FMC Corp. v. United States Department of Commerce

No. 90-1761 (E.D. Pa. July 18, 1990)

The court holds that the federal government may be liable as an "owner or operator" under § 107 of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) for the release of hazardous substances at a private rayon manufacturing facility due to the federal government's comprehensive regulation and control of the rayon market during World War II. From 1942 through 1945, plaintiff's corporate predecessor increased its production of high tenacity rayon tire cord, allegedly because the War Production Board (WPB) determined the quantity of rayon to be produced, the alternative products plaintiff's predecessor could produce, and the sales price of the rayon. Plaintiff later purchased the facility and was subsequently notified that a listed hazardous substance under CERCLA was discovered in groundwater in the vicinity of the facility. The court holds that it is unable to grant the federal government's motion to dismiss because it cannot conclude with certainty that plaintiff is not entitled to CERCLA relief against the federal government under any set of facts that could be proved. Although there was no express authority for the WPB to make management decisions at plaintiff's predecessor's facility, there is little evidentiary significance in an omission of statutory authority to control marketing and production method choices when the WPB had the authority to determine the level of output and it is the guaranteed purchaser of all rayon at a predetermined price. Construing the complaint in the light most favorable to plaintiff, the plaintiff may be able to draw other more specific inferences from the record. The court observes that while the government's argument that unrestrained liability for regulatory agencies could lead to severe and unintended consequences, that is a consideration that Congress, not the court, addressed by enacting CERCLA § 120(a).

Counsel for Defendant
Virginia Gibson-Mason, Ass't U.S. Attorney
3310 U.S. Courthouse, 601 Market St., Philadelphia PA 19106
(215) 597-1716

Counsel for Plaintiff
Alan B. Epstein
Jablon, Epstein & Wolf
The Bellevue, 200 S. Broad St., 9th Fl., Philadelphia PA 19102
(215) 922-7100

[20 ELR 21404]

Newcomer, J.:

Memorandum

Before the court is the defendants'¹ motion to dismiss complaint pursuant to Fed. R. Civ. P. 12(b)(6) alleging that plaintiff FMC Corporation (FMC) has failed to state a claim upon which relief may be granted. For the reasons set forth below, the court will deny the motion.

I. Background

This case involves the assignment of liability and subsequent cleanup contributions forthe disposal of toxic rayon dumping occurring during the Second World War. This case arises out of the application of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), 42 U.S.C. §§ 9601-9675 (1983 & Supp. I 1990). Jurisdiction and venue is based on 42 U.S.C. § 9613(b), which provides for jurisdiction in the United States district court and venue in any district in which the defendant resides.

FMC brings this action against the United States alleging that the government, through the War Production Board (WPB), is liable for a release of hazardous substances at FMC's rayon manufacturing facility prior to FMC's ownership. Under CERCLA, the United States may be liable for the release if it is found to be an "owner" or "operator" of a facility, or one who arranged (an "arranger") for the transportation or disposal of toxic materials. 42 U.S.C. § 9607(a). In addition, liability may attach under CERCLA if a party's past actions contributed to the environmental damage even if that party is not currently in possession of the property or toxic substances. It is on this basis that FMC seeks to hold the United States liable under CERCLA. The United States now moves to dismiss the complaint.

II. Legal Standard for Dismissal Under Fed. R. Civ. P. 12(b)(6)

Pursuant to Fed. R. Civ. P. 12(6)(b), a court should dismiss a case for failure to state a cause of action only if it appears to a certainty that no relief could be granted under any set of facts which could be proved. Hishon v. King & Spalding, 467 U.S. 69, 73 (1984). Because granting such a motion results in a determination on the merits at such an early stage of plaintiff's case, the district court "must take all the well pleaded allegations as true, construe the complaint in the light most favorable to the plaintiff, and determine whether, under any reasonable reading of the pleadings, the plaintiff may be entitled to relief." Colburn v. Upper Darby Township, 838 F.2d 663, 664-65 (3d Cir. 1988), cert. denied, 109 S. Ct. 1338 (1989). Accordingly, the factual background information that follows is stated in the light most favorable to the plaintiff.

III. Facts

The site in question is a 440 acre rayon manufacturing facility (the Facility) located in Front Royal, Virginia. The Facility consists of a manufacturing plant as well as 23 waste disposal basins and landfill areas. Ownership of the Facility has changed five times during the past 50 years. A brief review of the past ownership and manufacturing schedules sheds some light on the government's role in this action as well as the potential applicable liability under CERCLA.

During the years from 1937 through 1939, American Viscose Corporation (American Viscose) purchased several tracts of land outside Front Royal, Virginia, constructed a plant on the site, and began manufacturing rayon at the Facility in 1940. A year later, in 1941, Courtaulds, Ltd., (Courtaulds) the British corporation that owned American Viscose, transferred its ownership stake in American Viscose to a group of American banks. American Viscose became a publicly held corporation later that same year.

From 1942 through 1945, the period giving rise to this action, American Viscose increased its production of high tenacity rayon tire cord from approximately 15 million pounds to over 82 million pounds per year. FMC alleges that the increased production rate was a direct result of the government's classification of high tenacity rayon as a high priority defense item.²

In 1963 FMC purchased the Facility from American Viscose and used it for manufacturing. In 1976 FMC sold the Facility to Avtex Fibers, Inc., which in 1978 conveyed the Facility to Avtex Fibers-Front Royal, Inc., (both collectively referred to as "Avtex") the present owner.

In 1982 carbon disulfide was discovered in the ground water in the Facility's vicinity. Carbon disulfide is a hazardous substance under CERCLA, 42 U.S.C. § 9601(14). See 40 C.F.R. Part 302, Table 302.4 (1988). Avtex then signed an Administrative Order of Consent (Consent Order) with the Environmental Protection Agency (EPA) in 1986 to conduct a Remedial Investigation/Feasibility Study (RI/FS) at the Facility. Also during 1986 the EPA listed the Facility on the National Priorities List of locations given top priority for remedial action. In January 1988, the Consent Order was amended to include FMC.³ In late 1988 the EPA issued a Record of Decision (ROD) which spelled out the immediate remedial action to be taken in order to clean up the Facility. The ROD provided that the sources of the contamination would be addressed at a future time in a second decision.

In January 1989 the EPA invited the Department of Commerce, Avtex, and FMC to participate in formal negotiations to develop a Consent Degree to implement the 1988 ROD. In their invitation letter the EPA expressed the opinion that it considered the United States a potential operator under CERCLA. The Commerce Department took the position that it was not an operator under CERCLA and declined to participate in the negotiations.⁴ On June 30, 1989, the EPA issued an Administrative Order directing Avtex and FMC to under take remedial activities. Both Avtex and FMC agreed to comply. On November 14, 1989, Avtex notified EPA and FMC that they would be unable to fulfill their obligations under the June 30, 1989, order.⁵

Subsequently, the EPA issued a second Administrative Order directed solely at FMC, which required additional emergency removal actions to minimize the release of hazardous substances. These new requirements were in addition to those imposed by the first Administrative Order. FMC contends that the new emergency measures relate to substances discharged during the 1941 through 1945 period of time that the WPB allegedly "operated" the Facility.

IV. Discussion

The crucial inquiry in this case is whether the United States, through the WPB's actions during the period 1941 through 1945, is an operator of a facility at which hazardous substances were disposed of under 42 U.S.C. § 9607. Congress enacted CERCLA in 1980 in response to the growing problems caused by improper disposal of hazardous wastes. In passing this legislation Congress designed a broad remedial statute to insure that "those who planted their polluted seed should pay for the fruit they bear." S. Rep. No. 848, 96th Cong., 2d Sess. 98 (1980). Congress amended CERCLA in 1986 by enacting the Superfund Amendments and Reauthorization Act of 1986 (SARA) which assigned fines against violators and permitted enforcement and contribution suits against the states in federal court. See Pennsylvania v. Union Gas Co., 109 L. Ed. 2d 1, 15 [19 ELR 20974] (1989) (Congress clearly intended to waive 11th amendment proscription against cases against states in federal court under SARA and 14th amendment).

[20 ELR 21405]

The liability section of the CERCLA statute provides in pertinent part:

Notwithstanding any other provision or rule of law, and subject only to the defenses set forth in subsection (b) of this section —

(1) The Owner and operator of a vessel (otherwise subject to the jurisdiction of the United States) or a facility,

(2) any person who at the time of disposal of any hazardous substance owned or operated any facility at which such hazardous substances were disposed of,

(3) any person who by contract, agreement, or otherwise arranged for disposal or treatment, or arranged with a transporter for transport for disposal or treatment, of hazardous substances owned or posses [sic] by such person, by any other party or entity, at any facility owned or operated by another party or entity and containing such hazardous substances. . . .

* * *

(4) . . . shall be liable for —

(A) all costs of removal or remedial action . . .

(B) any other necessary costs . . . and

42 U.S.C. § 9607(a).

There is no question that under CERCLA any person or entity that owns or operates a facility that produces hazardous substances is liable if they make the management decisions that create the waste. United States v. New Castle County, 727 F. Supp. 854, 856 [20 ELR 20499] (D. Del. 1989); United States v. Northeastern Pharm. & Chem. Co. (NEPACCO), Inc., 579 F. Supp. 823, 848 [14 ELR 20212] (W.D. Mo. 1984) (person who owns an interest in a facility and is actively participating in its management may be liable as owner or operator; actual ownership or possession not necessary), cert. denied, 484 U.S. 848 (1987); United States v. Dart Industries, 847 F.2d 144, 146 [18 ELR 21084] (4th Cir. 1988).

There has also been a development in the case law that those in a position of authority to control the disposal of hazardous waste can be found liable under CERCLA even if they did not actually own or operate the facility. United States v. Kayser-Roth, 724 F. Supp. 15, 20 [20 ELR 20349] (D.R.I. 1989) (parent corporation liable for wholly owned subsidiary even though corporate veil unbroken); United States v. Fleet Feet Corp., 901 F.2d 1550, 1557 [20 ELR 20832] (11th Cir. 1990) (secured creditor liable if its involvement is sufficiently broad to support inference that it could affect hazardous disposal decisions); United States v. Aceto Agricultural Chemicals Corp., 872 F.2d 1373, 1383 [19 ELR 21038] (8th Cir. 1989) (defendant pesticide manufacturer liable even though contracted third party handled all formulating and packaging of pesticides); United States v. Bliss, 667 F. Supp. 1298, 1307 [18 ELR 20055] (E.D. Mo. 1987) (hazardous waste broker liable under CERCLA because of authority to control the place and manner of disposal).

In United States v. Mirable, No. 84-2280 (E.D. Pa. Sept. 4, 1985) (15 Envtl. L. Rep. 20,994) (Newcomer, J.), this court granted Mellon Bank's motion for summary judgment on the grounds that the sending of a representative to the site once per week did not constitute the type of "nuts-and-bolts" management decisions necessary for liability under CERCLA.⁶ The court noted, however, that had the outside advisor engaged in such management activities the secured creditor could have been found liable even if not the actual owner or operator. Id. at 20995. This case presents the same issue as Mirable, although in a slightly different form: at what point does involvement or control become so pervasive or significant as to warrant the imposition of CERCLA liability. Id.

FMC raises an interesting economic analysis in its attempt to impose CERCLA liability upon the government. FMC alleges that the government, through the WPB, so totally dominated the rayon production market and the production choices available to FMC that the government exercised the type of control usually associated with daily micro-management decisions. Specifically, FMC alleges that the government, inter alia: determined and decided the quantity of rayon to be produced, the alternative products FMC could produce, and the sales price of the rayon, Complaint PP15(c-f); restricted FMC's choice of purchasers, P15(g); made decisions considering plant size and ordered additional capital improvements backed by public funding, P15(i); set the amount of profit FMC could make, P15(p); set the specifications for the high tenacity rayon, P15(q); and should have known about the toxicity of the production process, P15(r). In effect, FMC is arguing that based on the extent of the government's control, it may not have needed to exercise "micro-management" over the Facility to qualify as an operator under CERCLA. When viewed in the light required by Fed. R. Civ. P. 12(b)(6), the court is unable to conclude with certainty that FMC is not entitled to CERCLA relief against the government under any set of facts which could be proved.

Although the government's memorandum of law is extremely persuasive, I must disagree with both of the government's arguments advanced in support of the instant motion.

The United States first asserts that under the enacting statutes and executive orders creating the WPB, there was authority to operate the Facility on the part of the government.⁷ Despite the broad scope of regulatory authority conceded by the government, the United States asserts that no statute enabled the WPB to operate the Facility. The government asserts that there was no authority to make employment, finance, purchasing, marketing or production method decisions that typify internal management decisions. Government's Memorandum at 16. At this point in the proceedings, I am not persuaded by the government's proposed delineation between those business activities which represent micro-management decisions and those which regulate the entire scope of the market. For example, there is little evidentiary significance in an omission of statutory authority to control marketing and production method choices when the WPB has the authority to determine the level of output and is the guaranteed purchaser of all American Viscose's output at a predetermined price. By analogy and construing the complaint in the light most favorable to FMC, Colburn v. Upper Darby Township, 838 F.2d 663, 664-65 (3d Cir. 1988), cert. denied, 109 S. Ct. 1338 (1989), FMC may be able to draw other similar inferences relating more specifically towards the production methods and arrangements concerning disposal practices.⁸

Finally, I am not persuaded by the United States' argument that the WPB, acting in its regulatory role, is immune from liability. Section 120(a)(1) of CERCLA provides:

Each department, agency, and instrumentality of the United States (including the executive, legislative, and judicial branches of government) shall be subject to, and comply with, this chapter in the same manner and to the same extent, both procedurally and substantively, as any nongovernmental entity, including liability under section 9607 of this title.

42 U.S.C. § 9620(a)(1). It was clearly Congress' intent to subject governmental entities to the same type of CERCLA liability as private parties.⁹ In United States v. Stringfellow, CIV 83-2501 (C.D. Cal. Jan. 8, 1990) [20 ELR 20656] (Hazardous Waste Litig. Rep. 18,684, 18,690), the court found the state of California liable because it "caused and contributed to a release of a hazardous substance." [20 ELR 21406] In its decision affirming the report of a special master, the court concluded that Congress set out the specific defenses to operator liability [under 42 U.S.C. § 9607(b)] and statutory regulation was not one of them. Id. at 18,690. Based on the available authority, and even assuming arguendo that the government was acting merely as a regulator, I am not persuaded that the United States is automatically immune from CERCLA liability.

An appropriate Order follows.

Order

AND NOW, this 17th date of July, 1990, after consideration of defendants' motion to dismiss (docket no. 7) and the other various memoranda and response thereto, it is hereby Ordered that the motion is DENIED.

AND IT IS SO ORDERED.

1. The defendants are the United States Department of Commerce; Robert Mosbacher, Secretary of Commerce; and the United States of America. In this Memorandum, the defendants will be collectively referred to as "the United States" or "the government."

2. According to FMC, American Viscose produced one-third of the high tenacity rayon tire cord that the entire industry was required to produce. FMC further alleges that high tenacity rayon was the only product produced at the Facility from 1942-1945 and that the government set the price for the rayon.

3. The Consent Order ultimately revealed the presence of carbon disulfide, cadmium, lead, hydrogen sulfide and arsenic in the ground water.

4. Although the EPA initially approached the Commerce Department as a potential operator, the EPA apparently has not taken any action to assess liability against that Department since its refusal to participate in negotiations.

5. Avtex filed Petitions under Chapter 11 in the Bankruptcy Court (E.C. Pa. Nos. 90-20289 and 90-20290) on February 6, 1990.

6. While Mirable delineated the limitations on liability under 42 U.S.C. § 9601(20(a) for secured creditors, as opposed to corporate officers, it was the first case within this circuit to address the issue of liability for those not directly involved in daily management decisions. the "nuts-and-bolts" management standard used in Mirable was cited with approval in United States v. Fleet Corp., 901 F.2d 1550, 1556 [20 ELR 20832] (11th Cir. 1990).

7. See The Priorities Statute, Ch. 440, 54 Stat. 676 (1940), as amended by the Act of May 31, 1941, Ch. 157, 55 Stat. 236 (1941) (creating broad regulatory power in the WPB to assess defense needs and best procurement and delivery methods); January 16, 1942, Act Establishing the War Production Board, Exec. Order No. 9024, 7 Fed. Reg. 329 (1942); Exec. Order No. 9125, 7 Fed. Reg. 2719 (1942) (WPB granted power over deliveries and allocation under priorities section of Second War Powers Act).

8. In addition, FMC alleges that the WPB engaged in hiring decisions and profit maintenance within American Viscose.

9. While the government's argument that unrestrained liability for governmental regulatory agencies could lead to severe and unintended consequences is indeed compelling, it is a consideration that the Congress, and not this court, has had to make. When Congress drafted the clear and plain language of 42 U.S.C. § 9620, it made the policy choice that governmental units are to be accorded the same standard of liability as private parties. See also United States v. New Castle, 727 F. Supp. 854, 875 [20 ELR 20499] (D. Del. 1989), in which the court expressly held that a state is not "automatically foreclosed from CERCLA liability merely because it is acting in a regulatory capacity pursuant to statutory mandate." Id.