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DVL, Inc. v. Congoleum Corp.

United States District Court, D. New Jersey

August 23, 2018

DVL, INC. and DVL KEARNY HOLDINGS, LLC, Plaintiffs,
v.
CONGOLEUM CORPORATION and BATH IRON WORKS CORPORATION, Defendants.

          OPINION

          KEVIN MCNULTY. U.S.D.J.

         Defendant Bath Iron Works Corporation ("BIW"), has moved to dismiss the amended complaint of the plaintiffs, DVL, Inc. and DVL Kearny Holdings, LLC (collectively, "DVL"), and the third-party complaint of defendant Congoleum Corporation ("Congoleum"). The claims made against BIW by DVL and Congoleum concern a piece of property in Kearny, New Jersey. That property, over the course of a century and a half, was allegedly subject to serious environmental damage that was recently remediated at a cost of millions of dollars. Earlier, Congoleum had participated in bankruptcy proceedings in which it setded asbestos-related personal injury claims. Based on that settlement in bankruptcy, BIW seeks dismissal of the claims against it on various grounds. All rest, to some extent, on the premise that the issues settled in the bankruptcy case encompass, or are identical to, those presented here. Because, on a motion to dismiss, I cannot conclude that this is so, I will deny BIW's motion to dismiss.

         I. Summary [1]

         This case concerns a parcel of land located at 160-94 Passaic Avenue in Kearny (also known as Block 15, Lot 7.01). (AC ¶ 10.) DVL purchased the property around 1960. (CC ¶ 6.) It alleges that Congoleum occupied the property from the late 1880s to at least 1959. (AC ¶ 11.) There, Congoleum manufactured products for the United States military, including tent cloth, torpedoes, sandbags, camouflage netting, and synthetic leather; maintained a research and development laboratory; manufactured commercial products including linoleum and vinyl products; manufactured adhesives and waxes; used cooling water to cool finished products; and used a variety of chemicals and other materials that caused environmental damage to the property and its surroundings. (See AC ¶¶ 10-26.) These hazardous substances include polychlorinated biphenyls ("PCBs"), tertrachloroethene/ perchloroethene ("PCE"), trichloroethene ("TCE"), and poly-aromatic hydrocarbons ("PAH"), (AC ¶¶ 5, 25-26.) Congoleum allegedly dispersed contaminated dust into the air and soil of the property, spilled hazardous substances onto the floors and walls of the buildings, and allowed them to collect in floor drains and an outdoor trench. (AC ¶¶ 27, 31, 34.) DVL, when it purchased this property, did not know of the prior environmental damage. (AC ¶ 41.) When DVL discovered the damage in 2015, it spent nearly $20 million in remediation costs to achieve its goal of redeveloping the area. (AC ¶¶ 6, 47.)

         DVL seeks to recover damages suffered as a result of the need to remediate contamination that arose while Congoleum occupied the property. (AC ¶ 4.) The contamination includes the discharge of polychlorinated biphenyls, as known as PCBs, and other hazardous substances that have settled into the air, soil, and groundwater in and around the property. (AC ¶ 5.) DVL has brought claims against Congoleum under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), 42 U.S.C. § 9601, et seq., under the New Jersey Spill Compensation and Control Act ("NJ Spill Act"), N.J. Stat. § 58:10-23, et seq., and under the common law for public nuisance, negligence, strict liability for abnormally dangerous activity, and unjust enrichment.

         Congoleum contends that it is not the responsible parry for die environmental damage at the site. It has filed a third-party complaint alleging that BIW is responsible. (See CC, AC.)

         The corporate history of Congoleum and its relationship with BIW is quite complicated. Congoleum describes it as follows. Initially, the property had been owned and used by a predecessor of Congoleum, Congoleum-Nairn Inc. (CC ¶¶ 7, 12-16.) In 1968, Congoleum-Nairn Inc. merged with Bath Industries and became the Congoleum Corporation (sometimes referred to as "1968 Congoleum" or "Bath-Congoleum"). (CC ¶ 17.) This company was later involved in a series of transactions with certain affiliates of BIW. (CC ¶ 18.) In 1984, liabilities related to the historic operations at the property were transferred to another Congoleum Corporation (a/k/a "1984 Congoleum"). (CC ¶ 19.) In 1986, the flooring operations were transferred to a newly-formed entity known as Resilco, Inc. The liabilities for the historical operations, however, were separately transferred to Congoleum Industries, Inc. ("CII"). (CC ¶¶ 20, 26.) CII then changed its name to BIW Industries, Inc. and was merged into BIW, taking with it any and all liabilities associated with the property and any historic operations that were conducted there (according to Congoleum). (CC ¶ 27.) Resilco changed its name to Congoleum Corporation, the entity now named in the amended complaint. (CC ¶¶ 28-29.) Congoleum alleges that, by virtue of these transactions, BIW and not itself is the successor-in-interest to liabilities associated with the property. (See id.)

         Discussed in the briefs, but not cited in either the amended complaint or the third-party complaint against BIW, is a prior bankruptcy litigation that involved Congoleum.[2] In 2003, Congoleum filed for bankruptcy under Chapter 11. (Congo. Br. at 7.) At the time it was in a coverage dispute with its insurers, including Century, about personal injury claims against Congoleum related to asbestos-containing products. (Id.)[3] The insurer initially opposed the Chapter 11 reorganization efforts, but after lengthy negotiations among Congoleum, the insurer, the asbestos creditors' committee, and a future asbestos claims representative, they reached a settlement of the coverage dispute, which made it possible to confirm a plan. (Id.) Congoleum received $16, 950, 000 in cash. (Id. at 8.) The insurers required that that the debtors make certain representations, including representations about the responsibility of certain affiliated entities for the obligations of the Congoleum flooring business. (Id.) The Chief Financial Officer of Congoleum filed a declaration stating that "Bath Iron Work Corp. [and certain other entities] have no responsibility for any of the liabilities of the Congoleum Flooring Business." (BIW Br. at 8.) The joint plan of reorganization under Chapter 11 was confirmed on June 7, 2010. The order states that "the Court finds that the following Century Additional Named Insureds have no responsibility for any of the liabilities of the Congoleum Flooring Business (as defined in the Century Settlement): . . . Bath Iron Works Corp." (BIW Br. at 8-9.)

         According to Congoleum, however, the effect of this provision is confined to asbestos personal-injury claims, not environmental matters, and also relates to the period 1965-86. Congoleum also points to a reservation in the Plan with provides that "damages, cost recovery contribution, reimbursement and indemnity . . . under applicable Environmental Laws shall survive the Reorganization cases [and] shall not be discharged, impaired or adversely affected by this Plan." (Congo. Br. at 11.)

         BIW now moves to dismiss the amended complaint and the cross-claims. Two of its grounds relate to Congoleum alone, and one relates to both DVL and Congoleum. First, BIW argues that judicial estoppel bars Congoleum's claims, because Congoleum is contradicting a position it took in the prior bankruptcy case. (BIW Br. at 10.) Second, it argues that res judicata bars DVL's claims in the amended complaint and BIW's cross-claims, because die bankruptcy court entered a final order with preclusive effect. [Id. at 14.) Third, it argues that equitable estoppel prevents Congoleum from pursuing these claims because BIW relied to its detriment on Congoleum's stated legal position in the bankruptcy case. (Id. at 15.)

         II. Discussion

         a. Standard of Review

         Fed. R. Civ. P. 12(b)(6) provides for the dismissal of a complaint, in whole or in part, if it fails to state claim upon which relief can be granted. The defendant, as the moving party, bears the burden of showing that no claim has been stated. Hedges v. United States, 404 F.3d 744, 750 (3d Cir. 2005). In deciding a Rule 12(b)(6) motion, a court must take the allegations of the complaint as true and draw reasonable inferences in the light most favorable to the plaintiff. Phillips v. Cty. of Allegheny, 515 F.3d 224, 231 (3d Cir. 2008).

         Fed. R. Civ. P. 8(a) does not require that a complaint contain detailed factual allegations. Nevertheless, "a plaintiffs obligation to provide the 'grounds' of his 'entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). Thus, the complaint's factual allegations must be sufficient to raise a plaintiffs right to relief above a speculative level, so that a claim is "plausible on its face." Id. at 570; see also Umland v. PLANCO Fin. Serv., Inc., 542 F.3d 59, 64 (3d Cir. 2008).

         That facial-plausibility standard is met "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 556). While "[t]he plausibility standard is not akin to a 'probability requirement'... it asks for more than a sheer possibility." Iqbal, 556 U.S. at 678.

         The Court in considering a Rule 12(b)(6) motion is confined to the allegations of the complaint, with narrow exceptions:

Although phrased in relatively strict terms, we have declined to interpret this rule narrowly. In deciding motions under Rule 12(b)(6), courts may consider 'document[s] integral to or explicitly relied upon in the complaint,' In re Burlington Coat Factory Sec. Litig.,114 F.3d 1410, 1426 (3d Cir. 1997) (emphasis in original), or any 'indisputably authentic document that a defendant attaches as an exhibit on a motion to dismiss if the ...

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