Summary
In Specialized Finishers, the trial court granted plaintiff's contribution claim, but only on the basis that the parties had entered into an agreement that they would all be liable for the cost of clean-up.
Summary of this case from Paxton v. Wal-MartOpinion
No. 126971.
Decided October 20, 1991.
Lee I. Fisher, Attorney General, and Dominic J. Hanker, Assistant Attorney General, for the state.
Robert S. Stone, for new-party plaintiff/defendant B.A. Carran.
Howard J. Freedman and Rosemary Sweeney, for defendant Robert M. Baumgartner.
Thomas L. Esper, for defendant Jonathan Taylor.
Robert W. Horn, pro se.
I Procedural History
1. On February 15, 1985, the Northeast Ohio Regional Sewer District ("NEORSD") filed a complaint in the Cuyahoga County Court of Common Pleas against Specialized Finishers, Inc. ("SFI"), seeking preliminary and permanent injunctive relief, payment by SFI of charges in the amount of $11,573.46, attorney fees and costs.
2. On June 18, 1985, Thomas J. Foley entered into a consent judgment with NEORSD on behalf of SFI. The consent judgment imposed a fine of $5,000 against SFI, set forth a compliance schedule, and permanently enjoined SFI from discharging into the sanitary sewer system if SFI was not in complete compliance with NEORSD regulations by August 12, 1985.
3. By letters dated September 23, 1985 and September 25, 1985, SFI was informed of its continuing breach of and noncompliance with the consent judgment.
4. In February 1986, NEORSD referred the SFI matter to the Ohio Environmental Protection Agency ("Ohio EPA").
5. By letter dated January 20, 1987, the Ohio EPA instructed the Ohio Attorney General's office to pursue legal action against SFI for its continuing environmental violations.
6. On June 1, 1987, the state of Ohio filed its complaint against SFI and Foley, president of SFI. That action alleged violations by SFI and Foley of certain state environmental laws and regulations pursuant to R.C. Chapters 3734 and 6111, and the rules adopted thereunder, arising out of the operation of the electroplating plant at 2133-2139 Hamilton Avenue, Cleveland, Ohio.
7. On January 20, 1989, the state obtained a default judgment against SFI.
8. On February 23, 1989, B.A. Carran ("Carran"), the owner of the premises at which SFI operated, moved to intervene in this action as a new-party plaintiff.
9. On March 3, 1989, the state filed its amended complaint, adding Carran, Robert W. Horn, Jonathan Taylor and Robert Baumgartner as new-party defendants.
10. On March 15, 1989, Carran's motion to intervene was granted and Carran filed its complaint against SFI, Foley, Horn, Taylor and Baumgartner, alleging that each was liable for the violations of state and federal environmental laws and regulations and that SFI was liable for past due rent.
11. On July 5, 1989, Carran filed a motion for default judgment, and on July 7, 1989, this court granted a partial final judgment against SFI.
12. On January 9, 1990, the day of trial, a Consent Order was entered into among the state of Ohio and Carran, Foley, Horn, Taylor and Baumgartner.
13. On January 12, 1990, Carran filed a motion for contribution and indemnification.
14. On February 25, 1991, Carran filed a motion to amend its complaint by interlineation.
15. Trial commenced before this court on March 19, 1991 to determine (a) liability for environmental violations, and (b) commensurate responsibility for payment of the costs incurred to effect the cleanup.
16. At trial, Carran's motion to amend by interlineation was denied in part and reserved in part for later ruling. All defendants, other than SFI, were granted judgment on Counts III and V dealing with property assessments and unpaid rent monies. Trial proceeded on the remaining counts of Carran's amended complaint and Carran's motion for indemnification and/or contribution.
II Findings of Fact
1. B.A. Carran ("Carran") is an Ohio partnership and is the owner of real property located at 2133-2139 Hamilton Avenue, Cleveland, Ohio.
2. Specialized Finishers, Inc. ("SFI") was an Ohio corporation duly organized and incorporated under the laws of the state of Ohio on December 15, 1980.
3. At the time SFI was incorporated, Robert M. Baumgartner was the sole shareholder. The officers of SFI were Robert W. Horn ("Horn"), president, and Thomas J. Foley ("Foley"), vice-president. These individuals constituted the board of directors of SFI from its inception until July 1983, when Jonathan Taylor ("Taylor") purchased twenty-five percent of Baumgartner's interest and, concurrent with Taylor's purchase, Baumgartner transferred, without consideration, twenty-five percent of SFI's stock to Foley and twenty-five percent to Horn. Thereafter, the board of directors of SFI included Baumgartner, Foley, Horn and Taylor.
4. In December 1980, Carran, as lessor of the property, and SFI, as lessee, entered into a lease agreement for the premises located at 2133 Hamilton Avenue, Cleveland, Ohio. Horn, as president, signed the lease, which recited that the purpose of SFI was to engage in the business of electroplating.
5. In 1983, Carran renewed the lease on the premises at 2133 Hamilton Avenue, and Carran also leased additional space to SFI at 2139 Hamilton Avenue. The additional space was necessary for the expansion of SFI's electroplating business and the introduction of a cadmium/cyanide line of electroplating.
6. From the date of its incorporation to the date on which it closed its doors and submitted a closure plan to the Ohio EPA, SFI was in continual financial difficulty, undercapitalized, and unable to meet its obligations to creditors (including Baumgartner and, later, Taylor) and to various governmental agencies requiring compliance with state and municipal laws regulating the handling and disposal of hazardous waste material.
7. Roger Carran, managing agent for B.A. Carran, was required to personally visit the premises on Hamilton Avenue on an almost monthly basis in order to collect rental payments that were regularly overdue.
8. Throughout its history, SFI regularly used hazardous and toxic substances and generated hazardous waste as a byproduct of the electroplating business. However, with the commencement of the cadmium/cyanide electroplating line, the generation of hazardous waste began to draw the attention of the Northeast Ohio Regional Sewer District ("NEORSD"), whose monitoring indicated unacceptable levels of discharge of hazardous waste by SFI into the Cleveland sewer system.
9. Over the succeeding eighteen months, NEORSD officials and monitors increasingly pressured SFI to take steps to reduce the toxic levels of discharge into the Cleveland sewers, and in December 1984, the Cleveland Plain Dealer carried a story regarding the frustrated efforts of NEORSD to gain compliance by SFI and describing the severity of the environmental hazard posed by the continued discharge of toxic waste by the corporation. The Plain Dealer newspaper article was headlined, "Electroplate Firm Polluting Sewers Despite Stop Order."
10. NEORSD turned the problem over to the Ohio EPA in early 1986. Throughout 1986, and well into early 1987, the Ohio EPA pressured SFI to obtain and place into operation the equipment and procedures necessary to assure the proper containment and subsequent treatment and/or disposal of hazardous waste from its electroplating business.
11. On March 13, 1987, SFI was informed that complaints against it had been referred to the office of the Ohio Attorney General due to SFI's continuing violation of Ohio's hazardous waste laws. SFI was informed that if compliance was not achieved immediately, a civil complaint against Foley and SFI would be filed seeking to enjoin SFI from further activity in violation of state law, as well as civil penalties of up to $10,000 for each day of continuing violations. On March 20, 1987, SFI ceased operations and began negotiation of a Closure Plan to be entered into between SFI and the Ohio EPA.
12. From the time of its incorporation in 1980 and until 1983, the board of directors/officers of SFI met on a regular, if not frequent, basis, primarily to discuss financial considerations. No minutes or records of these meetings are available and their whereabouts is undetermined, despite numerous allegations and counterallegations among the former directors and officers regarding their disappearance.
13. In late December 1984, Robert Baumgartner wrote to Foley as president, expressing concerns over the fact that no board meetings had been called during the previous year and insisting that a board meeting be called as soon as possible.
14. A board meeting was held in mid-January 1985, and the minutes of the board meeting which were prepared by Baumgartner indicate that environmental problems were discussed, including a discussion of the cost of purchasing environmental compliance equipment. Although Baumgartner's correspondence to Foley in late December 1984 and the subsequent board of directors' meeting on January 15, 1985 both came hard on the heels of the Plain Dealer article headlining SFI's noncompliance with environmental laws and the severity of its misconduct, neither the correspondence nor the minutes (both prepared by Baumgartner) make any mention of the newspaper article. In fact, according to all the defendants, although each individual was aware of or had seen the article, no one brought a copy of that article to the January 15 meeting!
15. On March 1, 1986, Baumgartner again wrote to Foley demanding that a board meeting be called and complaining about Foley's failure to keep the board of directors advised of the conduct of the business. Although the parties agree that a meeting took place sometime in 1986, no minutes of that board meeting are available. No one has a specific recollection of matters discussed during the undocumented 1986 meeting or whether environmental compliance litigation or other environmental concerns were raised and handled.
Under mounting pressure from the Ohio EPA, Foley made an apparently unilateral determination that the company should cease operations in March 1987, in the hope of avoiding threatened litigation by the state. Upon learning of the shutdown, Baumgartner once again requested a board of directors meeting, and a final meeting of the board occurred shortly thereafter. Again, other documentation or no minutes of the board meeting are available.
16. All of the defendants were aware in late spring 1987 that SFI had been forced to close down its operations because of Ohio EPA violations and impending litigation against the company. Moreover, all of the defendants were aware of negotiations involving a Closure Plan to be monitored and enforced by the Ohio EPA.
17. SFI ceased operations, discontinued paying rent and terminated its payroll in late spring 1987. Following the board of directors meeting, Foley, with the assistance of legal counsel, undertook the development of a Closure Plan acceptable to the Ohio EPA. Baumgartner, Horn and Taylor did not participate in the development of the plan, or in any negotiations with the Ohio EPA, although they were aware of the requirement that a Closure Plan be developed and implemented. No one from SFI contacted Carran regarding the termination of the lease for the premises at 2133-2139 Hamilton Avenue.
18. In late 1987, NEORSD levied a fine against Carran, based on its ownership of the subject premises and on the outstanding fines and penalties previously assessed against SFI.
19. Thereafter, Carran actively participated in the implementation of the Closure Plan and ultimately took responsibility for the "full cleanup." Although the task appeared physically and economically manageable in the spring of 1987, it developed into a major undertaking and an excessively costly one as well.
20. Baumgartner, Horn and Taylor had no contact with Foley, Carran or the EPA from April 1987 until each was named a separate defendant in the state's amended complaint filed in March 1989.
21. On January 9, 1990, on the eve of commencement of trial on the state's amended complaint against the individual defendants, Carran, Horn, Taylor, Baumgartner and Foley entered into a Consent Order with the state of Ohio. In addition to the defendants' guarantees that the Closure Plan and cleanup would be effectuated without delay and that the payment of fines by Baumgartner and Taylor would be made, the Consent Order effectively established the obligation of all defendants, jointly and severally, to "effectuate the cleanup."
22. At the time the parties entered into the Consent Order, Carran represented that the cleanup costs were in the range of $200,000, and, furthermore, that the cleanup was near completion. In fact, Carran subsequently claimed cleanup costs and attendant fees and expenses in excess of $400,000 and, as of this date, some cleanup remains to be concluded.
23. In June 1990, Carran re-leased the premises at 2133 Hamilton Avenue at a base rate of $1,000 a month. Carran has or will soon be in a position to re-lease the premises at 2139 Hamilton Avenue.
24. The court further finds, with respect to the status and participation of the individual parties to this action, including new-party plaintiff/defendant Carran, as follows:
A. Thomas Foley: At the time of incorporation of SFI, Foley was the sole participant with any substantial knowledge of the electroplating business. Foley, who organized the business and initially directed its operation from a distance, became involved in the day-to-day operation in 1983. Foley's history of relationships with SFI and with his former employer, as well as with others involved, is one of conflict of interest, apparent duplicity and a pattern of evasions and obfuscations. Furthermore, whatever Foley possessed in terms of knowledge of electroplating, he lacked with regard to business operation. Significantly, Foley's inability to operate the business carried over to his inability to deal with employees, including Jonathan Taylor, and his inability to deal candidly and frankly with environmental monitoring agencies. This lack of ability, coupled with an absence of candor and, in some cases, deliberate misrepresentations and evasions, was apparent to everyone who dealt with Foley from 1983 onward, including other members of the board of directors and officers of SFI.
B. Robert Baumgartner: Baumgartner's participation as a principal in SFI came about as a result of his friendship with Horn, and with Horn's knowledge that Baumgartner was looking for investment opportunities. Horn and Foley approached Baumgartner with a proposal to establish what can be best described as a "boutique" electroplating business. At the time he was approached by Horn and Foley, Baumgartner was employed at Predicast, a company involved with the application of information systems to investments or divestitures of assets and/or interests. Baumgartner remained at Predicast until mid-1985 when he established his own business, Fredonia, a consulting firm also involved in information retrieval. Baumgartner made his living researching the critical issues affecting the costs of development, operations and potential profitability of various businesses.
Consequently, Baumgartner was not only the principal investor and sole shareholder for nearly half of the corporation's life, but was the only sophisticated financier in the group. Although Baumgartner had no firsthand knowledge of the electroplating business, given his expertise in market research and information gathering, there is no question that knowledge of the business, its risks and benefits and, in particular, the potential hazards from environmental problems and associated costs, were well within his grasp at all times.
Baumgartner had no formal designation as an officer. Nevertheless, he was regarded as the "Chairman" of the board and, in fact, regarded himself in that fashion. Contrary to his testimony at trial, Baumgartner not only signed board minutes prepared by him as "Chairman," but signed formal correspondence to third parties, identifying himself as "Chairman." Moreover, and most importantly, the other parties to the SFI transaction clearly understood that Baumgartner could, at any time, withdraw his financial support and the support of lenders and thereby force SFI to suspend or cease operations.
Baumgartner correctly contends that Foley (and Horn) failed to regularly inform the board of problems at SFI and, in particular, of the disastrous state of its environmental compliance. Baumgartner nevertheless admits that he was made aware of the Plain Dealer article in December 1984, admits that environmental compliance problems were discussed at the 1985 and 1986 board meetings, and has no explanation for his failure to familiarize himself with the status of SFI's problems in regard to the disposal of hazardous waste. Baumgartner's protests of ignorance lack credibility in general, and, in particular, when considered in light of his occupation and expertise. Baumgartner was aware of the environmental compliance problems at SFI, and, despite his superior intelligence, sophistication and access to pertinent information regarding the necessity for compliance and/or the status of compliance measures undertaken by SFI, Baumgartner did nothing.
In mid-1983, Baumgartner sold twenty-five percent of his stock in SFI to a new officer and director, Jonathan Taylor. At that time, Baumgartner "gifted" an additional twenty-five percent of the company to Foley and Horn, respectively, without consideration other than their forbearance from the exercise of a prior option to purchase same.
Baumgartner's legal counsel drafted the incorporation articles and other documents attendant to the incorporation of SFI. When Baumgartner became aware of difficulties at SFI regarding the corporation's noncompliance with environmental law controlling the disposal of hazard wastes and electroplating operations, he consulted legal counsel. Throughout the history of SFI, Baumgartner remained a shareholder, director and, for all intents and purposes, "Chairman" of the board.
C. Robert Horn: Robert Horn is a self-educated man, who at the time he was approached by Foley with the concept of establishing a new business venture, was employed at United Airlines in a supervisory capacity. Although Horn lacked training in the electroplating business, he learned the business quickly and was able, in a relatively short period of time, to run the day-to-day operations of SFI.
Over the course of SFI's history, Horn developed expertise in the mechanics and procedures involved in the electroplating business and, additionally, with the demands of environmental compliance. Horn was initially designated as president of SFI and, in that capacity, signed both leases with Carran for the business premises at 2133-2139 Hamilton Avenue. In late 1982 or early 1983, after Foley replaced Horn as president and joined SFI as a full-time employee, Horn was "designated" vice-president by consensus.
From the beginning of its operation, Horn worked on a daily basis at SFI and was fully conversant with and, in fact, basically in charge of the electroplating processes at the plant. Horn was aware of environmental compliance problems, not only as a result of his attendance at board meetings, but also from firsthand knowledge of the difficulties with the NEORSD people, initially, and later the Ohio EPA. On more than one occasion, Horn attempted to lock out the NEORSD people in order to prevent them from completing an inspection at SFI. NEORSD documents in 1984 reference conversations with Horn regarding the disposal of hazardous wastes from the electroplating process.
D. Jonathan Taylor: Taylor retired from General Motors in 1983 on a pension and Social Security benefits. Taylor declined to appear at these proceedings; consequently, no direct testimony regarding his background was ever elicited, and the facts surrounding his involvement with SFI are unclear. However, it appears that in early 1983 Taylor attempted to induce Foley or collaborated with Foley in a plan to open a competing electroplating business either adjacent to or near the original SFI location at 2133 Hamilton Avenue.
However, the machinations to introduce the competing business failed and Taylor instead purchased twenty-five percent of SFI stock then owned by Baumgartner and was appointed to the board of directors of the corporation and was "elected" secretary-treasurer. There is conflicting testimony as to Taylor's responsibilities at SFI, if any. No confirmed testimony was heard by the court regarding the basis for an altercation that occurred in early 1984, the result of which was Taylor's physical departure from the SFI premises. In July 1984, Taylor sold his stock to Foley for $500. Taylor, who had also loaned SFI the sum of $44,500 as additional working capital, continued to serve as secretary-treasurer of the corporation and attended board meetings until its functional demise in April 1987, in an apparent effort to preserve and eventually recoup his investment.
Taylor received sporadic payments on his loan balance from SFI during the latter part of 1984 and part of 1985, but no payments were made in 1986. In 1987, Foley confessed to a judgment in Taylor's favor for the unpaid balance of the capital loan in the amount of $30,000. Although Taylor had no knowledge of the electroplating business and had little, if anything, to do with the day-to-day operation of the business, Taylor was aware of SFI's environmental compliance problems before and after his involvement in early 1983 and was aware that the corporation was financially incapable of either meeting its financial obligations to creditors or making the necessary expenditures to meet the demands of NEORSD and the Ohio EPA.
Taylor is a signator to the January 1990 Consent Order and, in connection with that order, paid a civil penalty of $10,000 to the Ohio Hazardous Waste Clean-Up Fund created by R.C. 3734.28.
E. B.A. Carran: B.A. Carran is an Ohio partnership that owns and manages commercial real estate in the Cleveland area. Roger Carran is employed as a managing agent for B.A. Carran, and, in that capacity, negotiated the leases for the premises at 2133-2139 Hamilton Avenue with SFI. Carran entered into the leases with SFI on the signature of Robert Horn, alone, as President of SFI, and Carran neither sought nor obtained personal guarantees or other security for the lease commitments. Renewals of the leases also were entered into without the personal guarantees of any officers or directors of the corporation.
Because Roger Carran was required to visit the SFI premises on at least a monthly basis in order to collect the rentals which were, according to his testimony, frequently overdue, Carran was aware of the physical condition of the plants and of the potentially hazardous nature of the materials used in the electroplating business being operated on the premises. Carran requested assurances from SFI that, for example, it would install equipment to reduce the effect of fumes in the building that were apparently causing corrosion of interior surfaces and structures.
In connection with Roger Carran's written request for interior ventilating, he referenced conversations with his insurance agent regarding "pollution problems." Carran, who has managed approximately eighty-five light industrial/commercial buildings, was familiar with the necessity for environmental compliance.
No rental payments were made by SFI to B.A. Carran after May 1987. Carran became directly involved in the Closure Plan and cleanup of the premises following an assessment from the sewer district on B.A. Carran's water bill and Carran's communications with Foley regarding negotiations with the Ohio EPA. Carran signed the Consent Order, along with the other defendants to this litigation, but Carran alone took responsibility for effectuating the cleanup and making the out-of-pocket expenditures to complete the cleanup. Similarly, Carran alone has or will benefit from the cleanup of the premises at Hamilton Avenue and the potential profit from future rentals.
25. In early 1990, Foley filed a voluntary petition for bankruptcy, and a stay of proceedings was issued by this court as to Foley. At the commencement of trial and in open court, Foley, represented by counsel, volunteered his testimony in the case and waived any procedural or substantive due process defects in connection therewith.
26. In late spring 1991, the bankruptcy court dismissed the voluntary petition filed by Foley and, therefore, lifted and removed the stay of execution of judgment by the state of Ohio and the stay of proceedings in the suit filed by new-party plaintiff/defendant B.A. Carran against Foley.
Conclusions of Law
The complaint filed by new-party plaintiff B.A. Carran contains five counts. Count I alleges that the individual defendants, along with the corporation, participated in, controlled or ordered the violations of law set forth in the remainder of the complaint. Counts II and IV specifically allege violations of Ohio's environmental laws as well as federal statutes. Count III alleges that the defendants are liable for the production of pollutants into the sewer system and the consequent assessments against plaintiff's property by the city of Cleveland and its division of water. Finally, Count V of the complaint is a claim for rent and taxes due under the lease of the premises at 2133-2139 Hamilton Avenue.
As a threshold matter, this court finds SFI exclusively liable to plaintiff B.A. Carran for any and all unpaid rents and taxes along with any assessment or other penalties levied against the property on Hamilton Avenue. Although, as will be more fully discussed hereafter, there are ample and factual bases for piercing the "corporate veil" with respect to SFI and its activities vis-a-vis violations of environmental law, the leases for the premises executed by SFI and renewed several years thereafter were executed solely and exclusively in the name of the corporation, were signed by a corporate officer in his corporate capacity, and contained no personal guarantees by any of the individual stockholders or officers. Carran's failure to request or to obtain personal guarantees from any of the individuals involved in SFI estops it from asking this court to reach beyond the corporate identity and find the individual officers and/or stockholders liable to Carran for any unpaid rents, assessments or penalties in connection with the lease of the premises at 2133-2139 Hamilton Avenue.
A different scenario pertains to the remaining allegations in Carran's complaint. Had it been necessary for this court to reach the question of individual liability for violations of state or federal environmental laws, the elements necessary for piercing the corporate veil and holding the individual officers and/or shareholders liable were clearly present. A corporate entity will be disregarded where the corporation is formed to evade a statute or where it is controlled and its affairs so conducted as to make it merely an instrumentality for the purpose of evading or circumventing the law. State ex rel. Johnson Higgins Co. v. Safford (1927), 117 Ohio St. 576, 159 N.E. 829, paragraph one of the syllabus; Parkside Cemetery Assn. v. Cleveland, Bedford Geauga Lake Traction Co. (1915), 93 Ohio St. 161, 168, 112 N.E. 596, 598; Port Clinton RR. Co. v. Cleveland Toledo RR. Co. (1862), 13 Ohio St. 544. However, such is not the case here. Individual liability can also be imposed where, as here, the separate corporate existence rests upon an insecure foundation. Auglaize Box Bd. Co. v. Hinton (1919), 100 Ohio St. 505, 126 N.E. 881; Andres v. Morgan (1900), 62 Ohio St. 236, 56 N.E. 875. SFI was clearly undercapitalized from its inception and relied solely on the "purchase of stock" and/or loans made or guaranteed by officers to continue its existence. Its financial affairs were ineptly managed and ordinary accounting and bookkeeping abuses were so apparent that the parties themselves have been unable to confirm the nature and the amount of corporate expenditures over the course of many years. Finally, because the financial base for the corporation relied almost exclusively upon the continuing relationship between individuals and their pocketbooks or private banking relationships, the ultimate control of the corporation was at all times in the hands of these few officers and shareholders.
Although the defendants have uniformly and without exception insisted that no Ohio case has held individual officers and shareholders liable for violations of R.C. Chapter 3734, this court would do so were it necessary under the circumstances of this case. Contrary to Jonathan Taylor's argument that only the state can properly enforce the environmental laws of the state of Ohio, this court expressly finds that a private citizen who has been damaged by or believes that others will be damaged by the failure to comply with this state's environmental laws is the public qua public and is entirely within his or its rights to seek enforcement and/or any remedy available under Ohio law. Indeed, R.C. 3734.101 expressly provides for such a private right of action. R.C. 3734.101 provides in pertinent part:
"(A) Except as provided in division (C) of this section, any person aggrieved or adversely affected by an alleged violation of this chapter or a rule, permit, license, variance, or order issued or adopted under it may commence a civil action on his own behalf against any person, the state, or a political subdivision * * *." (Emphasis added.)
However, this court need not decide the issues presented to it in this case on the basis of either state or federal law as it pertains to the issue of individual liability, because on January 9, 1990, the state of Ohio and all defendants, including B.A. Carran, entered into a Consent Order by which, inter alia, the parties became liable jointly and severally "for the purposes of effectuating the clean-up of the facility." At trial, Carran, Horn, Foley and Baumgartner each admitted to signing the Consent Order on the eve of trial in the underlying action brought by the state and, further, agreed that the sole issue that remained pending for either adjudication or settlement was the apportionment of liability for the underlying violations of environmental laws and for the cost of effectuating the cleanup. (Taylor, who declined to attend the trial of this matter, waived any jurisdictional defect with respect to the court's judgment.)
On January 12, 1990, less than a week after entering into the Consent Order, Carran filed a motion for contribution and/or indemnification. In the motion, Carran sought enforcement of the "joint and several" language set forth in the Consent Order. Carran's prayer for contribution and/or indemnification was incorporated into a subsequent amended complaint filed by Carran; additionally, Carran sought to amend by interlineation its complaint prior to trial in order to incorporate, inter alia, a prayer for attorney fees, as well as damages.
This court finds that the Consent Order firmly and irrevocably bound the parties and each of them to a proportionate share of the liability for the cleanup of the premises at 2133-2139 Hamilton Avenue, and hereby dismisses the remaining allegations of Carran's original and amended complaint as moot and of no consequence. It therefore remains for the court to join the cause on Carran's motion for indemnification and/or contribution and, in accordance with the evidence, determine the proportionate share of liability and commensurate financial responsibility, if any, of each of the defendants to B.A. Carran.
Carran's claim for indemnification is premised on Carran's argument that it is statutorily liable as the owner and manager of the premises and that such liability is passive or secondary to the active misconduct of the other defendants. Carran's argument is without merit for two reasons. First, under Ohio law indemnity is an equitable principle and the right to indemnification arises from a contract, express or implied, and where implied, is available only to a party wholly innocent of wrongdoing. Allstate Ins. Co. v. U.S. Associates Realty, Inc. (1983), 11 Ohio App.3d 242, 11 OBR 368, 464 N.E.2d 169. In Allstate, certain homeowners decided to sell their home and contacted a representative of defendant U.S. Associates Realty ("Associates"). The homeowners executed a listing agreement but insisted on the inclusion of a notation that prospective buyers were not to be permitted in the back yard because of an unfriendly dog. Associates subsequently failed to include this notation on a "multiple listing." A multiple listing broker took a prospective buyer into the homeowners' back yard and the prospective buyer was injured as a result of an encounter with the dog. The homeowners' insurance carrier, Allstate, settled the claim and, subsequently, filed an action for contribution and/or indemnification against Associates.
The Allstate court held that the homeowners were not negligent, but were strictly liable to the prospective buyer as a result of Ohio's dog bite statute. The court further held that:
"[S]uch a situation presents an example of primary and secondary liability. In such a case, where a dog owner is subjected to personal liability under the dog bite statute as a direct result of the negligent or wrongful acts of a third person, the dog owner may maintain an action for indemnity against the negligent third party. * * *" Id., 11 Ohio App.3d at 247, 11 OBR at 373, 464 N.E.2d at 174.
Since the homeowners were not negligent, they were entitled to indemnification from Associates.
In this case, indemnification might otherwise be available to Carran in that its liability as owner of a "dog" is primarily statutory. However, Carran fails to meet the requisite standard of nonculpability or complete innocence necessary for the application of the principle of indemnification. Allstate, supra, 11 Ohio App.3d at 246, 11 OBR at 371, 464 N.E.2d at 173. As will be adverted to hereafter, Carran had firsthand knowledge of the environmental hazards created by the generated waste at SFI. Moreover, Carran is admittedly aware of the damage caused by toxic fumes and is generally knowledgeable as a lessor of industrial property of the required compliance with environmental laws by users of such property. Although this court recognizes the profit motive of all parties involved in SFI, Carran's profit-based motive in permitting the business to continue its operations despite its knowledge of the toxicity present, as well as its interests in taking charge of the cleanup, cannot be ignored.
Second, indemnification is not available to Carran inasmuch as Carran individually signed the Consent Order by which Carran became jointly and severally bound, along with the other defendants, for the cleanup in accordance with the Closure Plan. Accordingly, Carran's motion for indemnification is overruled.
The remaining issue for consideration is Carran's motion for contribution which this court finds well taken and, therefore, grants. At the request of the parties and in accordance with R.C. 2307.31 and cases arising thereunder, this court will therefore proceed to assign to each of the defendants, including Carran, a proportionate share of the cost of cleanup of the premises located at 2133-2139 Hamilton Avenue pursuant to the Closure Plan. The determination of the recompensable cost of the cleanup remains to be determined at a hearing subsequent to the filing of this opinion and order.
As to defendant Foley, this court finds that Foley must assume primary responsibility for SFI's environmental "malfeasance" as a consequence of his knowledge of the electroplating business, his understanding and awareness of laws regulating the disposal of hazardous waste generated by the electroplating business and his day-to-day involvement with the operation of the business. This court further finds that Foley operated SFI in a consistently irresponsible and generally incompetent manner. Additionally, Foley demonstrated a lack of candor in dealing with the other principals of the corporation and, regrettably, a lack of candor in his testimony before this court. The court is aware that at the time of trial Foley had filed a Chapter 7 petition with the United States Bankruptcy Court and a stay of proceedings was in effect as to Foley. However, the court has been informed that Foley's petition has been dismissed and that the stay has been lifted. The court further notes that in testimony before this court, both Foley and his attorney waived any defect that might develop as a consequence of Foley's testimony. Foley's proportionate share of liability for the violations of environmental law and the cost of cleanup in accordance with the "Closure Plan" is forty-eight percent of the total cost to be determined by this court at a subsequent hearing.
As to defendant Baumgartner, the court finds that Baumgartner was arguably in the best position of any of the principals to know, understand and appreciate the significance of environmental violations, although he was not directly involved in the day-to-day operations of SFI. Baumgartner is not only a professional in the field of information retrieval and application, but is regarded as a highly competent investor and business analyst. Although Baumgartner assigns total responsibility (culpability) for these violations to Foley, Baumgartner knew as early as December 1984 of the serious nature of environmental violations being committed by SFI and it is clear that Baumgartner did nothing to intervene, made no affirmative effort to monitor the situation and took no steps to either force compliance or force a cessation of business operations. Baumgartner claims to have had no contact whatsoever with either Foley or Horn regarding environmental problems, despite his admission that he knew of the Plain Dealer article in December 1984 and read and discussed the article with Taylor and Horn. Most significantly, Baumgartner admits that he would have forced the business into economic crisis, if not bankruptcy, had he found it necessary, by revocation of his guarantees and/or collateral support for outstanding loans.
Baumgartner's proportionate share of liability for environmental violations and the to-be-determined cost of cleanup in accordance with the "Closure Plan" is twenty percent.
As to defendant B.A. Carran, the court finds that Carran's knowledge of the application and effect of environmental laws in connection with industrial uses such as electroplating was equal if not superior to Baumgartner's. B.A. Carran was equally if not more sophisticated than Baumgartner with respect to potential consequences for violation of environmental laws. Carran had considerable experience managing light industrial property and, particularly in this instance, was personally aware of how the property on Hamilton Avenue was being used. More significantly, Roger Carran was regularly present at the premises in order to collect late payment of rent and consequently had firsthand knowledge of the toxicity of materials being used in connection with the cadmium cyanide process. Although Carran does not recall seeing the newspaper article in December 1984 detailing the severity of SFI's noncompliance with environmental laws, Carran's awareness of the hazards being created and the potential liability for those hazards is demonstrated by his communications to SFI regarding toxic fumes and his communications with his insurance carrier regarding pollution coverage.
B.A. Carran's proportionate share of the liability for environmental violations and the to-be-determined cost of cleanup in accordance with the Closure Plan is twenty percent.
As to Robert Horn, although inexperienced in the electroplating business at the time of commencement of operations, Horn developed the requisite expertise and was involved in and responsible for the day-to-day operation of SFI. Like Baumgartner and Carran, Horn has suffered some self-serving memory lapses with respect to his awareness of environmental law violations. Specifically absent from Horn's memory are regular visits by NEORSD and his efforts to "lock NEORSD people out." This court finds the memory lapses unacceptable and further finds Horn's purported ignorance of environmental violations not credible. Nevertheless, Horn was at all times treated as an employee of the company and although an officer and "shareholder," Horn had no control over the policy decisions or expenditures of the board. At most, Horn could have "blown the whistle" on Foley at a date earlier than December 1984 and presumably could have communicated to Baumgartner and Taylor the seriousness of the violations over the succeeding two years.
Horn's proportionate share of the liability for environmental law violations and the cost of cleanup in accordance with the Closure Plan is ten percent.
As to Jonathan Taylor, the court finds that Taylor had minimal knowledge of the electroplating business, even at the time of his sudden departure from the actual premises on Hamilton Avenue. Over the course of his relationship with SFI, Taylor was principally involved in an effort to protect his disastrous investment in the corporation. That is not to say that Taylor was without sophistication in business matters, or was without an awareness of and understanding of necessity for compliance with environmental laws. Unfortunately, due to Taylor's absence from these proceedings and the absence of any testimony by him, the court is unable to assess the full extent and nature of Taylor's knowledge of and tolerance for the ongoing environmental violations. However, the court can conclusively find that such awareness of and tolerance for the violations, however limited, did exist.
Taylor's proportionate share of the liability for environmental violations and the cost of cleanup in accordance with the Closure Plan is two percent.
Pursuant to the agreement of the parties, this court will schedule a hearing on the recompensable cost for which liability has been apportioned herein.
It is so ordered.
Reporter's Note: On August 25, 1992, an agreed judgment entry brought the action to a close. There was no appeal.