Blue Tee Corp. v. Xtra Intermodal, Inc. et al
Filing
76
ORDER denying 48 Motion to Dismiss for Failure to State a Claim. Signed by Chief Judge David R. Herndon on 5/16/14. (klh, )
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ILLINOIS
BLUE TEE CORP. and GOLD FIELDS
MINING, INC.,
Plaintiffs,
v.
No. 13-0830-DRH
XTRA INTERMODEL, INC.,
X-L-CO, INC., XTRA COMPANIES
INC., XTRA CORPORATION and
XTRA LLC.
Defendants.
MEMORANDUM and ORDER
HERNDON, Chief Judge:
I.
Introduction and Background
Pending before the Court is defendants’ XTRA Corporation, XTRA
Companies, Inc., and XTRA LLC’s combined motion to dismiss plaintiffs’ second
amended complaint and memorandum in support thereof (Doc. 48). Defendants
argue plaintiffs’ allegations that XTRA Corp. and/or XTRA LLC are liable merely
because their subsidiaries owned and operated the Site and their conclusory
assertions of vicarious liability for XTRA Corp.’s subsidiaries’ alleged actions are
insufficient to state a claim for which relief can be granted as a matter of law.
Plaintiffs oppose the motion (Doc. 62). Defendants filed a reply brief (Doc. 66).
Based on the applicable law and the following, the Court denies the motion.
On August 13, 2013, plaintiffs, Blue Tee Corp. (“Blue Tee”) filed a five count
complaint against XTRA Intermodal, Inc. (“XTRA Intermodal”), X-L-CO., Inc.
(“X-L”), XTRA Corporation (“XTRA Corp.”), and XTRA LLC, pursuant to Sections
107 and 113 of the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (“CERCLA”), as amended (Doc. 2).
The complaint seeks
recovery costs and contribution costs incurred or to be incurred by Blue Tee in
performing response, investigation and remedial activities at the Old American
Zinc Plant site (“Site”) in Fairmont City, Illinois (Doc. 2). Plaintiff alleges that
remediation of the Site has cost it more than $4 million and future costs are
anticipated to exceed $11 million. Blue Tee sued what it believes to be “shell”
corporations bearing some form of the “XTRA” name in addition to XTRA Corp.
which it asserts is a wholly owned subsidiary of Berkshire Hathaway, Inc.
On November 14, 2013, Blue Tee filed an amended complaint adding two
parties, plaintiff Gold Fields Mining, LLC, and defendant XTRA Companies, Inc.
(“XTRA Companies”) (Doc. 39). In response, defendants filed the pending motion
to dismiss (Doc. 48).
Subsequently, on February 12, 2014, Magistrate Judge
Donald G. Wilkerson granted plaintiffs leave to file a second amended complaint
(Doc. 67). In that Order, Magistrate Judge Wilkerson noted that the filing of the
second amended complaint would not render moot the pending motion to dismiss.
On February 13, 2014, plaintiffs filed their second amended complaint (Doc.
69).
Count I is against XTRA Intermodal and X-L for cost recovery pursuant to §
107(a) – response costs incurred; Count II is against XTRA Intermodal and X-L for
contribution; Count III is against XTRA Intermodal and X-L for declaratory
judgment; Count IV is against XTRA Intermodal and X-L for statutory and equitable
subrogation; Count V is against XTRA Corp. and XTRA LLC for cost recovery,
contribution and declaratory judgment – response costs incurred and Count VI is
against XTRA Corp. and XTRA Companies to pierce the corporate veil.
The following allegations are taken from the second amended complaint.
Blue Tee is the successor in interest to American Zinc Company of Illinois
(“American Zinc”).
American Zinc owned the Site from 1916 to 1979. American
Zinc operated the Site as a zinc smelter from 1916 to 1953.
American Zinc
consolidated the slag or “clinker” in piles on the Site.
In 1976, defendant X-L executed a lease with American Zinc for use of the
property as a truck terminal. In 1979, X-L purchased the property. Following
the purchase of the property, defendant XTRA Intermodal expanded its operations
and X-L transferred its ownership of the property to XTRA Intermodal in 1995.
Thereafter, XTRA Intermodal ground up the stockpiled slag and clinker and
distributed it throughout the Site. XTRA Intermodal’s grinding and spreading of
slag throughout the Site resulted in blowing dust, created a nuisance, contaminated
neighboring properties and aggravated the contamination of the Site.
In 1994 and 1995, the United States Environmental Protection Agency
(“EPA”) and the Illinois Environmental Protection Agency (“IEPA”) began to
investigate the Site.
The EPA determined that XTRA Intermodal had exacerbated
conditions at the Site and issued a Unilateral Administrative Order (“UAO”) to
XTRA Intermodal directing it to participate and cooperate in the Remedial
Investigation and Feasibility Study (“RI/FS”). XTRA Intermodal violated the UAO
by failing to participate and cooperate in the RI/FS process or by failing to make a
good faith offer to contribute to the costs of the RI/FS. Most of the material to be
consolidated on Site for the final remedy consists of about 893,000 cubic yards of
ground slag, which resulted from XTRA Intermodal’s actions. Blue Tee has made
repeated demands upon XTRA Intermodal to participate in or contribute to the
costs of remediation but XTRA Intermodal has failed and refused to contribute.
Plaintiff Gold Fields paid the costs incurred by Blue Tee for remediation at
the Site and seeks recovery pursuant to its subrogation rights under CERCLA,
Illinois law, and contract law as it may sue in Blue Tee’s name pursuant to their
agreement.
As the motion to dismiss is ripe, the Court turns to address the merits of the
motion.
II.
Motion to Dismiss Standard
A Rule 12(b)(6) motion tests the sufficiency of the complaint to state a claim
upon which relief can be granted. Hallinan v. Fraternal Order of Police Chicago
Lodge 7, 570 F.3d 811, 820 (7th Cir. 2009); Gibson v. City of Chicago, 910 F.2d
1510, 1520 (7th Cir.1990). In reviewing a motion to dismiss, the Court takes as
true all factual allegations in plaintiffs’ complaint and draws all reasonable
inferences in their favor. See Rujawitz v. Martin, 561 F.3d 685, 688 (7th Cir.
2009); Killingsworth v. HSBC Bank Nevada, N.A., 507 F.3d 614, 618 (7th Cir.
2007). The Supreme Court explained in Bell Atlantic Corp. v. Twombly, 550 U.S.
544, 570 (2007), that Rule 12(b)(6) dismissal is warranted if the complaint fails to
set forth “enough facts to state a claim to relief that is plausible on its face.”
To survive a Rule 12(b)(6) motion to dismiss, the claim first must comply
with Rule 8(a) by providing “a short and plain statement of the claim showing that
the pleader is entitled to relief” (Fed.R.Civ.P. 8(a)(2)), such that the defendant is
given “fair notice of what the * * * claim is and the grounds upon which it rests.”
Twombly, 550 U.S. at 555 (quoting Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99,
2 L.Ed.2d 80 (1957)).
Second, the factual allegations in the claim must be
sufficient to raise the possibility of relief above the “speculative level,” assuming that
all of the allegations in the complaint are true. E.E.O. C. v. Concentra Health
Servs., Inc., 496 F.3d 773, 776 (7th Cir. 2007) (quoting Twombly, 550 U.S. at
555). “Detailed factual allegations” are not required, but the plaintiff must allege
facts that, when “accepted as true, * * * ‘state a claim to relief that is plausible on its
face.’ “ Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868
(2009) (quoting Twombly, 550 U.S. at 555). “A claim has facial plausibility when
the plaintiff pleads factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.” Id. “[O]nce a claim
has been stated adequately, it may be supported by showing any set of facts
consistent with the allegations in the complaint.” Twombly, 550 U.S. at 563.
Plaintiffs’ claims “must be plausible on its face,” that is, “The complaint must
establish a nonnegligible probability that the claim is valid.” Smith v. Med. Benefit
Admin’rs. Group, Inc., 639 F.3d 277, 281 (7th Cir. 2011). With these principles in
mind, the Court turns to the allegations of the second amended complaint.
III.
Analysis
Defendants XTRA Corp., XTRA Companies, and XTRA LLC argue that Count
V against XTRA Corp. and XTRA LLC (Cost Recovery, Contribution and
Declaratory Judgment- Response Costs Incurred) and VI against XTRA Corp. and
XTRA Companies (Corporate Veil Piercing) should be dismissed.
Specifically,
defendants maintain that the second amended complaint is devoid of any
non-conclusory allegations in support of their claims.
Count V
As to Count V, defendants argue that plaintiffs have asserted no plausible
allegations to support their conclusory allegation that XTRA Corp. or XTRA LLC
was a site operator under CERCLA Section 107. 1
Plaintiffs reject defendants’
assertions.
Two CERCLA sections—42 U.S.C. §§ 9607(a) and 9613(f)—afford rights of
1 The defendants cite Bankers Trust Co. v. Old Republic Ins. Co., 959 F.2d 677, 683 (7th Cir. 1992)
to support their argument that “[t]he Seventh Circuit rejects allegations based exclusively on
‘information and belief.’” The Court disagrees with this interpretation of the law. First, Bankers
Trust Co., is distinguishable from this case in that it dealt with fraud claims which are not present in
this action. Second, pleading “on information and belief” is generally permitted as long as the
pleader has a good faith basis for his statement. Carroll v. Morrison Hotel Corp., 149 F.2d 404,
406 (7th Cir. 1945) (allegations based on “information and belief” construed in plaintiff’s favor “do
substantial justice” under Rule 8(f) (now Rule 8(e)). Further, the Supreme Court did not strike “on
information and belief” from the lexicon when it made the pleading rules more demanding. See
Twombly, 550 U.S. at 551, 554-55.
action to private parties seeking to recover expenses associated with cleaning up
contaminated sites. See United States v. Atl. Research Corp., 551 U.S. 128, 127
S.Ct. 2331, 168 L.Ed.2d 28 (2007). The purpose of CERCLA is to promote the
timely cleanup of hazardous waste sites and to ensure that the costs of such
cleanup efforts are borne by those responsible for the contamination. Burlington
N. and Santa Fe Ry. Co. v. United States, 556 U.S. 599, 602, 1289 S.Ct 1870
(2009) (citing Consol. Edison Co. of N.Y. v. UGI Util., Inc., 423 F.3d 90, 94 (2d Cir.
2005)); Key Tronic Corp. v. United States, 511 U.S. 809, 819 n. 13, 114 S.Ct.
1960, 128 L.Ed.2d 797 (1994) (“CERCLA is designed to encourage private parties
to assume the financial responsibility of cleanup by allowing them to seek recovery
from others.”).
Responders to situations involving hazardous materials can therefore bring
private cost-recovery actions against facility owners responsible for the release of
hazardous materials. Id. In order to succeed in an action for recovery of response
costs under CERCLA, a plaintiff must prove the following elements: “(1) the site in
question is a ‘facility’ as defined by CERCLA; (2) the defendant is a ‘responsible
person’ for the spill as defined by CERCLA; (3) there was a release of hazardous
substances; and (4) such release caused the Plaintiff to incur response costs.”
Envtl. Transp. Sys., Inc., v. ENSCO, Inc., 969 F.2d 503, 506 (7th Cir.1992).
CERCLA shifts the costs of cleanup to the parties responsible for the
contamination. “[L]iability under [CERCLA] is strict, joint and several. In other
words, … the [government] may recover its costs in full from any responsible party,
regardless of that party’s relative fault.” Metro. Water Reclamation Dist. of Greater
Chicago v. N. Am. Galvanizing & Coatings, Inc., 473 F.3d 824, 27 (7th Cir. 2007).
Liability is imposed when a party is found to have a statutorily defined ‘connection’
with the facility; that connection makes the party responsible regardless of
causation.” United States v. Capital Tax Corp., 545 F.3d 525, 530 (7th Cir. 2008)
(citation omitted). CERCLA imposes liability for “response costs” on the “owner and
operator of a ... facility” from which a hazardous substance has been released. 42
U.S.C. § 9607(a)(1)–(4). See also Amcast Industrial Corp. v. Detrex Corp., 2 F.3d
746, 748 (7th Cir. 1993).
The Supreme Court has defined “operator” under CERCLA as:
[S]omeone who directs the workings of, manages, or conducts the
affairs of a facility. To sharpen the definition for 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 leakage or disposal of
hazardous waste, or decisions about compliance with environmental
regulations.
United States v. Bestfoods, 524 U.S. 51, 56 (1998).
Here, the Court finds that plaintiffs have pled sufficient allegations to assert
claims against both XTRA Corp. and XTRA LLC in Count V.
Initially, the Court
notes that plaintiffs have alleged that XTRA Corp and XTRA LLC, two of the stacked
corporations, were responsible for XTRA Intermodal’s and X-L’s decisions to
exacerbate the conditions at the Site and to refuse to participate in the UAO and
other remedial measures that the EPA required.
According to the second
amended complaint, plaintiffs have alleged that XTRA Corp. and XTRA LLC were
directly involved in the Site’s operations. Specifically, plaintiffs allege: “[p]rior to
2001, XTRA Corp. and XTRA LLC managed and operated X-L and XTRA
Intermodal and XTRA Corp. and XTRA LLC made the decisions regarding the
environmental operations and obligations at the Site.” (Doc. 69, ¶ 84). Further,
plaintiffs allege that XTRA Corp. and XTRA LLC “managed, directed and/or
conducted the operations at the Site relating to the grinding and spreading of the
waste slag at the Site after X-L purchased the Site in 1979.” (Doc. 69, ¶ 85).
Plaintiffs also allege: “XTRA Corp. and XTRA LLC made decisions regarding
environmental compliance at the Site,” and “made decisions regarding whether to
comply with EPA’s requests regarding the investigation, removal and remedial
activities at the Site, including, but not limited to, the decision not to comply with
the UAO issued to XTRA Intermodal in June 2005.” (Doc. 69, ¶¶86 & 87). Clearly,
plaintiffs have alleged that these defendants, as parent corporations, exercised
control and direction over the Site/facility in question and not just over the
subsidiaries as required by Bestfoods, 524 U.S. at 68.
At this stage in the
litigation, the Court finds that these allegations are plausible to state claims against
defendants and are sufficient to withstand dismissal.
Next, Defendants argue that since Gold Fields has not alleged that it has
incurred any response costs, it cannot bring a claim under Section 107 for cost
recovery. Defendants cite Chubb Custom Inc. Co. v. Space Sys./Loral, Inc., 710
F.3d 946, 962 (9th Cir. 2013)(“a subrogee – simply by stepping into the shoes of
the insured via a reimbursement – cannot be liable for the response costs under
CERCLA, and thus cannot itself incur response costs.”), in support of its argument
for dismissal. Plaintiffs note that defendants concede that Chubb is not binding
on this Court, that the Seventh Circuit has not addressed this question and that
Chubb was not unanimous. Specifically, plaintiffs point out that in the dissent,
Judge Gould recognized that a subrogee could bring a section 107 claim on behalf
of a subrogor, as the lack of a remedy would “delay cleanups, putting public health
and safety at risk and undermining the purpose of CERCLA.” Chubb, 710 F.3d at
978.
Further, plaintiffs maintain that Section 112 recognizes that a payor is
subrogated to all rights and causes of actions that a claimant has and because Blue
Tee has a Section 107 claim then Gold Fields should be able to bring the Section
107 claim too. At this stage of the litigation and because of the state of the case law
on this issue, the Court agrees with plaintiffs and finds that plaintiffs have alleged a
cause of action against defendants for a Section 107 claim.
Thus, the Court
denies dismissal on this basis.
Count VI
Similarly, defendants argue that Count VI should be dismissed because it
provides only a formulaic and speculative recitation of the elements on nothing
more than information and belief and that Count VI fails to allege an injustice will
occur. Plaintiffs respond that they have pled facts to support the veiling piercing
factors and facts regarding injustice. 2
Courts in Delaware have cautioned that “[p]ersuading a Delaware court to
disregard the corporate entity is a difficult task.” Wallace ex rel. Cencom Cable
2 Defendants’ additional argument that plaintiffs fail to state any cause of action against XTRA
Companies is moot. As stated previously, Count VI of the second amended complaint is against
XTRA Companies and XTRA Corp.
Income Partners II, Inc., L.P. v. Wood, 752 A.2d 1175, 1183 (Del. Ch. 1999)
(quotation omitted). There are two routes that a plaintiff can take in urging a court
to do so: she can argue for piercing of the corporate veil under an alter ego theory,
or she can argue under an agency liability theory. Trevino v. Merscorp, Inc., 583
F.Supp.2d 521, 528–32 (D. Del. 2008). The test to pierce the corporate veil under
the alter ego theory is the familiar multi-factor list that examines the degree of
control a parent exercises over a subsidiary. The Third Circuit Court of Appeals
has
boiled
Delaware's
requirements
down
to
a
seven-part
test:
(1)
undercapitalization; (2) failure to observe corporate formalities; (3) nonpayment of
dividends; (4) the insolvency of the corporation; (5) siphoning of the corporation's
funds by the dominant stockholder; (6) absence of corporate records; and (7) the
fact that the corporation is merely a facade for the operations of the dominant
stockholder or stockholders. See United States v. Pisani, 646 F.2d 83, 88 (3d Cir.
1981); Phoenix Canada Oil Co. Ltd. v. Texaco, Inc., 842 F.2d 1466, 1476 (3d Cir.
1988).
Reading the second amended complaint in the light most favorable to
plaintiffs, the Court concludes that plaintiffs have alleged sufficient facts to
maintain causes of action for piercing the corporate veil under the alter ego theory
and that plaintiffs adequately pled injustice.
Plaintiffs allege that “XTRA Corp. formed and operated XTRA Intermodal,
X-L, XTRA LLC and XTRA Companies as ‘shell’ corporations with no substantial
assets.” (Doc. 69, ¶ 96). Further, plaintiffs allege that “XTRA Corp. formed or
maintained X-L, XTRA Intermodal, XTRA LLC and XTRA Companies for the
purpose of shielding itself from the resulting environmental liability at the Site.”
(Doc. 69, ¶ 97). Also, the second amended complaint states: “all financial and
business decisions for XTRA Intermodal, X-L, XTRA LLC and XTRA Companies
were made by XTRA Corp., not by independent officers or directors of the
subsidiary companies.”
(Doc. 69, ¶ 98).
Moreover, the second amended
complaint states: “XTRA Intermodal, X-L, XTRA LLC, XTRA Companies and XTRA
Corp. operated as a single economic entity and failed to observe the required
corporate financial and legal formalities.” (Doc. 69, ¶ 99). Lastly, the second
amended complaint alleges: ‘[w]hile XTRA Intermodal, X-L, XTRA LLC and XTRA
Companies still exist as shell entities, upon information and belief, they have
limited to or no assets from which the liabilities arising from the Site for Blue Tee’s
response costs can be satisfied.” (Doc. 69, ¶ 102). Based on these allegations and
at this stage of the litigation, the Court finds that plaintiffs have stated plausible
claims for piercing the corporate veil. The second amended complaint adequately
puts defendants on notice of the claims against them. Defendants’ arguments are
better suited at the summary judgment stage after discovery has been completed.
IV.
Conclusion
Accordingly, the Court DENIES defendants XTRA Corporation, XTRA
Companies, Inc., and XTRA LLC’s combined motion to dismiss plaintiffs’ second
amended complaint and memorandum in support thereof (Doc. 48).
IT IS SO ORDERED.
Signed this 16th day of May, 2014.
Digitally signed by
David R. Herndon
Date: 2014.05.16
16:18:46 -05'00'
Chief Judge
United States District Court
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