UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

____________________________________

)

UNITED STATES OF AMERICA, )

)

Plaintiff, )

) No. 04 C 4138

v. )

) Judge George M. Marovich

) 

CAPITAL TAX CORPORATION, )

STEPHEN J. PEDI, and )

WILLIAM LERCH, )

)

Defendants. )

 )

____________________________________)

)

CAPITAL TAX CORPORATION, )

)

Counter-Plaintiff, )

) 

v. )

) 

) 

UNITED STATES OF AMERICA, )

)

Counter-Defendant. )

)

____________________________________)

)

CAPITAL TAX CORPORATION, )

)

Cross-Plaintiff, )

) 

v. )

) 

) 

STEPHEN J. PEDI, and )

WILLIAM LERCH, )

)

Cross-Defendants. )

____________________________________)
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MEMORANDUM OPINION AND ORDER

Plaintiff the United States of America (“United States” or the “government”) filed suit

against defendants Capital Tax Corporation (“Capital Tax”), Stephen J. Pedi (“Pedi”) and

William Lerch (“Lerch”) alleging claims arising under the Comprehensive Environmental

Response, Compensation, and Liability Act (“CERCLA”), 42 U.S.C. §§ 9601-9675. Capital Tax

filed counterclaims against the government and against the other defendants. In a previous

ruling in this case, the Court granted the government judgment on the pleadings with respect to

Capital Tax’s first and second counterclaims against the government. Capital Tax filed an

amended counterclaim, and the government moves to dismiss Capital Tax’s first counterclaim in

its amended countercomplaint.

I. Background

A. The CERCLA framework

CERCLA (sometimes called the Superfund law) “requires that sites contaminated by

toxic wastes be cleaned up by or at the expense of the persons responsible for the

contamination.” Employers Ins. of Wausau v. Browner, 52 F.3d 656, 660 (7th Cir. 1995). 

CERCLA “grants the President broad power to command government agencies and private

parties to clean up hazardous waste sites.” United States v. Bestfoods, 524 U.S. 51, 55 (1998)

(quoting Key Tronic Corp. v. United States, 511 U.S. 809, 814 (1994)). 

Under CERCLA, the EPA has the authority to effectuate toxic waste cleanup in a couple

of ways. First, it can take responsive action itself and then seek reimbursement from the

potentially responsible party. 42 U.S.C. § 9607(a)(4)(A). Second, the EPA may require the

responsible party to clean up the property. 42 U.S.C. § 9606(a). Specifically, the EPA can issue
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an administrative order setting out the required remedial action. The EPA can enforce its order

by filing suit in federal district court, and in that suit, the EPA can also seek civil penalties and

punitive damages against a party who failed to comply with the administrative order. 42 U.S.C.

§§ 9606(b), 9607(c)(3). The district court cannot, however, grant civil penalties or punitive

damages against a party that had “sufficient cause” for not complying with the order. 42 U.S.C.

§§ 9606(b), 9607(c)(3).

For its part, the recipient of the administrative order has at least two options upon

receiving the order if it does not believe that it is responsible for the cleanup. First, it can decline

to comply with the order and wait for the EPA to file an enforcement suit. Alternatively, the

recipient can comply with the order and then petition the EPA for reimbursement of its costs plus

interest. 42 U.S.C. § 9606(b)(2)(A). The purpose of this provision is to “encourage potentially

responsible parties to conduct a cleanup expeditiously and postpone litigation about

responsibility to a later time.” Bethlehem Steel Corp. v. Bush, 918 F.2d 1323, 1324 (7th Cir.

1990). 

B. Facts relevant to Capital Tax’s counterclaim

In October 2001, Capital Tax purchased property at a tax sale. Specifically, Capital Tax

obtained the tax deeds to several, but not all, parcels at 7411 to 7431 S. Green Street in Chicago,

Illinois (the “Site”). At the time Capital Tax obtained the tax deeds, the Site contained paint and

other materials left behind by previous owners. 

The paint and other materials at the Site caught the attention of the City of Chicago’s

Department of the Environment (“CDOE”). In April 2002 and July 2003, CDOE found

hazardous substances at the Site. In July 2003, CDOE referred the Site to the EPA. After
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inspecting the Site, the EPA concluded that the Site contained hazardous materials, that

hazardous waste had been released at the Site, and that future releases of hazardous materials at

the Site were threatened. 

On August 15, 2003, the EPA issued a Unilateral Administrative Order (“UAO”)

demanding that Capital Tax clean up its Site parcels. The UAO set out the work to be done at

the site. Specifically, it ordered Capital Tax to, among other things: (1) remove about 10,000

containers of various sizes, 70 tanks and any spillage of waste materials on the floors and in the

soil; (2) remove debris to allow safe access to the containers and tanks; (3) stage

drums/containers by chemical compatibility; and (4) remove the materials and clean the residue

from the tanks before disposal. The UAO also required Capital Tax to notify the EPA–within

three business days after the effective date of the UAO–of its intent to comply with the UAO. 

(The UAO became effective seven days after it was issued, unless the respondent requested a

conference, in which case it became effective five days after the conference.) In addition, the

UAO set out the non-compliance penalties, which included civil penalties of up to $32,500 per

violation per day and punitive damages of up to three times the amount of any cost incurred by

the United States as a result of the violation. 

Capital Tax did not comply with the Order. Instead, Capital Tax sent to the EPA several

letters in which it denied liability. When Capital Tax (and the other defendants) failed to comply

with the UAO’s, the EPA cleaned up the Site itself. Beginning on October 6, 2003, the EPA,

through contractors, removed more than 18,000 drums and containers. The EPA inspected and

cleaned the underground storage tanks and manholes. It excavated the soil, backfilled the area

and planted grass. The EPA cleaned the interiors of the buildings to remove potential
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contamination. Finally, the EPA coated lead-painted tanks to prevent the release of lead. Thus

far, the EPA has incurred at least $2,036,914.12 in response costs.

The United States filed suit against Capital Tax, among others, to recover costs it

incurred or would incur taking remedial action at the Site. The United States also seeks civil

penalties and punitive damages against defendants for alleged violations of unilateral

administrative orders. 

Capital Tax filed counterclaims against the United States. In its first counterclaim,

Capital Tax alleged that CERCLA § 106(a) denies a potentially responsible party due process. 

The Court previously granted the government’s Rule 12(c) motion with respect to the due

process claim. Capital Tax filed an amended countercomplaint in which it asserts a similar due

process claim, this time alleging that the EPA followed a “pattern or practice” that violates the

due process rights of UAO recipients. Specifically, in the first counterclaim of its amended

countercomplaint, Capital Tax alleges that the EPA threatens potentially responsible parties with

penalties and punitive damages even when the potentially responsible party presents the EPA

with facts demonstrating that the EPA’s order was invalid. Capital Tax alleges that the EPA

threatens potentially responsible parties with sanctions in order to coerce them into complying

with UAO’s. Capital Tax also asserts that the EPA uses its UAO authority even when no

emergency exists. Capital Tax seeks a declaratory judgment that the EPA’s practice deprives

UAO recipients of procedural due process. The EPA moves to dismiss this first counterclaim of

Capital Tax’s amended countercomplaint.

II. Standard on a motion to dismiss
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The Court may dismiss a claim pursuant to Rule 12(b)(6) of the Federal Rules of Civil

Procedure if the plaintiff fails “to state a claim upon which relief can be granted.” Fed.R.Civ.P.

12(b)(6). In considering a motion to dismiss, the Court accepts as true all well-pleaded factual

allegations and draws all reasonable inferences in the plaintiff’s favor. McCullah v. Gadert, 344

F.3d 655, 657 (7th Cir. 2003). On a motion to dismiss, the “issue is not whether a plaintiff will

ultimately prevail but whether the claimant is entitled to offer evidence to support the claims.” 

Cole v. U.S. Capital, Inc., 389 F.3d 719, 724 (7th Cir. 2004) (quoting Scheuer v. Rhodes, 416

U.S. 232, 236 (1974)). 

III. Discussion

A. Capital Tax’s original due process counterclaim

In its original counterclaim, Capital Tax asserted a constitutional challenge to the

CERCLA provisions which allow the EPA to issue unilateral administrative orders (requiring

potentially responsible parties to clean up hazardous waste sites) and to seek civil penalties and

punitive damages for failure to comply with such orders. Capital Tax claimed that the threat of

massive penalties (including civil fines of up to $32,500 per day per violation and punitive

damages) and the lack of a pre-enforcement hearing constituted a denial of due process. This

Court rejected the claim, granting judgment on the pleadings to the EPA. The Court ruled:

Every court that has considered these issues has concluded that the statutory

scheme does not violate due process. Employers Ins. of Wausau v. Browner, 52

F.3d 656 (7th Cir. 1995); Solid State Circuits, Inc. v. United States EPA, 812 F.2d

383 (8th Cir. 1987); Wagner Seed Co. v. Daggett, 800 F.3d 310 (2d Cir. 1986);

General Electric Co. v. Johnson, 362 F. Supp.2d 339 (D.D.C. 2005).

The Fifth Amendment to the Constitution states that no person shall be

“deprived of life, liberty, or property, without due process of law.” U.S. Const.,

Amend. V. “[S]ome form of hearing is required before an individual is finally

deprived of a property interest.” Mathews v. Eldridge, 424 U.S. 319, 333 (1976). 
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Capital Tax argues that when the EPA issues a unilateral administrative

order, the EPA deprives a potentially responsible party of property without due

process of law. The Court disagrees. While the Court agrees that the issuance of

the UAO occurs without a prior hearing, the statutory scheme is set up so that no

deprivation occurs until after a judicial hearing. The UAO is not self-enforcing,

and the EPA lacks the power to enforce a UAO. Rather, in order to enforce the

cleanup outlined in the UAO, the EPA must file suit in district court. It is that

lawsuit that provides the potentially responsible party with due process of law,

and that due process occurs before any deprivation. General Electric Co. v.

Johnson, 362 F. Supp.2d 327, 339 (D.D.C. 2005) (“Under the statutory language

and structure, EPA does not through the mere issuance of a UAO under section

106 deprive a [potentially responsible party] of a significant property interest

without judicial intervention.”); Employers Ins. of Wausau v. Browner, 848 F.

Supp. 1369, 1374-75 (N.D. Ill. 1994) (“In order to compel compliance with the

order and to collect penalties for failure to comply, the EPA is required to bring

an enforcement action pursuant to CERCLA § 9606(b)(1). At this stage, the

[potentially responsible party “PRP”] is fully entitled to judicial review of the

order, including the question of liability. [Internal citations omitted.] 

Accordingly, a PRP is fully entitled to obtain judicial review of the EPA’s order

prior to being deprived of its property.”), aff’d, 52 F.3d 656 (7th Cir. 1995); cf.

Thunder Basin Coal Co. v. Reich, 510 U.S. 200, 218 (1994) (rejecting due process

argument where “[a]lthough the Act’s civil penalties unquestionably become

onerous if petitioner chooses not to comply, the [penalty assessment of the

Secretary of the Mine Safety and Health Administration] becomes final and

payable only after full review by both the Commission and the appropriate court

of appeals.”). The mere delay of the due process does not mean that due process

was lacking. See Barmet Aluminum Corp. v. Reilly, 927 F.2d 289, 295 (6th Cir.

1991) (“The CERCLA statutory scheme, as amended by SARA, merely serves to

effectuate a delay in a plaintiff’s ability to have a full hearing on the issue of

liability and does not substantively affect the adequacy of such hearing.”). 

Capital Tax also argues that the statutory scheme violates its due process

rights in another way: that the penalties are so severe that upon receipt of a UAO,

a potentially responsible party is left with the unconstitutional choice between

complying with the statute and not obtaining review or suffering crushing

penalties. The argument rests on Ex Parte Young, where the Supreme Court

explained that a law imposing:

such conditions upon the right to appeal for judicial relief as work

an abandonment of the right rather than face the conditions upon

which it is offered or may be obtained is . . . unconstitutional. It

may therefore be said that when the penalties for disobedience are

by fines so enormous and imprisonment so severe as to intimidate

the company and its officers from resorting to the courts to test the
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validity of the legislation, the result is the same as if the law in

terms prohibited the company from seeking judicial construction

of laws which deeply affect its rights.

Ex Parte Young, 209 U.S. 123, 147 (1908). Such laws are, thus, “unconstitutional

on their face.” Ex Parte Young, 209 U.S. at 148. Unfortunately for Capital Tax,

the Seventh Circuit has already rejected its argument.

To be sure, a recipient of a UAO does not have an easy choice. The

Seventh Circuit has described the problem Capital Tax faced when it received the

UAO from the EPA:

Without the provision authorizing suits for reimbursement of

response costs, a person potentially responsible for toxic-waste

pollution who was served with a clean-up order would have just

two choices: comply with the order, or refuse to comply, in which

event the EPA could either seek a mandatory injunction against the

refuser, § 9606(a), or hire someone to clean up the polluted site at

the EPA’s expense and then seek to recover that expense by a suit

against the person it had ordered to do the clean-up. § 9613(h)(1). 

The defendant would have an opportunity in that suit to put the

EPA to its proof that the Superfund law really did require the

defendant to clean up the site. [Internal citation omitted.] But it

could not challenge the order in advance of having to comply; that

route is, as we shall see, closed. Its choice would be to comply or

to run the risk of being found to have violated a valid order. This

would be a hard choice because there are heavy sanctions for

disobeying a valid clean-up order, including large civil fines and

treble damages. §§ 9606(b)(1), 9607(c)(3). We stress ‘valid’; it is

of course a good defense to a suit to collect these amercements that

the order is invalid. Even if it is valid, the district court in which

sanctions are sought can abate them in whole or in part if

persuaded that the party had a reasonable though erroneous basis

for believing that the clean-up order was invalid. . . . Still, there

is a risk that the court will not find that the party acted reasonably,

and this risk places pressure on the party to comply even if it has

serious doubts whether the order is valid. . . . 

The provision for reimbursement trims the horns of this dilemma

by offering a party served with a clean-up order a third way. 

[Internal citations omitted.] It need not disobey the order and risk

heavy sanctions. It need not obey and swallow the heavy costs of

compliance. It can obey and then when it has complete the cleanup required by the order sue for the return of its expenses on the
1

Capital Tax asserts that the “sufficient cause” safeguard is illusory because it is

not “sufficiently discernable” to provide any real protection to a potentially

responsible party who has received a unilateral administrative order. The Court

need not consider this argument because (as will be explained) the Seventh

Circuit has concluded that the existence of the reimbursement provision suffices.

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ground that it was not a responsible party within the meaning of

the statute after all.

Employers Ins. of Wausau v. Browner, 52 F.3d 656, 661-662 (7th Cir. 1995). 

Unlike in Ex Parte Young, Capital Tax is not faced with the decision

between (a) not complying, challenging the statute and paying huge penalties if it

loses the challenge and (b) complying and thereby foregoing the chance to

challenge the order. It has two safety nets that were not available in Ex Parte

Young. First, even if it loses its challenge, it is protected from civil penalties and

punitive damages both by the “sufficient cause” defense (which disallows such

penalties where the potentially responsible party had sufficient cause not to

comply) and by the judge’s discretion not to order such penalties. This protection

avoids the Ex Parte Young problem and renders the provisions constitutional. See

Solid State Circuits, 812 F.3d at 391 (“We are . . . convinced that ‘sufficient

cause’ as used in CERCLA § 107(c)(3) may be constitutionally interpreted to

mean that treble damages may not be assessed if the party opposing such damages

had an objectively reasonable basis for believing that the EPA’s order was either

invalid or inapplicable to it.”); Wagner Seed, 800 F.3d at 316-317 (rejecting Ex

Parte Young due process challenge to CERCLA § 106 and 107(c)(3)).1

 The

second safety net is that Capital Tax could have complied with the UAO and then

sought reimbursement from the government on the grounds that it had a valid

defense to the order. The Seventh Circuit concluded that these safety nets provide

the necessary constitutional protection. Wausau, 52 F.3d at 664 (“The risk of

losing and being made to pay heavy sanctions, a risk mitigated by the defense of

sufficient cause as glossed in Solid State Circuits, would not violate the

Constitution even if there were no reimbursement provision, 812 F.2d at 389-92;

it certainly does not violate it given the additional if imperfect remedy which [the

reimbursement] provision grants.”).

The United States is entitled to judgment as a matter of law on Capital

Tax’s first counterclaim, and the Court grants the government’s motion for

judgment on the pleadings with respect to that claim.

(See May 19, 2005 Memorandum Opinion and Order).

B. Capital Tax’s amended due process counterclaim
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In the first counterclaim of its amended countercomplaint, Capital Tax alleges that the

EPA threatens potentially responsible parties with penalties and punitive damages even when the

potentially responsible party presents the EPA with facts demonstrating that the EPA’s order is

invalid. Capital Tax alleges that the EPA threatens potentially responsible parties with sanctions

in order to coerce them into complying with UAO’s. Capital Tax describes its claim as a

“pattern or practice” claim.

As a threshold matter, the government argues that Capital Tax lacks Article III standing

to assert its “pattern or practice” due process claim. The minimum standing requirements are:

(1) an injury in fact; (2) a causal connection between the injury and the conduct complained of;

and (3) a likelihood that the injury would be redressed by a favorable decision. Lujan v.

Defenders of Wildlife, 504 U.S. 555, 561 (1992). An “injury in fact” is “an invasion of a legally

protected interest” which is both “concrete and particularized” and “actual or imminent.” Lujan,

504 U.S. at 560. The “party invoking federal jurisdiction bears the burden of establishing these

elements.” Id. at 561. On a motion to dismiss, the Court considers whether the plaintiff has

adequately alleged facts supporting standing. Lujan, 504 U.S. at 561 (jurisdiction must be

established “with the manner and degree of evidence required at the successive stages of the

litigation.”). 

Capital Tax argues that it has standing because the EPA has issued it a UAO. Capital

Tax fails to allege, however, that it faces an imminent threat of receiving a UAO in the future. 

Where, as here, the counterplaintiff seeks injunctive relief, past exposure does not support

standing. As the Supreme Court noted in Lujan, “‘Past exposure to illegal conduct does not in

itself show a present case or controversy regarding injunctive relief . . . if unaccompanied by any
2

The Court is not swayed by the two cases Capital Tax cites to support its standing

argument. First, in McNary v. Haitian Refugee Center, Inc., 498 U.S. 479 (1991), the Supreme

Court did not consider the issue of injury in fact–it was assumed that the court had jurisdiction. 

McNary, 498 U.S. at 491 (“Petitioners do not deny that those violations caused injury in fact to

the two organizational plaintiffs as well as to the individual members of plaintiff class.”). In

addition, to the extent the court in General Electric v. Johnson concluded that past application of

the allegedly unlawful practice to General Electric conferred jurisdiction over a claim for

injunctive relief, this Court respectfully disagrees. General Electric Co. v. Johnson, 362 F.

Supp.2d 327, 337 (D.D.C. 2005).

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continuing, present adverse effects.’” Lujan, 504 U.S. at 564 (quoting Los Angeles v. Lyons, 461

U.S. 95, 102 (1983)). Like the plaintiffs in Lujan, Capital Tax needed to alleged an imminent

threat of future harm, i.e., that it could expect another UAO from the EPA. It failed to do so. 

Accordingly, this Court agrees with the other district court that found a lack of standing to

pursue a CERCLA pattern or practice challenge where the plaintiff failed to show that it was

likely to receive another order from the EPA. Raytheon v. U.S.A., 435 F. Supp.2d 1136, 1158

(D. Kan.) (“because Raytheon has not demonstrated any credible threat that the EPA will issue

against it another section 106 order, Raytheon has not demonstrated an injury in fact. ‘Under

such circumstances, we have no assurance that the asserted injury is ‘imminent’–that it is

‘certainly impending.’’ Raytheon therefore lacks Article III standing to assert its ‘pattern and

practice’ challenges.”) (internal citations omitted). Capital Tax’s first counterclaim of its

amended countercomplaint is dismissed with prejudice for lack of jurisdiction.2

The reason the Court is dismissing the claim with prejudice is that even were Capital Tax

able to amend the claim to include allegations sufficient to confer jurisdiction, the claim would

fail as a matter of law on the merits. Capital Tax’s amended claim differs from its original

counterclaim in only two respects: 1) it tosses in the words “pattern or practice” and complains

about the EPA’s coercive application of the statute and (2) it seeks injunctive relief. At bottom,
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though, Capital Tax’s complaint about EPA’s process is the same as its prior complaint about the

statutory scheme: that the penalties coerce UAO recipients into complying without due process

of law. The Court already concluded that the statute did not violate due process because the

statutory scheme was set up such that no deprivation occurred until after a hearing. Even if, as

Capital Tax alleges, the EPA threatens punitive damages and is coercive in applying the statute,

the UAO recipient still gets a hearing before any deprivation. Thus, the EPA’s process does not

violate due process. Nor would the EPA’s coercion and threats cause an Ex Parte Young

problem. As the Court explained with respect to the original counterclaim, CERCLA provides

two safety nets to the UAO recipients: the sufficient cause defense and the fact that a UAO

recipient can comply and seek reimbursement from the government. The recipient is entitled to

these safety nets even if, as Capital Tax alleges, the EPA is coercive and threatens punitive

damages when it issues the UAO. Accordingly, Capital Tax’s claim would fail as a matter of

law even if the Court had jurisdiction to consider it. 

IV. Conclusion

For the reasons set forth above, the Court grants the United States’ motion to dismiss. 

Capital Tax’s first counterclaim of its amended countercomplaint is dismissed with prejudice. 

ENTER:

 

George M. Marovich

United States District Judge

DATED: February 8, 2007