United States v. Mahler

No. 82-1545 (M.D. Pa. January 5, 1984)

The court refuses to dismiss a suit for reimbursement for oil spill cleanup costs under § 311(f)(2) of the Federal Water Pollution Control Act, ruling that the complaint adequately alleged actions that would make the defendant personally liable for cleanup, and that the court has personal jurisdiction over the defendant. Five corporations under the defendant's control allegedly dumped oil and chemical wastes down a mine drainage tunnel, causing a 35-mile oil slick on the Susquehanna River. Defendant argued that he is not personally liable for the acts of his corporations. The court holds that the complaint does not allege liability by virtue of corporate ownership or office, but rather by virtue of defendant's personal direction and participation in the dumping. These acts would make defendant liable independent of his relationship to the corporations. The court also rules that since the suit concerns a federal statute, the court has personal jurisdiction over defendant as a resident of the United States even though defendant may lack minimum contacts with Pennsylvania. The court incidentally grants motions for further discovery and a continuance.

Counsel for Plaintiff
David C. Shipman, Ass't U.S. Attorney
Fed. Bldg., P.O. Box 209, Scranton PA 18501
(717) 348-2800

Michael W. Steinberg
Land and Natural Resources Division
Department of Justice, Washington DC 20530
(202) 633-3144

Counsel for Defendant
Moray Myers
Gelb, Myers, Bishop & Warren
600 Penn Security Bank Bldg., Scranton PA 18503
(717) 346-8414

[14 ELR 20068]

Conaboy, J.:

Memorandum and Order

Plaintiff instituted this lawsuit pursuant to Section 311(f)(2) of the Federal Water Pollution Control Act, 33 U.S.C. § 1321(f)(2) (FWPCA), seeking reimbursement for its expenses incurred in removing oil discharged into the Susquehanna River, for which Defendant is allegedly liable. The matter is presently before us on Mahler's motion to dismiss the complaint. Mahler proffers four (4) separate grounds in support of his motion: (1) failure to state a claim upon which relief can be granted; (2) lack of jurisdiction over the person; (3) insufficiency of service of process; and (4) failure to join a party under FED. R. CIV. P. 19.

We address each of defendant's grounds seriatim, and, for reasons expounded upon infra, we conclude that his motion to dismiss the complaint must be denied.

I. The Allegations

Briefly summarized, the Government maintains that during 1978 and 1979, Mahler ". . . directed and controlled the waste disposal activities of several interrelated corporations." (See Complaint, p. 2, P5). After describing Mahler's role in these corporations, the complaint then alleges that these entities, under Mahler's personal direction and control, were paid to collect various oil and chemical waste products from numerous industrial plants and transport that waste elsewhere for eventual disposal. The next claim, which is the Government's basis for this action, is that Mahler personally directed and controlled the dumping of substantial amounts of the aforementioned waste ". . . in a four-inch bore hole directly over a mine drainage tunnel near Pitttson [sic], Pennsylvania." (Complaint, p. 3, P11). This allegedly caused a thirty-five mile oil slick covering the Susquehanna River, originating at the mouth of the drainage tunnel at Pittston. The Government alleges that Mahler's activity violated 33 U.S.C. § 1321(b)(3), which prohibits the discharge of harmful quantities of oil into a navigable waterway of the United States. The Government further maintains that it had to hire private firms to clean up the oil slick at a cost of over $ 2.2 million. Because, the Government [14 ELR 20069] claims, it had to clean up that oil slick, and because that slick was allegedly the result of Mahler's actions, the complaint seeks, inter alia, reimbursement for the cost of cleaning up the Susquehanna and its shores along the thirty-five mile stretch mentioned above.

Before addressing Mahler's first argument, we note here the standard of which we must be cognizant in reviewing his motion. In ruling on a motion to dismiss, we are guided by ". . . the accepted rule that a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the Plaintiff can prove no set of facts in support of [its] claim which would entitle [it] to relief." Conley v. Gibson, 355 U.S. 41, 46 (1957) (footnote omitted). FED. R. CIV. P. 8(a)(2) requires only "a short and plain statement of the claim," to satisfy the objective of "notice pleading" embodied in the Federal Rules of Civil Procedure, i.e., "give[ing] the defendant fair notice of what the plaintiff's claim is and the grounds upon which it rests." Conley v. Gibson, 355 U.S. at 47.

When a federal court reviews the sufficiency of a complaint, before the reception of any evidence either by affidavit or admissions, its task is necessarily a limited one. The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims. Indeed it may appear on the face of the pleadings that a recovery is very remote and unlikely but that is not the test. Moreover, it is well established that, in passing on a motion to dismiss, whether on the ground of lack of jurisdiction over the subject matter or for failure to state a cause of action, the allegations of the complaint should be construed favorably to the pleader.

Scheuer v. Rhodes, 416 U.S. 232, 236 (1974). With these firmly established principles in mind, we proceed to Mahler's motion.

II. Discussion

A. Failure to state a claim upon which relief can be granted.

The complaint charges that five (5) of the interrelated corporate entities involved in the waste disposal complained of each had as its president the Defendant, Russell W. Mahler. Additionally, it is alleged that all of the stock issued by these five corporations was owned by a holding company, the Portland Holding Corporation, the president and sole owner of which was Defendant Mahler. There were also two (2) other corporate entities allegedly involved in the acts complained of, Newton Refining Corporation and Ag-MET, Inc. Defendant Mahler is also alleged to have held a substantial position in each of these entities.¹ As noted, the complaint claims that all of these corporate entities acted under Mahler's personal direction and control in collecting the various wastes and dumping them into the Pittston bore-hole.

Mahler's argument in support of dismissal is that although he is being sued by the Government here in his individual capacity,the complaint speaks to him only in his capacity as a shareholder or officer in the various corporate entities. He argues, therefore, that since the infractions complained of were allegedly committed by the corporate entities, he is entitled to the kind of limited personal liability afforded shareholders and corporate officials in the general law of business associations. Citing the distinct nature of the corporate entity, Mahler argues that no liability attaches to shareholders or officers as a result of transactions to which the corporation alone is a party. Notwithstanding his position in each of the corporations involved, Mahler argues, the Government cannot ask this Court to disregard the corporate fiction, or "pierce the corporate veil," simply by virtue of his controlling capacity in all of those entities.

Mahler also argues that the corporate veil cannot be pierced without a showing that the entities in question were formed as mere shells or shams to perpetrate illegitimate activities while circumventing potential personal liability of the creator. Thus, he asserts that the complaint is fatally flawed because it contains no allegations that the entities in question were merely "alter egos" of himself. Mahler concludes that because there are no such allegations in the complaint, he cannot be sued personally and held liable individually.

In short, Mahler maintains that the activities outlined in the complaint establish no greater participation in corporate activities than would normally be performed by one in a like capacity. It is because he was acting in this capacity that he claims he cannot be individually liable for the cost of the waste clean-up.

Defendant's arguments, although not necessarily wrong, come up short. As the Government correctly points out, the crucial factor at this stage of the instant litigation is the allegations of Mahler's personal direction of the acts complained of. The complaint quite clearly alleges Mahler's personal direction and control over the collection, transportation and disposal of the oils and wastes in question, as well as his personal direction and control over the renumeration for said services. (Complaint, pgs. 3-4, PP8-12). Indeed, one allegation finds Mahler himself transporting waste to the dumping site. (Complaint, p. 4, P14). These specific allegations overcome Defendant's argument that the complaint fails to state a claim against him personally. For while it is true that a valid purpose of incorporation is to shield its officers and shareholders from individual liability, it is equally true that such a shield is not impenetrable. Personal direction and participation in the acts complained of, such as that alleged here, vitiates the immunization of the corporate fiction. See Zubik v. Zubik, 384 F.2d 267, 275 (3d Cir. 1967), cert. denied 380 U.S. 988 (1968). Corporate status guards against personal liability, it does not abrogate it.

Accordingly, in view of the specificity of the allegations, and in light of the liberal reading given to pleadings in the face of a motion to dismiss for failure to state a claim, we hold that the complaint sufficiently puts Defendant on notice of the Government's claims against him, and that it adequately states a claim against him individually upon which relief can be granted. Scheuer, and Conley, supra.

B. Lack of personal jurisdiction over the Defendant.

Mahler next seeks to quash the service of process effected upon him by arguing that this Court lacks personal jurisdiction over him. Defendant was personally served with the complaint in this action while incarcerated at the Allenwood Farm Camp, a federal penal institution located within this district. (See Return of Service, Doc. #2, filed December 27, 1982). Defendant asserts that, but for the fact of his imprisonment within this district, he never had nor presently has any contacts in Pennsylvania sufficient enough for this Court to invoke personal jurisdiction over him. He asserts that the only possible contacts he may have had with the Commonwealth were in his capacity as an official of one of his corporations. (Brief of Defendant in Support of Motion to Dismiss the Complaint, pg. 11.). Thus, he claims that the service of process in this action offends traditional notions of due process and must be quashed.

In support of his argument, Mahler maintains that the place of his incarceration is not tantamount to his domicile for purposes of jurisdiction, and he must be considered a nonresident of the Commonwealth. Thus, he claims that the Government must show that he has sufficient minimum contacts with Pennsylvania lest our jurisdiction be invalidated. We need not dwell long on this argument for we think Defendant's reliance on it is misplaced.

The "minimum contacts" analysis as established by our Supreme Court in International Shoe Co. v. Washington, 326 U.S. 310 (1945), furthered in Shaffer v. Heitner, 433 U.S. 186 (1977), and posited by Mahler here is, we think, inapposite. That analysis was developed in a context where a state statute was sought to be exercised. Here, we exercise our jurisdiction pursuant to a federal statute, and all that is required is that Mahler have minimum contacts with the United States. Staffin v. Greenberg, 509 F. Supp. 825, 831 (E.D. Pa. 1981) (McGlynn, J.), aff'd 672 F.2d 1196, 1208 (3d Cir. 1982). As stated in the complaint, the Government invokes the jurisdiction of this Court pursuant to 33 U.S.C. § 1321(f)(2) (Section 311(f)(2) of the FWPCA), and 28 U.S.C. § 1345.²

[14 ELR 20070]

Moreover, 33 U.S.C. § 1321(n) provides the district courts with jurisdiction over any actions such as the instant one. "[W]hen a federal court exercises jurisdiction pursuant to a federal statute it is the United States and not the particular state in which the court is located that is exercising jurisdiction and, therefore, all that is necessary . . . is . . . minimum contacts with the United States." Staffin v. Greenberg, 509 F. Supp. at 831. Mahler does not argue paucity of minimum contacts with the United States. We conclude, therefore, that the exercise of jurisdiction in this case was and is proper. Defendant's request to quash the service of process herein will, accordingly, be denied. We do not disagree with Defendant that the FWPCA lacks a nationwide prescription for service of process, but it does not follow from that argument that service under FED. R. CIV. P. 4(d) and (e), as in this case, is infirm.

C. Failure to Join a Party under Rule 19.

Although delineated in Defendant's motion as a supporting ground for dismissal, this particular argument was neither briefed by Mahler nor addressed by the Government. Since there was no support proffered for this ground, we deem it withdrawn. See M.D. Pa. Local Rule 401.5.

III. Motions for Discovery Extension and Continuance

A short time ago, the Court was besieged by a battery of discovery-related motions by counsel in this case, concerning the scheduling of depositions and exchange of documentation. After some encouragement from the Court, counsel subsequently reported that they would be able to straighten out their discovery problems without formal intervention by the Court. Two of those motions remain, both Plaintiff's: a motion for an extension of time within which to complete discovery, and a motion for continuance of the January 9, 1984 trial date. Mahler's counsel concurs in the continuance motion, and also in the discovery extension motion but only to the extent that such discovery is specifically identified in Plaintiff's supporting brief.

Upon consideration of the parties' positions, the aforementioned motions will be granted. In view of the foregoing, the following Order is entered.

1. The complaint alleges that Mahler was a director of Ag-MET, Inc., and president of Newton Refining Corporation (a wholly-owned subsidiary of Ag-MET, Inc.). It is also claimed that Mahler later became Chairman of the Board of Newton. (See complaint pgs. 2-3, PP6-8).

2. 28 U.S.C. § 1345 invests the district courts with original jurisdiction of all civil actions commenced by, inter alia, the United States.