ELR Citation: ELR 20467
No(s). 91-0382-P-C (D. Me. Nov 5, 1992)

The court holds that two former officers and shareholders of a company, which was sold to another company, are not liable as owners under §107(a) of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) for being the holders of title to the company site for one 24-hour period involved in the two-step sales transaction. After the sale, the purchasing company eliminated process discharges involved in the machinery operations and sealed all drains allowing untreated waste to be discharged to the soil. The corporate parties to the sale thereafter entered into a settlement wherein the selling company agreed to pay $277,500 in costs and expenses related to the discharges in return for a general written release from future liability. Subsequently, the buying company complied with the Maine Department of Environmental Protection's administrative consent agreement and enforcement order, expending approximately $3.7 million for investigation, testing, monitoring, sampling, analysis, evaluation, oversight, and remediation at the site.

The court first holds that genuine issues of material fact exist as to whether various chemicals found in the soil were released during the selling company's ownership of the site to preclude summary judgment. Of the nine chemicals found in the soil and for which the buying company seeks removal costs, the parties only agree about the release of one chemical during the selling company's ownership. Turning to whether the former officers and shareholders of the selling company are proper defendants in this case, the court holds that it is unwilling to interpret CERCLA to hold the individual defendants liable as owners for the spillage of hazardous substances over a period of years based on a 24-hour period of vested title. Applying the reasoning in In re Diamond Reo Trucks, Inc. v. City of Lansing, 115 Bankr. 559 (W.D. Mich. 1990), the court holds that the individual defendants do not constitute "owners" for liability purposes under CERCLA. The individual defendants served in the role of a conduit for the title transfer, and to impose owner liability under CERCLA §107(a) on the basis of 24-hour title ownership is beyond the bounds of congressional intent.

Turning to whether the individual officers and shareholders are liable as operators under CERCLA, the court notes that this is a case of first impression in the First Circuit and adopts the prevention test laid out by a district court in Kelley v. Thomas Solvent Co., 20 ELR 20694. Under the Kelley prevention test, the focus of the inquiry into operator liability for an officer is whether the corporate individual could have prevented the hazardous waste discharge at issue, with an eye toward evidence of the individual's authority to control, among other things, waste handling practices. Applying this test, the court holds that summary judgment on the individual defendant's operator liability is precluded, because genuine issues of material fact exist as to whether the individuals could have prevented the discharge of hazardous waste during their tenure at the selling company.

Finally, the court holds that genuine issues of material fact preclude summary judgment for the selling company concerning the scope of the contractual release from liability in the corporate parties' settlement agreement. The court first holds, in applying the choice-of-law rules of the forum state in this diversity action, that Massachusetts law will be applied to determine the scope of the contractual release at issue. The court holds that it is permissible under CERCLA for a release to apply to CERCLA's claims. While a responsible party cannot avoid liability by such an agreement, it can determine who will bear the obligation to pay. Applying Massachusetts law, the court holds that because it is unable to rule definitively on the meaning of the contractual release, given the record before the court, the intent of the parties is a question of fact that must be decided by a fact finder at trial. Thus, summary judgment is precluded.

Counsel for Plaintiff
David Peters, Rita Sheffey
Hunton & Williams
2500 One Atlanta Plaza, 950 E. Paces Ferry Rd. NE, Atlanta GA 30326
(404) 841-2700

Joseph Groff
Jensen, Baird, Gardner & Henry
10 Free St., P.O. Box 4510, Portland ME 04112
(207) 775-7271

Counsel for Defendants
Don Kennedy, John Daukas
Goodwin, Procter & Hoar
Exchange Pl., Boston MA 02109
(617) 570-1000

William Kayatta, Steven Abbott
Pierce, Atwood, Scribner, Allen, Smith & Lancaster
One Monument Sq., Portland ME 04101
(207) 773-6411