Opinion ID: 652885
Heading Depth: 1
Heading Rank: 4

Heading: monitoring and evaluation costs

Text: 33 Although we affirm the district court's order that there is no threat of future contamination by Tonolli Canada for which the Authority can recover, we must still address the Authority's doctrinally distinct claim for recovery of its monitoring and evaluation costs. CERCLA authorizes recovery for the costs of such actions as may be necessary to monitor, assess, and evaluate the release or threat of release of hazardous substances. 42 U.S.C. Sec. 9601(23). It is well-established that under this provision a plaintiff can recover its monitoring and evaluation costs from a release or threatened release without proving that its property was actually contaminated by the defendant. See Artesian Water Co. v. Government of New Castle County, 851 F.2d 643, 651 (3d Cir.1988); accord Dedham Water Co. v. Cumberland Farms Dairy, Inc., 889 F.2d 1146, 1153-54 (1st Cir.1989); Wickland Oil Terminals v. Asarco, Inc., 792 F.2d 887, 892 (9th Cir.1986). Even though we uphold the district court's conclusion that the AGES study failed to establish that the Tonolli site poses any threat of future environmental harm, the Authority may still recover for the costs of the AGES study if it establishes that it incurred these costs in response to a release or threatened release of hazardous material and establishes the other elements of such a CERCLA claim. 34 CERCLA provides that in order to establish a prima facie case for the recovery of monitoring and evaluation costs, a plaintiff must establish that: 1) the defendant falls into one of four categories of covered persons, 42 U.S.C. Secs. 9607(a)(1)-(4); 2) there has been a release or a threatened release of a hazardous substance from a facility, 42 U.S.C. Sec. 9607(a)(4); 3) this release or threatened release has caused the plaintiff to incur response costs, 42 U.S.C. Sec. 9607(a)(4); and 4) the plaintiff's response costs are necessary and consistent with the NCP, 42 U.S.C. Sec. 9607(a)(4)(B). 35 We note that although CERCLA authorizes recovery for monitoring and evaluation costs even when a defendant has not actually contaminated the plaintiff's property, it also provides safeguards to ensure that a defendant will be liable only in situations in which: (1) there was a reasonable risk (although one that may not materialize) that the defendant's release or threatened release of hazardous substances would contaminate the plaintiff's property; and (2) the monitoring and evaluation expenses were incurred by the plaintiff in a reasonable manner. Because a plaintiff must prove that the defendant was responsible for a release or threatened release of hazardous substances and that the costs incurred in response were both necessary and consistent with the NCP, see 42 U.S.C. Sec. 9607(a)(4), these requirements prevent a plaintiff from recovering the costs incurred in instituting a needless and expensive monitoring study. 36 The district court held that although both a release and a threatened release of hazardous substances at the Tonolli site caused the Authority to incur monitoring and evaluation costs (the AGES study), the Authority failed to establish the other elements of a prima facie case under CERCLA. Most importantly, the district court concluded that Tonolli Canada did not qualify as a covered person under CERCLA, 48 U.S.C. Sec. 9607(a)(1), because it was neither an owner nor an operator of Tonolli PA. In addition, the district court denied the Authority recovery of its monitoring and evaluation costs because the Authority presented no evidence that the costs it incurred were both necessary and consistent with the NCP. 37 Tonolli Canada agrees with the district court's finding that it was neither an owner nor operator of Tonolli PA, but disputes the court's finding that a release or threatened release of hazardous substances at the Tonolli site caused the Authority to incur monitoring and evaluation costs. In response, the Authority contends that there was ample evidence supporting the district court's finding that a release and a threatened release of hazardous material caused it to incur monitoring and evaluation costs, but that the district court's finding that Tonolli Canada was not an owner or operator of Tonolli PA is clearly erroneous. 38 B. The Finding that a Release/Threatened Release Caused the Authority to Incur Monitoring and Evaluation Costs 39 We reject Tonolli Canada's contention that the district court's finding that the Authority commissioned the AGES study in response to a release and threatened release of hazardous substances at the Tonolli PA site was clearly erroneous. The district court found that the negligent acts of Tonolli PA caused releases of hazardous substances into the soil at the Tonolli PA facility. It is undisputed that the federal Environmental Protection Agency (EPA) has conducted removal actions under CERCLA at the Tonolli site due to a release of hazardous substances and is currently conducting a remedial investigation there under CERCLA. In addition, there was testimony at trial that the Authority was concerned about the threat of future releases because Tonolli PA had applied for a permit to dispose of hazardous wastes at its facility. Under this set of circumstances, we cannot say that the district court committed clear error in finding that the Authority, a provider of drinking water to the public, instituted the AGES study due to releases of hazardous substances and the threat of future releases at the Tonolli site. We thus decline to set aside the finding that a release and a threatened release caused the Authority to incur monitoring and response costs. 9 40 C. Owner and Operator Status Under CERCLA
41 Although the contours of owner and operator liability under CERCLA present an issue of first impression for this court, a number of federal courts and commentators have already considered the issue. See, e.g., United States v. Kayser-Roth Corp., 910 F.2d 24 (1st Cir.1990), cert. denied, 498 U.S. 1084, 111 S.Ct. 957, 112 L.Ed.2d 1045 (1991); United States v. Mottolo, 695 F.Supp. 615 (D.N.H.1988); Lynda J. Oswald & Cindy A. Schipani, CERCLA and the Erosion of Traditional Corporate Law Doctrine, 86 Nw.U.L.Rev. 259 (1992); Note, Liability of Parent Corporations for Hazardous Waste Cleanup and Damages, 99 Harv.L.Rev. 986 (1986). There is general agreement that under CERCLA, owner liability and operator liability denote two separate concepts and hence require two separate standards for determining whether they apply. See, e.g., John S. Boyd Co. v. Boston Gas Co., 992 F.2d 401, 408 (1st Cir.1993); Richard B. Stewart & Bradley M. Campbell, Lessons from Parent Liability under CERCLA, 6 Nat. Resources & Env't 7 (Winter, 1992). 42 Under CERCLA, a corporation may be held liable as an owner for the actions of its subsidiary corporation in situations in which it is determined that piercing the corporate veil is warranted. See Joslyn Mfg. Co. v. T.L. James & Co., 893 F.2d 80 (5th Cir.1990), cert. denied, 498 U.S. 1108, 111 S.Ct. 1017, 112 L.Ed.2d 1098 (1991). Operator liability, in contrast, is generally reserved for those situations in which a parent or sister corporation is deemed, due to the specifics of its relationship with its affiliated corporation, to have had substantial control over the facility in question. 10 Courts are divided as to whether operator liability should be predicated on the actual control one corporation has over the other, or whether the corporation's capacity or authority to control is sufficient. Compare Kayser-Roth, 910 F.2d at 27 (applying active involvement test) with Nurad, Inc. v. William E. Hooper & Sons Co., 966 F.2d 837 (4th Cir.) (applying authority-to-control test), cert. denied, --- U.S. ----, 113 S.Ct. 377, 121 L.Ed.2d 288 (1992). 43 In this case, the district court considered whether Tonolli Canada should be deemed either an owner or an operator under CERCLA and concluded that neither status applied. The Authority argues that the district court applied incorrect legal standards in deciding these issues and that, in the alternative, even if the district court utilized the correct standards, its conclusions that Tonolli Canada is neither an owner nor an operator are clearly erroneous. We hold that the district court, by applying the actual control test, applied the correct legal standard with respect to the operator liability issue. However, because the district court's factual findings fail to address a number of key facts relevant to whether or not Tonolli Canada employees exercised control over the affairs of Tonolli PA, we will remand the case to the district court for more detailed fact findings. With respect to owner liability, we conclude that the district court applied the correct standard and properly concluded that Tonolli Canada should not be held liable as an owner. We turn first to the operator liability question because it is the more difficult issue of the two.
44 Although congressional intent may be particularly difficult to discern with precision in CERCLA, a statute notorious for its lack of clarity and poor draftsmanship, see Artesian Water Co., 851 F.2d at 649, it is at least clear that Congress has expanded the circumstances under which a corporation may be held liable for the acts of an affiliated corporation such that, when a corporation is determined to be the operator of a subsidiary or sister corporation, traditional rules of limited liability for corporations do not apply. 11 This expansion of liability is consistent with CERCLA's broad remedial purposes, most importantly its essential purpose of making those responsible for problems caused by the disposal of chemical poisons bear the costs and responsibility for remedying the harmful conditions they created. John S. Boyd Co., 992 F.2d at 405 (citing Dedham Water Co. v. Cumberland Farms Dairy, Inc., 805 F.2d 1074, 1081 (1st Cir.1986)). 45 Courts have fashioned two competing standards for the imposition of operator liability: what we term the actual control test and the authority-to-control test. Under the actual control standard, a corporation will only be held liable for the environmental violations of another corporation when there is evidence of substantial control exercised by one corporation over the activities of the other, Kayser-Roth Corp., 910 F.2d at 27. In contrast, under the authority-to-control test, operator liability is imposed as long as one corporation had the capability to control, even if it was never utilized. See Nurad, 966 F.2d at 842; Idaho v. Bunker Hill Co., 635 F.Supp. 665, 670-71 (D.Idaho 1986); United States v. Nicolet, Inc., 712 F.Supp. 1193 (E.D.Pa.1989). 46 We reject the Authority's contention that the authority-to-control standard should govern. We believe that test sweeps too broadly and we thus adopt the actual control standard, which appears to strike the appropriate middle ground, balancing the benefits of limited liability with CERCLA's remedial purposes. Under the actual control standard, while the longstanding rule of limited liability in the corporate context remains the background norm, a corporation cannot hide behind the corporate form to escape liability in those instances in which it played an active role in the management of a corporation responsible for environmental wrongdoing. In contrast, we believe that a rule which imposes liability on a corporation which never exercised its general authority over its subsidiary or sister corporation may unduly penalize the corporation for a decision by that corporation to benefit from one of the well-recognized and salutary purposes of the corporate form: specialization of management, see Frank H. Easterbrook & Daniel R. Fischel, Limited Liability and the Corporation, 52 U.Chi.L.Rev. 89, 90-94 (1985). 12 47 We follow the test adumbrated in Kayser-Roth, supra, and CPC Int'l, Inc. v. Aerojet-General Corp., 777 F.Supp. 549 (W.D.Mich.1991). As the Kayser-Roth court explained, [t]o be an operator requires more than merely complete ownership and the concomitant general authority or ability to control that comes with ownership. At a minimum, it requires active involvement in the activities of the subsidiary. 910 F.2d at 27. Whereas a corporation's mere oversight of the subsidiary or sister corporation's business in a manner appropriate and consistent with the investment relationship does not ordinarily result in operator liability, a corporation's actual participation and control over the other corporations's decision-making does. CPC Int'l, 777 F.Supp. at 573. 48 The determination whether a corporation has exerted sufficient control to warrant imposition of operator liability requires an inherently fact-intensive inquiry, see John S. Boyd Co., 992 F.2d at 408, involving consideration of the totality of the circumstances presented. The factors courts should consider focus on the extent of the corporation's involvement in the other corporation's day-to-day operations and its policy-making decisions. 13 See CPC Int'l, 777 F.Supp. at 573. We understand the actual control standard to hold accountable for environmental violations those corporations which are not mere investors in other corporations, but instead have actively and substantially participated in the corporation's management. 49 In addition, because the essential focus of the actual control test is the control of one corporation over another, not only may a parent corporation be deemed the operator of its subsidiary, but a corporation may also be considered the operator of its sister corporation. In other words, the test is concerned with control rather than ownership and there is no reason not to hold a corporation liable when it exercises substantial management control over an affiliated corporation. 50
51 In view of the foregoing discussion, we reject the Authority's claim that the district court applied the wrong legal standard regarding operator liability, since it expressly applied the actual control test and manifested a correct understanding of it. We therefore review its application of that standard to the facts here for clear error only. See John S. Boyd Co., 992 F.2d at 408; Kayser-Roth, 910 F.2d at 27. Although much of the evidence supports the district court's conclusion that Tonolli Canada should not be deemed the operator of Tonolli PA, the court's findings fail to address a number of key factual issues concerning the role of several Tonolli Canada officers in the management of Tonolli PA. The dearth of findings on these issues leaves us with important unanswered questions such that we cannot affirm the conclusion that Tonolli Canada was not an operator of Tonolli PA without further findings. Hence we will remand to the district court for additional proceedings. 52 The following basic facts were adduced at trial. From 1972 until 1976, Tonolli Canada was the parent and sole shareholder of Tonolli PA. In 1976, Tonolli Canada divested its Tonolli PA stock, selling it for value to IFIM, a company which also became the parent corporation to Tonolli Canada. Tonolli PA did not begin operations until September, 1975, which was only shortly before it was sold to IFIM. After Tonolli Canada sold its Tonolli PA stock, Tonolli PA and Tonolli Canada shared the same president, Elvio Del Sorbo, and the same chief financial officer, Vincent Bailini. From 1984 to 1985, the American Bank & Trust Company of Pennsylvania, a creditor of Tonolli PA, exercised strict, if not total, control over Tonolli PA's operations. 53 In support of its conclusion that the two corporations were largely self-supporting and self-sufficient entities during the period that Tonolli PA was operational, the district court made a number of subsidiary findings about the relationship between the two companies which support this conclusion and are supported by the record. For example, although Tonolli Canada had guaranteed Tonolli PA's financial liabilities when it was the latter's parent corporation, Tonolli Canada conditioned its sale of Tonolli PA stock to IFIM on the cancellation of these guarantees. 14 The district court also found that to the extent that Tonolli Canada had advanced money to Tonolli PA during its start-up period, these advances were all repaid by Tonolli PA shortly after it began operations in 1976. It was also established that each corporation's lead smelting process was fully operational without support from the other. In addition, each corporation owned its own equipment and procured its own supplies and raw materials. Similarly, each corporation had its own customers, sales staff, legal staff, and engineering consultants. 54 The district court found that the two companies were kept separate in numerous other respects: they maintained separate corporate minutes; they kept their funds and assets separate; the two companies were separately audited, producing independent financial statements. Each company paid its own bills and conversely neither accepted payment for the other's products and services provided to third parties. There was no overlap among any non-officer employees, and all facets of the companies' personnel policies were separate. All of these findings are supported by the record. 55 The district court also found that all financial transactions between the two companies were conducted on an arm's-length basis, including, most importantly, the annual management contracts between the two companies. The Authority has argued that the management contracts are actually strong evidence of the operational and financial unity of the two companies. However, the trial testimony established that these annual contracts--in which Tonolli PA paid Tonolli Canada for services it received--were primarily to compensate Tonolli Canada for basic services it provided during the course of a year, i.e., bookkeeping work and computer consulting. There is no indication in the record that Tonolli PA's payments pursuant to these contracts amounted to anything but the market value of the services it received. In addition, there was no other evidence that the two operated on anything but an arm's-length basis; there was, for example, no evidence that Tonolli PA was undercapitalized or that Tonolli Canada siphoned off its assets or otherwise used Tonolli PA merely as a source of cash. 15 The record, therefore, contains ample evidence supporting the district court's conclusion as to the separate nature of the two companies. 16 56 However, there are several potentially significant facts that the district court's findings do not address and which we find disquieting. The two companies shared common officers during the period in question: it is uncontroverted that Del Sorbo served as president and Bailini as chief financial officer of both Tonolli PA and Tonolli Canada. On one hand, the fact that the same people served as the president and chief financial officer for the two corporations is not, without more, enough to conclude that one corporation should be deemed the operator of the other. Because a corporate officer may be a figurehead, there must be evidence that the officer actually exerted control over both corporations. On the other hand, the existence of common high-level officers is troubling and raises serious questions about the independence of the two companies. 57 Despite the importance of this issue, the district court failed to make any specific findings about what role Bailini and Del Sorbo played in the management of Tonolli PA. This omission is particularly problematic in light of the fact that in 1984 Bailini signed Tonolli PA's consent order with the Pennsylvania Department of Environmental Regulation (D.E.R.), which raises questions about his involvement in Tonolli PA's environmental policies. 17 It is further disquieting in light of a document prepared by Del Sorbo containing job descriptions and describing his responsibilities as president of Tonolli PA and Tonolli Canada as well as the responsibilities of several vice-presidents. This document, which stated an effective date of January, 1979, described the two corporations operating as one entity, with the officers of both corporations reporting to the shared president, Del Sorbo. According to this document, the president served in more than a symbolic capacity, exerting final decisionmaking authority over all facets of the two companies' operations and management. 58 Despite the substantial questions raised by this document, the district court made no mention of it in its findings. While it may be that the district court credited Bailini's testimony that this document was never put into effect, 18 we simply do not know. Given the potential import of this document, the district court erred by failing to provide an explanation of its meaning and effect on the operator liability issue. 59 Although the district court failed to make findings about the respective roles of Bailini and Del Sorbo in the management of Tonolli PA, it did make several findings regarding Sergio Legati. Legati was the vice-president of manufacturing of Tonolli Canada and served as Tonolli PA's plant manager during 1975-1976 (the start-up period) and again in 1984-85. Legati testified that at other times he intermittently worked on behalf of the Tonolli facility. 19 Regarding Legati's two stints as plant manager for the Tonolli facility, the district court found that, [a]lthough Legati remained an employee of Tonolli Canada[,] ... his role was that of an individual employee temporarily on loan. Regarding Legati's part-time work for Tonolli PA, the district court found that Legati worked for the company only as a consultant. 60 Notwithstanding these findings about Legati, the district court's findings leave critical unanswered questions about Legati's role. More specifically, the district court failed to make any findings regarding Legati's role, if any, with respect to Tonolli PA's release of hazardous substances. Along with Bailini, Legati signed Tonolli PA's consent order with the D.E.R., raising questions about his role in environmental decisions at the Tonolli site. In addition, although the district court found that there were releases of hazardous substances into the soil at the Tonolli facility, it is unclear from both the record and the court's findings when the releases occurred. We thus cannot tell whether these releases occurred during the period when Legati served as a full-time plant manager for Tonolli PA. We similarly cannot tell whether they occurred when the American Bank had control over Tonolli PA. 61 In sum, although the district court made a number of subsidiary findings supporting its conclusion that Tonolli Canada did not exert sufficient control over Tonolli PA to be deemed an operator, its findings do not address a number of critical issues about the roles of several Tonolli Canada officers. We thus remand for the entry of more detailed findings on these issues. 62
63 It is well-established that under CERCLA a corporation may be held liable as the owner of another corporation when the attendant circumstances warrant piercing the corporate veil. See, e.g., Joslyn Mfg. Co., 893 F.2d at 83; John S. Boyd Co., 992 F.2d at 408; United States v. Mottolo, 695 F.Supp. 615 (D.N.H.1988). In addition, given the federal interest in uniformity in the application of CERCLA, it is federal common law, and not state law, which governs when corporate veil-piercing is justified under CERCLA. See United States v. Kimbell Foods, Inc., 440 U.S. 715, 99 S.Ct. 1448, 59 L.Ed.2d 711 (1979); see also In re Acushnet River & New Bedford Harbor Proceedings re Alleged PCB Pollution, 675 F.Supp. 22, 30-31 (D.Mass.1987) (applying federal common law to owner/operator liability under CERCLA). See generally Evelyn F. Heidelberg, Comment, Parent Corporation Liability Under CERCLA: Toward a Uniform Federal Rule of Decision, 22 Pac.L.J. 854 (1991). 64 The Authority argues that the district court failed to recognize that operator and owner liability are predicated on different inquiries. It submits that the court therefore did not apply a separate standard to determine whether Tonolli Canada should be held liable as an owner. We disagree. We cannot dispute that the district court's discussion of the owner liability issue is somewhat vague and that at one point it misspoke by referring to the owner liability issue when it apparently meant the operator liability issue. However, based on our reading of the district court's findings of fact and conclusions of law, we conclude that the district court did in fact recognize that separate standards govern the imposition of owner and operator liability, applied the appropriate standard to determine whether Tonolli Canada should be deemed an owner, and correctly concluded that it should not. 65 It is undisputed that Tonolli Canada sold all of its stock in Tonolli PA to IFIM for value in 1976, shortly after the Tonolli PA facility commenced operations. Therefore, for the bulk of the relevant period--the period during which Tonolli PA was operational--Tonolli Canada was Tonolli PA's sister corporation and no longer its parent. While that fact is inconsequential with respect to the imposition of operator liability, it is generally relevant with respect to owner liability. Put simply, while Congress has provided little guidance in CERCLA as to the appropriate standard governing owner liability, having defined an owner circuitously to be any person owning a facility, 42 U.S.C. Sec. 9601(20)(A)(ii), it is nonetheless clear that owner liability can ordinarily only attach if the defendant meets the common definition of that term and is at least a partial owner of the corporation responsible for the substantive CERCLA offenses. Thus, in contrast to operator liability, corporate ownership is generally a pre-requisite for this status to apply, and Tonolli Canada was not Tonolli PA's parent corporation for the bulk of the period in question here. 66 In addition, as we discussed above with respect to the operator liability issue, see supra pages 1222-23, the record establishes that corporate formalities were adhered to, that the two corporations entered transactions on an arm's length basis, and that Tonolli PA was not undercapitalized. Thus, there is no indication that the circumstances warranted piercing the corporate veil. We will therefore uphold the district court's conclusion that owner liability should not be imposed. 67 D. Necessity of Expenses and Consistency with the NCP 68 In its response to the Authority's motion for reconsideration, the district court stated that the Authority had failed to provide any evidence that the costs it incurred for the AGES study were necessary and consistent with the NCP, two elements of a prima facie case under CERCLA. See supra page 1219. However, in a pre-trial order responding to a motion in limine by Tonolli Canada, the district court bifurcated the trial into liability and damages phases and ordered all evidence that the Authority's expenses were necessary and consistent with the NCP to be reserved for the damages phase. Given the district court's conclusions that Tonolli Canada was not liable on either count, the district court, of course, never reached the damages phase. 69 We accept the Authority's contention that its failure to introduce evidence that its monitoring and evaluation costs were both necessary and consistent with the NCP was due to its compliance with the district court's bifurcation order. Under these circumstances, the Authority's failure to present evidence regarding necessity and consistency with the NCP is not dispositive. On remand, should the district court reach the issue of the necessity of the Authority's expenses and their conformity with the NCP, it should give the Authority opportunity to present relevant evidence. 20