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23 ELR 20223 | Environmental Law Reporter | copyright © 1993 | All rights reserved Trinity Industries, Inc. v. Dixie Carriers, Inc.No. 90-2349 (E.D. La. June 24, 1992)The court holds that the former parent corporation of a barge-cleaning company, which is a potentially responsible party (PRP) at a Superfund site, is not liable to the barge-cleaning company's successor parent corporation for the barge-cleaning company's liability at the site under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). The court also holds that because a rational trier of fact could reasonably conclude from the record that hazardous substances from the former parent corporation's barges were transshipped from its subsidiary barge-cleaning company's impoundment to the Superfund site, summary judgment on the issue of the former parent corporation's CERCLA liability is inappropriate. The court first finds that sufficient evidence exists for a trier of fact to infer that the barge-cleaning company's waste oils were treated or disposed of at the Superfund site. The court next notes that because this case involves a suit by the sole shareholder (current parent corporation) of a settling PRP (the barge-cleaning company) against the former parent corporation, which was the sole shareholder of the barge-cleaning company, the court must assess whether to pierce the corporate veil of the barge-cleaning company to determine CERCLA liability. The court holds that there is no evidence to support a finding that the barge-cleaning company was formed to perpetrate a fraud. The court next holds that although many of the veil-piercing factors used by the Fifth Circuit in Joslyn Corp. v. T.L. James & Co., 19 ELR 20518, are applicable to this case, the circumstances are legally insufficient to warrant the exceptional equitable remedy of veil-piercing. Despite the former parent corporation's assertion of some control over the barge-cleaning company, the degree of control is insufficient to find that the barge-cleaning company was a "sham" corporation. The court next turns to whether the former parent corporation may be liable to the current parent corporation for hazardous substances at the Superfund site that were from the former parent corporation's barges, which were disposed of at the site by the barge-cleaning company. The court finds that hazardous materials from the former parent corporation's barges were substantially the same as those subsequently deposited in the barge-cleaning company's impoundment. The facts reveal that the former parent corporation was in the business of transporting the same sorts of materials as those handled or used by the barge-cleaning company, and that the former parent corporation subsequently disposed of hazardous substances at the barge-cleaning company's impoundment. Because a rational trier of fact could either reasonably infer or not infer that hazardous substances from the former parent corporation were transshipped from the barge-cleaning company's impoundment to the Superfund site, summary judgment on that aspect of CERCLA liability is denied. Counsel for Plaintiff Counsel for Defendant Clement, J. Clement, J.: Defendant Dixie Carriers, Inc.'s motion for summary judgment and plaintiff Trinity Industries, Inc's cross-motion for summary judgment were decided this date on memoranda. For the reasons stated below, Dixie's motion for summary judgment is GRANTED in PART and DENIED in PART and Trinity's cross-motion for summary judgment is DENIED. On January 28, 1981, plaintiff Trinity Industries, Inc. (Trinity) purchased the common stock of Gretna Machine & Iron Works, Inc. (Gretna) from defendant Dixie Carriers, Inc. (Dixie). Trinity contends that Gretna sold waste oils containing hazardous substances which were transported by the purchasers to a former oil reclamation facility, the Dutchtown Superfund Site (the Dutchtown Site), during the 1960s and 1970s. Barge-cleaning has always been a part of Gretna's business. Part of that process involves cleaning out the tanks of barges that carry hazardous chemicals. This service is known as "gas-freeing," a process which removes any traces of hazardous materials from the vessels' tanks. It is not disputed that Gretna deposited waste materials cleaned from barges into its impoundment. From there, the waste was sold to various waste oil haulers for later treatment, or sold for use as boiler fuel. Trinity contends that substances cleaned from barges at the Gretna shipyard, including Dixie-owned or operated barges, were sold as used oil to entities that transported it to the Dutchtown Site. The Dutchtown facility was a typical waste oil treatment plant. At the plant, waste oil and other flammable materials were brought into the plant and placed into treating tanks. The oil was heated to let the oil rise to the surface so that the foreign matter such as water, sediments, metals, etc. would settle to the bottom of the heating tank. The oil that rose to the top of the tanks was recovered and sold on the market. The remainder of the contents of the tank was drained to holding pits located at the site. See generally, EPA Dutchtown File. The plant was built by Noble Young sometime in the mid-1960s, and was operated by the Inland Oil Treating Co. (Inland), Young's company, until 1969. Inland's records indicate that it purchased waste oils from Gretna in 1969 and transported them to Dutchtown. The plant was closed from 1969 until 1971-72, when it was re-opened by Jack Pendergraft and Don Stevens, whose company operated the plant until 1973-74. In 1974-75, the facility was taken over by Gerald Wascom, and was operated by Wascom's company, M-K Fuel Systems, Inc. (M-K), until early 1976. M-K's records indicate that M-K purchased waste oils from Gretna in late 1975, and transported them to Dutchtown. The Dutchtown Site was declared a Superfund site by the Environmental Protection Agency (EPA) in 1987. At that time, the EPA informed Gretna of its potential liability for cleanup costs. In 1990, Trinity entered a Consent Decree with the EPA, agreeing, as Gretna's corporate parent, to pay Gretna's share of the cleanup costs. Trinity has brought suit against Dixie under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), 42 U.S.C. §§ 9601 et seq., for a declaration of liability for a portion of the cost of removing hazardous materials from the Dutchtown Site. Trinity contends that Dixie is liable both for Gretna's waste, as Gretna's former corporate parent, and for waste from Dixie's barges which eventually was disposed of or treated at the Dutchtown Site. Trinity also filed a fraud claim against Dixie, based on alleged misrepresentations Dixie made to Trinity about Gretna's potential liabilities prior to the 1981 sale of Gretna's stock to Trinity, but has since indicated its intention to withdrawn [sic] that claim. Dixie's Liability for Gretna's Waste In order for Dixie to be liable for damage caused by the disposal of Gretna's wastes, Trinity must establish that (1) Gretna's wastes were disposed of at the Dutchtown Site, and (2) Gretna was an "instrumentality" of Dixie's. Were Gretna's Wastes Dumped at Dutchtown? Under CERCLA, a party reaching a settlement with the EPA may seek a contribution from non-settling parties. 42 U.S.C. § 9613(f)(3)(B). However, to be liable under CERCLA, the non-settling party must have "arranged for disposal or treatment, or arranged with a transporter for transport for disposal or treatment, of hazardous substances owned or possessed by such person." 42 U.S.C. § 9607(a)(3). Dixie contends that there is no evidence indicating that wastes sold by Gretna were ever disposed at Dutchtown, and that neither Trinity nor Dixie should be held accountable for the cleanup costs. The essence of Dixie's position is that Gretna did nothing wrong and Trinity unnecessarily wrote a check to the EPA. Dixie contends that Trinity's CERCLA liability claim is entirely dependent upon the testimony of George Fegert and Kenneth Boothe, two of Gretna's officers,who indicated in their affidavits that Gretna waste oils were transported to Dutchtown. Dixie points out that the two officers have more recently testified in deposition that they have no personal knowledge that any waste oils from Gretna were transported [23 ELR 20224] to Dutchtown. Dixie contends that there is no other evidence linking Gretna's waste oils to the Dutchtown Site. Dixie is wrong. Trinity's CERCLA claim is not entirely dependent upon Fegert's and Boothe's testimony. Gerald Wascom, president of M-K Fuels (one of the companies which purchased waste oils from Gretna) testified in his affidavit that M-K took Gretna waste oils to the Dutchtown facility in 1975. This affidavit testimony is supported by M-K's shipment records. It is less clear, however, what happened to the Gretna waste oil once it arrived at Dutchtown. As Dixie points out, Wascom testified in his affidavit that waste oils from Gretna were never "disposed of" at the Dutchtown Site, but, rather, were stored there and sold to third parties. However, the EPA's report, based on information provided by Wascom, indicates that waste oils brought to Dutchtown by M-K were not just stored, but were also treated there. Whether the Gretna waste oils were merely "stored," or were "treated" and/or "disposed of" at Dutchtown is a disputed question of fact to be resolved at trial. In addition, the EPA's file contains reports to the Louisiana Department of Conservation from Inland (another purchaser of Gretna waste oils) indicating that Inland transported Gretna waste oils to Dutchtown in 1969. The EPA file indicates that Inland was the operator of the facility at that time. The ultimate fate of the Gretna waste oils transported by Inland to Dutchtown is an unresolved question of fact. Thus, even without the Fegert and Boothe testimony, there is enough evidence for the trier of fact to infer that Gretna's waste oils were treated or disposed of at Dutchtown. Piercing Gretna's Corporate Veil Although Gretna may be a "potentially responsible person" (PRP) under CERCLA, this does not necessarily mean that its former corporate parent, Dixie, is liable. This is not the typical CERCLA contribution action where a settling PRP sues an unrelated non-settling PRP for cleanup costs. In this case, the sole shareholder of a settling PRP is suing the entity which was the sole shareholder of the PRP at the time of the waste disposal. In order for a corporate parent to be held liable for the acts of its subsidiary under CERCLA, the plaintiff must establish circumstances that require the Court to pierce the parent's corporate veil. Joslyn Mfg. Co. v. T.L. James & Co., 696 F. Supp. 222 [19 ELR 20518] (W.D. La. 1988), aff'd, 893 F.2d 80, 82-83 [20 ELR 20382] (5th Cir. 1990), cert. denied, U.S. , 111 S. Ct. 1017 (1991).1 In Joslyn, the Fifth Circuit held that veil piercing should be "limited to situations in which the corporate entity is used as a sham to perpetrate a fraud or avoid personal liability." Id., 893 F.2d at 83 (citations omitted; emphasis in original). The Joslyn court noted that district courts, in determining whether a corporation is a "sham" for veil-piercing purposes, are to be guided by the principles set forth in United States v. Jon-T Chemicals, Inc., 768 F.2d 686 (5th Cir. 1985), cert. denied, 475 U.S. 1014 (1986). Joslyn, 893 F.2d at 83. In Jon-T, the court noted that there are two circumstances in which a court may pierce the corporate veil: (1) where the corporation is formed to perpetrate a fraud, or2 (2) where the parent totally dominates the subsidiary, so that the subsidiary is a mere "instrumentality" of the parent. 768 F.2d at 691. Since there is no indication in the record that Gretna was formed to perpetrate a fraud, this Court will apply the instrumentality test to determine whether Gretna's veil should be pierced. The Jon-T court set out a "laundry list" of criteria to consider in determining whether the "instrumentality" exception applies. 768 F.2d at 691-92. The following is a list of the Jon-T criteria as applied to the relationship between Dixie and Gretna, as supported by undisputed3 facts: (1) the parent and the subsidiary have common stock ownership: yes (100%) (not disputed) (2) the parent and the subsidiary have common directors or officers: yes (many common officers and directors, but not complete overlap) (not disputed) (3) the parent and the subsidiary have common business departments: no (not disputed) (4) the parent and the subsidiary file consolidated financial statements and tax returns: yes (from 1969-80) (not disputed) (5) the parent finances the subsidiary: yes (substantially; but at market interest rates) (not disputed) (6) the parent caused the incorporation of the subsidiary: yes (not disputed) (7) the subsidiary operates with grossly inadequate capital: no (not disputed) (8) the parent pays the salaries and other expenses of the subsidiary: no (not disputed) (9) the subsidiary receives no business except that given to it by the parent: no (not disputed) (10) the parent uses the subsidiary's property as its own: no (disputed )4 (11) the daily operations of the two corporations are kept separate: yes (not disputed) (12) the subsidiary does not observe the basic corporate formalities, such as keeping separate books and records and holding shareholder and board meetings: no (not disputed; Trinity has presented no evidence indicating a disregard for corporate formalities). The indicia of control found in Joslyn were similar to those in this case. The Joslyn district court noted that the parent had complete ownership of the subsidiary, that there was a substantial overlap of the two entities' boards of directors, and that the parent made substantial loans to the subsidiary (including the initial capitalization). 696 F. Supp. at 231. Following Jon-T and other explicit Fifth Circuit precedents, the district court concluded that these indicia of control were legally insufficient for it to find that the subsidiary was a mere alter ego of the parent and to pierce its corporate veil. Id. at 231-32. The Fifth Circuit affirmed. 893 F.2d at 83-84. In this case, there are two additional Jon-T factors not present in Joslyn: Dixie incorporated Gretna (#6 above), and the two entities filed joint tax returns and financial statements (#4 above). In addition, Dixie and Gretna were the named insureds on two insurance policies,5 and Dixie required Gretna to employ certain accounting procedures.6 Even with these additional factors favoring piercing Gretna's corporate veil, the circumstances are still legally insufficient to warrant the exceptional equitable remedy of veil-piercing. The Jon-T court noted that [t]he control required for liability under the "instrumentality" rule amounts to total domination of the subservient corporation, to the extent that the subservient corporation manifests no separate corporate interests of its own and functions solely to achieve the purposes of the dominant corporation. 768 F.2d at 691 (quoting Krivo Industrial Supply Co. v. National Distillers & Chemical Corp., 483 F.2d 1098, 1106 (5th Cir. 1973)). In this case, Gretna's daily operations were kept separate from those of Dixie, Gretna was adequatelycapitalized, and Gretna observed basic formalities. Furthermore, Gretna's customers included many of Dixie's competitors. The fact that Dixie provided substantial financial assistance and guidance to [23 ELR 20225] Gretna does not indicate that Gretna had "no separate corporate interests of its own" or that it functioned "solely to achieve the interests of" Dixie. Although Dixie did assert some control over Gretna, the degree of control asserted by Dixie is insufficient for this Court to find that Gretna was a "sham" corporation. As in Joslyn, "[t]he facts in this case do not support a finding that [the subsidiary] was designed as a bogus shell for [the parent] to hide behind." 893 F.2d at 84. Accordingly, Dixie cannot be held responsible for Gretna's CERCLA liability. It is not disputed that some of the barges cleaned by Gretna belonged to Dixie. Consequently, Dixie might incur liability under CERCLA for wastes, generated by Dixie barges, that eventually were disposed of at the Dutchtown Site. See July 15, 1991 Minute Entry (Sear, J., at 4). It is well settled that CERCLA imposes strict liability, and that "[g]enerators [of waste] may be held liable under CERCLA for the ultimate destination of their waste, regardless of whether they had intended their waste to be sent there." U.S. v. Cannons Engineering Corp., 720 F. Supp. 1027, 1046 [20 ELR 20159] (D. Mass. 1989). See also, e.g., City of New York v. Exxon Corp., 744 F. Supp. 474, 481-82 n.11 [21 ELR 20248] (S.D.N.Y. 1990); U.S. v. Parsons, 723 F. Supp. 757, 762 [19 ELR 21420] (N.D. Ga. 1989); Violet v. Picillo, 648 F. Supp. 1283, 1290 [17 ELR 20629] (D.R.I. 1986); United States v. Conservation Chemical Co., 619 F. Supp. 162, 233-34 [16 ELR 20193] (W.D. Mo. 1985), rev'd and remanded on other grounds, sub nom. In re Armco, 770 F.2d 103 [15 ELR 20774] (8th Cir. 1985). There were two hazardous components to the waste produced by the barge cleaning process at Gretna. The first was the runoff of cleaning fluids used by Gretna. Of course, Dixie cannot be held liable for the eventual disposal of these fluids at the Dutchtown Site because they were never "owned" or "possessed" by Dixie. 42 U.S.C. § 9607(a)(3). The second component was the gases and other materials removed from the barges in the cleaning process. These materials were "owned" or "possessed" by Dixie, prior to disposal at Gretna's facility. If Trinity can establish that at least some of these wastes were later trans-shipped to Dutchtown, Dixie would be liable under CERCLA. Trinity has produced substantial evidence indicating that a number of the Dixie barges gas-freed by Gretna were transporting hazardous substances. Gretna's records, from the years 1974-1977,7 indicate that a number of the Dixie barges gas-freed and otherwise cleaned by Gretna had been transporting hazardous substances such as benzene and creosote. After the barges were cleaned, these wastes were placed into the impoundment at Gretna. As noted above, Trinity has produced enough evidence for the trier of fact to infer that some of Gretna's wastes were trans-shipped to the Dutchtown Site. The question here is whether there is enough evidence to establish a nexus, as defined by the CERCLA jurisprudence, between Dixie's wastes disposed of at Gretna and Gretna's wastes transported to Dutchtown. As Trinity points out, it is not necessary to trace the individual chemical components at the Dutchtown Site back to the Dixie barges they were cleaned from. For example, Trinity is not required to have its chemical expert identify a puddle of benzene on the Dutchtown Site as "Dixie Benzene, vintage 1972." Due to the practical impossibility of meeting such an evidentiary burden, "virtually every court that has considered the question has held that a CERCLA plaintiff need not establish a direct causal connection between the defendant's hazardous substances and the release or the plaintiff's incurrence of response costs." United States v. Alcan Aluminum Corp., 1992 WL 99185 at 11 (3d Cir. 1992). Accord Amoco Oil Co. v. Borden, Inc., 889 F.2d 664, 670 n.8 [20 ELR 20281] (5th Cir. 1989). Trinity's burden is to establish (1) that Dixie's waste was taken to the Dutchtown Site and (2) that the hazardous substances contained in Dixie's waste impounded at Gretna were found at the Dutchtown Site. United States v. Wade, 577 F. Supp. 1326, 1333 [14 ELR 20096] (E.D. Pa. 1983), approved of, Amoco Oil, 889 F.2d at 670 n.8. It is not disputed that the generic types of hazardous substances cleaned from Dixie barges were found at the Dutchtown Site. It is disputed, however, whether any hazardous substances from Dixie barges were ever trans-shipped there. Dixie contends that Trinity cannot establish the required nexus between Dixie's hazardous substances disposed of at Gretna and the waste oils treated at the Dutchtown Site. First, Dixie notes that Wascom testified in his affidavit that he was not permitted to "dispose" of waste oils at the Dutchtown Site. However, Wascom told the EPA that fuels brought to Dutchtown by M-K were treated there. As noted above, there is a disputed question of fact as to what happened to the waste oils brought to Dutchtown from Gretna by M-K. Dixie also contends that there is no evidence linking Dixie barge wastes to the waste oils brought to Dutchtown by Inland in 1969. There apparently are no surviving barge-cleaning records from Gretna for the period prior to 1974. Thus, Trinity must produce other evidence indicating that hazardous substances were removed from Dixie vessels and placed in the Gretna impoundment during, or prior to, 1969. Kenneth Boothe testified in his affidavit that he "believed that the contents of Dixie barges cleaned or gas-freed at Gretna" prior to 1974 were substantially the same as those cleaned or gas-freed between 1974 and 1977. As noted above, Dixie has pointed out that there are some serious questions about Mr. Boothe's credibility. However, credibility questions may not be resolved by this Court upon a summary judgment motion. Chen v. Metropolitan Ins. & Annuity Co., 907 F.2d 566, 568 (5th Cir. 1990). Furthermore, the circumstances support the proposition that Dixie hazardous wastes were disposed of at Gretna in 1969: (1) Dixie was in the business of transporting the same sorts of materials in the 1960s, (2) Dixie did have some of its barges cleaned at Gretna in the 1960s, and (3) Dixie did dispose of hazardous substances at Gretna in the 1970s. Although this circumstantial evidence might not be sufficient by itself to support an inference that hazardous materials from Dixie barges were deposited in the Gretna impoundment in 1969, it does lend support to Boothe's affidavit. For purposes of Dixie's motion for summary judgment, the question is whether a rational trier of fact could draw a reasonable inference from Trinity's evidence that it is more likely than not that hazardous substances from Dixie barges were trans-shipped from the Gretna impoundment to the Dutchtown Site. For purposes of Trinity's cross-motion for summary judgment, the question is whether a rational trier of fact could draw a reasonable inference from the evidence that it is more likely than not that hazardous substances from Dixie barges were not trans-shipped from the Gretna impoundment to the Dutchtown Site. In accordance with the analysis above, the Court finds that a rational trier of fact could reasonably draw either inference from the evidence in the record. Accordingly, both parties' motions for summary judgment on the issues of CERCLA liability must be denied. The Court has been informed that Trinity intends to file a motion to dismiss its claim that Dixie fraudulently misrepresented the extent of Gretna's potential liability at the time of the Gretna sale. Accordingly, the Court need not consider this issue. IT IS ORDERED that defendant Dixie Carriers, Inc.'s motion for summary judgment is GRANTED in PART and DENIED in PART, and plaintiff Trinity Industries, Inc.'s cross-motion for summary judgment is DENIED. 1. Trinity points out that other courts have applied standards less exacting than the traditional corporate veil-piercing requirements in the CERCLA liability context. See United States v. Kayser-Roth Corp., 910 F.2d 24, 27 [20 ELR 21462] (1st Cir. 1990); CPC International, Inc. v. Aerojet-General Corp., 777 F. Supp. 549, 572 n.9 [22 ELR 20457] (W.D. Mich. 1991) (criticizing Joslyn); Mobay Corp. v. Allied Signal, Inc., 761 F. Supp. 345, 352-54 (D.N.J. 1991), and cases cited therein. While there may be some merit to relaxing the principle of limited shareholder liability in the CERCLA context, Joslyn is the law of this Circuit and this Court must follow it. 2. Dixie contends that the Court must find fraud in order to pierce a corporation's veil. The Jon-T court noted that this finding is required in contract cases, but not in tort cases. 760 F.2d at 692. An action for contribution under CERCLA sounds in tort or equity, not in contract. Port Allen Marine Services, Inc. v. Joseph Scott Chotin, 765 F. Supp. 887, 890 [21 ELR 21383] (M.D. La. 1991); In re Acushnet River & New Bedford Harbor: Proceedings re Alleged PCB Pollution, 712 F. Supp. 994, 1000 [19 ELR 21198] (D. Mass. 1989); United States v. Nicolet, 17 ELR 21085 (E.D. Pa. 1986). Consequently, a showing of fraud is not required to pierce Gretna's corporate veil. 3. The facts relevant to the Dixie/Gretna relationship are not disputed. As in Joslyn, the "dispute is over the materiality of facts, not their existence." 696 F. Supp. at 227. 4. It is not disputed that Dixie used an office building that was owned by Gretna. Trinity claims that Dixie used "Gretna property as its own." However, the uncontroverted deposition of Edward Gaither, a Dixie officer, indicates that the building was leased by Gretna to Chemical Towing, another Dixie subsidiary, who, in turn, leased it to Dixie. Gaither deposition, p. 83. 5. Gaither deposition, pp. 73-74, 86-88. 6. Gaither deposition, pp. 8-12. 7. Trinity has been unable to obtain, or produce, earlier barge cleaning records from Gretna. 23 ELR 20223 | Environmental Law Reporter | copyright © 1993 | All rights reserved |