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MOBAY CORP. v. ALLIED-SIGNAL

April 2, 1991

MOBAY CORPORATION, PLAINTIFF,
v.
ALLIED-SIGNAL, INC., ET AL., DEFENDANT.



The opinion of the court was delivered by: Wolin, District Judge.

  CORRECTED SUPERCEDING OPINION

This case requires resolution of complex issues regarding the scope of liability under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. § 9601 et seq. (CERCLA). "The meager legislative history available [for CERCLA] indicates that Congress expected the courts to develop a federal common law to supplement the statute." Smith Land & Improvement Corp. v. Celotex Corp., 851 F.2d 86, 89 (3d Cir.1988), cert. denied, 488 U.S. 1029, 109 S.Ct. 837, 102 L.Ed.2d 969 (1989). The issues presented in this case require this Court to develop federal common law to settle some open questions in the statutory scheme.

Before the Court are two summary judgment motions. In the first motion, defendant American Home Products Corporation ("AHP") has moved for summary judgment on both CERCLA and state law issues raised in plaintiff Mobay Corporation's ("Mobay") complaint and co-defendant Allied-Signal, Inc. ("Allied") cross-claims against AHP. AHP urges the Court to accept its interpretation of CERCLA and rule that AHP cannot be held liable under CERCLA as a matter of law. This Court finds that such a narrow interpretation of CERCLA contradicts the aims of the statute and it will deny summary judgment to AHP on the CERCLA claims. However, with regard to the pendent state law claims, the Court will grant Mobay leave to amend its complaint and Allied leave to amend its cross-claim to state a cause of action based on piercing the corporate veil.

The second motion before the Court is plaintiff Mobay's motion for partial summary judgment striking defendant Allied's fifth affirmative defense. In this defense, Allied claims that the Assumption Agreement between Allied and Mobay's corporate predecessor*fn1 relieved Allied of all liability under CERCLA. Allied opposes this motion and has filed a cross-motion to compel discovery regarding the Assumption Agreement. The Court finds that, because the Assumption Agreement failed to include a clear release of Allied's CERCLA or environmental liability, Allied may not rely on the Assumption Agreement as a defense. The Court will therefore dismiss Allied's fifth affirmative defense as to Mobay's CERCLA claims and deny Allied's motion to compel discovery.

I. BACKGROUND

A. The Haledon Site

From 1936 to 1942, Harmon Color Works ("Harmon") owned a 48 acre parcel of land located in Haledon Borough, New Jersey ("the site") on which it manufactured organic pigments utilized by the paint industry. In 1942, Harmon sold all of its stock to AHP. During the time that AHP owned Harmon, Harmon continued the manufacture of organic pigments. Also during AHP's ownership, Harmon was merged for approximately a year with the Marietta Dyestuffs Corporation, which was sold by AHP as a separate division in 1946.

In 1950, AHP sold the stock of Harmon to B.F. Goodrich ("Goodrich"). From 1950 until 1959, Goodrich continued Harmon's business at the site. In 1959, Goodrich sold Harmon, including the site, to Allied Chemical Corporation, a predecessor of Allied. Allied Chemical conducted the same business at the site until 1977. On January 17, 1977 Harmon Colors Corporation ("Harmon Colors"), a wholly owned subsidiary of Rhinechem Corporation, purchased all the assets of the Harmon business and the site from Allied Chemical pursuant to a Purchase Agreement dated September 17, 1976. In 1977, Harmon Colors and Allied Chemical signed an Assumption Agreement in which Harmon Colors assumed certain liabilities related to the site. In 1981, Harmon Colors was merged into Mobay, another subsidiary of Rhinechem. As a result of the merger, Mobay emerged as the surviving corporate entity and owner of the Harmon chemical business and the site.

B. Environmental Cleanup Required

On March 27, 1984, the New Jersey Department of Environmental Protection ("NJDEP") notified Mobay that it suspected the existence of areas of environmental concern at the site. NJDEP directed Mobay, as the site's present owner, to submit a proposal to investigate conditions at the site. After a series of letters and meetings, NJDEP conditionally approved Mobay's proposal on September 9, 1985. In 1986, analytical results of certain groundwater samples taken at the site indicated the presence of volatile organic compounds and heavy metals, including cadmium, chlorobenzene, hexavalent chromium, lead, tetrachloroethylene, vinyl chloride and zinc, which are considered hazardous substances under CERCLA.

NJDEP advised Mobay in December, 1986 that a remedial investigation and feasibility study ("RI/FS") was necessary to define the nature and extent of contamination and to analyze remedial alternatives. Mobay and NJDEP subsequently executed an administrative consent order ("ACO") which became effective on July 8, 1988. The ACO requires Mobay to implement an RI/FS and remedial measures at the site. By October, 1989 Mobay had implemented interim remedial measures, expending $759,000. Mobay estimates that the RI/FS will cost approximately $1,750,000 but is unable to calculate the ultimate cost of cleaning up the site after the RI/FS is completed.

C. Claims in This Suit

On October 17, 1989 Mobay brought this suit against Allied, Goodrich and AHP alleging both federal and state claims for recovery of the investigation and cleanup costs at the site. Counts One and Two of Mobay's complaint allege that defendants are liable for their share of environmental response costs, under CERCLA § 107 and § 113, respectively. 42 U.S.C. § 9607 (direct liability of owners and operators of a facility) and § 9613 (liability for contribution). Counts Three through Eight of Mobay's complaint allege various state law claims against the defendants.*fn2

II. DISCUSSION

A. Standard for Summary Judgment

Summary judgment is appropriate where there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56. The party moving for summary judgment has the burden of showing that there is no genuine issue of material fact, and once the moving party has sustained this burden, the opposing party must introduce specific evidence showing that there is a genuine issue for trial. Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Williams v. Borough of West Chester, 891 F.2d 458, 464 (3d Cir.1989).

A genuine issue is not established unless the evidence, viewed in a light most favorable to the nonmoving party, would allow a reasonable jury to return a verdict for that party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49, 106 S.Ct. 2505, 2510-11, 91 L.Ed.2d 202 (1986); Radich v. Goode, 886 F.2d 1391, 1395 (3d Cir.1989). If the evidence is merely colorable or is not significantly probative, summary judgment may be granted. Anderson, 477 U.S. at 249-50, 106 S.Ct. at 2510-11; Radich, 886 F.2d at 1395. Whether a fact is material is determined by substantive law. Anderson, 477 U.S. at 248, 106 S.Ct. at 2510; United States v. 225 Cartons, 871 F.2d 409, 419 (3d Cir.1989).

Rule 56(c) mandates the entry of summary judgment against a party who fails to make a showing sufficient to establish the existence of an element essential to his case, and on which he will bear the burden of proof at trial. Celotex, 477 U.S. at 322, 106 S.Ct. at 2552; Appelmans v. City of Philadelphia, 826 F.2d 214, 216 (3d Cir. 1987). Rule 56(e) requires the nonmoving party to go beyond the pleadings and by affidavits, depositions, interrogatory answers, and admissions on file, designate specific facts showing that there is a genuine issue for trial. Celotex, 477 U.S. at 323-24, 106 S.Ct. at 2553; Cooley v. Pennsylvania Housing Finance Agency, 830 F.2d 469, 474 (3d Cir.1987).

B. Development of Federal Common Law Under CERCLA

CERCLA's principal goal is decisive action to begin remediation of the nation's major hazardous waste sites.*fn3 A fundamental policy underlying CERCLA is to accomplish this objective at the primary expense of private responsible parties rather than taxpayers. The House Report explained that the purpose of § 107 of CERCLA is "to provide a mechanism for prompt recovery of monies expended for the costs of [remedial actions] . . . from persons responsible therefor and to induce such potentially liable persons to pursue appropriate environmental response actions voluntarily." H.R.Rep. No. 1016, 96th Cong., 2d Sess., pt. 1, at 33 (1980), reprinted in 1980 U.S.Code Cong. & Admin.News 6119, 6136.

The motions before the Court require the Court to resolve two central issues: (1) what test should determine a parent corporation's CERCLA liability for acts of its subsidiaries, and (2) what standard should be employed to interpret a contract purporting to release CERCLA liability. As a preliminary matter, the Court must decide whether these questions should be answered by state or federal common law.

1. Parent Corporation Liability

With regard to the first question, whether a parent corporation should be held liable as an "owner" or "operator" for the activities of a subsidiary, it is clear that federal common law should be employed to interpret CERCLA. United States v. Nicolet, Inc., 712 F. Supp. 1193, 1201-02 (E.D. Pa.1989); In re Acushnet River & New Bedford Harbor Proceedings, 675 F. Supp. 22, 31 (D.Mass.1987).*fn4 To achieve CERCLA's remedial goals of protecting public health and the environment, courts are "obligated to construe its provisions liberally." Dedham Water Co. v. Cumberland Farms Dairy, Inc., 805 F.2d 1074, 1081 (1st Cir. 1986). See also New York v. Shore Realty Corp., 759 F.2d 1032, 1045 (2d Cir.1985).

CERCLA's legislative history reveals that Congress intended that the courts should develop federal common law to fill in the gaps in the statute. For example, Representative Florio, CERCLA's House sponsor, stated: "To insure the development of a uniform rule of law, and to discourage business[es] dealing in hazardous substances from locating primarily in states with more lenient laws, the bill will encourage the further development of a Federal common law in [the CERCLA liability] area of law." 126 Cong.Rec. H11787 (daily ed. Dec. 3, 1980).

In addition, other courts have recognized that state common law rules should not be applied to override federal legislative policies and have been willing "to disregard it if the interests of public convenience, fairness, and equity so demand." United States v. Mottolo, 695 F. Supp. 615, 624 (D.N.H.1988). The Mottolo court found that the lack of a federal common law rule of veil-piercing could frustrate CERCLA's goal of imposing liability on responsible parties. Id. The court also found CERCLA's broad imposition of liability and its silence on the subject of ...


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