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STEARNS & FOSTER BEDDING CO. v. FRANKLIN HOLDING C

December 3, 1996

STEARNS & FOSTER BEDDING COMPANY, Plaintiff,
v.
FRANKLIN HOLDING CORPORATION, a New York Corporation, THE FRANKLIN CORPORATION - SBIC, a New York Corporation, M&T CAPITAL CORPORATION, a New York Corporation, NYCON CAPITAL CORPORATION, a New York Corporation, RAND CAPITAL CORPORATION, a New York Corporation, R.C. MEMHARD & CO., a Connecticut Corporation, STOP-FIRE INC., a Delaware Corporation, STOP-FIRE INC., a New Jersey Corporation, I.M.P. CO., a New Jersey Partnership, JOSEPH J. McGUIRE, RICHARD C. MEMHARD, VINCENT PROTANO, MARTIN S. ORLAND, ESTATE OF MACY NURKIEWICZ, ESTATE OF IGNATIUS NURKIEWICZ, Defendants.



The opinion of the court was delivered by: ORLOFSKY

Table of Contents

 I. FACTS AND PROCEDURAL HISTORY

 II. STANDARD FOR SUMMARY JUDGMENT

 III. DISCUSSION

 A) Private Party Actions Under CERCLA Section 107(a)

 B) Operator Liability Under CERCLA

 
(1) Introduction
 
(2) The Actual Control Standard
 
(3) Franklin's Operator Liability
 
(4) M&T's Operator Liability
 
(5) Rand's Operator Liability
 
(6) Agency Liability of M&T and Rand

 C) The Continuity of Enterprise Theory

 D) The New Jersey Spill Act

 E) Martin S. Orland's Motion for Summary Judgment

 F) NYCON's Motion for Summary Judgment

 G) The Nurkiewicz Defendants' Motion to Approve Settlement

 H) The Motions to Strike

 IV. CONCLUSION

 ORLOFSKY, District Judge:

 This action has been brought by Stearns & Foster Bedding Corp. ("Stearns & Foster"), a manufacturer of mattresses and box springs, pursuant to the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. §§ 9601-9675, and the statutory and common law of New Jersey. In Count One of its Third Amended Complaint, plaintiff seeks to recover response costs under CERCLA Section 107(a), 42 U.S.C. § 9607(a), in relation to pollution remediation activities undertaken at a facility currently owned by Stearns & Foster. In Count Two, plaintiff seeks contribution under CERCLA Section 113(f)(1), 42 U.S.C. § 9613(f)(1). Stearns & Foster also seeks contribution pursuant to the New Jersey Spill Compensation and Control Act ("Spill Act"), N.J. Stat. Ann. § 58:10-23.11f(a)(2), as well as damages and equitable relief under the common law of New Jersey. Several defendants have filed counterclaims against Stearns & Foster and cross-claims seeking indemnity and/or contribution. Jurisdiction is conferred upon this court by 28 U.S.C. §§ 1331 and 1367(a).

 There are no fewer than nine motions and cross-motions presently before the court. Defendants, Franklin Holding Corp. and the Franklin Corp. - SBIC (collectively "Franklin"), have filed a motion for summary judgment. Defendant, M&T Capital Corp. ("M&T"), has filed a motion for summary judgment. Defendant, Rand Capital Corp. ("Rand") has filed a motion for summary judgment. Defendant, Martin S. Orland ("Orland"), seeks summary judgment dismissing Counts One through Eight of the Third Amended Complaint as against him. Defendant, NYCON Capital Corp. ("NYCON"), has filed a motion for summary judgment. In addition, plaintiff, Stearns & Foster, has moved for partial summary judgment on the issue of CERCLA liability against defendants, Franklin Holding Corp., M&T Capital Corp. and Rand Capital Corp.

 On separate issues, defendants, I.M.P. Co., the Estate of Ignatius Nurkiewicz and the Estate of Macy Nurkiewicz (the "Nurkiewicz defendants"), have filed a motion to approve a settlement with Stearns & Foster and to dismiss with prejudice the cross-claims of the other defendants. Two of the defendants, M&T and Rand, have filed motions seeking to strike the certifications of Jose Morera, Carmelo Figueroa, and Oscar Franz and the affidavits of George Gilkie, Peter Edmonds, and Steven Morabito, all of which have been presented in support of Stearns & Foster's motion for partial summary judgment.

 These motions require this court to decide: (1) whether a plaintiff, who is also a potentially responsible party under CERCLA, may sue for response costs under Section 107; (2) whether the summary judgment record supports the imposition of CERCLA liability upon any, or all, of the companies which provided capital to Stop Fire-DE and Stop Fire-NJ, because these companies actually controlled the day-to-day operations of Stop Fire-DE and Stop Fire-NJ at a time when hazardous waste disposal took place; (3) whether Stop Fire-NJ is responsible for any CERCLA liability which attaches to its predecessor companies, Stop Fire-NY and Stop Fire-DE; (4) whether Franklin's Executive Vice President, Martin S. Orland, may be held personally liable for contamination at the Site; and, (5) whether affidavits and certifications filed after the close of discovery may be considered in the summary judgment record in this case.

 I. Facts and Procedural History

 As is typical in CERCLA actions, the facts are largely undisputed, although the legal conclusions to be drawn from those facts are vigorously contested. This case concerns responsibility for environmental pollution at a twenty-one acre site in South Brunswick, New Jersey, now owned by Stearns & Foster (the "Site"). Until November, 1979, the Site was used primarily for the manufacture of fire extinguishers under the brand name "Stop-Fire." From 1979 until 1991, the Site was used by Stearns & Foster for its bedding manufacturing operations.

 The Site, then a farm, was purchased in 1953 by the Ashwill Corporation, a New York holding company owned by Ignatius, Macy and Paul Nurkiewicz. Ashwill Corporation was dissolved on August 24, 1970, and ownership of the Site was transferred to I.M.P. Company, a New Jersey Partnership formed by Ignatius, Macy and Paul Nurkiewicz. While the Site was owned by the Nurkiewiczes, the fire extinguisher manufacturing operations were conducted by a series of companies using the "Stop-Fire" brand name, beginning with Union Parts Manufacturing Company ("Union") and Stop Fire, Inc., a New York Corporation ("Stop Fire-NY").

 Union and Stop Fire-NY were purchased in September, 1973, by a newly-formed Delaware corporation, Stop Fire, Inc. ("Stop Fire-DE"). Financing for the purchase was provided to Stop Fire-DE by Franklin and M&T. Additional financing was provided to Stop Fire-DE in 1975, by Franklin, M&T and Rand (the "Investor Group").

 Pursuant to Bankruptcy Rules then in effect, Stop Fire-DE was adjudicated a bankrupt by a consent order entered in this court on April 23, 1976. On May 19, 1976, Stop Fire, Inc., was newly incorporated as a New Jersey corporation ("Stop Fire-NJ"). On June 3, 1976, Franklin, acting for itself and on behalf of M&T, purchased the physical assets of Stop Fire-DE from the bankruptcy trustee. On the following day, June 4, 1976, Franklin and M&T transferred these physical assets to Stop Fire-NJ.

 Stearns & Foster contends that it never used chlorinated solvents in its manufacturing process. On the other hand, it is undisputed that, as part of the fire extinguisher manufacturing process, the various Stop Fire entities utilized chemical degreasers containing chlorinated solvents in order to prepare canisters and other metal parts for painting. There is undisputed testimony that, on at least one occasion, employees of Stop Fire emptied drums onto the ground at the Site. It is assumed, for purposes of these motions, that those drums contained solvents from the parts cleaning process. It is contended by Stearns & Foster, and supported by affidavit testimony, that such disposal of solvents continued throughout the tenure of the various Stop Fire entities at the Site.

 The investor companies, Franklin, M&T and Rand, vigorously dispute the assertion that solvents were dumped at any time during which they were in any way connected with the Site and have moved to strike the affidavits and certifications which Stearns & Foster has presented in support of this contention.

 II. Standard for Summary Judgment

 The standard for summary judgment requires that this court view the underlying facts and all reasonable inferences arising from those facts in the light most favorable to the party opposing the motion. Pennsylvania Coal Ass'n v. Babbitt, 63 F.3d 231, 236 (3d Cir. 1995) (citation omitted); see also Helen L. v. DiDario, 46 F.3d 325, 329 (3d Cir.), cert. denied, 116 S. Ct. 64, (1995); Valhal Corp. v. Sullivan Assocs., Inc., 44 F.3d 195, 200 (3d Cir. 1995); Goodman v. Mead Johnson & Co., 534 F.2d 566, 573 (3d Cir. 1976), cert. denied, 429 U.S. 1038, 50 L. Ed. 2d 748, 97 S. Ct. 732 (1977).

 Summary judgment should be granted only if this court concludes that "there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). The moving party bears the burden of proving that no genuine issue of material fact is in dispute. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 n.10, 89 L. Ed. 2d 538, 106 S. Ct. 1348 (1986). The district court must grant summary judgment when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Orson, Inc. v. Miramax Film Corp., 79 F.3d 1358, 1366 (3d Cir. 1996).

 The party may seek summary judgment on an issue on which its adversary will bear the burden at trial, by "pointing out to the district court that there is an absence of evidence to support the nonmoving party's case. Celotex Corp. v. Catrett, 477 U.S. 317, 325, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). There is no requirement that the moving party "support its motion with affidavits or similar materials negating the opponent's claim." Id.

 Once the moving party has carried its initial burden, the nonmoving party "must come forward with 'specific facts showing that there is a genuine issue for trial.'" Matsushita, 475 U.S. at 587 (quoting Fed. R. Civ. P. 56(e)) (emphasis added in Matsushita). When challenged on an essential element of its claim, the non-movant must present evidence in support of its claim in order to survive summary judgment. Celotex, 477 U.S. at 324.

 The question for this court, then, is whether the opponents of summary judgment have presented sufficient evidence to create a dispute regarding a genuine issue of material fact, viewing the evidence in the light most favorable to them. Gottshall v. Consolidated Rail Corp., 56 F.3d 530 (3d Cir. 1995); Big Apple BMW, Inc. v. BMW of N. Am., Inc., 974 F.2d 1358, 1363 (3d Cir. 1992), cert. denied, 507 U.S. 912, 122 L. Ed. 2d 659, 113 S. Ct. 1262 (1993); Nathanson v. Medical College of Pennsylvania, 926 F.2d 1368, 1381 (3d Cir. 1991). "Facts that could alter the outcome are 'material', and disputes are 'genuine' if evidence exists from which a rational person could conclude that the position of the person with the burden of proof on the disputed issue is correct." Horowitz v. Federal Kemper Life Assurance Co., 57 F.3d 300, 302 n.1 (3d Cir. 1995) (citations omitted).

 III. Discussion

 A) Private Party Actions Under CERCLA Section 107(a)

 Stearns & Foster asserts two independent causes of action against the defendants under CERCLA. First, Stearns & Foster seeks to maintain a direct, private party cost recovery action against the defendants under 42 U.S.C. § 9607(a) (CERCLA Section 107(a)) to secure reimbursement for "all legally recoverable response costs incurred or to be incurred by Stearns & Foster." Third Amended Complaint, Count One, P 101(a). Second, Stearns & Foster seeks, apparently in the alternative, to maintain an action against the defendants under 42 U.S.C. § 9613(f) (CERCLA Section 113(f)) to recover "contribution for all response costs incurred or to be incurred by Stearns & Foster." Third Amended Complaint, Count II, P 108(a).

 Section 107(a) of CERCLA states, in pertinent part:

 
Notwithstanding any other provision or rule of law, and subject only to the defenses set forth in subsection (b) of this section--
 
(1) the owner and operator of a vessel or a facility,
 
(2) any person who at the time of disposal of any hazardous substance owned or operated any facility at which such hazardous substances were disposed of,
 
(3) any person who by contract, agreement, or otherwise arranged for disposal or treatment, or arranged with a transporter for transport for disposal or treatment, of hazardous substances owned or possessed by such person, by any other party or entity, at any facility or incineration vessel owned or operated by another party or entity and containing such hazardous substances, and
 
(4) any person who accepts or accepted any hazardous substances for transport to disposal or treatment facilities, incineration vessels or sites selected by such person, from which there is a release, or a threatened release which causes the incurrence of response costs, of a hazardous substance, shall be liable for--
 
(A) all costs of removal or remedial action incurred by the United States Government or a State or an Indian tribe not inconsistent with the national contingency plan;
 
(B) any other necessary costs of response incurred by any other person consistent with the national contingency plan;
 
(C) damages for injury to, destruction of, or loss of natural resources, including the reasonable costs of assessing such injury, destruction, or loss resulting from such a release; and
 
(D) the costs of any health assessment or health effects study carried out under section 9604(i) of this title.

 42 U.S.C. § 9607(a).

 Under Section 107 of CERCLA, a plaintiff must meet four elements to establish liability: (1) that a hazardous substance was disposed of at a "facility;" (2) that there has been a "release" or a "threatened release" of a hazardous substance from the facility into the environment; (3) that the release or threatened release has required or will require the expenditure of "response costs;" and (4) that the defendant falls within one of four categories of responsible parties. 42 U.S.C. § 9607(a); see United States v. CDMG Realty Co., 96 F.3d 706, NO. 95-5505, 1996 WL 548123, *3 (3d Cir. Sept. 27, 1996) (To be reported at: 96 F.3d 706). If these four requirements are met, a responsible party may be held liable for response costs under § 9607(a) regardless of intent. See United States v. Alcan Aluminum Corp., 964 F.2d 252, 259 (3d Cir.), reh'g and reh'g in banc denied, 964 F.2d 271 (3d Cir. 1992) ("CERCLA imposes strict liability on responsible parties."). Furthermore, unless the defendants can prove that the harm is "divisible," liability under Section 107 is joint and several.

 Section 113 states, in pertinent part:

 
Any person may seek contribution from any other person who is liable or potentially liable under section 9607(a) of this title, during or following any civil action under . . . section 9607(a) of this title. Such claims shall be brought in accordance with this section and the Federal Rules of Civil Procedure, and shall be governed by Federal law. In resolving contribution claims, the court may allocate response costs among liable parties using such equitable factors as the court determines are appropriate. Nothing in this subsection shall diminish the right of any person to bring an action for contribution in the absence of a civil action under . . . section 9607 of this title.

 42 U.S.C. § 9613(f)(1).

 As a preliminary matter, this court must decide whether Stearns & Foster may maintain a cost recovery action under Section 107, or whether, as defendants contend, it is limited to a contribution action under Section 113(f). The basic difference between these causes of action is that, in Stearns & Foster's Section 107(a) cause of action, it is attempting to hold the defendants liable "jointly and severally" for its total response costs, whereas its Section 113(f) cause of action can only result in each defendant's "several" liability for its portion of the total response costs, calculated according to "such equitable factors as the court determines are appropriate."

 The question whether one Responsible Party ("RP"), or Potentially Responsible Party ("PRP"), *fn3" can sue another under Section 107 has not been addressed by the United States Court of Appeals for the Third Circuit. However, among the district courts, within and without this district, the issue has been frequently addressed, and has been resolved in diametrically opposing fashions. Some courts have held that a PRP can sue another PRP under Section 107, and the defendant PRPs will be held "jointly and severally" liable, if the plaintiff prevails. See Bethlehem Iron Works, Inc. v. Lewis Industries, Inc., 891 F. Supp. 221 (E.D. Pa. 1995); Companies for Fair Allocation v. Axil Corp., 853 F. Supp. 575 (D. Conn. 1994); City of North Miami v. Berger, 828 F. Supp. 401, 407 (E.D. Va. 1993). United States v Kramer, 757 F. Supp. 397 (D.N.J. 1991). The majority of district courts, however, reason that an action instituted by a PRP, no matter how it is denominated, is essentially one for contribution and is governed by Section 113. See Borough of Sayreville v. Union Carbide Corp., 923 F. Supp. 671, 677-79 (D.N.J. 1996); see also Reynolds Metals Co. v. Arkansas Power & Light Co., 920 F. Supp. 991 (E.D. Ark. 1996); Kaufman and Broad-S. Bay v. Unisys Corp., 868 F. Supp. 1212 (N.D. Cal. 1994); Folino v. Hampden Color Chem. Co., 832 F. Supp. 757 (D. Vt. 1993); Transtech Indus. v. A&Z Septic Clean, 798 F. Supp. 1079 (D.N.J. 1992), appeal dismissed, 5 F.3d 51 (3d Cir. 1993), cert. denied, 129 L. Ed. 2d 823, 114 S. Ct. 2692 (1994); Gould Inc. v. A&M Battery and Tire Service, 901 F. Supp. 906 (M.D. Pa. 1995); United States v. Bay Area Battery, 895 F. Supp. 1524 (N.D. Fla. 1995).

 The four Circuit Courts of Appeals that have squarely addressed this issue have uniformly denied PRPs a Section 107 cause of action. See United States v. Colorado & Eastern R.R. Co., 50 F.3d 1530, 1539 (10th Cir. 1995) ("Claims between PRPs to apportion costs between themselves are contribution claims pursuant to Sect. 113 regardless of how they are pled . . . ."); United Technologies Corp. v. Browning-Ferris Industries., 33 F.3d 96, 100 (1st Cir. 1994) ("The statutory language . . . suggests that cost recovery and contribution actions are distinct and do not overlap."). cert. denied, 130 L. Ed. 2d 1128, 115 S. Ct. 1176 (1995); Akzo Coatings v. Aigner Corp., 30 F.3d 761, 764 (7th Cir. 1994) ("Whatever label Akzo may wish to use, its claim remains one by and between jointly and severally liable parties for an appropriate division of the payment one of them has been compelled to make."); Amoco Oil Co. v. Borden, Inc., 889 F.2d 664 (5th Cir. 1989) ("When one liable party sues another to recover its equitable share of the response costs, the action is one for contribution . . . .").

 Plaintiff relies on the Supreme Court's decision in Key Tronic Corp. v. United States, 511 U.S. 809, 114 S. Ct. 1960, 128 L. Ed. 2d 797 (1994), in which the Court noted in passing that CERCLA "now expressly authorizes a cause of action for contribution in § 113 and impliedly authorizes a similar and somewhat overlapping remedy in § 107." Id., 114 S. Ct. at 1966. In suggesting that the Court's dicta in Key Tronic indicates that a PRP may simultaneously pursue an action under Sections 107 and 113, the plaintiff greatly overstates the importance of the Court's observation. In Key Tronic, the Court was addressing whether 1.2 million dollars in attorney's fees were recoverable under Section 107. The Court held that those fees which were closely related to the actual cleanup were recoverable under Section 107. Id., 114 S. Ct. at 1967. This was the only issue actually presented to the Court in Key Tronic.

 Moreover, a review of several cases decided since Key Tronic reveals that courts have not interpreted the Supreme Court's dicta as establishing joint and several liability of a PRP in a suit brought by another PRP under § 107. See, e.g., SC Holdings, Inc. v. A.A.A. Realty Co., 935 F. Supp. 1354 (D.N.J. 1996); Gould Inc. v. A&M Battery and Tire Service, 901 F. Supp. 906 (M.D. Pa. 1995), New Castle County v. Halliburton Nus Corp., 903 F. Supp. 771 (D. Del. 1995); Plaskon Electronic Materials v. Allied-Signal 904 F. Supp. 644 (N.D. Ohio 1995).

 In Borough of Sayreville, 923 F. Supp. at 680, Judge Lechner addressed and rejected the identical argument that has been advanced by the plaintiff in this case based upon Key Tronic, noting that the issue of whether a PRP could sue another PRP under Section 107 was not before the Supreme Court in Key Tronic. Indeed, as Judge Lechner points out, any question of "joint and several" liability had been resolved in the district court when the parties "stipulated to the quantum of liability for [the contested response costs]." Key Tronic Corp. v. United States, 766 F. Supp. 865, 868 n.1 (E.D. Wash. 1991). I am persuaded by the logic of ...


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