United States v. Conservation Chemical Co.

No. 82-0983-CV-W-5 (628 F. Supp. 391 at 416, 24 ERC 1289 at 130) (W.D. Mo. January 9, 1986)

The court holds that a corporate officer who founded one of the corporate defendants and served as its chief executive officer and majority stockholder, and was personally involved in many of the activities leading to contamination, is personally liable under CERCLA § 107.

[Related opinions are published at 12 ELR 20238; 14 ELR 20207, 20809; 16 ELR 20193; and 17 ELR 20166.]

Counsel are listed at 17 ELR 20166.

[17 ELR 20167]

SCOTT O. WRIGHT, Chief Judge.

The Court held a hearing on November 4, 1985, a portion of which was devoted to the presentation of evidence by the plaintiff United States to establish the personal liability of Norman B. Hjersted. The plaintiff presented its evidence solely through the testimony of the defendant Norman B. Hjersted. Counsel for Mr. Hjersted presented rebuttal evidence through cross-examination of their client. For the reasons discussed below, the Court concludes that defendant Norman B. Hjersted is subject to statutory liability under 42 U.S.C. §§ 9606 and 9607.

Earlier in these proceedings in a ruling on a motion for partial summary judgment brought by the United States, this Court declined to impose liability on defendant Hjersted. The following is the portion of the Special Master's report, which was adopted by the Court, pertaining, to the liability of Hjersted:

"Norman Hjersted founded CCC in 1960, and has been its president since its inception. He has also owned at least 93% of CCC's stock since 1960.

"Initially, Hjersted was CCC's sole technical person. 'Plant managers' were subsequently hired, but they reported directly to Hjersted. He controlled the company's fiscal matters and made decisions about the types of projects and business ventures CCC would undertake. He was primarily responsible for environmental controls at CCC and also acted as a chemical engineer. Even when he resided in Gary, Indiana (from approximately 1968 to 1974), Hjersted personally visited the KC site several times a month. After he returned to Kansas City in 1975 he was much more closely involved with the day-to-day operations of the KC site. In short, Hjersted '[is] the boss of CCC operations and ha[s] been all along.'

"The recent case of New York v. Shore Realty Corp., supra, [759 F.2d 1032 (2nd Cir.1985)] held the owning stockholder who managed a corporation liable under CERCLA Section 107, after analyzing the meaning of 'owner or operator.' The court determined that 'owner or operator' is defined to mean 'any person owning or operating' an onshore facility, 42 U.S.C. § 9601(20)(A), and 'person' includes individuals as well as corporations, 42 U.S.C. § 9601(21). Slip op. at 35 [759 F.2d at 1052].

More important, the definition of 'owner or operator' excludes 'a person, who, without participating in the management of a . . . facility, holds indicia of ownership primarily to protect his security interest in the facility.' Id. § 9601(20)(A). The use of this exception implies that an owning stockholder who manages the corporation, such as Leo Grande, is liable under CERCLA as an 'owner or operator.' That conclusion is consistent with that of other courts that have addressed the issue. See, e.g., United States v. Carolawn Co., 14 Envtl.L.Rep. (Envtl.L.Inst.) 20,699, 20,700 (D.S.C. June 15, 1984); NEPACCO, 579 F. Supp. at 847-48. In any event, Leo Grande is in charge of the operation of the facility in question, and as such is an 'operator' within the meaning of CERLCA.

Id. at 36 [759 F.2d at 1052.] The court held Leo Grande liable for the abatement of the nuisance without piercing the corporate veil. New York courts have held that a corporate officer who controls corporate conduct, and thus is an active individual participant in that conduct, is liable for the torts of the corporation, so it was unnecessary to reach the question of piercing the corporate veil. The court concluded:

As a final note, however, the district court should take into account one additional factor in supervising its injunction, a principle limiting perhaps to some extent. Leo Grande's liability for the future costs of abatement. The injunctive remedy is an equitable one; that abatement expenses may become prohibitive and disproportionate therefore may be taken into consideration.

Id. at 38 [759 F.2d at 1053].

"Corporate officers were also held personally liable under CERCLA in United States v. Northeastern Pharmaceutical and Chemical Company, supra [579 F. Supp. 823 (W.D.Mo.1984)]. Lee, the vice president of NEPACCO, the corporate entity that contracted through corporate representatives for the transport and disposal of hazardous waste, was held personally liable. He was directly responsible for arranging the disposal and transport of the hazardous waste at the site. He had direct knowledge and supervision of the contract. He assisted in the selection of the hazardous waste site.

"Lee argued that corporate officers are normally not personally liable for acts of the corporate entity. He contended that he did not own or possess the hazardous waste since the corporate entity had the ownership rights to the hazardous waste. He also alleged that the hazardous waste substance contained in the barrels dumped at the site was manufactured by another corporate entity.

"The court found such arguments of little significance to the imposition of liability. The court reasoned that Lee had actual knowledge of the drums and storage.Lee possessed the barrels within the meaning of Section 107(a)(3) and had direct supervision and knowledge of the disposal of the barrels. Further, under Section 107(a)(3), the person arranging for the disposal is not required to actually own or possess the hazardous waste. United States v. NEPACCO, supra, 579 F. Supp. at 847.

"Lee was found to be a 'person' within the definition in 42 U.S.C. § 9601(21). An analogous situation was dealt with in Apex Oil Co. v. United States, 530 F.2d 1291 (8th Cir.1976). There the court construed the statutory language of 33 U.S.C. § 1321(b)(5) and (6), the liability provisions of the Clean Water Act which imposes the same strict liability standard as CERCLA. The court held

. . . that a 'person in charge' can include both the individual employee and the corporation. Although the issue in Apex Oil Co. was whether an owner-operator (the corporation in that case) could be held liable as a 'person in charge,' Id. at 1292-93, this Court considers the Eighth Circuit's analysis significant in defining an employee's liability under CERCLA: 'Section 1321(b)(5) speaks in terms of any person in charge. We note that it would not be inconsistent with the statutory language to hold both the employee and the corporation to its penaliies [sic] for failure to report a spill.' Id. at 1293 n. 6.

579 F. Supp. at 848. The definition of 'person' under the Clean Water Act is almost identical to the definition of 'person' under CERCLA. The court found that the term 'person' arranging for the disposal of hazardous substance should be given a liberal interpretation that may include both the employee and the corporation. Lee, then, acting as an employee, had the responsibility to and did arrange for the disposal of the hazardous waste pursuant to Section 107(a)(3).

"Lee can be classified as both an owner [17 ELR 20168] and operator of the NEPACCO plant due to his position as vice president and as a major stockholder. 42 U.S.C. § 9601(20)(A) states that an 'owner or operator'

means . . . (ii) in the case of an onshore facility, any person owning or operating such facility . . . Such term does not include a person, who, without participating in the management of a . . . facility, holds indicia of ownership primarily to protect his interest in the . . . facility.

579 F. Supp. at 848. From the language of the statute a person who owns an interest in a facility and is actively participating in its management can be held liable for the disposal of hazardous waste.

"The court, in sum, found sufficient evidence to impose liability on Lee:

Lee had the capacity to control the disposal of hazardous waste at the NEPACCO plant; the power to direct the negotiations concerning the disposal of wastes at the Denney farm site; and the capacity to prevent and abate the damage caused by the disposal of hazardous wastes of the Denney farm site. Finally, Lee was a major stockholder in NEPACCO and actively participated in the management of NEPACCO in his capacity as vice-president.

579 F. Supp. at 849.

"Michaels, founder and president of NEPACCO as well as a major stockholder in the corporation, was also found to be strictly liable as an 'owner and opertor.' The court found that the same policy considerations expressed by Congress holding Lee liable would also necessitate the imposition of liability on Michaels.

"Personal liability of three corporate officers was found under CERCLA in United States v. Carolawn Co., 14 Env'tl L.Rep. 20699 (D.S.C. June 15, 1984). Officers or representatives Tischler, McClure, and Gergel of Columbia Organic Chemical Company ('COCC') purchased the bankrupt Southeastern Pollution Control Company ('SEPCO'). The three officers or representatives incorporated a new company, known as South Carolina Recycling and Disposal, Inc. ('SCRDI') and served as officers of the new company. Tischler and McClure were personally involved in the operation of the site as a hazardous waste storage site. The three officers eventually sold the site to Carolawn.

"The court held the three subject to liability as owners of the site and also held Tischler and McClure liable as operators of the site. To reach the holding, the court examined the definition of 'person' and 'owner or operator.' The court also found the analysis in NEPACCO persuasive and concluded:

Thus, to the extent that an individual has control or authority over the activities of a facility from which hazardous substances are released or participates in the management of such a facility, he may be held liable for response costs incurred at the facility notwithstanding the corporate character of the business.

14 Env'tl L.Rep. at 20700. In addition, the defendants did not substantiate that the government could not pierce the corporate veil of SCRDI or COCC to reach them personally. The court referred to the well-established principles set forth in Dewitt Truck Brothers v. Flemming Fruit Co., 540 F.2d 681 (4th Cir.1976) that must be considered before a determination can be made to pierce the corporate veil.

"Examining the definitions in CERCLA of 'person' and 'own or possess,' the Court in United States v. Mottolo, 14 Env'tl L.Rep. 20497 (D.N.H. Mar. 27, 1984) ruled that Sutera, the president and principal shareholder, of the corporation disposing of the hazardous waste was liable. The court found that Sutera was responsible for the conduct and management of the affairs and activities of the corporation and participated in arranging for the disposal of the wastes. Sutera argued that he operated the corporation to limit his personal liability and that he is not a 'person' who arranged for the transport or disposal of hazardous wastes within the meaning of CERCLA. He maintained that any relevant activities occurred while he acted in his capacity as president and shareholder, but that he did not engage in relevant activities as an individual. Sutera also argued that he did not 'own or possess' hazardous substances which is required for liability under CERCLA.

"The court noted that corporate officers may be individually liable for the torts of a corporation where they participate in the tortious conduct. Determining that Sutera was responsible for the entire operation of the corporation and that he did just about everything in the corporation, the court found him liable. As in the cases discussed above, the court found the corporation to be a 'person' within the meaning of CERCLA and that the person who arranges for disposal or transport for the disposal of hazardous substances need not own or possess the waste. United States v. Mottolo, supra, at 20499.

"Finally, the court addressed the issue of piercing the corporate veil. There was no allegation of fraud or misuse of the corporate form, and the court stated that to warrant piercing the corporate veil, it must be alleged with sufficient particularity that the corporation had no will or existence of its own separate from that of Sutera. Failure to state such a claim obviated the need to consider piercing the corporate veil.

"The former owner of the company which transported hazardous substances to the site was not held personally liable in United States v. Wade, supra [577 F. Supp. 1326 (E.D.Pa.1983)]. Citing In Re Arthur Treacher's Franchise Litigation, 92 F.R.D. 398 (E.D.Pa.1981) and Amabile v. Auto Kleen Car Wash, 249 Pa. Super. 240, 376 A.2d 247 (1977), the court said:

A corporate officer may be held liable if he personally participates in the wrongful, injury-producing act.

577 F. Supp. at 1341. In Wade, the former owner, Barnhouse, personally delivered drums to the site. However, the court said that the testimony was inadequate to establish the individual liability of Barnhouse since there was no evidence presented concerning the number or frequency of drums delivered, or their content. In addition, the court found that negotiations of Barnhouse to dispose of wastes were insufficient to establish personal liability. Finally, the court found that allegations that Barnhouse directed or participated in the disposal of wastes at the site were inadequate to establish personal liability. In this case, then, the court recognizes personal liability of a former owner, but does not find personal liability because of inadequate evidence.

"Thus, corporate officials who actively participate in the management of a disposal facility can be held personally liable under Section 107(a) of CERCLA, 42 U.S.C. § 9607(a). Hjersted could, therefore, be held personally liable under both subsection (a)(1) and (a)(2) of Section 107 of CERCLA as a current owner and as a person who owned and operated the facility at the time hazardous substances were disposed of if it were established that his participation was of the nature and degree which would warrant imposition of personal liability. However, the Special Master is reluctant to impose such liability based upon the factual record before him. While Hjersted may not have disputed the factual assertions made by the plaintiff, Hjersted has vigorously opposed the imposition of personal liability. Under these circumstances, and giving due consideration to the caution which a court must exercise in ruling on summary judgment motions, the Special Master recommends that the Court not enter summary judgment against Hjersted at this time."

United States v. Conservation Chemical Co., 619 F. Supp. 162, 187-190 (W.D.Mo.1985). Thus, the only viable issue for trial was whether or not the nature and degree of Hjersted's personal participation was such as would warrant imposition of liability.

The testimony elicited at the trial establishes [17 ELR 20169] these facts without contradiction. Norman Hjersted is a trained chemical engineer, having received a degree in chemical engineering from Rice Institute (now Rice University). He is a professional engineer registered in the State of Kansas. Prior to forming Conservation Chemical Company, Hjersted was employed as a chemical engineer by several companies, including Monsanto and Standard Oil of Indiana (Amoco). While working for Standard Oil in Sugar Creek, Missouri, Hjersted conceived of the idea to form what became CCC in order to more efficiently treat industrial wastes of one company with the wastes of another company. He personally drew the plot plan establishing the layout for the CCC site and personally supervised the construction. He conceived of several waste treatment processes that led to the disposal of wastes into lagoons on the site, and implemented other waste treatment processes suggested by others. In any event, Hjersted considered himself quite knowledgeable about all of the processes employed at the site.

Particularly during the early years of the CCC-KC operation, Hjersted spent about half his time at the Kansas City plant. Much of the remainder of his time was spent researching treatment processes and marketing the CCC operation. He administered the affairs of the corporation and executed contracts on its behalf. He hired and supervised employees.

With the formation of Conservation Chemical Company of Illinois, Hjersted moved the administrative operations of the corporation to Gary, Indiana in 1967 or 1968. After the move to Gary, Hjersted visited the Kansas City plant once a month or sometimes every other month. The plant manager and the administrative manager continued to report to Hjersted. During the time he was in Gary, Hjersted telephoned the plant manager every day. Communications with the plant managers included such topics as instructions on equipment modifications, customers to be served, and critiques of the performance of the plant managers.

CCC's business office moved back to Kansas City in 1974. After the move back to Kansas City, Hjersted visited the site approximately every other week and more frequently during the time CCC was implementing its closure plan pursuant to orders of the State of Missouri.

The Court concludes that Norman Hjersted's involvement with Conservation Chemical Company as its founder, chief executive officer and majority stockholder, is such as to warrant imposition of personal liability under CERCLA section 107. The high degree of personal involvement in the operation and the decision-making process was particularly acute during the early years of the corporation. The Court's conclusion is consistent with the rulings in the Shore Realty, NEPACCO, Carolawn and Mottolo cases discussed in the excerpted portion of the Master's report, as well as the more recent decision in United States v. Ward, 618 F. Supp. 884, 895 (E.D.N.C. 1985). Thus, the Court concludes that Norman Hjersted is a liable party for purposes of 42 U.S.C. § 9607(a)(1) and (a)(2).