Opinion
Civil No. 99-1703-AS.
May 14, 2004
AMENDED FINDINGS AND RECOMMENDATION
The Findings and Recommendation issued on May 6, 2004, is amended so as to include the concession that Watumull Properties Corporation's common law claims against the Todd Group are dismissed, and that Sierra Pacific Development and the Freemans joined in the Todd Group's Motion to Alter, Amend, or Correct the Complaint.
In December 1999, plaintiff XDP, Inc. ("XDP"), filed this action against Watumull Properties Corporation ("Watumull"), Sierra Development, Incorporated ("Sierra"), and Walter, Alice, and John Freeman (collectively the "Freemans"), for contribution, indemnity, and damages under federal and state environmental clean-up and contribution statutes as well as common law theories of negligence, trespass, and nuisance. Plaintiff XDP seeks recovery for expenses allegedly incurred in remediating environmental contamination from the property located at 4288 and 4252 S.E. International Way in Milwaukie, Oregon (collectively referred to hereinafter as the "Site"). In March 2001, Sierra and the Freemans filed a third-party complaint against additional owners and operators of the property in question for indemnification and contribution.
On April 2, 2004, the court heard oral argument on the following six motions: (1) Motion for Summary Judgment filed by Watumull (Doc. #202); (2) Motion for Partial Summary Judgment filed by International Way Investments ("International"), P.P.I. Holding Company ("PPI"), Production Parts, Incorporated ("Production"), David Thomas ("Thomas"), Dennis F. Todd ("Todd"), James O. White ("White"), and Peter V. Yazzolino ("Yazzolino") (collectively the "Todd Group") (Doc. #229); (3) Motion for Summary Judgment or, Alternatively, Partial Summary Judgment filed by XDP (Doc. #239); (4) Motion for Summary Judgment or, Alternatively, Partial Summary Judgment filed by Hongkong Shanghai Banking Corporation ("Hongkong") (Doc. #240); (5) Motion for Summary Judgment or, Alternatively, Partial Summary Judgment filed by Ralph Carter ("Carter") and Revtek Incorporated ("Revtek") (Doc. #241); (6) Motion for Leave to Amend Complaint filed by Yazzolino (Doc. #327); and (7) Motion to Alter, Amend, or Correct the Complaint filed by the Todd Group (Doc. #335).
During oral argument the court presented several questions to the parties in a written format. The parties filed responses. On April 22, 2004, the Todd Group filed a Motion to Strike XDP's Response Letter (Doc. #360). The court has reviewed the motion and XDP's response. The court is satisfied that XDP's letter was a fair and appropriate response to the court's inquiries presented at oral argument. This motion is denied.
BACKGROUND
The following facts are derived from the parties' Concise Statements of Material Facts and appear to be undisputed. Plaintiff XDP owned the property located at 4288 S.E. International Way ("XDP Property") at the time this lawsuit was commenced. Watumull owns and operates the Lincoln Business Center, which is located at 4211-4287 S.E. International Way ("Watumull Property") and is directly north of XDP's Property. In 1989, the Oregon Department of Environmental Quality ("DEQ") concluded that the XDP Property and its ground water were contaminated with trichloroethylene ("TCE"), tetrachloroethylene ("PCE"), and Trans 1, 2-Dichloroethylene ("DCE"). In early 1990, the DEQ concluded that the Watumull Property and its ground water were also contaminated in the area near the boundary of the two properties. Shortly thereafter, DEQ ordered XDP to remediate the Site.
From approximately 1960 to 1979, the Site was one large parcel owned by Walter and Alice Freeman. In 1960, Walter opened Production (now known as Sierra), a custom manufacturing parts business on the XDP Property. Walter used chlorinated solvents, including TCE, in conjunction with his business. During this time, the Watumull Property remained largely undeveloped land The Freemans sold the manufacturing business in 1978 to Todd, who continued operation of Production. Todd owned and operated Production on the XDP Property from October 1978 until April 1989. A joint venture made up of Todd, Yazzolino, White, Thomas, and Olson (International) owned the property from September 1979 until October 1986. In 1982, Thomas withdrew from International. In 1985, Yazzolino transferred all of his interest and stock in International to Todd. By 1986, Todd owned or controlled the individual interests held by Yazzolino, Thomas, and White. Todd then transferred those interests to PPI, a company wholly owned by Todd. Hongkong took a first mortgage on the XDP Property and on the equipment and fixtures thereon in October 1986. On April 20, 1989, Todd transferred to Hongkong all of the common stock of Production.
XDP, Manufacturing Parts, Inc. ("MPI"), and Tayside Holdings, Ltd. ("Tayside"), were subsidiary companies of Hongkong. On April 21, 1989, MPI entered into a separate "Purchase Agreement" with Hongkong in which MPI agreed to purchase from Hongkong all of Hongkong's interest in Production. See Purchase Agreement, Ex. 7 to Affidavit of Timothy M. Sullivan. Hongkong then delivered a deed of the XDP Property to MPI. In May 1991, MPI sold the real property to XDP. In June 1991, MPI hired Carter to manage the facility at the XDP Property. In November 1995, XDP sold the assets of MPI to Carter's company, Revtek Acquisition Company, Incorporated, later renamed Revtek. XDP remained the owner of the XDP Property as Revtek's lessor until the property was sold in 2000 to Carter Properties, LLC. Carter Properties, LLC, is the present owner of the property. Carter managed the facility until it closed in October 2002.
Carter Properties was not an original party to this action. However, as discussed below, the court grants the Todd Group's Motion for Leave to Amend the Complaint to assert fourthparty claims against Carter Properties.
In 1979, the Freemans sold the Watumull Property to the Koll Company ("Koll"). The Pflueger Partners ("Pflueger") succeeded Koll, and Watumull purchased the property from Pflueger in February 1996. Since its development in 1979, the Watumull Property has housed light industrial and commercial office space.
LEGAL STANDARDS
1. Summary Judgment
Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). Summary judgment is not proper if factual material exists for trial. Warren v. City of Carlsbad, 58 F.3d 439, 441 (9th Cir. 1995).
The moving party has the burden of establishing the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). If the moving party shows the absence of a genuine issue of material fact, the nonmoving party must go beyond the pleadings and identify facts that show a genuine issue for trial. Id. at 324. Assuming there has been sufficient time for discovery, summary judgment should be entered against a "party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Id. at 322.
Special rules of construction apply to evaluating summary judgment motions: (1) all reasonable doubts as to the existence of genuine issues of material fact should be resolved against the moving party; (2) all inferences to be drawn from the underlying facts must be viewed in the light most favorable to the nonmoving party; and (3) the court must assume the truth of direct evidence set forth by the nonmoving party if it conflicts with direct evidence produced by the moving party. T.W. Elec. Serv. v. Pac. Elec. Contractors, 809 F.2d 626, 630 (9th Cir. 1987). Summary judgment is inappropriate when different ultimate inferences can be reached. Sankovich v. Life Ins. Co. of N. Am., 638 F.2d 136, 140 (9th Cir. 1981).
The issue of material fact required by Rule 56 to entitle a party to proceed to trial does not need conclusive resolution in favor of the party asserting its existence. Rather, all that is necessary to require a trier of fact to resolve the parties' differing versions of the truth at trial is sufficient evidence supporting the claimed factual dispute. Id. At the summary judgment stage, the judge does not weigh conflicting evidence or make credibility determinations. Those determinations are the province of the finder of fact at trial. Id., see also Abdul-Jabbar v. Gen. Motors Corp., 85 F.3d 407, 410 (9th Cir. 1996) (on a motion for summary judgment, the court does not weigh the evidence or determine the truth of the matter asserted, but decides only whether there is a genuine issue for trial).
2. Resource Conservation and Recovery Act (RCRA)
Under RCRA, a claimant may bring a civil action against any person "who has contributed or who is contributing to the past or present handling, storage, treatment, transportation, or disposal of any solid or hazardous waste" in a manner that presents an imminent and substantial endangerment to human health or the environment. 42 U.S.C. § 6972 (a)(1)(B). However, before filing suit, the citizen must first provide ninety days' notice to: (1) the Administrator of the Environmental Protection Agency; (2) the state in which the violations allegedly occurred; and (3) the violator. Id. at § 6972(b)(2)(A). As with similar notice provisions in other environmental laws, the RCRA citizen's suit notice provisions are jurisdictional in nature, and any suit in which the provision has not been satisfied must be dismissed. Hallstrom v. Tillamook, 493 U.S. 20, 25-26 (1989).
3. Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA)
To establish a claim for cost recovery under CERCLA, a claimant must show that the defendant is a responsible party, a release or threatened release of hazardous material occurred at a facility, and the release or threatened release has caused the claimant to incur response costs that were necessary under CERCLA. Carson Harbor Vill., Ltd. v. Unocal Corp., 270 F.3d 863, 870 (9th Cir. 2001). These are the prima facie elements for a claim under both 42 U.S.C. § 9607(a) (cost recovery) and 9613(f)(1) (contribution). Liability for the costs of response and remediation may be imposed upon current owners or operators of a facility, as well as upon previous owners or operators who owned or operated a facility at the time of disposal of any hazardous substance at the facility. 42 U.S.C. § 9607(a)(1-2).
An "owner or operator" is defined as a person who owns, operates, or otherwise controls the operations at a facility. 42 U.S.C. § 9601(20)(A); United States v. Bestfoods, 524 U.S. 51, 66 (1998). There are several ways that a party can be categorized as an owner or operator under CERCLA. A person does not have to be an owner in title to be held liable as an owner. Where a person conducts himself as if he were an owner by showing customary attributes of ownership, for example, control of the property, he may also be held liable as an owner. Similarly, a person who is not an owner but who holds a security interest may be construed as an operator by exercising sufficient control or making decisions about the facility. See, e.g., United States v. Fleet Factors Corp., 901 F.2d 1550, 1557-78 (11th Cir. 1990), amended and superseded on other grounds, United States v. Fleet Factors Corp., 819 F. Supp. 1079 (S.D. Ga. 1993) (a secured creditor, without being an operator, can incur liability if it participates in the financial management of a facility to such a degree that a capacity to influence the company can be inferred).
Second, a parent corporation may be directly and/or derivatively liable under CERCLA as an owner or operator. In Bestfoods, the court stated that a parent corporation may be directly liable under CERCLA for its own actions if the parent managed, directed, or conducted operations related to the release or disposal of hazardous material. Bestfoods, 524 U.S. at 62-66. In addition, a parent corporation may be held derivatively liable for the actions of its subsidiary if the parent actively participated in and exercised control over the operations of its subsidiary. Id.
Third, previous owners or operators of a facility may be liable. Section 9607(2) imposes strict liability on an owner or operator who held the property during a time that a disposal occurred regardless of whether the prior owner knew or should have known about the disposal. Carson Harbor, 270 F.3d at 870-71. Even if there is a release subsequent to ownership of the property, if the release contains hazardous material that was disposed of during the prior ownership, the prior owner is liable. As defined in the statute, the term "disposal" means "the discharge, deposit, injection, dumping, spilling, leaking, or placing of any solid waste or hazardous waste into or on any land or water so that such solid waste or hazardous waste or any constituent thereof may enter the environment . . . including ground waters." 42 U.S.C. § 6903(3). The term "release" is not defined in CERCLA, but Oregon's corresponding Superfund law defines release "as any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping or disposing into the environment. . . ." O.R.S. 465.200(22).
Fourth, a successor to the property may be liable as an operator. Although CERCLA does not specifically address the issue of successor liability, courts have applied general rules of corporate law and found liability where the successor company expressly assumes the predecessor company's liabilities, or the succession happens through mergers or consolidations, or the successor is a continuation of the predecessor company. Atchison, Topeka and Santa Fe Ry. Co. v. Brown Bryant, Inc., 159 F.3d 358, 362 (9th Cir. 1997); see also, N. Shore Gas Co. v. Salomon, Inc., 152 F.3d 642 (7th Cir. 1998) (doctrine of corporate successor liability applies to impose CERCLA liability where successor company continued ownership and control over the predecessor company); Anspec Co. v. Johnson Controls, Inc., 922 F.2d 1240 (6th Cir. 1991) (court applied state common law and found that successor company that had acquired predecessor company through a merger was liable for response costs). The Ninth Circuit explained that operator liability "only attaches if [a party] had authority to control the cause of the contamination at the time the hazardous substances were released into the environment." Kaiser Aluminum Chem. Corp. v. Catellus Dev., 976 F.2d 1338, 1341-42 (9th Cir. 1992).
If a potentially responsible party can establish that it did not know or have reason to know that any hazardous substance had been disposed of on the property, the party may assert the "innocent landowner" defense. 42 U.S.C. § 9601(35). To qualify as an innocent landowner, the owner must have undertaken, at the time of acquisition, "all appropriate inquiries . . . into the previous ownership and uses of the facility in accordance with generally accepted good commercial and customary standards and practices" in an effort to minimize liability. 42 U.S.C. § 9601(35)(B).
In determining whether a purchaser undertook "all appropriate inquiries," a court should consider: (1) whether the purchaser had any specialized knowledge or experience; (2) the relationship of the purchase price to the value of the property if the property were not contaminated; (3) known or reasonably ascertainable information regarding the property; (4) the conspicuousness of the presence of contamination; and (5) the purchaser's ability to detect contamination through a reasonable inspection. 42 U.S.C. § 9601(35)(B)(iv)(I). During or following any civil action instituted under 42 U.S.C. § 9607, any party may seek contribution from any other potentially liable party. 42 U.S.C. § 9613(f).
4. Oregon's Superfund Law
Oregon's Superfund law was patterned after CERCLA and courts are to construe Oregon's Superfund law consistently with its federal counterpart. Catellus Dev. Corp. v. L.D. McFarland Co., 910 F. Supp. 1509, 1516 (D. Or. 1995). Under Oregon's Superfund law, the following persons are subject to liability for remedial action costs: (1) any person who owned or operated a facility at or during a time that the hazardous materials were released; (2) any person who owned or operated a facility after the time that hazardous materials were released if that person knew or reasonably should have known of the release; and (3) any person who caused, contributed to, or exacerbated the release. O.R.S. 465.255(1).
If a person is liable under O.R.S. 465.225, any party may seek contribution from that person. O.R.S. 465.325(6)(a). CERCLA's innocent purchaser defense is available under Oregon's Superfund law. To qualify as an innocent purchaser under Oregon's Superfund law, the purchaser must have undertaken, at the time of purchase, "all appropriate inquiry into the previous ownership and uses of the property consistent with good commercial or customary practice in an effort to minimize liability." O.R.S. 465.255(6). However, unlike CERCLA, Oregon's Superfund law does not provide factors for determining whether a buyer has conducted an "all appropriate inquiry."
PENDING MOTIONS
XDP asserts RCRA claims against Watumull and Walter and Alice Freeman. XDP is the only party that complied with RCRA's jurisdictional notice provision. Watumull asserts that although it did not provide written notice of its intent to assert RCRA claims, its cross-complaint constitutes notice. This court disagrees. RCRA's citizen suit provision requires actual pre-suit notice of a claimant's intent to sue to the alleged violators and to the government in order for the court to assert jurisdiction. 42 U.S.C. § 6972(b)(1)(A). Accordingly, all RCRA claims other than those asserted by XDP should be summarily dismissed.
1. Watumull's Motion for Summary Judgment (Doc. # 202)
XDP and others seek a mandatory injunction and prospective money damages against Watumull under RCRA and claims for cost-recovery and contribution under CERCLA and Oregon's Superfund law. These statutes impose strict liability on offending parties. See, e.g., State of Idaho v. Hanna Min. Co., 882 F.2d 392, 394 (9th Cir. 1989) (CERCLA) ; Gilroy Canning Co., Inc. v. California Canners Growers, 15 F. Supp.2d 943, 946 (N.D. Cal. 1998) (RCRA). In a strict liability case, the tortious conduct is the act itself. Here, the tortious conduct is the ownership of property that causes contamination. Because the statutes impose strict liability, the claimant does not have to prove that the offending party was negligent or substandard in its conduct. Indeed, the offending party may have been acting in strict compliance with the law at the time of its actions and still be liable for a share of remediation costs due to the statutes' retroactive application. The burden is on the owner of the property to prove that any contamination did not occur while it owned the property. See Zands v. Nelson, 797 F. Supp. 805, 815 (S.D. Cal. 1992).
XDP and others allege that Watumull owns property that is the source of contamination, and that Watumull caused or contributed to existing contamination or was negligent in storing or disposing of contaminants. Watumull contends that it has neither released, caused, nor contributed to the release of hazardous material into the environment. Watumull asserts it is an innocent landowner and is entitled to summary judgment. In support of its argument, Watumull cites the following actions it took prior to closing the purchase of the Watumull Property: (1) reviewing and relying on a 1989 letter from DEQ regarding possible contamination of the Watumull Property; (2) reviewing and relying on a 1994 report ("Aegon Report") prepared by Environmental Associates, Incorporated, at the request of Aegon USA Realty Advisors, Incorporated ("Aegon"), the lender who provided financing for the prior owner of the Watumull Property; and (3) relying on an inspection by Jaidev Watumull ("Jaidev"), who was in charge of purchasing the Watumull Property.
Watumull asserts that the term "contributing" in RCRA implies something more than mere ownership of property that causes contamination. There must be some causal link between the contamination and the owner. See First San Diego Prop.'s v. Exxon Co., 859 F. Supp. 1313, 1315 (S.D. Cal. 1994); Zands, 797 F. Supp. at 809. In First San Diego, the court held that a subsequent purchaser who was unaware that its property had been used as a gas station and did not add contaminants into the soil was not a contributor under RCRA. First San Diego, 859 F. Supp. at 1315. In Zands, the court applied a liberal interpretation of "contribution" and held that owners and operators of a gas station are said to contribute to contamination if the contamination is directly caused by activities related to the operation of the gas station. Zands, 797 F. Supp. at 810. Applying the reasoning in First San Diego and Zands, Watumull argues that summary judgment should be granted in its favor on the RCRA claim because it bought the property in 1996 as an innocent purchaser and it has not added to the ground water contamination that preceded its acquisition.
The parties generally agree that by 1995, ASTM Standard E1527-93 (the "Standard") provided the test for measuring whether a landowner had undertaken all appropriate inquiry consistent with good commercial or customary practice under CERCLA and Oregon's Superfund law. The Standard sets forth several factors for evaluating a buyer's conduct, including whether the buyer reviewed site assessment records, interviewed owners, previous occupants, and local government officials, and performed a site reconnaissance. An environmental professional is required to perform the site reconnaissance and supervise record reviews and interviews. The environmental professional then completes a report.
Turning to the first factor relevant in determining whether a party has undertaken an all appropriate inquiry, which asks whether the purchaser had any specialized knowledge or experience, XDP and others claim that Watumull had specialized knowledge about the need for environmental due diligence in purchasing real estate and nevertheless chose to ignore this knowledge when purchasing the Watumull Property. Watumull is a multi-state real estate investment company. Jaidev testified that prior to Watumull's purchase of the Watumull Property, it was Watumull's practice to hire a licensed professional consultant to prepare environmental reports unless a current report prepared for another party was available. In the course of its business, Watumull had developed a standard contract for the purchase of property. The contract calls for the seller to provide an environmental inspection report. When Watumull made its offer to purchase the Watumull Property from Pflueger, it used this standard contract. Paragraph 9e of the contract stated:
To the best knowledge of the Seller, after due and diligent inquiry Seller has not participated in or approved nor has there occurred any production, disposal or storage on the Property of any hazardous waste or any toxic substance nor does any waste or substance exist on the Property or the migration of such waste or substance from or to the adjoining Property.
However, Pflueger refused to shoulder the burden of environmental due diligence and drew a line through the phrase "after due and diligent inquiry." Both parties initialed the change. The seller instead provided Watumull with the eight-month-old Aegon Report. Watumull accepted the Aegon Report in satisfaction of the contract regarding the seller's duty to provide a current professional report even though Watumull knew that the seller was not acknowledging a "due and diligent inquiry." Watumull departed from its customary practice of hiring an environmental professional to prepare an updated report. The Aegon Report stated that the Watumull Property appeared free of contamination and that hazardous material had not been generated, stored, or disposed of on the property. See Aegon Report, Ex. B to Affidavit of Thomas L. Foster ("Foster Aff."). Although the Aegon Report was twenty months old at the time of closing and specifically provided that it was for the exclusive use of Aegon and its representatives, Watumull asserts its reliance upon it was reasonable.
The Standard provides that a Phase "1" environmental report, such as the Aegon Report, is presumed to be valid for 180 days. However, a report older than 180 days may be used in its entirety if, in the reasonable judgment of the user of the report, the report meets the Standard and the conditions at the property have not changed materially since the issuance of the report. Id. Watumull argues that neither Aegon nor Watumull believed at the time of purchase that there had been any material change in the environmental condition of the property between the time of the report and closing. However, there is a factual dispute as to whether it was the customary practice in the industry for a party to a prospective real estate transaction to rely on a previously prepared report without at least obtaining a new site reconnaissance, conducting interviews, and acquiring updates of the records.
In addition to relying on the Aegon Report, Watumull relied on an inspection conducted by Jaidev in May 1995. Jaidev walked around the Watumull Property and inspected it prior to purchase and saw no evidence of environmental contamination. The parties dispute whether it was reasonable for Watumull to rely on Jaidev's cursory inspection because Jaidev was inexperienced in evaluating the environmental condition of commercial property, was unqualified to look for environmental problems, and failed to hire an environmental professional to assist him with the environmental site inspection. The court finds this dispute to be material to Watumull's innocent landowner defense.
The third factor asks whether the buyer had access to known or reasonably ascertainable information regarding the property. The parties dispute whether Watumull had reason to know from reasonably ascertainable DEQ records that there was a high risk of contamination on the Watumull Property. The 1989 DEQ letter relied upon by Watumull was addressed to the previous owner of the Watumull Property. It provided in part:
Contamination by [TCE] and other hazardous substances has been documented at other sites in the vicinity of the Lincoln Business Center in the aquifer which underlies the facility. Groundwater sampling at the site may be warranted at some future date.See Ex. H to Affidavit of James C. Brown.
A reasonable finder of fact could conclude that the DEQ letter put Watumull on notice that the ground water beneath the Watumull Property could be contaminated. Moreover, the Aegon Report that Watumull relied upon was prepared exclusively for the use of the seller's lender, and Watumull did nothing to determine whether there had been material changes since the Aegon Report's date. Jaidev's inspection is unpersuasive because he was unqualified and performed a perfunctory inspection of the property. No further inspection of the property was done between May 1995 and the closing date a year later.
The fifth factor asks whether the buyer could have detected contamination through a reasonable inspection. The parties dispute whether had Watumull conducted a reasonable inspection of the property, Watumull would have been on notice of the possible ground water contamination. Through the early 1990s, DEQ was investigating a TCE ground water contamination problem in the area where the Watumull Property is located. DEQ's records indicated that it was "highly probable" that the ground water beneath the Watumull Property was contaminated with TCE. DEQ's records also indicated that from 1991 through the time of Watumull's purchase there were numerous environmental activities performed by environmental consultants on the XDP Property, including monitoring wells, bore holes, and repeated sampling showing evidence of contamination.
Watumull contends that the actions it took prior to the purchase of the Watumull Property qualify it as an innocent purchaser and that it is therefore immune from liability under RCRA, CERCLA, and Oregon's Superfund law. Following the reasoning in Zands and First San Diego, Watumull argues that because it was an innocent purchaser, it could not be a contributor under RCRA. Similarly, because of the circumstances of its purchase, it should qualify as an "innocent landowner" under CERCLA and Oregon's Superfund law. However, a reasonable finder of fact could find that Watumull's conduct prior to purchasing the property fell short of an "all appropriate inquiry." Watumull did not hire an environmental consultant, did not review the current DEQ file, and did not investigate prior owners of the Watumull Property. The DEQ letter that Watumull reviewed prior to purchase was written more than six years earlier and stated that TCE and other hazardous substances had been found at other sites in the vicinity and that ground water sampling at the Watumull Property may be warranted in the future. Watumull did not pursue the matter. The Aegon Report Watumull relied on was prepared exclusively for the seller's lender. Watumull did not request an updated reliance letter from the author of the report. Jaidev's walk around the Watumull Property deserved limited reliance since Jaidev admitted he had no experience in detecting environmental hazards. Accordingly, the court concludes that genuine issues of material fact exist as to whether Watumull's reliance on the letter, report, and inspection was "consistent with good commercial or customary practice." Watumull's motion should be denied insofar as it pertains to judgment as a matter of law that Watumull is entitled to the innocent purchaser defense and therefore immune from liability under RCRA, CERCLA, and the Oregon Superfund law.
Watumull also faces common law claims for restitution, indemnification, nuisance, trespass, and negligence. State common law claims may be preempted if they interfere with the execution of the purposes and objectives of a federal statute. Indus. Truck Ass'n v. Henry, 125 F.3d 1305, 1309 (9th Cir. 1997). Common law claims for restitution, indemnity, and contribution are in conflict with CERCLA's contribution scheme, wherein the court equitably apportions liability among the responsible parties. See Envtl. Transp. Sys., Inc. v. Ensco, Inc., 969 F.2d 503, 508 (7th Cir. 1992). CERCLA prevents claimants from seeking compensation under state law theories for the same removal costs that are available under CERCLA. See, e.g., Matter of Reading Co., 115 F.3d 1111, 1117 (3d Cir. 1997) (to allow independent common law remedies for contribution and restitution would obstruct Congress' intent) ; see also State of New York v. Shore Realty Corp., 759 F.2d 1032, 1041 (2d Cir. 1985). Moreover, there is no evidence that Watumull has affirmatively engaged in any tortious acts or conduct. Accordingly, all common law claims against Watumull should be dismissed.
The court also concludes that Watumull's request for an order allocating a zero share of contribution liability is premature. There remain factual issues relating to the issue of apportionment, such as the determination of which allocation factors are relevant, which parties may be responsible for the clean-up costs, and whether the costs incurred are reasonable or recoverable. Thus, summary judgment regarding apportionment as to any party at this stage is inappropriate.
2. The Todd Group's Motion for Partial Summary Judgment (Doc. #229)
The Todd Group contends that as a matter of law Hongkong is obligated to pay for the defense and indemnification of the Todd Group under the PPI Agreement. The agreement was executed between the Todd Group and Hongkong in April 1989.
When examining a contractual provision, the court should first look to the words of the contract. Eagle Indus. Inc. v. Thompson, 900 P.2d 475, 478-79 (Or. 1995). When the meaning of a contractual term is disputed, the court's goal is to ascertain the parties' intent. Hoffman Constr. Co. of Alaska v. Fred S. James Co. of Oregon, 836 P.2d 703, 706 (Or. 1992). The parties' intent can be determined by examining other terms and provisions in the contract. Id. When a term is undefined by the contract, the court should identify the term's plain meaning and examine the context in which the term is used and the broader context of the contract to determine whether there remains any ambiguity about what the parties intended. Id.
Contractual provisions must be enforced according to their terms unless the terms are ambiguous. Portland Fire Fighters' Ass'n, Local 43 v. City of Portland, 45 P.3d 162, 165-66 (Or. 2002). Terms of a contractual provision "are ambiguous when they could reasonably be given a broader or a narrower meaning, depending upon the intention of the parties in the context in which [the terms] are used by them." Zerba v. Ideal Mut. Ins. Co., 773 P.2d 1333, 1335 (Or.App. 1989) (citation omitted); N. Pac. Ins. Co. v. Hamilton, 22 P.3d 739, 741 (Or. 2001). Whether the terms of a contract are ambiguous is a question of law. Evenson Masonry Inc. v. Eldred, 543 P.2d 663, 664 (Or. 1975). If the court finds that a contract term is ambiguous, its meaning becomes a question of fact, thereby precluding summary judgment. See Pac. First Bank v. New Morgan Park Corp., 876 P.2d 761, 764 (Or. 1994).
The PPI Agreement was an agreement in lieu of foreclosure that settled the claims of Hongkong on a series of defaulted loans made by the Todd Group. As part of the PPI Agreement, the Todd Group was released from further liability on the loans in exchange for the transfer of certain assets owned by the Todd Group, including the XDP Property. Hongkong also agreed to take the XDP Property "as is, where is, subject to all liens, encumbrances thereon, or other obligations related thereto which [Hongkong] shall pay." See PPI Agreement, Ex. 11 to Mem. in Support of Todd Group's Mo. for Partial Summ. J ("PPI Agreement"). The Todd Group asserts that this assumption compels Hongkong to pay all other obligations related to the property, including environmental obligations.
Hongkong argues that it should not be compelled to pay the current environmental obligations relating to the XDP Property on behalf of the Todd Group because such obligations were not intended to be assumed by Hongkong.
The ordinary meaning of "obligation" is the "act of binding oneself by a social, legal, or moral tie . . . such as a duty, contract, or promise that compels one to follow or avoid a particular course of action." AMERICAN HERITAGE DICTIONARY OF THE ENGLISH LANGUAGE 1212 (4th ed. 2000). Because the dictionary definition offers little guidance in the way of interpreting what the parties intended by the use of the word "obligation" in the PPI Agreement, the court turns to the context of the agreement as a whole. The term "obligation" is used throughout the PPI Agreement and is in reference to specific monetary or debt obligations owed by Todd or his companies. See PPI Agreement ¶¶ 3, 4, 5 ("obligation" referring to trade and payroll taxes, loans, and lease debts). Yet, as the term is used in Section 6, there is no such limitation.
The Todd Group argues that Section 6 places no time limits as to when the obligations must exist, and does not define what those obligations might be. It expressly includes all obligations related to the XDP Property. Hongkong's promise was to pay all obligations related to the XDP Property without any qualifiers. If Hongkong intended only to pay disclosed environmental obligations, it could have stated as much, but failed to so provide.
Hongkong argues that throughout the contract the term "obligation" refers to specific monetary obligations owed by Todd and his companies. It is fair to presume that when the parties used the term in Section 6, it was intended to have the same meaning.
The court finds that the term "obligation" as used in the PPI Agreement is ambiguous. Both parties' interpretations are plausible and the term can reasonably be given a broader or a narrower meaning depending on the parties' intent. Accordingly, summary judgment is inappropriate.
The Todd Group also moved to dismiss Watumull's allegations of trespass, negligence, and nuisance. At oral argument, Watumull agreed to dismiss these claims. Accordingly, Watumull's common law claims for trespass, negligence, and nuisance against the Todd Group are dismissed.
3. XDP's Motion for Summary Judgment or, Alternatively, Partial Summary Judgment (Doc. #239)
XDP seeks a judgment that as a matter of law: (1) Sierra, the Freemans, and Watumull are strictly liable under federal and state law for clean-up costs related to the environmental contamination of the Site; (2) Watumull's common law claims should be dismissed; (3) XDP is not liable under any claim asserted against it because it did not dump contaminants on the ground and it is no longer the current owner of the XDP Property; and (4) even if XDP is liable, it is entitled to a zero apportionment of liability.
XDP argues that Sierra and the Freemans are liable as a matter of law because they are the past owners and operators of the manufacturing facility on the XDP Property that was responsible for the initial contamination of the Site. The Freemans do not dispute that Sierra and Walter and Alice Freeman are strictly liable, but assert that questions of fact exist as to whether John Freeman, Walter and Alice's son, is also strictly liable.
John Freeman held ownership interests in the Site at various times between 1976 and 1983. Walter and Alice Freeman conveyed an undivided ownership interest in the Site to John Freeman through Bargain and Sale Deeds dated December 30, 1976, January 24, 1977, December 29, 1978, and January 3, 1979. John Freeman deeded various undivided interests in the Watumull Property to Koll in 1980 and 1983. Accordingly, because John Freeman was an owner of the Site during a time in which contaminants were being released on the Site, John Freeman is liable as an owner.
In addition, John Freeman was an operator at the Production facility. He began as a purchasing and accounting agent for Production in 1971. He subsequently performed production scheduling for eighteen months before moving into sales. He eventually became general manager of Production, although he remained primarily a sales manager. Approximately six months before the Freemans sold the company, Walter named John Freeman president. At times, John Freeman acted as a temporary foreman, and if Walter went on vacation, John Freeman was responsible for running the facility. Accordingly, John Freeman is also liable as an operator. XDP's motion should be granted insofar as it pertains to strict liability against Sierra, Walter, Alice, and John Freeman.
XDP next argues that Watumull is liable as a matter of law because it is the current owner of a portion of the Site. Under CERCLA, an owner of property that was contaminated at the time of purchase is strictly liable unless it fall into one of the statutory exceptions. 42 U.S.C. § 9607(a)(1). Under the corresponding Oregon Superfund law, an owner of property is liable if it knew or reasonably should have known of the prior release of contaminants on the property.
O.R.S. 465.255(1)(b). As described above, genuine issues of material fact remain as to whether Watumull knew or reasonably should have known of the contamination on the XDP Property at the time of purchase. Accordingly, summary judgment as to this claim should be denied.
Watumull asserts common law claims against XDP. As stated above, state common law claims may be preempted if they interfere with the execution of the purposes and objectives of a federal statute. Henry, 125 F.3d at 1309. The court finds that Watumull's common law claims are preempted by CERCLA. In addition, there is no evidence that XDP has affirmatively engaged in any tortious acts or conduct. All common law claims against XDP should be dismissed.
XDP argues that it is not liable under any claim asserted against it because it is no longer the current owner of the XDP Property. This argument lacks merit. XDP was the owner of the XDP Property when it filed this suit in 1999 and when counter-claims were filed against it. The court declines to advance the theory that XDP circumvents this responsibility by transferring title after strict liability has attached and counter-claims have been asserted against it as a result of a lawsuit it initiated as owner. Absent reference to authority to the contrary, this court interprets the applicable statutory scope under CERCLA as permitting the possibility of liability being assessed against the party who was the owner and operator of a contaminated property and its facility at the time the suit was filed.
Moreover, there are genuine factual issues regarding whether contaminants were disposed on the XDP Property during the period of XDP's ownership, thereby making it liable as an owner or operator "who at the time of disposal of any hazardous substance owned or operated any facility at which such hazardous substances were disposed of. . . ." 42 U.S.C. § 9607(a)(2). Foster, Watumull's environmental consultant, opined that buried structures containing and releasing hazardous material into the ground water below the XDP Property existed prior to the time XDP purchased the property until those structures were discovered in 2001. See Ex. D to Foster Aff. In Foster's opinion, from at least the mid-1980s until July 2001, TCE and other contaminants were released into the soil and ground water on the Site.
Under Oregon's corresponding Superfund law, XDP is a potentially responsible party if it owned or operated a facility at or during a time the hazardous materials were released or if it owned or operated a facility after the time that hazardous materials were released if it knew or reasonably should have known of the release. O.R.S. 465.255(1). There is an issue of material fact as to whether XDP knew or should have known of any prior releases on the XDP Property at the time of purchase. The Oregon Health Department wrote a letter to Production in February 1989, two months prior to MPI's purchase of the property, discussing the contamination in the samples from the well water on the property. The letter stated, "The levels of contamination found in your water are greater than the recommended maximum levels. Therefore, we recommend that you do not use this water for drinking or for food or beverage preparation." See Ex. 17 to Affidavits and Declarations in Support of Summary Judgment Motion by XDP, Hongkong, MPI, and Carter. Additionally, Stuart Brown, the Freemans' environmental consultant, noted that a proper review of all of the environmental records required by the Standard would have identified the XDP Property "to not only be the location of a hazardous waste generator, but also a state hazardous waste site that had been under investigation since 1989." Affidavit of Stuart M. Brown, ¶ 7. A reasonable finder of fact could conclude that had XDP performed due diligence of the XDP Property prior to purchase, it would have discovered the contamination.
Issues of material fact also exist as to whether XDP is liable under contractual and successor liability theories. The general rule is that if a corporation buys another company's assets, it does not automatically become liable for all of the selling company's debts and liabilities. Erickson v. Grande Ronde Lumber Co., 92 P.2d 170, 174 (Or. 1939). Exceptions include where the successor company expressly assumes the predecessor company's liabilities, where the transaction is a consolidation or merger, and where the successor company is merely a continuation of the predecessor company. Id. The PPI Agreement between Hongkong and Todd stated that Hongkong acquired all or nearly all of Production's assets and also assumed certain liabilities. Hongkong then transferred the business to MPI. XDP assumed the liabilities of MPI. As explained above, there is a question of fact as to whether Hongkong agreed to pay and indemnify any environmental liabilities related to the XDP Property. If Hongkong so agreed, then XDP is potentially liable to pay and indemnify Todd.
XDP may be also liable as a successor-in-interest. The transfer of Production from Todd to MPI and then to XDP maintained a continuity of business operations: the same facility and substantially the same workforce were used; the same machinery, equipment, and methods of production were used; the same name, logo, and product were used; and the customer base remained substantially the same. See Tyree Oil, Inc. v. Bureau of Labor Indus., 7 P.3d 571 (Or.App. 2000) (discussed in more detail below). Accordingly, XDP's motion should be denied insofar as it pertains to a declaration that it is not liable under state or federal law.
As noted above, a determination of contribution liability is premature. Factual issues exist relating to the issue of apportionment, including the determination of relevant allocation factors, which parties may be responsible for the clean-up costs, and whether the costs incurred are reasonable or recoverable. Summary judgment regarding apportionment is, therefore, inappropriate.
4. Hongkong's Motion for Summary Judgment or, Alternatively, Partial Summary Judgment (Doc. #240)
Hongkong moves for an order granting summary judgment or, alternatively, partial summary judgment, in its favor as follows: (1) a judgment that Hongkong is not liable under CERCLA and/or RCRA, and the Oregon Superfund law; (2) a judgment that Sierra and the Freemans are strictly liable for response costs under CERCLA and/or RCRA and the Oregon Superfund law; (3) a judgment that Watumull is strictly liable for response costs under CERCLA and/or RCRA and the Oregon Superfund law; and (4) if the CERCLA and/or Oregon Superfund claims are not dismissed, a determination that Hongkong is entitled to a zero apportionment of responsibility for recoverable costs.
As stated above, the court finds that Sierra and the Freemans are strictly liable. Accordingly, Hongkong's motion should be granted insofar as it pertains to these parties' liability. Also, as stated above, questions of fact exist as to whether Watumull is strictly liable or whether it meets the innocent landowner exception. Accordingly, Hongkong's motion should be denied insofar as it pertains to Watumull's liability.
Hongkong also moves this court to dismiss Watumull's common law claims. For the reasons set forth above, Watumull's common law claims should be dismissed. Furthermore, Hongkong seeks a declaration that as a matter of law it is not strictly liable under any federal or state law. The court determines that questions of fact preclude the court from issuing such a declaration.
There are assertions that Hongkong is directly liable as an operator under CERCLA because it was in complete control of the finances of the facility, it hired and appointed the managers of the facility, managed the daily operations of the facility, and was involved with decisions made pursuant to the environmental contamination at the XDP Property. See 42 U.S.C. § 9601(20); Bestfoods, 524 U.S. at 67 ("[F]or purposes of CERCLA's concern with environmental contamination, an operator must manage, direct, or conduct operations specifically related to pollution, that is operations having to do with the leakage or disposal of hazardous waste, or decisions about compliance with environmental regulations."). Alternatively, Hongkong is alleged to be possibly liable under a variety of theories: (1) derivative liability; (2) successor liability; and/or (3) contractual assumption of liability.
When enforcing CERCLA's derivative liability terms, courts are divided as to whether state or federal common law must be followed. Bestfoods, 524 U.S. at 64 n. 9. Accordingly, this court analyzes the state and federal rules in turn.
The equitable power to pierce the corporate veil is an extraordinary one that is exercised only where there is clear evidence that those who control the corporation have used it to shield themselves improperly from responsibility. Salem Tent Awning Co. v. Schmidt, 719 P.2d 899, 903 (Or. 1986). However, courts will pierce the corporate veil under the appropriate circumstances to prevent fraud and inequity. Oregon's corporate veil piercing test was articulated in Amfac Foods, Incorporated v. International Systems Controls Corporation, 654 P.2d 1092 (Or. 1982). In Amfac, the Oregon Supreme Court recognized that there are three criteria for imposing liability on a shareholder: (1) the shareholder must have controlled the corporation; (2) the shareholder must have engaged in improper conduct in its exercise of control over the corporation; and (3) the shareholder's improper conduct must have caused the plaintiff's inability to obtain an adequate remedy from the corporation. Id. at 1101-02.
The Amfac court suggests several examples of improper conduct, including inadequate capitalization, milking, misrepresentation, commingling, holding out, and violating statutes. Id. at 1102-03. Failing to observe corporate formalities has also been cited as a basis for piercing the corporate veil. Rice v. Oriental Fireworks Co., 707 P.2d 1250, 1255-56 (Or.App. 1985).
Inadequate capitalization results from a corporation's failure to contribute sufficient capital to cover its reasonably anticipated liabilities. Gardner v. First Escrow Corp., 696 P.2d 1172, 1177-78 (Or. 1985). Factors in evaluating this include the nature and magnitude of the corporation's undertaking, the attendant risks, and ordinary operating costs associated with the corporation's business. Id. Inadequate capitalization is normally measured at the corporation's formation or at the beginning of its operations. Stirling-Wanner v. Pocket Novels, Inc., 879 P.2d 210, 213 (Or.App. 1994). Under Oregon law, a loan is not a capital investment because it does not increase the corporation's worth. Gardner, 696 P.2d at 1178.
The Ninth Circuit recognizes that a determination of whether or not to pierce the corporate veil is based upon three factors: (1) "the amount of respect given to the separate identity of the corporation by its shareholders; (2) the degree of injustice visited on the litigants by recognition of the corporate entity; and (3) the fraudulent intent of the incorporators." Seymour v. Hull Moreland Eng'g, 605 F.2d 1105, 1111 (9th Cir. 1979). Therefore, before the corporate veil is pierced, a court examines whether there is such a unity of interest and ownership that there is no longer a distinction between the corporation and the shareholder, and that the failure to disregard the corporation would result in fraud or injustice. Kransco Mfg., Inc. v. Markwitz, 656 F.2d 1376, 1378-79 (9th Cir. 1981).
Hongkong argues that it was the parent company for Tayside, XDP, and MPI, and that it was distinguishable from its subsidiaries. Moreover, even if Hongkong, Tayside, XDP, and MPI were insufficiently separate, this alone fails to compel piercing the corporate veil. Bd. of Tr.'s of Mill Cabinet Pension Trust Fund for N. Cal. v. Valley Cabinet Mfg. Co., 877 F.2d 769, 773 (9th Cir. 1989) (disrespect for a corporation's separate identity is insufficient to pierce the corporate veil).
The second element examines injustice to litigants. This may be met where the corporation abuses corporate formalities or is undercapitalized. RRX Indus., Inc. v. Lab-Con, Inc., 772 F.2d 543, 545-46 (9th Cir. 1985).
The third factor under the Ninth Circuit test is the fraudulent intent of the incorporators. Fraudulent intent can be shown by proof of fraud in the formation of the corporation, fraudulent misuse of corporate formalities after the incorporation, or undercapitalization. Valley Cabinet, 877 F.2d at 773-774; Laborers Clean-Up Contract Admin. Trust Fund v. Uriarte Clean-Up Serv. Inc., 736 F.2d 516, 524 (9th Cir. 1984).
Several parties to this litigation assert that the corporate veil should be pierced because Hongkong failed to respect corporate formalities, inadequately capitalized its subsidiaries, and commingled the assets and properties of the corporations. Hongkong also allegedly failed to respect corporate formalities when it created Tayside, XDP, and MPI. MPI was created to operate the facility at the XDP Property. XDP was intended to act as an intermediary corporation between MPI and Hongkong. Tayside was the apparent "grandparent" corporation.
In 1989 Hongkong appointed Christopher Page ("Page"), the vice-president and manager of the Portland Hongkong branch to be the sole director, president, and secretary of XDP. Page was the only employee of XDP and his salary was paid by Hongkong. Similarly, in 1990, David Dew ("Dew") became a manager at Hongkong's Portland branch and was later elected president and secretary of MPI. He was also elected the sole shareholder, director, and president of XDP. Dew did not receive compensation for serving as an officer and director of either MPI or XDP. Dew had no recollection of ever meeting with an employee of Tayside or giving a performance report to any officer or director of Tayside while he was president of MPI and XDP.
In 1994, Randolph Todd became manager of Hongkong's Portland branch. He was elected sole director, president, and secretary of XDP. It is undisputed that XDP did not have a separate office and conducted business solely from Hongkong's Portland branch. XDP lacked its own bookkeeper and instead relied on Hongkong's accountants in the Portland branch to maintain its account records. Additionally, Tayside had no other business purpose except as to act as a holding company for XDP. Tayside did not have an office independent of Hongkong's office. Tayside sent and received facsimiles in Hongkong's Nassau office. Kimball Ferris ("Ferris"), Hongkong's legal counsel, prepared documents for Tayside even though Tayside was not his client. Page directed Ferris to prepare the subscription agreement under which Tayside was authorized to purchase shares of stock for XDP.
MPI was also allegedly inadequately capitalized. Hongkong regularly lent and moved funds from its various subsidiaries, allegedly to give the appearance of capitalization. Tayside's financial records show that Tayside received and owed more than a million dollars in loans to Hongkong in 1990. These loans were listed as Tayside's "assets." In 1991, XDP's net interest income was negative twenty-two dollars and its operating income was fifty-eight dollars.
Moreover, there are disputes whether Hongkong co-mingled the accounts and assets of its subsidiaries. In June 1994, Carter became chief executive officer of MPI, dba, Revtek. Carter prepared and filed a tax appeal on behalf of XDP requesting that XDP receive a tax reduction for the facility at the XDP Property because of contamination on the property. When MPI transferred the XDP Property to XDP in 1991, Dew signed the deed as president of MPI, while still acting as president for XDP. Allegedly, MPI sold the XDP Property to XDP because Hongkong intended to sell the assets of MPI, but had environmental concerns regarding the property.
Accordingly, the parties assert that Hongkong should be held directly liable as an operator because it exercised sufficient power and influence over its subsidiaries by actively participating in, and exerting control over, the subsidiaries' business during a period of possible hazardous waste disposal. See Bestfoods, 524 U.S. at 66-68. Alternatively, the corporate shells of Tayside, XDP, and MPI should be pierced and their environmental liabilities imposed on Hongkong. See Idylwoods Assoc.'s v. Mader Capital, Inc., 915 F. Supp. 1290, 1306 (W.D.N.Y. 1996) (court decided to pierce the corporate veil where the parent company commingled its accounts with its subsidiary, all business relating to the subsidiary was conducted at the parent corporation's board of directors meetings, there was no evidence of any payroll for the subsidiary, the subsidiary did not have its own office, and the subsidiary's affairs were conducted from the parent corporation's office with the parent corporation's personnel).
Hongkong disputes that it exercised sufficient management and control over its subsidiaries to make it directly liable under CERCLA, or that it disregarded corporate formalities, inadequately capitalized its subsidiaries, or commingled the assets and accounts of its subsidiaries to make it derivatively liable under CERCLA. Hongkong also argues that it is excluded from liability under CERCLA and the Oregon Superfund law by virtue of the secured creditor exemption. Under CERCLA's definition of an owner or operator, anyone who "without participating in the management of a vessel or facility, holds indicia of ownership primarily to protect his security interest in the vessel or facility" is excluded from liability. However, a lender cannot sidestep liability if it became involved in substantial daily management control of the facility. 42 U.S.C. § 9601(20)(E)-(G); O.R.S. 465.200(20). If a lender did not become involved in substantial daily management control of the facility prior to foreclosure, then the fact that the lender prepared the facility for sale fails to transform it into an owner or operator as long as the lender sought a sale or divestment in a reasonable time and manner. 42 U.S.C. § 9601(20)(E)(ii).
Hongkong contends that it never participated in the operational management of MPI and that, after Hongkong reached a settlement with the Todd Group in April 1989, and MPI acquired the XDP Property, XDP made commercially reasonable efforts to sell the property within a reasonable time period. However, in light of the totality of the circumstances described above, the court concludes that questions of fact exist as to whether Hongkong controlled and managed the facility's operations. Questions of fact also exist as to whether Hongkong was merely protecting its security interest. A reasonable finder of fact could conclude that Hongkong was actively involved in the management of the facility from the time the Todd Group transferred Production's assets to it in 1989 until Carter purchased the XDP Property in 2000. The court also finds that there is sufficient evidence in the record from which a reasonable finder of fact could conclude that Hongkong incorporated Tayside, XDP, and MPI as sham corporations in order to shield itself from liabilities.
Hongkong further contends that there is no basis to impose contractual or successor liability against it. The court disagrees. As explained above, the court finds that Hongkong agreed to assume "all" liabilities and obligations related to the XDP Property when it entered into the PPI Agreement with Todd. Questions of fact exist as to whether environmental liabilities are encompassed within the meaning of the term "all." The court finds that Hongkong may be liable as a successor-in-interest for the same reasons that XDP is liable as a successor-in-interest.
The most recent Oregon case to consider successor liability is Tyree. In Tyree, Tyree Oil ("Tyree") entered into an "Agreement for Sale and Purchase of Business Assets" with Cumberland Distributing, Incorporated ("Cumberland"), whereby Tyree agreed to purchase Cumberland's assets. 7 P.3d at 572-73. The agreement specifically provided that all of Cumberland's liabilities not otherwise listed were to remain Cumberland's liabilities and obligations. Id. at 573. Cumberland subsequently terminated all of its employees and Tyree hired eight of the former Cumberland employees. Id. Tyree continued to use some of Cumberland's facilities, equipment, and other assets in the operation of its business while Cumberland continued its corporate existence. Id. When a former employee of Cumberland sought re-employment from Tyree, the Bureau of Labor and Industries ("BOLI") ordered Tyree to reinstate the former employee, arguing that Tyree was the successor to Cumberland Id.
BOLI relied on a nine-factor analysis. They include: whether the successor company has substantially continued the business operations of the predecessor company; whether the successor company used the same business facility, work force, machinery, equipment, methods of production, and product; and whether the same jobs existed under substantially the same working conditions. Id. at 574 (citing Slack v. Havens, 522 F.2d 1091, 1094-95 (9th Cir. 1975)). The Oregon Court of Appeals declined to address whether the nine-factor test applied to the facts of the case, and held that because Tyree only purchased Cumberland's assets it was not a successor employer. Id. at 574. The court reasoned that Cumberland remained a separate entity after the asset sale, that the two companies had completely different ownership and management, and that Tyree had made a number of changes to its business operations since its acquisition of Cumberland's assets. Id.
Contrary to the facts in Tyree, after XDP acquired title from MPI, it continued to use the same facility, substantially the same workforce, machinery, equipment, methods of production, name, logo, and product. The customer base also remained substantially the same. Hongkong contends that because both corporations remained after the asset acquisition and the identity of the stock and shareholders were different, Hongkong should not be considered a successor-ininterest. This argument is without merit.
The case that Hongkong cites in support of its proposition, Mozingo v. Correct Manufacturing Corporation, 752 F.2d 168 (5th Cir. 1985), fails to support Hongkong's position. In Mozingo, the Fifth Circuit stated that rather than making the existence of a single entity and identity of stock and shareholders solely dispositive, other factors should be considered. Id. at 175. These factors include whether the successor company retains the same production facilities, produces the same product, uses the same name, continues the same general business operations, and whether the successor company holds itself out as the continuation of the predecessor company. Id. These factors are nearly identical to the ones listed by the Oregon Court of Appeals in Tyree. For these reasons, the court finds that factual issues remain as to whether Hongkong could be liable as a successor-in-interest.
Hongkong further contends that even if it did agree to defend or indemnify Todd for environmental liabilities via the settlement agreement, it did not agree to do the same for Yazzolino, Thomas, and White, because they were not parties to the PPI Agreement and were not intended beneficiaries of that agreement. The court disagrees. Hongkong's contention is based on Section 14 of the PPI Agreement, which states in part: "Except as to the persons or entities named herein, nothing in this Agreement is intended to inure to the benefit of any third party or give any such third party any rights hereunder."
White and Yazzolino are expressly named in the PPI Agreement. See PPI Agreement, ¶ 6 ("[Hongkong] and its designee, acknowledge and will continue to honor Production Parts' obligations to . . . James O. White, and Peter Yazzolino, who respectively have from time to time invested money or property in Production Parts (Long Term Debt) and have heretofore been receiving on a regular basis repayment of Production Parts' obligation therefor."). Accordingly, the exclusionary language in Section 14 is inapplicable to White and Yazzolino.
Moreover, the PPI Agreement was specifically intended to benefit Yazzolino, Thomas, and White. When Production bought out Yazzolino, Thomas, and White, their respective interests were assumed by Todd. Todd gave Yazzolino an indemnity agreement when Yazzolino abdicated his interest in Production to Todd. International provided Thomas an indemnity when Thomas withdrew from the partnership. By 1986, Todd owned or controlled the individual interests held by Yazzolino, Thomas, and White. Thus, when the PPI Agreement was executed between Todd and Hongkong, Hongkong assumed those obligations as well. The PPI Agreement makes clear that Todd and Production intended to resolve claims arising out of the ownership and operation of the Production business. Because Todd or Production owed obligations to Yazzolino, Thomas, and White, and Hongkong agreed to assume Todd and Productions' obligations, Yazzolino, Thomas, and White are intended beneficiaries of that agreement.
Hongkong also moves for a determination that it is entitled to a zero apportionment of responsibility for recoverable costs. As stated above, the court finds determinations of responsibility to be premature.
5. Revtek and Carter's Motion for Summary Judgment or, Alternatively, Partial Summary Judgment (Doc. #241)
Revtek and Carter move for an order granting summary judgment or, alternatively, partial summary judgment in their favor as follows: (1) a judgment dismissing all claims against Revtek and Carter as a matter of law; (2) a judgment that Sierra and the Freemans are strictly liable under CERCLA and/or RCRA, and the Oregon Superfund law; (3) a judgment that Watumull is strictly liable under CERCLA and/or RCRA, and the Oregon Superfund law; and (4) a declaration that Revtek and Carter are entitled to a zero apportionment of responsibility.
As stated above, the court finds that Sierra and the Freemans are strictly liable under federal and state law. Thus, Revtek and Carter's motion should be granted insofar as it pertains to this claim. No parties provided RCRA notice to Revtek and Carter. Accordingly Revtek and Carter are not liable under RCRA. Finally, all common law claims should be dismissed for the reasons provided above. The court now turns to the question of whether the remaining claims against Revtek and Carter should be dismissed in whole or in part.
Revtek and Carter argue that they are not liable under either CERCLA or the Oregon Superfund law because there was no evidence of any disposal of contaminants on the XDP Property after they acquired ownership of the land However, this argument addresses only a previous owner's liability under CERCLA. CERCLA is unequivocal that strict liability extends to current owners or operators of a facility at or from which a release of hazardous substances has occurred. 42 U.S.C. § 9607(a)(1); State of Idaho v. Hanna Min. Co., 882 F.2d 392, 395 (9th Cir. 1989) ("CERCLA explicitly imposes liability on current owners for hazardous substances dumped by previous owners."). Carter, the former general manager and CEO of MPI, purchased MPI's assets from Hongkong in 1995. Carter remained the CEO of MPI, doing business as Revtek, until 1995. When Carter negotiated with Hongkong for the purchase of the XDP Property, Carter requested indemnification from Hongkong with respect to the contamination. At first, Hongkong agreed to indemnify Revtek for the contamination, but later refused because Hongkong claimed it had made a potentially inaccurate assessment of the contamination on the XDP Property. Given this, the court concludes that there are questions of fact as to whether Carter knew of the environmental condition of the XDP Property when he purchased it so as to make Carter liable under the Oregon Superfund law. See O.R.S. 465.255(1)(b).
Carter and Revtek are current operators of the facility on the XDP Property. Carter Properties, LLC, is the current owner of the XDP Property. Carter formed Carter Properties and has managed its affairs. Accordingly, Carter and Revtek are strictly liable under CERCLA for clean-up costs, regardless of whether they caused or contributed to disposal on the property. In addition, there are genuine factual issues regarding whether Carter and Revtek are liable under Oregon's Superfund law because they owned or operated a facility after the time that hazardous materials were released and knew or reasonably should have known of the release. Therefore, Revtek and Carters' motion for summary judgment should be denied insofar as it pertains to a judgment that they are not liable under CERCLA and/or the Oregon Superfund law.
Carter and Revtek also seek a declaration that they are entitled to a zero apportionment of liability as a matter of law. As stated above, the court finds this issue to be premature.
6. Motions for Leave to Amend (Docs. #327, 335)
If responsive pleadings have been filed and the action has been placed on the trial calendar, "a party may amend the party's pleading only by leave of court or by written consent of the adverse party; and leave shall be freely given when justice so requires." Fed.R.Civ.P. 15(a). This rule is "to be applied with extreme liberality." Morongo Band of Mission Indians v. Rose, 893 F.2d 1074, 1079 (9th Cir. 1990). Absent bad faith, undue delay, prejudice to the opposing party, or futility, a motion for leave to amend should be granted. DCD Programs, Ltd. v. Leighton, 833 F.2d 183, 186 (9th Cir. 1987).
Third-party defendant Yazzolino moves for a leave to amend the pleadings to assert fourth-party claims against Hongkong Shanghai Banking Corporation Bank USA ("Hongkong USA") and Hongkong Shanghai Banking Corporation Canada ("Hongkong Canada"). Additionally, the Todd Group moves for leave to amend the pleadings to assert fourth-party claims against Carter Properties. The court analyzes these motions in turn.
Sierra and the Freemans filed a Notice of Joinder with the Todd Group's Motion.
Yazzolino seeks to add Hongkong USA and Hongkong Canada as parties because they succeeded Hongkong in the operation of Hongkong's Portland office. As discussed above, there are numerous claims against Hongkong under various theories including direct and derivative liability under federal and state environmental statutes. Hongkong USA and Hongkong Canada were involved in the operation and control of the XDP Property between 1995 and 2000. For these reasons, Yazzolino asserts that these two corporations are necessary parties to this litigation.
Hongkong opposes this motion, arguing that it is untimely because Yazzolino has known the facts upon which the claims are premised since May 2003. The facts that form the basis of Yazzolino's proposed amendment are that Hongkong USA and Hongkong Canada employed Randolph Todd between 1995 and the present while Randolph Todd was also an officer and director of XDP. Hongkong argues that these facts were known to Yazzolino in May 2003 when Randolph Todd testified that he had been an employee of Hongkong USA and Hongkong Canada during the period of time that he was not employed by Hongkong. In addition, Hongkong asserts that adding these two parties at this juncture would prejudice all parties involved and unduly complicate trial of this case. The court disagrees.
The court finds that at the time cross-claims were filed in this case, Yazzolino did not know that Hongkong USA and Hongkong Canada conducted business in Oregon on behalf of XDP and MPI. It was not until Hongkong responded to Yazzolino's interrogatories that Yazzolino had sufficient facts to assert a claim against Hongkong USA and Hongkong Canada. In its response, Hongkong stated that Hongkong Canada operated in Portland from 1995 until 2002. Currently, Hongkong USA operates in the Portland office. Between 1995 and 1999, managers of Hongkong USA and Hongkong Canada were also officers and directors of XDP and MPI. Although Randolph Todd testified in May 2003 that he was an employee of Hongkong USA and Hongkong Canada, the court finds that this was insufficient factual information upon which Yazzolino could base a claim. Moreover, the court finds that the claims in Yazzolino's proposed motion are premised on many of the same facts and legal theories as previously asserted against Hongkong. Hongkong USA and Hongkong Canada will not be unduly prejudiced by being added to this already complex multiparty litigation. Yazzolino's motion is granted.
The Todd Group seeks to add Carter Properties as a party to this litigation because the proposed claims are related to and arise out of the same set of transactions and occurrences in which Carter Properties became owner of the XDP Property. The court concludes that the Todd Group learned that Carter Properties was the current owner of the property in October 2003. Carter and others oppose this motion arguing that the motion is untimely and prejudicial. The court has considered the opposing arguments and concludes that they lack merit. The Todd Group's motion to add Carter Properties should be granted.
CONCLUSION
For the reasons provided above, the court rules as follows: (1) Watumull's Motion for Summary Judgment (Doc. #202) should be granted in part and denied in part; (2) the Todd Group's Motion for Summary Judgment (Doc. #229) should be granted in part and denied in part; (3) XDP's Motion for Summary Judgment or, Alternatively, Partial Summary Judgment (Doc. #239) should be granted in part and denied in part; (4) Hongkong's Motion for Summary Judgment, or Alternatively, Partial Summary Judgment (Doc. #240) should be granted in part and denied in part; (5) Carter and Revteks' Motion for Summary Judgment or, Alternatively, Partial Summary Judgment (Doc. #241) should be granted in part and denied in part; (6) Yazzolino's Motion for Leave to Amend the Complaint (Doc. #327) should be granted; (7) the Todd Group's Motion to Alter, Amend, or Correct the Complaint (Docs. #335, #346) should be granted; and (8) the Todd Group's Motion to Strike XDP's Response Letter (Doc. #360) should be denied.
SCHEDULING ORDER
The above Findings and Recommendation will be referred to a United States District Judge for review. Objections, if any, are due June 1, 2004. If no objections are filed, review of the Findings and Recommendation will go under advisement on that date. If objections are filed, a response to the objections is due fourteen days after the date the objections are filed and the review of the Findings and Recommendation will go under advisement on that date.IT IS SO ORDERED.