Rutman,

*-neneeeeneeexeeine iH iH

Appellees.

Submitted: May 17, 1990

Filed: June 5, 1990

Before LAY, Chief Judge HENLEY, Senior

Circuit Judge, and BOWMAN, Circuit Judge.

PER CURIAM.

Industrial Steel Corporation

(Industrial) was a Minnesota corporation

engaged in the business of manufacturing

and reconditioning steel containers for

many years prior to 1979. In 1979,

Industrial ceased operations and sold its

physical assets. On October 28, 1983,

George J. Rutman, Industrial‘s trustee in

dissolution, filed a certificate of

voluntary dissolution with the Minnesota

Secretary of State.

Under Minnesota law, a corporation

retains the capacity to prosecute and

defend-actions for a period of three years

after formal dissolution. Minn. Stat.

§ 300.59 (1988). On October 28, 1988 --

two years after Industrial's survival

period had expired -- Onan Corporation

(Onan) brought this action against

Industrial, and against Rutman as trustee

and shareholder. The complaint alleged

that Industrial was liable to Onan for

contribution under the Comprehensive

Environmental Response, Compensation, and

Liability Act (CERCLA), 42 U.S.C.

§§ 9601-9657 (1982), and under state law.

Onan and twelve other companies

(Collectively known as the "“SW-28" Group")

had earlier entered into a consent decree

with the Minnesota Pollution Control Agency

and the Environmental Protection Agency to

fund the cleanup of a hazardous waste dump

site in Andover, Minnesota, and Onan now

claims that Industrial, as a former user of

the site, is responsible for a share of the

costs.

The district court? dismissed the

complaint on the ground that Industrial's

Capacity to be sued had expired under Minn.

Stat. § 300.59. Onan Corp. v. Industrial

Corp., Civil File No. 3-88-0877 (D. Minn.

June 21, 1989). On appeal, Onan argues

that (1) CERCLA preempts Minnesota law on a

corporation's capacity to be sued, (2)

Industrial’‘s dissolution was ineffective as

a matter of state law because Industrial

failed to set aside assets to satisfy its

+The Honorable Paul A. Magnuson,

United States District Judge for the

District of Minnesota.

potential liability for the Andover site,

and (3) this court should remand so that

the complaint can be amended to include

Claims against Rutman in his individual

capacity and against Industrial's former

shareholder, Stavoco Industries, Inc.

As to the first two issues, we affirm

on the basis of Judge Magnuson's opinion.

See also United States v. Northeastern

Pharmaceutical & Chem. Co., 810 F.2d 726,

746 (9th Cir. 1986) (capacity of

corporation to be sued under CERCLA

governed by law under which it is organized

as mandated by Fed. R. Civ. P. 17(b)),

cert. denied, 484 U.S. 848 (1987).

We also deny Onan's request for a

remand to amend the complaint. Onan filed

its motion to amend while the motion to

dismiss was pending before the district

court, and then sent a letter to Judge

Magnuson asking that a hearing on the

motion to amend be postponed until after

his ruling on the motion to dismiss. Once

the district court dismissed the suit and

Onan appealed, nothing remained to be

adjudicated. Thus, Onan is precluded from

Claiming that the district court erred in

dismissing the suit without considering the

proposed amendments.

Accordingly, we affirm.

A true copy.

Attest:

CLERK, U.S. COURT OF

APPEALS, EIGHTH CIRCUIT.

UNITED STATES COURT OF APPEALS

For, The Eighth Circuit

; No. 89-5387

Civil File

No. 3-88-0877

Onan Corporation, a

Delaware Corporation,

Appellant,

Vv.

Industrial Steel

Corporation, a Minnesota

Corporation, George J.

Rutman,

*

”

a

x

*

”

* MEMORANDUM AND

* ORDER

*

cia

aa

»

*x

Appellees.

Maclay R. Hyde, Esq., Nancy A.

Quattlebaum, Esq., Gregory Merz, Esq.,

Gray, Plant, Mooty, Mooty & Bennett,

3400 City Center, 33 South Sixth

Street, Minneapolis, MN 55402, -for

the plaintiff.

Geoffrey P. Jarpe, Esq., Maun, Green,

Hayes, Simon, Johanneson & Brehl, 2300

World Trade Center, 30 East Seventh

Street, St. Paul, MN 55101, for the

defendants.

Kathleen L. Winters, Esq., Special

Assistant Attorney General for the

State of Minnesota, 520 Lafayette

Road, Suite 200, St. Paul, MN 55155,

filed an amicus memorandum on behalf

of the Minnesota Pollution Control

Agency.

;

This matter is before the court on the

motions of defendants Industrial Steel

Corporation (Industrial Steel) and George

J. Rutman to dismiss this action in its

entirety. For the reasons set forth below

the court grants defendants’ motions.

Factual Background

Prior to 1979 Industrial Steel was a

Minnesota corporation that manufactured

steel drums and reconditioned used drums in

St. Paul, Minnesota. George J. Rutman was

the president, treasurer and member of the

board of directors of Industrial Steel.

The corporation closed its manufacturing

operations in 1978 and ceased occupying the

plant site in 1979. Industrial Steel also

sold its physical assets and conducted no

business after 1979.

Plaintiff Onan Corporation (Onan)

commenced this action against Rutman and

Industrial Steel in order to recover a

share of the costs relating to the cleanup

of a hazardous waste site located in

Andover, Minnesota. Onan has borne these

all

costs as a result of entering into a

consent order with the Environmental

Protection Agency (EPA) and the Minnesota

Pollution Control Agency (MPCA). Several

other companies have entered into the

consent order as well (collectively the

settling parties). Industrial Steel and a

number of other companies allegedly

involved with the Andover site (the

non-settling parties) have refused to join

in the consent decree.

The Andover site is a landfill that

operated in 1963. Waste Dispoal

Engineering (WDE) purchased the landfill in

1968 and Waste Control, Incorporated (Waste

Control), a related company, began

transporting waste materials to the site at

that time. Over fifty companies, including

Onan and Industrial Steel, contracted with

Waste Control for the disposal of waste

materials. WDE received a permit to open a

hazardous waste disposal site at the

landfill and opened a hazardous waste pit

there in November, 1972.

In January of 1983 the Minnesota

Department of Health issued a well advisory

due to contamination from the Andover

hazardous waste pit. The MPCA issued a

formal Request for Information (RFI) to

Industrial Steel on January 26, 1983. In

the RFI the MPCA sought information

regarding Industrial Steel’s dealings with

Waste Control and the landfill owned by

WDE. On September 2, 1983, Industrial

Steel adopted a resolution of voluntary

dissolution. Rutman, who was designated as

the trustee in dissolution of the company,

filed a formal certificate of voluntary

dissolution with the Minnesota Secretary of

State on October 28, 1983. In the

meantime, on October 20, Industrial Steel

had received a letter from the MPCA

informing Industrial Steel that WDE had

failed to take remedial action at the

Andover site and that both the EPA and the

MPCA would be investigating the matter.

On November 23, 1983, the MPCA

notified Industrial Steel that the MPCA

considered Industrial Steel to be a

potentially responsible person with respect

to cleanup costs at the Andover waste

site. Rutman responded in a letter that

Industrial Steel had been out of business

for several years and that the company had

been dissolved. On March 16, 1984, the

MPCA sent Industrial Steel a copy of the

consent order which had been negotiated and

lists of both the settling and non-settling .

parties. Although Industrial Steel refused

to sign the consent order, the company

complied with the MPCA's request. for

responsive action and provided the MPCA

with a summary of its dealings with Waste

Control. Industrial Steel fashioned its

response from information provided by Hyman

Simes and Jerry Berke, former Industrial

Steel employees.

A-10

In December of 1984 Industrial Steel,

aware of possible claims against it for

cleanup costs, instituted an action against

one of its insurance carriers. A month

later, Industrial Steel added two other

insurance companies to the suit.

Industrial Steel sued the insurance

Carriers to obtain a declaratory judgment

of the insurers’ duties under the policies

previously in force. The Ramsey County

District Court granted summary judgment for

Industrial Steel, and the insurers

appealed. The Minnesota Court of Appeals

affirmed in part but reversed the grant of

summary judgment, remanding the case to the

Gistrict court. See Industrial Steel

Container v, Fireman's Fund, 399 N.W.2d 156

(Minn. Ct. App. 1987). Before any further

proceedings could take place one of the

insurers notified Industrial Steel that it

was insolvent, and the other two admitted

coverage for claims arising from

contamination at the Andover waste site.

A-1ll

Onan filed the instant action on

October 28, 1988. The complaint alleges

five counts against Industrial Steel, two

counts against Rutman and requests the

court to appoint a receiver for the

undistributed assets of Industrial Steel.

The law suit is essentially a contribution

action based on the Comprehensive

Environmental Response, Compensation, and

Liability Act (CERCLA), 42 U.S.C. § 9601 et

seq., and the Minnesota Environmental

Response and Liability Act (MERLA), Minn.

Stat. § 115B.03. Defendants move for

dismissal of the action on the grounds that

under Minnesota law Industrial Steel has no

Capacity to be sued beyond the three-year

period following the date on which the

company filed its certificate of voluntary

dissolution. Rutman contends that his

Capacity to be sued as a trustee or

shareholder of Industrial Steel is also

subject to the three-year limitation. Thus

A-12

defendants contend that the action must be

dismissed in its entirety.

Analysis

For purposes of a motion to dismiss

the court must accept the factual

allegations of the bend iéiat as true. The

complaint should not be dismissed “unless

it appears beyond doubt that the plaintiff

can prove no set of facts in support of his

claim which would entitle him to relief."

Conley v. Gibson, 355 U.S. 41, 45-46

(1957). In this motion the only disputed

issue of law is whether the defendants had

the capacity to be sued at the time Onan

filed this action.

Fed. R. Civ. P. 17(b), which governs

an entity's capacity to sue or be sued in

federal court, provides that "[t]Jhe

Capacity of a corporation to sue or be sued

shall be determined by the law under which

it was organized.” Rule 17(b) is a

codification of the basic principle of the

A-13

law of corporations recognized by Chief

Justice Taft in Oklahoma Natural Gas Co. v.

State of Oklahoma, 273 U.S. 257, 259-60

(1927):

[C]orporations exist for specific

purposes, and only by legislative

act, so that if the life of the

corporation is to continue even

only for litigating purposes it

is necessary that there should be

some statutory authority for the

prolongation. The matter is not

really procedural or controlled

by the rules of the court in

which the litigation pends. It

concerns the fundamental law of

the corporation enacted by the

state which brought the

corporation into being.

The Supreme Court reaffirmed Chief Justice

Taft's statement of the law in Chicago

Vv - j -

Wilcox Bldg. Corp., 302 U.S. 120 (1937).

In that case an Illinois corporation which

had been dissolved for four years filed a

petition for reorganization under the

United States bankruptcy laws. The Court

refused to allow the corporation to

maintain its action because under Illinois

law the corporation no longer had the

Capacity to sue. The Illinois statute

governing corporate dissolutions authorized

actions for only two years following

Gissolution. The court foreclosed any

further action by the dissolved

corporation, stating:

The decisions of this court are

all to the effect that a private

corporation in this country can

exist only under the express law

of the state or sovereignty by

which it was created. Its

Gissolution puts an end to its

existence, the result of which

may be likened to the death of a

naturai person.

Id. at 124-25.

Minnesota law with respect to the

capacity of a dissolved corporation to sue

or be sued is similar to the provisions at

issue in Chicago Title. Minn. Stat.

§ 301.56 (1982), the statute

When a corporation has been

completely wound up...the trustee

or trustees shall sign and

acknowledge a certificate stating

that the corporation has been

completely wound up and is

dissolved.

A-15

The...certificate of dissolution

shall be filed for record with

the secretary of state and

thereupon the corporate existence

shall terminate.

The corporate survival provision is set

forth in Minn. Stat. § 300.59:

[A] corporation whose existence

terminates by limitation,

forfeiture, or otherwise

continues for three years after

the termination date for the sole

purpose of prosecuting and

defending actions, closing its

‘affairs, disposing of its

property, and dividing its

capital.

These statutory provisions modify the

common law rule that a corporation ceases

to exist for any purpose at the time of

dissolution. “To obviate this harsh rule

the legislature enacted the predecessor to

section 300.59 which extended the life of a

dissolved corporation for a specific

term." Mattson v. Underwriters at Lloyds

of London, 385 N.W.2d 854, 857 (Minn. Ct.

App. 1986) (citations omitted). Balanced

against the legislature's concern for the

problem of corporations dissolving in order

A-16

to avoid liability is the need to allow

corporations to die a natural death.

"([T]he purpose of both the common law rule

and the survival statutes is to provide a

definite point in time at which the

existence of a corporation and the

transaction of its business would be

terminated...." Id. at 858. The Minnesota

Supreme Court has acknowledged that a

corporation in voluntary dissolution may be

sued only within the statutory three-year

period. See Mississippi Valley Development

Corp. v. Colonial Enterprises, Inc., 300

Minn. 66, 217 N.W.2d 760 (1974); Kopio's

Inc. v. Bridgeman Creameries, 248 Minn.

348, 79 N.W.2d 921 (1957).

In this case Industrial Steel filed a

certificate of voluntary dissolution on

October 28, 1983, and openly disclosed this

fact to both the MPCA and the EPA in

December of 1983. Onan did not initiate

this law suit until October 28, 1988, a

A-17

full five years after Industrial Steel

formally dissolved. This action clearly

falls outside of the three-year survival

period. Therefore, Onan has attempted to

sue a corporation that was no longer in

existence.

Onan contends that even though the

three-year period has run, Industrial Steel

may be sued because both CERCLA and MERLA

preempt any state law inconsistent with the

underlying purpose of CERCLA and MERLA,

that is, to hold responsible parties liable

for hazardous wastes. Onan argues that if

Industrial Steel attempts to use Minn.

Stat. § 300.59 as a shield to protect

itself from CERCLA and MERLA liability,

then § 300.59 is inconsistent with the

purposes of CERCLA and MERLA. Therefore,

Industrial Steel's dissolution should be

ineffective. :

This court is aware of the threat to

health and safety caused by hazardous

A-18

wastes in our society and the need for

strong measures to attack this problem. In

Corp., 546 F. Supp. 1100, 1112 (D. Minn.

1982), this court stated, “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 give effect to these

congressional concerns, CERCLA should be

given a broad and liberal construction."

Nevertheless, the reach of CERCLA is not

unlimited.

This case highlights the clash of two

important policy concerns. On the one

hand, CERCLA must be construed liberally in

order to deal effectively with the problem

of hazardous wastes. On the other hand,

the life of a corporation may not be

extended indefinitely. A corporation that

follows the statutorily defined procedures

A-19

s > ae

for dissolution and termination should, in

the absence of fraud, be able to rely on

the promise of Minn. Stat. § 300.59 that

the corporation will cease to exist for all

purposes after three years.

In two cases the federal courts have

addressed the conflict between CERCLA and

state statutes regarding capacity to be

sued, and the two courts involved have

taken opposite positions. In Levin Metals

Corp, v. Parr-Richmond Terminal Co., 631 F.

Supp. 303 (N.D. Cal. 1986), aff'd, 817 F.2d

1448 (9th Cir. 1987), the plaintiff brought

a CERCLA action against a dissolved

corporation. The district court dismissed

the action on the grounds that California

law did not authorize suits against ;

dissolved corporations for causes of action

arising subsequent to dissolution. 631 F.

Supp. at 304. The Court of Appeals for the

Ninth Circuit affirmed and held that the

capacity of a dissolved corporation to be

A-20

sued is governed by Rule 17(b). The court

rejected the plaintiff's contention that

CERCLA preempts state law on capacity to be

sued. 817 F.2d at 1451.

The other case, U.S. v. Sharon Steel

Corp., 681 F. Supp. 1492 (D. Utah 1987),

involved a CERCLA action brought against a

corporation that had lost the capacity to

be sued under Main law four years earlier.

The court disagreed with the Court of

Appeals for the Ninth Circuit and ruled

that “CERCLA overrides Rule 17(b) and the

applicable state law, whatever that law

might be.” Jd. at 1495.

; The Court of Appeals for the Eighth

Circuit has ruled on this issue only

indirectly. In United States v.

579 F. Supp. 823 (W. D. Mo. 1984), aff'd in

Part, 810 F.2d 726 (8th Cir. 1986) cert.

denied, 108 S. Ct. 146 (1987), the United

States brought a CERCLA action against a

A-21

corporate defendant which had forfeited its

charter, but had not filed the certificate

of voluntary dissolution required by

Delaware law. The district court found

that “a corporation with a forfeited

charter is not completely dead for all

purposes, but merely in ‘a state of coma,’

during which it is still subject to suit,

even if the suit is brought more than three

years after the charter forfeiture. 579

F. Supp. at 828 n.1l. As a result, the

Gistrict court held the corporation

liable. The court of appeals agreed,

stating that "forfeiture of the corporate

charter and voluntary dissolution of the

corporation are not legally equivalent.”

810 F.2d at 746. The court also affirmed

the district court's conclusion that in a

CERCLA action "“[t])he capacity of a

corporation to sue or be sued is determined

by the law under which it is organized.”

Id. (citing Fed. R. Civ. P. 17(b)).

A-22

The case at hand is slightly different

from Northeastern because following Rule

17(b) in this case would defeat liability

for Industrial Steel. However, the Eighth

Circuit placed no limitations on its

conclusion that Rule 17(b) applies to

CERCLA cases. Moreover, the holding of

Northeastern that voluntary dissolution is

qualitatively different from forfeiture of

charter implies that dissolution, ot 1ewea

by the three-year survival period,

terminates the corporation's comatose

condition and renders the corporation

legally dead. Not even the important

policy goals underlying CERCLA can

resurrect Industrial Steel. For the same

reasons, Onan's argument with respect to

MERLA must fail as well.

Onan argues in the alternative that

Industrial Steel's dissolution was

ineffective. Onan contends that Industrial

Steel was aware of its potential liability

A-23

|

|

|

7

:

for cleanup of the Andover site but failed

to make provisions for the payment of this

"debt." According to Onan, such action

does not satisfy the statutory requirements

for dissolution set forth in Minn. Stat.

§ 301.48, which was in force when

Industrial Steel attempted to dissolve.

Onan cites the dissent of Justice Yetka in

Mattson v. Underwriters at Lloyds of

London, 414 N.W.2d 717 (Minn. 1987), for

the proposition that a corporation may not

undertake voluntary dissolution in order to

avoid liability and that any such

dissolution is ineffective.

The court notes that the majority in

Mattson did not reach this issue. However,

it is true that dissolution cannot serve as

clandestine substitute for bankruptcy.

Justice Yetka's dissent succinctly states

the potential problem: "Plaintiffs'

attorney maintains that Lloyds of London

encouraged Car-Del to dissolve quietly and

A-24

>

secretly so that, unknown to plaintiffs,

the 3-year statute would bar plaintiffs

from collecting the deficiency judgment

against Car-Del and, therefore, bar

Car-Del's claim against Lloyds of London.”

Id. at 722 (Justice Yetka dissenting). In

contrast, Industrial Steel dissolved

openly, disclosing its dissolution to both

the EPA and the MPCA. The company had been

out of business for a number of years and

had not good reason not to dissolve.

Onan's contention that Industrial Steel

failed to provide for its debts is also

without merit. The potential claims

against Industrial Steel were not

outstanding debts at the time of the

company’s dissolution. Moreover,

Industrial Steel took steps to secure

insurance coverage for claims relating to

the Andover site by suing its insurers. If

an action had been brought against

Industrial Steel within the three-year

A-25

Pe eee ee ee

period, the company could have met its

obligations, at least in part. Having

concluded that Industrial Steel followed

the statutory requirements for dissolution,

the court will not find the dissolution

ineffective.

Onan's final argument is that even if

Industrial Steel lacks the capacity to be

sued, George Rutman may be held personally

liable. Onan's claim against Rutman is

based on two separate theories. First,

Onan asserts that Rutman may be liable as

trustee for any undistributed corporate

assets. Second, Onan claims that Rutman

may be liable as a shareholder who received

corporate assets properly payable to Onan.

Onan has not sued Rutman in his individual

Capacity.

Onan's action against Rutman as

trustee must fail because Rutman no longer

has the capacity to be sued. This

conclusion is compelled by the Minnesota

Supreme Court‘s decision in Henderson v.

Northwestern Heating Engineers, Inc., 274

Minn. 396, 144 N.W.2d 46 (1966). The court

stated:

Since one of the duties of the

trustee enumerated in § 301.52 is

to defend the corporation against

claims, it must follow that his

capacity as trustee will continue

so long as the corporation can be

legally subjected to claims.

Since under § 300.59 the

corporation's existence continues

for 3 years after the filing of

the certificate for the purpose

of defending actions, it must of

necessity follow that the trustee

will remain a trustee for the

3-year period.

144 N.W. 2d at 48. See also Mattson, 385

N.W.2d at 857 (quoting Henderson with

approval). In this case Rutman's capacity

to be sued as trustee terminated on October

28, 1986, at the same time Industrial Steel

lost the capacity to be sued.

Finally, Onan's action against Rutman

for shareholder liability is fatally

flawed. Rutman asserts that he never owned

shares of Industrial Steel and that another

A-27

(?

Ks Se =. a. Ss LU ee

company owned all of the stock of

Industrial Steel. In additior, Onan's

claim is based on Minn. Stat. § 300.64,

which holds a shareholder liable "[{i]f the

capital stock of a manufacturing

corporation is withdrawn and refunded to

the stockholders before the payment of

corporate debts for which it would have

been liable...." If the corporation is not

liable for the alleged debt, then the i

shareholder is not liable either.

Industrial Steel cannot be sued for any

reason beyond the three-year period

following dissolution, regardless of

whether any distributed or undistributed

assets exist. Onan cannot circumvent this

rule and achieve the desired result

indirectly by suing a shareholder.

Accordingly, IT IS ORDERED that:

Industrial Steel's motion to

dismiss Onan's action in its

entirety shall be, and hereby is,

GRANTED.

Bs George J. Rutman's motion to

dismiss Onan‘s action in its

entirety shall be, and hereby is,

GRANTED.

LET JUDGMENT BE ENTERED ACCORDINGLY.

Dated: June 21, 1989.

Lsl

Paul A. Magnuson

United States District Judge

6635H

A-29

I

Sy EE

42 U.S.C.

§ 9601. Definition

For purpose of this subchapter --

(21) The term “person” means 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.

§ 9607. Liability

(a) Covered persons; scope; recoverable

costs and damages; interest rate;

"comparable maturity” date

Notwithstanding any other provision or

rule of law, and subject only to the

defenses set forth in subsection (b) of

this section --

(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 substances 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 or incineration vessel

owned or operated by another party or

entity and containing such hazardous

substances, and

A-30

(4) any person who accepts or

accepted any hazardous substances for

transport to disposal or treatment

facilities, incineration vessels or

sites selected by such person, from

which there is a release, or a

threatened release which causes the

incurrence of response costs, of a

hazardous substance, shall be liable

for --

(A) all costs of removal or

remedial action incurred by the

United States Government or a

State or an Indian tribe not

inconsistent with the national

contingency plan;

(B) any other necessary

costs of response incurred by any

other person consistent with the

national contingency plan;

(C) damages for injury to,

destruction of, or loss of

natural resources, including the

reasonable costs of assessing

such injury, destruction, or loss

resulting from such a release; and

(D) the costs of any health

assessment or health effects.

study carried out under section

9604(i) of this title.

The amounts recoverable in an action under

this section shall include interest on the

amounts recoverable under subparagraphs (A)

through (D). Such interest shall accrue

from the later of (i) the date payment of a

specified amount is demanded in writing, or

(ii) the date of the expenditure

concerned. The rate of interest on the

outstanding unpaid balance of the amounts

A-31

recoverable under this section shall be the

same rate as is specified for intevest on

investments of the Hazardous Substance

Superfund established under subchapter A of

chapter 98 of Title 26. For purposes of

applying such amendments to interest under

this subsection, the term “comparable

maturity” shall be determined with

reference to the date on which interest

accruing under this subsection commences.

§ 9613. Civil proceedings

(£) Contribution

(1) Contribution

Any person may seek contribution

from any other person who is liable or

potentially liable under section

9607(a) of this title, during or

followina any civil action under

section 9606 of this title or under

section 9607(a) of this title. Such

claims shall be brought in accordance

with this section and the Federal

Rules of Civil Procedure, and shall be

governed by Federal law. In resolving

contribution claims, the court may

allocate response costs among liable

parties using such equitable factors

as the court determines are

appropriate. Nothing in this

subsection shall diminish the right of

any person to bring an action for

contribution in the absence of a civil

action under section 9696 or section

9607 of this title. -

(2) Settlement

A person who has resolved its

liability to the United States or a

State in an administrative or

A-32

judicially approved settlement shall

not be liable for claims for

contribution regarding matters

2ddressed in the settlement. Such

settlement does not discharge any of

the other potentially liable persons

unless its terms so provide, but it

reduces the potential liability of the

others by the amount of the settlement.

(3) Persons not party to

sett lement

(A) If the United States or

a State has obtained less than

complete relief from a person who

has resolved its liability to the

United States or the State in an

administrative or judicially

approved settlement, the United

States or the State may bring an

action against any person who has

not so resolved its liability.

(B) A person who has

| resolved its liability to the

x United States or a State for some

: Or all of a response action or

for some or all of the costs of

such action in an administrative

or judicially approved settlement

may seek contribution from any

person who is not party to a

settlement referred to in

paragraph (2).

(C) In any action under

: this paragraph, the rights of any

person who has resolved its

liability to the United States or

a State shal: be subordinate to

the rights of the United States

. or the State. Any contribution

: action brought under this

A-33

(g)

paragraph shall be governed by

Federal law.

Period in which action may be brought

(2) Actions for recovery of costs

An initial action for recovery of

the costs referred to in section 9607

of this title must be commenced --

(A) for a removal action,

within 3 years after completion

of the removal ection, except

that such cost recovery action

must be brought within 6 years

after determination to grant a

waiver under section

9604(c)(1)(C) of this title for

continued response action; and

(B) for a remedial action,

within 6 years after initiation

of physical on-site construction

of the remedial action, except

that, if the remedial action is

initiated within 3 years after

the completion of the removal

action, costs incurred in the

removal action may be recovered

in the cost recovery action

brought under this subparagraph.

In any such action described in this

subsection, the court shall enter a

declaratory judgment on liability for

response costs or damages that will be

binding on any subsequent action or

actions to recover further response

costs or damages. A subsequent action

Or actions under section 9607 of this

title for further response costs at

the vessel or facility may be

maintained at any time during the

A-34

response action, but must be commenced

no later than 3 years after the date

of completion of all response action.

Except as otherwise provided in this

paragraph, an action may be commenced

under section 9607 of this title for

recovery of costs at any time after

such costs have been incurred.

(3) Contribution

No action for contribution for

any response costs or damages may be

commenced more than 3 years after --

(A) the date of judgment in

any action under this chapter for

recovery of such costs or

damages, or

(B) the date of an

administrative order under

section 9622(9) of this title

(relating to de minimis

settlements) or 9622(h) of this

title (relating to cost recovery

settlements) or entry of a

judicially approved settlement

with respect to such costs or ~-

damages.

§ 9622. Settlements

(a) Authority to enter into agreements

The President, in his discretion, may

enter into an agreement with any person

(including the owner or perator of the

facility from which a release or

substantial threat of release emanates, or

any other potentially responsible person),

to perform any response action (including

any action described in section 9604(b) of

this title) if the President determines °

A. 9c

that such action will be done properly by

such-person. Whenever practicable and in

the public interest, as determined by the

President, the President shall act to ,

facilitate agreements under this section

that are in the public interest and

consistent with the National Contingency

Plan in order to expedite effective

remedial actions and minimize litigation.

If the President decides not to use the

procedures in this section, the President

shall notify in writing potentially

responsible parties at the facility of such

decision and the reasons why use of the

procedures’ is inappropriate. A decision of

the President to use or not to use the

procedures in this section is not subject

to judicial review.

(d) Enforcement

(1) Cleanup agreements

(A) Consent Decree

Whenever the President

enters into an agreement under this

section with any potentially

responsible party with respect to

remedial action under section 9606 of

this title, following approval of the

agreement by the Attorney General,

except as otherwise provided in the

case of certain administrative

settlements referred to in subsection

(g) of this section, the agreement

shall be entered in the appropriate

- United States district court as a

consent decree. The President need

not make any finding regarding an

imminent and substantial endangerment

to the public health or the

environment in connection with any

such agreement or consent decree.

A-36

(£) Covenant not to sue

(1) Discretionary covenants

The President may, in his

discretion, provide any person with a

covenant not to sue concerning any

liability to the United States under

this chapter, including future

liability, resulting from a release or

threatened release of a hazardous

substance addressed by a remedial

action, whether that action is onsite

or offsite, if each of the following

conditions is met:

(A) The covenant not to sue

is in the public interest.

(B) The covenant not to sue

would expedite response

action consistent with the

National Contingency Plan

under section 9605 of this

title.

(C) The person is in full

compliance with a consent

decree urder section 9606 of

this title (including a

consent decree entered into

in accordance with this

section) for response to the

release or threatened

release concerned.

(D) The response action has

been approved by the

President.

Minn. Stat. § 300.59. Continuance to

close affairs’ exceptions

Except for a corporation subject to

the Minnesota Nonprofit Corporation Act, a

A-37

corporation whose existence terminates by

limitation, forfeiture, or otherwise

continues for three years after the

termination date for the sole purpose of

prosecuting and defending actions, closing

its affairs, disposing of its property, and

dividing its capital.

6659H

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

WESTERN DIVISION

ALLIED CORPORATION,

et al., .

Plaintiffs,

v. 86 C 20377

ACME SOLVENTS RECLAIMING,

INC., et al.,

Defendants.

ee ee ee ee ee ee ee ee

This action comes before the Court on

defendant Rolisa Corporation's objections

to the Report and Recommendation of

Magistrate P. Michael Mahoney denying

Rolisa Corporation's motion for summary

judgment. For the reasons set forth in the

opinion below, this Court adopts the hold-

ing but not the reasoning of the

Magistrate's Report and Recommendation and

denies Rolisa Corporation's motion for

summary judgment.

' 1. __ BACKGROUND

As stated in the Magistrate's Report

i and Recommendation, the relevant undisputed

facts are as follows:

Matherson-Selig Co. was organized

as an Illinois corporation on April

29, 1947 (Def. Ex. A.). In March

1978, Matherson-Selig sold some of its

| assets, including use of the name

it "Matherson-Selig ", to Colwell Gen-

eral, Inc. (Pl. Response, p. 3).

Matherson-Selig Co. changed its name

to Rolisa Corp. on September 1, 1978

(Def. Ex. B). Plaintiffs allege that

Metherson-Selig generated solvent

waste which Acme Solvents disposed of

at the Acme site from (sic) the early

1960's until at least 1973 (Pl.

Response, p. 3). On September 19,

1984, Rolisa Corp. was voluntarily

dissolved (Def. Ex. D). All of

| Rolisa's assets were distributed dur-

ing September 1984 to its two sole

shareholders, Mr. Irving Finder,

Rolisa's president at the time of its

! dissolution and his wife (Irv_ag

' Finder deposition, p: 43; Pl. Ez. 6).

i Magistrate's Report and Recommendation,

slip op. at 2 (N.D. Ill. August 18, 1989).

In addition to the above-quoted facts

from the Magistrate's Report and

Recommendation, the defendant has presented

a few additional facts which are not in

dispute. First, Rolisa correctly notes

that the plaintiffs, as well as the defen-

dants, including Rolisa Corporation, are

"potentially responsible parties” (herein-

after "PRP's") at the Acme site under the

Comprehensive Environmental Response,

amended by the Superfund Amendments and

Reauthorization Act of 1986 (hereinafter

"SARA"), 42 U.S.C. §§ 9601-9675. Rolisa

also correctly states that this action is

one for indemnification (Count I of the

Amended Complaint) and contribution (Count

II of the Amended Complaint).

The central issue in Rolisa's motion

for summary judgment, and the central ques-

tion raised in Rolisa's objections, relate

to whether Rolisa, as a dissolved corpora-

tion, is capable of being sued in the

underlying CERCLA and SARA action.

Defendant Rolisa Corporation's agreements

with, and objections to, the Magistrate's

Report and Recommendation can be summarized

as follows.

Rolisa first contends that the

Magistrate is correct in determining that

Illinois law controls the question of

Rolisa's capacity to be sued. Rolisa is

also in agreement with the magistrate that

Rolisa is not subject to suit under Illi-

nois common law and that the only potential

for suit is under the Illinois Business

Corporation Act's “survival” statute. Ill.

Rev. Stat. ch. 32, para. 12.80. Rolisa

also appears to agree with the Magistrate's

conclusion that the "survival" statute of

the Illinois Business Corporation Act

(hereinafter “IBCA") is ambiguous and it is

unclear whether the Act covers the present

Situation and allows suit to be brought

against the now-dissoived Rolisa Corpora-

tion.

As a general proposition, however,

Rolisa contends that at this point in the

analysis the Magistrate's Report and

Recommendation begins “mixing apples and

oranges." Rolisa contends that the

Magistrate's conclusion that looking to

state law for guidance on interpretation of

the ambiguous state statute on the one hand

and attempting to construe CERCLA and SARA

liberally in order to support a federal

cause of action on the other hand, is il-

lcgical and flies in the face of Fed. R.

Civ. P. 17(b) requiring the Court to look

only to state law.

Rolisa next argues that under the IBCA

a “liability” is “incurred” when a “cause

of action” has “accrued,” citing to-

Blankenship v. Demmler Manufacturing Co.,

Ss

89 Ill. App. 3d 569, , 411 N.E.2d 1153,

)

1156, 44 Ill. Dec. 787, 790 (lst Dist.

1980). Rolisa also buttresses its argument

citing to In Re.: Johns-Manville/Asbestos —

A-43

Cases, 516 F. Supp. 375 (N.D. Ill. 1981)

for the proposition that a “party against

whom indemnification or contribution is

sought does not ‘incur any liability’ until

the party seeking such indemnification or

contribution has been found liable or has

settled with the original claimant."

(Rolisa's Obj. to Magistrate's Report and

Recommendation at 5). Rolisa finally takes

issue with the Magistrate's conclusion that

while in Y¥ 12.75 of the IBCA the term

"claim" does not include any contingent

liability, the term "claim" does include

contingent liabilities in the remainder of

: the provisions of the IBCA.

The response of the plaintiffs?’

covers a number of points. First,

‘ i/ For purposes of the response to

a Rolisa's motion for summary judgment

fi: and response to Rolisa's objections

[ to the Magistrate's Report and

4 Recommendation, “plaintiffs” include

ee all plaintiffs ia this action except

ft Reliance Universal which is separate-

ly represented.

A-44

plaintiffs contest Rolisa's suggestion that

a “liability” can only be an obligation

which has already become certain. Second,

plaintiffs challenge Rolisa's assertion

that in the absence of any Illinois Supreme

Court determination, Biankenship, supra,

controls this Court's decision. Lastly,

plaintiffs contend that Blankenship is

inappropriate as it deals solely with

whether § 80(c) of the IBCA provided for an

implied cause of action against corporate

officers and whether the eugitable trust

fund doctrine applies where a corporation,

at the time of its dissolution, could not

have been aware of a plaintiff's potential

Claim. Plaintiffs contend that the

Blankenship court did not analyze or con-

strue any of the provisions or terms con-

tained in the IBCA. Plaintiffs lastly

contend that the obiter dicta contained in

Blankenship is distinguishable because

Blankenship dealt with a factual situation

A-45

where the defendants had no knowledge of

the existence of any injury or liability;

plaintiffs allege that in the instant case

Rolisa was fully aware of thé CERCLA inju-

ries prior to the corporate dissolution and

that Rolisa incurred a contingent liability

from the moment CERCLA was enacted.“

Ill. OPINION OF THE COURT

This Court is disinclined to agree

with the parties'* postulate of the issue

before the Court. The parties have charac-

terized this dispute as wehther Illinois

law, specifically the IBCA, provides for a

cause of action against a dissolved

2/ Plaintiffs alternatively contend that

at the very latest, Rolisa became

aware of its liability when it was

notified of the cleanup of the Acme

. site by the United States

| Environmental Protection Agency in

; 1983, notification that came well

before the voluntary dissolution of

the corporation on September 19,

1984.

A-46

corporation in the position of Rolisa

Corp. This Court,. however, believes that

the relevant question presented is whether

Congress intended CERCLA to supersede the

Federal Rules of Civil Procedure, obviating

the necessity to look to the Illinois law

pursuant to Fed. R. Civ. P. 17(b). See

United States v. Sharon Stee] Corp., 681 F.

Supp. 1492 (D. Utah 1987). It is this

issue which this Court will address in

response to Rolisa'‘s objections to the

Magistrate's Report and Recommendation and

in response to Rolisa'‘s motion for summary

judgment.

The Court will not grant any summary

judgment motion unless all of the pleadings

and supporting documents, if any, indicate

that there is no genuine issue as to any

material fact and that the moving party is

entitled to judgment as a matter of law.

Fed. R. Civ. P. 56(c); Anderson v. Liberty

Lobby. Inc., 477 U.S. 242, 106 S.Ct. 2505,

A-47