United States v. Vertac Chemical Corp.

Nos. LR-C-80-109, -110, LR-C-87-833 (756 F. Supp. 1215, 32 ERC 1741) (E.D. Ark. February 4, 1991)

The court holds that a consent decree resolving claims for cleanup costs and natural resource damages under the Resource Conservation and Recovery Act and the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) is fair, reasonable, and consistent with the remedial objectives of CERCLA. The consent decree resolves claims in connection with the Vertac Chemical Corp. Superfund site in Arkansas and provides for payment of $ 1.84 million in cleanup costs, $ 126,000 in natural resource damages, and 33 percent of all of defendants' future pre-tax profits over the next 12 years. The settling defendants are the successor to Vertac's pesticide manufacturing business, the successor's parent corporations, and their officers and directors. The court first holds that CERCLA § 122 does not prohibit cash-out settlements with non de minimis parties where no remedy has been selected or completed. Further, § 122 does not require the settlement to contain a reopener provision. CERCLA is a remedial statute, and the government must be granted some discretion in fashioning settlements that are fair and reasonable under the circumstances. The court next holds that the settlement is the result of good faith, arms' length negotiations. The decree imposes stringent limitations on the defendants to ensure that they will be able to fully meet their financial obligations under the decree. Finally, the court holds that the settlement is fair, reasonable, and consistent with CERCLA, even though it does not hold the defendants fully liable as successors to Vertac. The settlement represents a recovery of the maximum possible amount of money obtainable from the defendants given their net worth and their limited ability to pay.

[Prior decisions in this litigation are published at 10 ELR 20709, 15 ELR 20002.]

Counsel for Plaintiff
A. Douglas Chavis, Ass't U.S. Attorney
P.O. Box 1229, Little Rock AR 72203-1229
(501) 378-5342
Gary S. Guzy
Environment and Natural Resources Division
U.S. Department of Justice, Washington DC 20530
(202) 514-2000

Counsel for Defendant
Robert R. Ross
Arnold, Grobmyer & Haley
One Union National Plaza, Eighth Fl., P.O. Box 70, Little Rock AR 72203
(501) 376-1171

[21 ELR 20926]

GEORGE HOWARD, Jr., District Judge.

Pending before the Court is the motion of the United States for entry of a consent decree.¹ The proposed Consent Decree arises out of a consolidated action against Phoenix Capital Enterprises, Inc., Inter-Ag Corporation, InterCapital Industries, Inc., Pat Bomar, and J. Randal Tomblin (referred to collectively as the "Phoenix parties") under section 107(a) of the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), 42 U.S.C. § 9607(a), section 7003 of the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. § 6973, and the Federal Priority Statute, 31 U.S.C. § 3713. The proposed Consent Decree resolves the Phoenix parties' liability under these and other applicable state and federal environmental statutes identified in the Consent Decree at paragraph 12, "Covered Matters," in exchange for the Phoenix parties' agreement to reimburse the United States for a portion of cleanup costs necessary to complete the response actions at the Vertac site. Pursuant to 28 C.F.R. § 50.7 and section 122(d)(2)(B) of CERCLA, 42 U.S.C. § 9622(d)(2)(B), the United States published a Notice of Lodging of the proposed Consent Decree in the Federal Register on November 22, 1989, 54 Fed.Reg. 48331-32 (1989). The Notice of Lodging described the proposed Consent Decree and invited the public to comment on the proposed decree for 30 days.

The United States received two comments, letters from Hercules Incorporated ("Hercules"), and Dow Chemical Company ("Dow"), both defendants at the time in this action.² After reviewing both the public comments, the United States on April 30, 1990, filed a motion for entry of the consent decree. Hercules opposed the motion on several grounds to be discussed below.³

HISTORY OF LITIGATION

The instant action was commenced in 1980 when the United States and the Arkansas Department of Pollution Control and Ecology ("ADPC & E") filed suit against Vertac and Hercules pursuant to the RCRA, the Clean Water Act, the Refuse Act, and Arkansas law, and seeking injunctive relief against these parties for the contaminated conditions at the Vertac Chemical Corporation Superfund Site.⁴

The Court issued a preliminary injunction against Vertac in May, 1980, requiring it to conduct remedial action to construct and repair clay cover areas over waste burial areas. On January 18, 1982, the Court entered a Consent Decree, under which Vertac agreed to take certain action in regard to the clean-up on-site.

In 1986, Vertac wanted to spin-off several of its assets, including other plant sites. The United States, ADPC & E, and Vertac entered into a stipulation under which the United States and ADPC & E agreed not to challenge Vertac's spin-off after Vertac agreed to provide financial assurances that it would meet its environmental clean up responsibilities under the Consent Decree. In particular Vertac agreed to put up a $ 6.7 million trust fund, a $ 4 million letter of credit for environmental cleanup of the Vertac site, and a $ 3.15 million disbursement from the shareholders. The money in the letter of credit was later placed in the trust fund. After the spin-off, Vertac owned only the Jacksonville plant site and a pesticide marketing operation run from its Memphis, Tennessee headquarters. The Jacksonville plant site had ceased operations; there were, however, 28,000 drums and 194 bulk storage tanks of waste left aboveground. Additionally, the soils and buildings in the manufacturing area were contaminated.

By late 1986, Vertac was a wholly-owned subsidiary of Phoenix Capital Enterprises, Inc. ("Phoenix"). C. P. Bomar, Jr., was the sole shareholder of Phoenix as well as its president and sole director. Bomar was also chairman of the board of Vertac. J. Randal Tomblin was president and a director of Vertac. Bomar incorporated InterCapital Industries, Inc. ("InterCapital") as a subsidiary of Phoenix, and Inter-Ag Corporation ("Inter-Ag") as a subsidiary of InterCapital. Bomar was president and sole director of both InterCapital and Inter-Ag; Tomblin was executive vice-president of Inter-Ag.

In February, 1987, Vertac sold the pesticide marketing operation to Inter-Ag for $ 1.675 million. Inter-Ag occupied the same offices, hired the same employees, and sold the same products to the same customers as Vertac had. Dow transferred the supply contract it had with Vertac to Inter-Ag.

Upon learning of the transfer of Vertac's assets, the United States and ADPC & E filed a motion seeking the appointment of a receiver for Vertac and to have Inter-Ag be declared a successor to Vertac. After a hearing, the Honorable Judge Henry Woods held that Inter-Ag was a successor to Vertac, and appointed a receiver for Vertac and Inter-Ag. United States v. Vertac Chemical Corporation, 671 F. Supp. 595 (E.D.Ark.1987). The Eighth Circuit Court of Appeals subsequently vacated the order as to Inter-Ag because only Vertac had been served with process. United States v. Vertac Chemical Corp., 855 F.2d 856 (8th Cir. 1988).

The United States subsequently added Inter-Ag as a party to the original 1980 action and filed a separate suit against Phoenix, Bomar, and Tomblin, alleging they were liable under section 107(a) of CERCLA, 42 U.S.C. § 9607(a), section 7003 of RCRA, 42 U.S.C. § 6973, and the Federal Priority Statute, 31 U.S.C. § 3713. A trial was scheduled, but prior to its commencement, the United States and the Phoenix parties began negotiations which resulted in the proposed Consent Decree.

DISCUSSION

The proposed Consent Decree resolves the liability of the Phoenix parties under CERCLA, RCRA, the Federal Priority Statute, and other federal and state environmental laws in return for their payment of $ 1.84 million for cleanup costs, $ 126,000 for natural resource damages caused by the contamination, and 33 percent of all future pre-tax profits earned over the next twelve [21 ELR 20927] years, or forty percent of the liquidation value, in the event Phoenix is liquidated before the termination date.

The Court has carefully reviewed the proposed Consent Decree and the lengthy objection filed by Hercules. In reviewing the proposal, the Court is guided by several basic principles. The law favors settlements. The policy encouraging settlements "has particular force where, as here, a government actor committed to the protection of the public interest has pulled the laboring oar in constructing the proposed settlement." United States v. Cannons Engineering Corp., 899 F.2d 79, 84 (1st Cir. 1990). Furthermore, the public policy favoring settlement is reflected in the governing statute, CERCLA. See United States v. Acton Corp., 733 F. Supp. 869, 872 (D.N.J.1990).

Before approving a CERCLA settlement, the Court must be convinced that it is fair, reasonable, and consistent with the objectives of CERCLA. Cannons Engineering, 899 F.2d at 84. See also City of New York v. Exxon Corp., 697 F. Supp. 677, 692 (S.D.N.Y.1988); United States v. Conservation Chemical Co, 681 F. Supp. 1394, 1415 (W.D.Mo.1988).

Hercules raises a number of objections. It contends that the settlement is contrary to the express provisions of the CERCLA provisions governing settlements. 42 U.S.C. § 9622. In particular, Hercules argues that the statute prohibits a "cash out" settlement with a non de minimis party where no remedy has been selected or completed; that the covenant not to sue is permitted only when remedial action has been completed; and that the settlement does not contain a reopener provision as required by section 122(f)(6)(A).

The Court is not persuaded that the statutory language of section 122 is to be construed so narrowly. CERCLA is a remedial statute, and the EPA must be granted some discretion in fashioning settlements which are fair and reasonable under the circumstances, while furthering the objectives of CERCLA. In passing the Superfund legislation, Congress directed the President to "expedite effective remedial actions and minimize litigation." City of New York, 697 F. Supp. at 693.

The Court notes that the legislative history surrounding Section 122 reveals a congressional concern that so-called "sweetheart" deals not be approved. The Court is persuaded that the settlement offered here is the result of good faith, arms' length negotiations. The Court also notes that certain provisions in the proposed Consent Decree reveal that it is a far cry from a sweetheart deal. Certain stringent limitations are imposed on the Phoenix parties to ensure that they will be able to fully meet their financial obligations under the decree: their salaries, fringe benefits, and ability to borrow money are severely limited. The Phoenix parties must undergo an annual audit by a certified public accountant. If it is determined at any time that material assets have not been disclosed by any of the Phoenix parties, the covenant not to sue shall not be effective, thereby invalidating the decree.

Hercules also argues that the Consent Decree is not fair, reasonable, and consistent with CERCLA. The gravamen of Hercules' complaint is that the Phoenix parties are getting a "bargain basement" deal, and that they should be held fully liable as a successor to Vertac.

The Court notes that although the amount of money the Phoenix parties will have to pay will in all likelihood be a small percentage of the total response costs, the Court is persuaded that the settlement represents a recovery of the maximum possible amount of money obtainable from the Phoenix parties given their net worth and their limited ability to pay. The United States states that the $ 1.84 million represents about fifty percent of the Phoenix parties' net worth. Certainly, the finite resources of the Phoenix parties are better put to use in helping to clean up the Jacksonville site than in litigation costs.

In sum, the Court finds that the Consent Decree is fair, reasonable, and consistent with the purposes and objectives of CERCLA and that the entry of the proposed decree is appropriate. A copy of the decree, signed by the Court, is appended hereto.

Accordingly, the motions for entry of the consent decree are granted.

IT IS SO ORDERED.

1. Tomblin and the other Phoenix defendants have also filed motions for entry of the proposed consent decree.

2. The claims the United States had against Dow were resolved in a May 12, 1989, Settlement Agreement between the United States and Dow. On November 6, 1989, the Court dismissed the claims of the United States against Dow with prejudice.

3. Dow stated that it no longer opposed the entry of the Consent Decree.

4. Located in Jacksonville, Arkansas, the Vertac Site is a former pesticide manufacturing plant which was operated first by Hercules from 1962 through 1971, and then operated by Transvaal, later named Vertac, from 1971 through 1987. Until the late 1970's, the plant was used to manufacture a variety of pesticides and herbicides, including 2, 4, 5-T which contained the contaminant dioxin. After further production of 2, 4, 5-T was prohibited, the plant continued to manufacture a variety of other pesticides and herbicides until it was abandoned in 1987. During Transvaal's and Vertac's fifteen year operation of the plant, numerous drums of waste from the pesticide operations were buried beneath the ground and stored above ground at the Site, and a variety of hazardous wastes, including dioxin, escaped, contaminating local waterways, residential property, and a publicly owned sewage treatment plant.