18 ELR 20578 -- Colorado v. Idarado Mining Co.

Colorado v. Idarado Mining Co.

No. 83-C-2385 (D. Colo. April 29, 1987)

The court holds that a parent corporation and a management services subsidiary are owners and operators under Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) § 107. The court lists as factors to consider in determining whether a parent corporation is a CERCLA owner or operator: the degree to which it fits the definition of "person in charge" under the Federal Water Pollution Control Act, the percentage of stock owned, the parent's control over the subsidiary's marketing, the parent's contractual authority on behalf of the subsidiary, and the parent's control over the subsidiary's employment practices. Based on the parent corporation's knowledge of and continuing involvement in efforts to address the environmental dangers at the mine, its intimate involvement in operating the mine, and its contractual authority on the subsidiary's behalf, the court holds that the parent is an owner or operator.

The court next holds that another subsidiary, formed to provide a steady supply of management and other employees and certain management services, was an operator of the mine. It was intimately involved in the mine's management.

[Pleadings in this case are summarized at ELR PEND. LIT. 65876.]

Counsel for Plaintiff
Duane Woodard
Department of Law
1560 Broadway, Suite 250, Denver CO 80202
(303) 866-3611

Counsel for Defendant
Christopher Lane
633 17th St., Suite 2900, Denver CO 80202
(303) 297-2900

[18 ELR 20578]

Carrigan, J.:

Order

The Comprehensive Environmental Response, Compensation, and Liability Act, § 101 et seq., 42 U.S.C. § 9601 et seq., as amended by the Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499, 100 Stat. 1613 (1986) (collectively "CERCLA"), imposes liability for the cleanup of hazardous waste sites on a variety of persons, including the owner or operator of a site. Plaintiff in this action alleges that the defendants, Idarado Mining Co. ("Idarado"), Newmont Mining Corp. ("Mining") and Newmont Services Limited ("Services") are all owners or operators of the Idarado Mine ("Mine"). Defendant Idarado has admitted that it is an owner and operator of the Mine. The other defendants, however, deny that they can be properly characterized as owners or operators within the meaning of this statute. Plaintiff has not alleged that either defendant falls within any of the other categories of persons who may be found liable under CERCLA. Therefore, a finding that "Mining" and "Services" are owners and operators of the Mine is a prerequisite to their being held liable for cleanup at the Mine and other areas in dispute in this case. The issue of whether "Mining" and "Services" are owners or operators of the Mine was initially raised in the plaintiff's Motion for Partial Summary Judgment on Liability. I denied that motion. For reasons of economy to the parties and efficient judicial administration I have separated this issue for decision in the course of trial in order that these defendants, or either of them, may be absolved from further participation in this action if found not to have been an "owner" or "operator" at relevant times.

The parties have agreed, and jointly assert, that resolution of this issue turns upon interpretation of certain documents produced during discovery. As a result, they have submitted this issue for decision on a stipulated record. In addition, oral argument was heard on April 16, 1987. Further argument would not assist my decision.

I. Newmont Mining Corp. ("Mining").

"Mining" is the parent corporation and major shareholder of Idarado. "Mining" was one of the initial founders of Idarado, and has remained a stockholder in Idarado from the date of Idarado's formation to the present. "Mining" has held 80.1% of the stock in Idarado since 1962.

"Services" is a wholly-owned subsidiary of "Mining." "Services" was formed by "Mining" in 1971 for the purpose of providing management and other personnel to the various "Mining" subsidiaries, including Idarado.

In United States v. Northeastern Pharmaceutical & Chemical Co., Inc., 579 F. Supp. 823 [14 ELR 20212] (W.D. Mo. 1984) (NEPACCO), the court adopted, for purposes of determining liability under CERCLA, the definition of "person in charge" as that phrase is used in the Federal Water Pollution Control Act, 33 U.S.C. § 1161(b)(4). That definition provides that:

The owner-operator of a vessel or a facility has the capacity to make timely discovery of oil discharges. The owner-operator has power to direct the activities of persons who control the mechanisms causing the pollution. The owner-operator has the capacity to prevent and abate damage.

Id. at 848 citing United States v. Mobile Oil Corp., 464 F.2d 1124, 1127.

Other factors to be considered in determining whether a parent corporation is an "owner or operator" of a facility held by one of its subsidiaries include the percentage of the subsidiary's stock owned by the parent, whether and to what extent the parent controls the subsidiary's marketing, whether the parent has or exercises authority to execute contracts on behalf of the subsidiary and whether the parent controls selection, supervision, transfer and similar aspects of employment for those normally employed by the subsidiary. United States v. Conservation Chemical Co., 628 F. Supp. 391, 416-420 [17 ELR 20158] (W.D. Mo. 1985). In short, to determine whether either "Mining" or "Services" was an owner or operator of the Mine, I must examine the degree to which each participated in the operations of Idarado.

It is undisputed that at material times:

1. "Mining" has owned between 27.2% and 89.9% of Idarado's stock and controlled Idarado's Board of Directors. Since 1962 "Mining" has owned 80.1% of Idarado's stock;

2. The vast majority of the officers of Idarado since 1939 were also officers or directors of "Mining";

3. John C. Keenan, a Vice President of Idarado until this year, was also a Vice President of "Mining" and his salary was paid by "Mining." Certain other Idarado officers also held positions in "Mining" and were similarly compensated;

4. Idarado paid "Mining" a services fee for which "Mining" provided Idarado legal services, governmental relations services, insurance coverage procurement services, technical advice on mining and metallurgical techniques, financial and tax advice and advice on environmental issues;

5. "Mining's" policies and practices concerning employee recruitment and reimbursement of expenses were applied to Idarado.

As early as 1944, "Mining's" personnel were aware of, and participated in efforts to ameliorate, the environmental problems resulting from operation of the Mine. (Plaintiff's Exhibit 872.) "Mining's" involvement in this area of Idarado's operations apparently has continued from that time to the present. (Plaintiff's Exhibits 858, 860, 861, 863, 868, 870, 1026, and 1027.) Indeed, "Mining" has commissioned engineering reports on the environmental conditions at the Mine. (Plaintiff's Exhibits 1026 and 1027.) Under the definition of "owner or operator" adopted in NEPACCO, "Mining's" knowledge of and continuing involvement in efforts [18 ELR 20579] to address the environmental dangers posed by operation of the Mine would justify categorizing "Mining" as an "owner or operator" of that facility.

In addition, many documents indicate that "Mining" was intimately involved in operating Idarado. Among the aspects of Idarado's operations controlled or influenced by "Mining" were hiring and transfer of "Mining's" subsidiaries' employees to or from Idarado and control of their salaries. (Plaintiff's Exhibits 866, 867, 859, 862, 674, 869, 685, 700, 865, 683, 684, 687, 686, 689, 690, 698, and 699.) Moreover, it appears that besides controlling Idarado's recruitment and reimbursement policies, "Mining" also dictated Idarado's policies with respect to press releases, company objectives and procedures, maternity leave, employee agreements and record retention. (Plaintiff's Exhibits 599, 621, 617, 580, 520, and 523.) "Mining" even required Idarado to provide it regular operational reports. (Plaintiff's Exhibits 694, 701 and 702.)

"Mining" also negotiated and entered into contracts on Idarado's behalf. In one such incident documented in the stipulated record, R.D. Ellet, a Vice President of "Mining," and a Board member of Idarado, negotiated a contract granting Chevron Resources Co. and Kerr-McGee Corp. permission to trespass on property owned by Idarado. All of the correspondence addressed to Mr. Ellet was directed to him in his position as Vice President of "Mining." Similarly, all of Ellet's correspondence with the other parties was sent on "Mining's" letterhead, not Idarado's. Most significantly, however, a Confidentiality Agreement entered into by the parties is signed by Ellet in his capacity as a Vice President of "Mining" and a "Mining" subsidiary, Newmont Exploration Limited. From the language of the agreement, it is clear that Newmont Exploration Limited and "Mining," not Idarado, would be parties to the joint venture with Chevron and Kerr-McGee, despite the fact that much of the exploration envisioned under that joint venture would take place on Idarado's property. No one signed the confidentiality agreement on behalf of Idarado. (Plaintiff's Exhibits 444, 445, 446, 448, 450, 451, and 452.)

It may be inferred from the record, and I do infer, that "Mining" exercised pervasive control over Idarado's operations. Several documents contained in the record indicate that "Mining" management personnel represented to the public that "Mining" controlled Idarado. Indeed, it appears that "Mining's" management believed just that and acted accordingly. (Plaintiff's Exhibits 715, 871 and 691.) I cannot disagree with "Mining's" management on this issue.

Finally, in 1971, "Mining" formed "Services" as a wholly-owned subsidiary corporation, established for the express purpose of managing other "Mining" subsidiaries, including Idarado. (Plaintiff's Exhibit 673.) The fact that "Mining" was able to take this step is but another indication of "Mining's" actual hands-on control over Idarado's operations.

The stipulated record supports the conclusion that "Mining" was and is so intimately involved in the operation of Idarado that it fairly may be characterized as both an "owner" and "operator" of Idarado and the Idarado Mine for purposes of imposing liability under CERCLA § 107(a). I hold that, for purposes of CERCLA, Newmont Mining Corporation at all material times was both an owner and an operator of Idarado Mining Company and of the Idarado properties and sites here in issue.

II. Newmont Services Limited ("Services").

It is undisputed that "Services" was formed for the purpose of providing "Mining's" subsidiaries, including Idarado, with a steady supply of management and other employees. "Services" made these employees available to Idarado through a contract arrangement under which an employee's salary and benefits were paid by "Services." In exchange for the employee's services, Idarado paid "Services" a fee of between 105% and 110% of "Services'" costs for the period that the employee worked for Idarado. Additionally, "Services" has provided Idarado, and billed it for, auditing and computer services and advice on employee relations and environmental affairs.

Plaintiff contends that "Services" was created, not to provide Idarado personnel, but to manage its operation. In support of this contention, the plaintiff has submitted a letter from "Mining" to the Idarado Mine manager that states:

At present, certain key personnel, to which group you belong, are on the payroll of various Newmont [Mining Corp.] wholly-owned non-operating subsidiaries or of the Newmont parent company while serving some of Newmont's operating subsidiaries or those that are expected to be operating. For legal reasons, and to provide a more direct and simpler line of responsibility in managing these operating subsidiaries, it has been deemed advisable to consolidate all such key personnel under a single corporate entity, which will be the newly-formed, wholly-owned subsidiary of Newmont to be called Newmont Services Limited.

(Plaintiff's Exhibit 673.)

Defendants dispute the plaintiff's contention, arguing instead that "Services" was formed as a consulting service so that smaller operations such as Idarado could afford to employ highly qualified personnel without incurring the costs associated with maintaining those employees on the payroll on a full-time basis. (Johnson Affidavit, paragraphs 3-4.)

Plaintiff further relies upon a letter from "Services" to one Petty, an employee of "Mining" or its subsidiaries who was to be transferred back to the United States from overseas. That letter provides in part:

So we propose to put you on the Newmont Services Limited payroll as of September 1, 1971. You will be designated General Manager of Idarado, Carline, and Dawn. Your salary will be $ 40,000 U.S. per annum, and as a member of Newmont Services Limited you will be entitled to full Newmont Mining Corporation fringe benefits.

There will be a company house available at Ouray in Colorado and you will have the use of a company car for business purposes.

Your duties as General Manager will encompass the supervision of the three mines, each of which as a Resident Manager. As you know, I am President of Idarado, Vice President of Carlin and Vice President of Dawn. All three mines fall under my general direction as Vice President-Mining, of Newmont Mining Corporation.

(Plaintiff's Exhibit 667.)

Defendant has presented several affidavits in an attempt to refute the plaintiffs' contention that "Services" was the de facto manager, and thus "operator" of the Idarado Mine. Each of the affiants, John Keenan, Director and Vice President of Idarado, John Johnson, Vice President of "Services," and David Potter, Secretary of Idarado, asserts that "Services" never controlled the operations of Idarado, but rather, that Idarado was always run as a separate business entity.

It is clear, and I find, that "Services'" employees managed the Idarado Mine pursuant to a contract between "Services" and Idarado. Moreover, it appears that the relationship between Idarado and "Services" was much closer than their contractual arrangement would indicate. The question is whether, on the basis of the evidence presented, the plaintiff has proved that "Services" was an owner or operator of the Idarado Mine.

I find and conclude that "Services" was intimately involved in the management of Idarado. Unfortunately, neither side has presented any law providing criteria for determining when a controlling or parent company, ostensibly providing contract employees through a subsidiary to a second subsidiary, is, in fact, operating the second subsidiary company through the first subsidiary.

As used in CERCLA, the term "operator" must be interpreted with the statute's purpose in mind. As a practical matter, if mere interposition of a separate corporate entity could insulate against CERCLA liability, it would be far too easy to evade the statute. Here both "Mining" and "Services" were involved directly in day-to-day operations of Idarado Mining Company and the sites here in dispute. Therefore they are responsible as "operator." I find and conclude that at all material times "Services" was not an owner but was an "operator" of Idarado Mining Company and the latter's mine sites and properties involved in this action.