Opinion ID: 199705
Heading Depth: 2
Heading Rank: 3

Heading: Potentially Meritorious Defense

Text: 55 Kayser-Roth argues that it possesses a potentially meritorious defense to CERCLA liability under these Bestfoods principles sufficient to give a court reason to believe that vacating the judgment will not be an empty exercise. Teamsters, 953 F.2d at 20. Focusing only on operator liability, as we did in our first decision in this case, 15 see 910 F.2d at 26-28 & n.11, we disagree. 56 In Kayser-Roth I, Judge Boyle held that [t]he parent corporation's control over the subsidiary's management and operations is an essential element of proving operator liability on the parent's part. 724 F. Supp. at 22. Under Bestfoods, this reading of CERCLA is incorrect. Instead, the Supreme Court focused on the relationship between the parent and the facility itself: The question is not whether the parent operates the subsidiary, but rather whether it operates the facility, and that operation is evidenced by participation in the activities of the facility, not the subsidiary. 524 U.S. at 68 (internal quotation marks omitted). The Court defined an operator as 57 someone who directs the workings of, manages, or conducts the affairs of a facility. . . . [and] must manage, direct, or conduct operations specifically related to pollution, that is, operations having to do with the leakage or disposal of hazardous waste, or decisions about compliance with environmental regulations. 58 Id. at 66-67. 59 In its formulation of operator liability, we face an arguable ambiguity in the Bestfoods decision. The Court appears to link the operational inquiry to the environmental matters noted above. At other times, the Court articulates the relevant parent-facility relationship more broadly, suggesting an inquiry beyond the parent's direct involvement in pollution-related activities at the plant. See id. at 66-73 (noting the term operation to include the exercise of direction over the facility's activities). 60 Whatever the ambiguity created by these references, we think it is clear that direct operator liability requires an ultimate finding of the parent's involvement with operations having to do with the leakage or disposal of hazardous waste, or decisions about compliance with environmental regulations. Id. at 66-67. Indeed, at the end of Bestfoods the Court's attention to facts specific to the involvement of CPC (and its agent Williams) in its subsidiary's environmental matters indicates that the pollution-related focus is controlling. See id. at 72-73. This reading is consistent with that of other courts interpreting CERCLA liability since Bestfoods. See, e.g., Carter-Jones Lumber Co. v. Dixie Distrib. Co., 166 F.3d 840, 846-47 (6th Cir. 1999) (reading Bestfoods in arranger liability context to require active[] involve[ment] in the arrangements for disposal); United States v. Green, 33 F. Supp. 2d 203, 217 (W.D.N.Y. 1998) (requiring participation in management of facility's pollution control operations for operator liability to attach). 61 Judge Boyle cited Kayser-Roth's pervasive control over Stamina Mills's environmental affairs, specifically at the Forestdale facility. His findings place Kayser-Roth squarely within the Supreme Court's definition of direct operator liability. Specifically, Judge Boyle found that 62 [i]llustrative of Kayser-Roth's control are its actions with regard to environmental matters affecting Stamina Mills. . . . Kayser-Roth knew that Stamina Mills employed a scouring system that used TCE; indeed, Kayser-Roth approved the installation of that system after mandating that a cost-benefit study be made by Stamina Mills. . . . There are other examples of Kayser-Roth's participation in Stamina Mills' environmental decision-making. Evidence was introduced that Kayser-Roth issued a directive to its subsidiaries, including Stamina Mills, requiring that Kayser-Roth's Legal Department be notified of any governmental agency or court contact regarding environmental matters. Furthermore, when Stamina Mills was sued in 1974 by the United States for an illegal waste water discharge into the Branch River, the final decision on settlement was made by Kayser-Roth's directors. 63 Kayser-Roth I, 724 F. Supp. at 22-23. Judge Boyle also found that 64 Kayser-Roth essentially was in charge in practically all of Stamina's operational decisions, including those involving environmental concerns. Kayser-Roth made the ultimate decision to acquire the dry cleaning process using TCE. Moreover, Kayser-Roth issued a directive requiring Stamina Mills to notify the Kayser-Roth Legal Department of any correspondence with courts or governmental agencies regarding environmental matters. The only autonomy given the officers of Stamina Mills was that absolutely necessary to operate the facility on-site from day to day such as hiring and firing hourly employees and ordering inventory. Stamina was in fact and effect the serf of Kayser-Roth. 65 Id. at 19-20. Based on these findings, we conclude (as did Judge Torres) that Judge Boyle expressly found that Kayser-Roth directed Stamina Mills's activities with respect to environmental matters, in general, and operation of the facility utilizing TCE, in particular. Kayser-Roth II, 103 F. Supp. 2d at 82. 66 Reliance on Judge Boyle's findings of Kayser-Roth's control over pollution-related operations at Stamina Mills' Forestdale mill might be questionable if Judge Boyle premised these findings upon evidence of actions of joint directors or officers of Kayser-Roth and Stamina Mills, thereby assuming that these actions were automatically attributable to Kayser-Roth. That attribution would be in conflict with Bestfoods. However, the record made before Judge Boyle reveals control by Kayser-Roth in the manner required by Bestfoods. 16 67 There is evidence that an agent of Kayser-Roth -- Norman Hinerfeld, executive vice-president of Kayser-Roth -- directly exerted operational control over environmental matters at the Forestdale facility. Hinerfeld was neither an officer nor a director of Stamina Mills. With no hat to wear but the parent's, Hinerfeld acted solely on behalf of Kayser-Roth in his actions affecting Stamina Mills. Bestfoods, 524 U.S. at 57. 68 As Judge Boyle found, there were complaints about wastewater discharge from the Forestdale mill into the Branch River caused by the Forestdale mill's soap scouring system which removed oil and dirt from newly-woven fabric. Hinerfeld testified that he directed that cost studies be conducted to evaluate various solutions to that problem. He testified that he rejected the option of a lagoon system for treating wastewater, based on cost and space factors, and approved instead the selection of the dry cleaning system, installed in 1969, which he knew used TCE (which ultimately led to the TCE contamination at the site) based upon his assessment that it was the least expensive solution [to the plant's environmental problems] that would work. John Merrick, Crown Division's controller, described Hinerfeld in his deposition testimony as the lead man in making this decision about how to handle this pollution problem. 69 Further, Hinerfeld played a critical leadership role in the settlement of a separate EPA action (unrelated to the instant litigation) filed in 1974 against Stamina Mills for an effluent discharge into the Branch River. Hinerfeld testified that, regarding the 1974 EPA suit, [his] role was to see to it that prompt action was taken to comply with what the government wanted us to accomplish and then to see to it that the underlying causes of the government action were permanently corrected. According to Hinerfeld, Stanley Sheerr, 17 president of Kayser-Roth's Crown Division, recommended that, to rectify the pollution problem, the wet processing operation (which was the source of the effluent) be transferred from the Forestdale mill to another facility which was set up with a lagoon system that could handle the wastewater discharge. Hinerfeld approved that recommendation and made the final decision to move wet processing from the Forestdale mill. Although this 1974 lawsuit did not involve the TCE contamination at issue in this case, Judge Boyle nevertheless found it probative of Kayser-Roth's overall control over the handling of Stamina Mills's pollution problems. Judge Torres agreed with that assessment, and so do we. 70 In the period when TCE from the Forestdale site contaminated residential wells, Hinerfeld played a central role in decisions about environmental compliance at the Forestdale mill and specifically the decision to implement the cleaning process that used TCE. These activities went far beyond the norms of parental oversight, reflecting instead direct control by the parent at the Forestdale facility over operations having to do with the leakage or disposal of hazardous waste, or decisions about compliance with environmental regulations. Bestfoods, 524 U.S. at 66-67. Therefore, we conclude that Kayser-Roth cannot establish that Bestfoods gives it a potentially meritorious defense to operator liability under CERCLA for the release of contaminants at the Forestdale facility. We agree with Judge Torres' conclusion that Bestfoods would not alter Judge Boyle's determination of Kayser-Roth's operator liability. 18