Bill Wagner is a seasoned trial lawyer who concentrates on environmental law, complex litigation, and white collar criminal defense. He represents clients in matters involving environmental contamination, class action personal injury and toxic tort claims, remediation cost recovery claims, and federal and state enforcement actions. He has skillfully guided clients through parallel administrative, civil, and criminal investigations and prosecutions, and has litigated complex business disputes (involving securities laws, trade secrets, patents, and RICO claims) and claims for policy holders seeking insurance coverage. Bill has tried cases involving complex, scientific issues in federal and state courts and in arbitrations throughout the United States, and is often consulted by other lawyers on the nuances of expert testimony and the admission of scientific evidence at trial.
Bill has been honored by inclusion in the 2012 Best Lawyers in America, has been regularly recognized as an Indiana Super Lawyer, has been named a Fellow of Litigation Counsel of America, The Trial Lawyer Honorary Society, and Life Fellow of the Indiana Bar Foundation, and has received the highest professional rating (AV) from Martindale Hubbell. Bil is a contributing author to the Taft Environmental Law Insight Blog and regularly speaks and writes for industry groups.
Nothing serves as a death knell for lawsuits in federal court more often than exaggerated claims propped up by wobbly expert testimony. This rang true for the City of San Diego’s lawsuit seeking approximately $250 million in damages from Kinder Morgan and its predecessor companies for the contamination of approximately 166 acres of City-owned land surrounding and underlying Qualcomm Stadium (the “Property”). On January 25, 2013, the United States District Court for the Southern District of California entered summary judgment in favor of Kinder Morgan against all of the City’s claims. California v. Kinder Morgan Energy Partners, L.P., et al., 2013 WL 314825 (Jan. 25, 2013)
The facts giving rise to City’s lawsuit showed that Kinder Morgan and its predecessors operated the Mission Valley Terminal, located next to the Property, since the 1960s. The Mission Valley Terminal serves as the central hub for distributing gasoline in San Diego County. As early as 1992, the City was on notice that Kinder Morgan and its predecessors released petroleum products into the soil, contaminating the Property and groundwater. In 1992, the California Regional Water Quality and Control Board (“Water Board”) ordered the investigation and remediation of the contamination at the Mission Valley Terminal. To comply with this order, Kinder Morgan and its predecessors spent approximately $60 million addressing the contamination.
Unhappy with the progress of the remediation, in 2007, the City sued Kinder Morgan and its predecessor alleging the petroleum releases from the Mission Valley Terminal contaminated the Property and damaged the City. The City claimed approximately $250 million in damages, including $126 million in damages to remediate its water supply and $120 million in real estate “loss of use” damages.
Kinder Morgan dismantled the City’s claims. It began by moving to strike the City’s expert for having offered unreliable opinions. Then, Kinder Morgan attacked the City’s damages claims as speculative, pie-in-the-sky aspirations, with no footing grounded in fact.
The Court began its opinion by granting Kinder Morgan’s Daubert motion striking the testimony of the City’s damages expert, Mr. Ray Forrester. The expert argued that on top of the $60 million spent to date addressing the contamination, Kinder Morgan should be required to spend another $126 million dollars cleaning up the contamination to “background” levels. The Court rejected the expert’s opinion as “personal” and “subjective” finding that: (1) outside of this litigation, the expert had never previously offered an opinion that the required cleanup standard was to background conditions; (2) the Water Board does not require remediation to background conditions; and (3) the expert was not aware of any petroleum site in California—or the country for that matter—where the stated goal was to clean up to background. The Court struck the expert’s opinions as unreliable deciding “the lack of support for Forrester’s opinion indicates that he is not employing the same level of intellectual rigor of someone in his field, as his conclusions are predetermined by unsupported propositions.”
The Court then entered summary judgment against the City’s $126 million water damages claim finding it speculative, merely possible, and contingent. The evidence showed that while the City wanted to use the aquifer, it had not used the aquifer for drinking water purposes since 1936. The undisputed evidence showed that the City has had “no operational water supply wells in the ground since that time, had no comprehensive water project developed, and has not performed any feasibility studies to determine whether such a project could be implemented. … Since that time, the population of the City has grown exponentially, the area over and around the Basin has been developed for commercial and residential purposes, numerous new environmental and regulatory rules and laws have been enacted, a stadium was built on top of the aquifer, and the size and complexity of the City government and fiscal situation has changed significantly.” Therefore, the Court concluded that the City could not show that using the groundwater was even feasible, let alone hampered by Kinder Morgan’s actions, stating:
"Ultimately, the link between Kinder Morgan’s conduct (petroleum discharges) and the City’s water damages and injury (inability to use the Mission Valley basin for water extraction and storage) is speculative, merely possible, and contingent. The City could decide to abandon its water project after it conducts the necessary tests, could be unable to finance the project, could have difficulty during the political approval process, or could decide that the project is not feasible after all. Further, if the City could not obtain permits or gain regulatory approval, the water project would never be implemented. Under these circumstances, the City would not have suffered damages because the City could not have used the basin for water extraction and storage in any event. Because the City lacks evidence of a viable water project, it cannot establish at trial that its damages comply with the basic tenet of California law against speculative, merely possible, or contingent damages."
The Court observed that “the City could have cured the speculative nature of its water damages by either presenting a fully-developed, ready-to-build water project that has passed all technical, regulatory, political, and fiscal hurdles or by proffering evidence that a water project on the Property is viable and could be implemented.”
Finally, the Court rejected the City’s $120 million loss of use damages claim. The Court reasoned that the City was only entitled to the rental value of its land as it existed during the time of Kinder Morgan’s wrongful occupation. During that time, the City used the property as a stadium. The City failed to present any evidence that the land suffered a decrease in rental value, “likely because the City has collected rent under its existing leases on the lot, and has not lost any revenue due to the contamination or remediation efforts. Further, the City has never cancelled or interrupted any other use of the Property due to the contamination or remediation, including collect football games, Monster Jam or Supercross events, or Major League Soccer games.” Ultimately, the Court entered judgment in favor of Kinder Morgan and its predecessors “because the City has not complied with applicable statutes of limitation nor gathered the evidence necessary to meet its burden of proof at trial.”
Since the order, the City filed notice of its intent to appeal the decision to the U.S. Court of Appeals for the Ninth Circuit, while Kinder Morgan has filed a bill of costs seeking reimbursement of over $327,000 in costs from the City. The City is reported to have spent approximately $4.75 million over the past five years pursuing the lawsuit, and will incur additional costs appealing the order.
 Kinder Morgan Prevails in City’s Qualcomm Stadium Suit, Scoop San Diego, Feb. 27, 2013.
Lawsuits for personal injuries, medical monitoring, and remediation claims resulting from historic environmental contamination often involve successor liability claims, where the corporation that caused the pollution no longer exists, but there appears to be a successor corporation operating the same or a similar business. Below is a general summary of the legal rules pertaining to successor liability claims, with the caveat that the common law in your jurisdiction may vary.
Under traditional common law, when a corporation purchases another corporation’s assets, the assets are typically bought free and clear of any unrecorded liens, and the buyer is generally not liable for the seller’s debts or other liabilities. However, under the successor liability doctrine, a buyer of another corporation’s assets may be held liable to answer for the seller’s debts or other liabilities where:
(1) the buyer expressly or impliedly agrees to assume them;
(2) the transaction amounts to a de facto merger or consolidation of the buyer and the seller;
(3) the buyer is a mere continuance of the seller corporation; or
(4) the transaction is fraudulent to escape such obligations.
See Yankee Gas Servs. Co. v. UGI Utilities, Inc., 852 F.Supp.2d 229, 246 (D. Conn. 2012) (finding de facto merger occurred sufficient to impose CERCLA and Connecticut state environmental law liability on buyer under federal common law and either Connecticut or Pennsylvania law); Reed v. Reid, __N.E.2d __, 2012 WL 6607927, *16 (Ind. 2012) (finding genuine issue of material fact concerning successor liability under Indiana law for claim asserted under the Indiana Environmental Legal Action statute); New York v. Nat’l Serv. Indus., Inc., 460 F.3d 201, 209 (2d Cir. 2006) (corporation that bought the assets of a dry cleaning business was not liable for seller’s liability under CERCLA and New York state law under a de facto merger theory of liability); Opportunity Fund, LLC v. Epitome Systems, Inc., __ F.Supp.2d __, 2012 WL 5930592, *7 (S.D. Ohio 2012) (applying Ohio law). The hallmarks for each exception are noted below.
1. An Express or Implied Assumption of Liability.
The Yankee Gas decision held that to transfer CERCLA liability, the transaction agreement must contain language broad enough to allow a court to say that the parties intended to transfer either contingent environmental liability or all liability. 852 F.Supp.2d at 244. This requires a thorough analysis of the language used in the purchase agreement.
2. A De Facto Merger.
A de facto merger happens where a transaction is essentially a merger in all but name. The concept is frequently applied in cases where "the seller’s shareholders retained their interest in the transferred assets through an ownership interest in the [new] corporation, while freeing the assets from the claims of the seller’s creditors by disguising the transaction as an asset sale." Opportunity Fund, 2012 WL 5930592, *13 (internal citations omitted). Generally, at common law, the hallmarks of a de facto merger include: (1) continuity of ownership; (2) cessation of ordinary business and dissolution of the acquired corporation as soon as possible; (3) assumption by the purchaser of the debts and liabilities ordinarily necessary for the uninterrupted continuation of the business of the acquired corporation; and (4) continuity of management, personnel, physical location, assets, and general business operation. (A distinction under Indiana common law, for instance, is that a de facto merger does not require continuity of ownership. Reed, 2012 WL 6607927 at *16.)
3. The Mere Continuation.
The mere continuation exception asks whether the successor corporation is a reincarnation of the acquired corporation. The mere continuation exception is based on the continuation of the corporate entity, and not the business operation. This happens, for example, when one corporation sells its assets to another corporation with the same people owning both corporations. Considerations include whether there is a continuation of shareholders, directors, and officers into the new corporate entity, and the adequacy of the consideration paid for the assets.
4. A Fraudulent Transaction.
The fraudulent transaction exception asks whether the transaction is structured with the intent to escape the seller’s debts and liability and has hallmarks of fraud such as inadequate consideration and lack of good faith.
For buyer’s considering whether to purchase the assets of an existing corporation, the best time to consider whether the asset sale may result in successor liability is when the parties are negotiating the purchase agreement because a transaction can be structured in a variety of ways to avoid successor liability.
One of your most valuable rights under an insurance policy is having your insurance company defend you from a covered claim, no matter how frivolous. This is known as the "duty to defend." The Alabama Supreme Court recently joined the majority of jurisdictions in holding that a potentially responsible party (PRP) letter from USEPA under the Superfund (CERCLA) law satisfies the "suit" requirement under a commercial general liability insurance policy, triggering the duty to defend. Travelers Casualty and Surety Co. v. Alabama Gas Corp., 2012 WL 6720790 (Ala. Dec. 28, 2012).
The duty to defend is separate and broader than the duty to indemnify. Commercial general liability (CGL) policies generally impose on the insurer two duties: a duty to defend a claim potentially covered by the policy, and a duty to indemnify the insured for damages the insured is legally obligated to pay. The duty to defend its insured from any suit alleging bodily injury, property damage, or personal injury covered by the policy terms is triggered no matter how frivolous the claim. The duty to defend has generally been held to be separate from and broader than the insurer’s duty to indemnify the insured for damages.
A PRP letter from USEPA has dire consequences. A PRP letter is not your garden variety demand letter. Under CERCLA and equivalent state laws, a PRP’s substantive rights and ultimate liability are affected from the start of the administrative process. CERCLA is a strict liability statute meaning liability is imposed regardless of fault. Liability can be joint and several, and defenses are very limited. The failure to comply with an EPA Section 106 administrative order directing a response action can result in substantial fines ($25,000 per day) and treble damages. Furthermore, if the PRP refuses, USEPA may implement any investigatory and remedial action it deems necessary at a site, subject only to an abuse of discretion review. That means, if challenged, a district court only determines whether USEPA’s actions were arbitrary and capricious. This is a very low threshold for the agency, and a very high threshold for a PRP to overcome. USEPA-conducted CERCLA response actions tend to be significantly more expensive than actions conducted by PRPs.
In Travelers v. Alabama Gas Corp. (Alagasco), Alagasco was a corporate successor to a company that long ago operated a gas manufacturing process at the site. The gas manufacturing plant was demolished and eventually replaced by public housing in 1970. Almost 40 years later, USEPA issued a Section 104(e) information request to regarding the site and a Pollution Report. The Pollution Report advised that USEPA’s Enforcement Section was assessing PRP liability and ability to pay to complete a removal action. Further, the report advised that if USEPA determined that one or more PRPs were able to complete a removal action, the agency may pursue an Administrative Order on Consent with the PRPs to carry out a time-critical removal action and provide reimbursement of past response costs. When Alagasco demanded that its insurers (all subsidiaries of Travelers) defend this claim and provide coverage, the insurers refused arguing that the PRP letter was not a "suit" under the CGL policies because no lawsuit had been filed against Alagasco. The issue eventually made its way to the Alabama Supreme Court, which rejected Travelers’ arguments.
The majority of jurisdictions hold that a PRP letter triggers a duty to defend. With Alabama, thirteen state supreme courts have now determined that a PRP letter issued by USEPA or an equivalent state agency constitute a "suit" under CGL policies sufficient to trigger an insurance company’s duty to defend its insured – Alabama, Colorado, Connecticut, Iowa, Kentucky, Massachusetts, Michigan, Minnesota, Nebraska, New Hampshire, North Carolina, Vermont, and Wisconsin. State trial and appellate courts and federal courts have interpreted the law of the following states as similarly triggering a duty to defend – Georgia, Hawaii, Idaho, Indiana, Kansas, New Jersey, New York, Oklahoma, Oregon, Texas, Utah, Washington, and Wyoming.
Only three state supreme courts have rejected this view – California, Illinois, and Maine. Other state and federal courts have interpreted the state laws of Delaware, Florida, Louisiana, Missouri, Ohio, Pennsylvania, South Carolina, and Utah as not triggering a duty to defend. (Yes, there are conflicting opinions concerning Utah law.)
In practice, anyone receiving a PRP letter should contact their lawyer to determine how to proceed to notify their insurance company of the claim and demand a defense and indemnification. Environmental professionals should also be alert to ask their clients whether they have spoken to a lawyer practicing environmental law and/or insurance coverage law to determine their respective rights under CGL policies and whether the claim can be paid under the client’s insurance policies.
Having represented environmental contractors accused of malpractice, I welcomed a recent federal court decision finding that an environmental contractor is not liable under RCRA simply because it hired a subcontractor that performed a wrongful act, even though the act resulted in the release of a hazardous waste into the environment.
In National Exchange Bank and Trust v. Petro-Chemical Systems, Inc., et al., 2012 WL 6020023 (E.D. Wisc. Dec. 3, 2012), a contractor, Petro-Chemical Systems, was hired to test the tightness of an underground fuel oil storage tank. Petro-Chemical subcontracted this work to Tanknology, Inc. Tanknology’s technician performed the test, which included disconnecting pipes to the furnace and reconnecting them. An investigation showed that the piping from the tank was reconnected backwards, which the parties agreed led to a buildup of pressure that caused the seals on the pumps to fail. Approximately 550 gallons of fuel oil spilled from the broken seals and entered into the basement. Some of the fuel oil was suspected of having seeped into the soil below the basement.
The bank that hired Petro-Chemical filed a lawsuit against Petro-Chemical, Tanknology, and their respective insurers asserting claims under Wisconsin state law for breach of contract, negligence, and nuisance, and a claim under the federal Resource Conservation and Recovery Act (RCRA). Of particular importance was the court’s analysis of the RCRA claims, which unlike the common law claims provides a statutory remedy that includes reimbursement of litigation expenses, such as attorneys’ fees and costs.
The bank alleged that Petro-Chemical was responsible for damages under RCRA because it “contributed” to the spill by subcontracting the work to Tanknology and then failing to properly supervise and inspect Tanknology’s work. Under RCRA,
any person may commence a civil action on this own behalf … against any person, … including any past or present generator, past or present transporter, or past or present owner or operator of a treatment, storage, or disposal facility, who has contributed or is contributing to the past or present handling, storage, treatment, or transportation, or disposal of any solid or hazardous waste which may present an imminent and substantial endangerment to health or the environment.
42 U.S.C. § 6972(a)(1)(B).
The court rejected the bank’s RCRA claim as to Petro-Chemical. The court concluded that while Congress intended the term “contributed” to be interpreted liberally, “the court finds no reason to conclude that Congress intended the term ‘contributed’ to be an invitation to string together an expansive causal chain of tangential defendants.” In so holding, the court rejected the bank’s argument that RCRA liability exists “simply because [Petro-Chemical] hired an allegedly malfeasant subcontractor.” Instead, the court noted the absence of evidence that Petro-Chemical contributed to the waste—“Petro-Chemical did not generate the waste, nor is there any evidence that Tanknology has a record of unlawful actions, much less that Petro-Chemical knew this. Here, Petro-Chemical simply hired Tanknology as a subcontractor.”
The court also denied the bank’s motion for summary judgment on its RCRA claim against Tanknology, but for a different reason. The court concluded that Tanknology’s switching of the piping,
is plainly sufficient to support a conclusion that Tanknology contributed to the spill. Congress certainly did not intend to allow a polluter to avoid liability through, for example, a creative use of timed release valves and ensuring to be a good distance away when the hazardous waste is dumped. Tanknology’s alleged actions led directly to the spill and in the court’s view this is quite obviously within the scope of the statute.
But, there was a factual dispute over whether Tanknology, or someone else, switched the piping. Tanknology presented evidence that the property was unoccupied and left insecure during the relevant time period. For this reason, the court denied the bank’s summary judgment motion and held that a trial was necessary to determine Tanknology’s liability under RCRA.
Post-closing diligence is critically important when buying or selling environmentally-contaminated property. Whenever contaminated property changes hands, one of the first questions asked is who will be responsible for cleaning up the contamination and obtaining closure from the appropriate regulatory agency. Clients often turn to their lawyers to come up with the appropriate terms and conditions to best protect their interests, but ultimately the clients make the decision of the terms they are willing to accept and the risks they are willing to take. But what happens post-closing?
For example, assume a seller will remain obligated to “remediate the contamination in a diligent and commercially reasonable manner so as to promptly achieve closure with the responsible regulatory agency.” Will the seller’s post-closing proposal to achieve closure by a decade of monitoring and natural attenuation, as compared to an active remediation system that can achieve closure in half the time, be interpreted by the appropriate regulatory agency or the courts in your jurisdiction as “diligent and commercially reasonable”?
A recent case examining the problems that can arise when post-closing diligence goes astray is Houston Auto M. Imports North, LTD. v. R & A Harris South, L.P., 2012 WL 3628878 (Tex. Ct. App. Aug. 23, 2012). There, the seller sold an automobile dealership to a buyer for $3.1 million. The parties each had their own environmental consultant conduct pre-closing environmental due diligence. As a result of their investigations, they discovered soil and groundwater contamination and suspected the contamination source to be a former underground storage tank. Solvents used to clean automobiles were stored in the tank.
The buyer turned to its environmental consultant for a “best case” and “worst case” assessment of the time and cost to remediate the contamination. The consultant’s best case scenario involved a plan consisting of 5 years of monitoring with natural attenuation at a cost of approximately $180,000. The worst case scenario, which assumed the contamination migrated offsite, involved more than 10 years of monitoring and an active remediation system to achieve closure at a cost of approximately $730,000. As you might imagine, the closing was delayed while the parties haggled over the details.
Eventually, the parties agreed to amend their purchase agreement and enter into an environmental indemnification agreement. They agreed that the seller would be responsible for achieving regulatory closure through a proposal for monitoring with natural attenuation, for interacting with the regulatory agency, and directing the remediation to immediately commence and be conducted in a reasonably diligent and commercially reasonable manner. Further, the seller agreed to indemnify and defend the buyer from and against all losses, including but not limited to, attorneys’ fees and environmental consultant expenses “incurred in investigating, preparing for, … or defending against any action” arising from or in connection with the removal of any hazardous substance on or released from the property prior to the effective date of the agreement.
To make a long story short, the regulatory agency approved the remediation plan, but the seller failed to abide by the plan by failing to conduct quarterly groundwater monitoring for a period of 3 consecutive quarters. What was once thought to be a localized area of contamination with concentrations above regulatory closure levels increased in concentration by an order of magnitude and the contamination spread to the southern edge of the property at concentrations higher than regulatory closure levels. Over the course of the next few years, the buyer had its consultant install borings and take its own groundwater samples and submit a competing site investigation and remediation plan to the agency.
In 2008, 6 years after the closing and 4 years after the agency first approved the remediation plan of natural attenuation and monitoring, the buyer filed a lawsuit against the seller for breach of contract and declaratory judgment. The buyer sought to recover almost $86,000 in attorneys’ fees and about $80,000 in environmental consultant fees, costs, and expenses. The buyer's damages were incurred as a result of the environmental contamination on the property and the seller’s alleged failure to diligently pursue remediation of the property and complete the remediation within a reasonable time after closing.
The seller raised several defenses. The seller first argued that the delays in the beginning of the remediation activity were ordinary delays typically experienced when dealing with a government agency. Second, the seller argued that while it missed some groundwater monitoring events, no enforcement action was filed against it by the agency. Finally, based on the seller’s analysis of other properties in the State’s voluntary cleanup program, 15 years was a reasonable time for remediation and achieving closure so that the remediation was, in fact, progressing diligently.
The trial court rejected each of the defenses and ruled for the buyer. The trial court concluded that the seller’s failure to obtain a certificate of completion within 4 years constituted a breach of its contractual obligations and awarded the buyer approximately $117,000 in damages. The trial court also declared that the seller would be required to indemnify the buyer for future costs and expenses the buyer may incur as a result of the seller’s cleanup and remediation activities.
Ten years to the day after the August 23, 2002 closing on the real estate transaction, the Texas Court of Appeals affirmed the trial court’s decision finding that “the trial court could have reasonably concluded that it was not ordinarily prudent or diligent for [the seller] to go over one year without conducting groundwater monitoring as required by [the agency], especially when the chance for expansion of the contamination plume was known.” And, in the years between the closing and the beginning of trial, the contamination spread from a localized area near 2 monitoring wells to the southern boundary of the property with results above the protected concentration levels. In addition, the Court of Appeals held that the failure to conduct the groundwater monitoring and reporting to the agency constituted a breach of contract. Finally, the Court of Appeals upheld the finding on the declaratory judgment claim.
In summary, it is often critically important that the seller and the buyer each have a knowledgeable and experienced environmental consultant for post-closing advice and to make sure the post-closing obligations are diligently pursued. In the long run, the cost of a great consultant who can work with the other party’s consultant, pulling or prodding to keep the project moving toward closure, will likely be less expensive and time consuming than the cost of resolving a dispute through a lawsuit.
Victims of federally-prosecuted environmental crimes have the right to full and timely restitution under the federal Crime Victims’ Rights Acts (the "Act"). A recent case raises the issue of what specific damages are recoverable under the Act. In United States v. CITGO Petroleum Corp., et al., Case No. 2:06-00563, pending in the Southern District of Texas, 15 crime victims have asked the Court to order CITGO to fund two trusts with approximately $30 million for restitution damages.
The Facts – A jury found CITGO Petroleum Corp. and CITGO Refining and Chemicals Co., LP (collectively, "CITGO") guilty of two felony Clean Air Act violations for conduct occurring between January 1994 and May 2003. CITGO illegally used open-top tanks at its East Plant refinery in Corpus Christi, Texas to remove oil from water without required emission equipment. Chemical emissions from the tanks blew into the neighborhood surrounding the plant and caused health effects to people living around the refinery. The Court identified 15 crime victims who suffered injuries from CITGO’s crimes, including "burning eyes, bad taste in the mouth, nose burning, sore throat, skin rashes, shortness of breath, vomiting, dizziness, nausea, fatigue, and headaches." (Docket Entry ("DE") 819, at p. 7.) These symptoms resulted from what prosecutors called a "chemical cocktail" containing the by-products of petroleum refining, including benzene; ethyl-benzene; toluene; 1,2,4 tri-methyl-benzene; xylenes (total); styrene; 1, 3 butadiene; methyl butyl ether; and a host of other hazardous compounds.
The Crime Victims’ Rights Act of 2004, 18 U.S.C. § 3771, grants crime victims certain rights, including "the right to full and timely restitution as provided by law." On September 25, 2012, the Court entered an order establishing a time limit for the Government to identify additional crime victims. To meet its obligations, the Government planned to hold a series of community meetings. In preparation for the meetings, the Government sought the Court’s blessing of its proposed instructions to public (DE 836), which stated in part:
[Y]ou may also believe that CITGO should pay for the harm its crimes did to you directly. In a criminal case, this is called "restitution." Restitution is different from (and typically smaller than) the kind of award you could get if you sued CITGO and won. If you think you have other claims against CITGO, you should consult an attorney."
(DE 836-1.) The Government then gave some examples of appropriate restitution damages in a draft victim’s affidavit. These examples included $90 for the cost to visit a doctor because of breathing problems and $375 for the cost to repaint a car that suffered surface damage.
The Requested Restitution – The 15 crime victims instead sought much broader restitution damages than that proposed by the Government according to the "Community Victims’ Sentencing Memorandum, Requests for Restitution, and a Remedial Order Addressing the Harms Created By CITGO." (DE 831.) There, the 15 crime victims asked for reimbursement of out-of-pocket losses for future medical screening costs and attorneys’ fees, and approximately $30 million to establish two trust funds for themselves and other similarly situated crime victims (estimated to be 300 people in total).
First, the 15 crime victims claimed restitution for themselves for medical screening of $80,900 based on figures from the Texas Department of State Health Services for cancer screening. This amounted to $250 per person per year. Second, they asked for attorneys’ fees and costs, but claimed the amount would be unknown until the case concluded. Third, they asked the Court to create the two trust funds for an estimated 300 total crime victims (including the 15 who filed the request) for:
The crime victims argued that the United States Sentencing Guidelines § 5E1.1(b)(2) "sets a high bar for declining to provide restitution" (DE 831, p. 12), and pointed to CITGO’s profits of more than $1 billion earned by its East Plant Refinery during the relevant time period as justification for their request for almost $30 million.
Analysis – Interestingly, the 15 crime victims have not sought any restitution for past out-of-pocket medical or other expenses incurred between January 1994 and May 2003. And, ordinarily, the question of whether a person has suffered an injury from a chemical exposure involves complicated questions of medicine and science. Yet, the 15 crime victims have not submitted any of the traditional causation proof evidence typically offered in a toxic tort case, e.g., testimony from a medical expert, toxicologist, or epidemiologist, and have instead simply sought a summary award of restitution. It will be interesting to see how the Court rules.
Writing great business letters that will withstand the test of a lawsuit, look favorably on the author, and be admitted into evidence is both an art and a science. I just finished a three-week trial where the parties were looking at requests for proposals (RFPs), responses, purchase orders, letters, and emails written seven years ago to prove the intent of the parties at the time of their communications. While sophisticated parties often look to their lawyers for input on the RFPs, responses, and purchase orders, business people often take the lead in the accompanying correspondence without their lawyers’ guidance. These communications can often make or break a case and should be written cautiously. You never know if an author of a company’s business letter will be available years from now to explain his or her intentions so great business letters have to be written to stand on their own and withstand the test of time. Below is a list of elements often contained in great pre-lawsuit business letters.
1. Use a professional and respectful tone. No matter how mad you are at the other party for breaking their promise and causing you or your company damages, you want your correspondence to convey to a judge or jury that you are a credible and professional business person trying to deal with a serious issue in a business-like and respectful manner. Don’t write anything that will detract from your professionalism. Don’t write anything that could be misconstrued or that will hurt your case. (If you do, write a follow-up letter to clear up any confusion.) Finally, don’t write anything that you would be embarrassed to see republished on the front page of the newspaper.
2. Lead with your main point and explain in an introductory paragraph why you are writing and what you want the other person to do or not do in response. It is hard to convince a judge or jury that the main point of your letter is an idea buried in the middle of a paragraph on page five of a seven-page letter. Instead, communicate your main point up front. Tell the person you are writing and what you want them to do or not do in response.
3. Explain the context of the events surrounding why you are writing. A great business letter will stand on its own and explain the surrounding context of events. How often have you seen a chain of back-and-forth emails, none of which really sets forth the dispute in a clear and understandable manner. For example, if you hired a company to work as a subcontractor for a particular project and the company’s delays lead to big-time damages, a great business letter would explain to the judge or jury reading the letter that the subcontractor knew that the time for performance was of the essence and that the subcontractor knew that if they failed to work in a timely fashion, all kinds of damages could result as a consequence. You might write:
My corporation asked XYZ Company to perform certain work as its subcontractor in regards to the ABC project. As set forth in letters to XYZ Company dated January 15, March 15, and April 1, 2010, you were advised you that time was of the essence as five other contractors were basing their work schedules off of XYZ Company’s construction schedule. XYZ Company was advised that the owner would incur costs of $100,000 per week for each week the project was delayed past the October 1, 2012 deadline. XYZ Company acknowledged and accepted these risks in letters and emails dated January 16, March 22, and April 2, 2010, copies of which are attached….
Pulling together a complete and accurate summary of the facts showing the context of events behind your letter will save you time and money years from now should you have to recreate what the dispute was all about. This is especially true for companies where there is a risk of employee turnover or where key players may retire or not be otherwise available to testify years after the dispute arose. Also, a letter explaining the context of events occurring at the time will be viewed as more credible to a judge or jury than correspondence created after a lawsuit in filed with the benefit of 20-20 hindsight. A detailed letter may even refresh a witness’s memory of events from long ago and be allowed to be read into evidence because of the indicia of credibility surrounding the preparation of the correspondence.
4. End your letter with a request that if the other person disputes any of the facts or conclusions in your letter, they should immediately contact you. The rules of evidence allow parties to introduce adoptive admissions; that is, the failure to respond to a false statement is seen as a tacit acknowledgement that the statement must be true. The idea is that if a statement were not true, the party should have refuted it quickly. This is one of those instances where a party’s silence can be used against it. For example, if the subcontractor failed to respond to the statements set forth above, the prime contractor could argue that the subcontractor’s silence was an acknowledgement that the time for performance was of the essence and the subcontractor knew of the dire consequences for failing to timely perform.
5. Keep all related correspondence in one central location. Make sure that everyone involved in a project that looks like it is headed to a lawsuit keep copies of all letters and emails in one central location in addition to their individual files. If someone writes an email in response to a letter, you need to make sure you have it with the other correspondence to get a full picture of the events leading to the dispute.
As one of my many mentors once said, “If it’s not in writing, it didn’t happen.” Writing great business letters is a skill that should be stressed in every business.
An environmental contamination case set for trial based on liability under the Resource Conservation and Recovery Act ("RCRA") for “passive inaction and studied indifference” recently settled, but the court filings provide a valuable lesson to property owners to address contamination promptly and to document delays outside of their control (such as agency review and approval of work plans) rather than being second-guessed for delays.
To establish a claim for injunctive relief under RCRA, 42 U.S.C. § 6972(a)(1)(B), a plaintiff must show that: (1) the conditions at the site may present an imminent and substantial endangerment; (2) the endangerment stems from the handling, storage, treatment, transportation, or disposal of any solid or hazardous waste; and (3) the defendant has contributed or is contributing to such handling, storage, treatment, transportation, or disposal.
In Sisters of Notre Dame de Namur v. Garnett-Murray, 2012 WL 2050377 (N.D. Cal. 2012), the Sisters inherited contaminated property through a charitable bequest in a will. The property was located next to a long-standing dry cleaning business (operated since about 1960) that used tetrachloroethylene (also known as perchloroethylene, perc, or PCE) in its business until 2009. PCE from contaminated soil below the dry cleaning business migrated in the form of PCE vapor into the soil beneath the Sisters’ property next door. From there, the PCE vapor migrated up and into the indoor air of the Sisters’ property. The PCE vapor inside the Sisters’ property was at a level of 15 times the local Environmental Screening Level.
The Sisters discovered the PCE contamination shortly after inheriting the land in October 2007. They intended to sell the property to a local residential developer to fund their charitable activities, but building permits could not be issued until the contamination was reduced below “non-dangerous levels”. The owners of the shopping center that leased the property to the dry cleaning business obtained reports of the contamination beneath the shopping center in 2006 and 2007 while negotiating with potential buyers, but made no remediation efforts until 2010. According to the opinion, the Sisters filed their lawsuit after the remediation plan was approved but before remediation began. The remediation was ongoing as of the June 2012 decision.
The decision is attached below, but one interesting point dealt with whether the shopping center owners “contributed” to the handling, storage, treatment, transportation, or disposal of hazardous waste or whether they were simply a drop box for monthly checks. When the Sisters moved for summary judgment on their RCRA claim, the court noted that “passive inaction or studied indifference can create liability under RCRA." Id. at *6. This is because
RCRA is not primarily targeted at punishing environmentally unsound acts, but rather at reducing the generation of hazardous waste and ensuring the property treatment, storage, and disposal of waste which is nonetheless generated. Therefore, an owner’s potential culpability is irrelevant.”
The court noted that undisputed evidence showed the shopping center owners knew of PCE contamination in 2006, the PCE vapor may have caused or may still be causing further damage to the land and surrounding environment, and defendants took no steps to remediate the contamination until 2010. The court then held that it was "not prepared to hold as a matter of law that plaintiff’s evidence establishes liability through passive inaction or studied indifference, although it might well persuade a jury.” Id. at *7.
The case recently settled, but, according to the Sisters’ pretrial brief, the Sisters intended to offer the following evidence in support of the owners’ passive inaction or studied indifference:
The lesson for property owners is to take claims of environmental contamination seriously and to document your files appropriately to note delays outside of your control, including administrative agency review and approval of work plans and other submissions.
 Sisters of Notre Dame de Namur v. Garnett-Murray, Case 5:10-C-01807 (N.D. Cal.), Docket Entry 107, filed July 10, 2012.
Clients who buy or sell contaminated property always ask “will the indemnification clause in the asset purchase agreement protect me?” Lawyers drafting such clauses often look to see how courts have interpreted similar provisions. Recently, the U.S. Court of Appeals for the Sixth Circuit examined the retained liability and indemnification clauses in an asset purchase agreement governed by Ohio law in Textileather Corporation v. GenCorp Inc., __ F.3d __, 2012 WL 3932060 (6th Cir. Sept. 11, 2012). The Sixth Circuit concluded that the seller retained the liabilities for the environmental contamination (including CERCLA liabilities) and was legally obligated to pay the buyer for those liabilities under the indemnification clause. A copy of the decision is attached below.
Joe Derhake’s recent post raised an interesting question about what environmental consultants need to know about the attorney-client privilege. Not only do environmental consultants need to be aware of the attorney-client privilege, but approximately 27 states have adopted a statutory privilege for environmental self-audits. One or both may shield an environmental consultant’s reports from discovery. Below is a brief discussion of the attorney-client privilege and links to a prior post on the environmental self-audit privilege.
The attorney-client privilege. The attorney-client privilege is the oldest recognized privilege at common law. It exists “to encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of the law and administration of justice.” Upjohn v. United States, 449 U.S. 383, 389 (1981). The essential elements to create the privilege are: “(1) Where legal advice of any kind is sought (2) from a professional legal adviser in his capacity as such, (3) the communications relating to that purpose, (4) made in confidence (5) by the client, (6) are at his instance permanently protected (7) from disclosure made by himself or by the legal adviser, (8) except the protection be waived.” United States v. White, 950 F.2d 426, 430 (7th Cir. 1991). Courts have held that "the attorney-client privilege must be narrowly construed because it comes with substantial costs and stands as an obstacle of sorts to the search for truth." Lluberes v. Uncommon Productions, LLC, 663 F.3d 6, 24 (1st Cir. 2011)
“The attorney-client privilege is strongest when a client seeks advice to determine the legality of conduct before taking action.” In re Sulfuric Acid Antitrust Litigation¸ 235 F.R.D. 407, 424 (N.D. Ill. 2006). “The very meaning of a line in the law is that right and wrong touch each other, and … anyone may get as close to the line as he can if he keeps on the right side.” Id., quoting Louisville & Nashville R.R. v. United States, 242 U.S. 60, 74 (1916). Sometimes call safe-side counseling, “lawyers are constantly called upon to tell people in advance of action or developed controversy, what their duties are to other people and to the government, and what the duties of others are to them.” In re Sulfuric Acid Antitrust Litig., 235 F.R.D. at 424 (internal citations omitted).
The attorney-client privilege extends to confidential communications made by a client to his or her attorney where legal advice is sought or to aid in determining the client’s rights and liabilities. Hueck v. State, 590 N.E.2d 581, 584 (Ind. Ct. App. 1992). The privilege also extends to communications between the attorney (and his or her agent) and the client (and his or her agent). “Just as communications made directly between an attorney and his or her client are privileged, so too are communications between attorneys and the experts or investigators they hire on behalf of a client, as well as communications between agents of the client and agents the attorney hires on behalf of a client. The attorney-client privilege attaches to communications between the client and an agent of the attorney, as long as (1) the communication involves the subject matter about which the attorney was consulted and (2) the agent was retained by the attorney for the purpose of assisting the attorney in rendering legal advice to or conducting litigation on behalf of the client.” In re Witham Memorial Hosp., 706 N.E.2d 1087, 1090-91 (Ind. Ct. App. 1999).
Documents and communications that do not contain a request for legal advice or do not give legal advice do not fall within the scope of the privilege. McCook Metals L.L.C. v. Alcoa Inc., 192 F.R.D. 242, 253 (N.D. Ill. 2000). For instance, business advice does not count and is not protected. In re Sulfuric Acid Antitrust Litig.¸ 235 F.R.D. at 415. And, “simply funneling communications past an attorney will not make them privileged.” Equity Residential v. Kendall Risk Mgt., Inc., 246 F.R.D. 557, 563 (N.D. Ill. 2007). In other words, “if an attorney is simply a mail ‘drop box’ for the purpose of trying to create a screen against discovery, and the content of the document indicates it is neither work product nor a communication subject to the attorney-client privilege, the fact that a document is sent through an attorney cannot prevent it having to be produced.” In re Air Crash Disaster at Sioux City, 133 F.R.D. 515, 520 (N.D.Ill. 1990).
Finally, while the attorney-client privilege protects disclosure of communications, it does not protect from disclosure the underlying facts communicated with the attorney. Upjohn, 449 U.S. at 395. In other words, while the privilege would prevent a client from being compelled to answer the question, “'What did you say or write to your attorney?', the client may not refuse to disclose any relevant fact within his knowledge merely because he incorporated a statement of such fact into his communication to his attorney." Upjohn, 449 U.S. 395-396. For example, if the client knows of a past leaking underground storage tank on the property, his communication of that fact to his lawyer would not make that fact privileged or protected from discovery.
Protecting the environmental consultant’s report under the attorney-client privilege. Assume the purpose of environmental due diligence was for the client’s lawyer to determine whether the client could qualify for CERCLA’s bona fide prospective purchaser defense. This is a legal question, but one that requires factual information (to be gathered by the environmental consultant) that the lawyer can use in his or her analysis and advice to the client. In a perfect world, the client would be best served by having the lawyer hire the environmental consultant through a written engagement letter that spells out that the lawyer is hiring the environmental consultant as its agent for the purpose of providing factual information and technical analysis that the lawyer will use in rendering legal advice to the client. The environmental consultant should mark the report as “Privileged and Confidential, Subject to the Attorney-Client Privilege.” The report should be sent to the lawyer and the lawyer can decide whether to provide it to the client. (The attorney-client privilege is a matter of state law and some states hold that the client would have to divulge factual information within their knowledge as long as it does not require the disclosure of the attorney’s legal advice. If the client learns of facts from the report, the client may later be required to disclose those facts.) Finally, the environmental consultant should bill the lawyer for his or her work and the lawyer should pay the environmental consultant rather than the client paying the environmental consultant directly. (This is probably one of the least important indicia of whether the attorney has employed the environmental consultant as its agent and some courts would not even consider it.) The lawyer can then use the information in the report to answer the legal question of whether the facts and circumstances allow the client to qualify for the bona fide prospective purchaser defense.
There is some case law that indicates that an environmental consultant’s act of simply providing factual information to the client’s lawyer, with no technical analysis, does not qualify for the privilege. Coastline Terminals of Conn., Inc. v. U.S. Steel Corp., 221 F.R.D. 14 (D.Conn. 2003). There is some case law that holds that the client’s ordering and paying for the report and simply sending a copy to the client’s lawyer is not enough to qualify for the privilege. Id. The key is whether the consultant is putting the information in a usable form for the attorney to render legal advice. And, of course, the report must not be communicated to any third party or else the privilege will, or may, be waived.
The environmental self-audit privilege. In a prior post, I linked to an article prepared by my law partners Kim Burke and Tom Barnard that discussed the environmental self-audit privilege. More than half the states have adopted an environmental self-audit privilege, and it is important to read your state’s self-audit privilege statute because it often has nuances that can mean the difference between qualifying or not qualifying for the privilege.
In conclusion, if you are left with only one takeaway from this article, it is that you must have a conversation with your client’s lawyer about structuring your engagement and report before your report is prepared and shipped, and not afterwards. Then it’s too late.
 This post does not address the work-product privilege, which is another basis for protecting an environmental consultant’s report when that report is prepared in anticipation of litigation or for trial.
In a case of first impression, the California Supreme Court approved the stacking of excess insurance policies in the continuous property loss scenario typical of environmental contamination and toxic tort litigation, thus issuing a sweeping insurance coverage opinion in favor of policy holders in California v. Continental Ins. Co., 2012 WL 3206561 (Aug. 9, 2012).
The Facts. Between 1956 and 1972, the State of California operated an industrial waste disposal facility known as the Stringfellow Acid Pits waste site. In 1955, a state geologist determined that a quarry located in a canyon was a suitable location for the disposal of industrial waste provided that the State build a concrete barrier dam to close a 250-foot gap in the canyon’s natural walls. After having received more than 30 million gallons of waste, it was determined that the use of a quarry was a bad idea – there was an underground aquifer 70 feet below the canyon floor that allowed groundwater to move in and out of the site; the rock underlying the canyon was fractured allowing waste to leak into the groundwater and escape the site; and the barrier dam proved ineffective in heavy rains. A federal court found the State negligent in the selection and design of the site. The State claimed it was obligated by a federal court to remediate the site and the remediation costs could exceed $700 million.
The Issues. Given the substantial remediation costs, the State looked to the several insurance companies that issued one or more commercial general liability (CGL) insurance policies to insure the site between 1964 and 1976 for coverage. The site was uninsured before 1963 and after 1978, an important fact to be discussed below. The insurers stipulated that the State was liable for at least $50 million, and the issue was whether the insurers were liable for the cost of remediation as property damages under the excess insurance policies. In arriving at its opinion, the California Supreme Court looked to the “continuous injury” trigger of coverage and the “all sums” rule, and adopted an “all-sum-with-stacking” allocation rule.
The “Continuous Injury” Trigger For Insurance Coverage. As the Court explained, cases involving environmental damage and toxic exposure litigation are often characterized by a series of indivisible injuries attributable to continuing events that produce progressive damage, which takes place slowly over years or even decades without a single unambiguous cause. In such matters, it is often virtually impossible for an insured to prove what specific damage occurred during each of the multiple consecutive policy periods. The continuous injury trigger principle holds that, in the context of a third party liability policy, property damage that is continuous or progressively deteriorating throughout several policy periods is potentially covered by all policies in effect during those periods.
The All Sums Rule. Under CGL policies, the “all sums” language compels insurers to pay “all sums which the insured shall become obligated to pay … for damages … because of injury to or destruction of property.” Under California case law, the all sums rule is that the insurers’ indemnification obligation is triggered as long as the property is insured during some point during the continuous damage period, and the insurers’ indemnity obligations persist until the loss is complete, or terminates. As the Supreme Court declared, “We therefore conclude that the policies at issue obligate the insurers to pay all sums for property damage attributable to the Stringfellow site, up to their policy limits, if applicable, so long as some of the continuous property damage occurred while each policy was ‘on the loss.’”
Stacking Of Policies And Allocation. Stacking policy limits means that when more than one policy is triggered by an occurrence, each policy can be called upon to respond to the claim up to the full limits of the policy, rather than examining each policy individually before moving to the next. Having concluded that the continuous injury principle triggered the indemnity obligations of all the excess insurers and that the policies’ full liability limits were in play given the all sums rule, the Supreme Court next addressed allocation of the loss. The insurers advocated for a pro rata rule for indemnity allocation in which the insured would be allocated liability for those years of the continuous injury that the insureds chose not to purchase insurance. The Court rejected the insurers’ argument. It reasoned that “The CGL policy language does not contemplate such a limited result once there is a property damage occurrence that triggers the insurers’ indemnity responsibilities for the entirety of the loss.” Instead, the California Supreme Court affirmed the Court of Appeals approach to allow all-sums-with-stacking.
The all-sums-with-stacking indemnity principle properly incorporates the Montrose continuous injury trigger of coverage rule and the Aerojet all sums rule, and ‘effectively stacks the insurance coverage from different policy periods to form one giant ‘uber-policy’ with a coverage limit equal to the sum of all purchased insurance policies. Instead of treating a long-tail injury as though it occurred in one policy period, this approach treats all the triggered insurance as though it were purchased in one policy period…. The all-sums-with-stacking rule means that the insured has immediate access to the insurance it purchased.”
Conclusion. The California Supreme Court’s decision to allow all-sums-with-stacking for environmental contamination and toxic tort ligation is a game-changer if you have a multiple policies in play for a California site. The ability to pursue insurance coverage for environmental cleanups has increased significantly for policy holders.
 The Court cited to a number of states having similarly interpreted the all sums language, including Hercules, Inc. v. AIU Ins. Co. (Del. 2001) 784 A.2d 481, 494; Allstate Ins. Co. v. Dana Corp. (Ind. 2001) 759 N.E.2d 1049, 1058; Goodyear Tire & Rubber Co. v. Aetna Cas. & Sur. Co. (Ohio 2002) 95 Ohio St. 3d 512, 769 N.E.2d 835; J.H. France Refractories Co. v. Allstate Ins. Co. (Pa. 1993) 534 Pa. 29, 626 A.2d 502; American Nat’l Fire Ins. Co. v. B & L Trucking & Constr. Co. (Wn. 1998) 134 Wash.2d 413, 951 P.2d 250; Plastics Eng’g Co. v. Liberty Mut. Ins. Co. (Wis. 2009) 315 Wis.2d 556, 759 N.W.2d 613, 616.
A federal district court recently entered summary judgment against a dry cleaner on a property owner’s CERCLA claim for past response costs and declaratory judgment claim regarding future response costs, and allowed the property owner’s RCRA claims to proceed to trial in Forest Park National Bank & Trust v. Ditchfield, 2012 WL 3028342, Case No. 10-C-3166 (N.D.Ill.July 24, 2012).
In 2009, a bank foreclosed on residential property that shared a boundary with a dry cleaning business that had operated for 35 years and had substantial tetrachloroethylene, also known as perchloroethylene or perc, soil contamination. Had the bank performed due diligence and searched Illinois EPA’s online database before foreclosing on the property, it would have discovered that the dry cleaner voluntarily entered into IEPA’s Site Remediation Program 5 years earlier, in 2004. Instead, after foreclosing on the property, the bank hired an environmental consultant to conduct an environmental assessment of the eastern portion of the residential property closest to the dry cleaner.
The bank’s consultant discovered elevated perc levels, as high as 33 parts per million (ppm) in soil and 0.26 ppm in groundwater, and concluded that the onsite contamination resulted from releases from the dry cleaner. A follow-up investigation at the dry cleaner found perc contamination up to 14,000 ppm in the soil beneath the business. The dry cleaner’s consultant determined that the perc contamination in soil was about the size of a football field – 270 feet long, 90 feet wide, and 10 feet deep, with the most concentrated point having a perc concentration of 360 ppm and being 30 feet long, 20 feet wide, and 2 feet deep. The dry cleaner’s consultant’s figures indicated that the western edge of the sontamination may have crept over the dry cleaner’s western property line and onto the residential property. (The consultant’s figure is attached below.)
Despite the dry cleaner’s efforts to keep the matter within IEPA’s Site Remediation Program, USEPA became involved when a teacher at St. Luke’s church and school, located across the street from the dry cleaner, emailed her concerns to USEPA. USEPA conducted indoor air testing at St. Luke’s and a nearby children’s gymnasium. The Agency for Toxic Substances and Disease Registry (ATSDR) became involved and recommended follow-up testing. Eventually, ATSDR recommended that the dry cleaner install a vapor mitigation system at the nearby children’s gymnasium because its indoor air perc concentrations exceeded the long-term screening limit of 0.60 ppb established by OSWER’s Draft Guidance for Evaluating the Vapor Intrusion to Indoor Air Pathway from Groundwater and Soils (Nov. 2002).
The bank was not so fortunate. Sub-slab sampling at the bank’s property only showed a residential long-term screening level exceedance for methylene chloride (another solvent used in dry cleaning) in the subsurface vapor of the building at 212 parts per billion. ATSDR concluded that since the residential property was vacant, there was no completed exposure pathway. However, ATSDR also concluded that the residential property should not be occupied until there is further site characterization to evaluate exposure from potential vapor intrusion. The court noted the “Catch 22” presented by the parties. On the one hand, the house could not be occupied until further indoor air sampling was performed, but further indoor air sampling could not be performed until the house was occupied or getting ready to be occupied (because of the need for the house to be at the proper temperature with the air conditioning or furnace running as if the house was occupied).
The owner of the dry cleaner and USEPA entered into a settlement agreement pursuant to § 122 of CERCLA. Under their agreement, the owner of the dry cleaner was required to perform remedial measures at the site and pay almost $40,000 of the nearly $150,000 USEPA incurred in past response costs. The “site” was defined in a way so as to not include the bank’s residential property.
Having been left out of the administrative resolution, the bank file a complaint against the dry cleaner and its owners in federal court, asserting claims under RCRA, CERCLA, and state law. One of the most interesting parts of the court’s decision concerns the bank’s claims asserted under RCRA 7002(a)(1)(B), 42 U.S.C. § 6972(a)(1)(B). Under that section, a person may file a citizen suit
against any person … including any past or present generator, past or present transporter, or past or present owner or operator of a treatment, storage, or disposal facility, who has contributed or who is contributing to the past or present handling, storage, treatment, transportation, or disposal of any solid or hazardous waste which may present an imminent and substantial endangerment to health or the environment.”
The court noted that this subsection was added to RCRA by Congress in 1984 to create a basis for citizen suits against RCRA past violators where the violations were so egregious that their effects continued to pose a serious threat to human and environmental health. Under RCRA, a court may enter an order imposing injunctive relief, but may not award money damages, except that it can award to the prevailing party or substantially prevailing party costs of litigation, including reasonable attorney and expert witness fees. Here, the bank hired an expert who concluded that the perc contamination at the residential property presented an imminent and substantial threat to both human health and the environment. The parties moved for summary judgment on the RCRA and CERCLA claims, which the court addressed in its 43-page order, a copy of which is attached below.
The dry cleaner raised numerous defenses, i.e.,
In addition to the legal nuances under RCRA and CERCLA, the opinion is worth reading because of the detailed explanation of how transfer unit dry cleaning machines worked compared to modern dry-to-dry machines and how past efforts used to capture and reuse spent perc and capture perc vapors operated.
 The Comprehensive Environmental Response, Compensation, and Liability Act.
 The Resource Conservation and Recovery Act.
 RCRA § 7002(e), 42 U.S.C. § 6972(e).
 The court noted that testing at a nearby restaurant “demonstrates that it is possible for indoor air samples to register threatening exceedances even where sub-slab samples do not.” There was no discussion whether indoor background sources of contamination were properly considered and excluded from the analysis.
A recent criminal prosecution should have corporate management, in-house counsel, and environmental managers evaluating their coal ash and coal slurry impoundments and employee responsibilities. On July 5, 2012, The Ohio Valley Coal Company (“Ohio Valley”) pled guilty to two misdemeanor counts of having negligently violated the Clean Water Act for allowing coal slurry releases into a tributary of the Ohio River in separate incidents in 2008 and 2010. This came on the heels of the criminal prosecutions against both a plant manager and environmental manager as a result of the 2008 incident. The 2008 incident resulted from the negligent discharge of wastewater from a coal slurry impoundment, whereas the 2010 incident resulted from a ruptured pipeline that caused a discharge that bypassed the treatment system.
According to court records, heavy rains in the winter of 2008 caused the water level in Ohio Valley’s coal slurry pond to be unusually high. A permit was not yet in place to allow Ohio Valley to raise the dam level. Slurry at the bottom of the pond gave way, resulting in slurry wastewater exiting a decant pipe and entering into the tributary. The discharge was not monitored because it occurred before a new monitoring system had been installed and was functional. This discharge violated Ohio Valley’s National Pollutant Discharge Elimination System (“NPDES”) permit, which required the monitoring and testing of such discharges for pollutants. The release blackened the creek for 22 miles downstream.
After this release, the plant manager, Donald Meadows, and an environmental manager, David Bartsch, were charged with, and eventually pled guilty to misdemeanor, Clean Water Act crimes. And, Ohio Valley and its related companies spent in excess of $6,000,000 to install an automatic shut down feature on the pipeline system and to retrain employees on the automatic shutdown feature and related pipeline integrity procedures.
Mr. Bartsch and Mr. Meadows were in their fifties and each had worked for Ohio Valley for more than two decades. Neither had ever previously been in trouble. Mr. Bartsch held a bachelor and a masters of science degree in engineering. He claimed that he was overwhelmed with the tasks assigned to him at work and caring for his ill wife. He noted in his sentencing memorandum that he did not authorize the discharge, nor did he have the power to stop it. U.S. v. Bartsch, 2:11-cr-00018, Sentencing Memo., Dkt. Entry 14. Mr. Meadows wanted to keep the pond running and disposed of collected slurries in a manner to permit discharges without sampling or monitoring. U.S. v. Meadows, 2:11-cr-00049, Sentencing Memo., Dkt. Entry 17. Both men were well respected in their community and by their peers, but appeared to suggest that they hadn’t been given appropriate resources to perform the tasks required of them.
The 2010 incident resulted from a pipeline rupture in the slurry pipeline that conveyed coal slurry from American Energy Corporation (“American Energy”) to Ohio Valley’s impoundment. This resulted in the direct discharge of untreated slurry wastewater, negligently bypassing Ohio Valley’s treatment works. This discharge was also in violation of Ohio Valley’s NPDES permit.
Ohio Valley’s plea agreement with federal prosecutors requires, in part, that it:
The plea agreement recognizes that Ohio Valley spent more than $6,000,000 in 2010 (as a result of the 2008 incident) to properly operate and maintain the existing automatic shut down feature and retrain employees on the automatic shut down feature and related pipeline integrity features. The plea agreement also recognizes Ohio Valley’s other obligations entered into as part of a global settlement, including, in part, to pay Ohio DNR a $91,000 penalty and $4,000 for natural resource damages, including damages to fish, amphibians, wildlife, and pending or unasserted claims for the 2010 slurry discharge, and to pay a fine of $184,000 to Ohio EPA for each of the incidents ($368,000 total). In exchange for pleading guilty, the United States Attorney for the Southern District of Ohio agreed “not to file additional criminal charges against [Ohio Valley], Murray Energy Corporation or any of its related affiliates and subsidiaries, including [American Energy], or other individuals, employees, officers, directors, agents, or attorneys, based on the activities charged in the Information or known to the Government at this time.” U.S. v. The Ohio Valley Coal Co., 2:12-cr-00137 (S.D. OhioJuly 5, 2012), pp. 4-5.
Coal ash impoundments were in the news recently as a result of US EPA’s data release concerning the high number of impoundments used for the management of power plant coal ash. The June 27, 2012 data indicated that there were at least 1,161 ponds storing coal ash, 451 more than previously known. Of these, 535 ponds (or 46%) lacked liners, and the types of liners used on the other 562 ponds were unknown. EPA is concerned that unlined ponds have the potential to leach heavy metals into groundwater. Also, there were 393 disclosed coal ash landfills, 56 more than previously known. 43% of the active and retired landfills lacked liners, and 52% of the active and retired landfills lacked leachate collection systems. It is significant that these statistics do not include coal ash ponds and landfills from private industry and public institutions.
Corporate management, in-house counsel, and environmental managers should evaluate their coal ash and coal slurry impoundments and employee responsibilities. They should also make sure their in-house or privately-retained lawyers are involved in those discussions to attempt to keep those discussions confidential under the attorney-client and attorney work product privileges.
The importance of working with skilled and knowledgeable lawyers and environmental consultants when buying or selling commercial property and negotiating purchase agreements and access agreements was recently confirmed in a federal district court case from North Carolina entitled Metropolitan Group, Inc. v. Meridian Industries, Inc., case number 3:09-cv-440. The case demonstrates the pitfalls with asbestos inspections and the need to hammer out the details of access agreements should the parties’ future positions be adverse for whatever reason.
The seller, Meridian, operated a textile dying plant on property in North Carolina for a century before ceasing operations, transferring unused chemicals to another plant, and performing asbestos remediation on the property to prepare it for sale. The buyer, Metropolitan, purchased the property intending to demolish the buildings and construct residential units at the site. Less than a year after closing, Metropolitan’s demolition contractor ran into a retaining wall rupturing a fuel line at the site. The rupture resulted in an oil spill into an adjacent river for which the contractor was criminally charged and convicted. (His attempt to clean up the spilled oil with kitty litter was unsuccessful, and the contractor failed to notify the authorities of the spill leading to the prosecution.) As a result of the criminal investigation, chemicals and other hazardous materials were discovered behind a wall at the plant, the existence of which (according to the evidence) neither the buyer, the seller, nor their environmental experts were aware of prior to the demolition.
To prepare the property for sale, Meridian hired a licensed asbestos removal company to remediate the asbestos at the site. Six months later, the consultant inspected the work and confirmed that “no visible, friable asbestos [remained] at the facility.” The consultant cautioned, however, that the facility was not asbestos free and noted asbestos in roof and wall panels. In April 2005, the parties entered into a purchase agreement with Metropolitan agreeing to pay $1 million for the property after an inspection period of 120 days. In the option, Meridian disclosed:
That it … previously had certain asbestos removed from the Property, although it believes asbestos-containing materials may still be present in the building located on the Property, including specifically with the roof of the building located on the Property. In light of the age of the buildings located on the Property, [Meridian] acknowledges it is probable asbestos still is present on the Property.
Although the Option gave Metropolitan the right to enter and inspect the property, it instead retained an environmental consultant to review environmental reports and studies prepared by Meridian’s consultant. Metropolitan did not authorize its own consultant to perform an independent environmental assessment of the property, and even testified that it factored the demolition costs for the building and removal of asbestos into the purchase price. Metropolitan never asked its consultant to determine the amount of asbestos remaining on the property.
In the purchase agreement, Meridian represented that it had “no actual knowledge of the presence or disposal within the buildings or on the Property of hazardous or toxic waste or substances,” including “asbestos.” The term “actual knowledge” was negotiated, agreed to, and defined as the “current, actual conscious knowledge of the officers and employees of Meridian Dyed Yarn Group.” As might be expected, none of the Meridian employees or former employees testified that they had “actual knowledge” of the presence of chemicals or hazardous materials at the time of the sale.
At the summary judgment hearing, Meridian conceded to having breached the agreement as to asbestos, but because no evidence was presented that Meridian had “actual knowledge” of the other chemicals, the court entered judgment against Metropolitan on its breach of contract, fraud, and its Unfair Deceptive Trade Practices Act claim. At trial, on June 18, 2012, Metropolitan recovered $74,296.25 in damages related to the presence of asbestos. In Metropolitan’s trial brief, it argued that the Meridian’s disclosure provided that no asbestos remained “on steam lines, air ducts, and insulated piping.” And, during demolition, “substantial asbestos was found in pipe, chill water, and steam line insulation, duct insulation, floor covering materials, and more than 40,000 square feet of friable asbestos in roofing materials.”
Meridian also succeeded on its counterclaim for breach of the purchase agreement in connection with access for groundwater monitoring. Prior to the sale, Meridian discovered groundwater contamination issues. It installed six permanent groundwater monitoring wells and submitted a proposed Corrective Action Plan (“CAP”) to NCDENR to monitor the groundwater on a semi-annual basis. In the purchase agreement, the parties acknowledged the groundwater contamination issues. Meridian retained responsibility for complying with the CAP, and “in turn, Metropolitan was required ‘to reasonably cooperate with [Meridian] to facilitate access to the Property and the groundwater under the Property (which access existed through groundwater monitoring wells) in order for Meridian to perform its approved CAP.” In May 2008, Meridian was unable to perform its testing because Metropolitan’s demolition contractor destroyed four of the wells. Metropolitan refused to repair or replace the wells, which Meridian eventually replaced at a cost of $36,821.38. In August 2009, one of the monitoring wells was again covered with debris. In July 2010, all of the groundwater monitoring wells, including the replaced wells, were completely destroyed or rendered inaccessible. In December 2010, NCDENR sent Metropolitan a Notice of Violation that destruction of the wells constituted a failure to abandon a well and failure to submit records of well abandonment.
Metropolitan did not contest that it repeatedly destroyed the wells, that it had been fined or cited by the State of North Carolina for doing so, or that it has refused to pay Meridian for the costs of replacing the wells. Instead, Metropolitan argued that it was only obligated to provide reasonable access and nothing more. The court entered summary judgment in favor of Meridian and against Metropolitan. The court awarded Meridian $32,059 for its prior replacement of the wells and the cost for new wells. The court also entered an injunction ordering Metropolitan to not unreasonably interfere with each Meridian's ability to access the groundwater wells and ordering Meridian to not unreasonably interfere with Metropolitan’s development of the property. The court noted in its summary judgment ruling that “the wells have to be placed somewhere, and the court is amazed that the parties have not agreed with each other and NCDENR as to their placement.”
The lessons learned from this case are many. The seller clearly should not have represented that it had no actual knowledge of the presence of asbestos given its consultant’s report identifying asbestos in the roof and wall panels. Second, while the seller would have had to pay for the asbestos remediation at the other locations (pipe, chill water, and steam line insulation, duct insulation, floor covering materials, and roofing materials) anyway, it may pursue an indemnification and/or professional negligence claim against the asbestos contractor to recover its costs incurred to defend against the asbestos claims. Third, the seller was wise to negotiate the representation of “actual knowledge” based on the knowledge of its employees as of the date of the sale. That being said, fourth, the buyer should have negotiated a broader representation and authorized its environmental professional to actually inspect the property it was buying to avoid any surprises. Finally, when negotiating access agreements, it is important to have certainty that your client will be able to continue to conduct sampling and remediation as required, yet also having the flexibility to accommodate future changes, a topic for another blog post.
The United States Supreme Court recently tossed $18 million in criminal fines issued under the Resource Conservation and Recovery Act of 1976 (RCRA) against Southern Union Company because the imposition of the fines violated Southern Union’s Sixth Amendment right to have a jury determine any fact (other than the fact of a prior conviction) that increases a penalty for a criminal sentence, and have it proved beyond a reasonable doubt at trial.
In Southern Union Company v. United States, 2012 WL 2344465 (decided June 21, 2012), natural gas distributor Southern Union appealed the trial court’s setting of a maximum criminal fine at $38.1 million, from which the court imposed an actual criminal fine of $6 million and a $12 million “community service obligation.”
Southern Union’s predicament arose in 2004, after youths from a nearby apartment complex broke into a 12-acre facility in Pawtucket, Rhode Island, where Southern Union’s subsidiary stored malfunctioning mercury-sealed gas regulators. The youths played with the mercury and spread it around the facility and apartment complex. Southern Union spent $6 million on the cleanup, and approximately 150 residents were temporarily displaced for approximately two months from the apartments during the cleanup. Most of the residents underwent testing for mercury poisoning. A grand jury indicted Southern Union on multiple counts for violating federal environmental laws, and a jury ultimately found Southern Union guilty of unlawfully storing liquid mercury, a hazardous waste, in violation of RCRA “on or about September 19, 2002 to October 19, 2004.”
After a defendant pleads guilty to, or is found guilty of, a federal crime, the U.S. Probation Office is responsible for recommending a sentence to the trial court. In Southern Union’s case, the Probation Office set the maximum fine at $38.1 million. In essence, the Probation Office took RCRA’s maximum fine, under 42 U.S.C. § 6928(d), of “not more than $50,000 for each day of violation,” and multiplied it by the 762 days between September 19, 2002 and October 19, 2004.
Southern Union objected arguing that the “on or about” language used in the jury instructions could have permitted the jury to convict even if the jury only found a 1-day violation; a fact the Government conceded on appeal. Accordingly, Southern Union argued that imposing any fine greater than the 1-day penalty of $50,000 violated its Sixth Amendment’s right to have a jury determine any fact, other than the fact of a prior conviction, that increases a defendant’s maximum potential sentence as determined by the Supreme Court’s decision in Apprendi v. New Jersey, 530 U.S. 466 (2000).
In response, the Government argued that Apprendi did not apply to criminal fines, but the Supreme Court disagreed. The Supreme Court explained that Apprendi’s core concern is to reserve to the jury the determination of facts that warrant punishment for a specific statutory offense, whether the sentence is a criminal fine, imprisonment, or death. And, “Sometimes, as here, the fact is the duration of a statutory violation; under other statutes it is the amount of the defendant’s gain, or the victim’s loss, or some other factor.” The Court cautioned though that “where a fine is so insubstantial that the underlying offense is considered ‘petty,’ the Sixth Amendment right of jury trial is not triggered, and no Apprendi issue arises.” But for Southern Union, the $18 million in fines were clearly sufficient to trigger its right to have a jury decide the number of days of the alleged violation.
It is important to be mindful that a jury will hold the Government to the burden of proof of “beyond a reasonable doubt” for each day of an alleged violation, rather than having a judge decide the number of days of an alleged violation at sentencing, where the burden of proof is only the “more likely than not” preponderance of the evidence standard.
Some have suggested that Apprendi might be used to argue that a jury should determine victim restitution. Just a few weeks before the Southern Union decision, the U.S. Court of Appeals for the Seventh Circuit decided that an Apprendi challenge to a court’s restitution award—that a jury should determine victim restitution—would be frivolous. United States v. Rutley, 2012 WL 1950408, *2 (7th Cir. May 31, 2012) (“But no case law and nothing in the Mandatory Victim Restitution Act or sentencing guidelines support Rutley’s argument.”)
The “Bill Wagner Environmental Lawyer” blog is used to inform clients and friends of significant new developments and current issues in environmental law.
These materials have been prepared for information purposes only and are not legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. No person or organization should act on this information without first seeking professional counsel.
We cannot and do not represent you until our client intake process is completed. We reserve the right to accept or decline representing any person or organization in any matter. Accordingly, please do not send us any confidential information about any matter until you receive a written statement from us advising you that we represent you (an “engagement letter”). When you receive an engagement letter, you will be our client and we may exchange confidential information freely.
This blog may provide links to other websites that may be useful or informative. These links to other sites or information are not intended, and should not be interpreted by readers, as constituting or implying our endorsement, sponsorship, or recommendation of such information, products, or services found there.
This is an advertisement.