In the

United States Court of Appeals

For the Seventh Circuit

No. 07-3744

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

v.

CAPITAL TAX CORPORATION,

Defendant-Appellant.

Appeal from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 04 C 4138—George M. Marovich, Judge.

ARGUED MAY 5, 2008—DECIDED SEPTEMBER 19, 2008

Before CUDAHY, POSNER and ROVNER, Circuit Judges.

CUDAHY, Circuit Judge. Capital Tax Corporation (Capital

Tax) is an Illinois company that purchases distressed

real estate properties and resells them for profit. At a

Cook County scavenger sale in October 2001, Capital Tax

successfully bid on tax certificates to a derelict paint

factory on the south side of Chicago. Capital Tax claims

that it then entered into an agreement to sell the property

to a man named Mervyn Dukatt. Pursuant to this

alleged contract, Capital Tax exercised its option on the
2 No. 07-3744

tax deed and delivered possession of the property to

Dukatt. Capital Tax retained legal title to the property,

however, as security for the remainder of the purchase

price. Dukatt never made another payment, leaving

Capital Tax with title to an unwanted property.

Both the Chicago Department of the Environment

(CDOE) and the Environmental Protection Agency (EPA)

were called to the old paint factory after receiving complaints that toxic paint products were leaking out of the

factory into nearby streets and sewers. The inspections

revealed thousands of rusty and leaking barrels containing hazardous waste. The EPA ordered Capital Tax to

dispose of the waste but Capital Tax refused; the EPA

cleaned up the site itself. The Government then brought

this suit under Section 107(a) of the Comprehensive

Environmental Response, Compensation, and Liability Act

of 1980 (CERCLA) for the response costs it incurred. See

42 U.S.C. § 9607(a). The district court granted summary

judgment in favor of the Government on both liability and

damages. Capital Tax now appeals, raising two basic

arguments. First, it claims that it is not liable under

CERCLA because it is not the “owner” of the facility.

Second, even if it is liable, Capital Tax claims that it is

only responsible for the cleanup of the parcels it owned.

I.

The hazardous waste site facility at issue in the present

case is an old paint manufacturing facility located at 7411-

7431 South Green Street in Chicago, Illinois. For many

years, this facility was operated by the National Lacquer

and Paint Company, Inc., which produced paint products
No. 07-3744 3

Parcel 5 contained the warehouse; Parcel 26 contained the 1

main office and the warehouse yard; Parcel 8 contained the

main mixing room; Parcel 9 contained the roller mill room and

part of the storage yard; Parcel 10 contained the pigment room

and part of the storage yard; Parcel 11 contained the wash

department and part of the storage yard; and Parcel 12 contained the bar mill room. 

The chemicals included the following substances: ethyl 2

acetate, xylene, methylene chloride, methyl ethyl ketone, methyl

(continued...)

and stored the chemicals and materials used to produce

them. This facility, which we call the “National Lacquer

site,” consists of four two-story buildings, two one-story

buildings and two yards; it is situated on one acre of

land in a mixed industrial, commercial and residential

area of Chicago. Although the site is now divided into

seven parcels (Parcels 5, 26, 8, 9, 10, 11 and 12), it was

historically operated as a single plant. When viewed on 1

a map, the seven rectangular parcels are stacked neatly

on top of one another. Each parcel is connected to the

others by a fire door or passageway, and several of the

parcels share common yards.

In December 1995, William Lerch and Steven Pedi,

through their newly created company, National Lacquer

Company (National Lacquer), purchased the assets of the

old National Lacquer and Paint Company. From 1995 to

2002, National Lacquer reclaimed paint, manufactured

paints and coatings, and performed furniture stripping

operations at the site. The company used a number of

different hazardous materials, which were stored all over

the site. It is undisputed that hazardous materials leaked 2
4 No. 07-3744

(...continued) 2

isobutyl ketone and phosphoric acid. All of these substances

are listed as “hazardous substances” under CERCLA. See 40

C.F.R. § 302.4 (2002).

or were spilled onto the ground throughout this period. In

January 1998, for example, the CDOE inspected the site

and found “hundreds of rusty, damaged and leaking

pails, cans and jars.” Not only were these paint products

spilling onto the floor, rainwater from a leaky roof mixed

with the paint and flowed across the floor into drains

and sewers and eventually into the street.

By 2001, National Lacquer had fallen behind on its

property taxes, and Cook County made five of the seven

parcels available for sale (Pedi retained title to Parcels 8

and 10). At tax scavenger sales, potential buyers bid on

the delinquent taxes, and the winning bidder receives a

tax certificate for the property. If the original owner fails

to redeem the delinquent taxes within a statutory period,

the tax sale bidder then has the right to petition for a

tax deed to the property. Tax certificates do not pass title;

they are similar to an option to later obtain title if the

certificate holder chooses to exercise that option. Representatives of Capital Tax visited the National Lacquer site

before the scavenger sale and conducted a limited inspection. While they were not able to enter the property, it was

apparent to them that the property was a former paint

factory. Capital Tax then successfully bid on the tax

certificates.

After purchasing the tax certificates but before obtaining the tax deeds, Capital Tax claims that it struck a
No. 07-3744 5

Dukatt met the sheriff’s department when it arrived to carry

3

out the eviction and represented himself to be an “agent” of

Capital Tax. 

deal with Dukatt in which Capital Tax agreed to obtain the

tax deeds to the property and to convey them to Dukatt in

exchange for about $25,000. No written agreement was

ever made. Because Capital Tax did not typically obtain

the tax deeds until they had a buyer, Dukatt gave Capital

Tax a $15,000 check ostensibly as partial payment for the

property. On October 30, 2001, Capital Tax obtained tax

deeds for four of the parcels. On February 14, 2002, it

obtained a tax deed for the fifth parcel. Capital Tax also

obtained an order of eviction to secure possession of the

site from its previous owner, Lerch. After that, Capital 3

Tax had very little to do with the property.

Dukatt, however, was frequently at the site. He had the

keys to the property and the office. Capital Tax deferred to

him on all matters regarding the site. Dukatt hired workers

who, over the course of two or three weeks, cut up and

removed the paint machines that had been in the garage.

They also prepared and replaced an overhead door and

knocked down two walls. This work allegedly cost Dukatt

$10,000. In April 2002, the CDOE responded to a call

concerning a spill of hazardous materials at the site. It

discovered that paint containers had recently been

moved from parcel to parcel; trails of spilled product

traced the movement of these substances. It is unclear

whether it was Dukatt, Lerch or perhaps a third party

who moved the containers. The CDOE, however, noted

that Capital Tax had made little effort to secure the site
6 No. 07-3744

and it issued Capital Tax a notice of violation for “allowing

a spill of hazardous substances due to container movement at the Site.” On July 23, 2003, the CDOE officially

requested that Capital Tax clean up the site. Capital Tax

refused. It later explained that it “didn’t care” about the

site because it considered it to be Dukatt’s problem.

The CDOE referred the matter to the EPA. On July 31,

2003, the EPA conducted its own inspection of the site. The

EPA found more than 10,000 containers of various sizes,

including gallon drums, storage tanks, cylindrical mixing

tanks, vats, buckets, compressed gas cylinders, laboratory

jars and bottles—most of which contained hazardous

substances. Many of the containers were unsealed, leaking

or otherwise deteriorating. The EPA also found evidence

of trespassing on the site. On August 15, 2003, the EPA

issued a Unilateral Administrative Order (UAO) demanding that Capital Tax clean its five parcels. Capital Tax did

not comply. So, on October 6, 2003, the EPA removed

the hazardous materials itself. The EPA also cleaned

manholes and pits, excavated the top foot of storage yard

soil, backfilled and planted the storage yard with grass. It

sealed the tanks and pressure washed interior floors

and walls to remove potential contamination.

The Government then filed suit against Capital Tax, Pedi

and Lerch under CERCLA to recover the costs of the

cleanup. The Government also sought civil penalties, see

42 U.S.C § 9606(b), and punitive damages, see 42 U.S.C.

§ 9607(c)(3), against Capital Tax for failing to comply with

the UAOs. Capital Tax denied that it was liable under

CERCLA, raising the “security interest” exemption under

42 U.S.C. § 9601(20)(A) and an “innocent landowner”
No. 07-3744 7

defense under 42 U.S.C. § 9607(b)(3). On April 11, 2006, the

Government moved for partial summary judgment on

liability, which the district court granted. On August 24,

2006, the Government moved for summary judgment on

damages, which the district court also granted, finding

Capital Tax jointly and severally liable to the Government

for $2,681,337.79 in response costs. It also assessed civil

penalties in the amount of $230,250.00.

II.

The first major issue here is Capital Tax’s liability under

§ 107(a) of CERCLA for the response costs incurred by

the Government in the cleanup of the National Lacquer

site. Under 42 U.S.C. § 9606(a), the Government may

order potentially responsible parties to clean up hazardous

waste sites. Further, under 42 U.S.C. § 9604(a), the Government is authorized to conduct its own cleanups of

hazardous waste sites using the Hazardous Waste

Superfund. The Government can then bring an action

under § 107(a) to recover damages from potentially

responsible parties. See 42 U.S.C. § 9607(a). In either case,

the “polluter pays.” Cf. United States v. Burlington Northern

& Sante Fe Ry. Co., 520 F.3d 918, 941 (9th Cir. 2008).

To establish liability under § 107(a), the Government

must show that: (1) “the site in question is a ‘facility’ as

defined in § 101(9); the (2) the defendant is a responsible

party under § 107(a); (3) a release or a threatened release

of a hazardous substance has occurred; and (4) the release

or threatened release has caused the plaintiff to incur

response costs.” Kerr-McGee Chem. Corp. v. Lefton Iron &
8 No. 07-3744

Capital Tax concedes that the National Lacquer site is either 4

a “facility” or, in its view, several different “facilities.” The

“releases” in this case included, among other things, the leaking

and evaporation of toxic paint products and chemicals stored

in leaky and deteriorating containers. Finally, no one disputes

that the EPA incurred over two million dollars in response

costs when it cleaned up the National Lacquer site. 

Metal Co., 14 F.3d 321, 325 (7th Cir. 1994). Capital Tax

concedes three of these elements. The only element in 4

issue here is the second element: whether Capital Tax is

a responsible party under § 107(a).

CERCLA is strict liability statute. See Nutrasweet Co. v. XL Eng’g Co., 227 F.3d 776, 784 (7th Cir. 2000). 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. See

United States v. Hercules, 247 F.3d 706, 716 (8th Cir. 2001).

Section 107(a) lists four different categories of potentially

responsible parties. See 42 U.S.C. §§ 9607(a)(1)-(4). The

only category in issue here is specified by § 107(a)(1),

which makes the current “owner and operator of . . . a

facility” liable for cleanup costs. See 42 U.S.C. § 9607(a)(1).

The Government has not claimed in this court that

Capital Tax “operated” the facility in any way. Thus, the

Government’s argument is that Capital Tax is liable for

response costs simply because it is the current “owner” of

the facility. 42 U.S.C. § 9607(a)(1).

There is very little we can glean from the statute about

the meaning of ownership. CERCLA defines “owner” as
No. 07-3744 9

“any person owning” a facility. 42 U.S.C. § 9601(20)(A).

The circularity in the statutory language suggests that “the

statutory terms have their ordinary meanings rather

than unusual or technical meanings.” Sidney S. Arst Co. v.

Pipefitters Welfare Educ. Fund, 25 F.3d 417, 419 n.1 (7th

Cir. 1994). The generality of the term of the term “owner”

also suggests that Congress intended us to turn to “common law analogies.” Edward Hines Lumber Co. v. Vulcan

Materials Co., 861 F.2d 155, 157 (7th Cir. 1988). Congress did

state, however, that the definition of “owner does not

include a person who, without participating in the management of a . . . facility, holds indicia of ownership

primarily to protect his security interest in the vessel

or facility.” 42 U.S.C. § 9601(20)(A) (emphasis added). A

“security interest” is “a right under a mortgage, deed of

trust, assignment, judgment lien, pledge, security agreement, factoring agreement, or lease and any other right

accruing to a person to secure the repayment of money,

the performance of a duty, or any other obligation by a

nonaffiliated person.” 42 U.S.C. § 9601(20)(G)(vi). This

has become known as the “security interest” exclusion,

and the party seeking to assert it bears the burden of

establishing it. See Monarch Tile, Inc. v City of Florence, 212

F.3d 1219, 1222 (11th Cir. 2000).

The Government claims that Capital Tax is the “owner”

under § 107(a)(1) because it holds legal title to five of the

seven parcels at the National Lacquer site. Capital Tax

does not dispute that it has legal title to those parcels and

thus holds “indicia of ownership.” Capital Tax contends,

however, that it sold the parcels to Dukatt. According to

Capital Tax, it only holds legal title to the property as
10 No. 07-3744

security for the balance of the purchase price under the

contract. See 42 U.S.C. § 9601(20)(A). The district court

rejected this argument. It emphasized that Capital Tax

had not taken the title in order to secure a loan. Indeed, as

the district court noted, Capital Tax had never loaned

money to anyone—not Dukatt, not Pedi and not Lerch.

Because Capital Tax was not a “lender,” the district court

reasoned, its interest in the property was not a security

interest.

We agree with the district court that Capital Tax’s

argument is sometimes confusing. But the basic legal

principle underlying Capital Tax’s argument—that equitable ownership passed from Capital Tax to Dukatt when

the land sale contract was executed—has a long history

at common law. “The rule in the vast majority of jurisdictions is that on entering into a contract for the purchase of land, the purchaser is the owner in equity of the

land, and the seller holds legal title as security for payment of the purchase price.” 17 RICHARD A. LORD,

WILLISTON ON CONTRACTS § 50:42 (4th ed. 2000). Echoing

this rule, we have held in the bankruptcy context that

an installment land sales contract is “merely a security

agreement where the vendor holds legal title in trust

solely as security for the payment of the purchase price.”

In re Streets & Beard Farm Partnership, 882 F.2d 233, 235 (7th

Cir. 1989) (applying Illinois law). Perhaps Capital Tax’s

constant reference to the “security interest” exception

has caused some confusion here, for Capital Tax is not a
No. 07-3744 11

Capital Tax does have a colorable argument regarding the 5

“security interest” exclusion. The exclusion covers more than

“typical” lending scenarios: it covers “any . . . right accruing to

a person to secure the repayment of money, the performance of

a duty, or any other obligation.” 42 U.S.C. § 9601(20)(G)(vi).

Further, the exclusion explicitly recognizes that a person can

hold “indicia of ownership,” such as legal title, and yet not be

the owner under CERCLA. Id. As one court has stated, “under

the security interest exception the court must determine why

[a party] holds such indicia of ownership.” In re Bergsoe Metal

Corp., 910 F.2d 668, 671 (9th Cir. 1990). 

typical creditor. Capital Tax’s argument would be more 5

easily understood if it simply argued that it is the former

owner of the facility—not the current owner—and thus

not liable under § 107(a)(1). This, of course, is a classic

“equitable conversion” argument. Although there might

be some merit in the district’s court’s conclusion that

Capital Tax is not a “secured creditor,” we think the

more appropriate methodology under the particular

facts presented here is to address the issue under the

ownership provision of § 107(a)(1).

The central question here is whatrole, if any, the doctrine

of equitable conversion plays in the definition of ownership under CERCLA. As we have already explained, the

statute gives little concrete guidance on the issue. Congress

intended courts, in defining § 107(a)(1), to draw analogies

to common law, see Edward Hines, 861 F.2d at 157, and to

the ordinary meaning of the term ownership, see Sidney S.

Arst, 25 F.3d at 419 n.1. It is notable that two courts of

appeals have held that public or quasi-public companies
12 No. 07-3744

that hold legal title to property in order to secure the

recoupment of development costs are not “owners” under

CERCLA. See Monarch Tile, 212 F.3d at 1222; In re Bergsoe,

910 F.2d at 671. More specifically, a number of district

courts have applied the doctrine of equitable conversion

in CERCLA cases, both under § 107(a)(1)’s “ownership”

provision and under the “security interest” exclusion. See,

e.g., United States v. Union Corp., 259 F. Supp. 2d 356, 395

(E.D. Pa. 2003); K.C. 1986 Ltd. P’ship v. Reade Mfg., 33

F. Supp. 2d 820, 834 (W.D. Mo. 1998). United States v.

Webzeb Enters., Inc., 809 F. Supp. 646, 652 (S.D. Ind. 1992);

Snediker Devs. Ltd. P’ship v. Evans, 773 F. Supp. 984, 987-88

(E.D. Mich. 1991). Thus, it is difficult to dismiss Capital

Tax’s argument out of hand.

So we must determine whether, in applying the

doctrine of equitable conversion in the CERCLA context,

we should attempt to fashion our own federal rule or

look to applicable Illinois law as the federal standard. See

United States v. Kimbell Foods, Inc., 440 U.S. 715, 727-28, 99

S. Ct. 1448, 1457-58, 59 L. Ed.2d 711 (1979). There is no

need to escalate the scope of the inquiry by attempting

to apply a federal common law here; instead, we merely

look to state law for guidance in interpreting the statute.

Of course, federal law, as a formal matter, ultimately

governs the definition of ownership under § 107(a). Id. at

726, 99 S. Ct. 1448. But this case presents a particularly

strong case for the employment of relevant state law as

the proper guide to the federal standard. Cf. Redwing

Carriers, Inc. v. Saraland Apartments, 94 F.3d 1489 (11th Cir.

1996) (adopting state partnership law as the federal

standard to determine ownership under CERCLA).
No. 07-3744 13

We think the reasonable approach is simply to look to state 6

law for guidance in interpreting the statute. This conclusion also

follows from United States v. Kimbell Foods, Inc., 440 U.S. 715,

727-28, 99 S. Ct. 1448, 59 L. Ed.2d 711 (1979).

First, we note that state laws are already generally uniform on

the point raised here; states are in substantial agreement about

the operation of the doctrine of equitable conversion. See

17 RICHARD A. LORD, WILLISTON ON CONTRACTS § 50:42 (4th

ed. 2000).

(continued...)

Property relations have historically been governed by

state law. See, e.g., Butner v. United States, 440 U.S. 48, 99

S. Ct. 914, 59 L.Ed.2d 136 (1979); Oregon ex rel. State Land

Board v. Corvallis Sand & Gravel Co., 429 U.S. 363, 378, 97

S. Ct. 582, 50 L. Ed.2d 550 (1977). When Congress instructed courts to look to the traditional, common-law

meaning of ownership in interpreting CERCLA, it was

certainly aware of this history. And Congress gave no

indication that it intended to take a new course. Cf. United

States v. Bestfoods, 524 U.S. 51, 62, 118 S. Ct. 1876, 141 L.

Ed.2d 43 (1998) (“nothing in CERCLA purports to reject

this bedrock principle [of corporate law], and against

this venerable common-law backdrop, the congressional

silence is audible”). The understanding that state law

governs property and the expectations built around that

understanding strongly suggest that the federal standard

should be rooted in an adoption of state property law.

This conclusion is bolstered by the fact that there is no

practical alternative to this approach. To invent out of

whole cloth a distinctly federal law of property would

be inappropriate, if not impossible.6
14 No. 07-3744

(...continued) 6

Second, CERCLA policy would not be undermined by a

reference to state law. It is highly unlikely that states would

alter core principles of property law or amend their statutes of

fraud in order to affect their impact on pollution liability.

Changes to the basic principles of property law would potentially have wide-ranging effects that would be difficult to limit.

It is unlikely that states would attempt to manipulate these

doctrines to affect responsibility for environmental violations.

Third, we believe that deviation from state law here might be

inequitable. Citizens naturally look to state law to determine

their relative rights and obligations with respect to the issue

of property. It would seem unfair for a party who was not an

“owner” under state law to face liability under a federal

statute based on “ownership.”

The Illinois doctrine of equitable conversion provides

that a valid land sale agreement transfers equitable title

to the purchaser. See Shay v. Penrose, 25 Ill.2d 447, 185

N.E.2d 218, 219-20 (1962). Thus, “when the owner enters

into a valid and enforceable contract for the sale of realty,

the seller continues to hold legal title, but in trust for

the buyer; the buyer becomes the equitable owner and

holds the purchase money in trust for the seller.” In re

Estate of Martinek, 140 Ill. App. 3d 621, 488 N.E.2d 1332,

1336 (Ill. Ct. App. 1986). But “[t]he doctrine of equitable

conversion does not apply where equitable considerations intervene or where the parties intend otherwise.”

Eade v. Brownlee, 29 Ill.2d 214, 193 N.E.2d 786, 788 (1963).

In addition, in order to invoke the doctrine of equitable

conversion, the party must show that “a valid and enforce-
No. 07-3744 15

Because Capital Tax—the seller of the property—is seeking to 7

establish the validity and enforceability of the contract, it

must also establish that it has partially performed its own

obligations under the contract. See RESTATEMENT (SECOND) OF

CONTRACTS § 129 cmt. e (1979). In fact, Capital Tax has purported to show that it has fully performed: not only did it obtain

the tax deeds as promised, it also secured an order placing

Dukatt in possession of the property.

able contract [has been] entered into.” Shay, 25 Ill.2d 447,

185 N.E.2d at 220. This presents an obstacle for Capital Tax

because, under the Illinois Statute of Frauds, a valid

contract for the sale of land must generally be in writing.

See 740 ILL. COMP. STAT. 80/2 (2004). Capital Tax has no

such written agreement; it concedes that the contract

was oral.

Illinois courts, however, have also routinely recognized

exceptions to the Statute of Frauds. The relevant exception here is part performance. Under Illinois law, a contract is taken outside the Statute of Frauds if the buyer

makes whole or partial payment of the purchase price,

takes possession of the property and makes substantial

and lasting improvements to it. See Manias v. Yeck, 11 Ill. 7

2d 512, 144 N.E.2d 596, 600 (1957); Thomas v. Moore, 55 Ill.

App. 3d 907, 370 N.E.2d 809, 812 (Ill. Ct. App. 1977); Meyer

v. Surkin, 262 Ill. App. 83, 90 (Ill. App. Ct. 1931). Further,

the evidence must be “referable” to the contract—that is,

it must actually suggest the existence of a a sales agreement. McCallister v. McCallister, 342 Ill. 231, 173 N.E. 745,

748 (1930); Weir v. Weir, 287 Ill. 495, 501-02, 122 N.E.
16 No. 07-3744

868 (1919). If the actions that purport to show part performance are easily explained without reference to a

contract, the Statute of Frauds is not satisfied. Appropriate

parol evidence must leave “no reasonable doubt in the

mind of the court” that a contract has been formed.

Weir, 287 Ill. at 502, 122 N.E. 868.

Capital Tax has presented some evidence to support

each element of part performance—partial payment,

possession and valuable improvements. But the probative

value of the evidence is unclear. With respect to partial

payment, Capital Tax asserts that Dukatt gave Capital Tax

a check for $15,000. The check stated that is was for

“taxes,” which Capital Tax claims to be a reference to

the “taxes” component of the purchase price. Still, there

is no evidence that the check specifically refers to the

National Lacquer site. Dukatt worked with the principals

of Capital Tax on other deals and with other properties;

the check could easily have referred to some other deal.

Although it may very well display his signature, the

check is actually not from Dukatt; it is from an entity

called “Snowball’s Plaza.” Given these uncertainties, we

find it perplexing that Capital Tax did not ask Dukatt at

his deposition why he had written the check.

Capital Tax also asserts that Dukatt took possession of

the property and did work on the garage. It is unclear

whether this work would constitute “lasting and valuable” improvements under Illinois law. More importantly,

again, we doubt whether this activity was actually “referable” to the contract. Dukatt was loosely affiliated with

Capital Tax—a “friend” of the corporation—and, at times,
No. 07-3744 17

he even represented himself to be “agent” of Capital Tax.

Dukatt had frequent conversations with the principals

of Capital Tax about the facility. Perhaps Dukatt, when

he did work on the garage, was working under Capital

Tax’s direction. While we do not know the exact nature

of the relationship between the parties, Dukatt’s presence

at the site does not necessarily imply that he was acting

as if he owned the site. 

The district court did not address these issues given

its disposition of the case. From this record, it is difficult

for us to determine whether Capital Tax had a valid and

enforceable contract for the sale of land under Illinois

law. If there is no valid contract, then Capital Tax is the

“owner” under § 107(a)(1) and is liable under CERCLA. If

there is a valid contract and if equitable conversion

applies, Capital Tax is not the “owner” under § 107(a)(1)

and is not liable under CERCLA. The case will likely

turn on whether the facts show that Dukatt was, in fact, a

bona fide buyer. Especially given the substantial liability

in this case and the uncertainty surrounding many of

the issues, it is not for us to resolve them in the first

instance. We must remand to the district court to give

fresh and full consideration to the question whether

Capital Tax had an enforceable land sales contract under

Illinois law and whether the doctrine of equitable conversion applies in this case.

III.

We now consider Capital Tax’s alternative argument

that it should not be held jointly and severally liable for
18 No. 07-3744

We reiterate that we follow the Restatement and common 8

law “only to the extent that [they are] compatible with the

provisions of CERCLA.” Hercules, 247 F.3d at 717. 

all the removal costs and instead be found liable for only

a portion of those costs. Unlike the first issue, we can

answer the divisibility question on the record before us

because there are no substantial disagreements about the

facts. Once a party is found to be liable under CERCLA, the

party is jointly and severally liable for all of the EPA’s

response costs, “regardless of that party’s relative fault.”

Metropolitan Water Reclamation Dist. of Greater Chicago v.

North American Galvanizing & Coating, Inc., 473 F.3d 824,

827 (7th Cir. 2007). Courts, however, do recognize one

judicially created exception to joint and several liability

under § 107(a). If a liable party can establish that the harm

is divisible—that is, that there is a reasonable means of

apportioning the harm among the responsible parties—then that party is not subject to joint and several

liability. See United States v. Township of Brighton, 153

F.3d 307, 317-18 (6th Cir. 1998).

The concept of divisibility has largely been derived

from § 433A of the Restatement (Second) of Torts. See,

e.g., United States v. Alcan Aluminum Corp. (Alcan III), 315

F.3d 179, 186 (2d Cir. 2003); United States v. Monsanto Co.,

858 F.2d 160, 171-72 (4th Cir.1988). Some courts have

noted that the “fit” between § 433A and CERCLA is

actually quite unclear: § 433A focuses on causation

while CERCLA is a strict liability statute. See Burlington 8

Northern, 520 F.3d at 937-39; Hercules, 247 F.3d at 715-16.
No. 07-3744 19

Divisibility analysis “brings causation principles into the 9

case—through the backdoor, after being denied entry at the

front door.” United States v. Alcan Alum. Corp. (Alcan II), 990 F.2d

711, 722, (2d Cir. 1993) (quotations omitted). It “has the potential

to eviscerate the strict liability principles of CERCLA,”

Burlington Northern, 520 F.3d at 940, “because defendants who

can show that the harm is divisible . . . could whittle their

liability to zero.” Township of Brighton, 153 F.3d at 318. Thus,

we have stated that divisibility is a “rare scenario.”

Metropolitan Water, 473 F.3d at 827 n.3.

The Restatement does suggest, however, that liability

can be apportioned if Capital Tax can show that its

portion of the damages is susceptible of a “reasonable

estimate.” In re Bell Petroleum Servs., 3 F.3d 889, 904 (5th

Cir. 1993). Divisibility is the exception, however, not the

rule. Metropolitan Water, 473 F.3d at 827 n.3. Thus, the 9

burden of establishing divisibility is on the defendant.

See Alcan III, 315 F.3d at 185.

One method of creating a reasonable estimate of damages is to show that the contamination at the facility is

geographically divisible. See, e.g., Chem-Nuclear Systems,

Inc. v. Bush, 292 F.3d 254, 255 (C.A.D.C. 2002). A landowner

can establish divisibility by “demonstrating a reasonable

basis for concluding that a certain proportion of the

contamination did not originate on the portion of

the facility that the landowner owned.” Burlington Northern, 520 F.3d at 938. Typically, this will involve showing

that the “site consists of non-contiguous areas of soil

contamination.” Hercules, 247 F.3d at 717-18 (quotations

omitted). It is difficult to prove divisibility when the
20 No. 07-3744

facility functioned as a “dynamic, unitary operation” in

which materials were moved from location to location

during the production process. Burlington Northern, 520

F.3d at 958. Further, the “migratory potential” and “actual

migration” of the resulting toxic substances can preclude

a finding of divisibility. See O’Neil, 883 F.2d at 178-79.

Commingling and cross-contamination will often indicate an indivisible facility. See Alcan III, 315 F.3d at 186.

Capital Tax’s argument that the harm is divisible in

this case is based entirely on property lines. Capital Tax

argues that it cannot be liable for the two parcels of land

that it does not own. But the EPA has broad discretion

in defining the boundaries of a particular facility, and the

boundaries are normally based on the extent of the contamination. See Township of Brighton, 153 F.3d at 313. The

boundaries of the facility do not necessarily reflect property boundaries, see id., and liability can extend beyond

what the defendants actually own. See Burlington

Northern, 520 F.3d at 943-44 (responsible party owned

19% of the facility); United States v. Rohm & Haas Co., 2 F.3d

1265 (3d Cir. 1993) (responsible party owned 10% of the

facility).

In the present case, contamination was found on

almost every parcel of the facility. Further, all of these

parcels are contiguous. Capital Tax’s parcels are actually

interspersed with Lerch’s parcels. Parcels 8 and 10, which

are owned by Lerch, formed the main mixing room and

the pigment room. Parcel 9, which is owned by Capital

Tax, contained the roller mill room and was situated

right between Parcels 8 and 10. Doors connected the three

parcels, and the roller mill room and the pigment room
No. 07-3744 21

both emptied out onto the storage yard. Further, Capital

Tax owned the parcel to the north of Parcels 8 and the

parcel to the south of Parcel 10. The EPA’s Site Sketch

reveals that, while containers were found all over the

premises, many were concentrated on these three

parcels and in the storage yard shared by Capital Tax

and Lerch.

When the factory was in operation, materials passed

through all these rooms at some point in the production

process—that is, it was a “dynamic, unitary operation.”

Burlington Northern, 520 F.3d at 958. As the district court

noted, Capital Tax’s mistake is in attempting to apportion

liability based on where the hazardous materials were

located on the day they were removed. Those hazardous

materials could easily have originated in another part of

the plant. As in the game of “musical chairs,” the fact

that the chemicals came to rest in any particular place

when production ended was largely happenstance. Thus,

Capital Tax cannot show that the hazardous substances

found just outside its property lines did not “originate”

on its property. Burlington Northern, 520 F.3d at 938.

More importantly, there is undisputed evidence that the

products and chemicals continued to migrate between

parcels after operations at the facility had ceased. Containers were deteriorating and leaking. Indeed, paint and

other chemicals mixed with rain water from the leaking

roof and were washed to other parts of the building and

onto the streets. Chemicals would evaporate into the air,

leaving resin that could easily travel to contiguous parcels. Further, it is undisputed that individuals were
22 No. 07-3744

actually moving containers from parcel to parcel, spilling

paint and other substances in the process. It is immaterial

whether Capital Tax actually moved any of these containers because it failed to secure the premises from

third parties and, in general, turned a blind eye to the

property. Because we have commingling, cross-contamination and migration occurring on a site that formerly

operated as a single, unitary operation, there is no

basis for apportionment. See Burlington Northern, 520 F.3d

at 956-58.

Finally, Capital Tax believes that the costs can be reasonably apportioned because the EPA tracked and documented all the containers that were removed from the

site. We note that the relevant document does not appear

to include the costs associated with cleaning the facility,

excavating the contaminated ground or sealing off the

tanks. Nor does it include travel costs, payroll costs,

indirect costs, Department of Justice enforcement costs

or interest. More importantly, the fact that containers

were actually moved from parcel to parcel raises real

doubts about the relevance of where all the containers of

waste were on the date of removal. Put simply, a CERCLA

owner may not move barrels of hazardous substances

across property lines (or allow them to be so moved) in

order to reduce its liability under CERCLA.

IV.

Capital Tax also argues that the district judge erred in

assessing costs and penalties based on the removal of

waste from parcels 8 and 10. On August 15, 2003, the

EPA issued a UAO directing Capital Tax to “perform
No. 07-3744 23

removal action within the Site which is owned by Respondent or to which Respondent has moved hazardous

wastes.” Capital Tax failed to comply with this order.

CERCLA provides that any person “who, without sufficient cause, willfully violates, or fails or refuses to

comply with, any order of the President under subsection

(a) of this Section may . . . be fined not more than [$27,500]

for each day in which such violation occurs or such

failure to comply continues.” 42 U.S.C. § 9606(b) (1). A

“sufficient cause” for failing to comply is a reasonable

belief that one is not liable under CERCLA. See United

States v. Barkman, No. CIV. A. 96-6395, 1998 WL 962018, at

*17 (E.D. Penn. Dec. 17, 1998). Because we are remanding

this case to district court on the issue of liability, we find

it appropriate to vacate the award of damages. The

district court may reassess the issue of penalties, if it

deems that action necessary, after resolving the liability

issue.

V.

For the reasons discussed above, the decision of the

district court is VACATED and the case REMANDED for

further proceedings in accord with this opinion.

9-19-08