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MORTON INTERNATIONAL v. A.E. STALEY MANUFACTURING

July 19, 2000

MORTON INTERNATIONAL, INCORPORATED
V.
A.E. STALEY MANUFACTURING COMPANY. ET AL. VELSICOL CHEMICAL CORPORATION, ET AL. V. A.E. STALEY MANUFACTURING COMPANY, ET AL.



The opinion of the court was delivered by: Hedges, United States Magistrate Judge.

LETTER-OPINION AND ORDER

Dear Counsel:

INTRODUCTION

This matter comes before me on the motion of Becton-Dickinson and Company, Inc., E.I. duPont de Nemours & Co., Inc., Garfield Refining Company, Inc., Union Carbide Corporation, Tennessee Gas Pipeline Company, the Connecticut Light and Power ComPany, Belmont Metals, Inc., Duracell, Inc., J.M. Ney Company, Merck & Co., Inc., and PSE & G ("site defendants") to amend their Answers. Defendant Occidental Chemical Corporation joins in the motion.*fn1 Plaintiffs Morton International, Inc., Velsicol Chemical Corporation, NWI Land Management Corporation and Fruit of the Loom ("plaintiffs") oppose the motion. I have considered the papers in support of and in opposition to the motion. There was no oral argument. Rule 78.

PROCEDURAL HISTORY

Plaintiffs commenced this action in August of 1996 seeking contribution under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), as amended, 42 U.S.C. § 9601 et seq., the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. § 6901, et seq., the New Jersey Spill Compensation and Control Act ("Spill Act"), N.J.S.A. 58:10-23.11 et seq., the Federal Declaratory Judgment Act, 28 U.S.C. § 2201 et seq., and under common law, for investigation and remediation costs undertaken at a former mercury manufacturing plant in Wood Ridge, New Jersey, now known as the "Ventron/Velsicol Superfund Site" (the "Site").*fn2 The costs were the result of significant mercury and other hazardous substance contamination.*fn3 The Site had been used for mercury processing operations for fifty years.*fn4 State v. Ventron, 94 N.J. 473, 503, 468 A.2d 150 (N.J. 1983).

Plaintiffs were adjudicated liable for the contamination. Ventron, 94 N.J. at 482, 468 A.2d 150. In insurance coverage litigation, plaintiffs were found to have knowingly and intentionally polluted the Site. Morton Int'l., Inc. v. General Accident Ins. Co., 134 N.J. 1, 95, 629 A.2d 831 (1993). Plaintiffs commenced this action, contending that site defendants are liable under CERCLA § 107(a)(3) and/or § 113(f) because they arranged for the disposal and/or treatment of mercury and/or other hazardous substances at the Site, therefore contributing to the Site's contamination. This action is now in its advanced stages. Discovery is closed, having resulted in the production of over 300,000 pages of documents related to Site operations, conditions, and remedial activity, and the depositions of forty witnesses were conducted. Expert disclosures were exchanged, and a Final Pretrial Order was entered on November 17, 1999.

Before me is site defendants' motion to amend their Answers to add a defense. The defense is provided for in newly enacted legislation signed into law on November 29, 1999 by President William Jefferson Clinton, three years after the commencement of this action. The legislation is a rider to the Omnibus Budget Appropriations Act of 1999 (H.R.3194), Public Law No. 106-113, 113 Stat. 1501A-598 (1999).*fn5 The new enactment, 42 U.S.C. § 9627 ("Section 127") provides for an exemption from liability under CERCLA § 107(a)(3) and (a)(4) for certain persons who arranged for recycling of recyclable material. 42 U.S.C. § 9627 (a)(2). Section 127 includes a fee-shifting provision which provides that, "[a]ny person who commences an action in contribution against a person who is not liable by operation of this section shall be liable to that person for all reasonable costs of defending that action, including all reasonable attorneys' fees and expert witness fees." 42 U.S.C. § 9627 (j). Section 127's application to pending cost recovery actions has not been addressed in this Circuit.

On December 6, 1999 and January 3, 2000, site defendants sought plaintiffs' withdrawal of their claims or consent to amend their Answers to assert the recycling defense and a claim for attorneys' fees pursuant to Section 127. The requests were denied. Site defendants now move to amend their Answers to assert the new defense and claim for attorneys' fees.

DISCUSSION

Standard of Review

Rule 15(a) provides in relevant part that,

Leave to amend generally may be denied for four reasons: 1) undue delay; 2) bad faith or dilatory motive; 3) undue prejudice; or 4) futility of amendment. Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962); see Burlington Coat Factory Secs. Litig., 114 F.3d 1410, 1434 (3d Cir. 1997). The federal rules reflect the "principle that the purpose of pleading is to facilitate a proper decision on the merits," and that if the underlying facts relied on by a party might be a proper subject of relief, that party should have the opportunity to test its claims on the merits. Foman, 371 U.S. at 182, 83 S.Ct. 227 (quoting Conley v. Gibson, 355 U.S. 41, 48, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957)). Therefore, courts should liberally permit amendments, and the discretion to do so rests with the trial court. See, e.g., Heyl & Patterson v. F.D. Rich Housing of Virgin Islands, 663 F.2d 419, 425 (3d Cir. 1981), cert. denied, 455 U.S. 1018, 102 S.Ct. 1714, 72 L.Ed.2d 136 (1982); Elf Atochem North America Inc. v. United States, 161 F.R.D. 300, 301 (E.D.Pa. 1995).

Undue Delay, Bad Faith, Dilatory Motive

Site defendants did not delay in making their motion. Within one week of the enactment of Section 127, site defendants requested the consent of plaintiffs to amend their Answers. After plaintiffs refused, site defendants promptly filed their motion. Thus, there has been no undue delay, as there is no evidence of bad faith or dilatory motive given that Congress so recently enacted the legislation.

Prejudice

Plaintiffs argue that granting leave to amend would result in undue prejudice to them. Plaintiffs also argue that Section 127 raises entirely new legal and factual issues that they have not had the opportunity to investigate, and therefore, they will be prejudiced if they do not have the opportunity to address these issues before trial. Plaintiffs contend that if site defendants are permitted to assert new counterclaims against plaintiffs for Section 127 attorneys' fees, plaintiffs would suffer prejudice, as they would be denied the opportunity to investigate the nature of these claims and prepare a defense.

Site defendants contend that plaintiffs will not be prejudiced by amendment because it does not alter the issues in the action or require additional discovery. Site defendants argue that the parties should have produced every document regarding the transactions at the Site and that plaintiffs have not identified any specific discovery that they now claim to need. Furthermore, site defendants argue that the addition of this defense is not a new issue in that the enactment of this statute confirms an emerging line of case law that holds that liability under CERCLA is not created and dazes not arise from disposal arrangements when one generates secondary materials which are useful products.*fn6 Site defendants contend that Section 127's defense is not significantly different from their Eleventh Affirmative Defense in their original Answers, which provides that,

Lastly, site defendants argue that their original responsive pleadings "reserve[] the right to assert additional defenses that may arise in the course of discovery or at trial."

"[P]rejudice to the non-moving party is the touchstone for the denial of an amendment." Heyl & Patterson, 663 F.2d at 425 (quoting Cornell & Co., Inc. v. Occupational Safety & Health Review Comm'n, 573 F.2d 820, 823 (3d Cir. 1978)); see Lorenz v. CSX Corp., 1 F.3d 1406, 1414 (3d Cir. 1993). Incidental prejudice is not a sufficient basis for the denial of a proposed amendment. Prejudice becomes undue when a party shows that it would be "unfairly prejudiced" or deprived of the opportunity to present facts or evidence which it would have offered. Heyl & Patterson, 663 F.2d at 426. The test for prejudice is whether the non-moving party will be denied "a fair opportunity to defend and offer additional evidence" to address the amendment. Evans Prods. Co. v. West American Ins. Co., 736 F.2d 920, 924 (3d Cir. 1984) (quoting Universe Tankships, Inc. v. United States, 528 F.2d 73, 76 (3d Cir. 1975)). If the amendment would substantially change the theory on which the action is proceeding, and is proposed so late that a party must engage in significant new preparation, it may be found to be prejudicial. Elf Atochem, 161 F.R.D. at 301 (defense that EPA was arbitrary and capricious in remedy chosen one year after filing of complaint and after fact discovery closed was untimely and prejudicial in that it was obvious from start of litigation and trial was close). Courts have denied amendment of pleadings immediately before trial. See, e.g., Harrison Beverage Co. v. Dribeck Importers, Inc., 133 F.R.D. 463, 468 (D.N.J. 1990). However, in the instance where no trial date is scheduled, less prejudice to the non-moving party will be deemed to exist.

Here, no trial date has been set. If the amendment is to be applied retroactively, I may permit the parties to do limited discovery, if warranted, on any new issues raised by the new legislation. For that reason, no party will be prejudiced and the argument fails.

Futility

Futility exists "where the proposed amendment is 1) frivolous or 2) advances a claim that is legally insufficient on its face." "If a proposed amendment is not clearly futile, then denial of leave to amend is improper." This analysis "does not require the parties to engage in the equivalent of substantive motion practice upon the proposed new claim or defense; this does require, however, that the newly asserted defense appear to be sufficiently well-grounded in fact or law that is not a frivolous pursuit." Harrison Beverage, 133 F.R.D. at 468.

Plaintiffs argue that site defendants' proposed amendment is frivolous in that 1) it is not to be applied retroactively to pending cases and 2) that even if it was retroactive, the amendment would not apply to the activities performed by site defendants in regards to the Site. Site defendants argue that the proposed amendment is retroactive to this pending action. They also argue that it would not be futile because their actions fall within the type of recycling activities intended by Congress to be exempted from CERCLA liability. The first questions before me are whether the Act applies to this action and what is its temporal reach.

CERCLA Liability and Section 127

Under CERCLA § 107(a), four categories of persons may be held liable:

(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,*fn7 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 caused the incurrence of response costs, of a hazardous substance, shall be liable for —
(A) all costs of indivdual or remedial action incurred by the United States Government or a State or an Indian tribe not inconsistent with the rational 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); see New Jersey Turnpike Auth. v. PPG Indus., Inc., 197 F.3d 96, 103 (3d Cir. 1999). Prior to the enactment of Section 127, defenses to Section 107 liability were more limited. F.P. Woll & Co. v. Fifth & Mitchell St. Corp., 1999 WL 79059, at *3 (E.D.Pa. Feb. 4, 1999). A party generally escaped liability only if it showed' that the release or threatened release was caused only by one or more of the following: 1) act of God; 2) act of war; or 3) the act or omission of a third party other than an employee or agent of the defendant, or than one whose act or omission occurs in connection with a contractual relationship, existing directly or indirectly, with the defendant. 42 U.S.C. § 9607 (b). "Certain other limited defenses exist.*fn8 With the enactment of Section 127, a new defense was added to relieve certain persons qualifying as recyclers from liability under sections 107(a)(3), arranger liability, and 107(a)(4), transporter liability."*fn9 Section 127(a)(1). Congress set forth the purposes of this legislation:

(1) to promote the reuse and recycling of scrap material in furtherance of the goals of waste minimization and natural resource conservation while ...

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