961 F.2d 32 (2nd Cir. 1992), 916, Associated Indem. Corp. v. Fairchild Industries, Inc.

Docket Nº:916, Docket 91-9137.
Citation:961 F.2d 32
Party Name:ASSOCIATED INDEMNITY CORPORATION, Plaintiff, v. FAIRCHILD INDUSTRIES, INC., Defendant-Appellant, First State Insurance Company; Allstate Insurance Company, (as successor to Northbrook Excess and Surplus Insurance Company), Defendants, Highlands Insurance Company, Defendant-Appellee.
Case Date:April 03, 1992
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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961 F.2d 32 (2nd Cir. 1992)

ASSOCIATED INDEMNITY CORPORATION, Plaintiff,

v.

FAIRCHILD INDUSTRIES, INC., Defendant-Appellant,

First State Insurance Company; Allstate Insurance Company,

(as successor to Northbrook Excess and Surplus

Insurance Company), Defendants,

Highlands Insurance Company, Defendant-Appellee.

No. 916, Docket 91-9137.

United States Court of Appeals, Second Circuit

April 3, 1992

Argued Jan. 30, 1992.

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Robert M. Rader, Washington, D.C. (Richard C. Browne, Tracy M. Getz, Winston & Strawn, Washington, D.C., James I. Serota, Michael Guararra, Huber, Lawrence & Abell, New York City, of counsel), for defendant-appellant.

Marian S. Hertz, New York City (Sheft & Sheft, of counsel), for defendant-appellee.

Before: VAN GRAAFEILAND, WALKER and McLAUGHLIN, Circuit Judges.

McLAUGHLIN, Circuit Judge:

Fairchild Industries brought a declaratory judgment action in the United States District Court for the Southern District of New York (Michael B. Mukasey, Judge ) to determine whether it was covered under several insurance policies for certain environmental liabilities. An excess insurer, Highlands Insurance Company, asked Fairchild to consent to a voluntary dismissal of Highlands from the action, without prejudice, because its coverage could not conceivably be triggered by Fairchild's environmental liabilities. When Fairchild refused, Highlands moved to dismiss. Additionally, Highlands requested the imposition of sanctions under Fed.R.Civ.P. 11 based on its view that Fairchild's refusal to consent to Highlands' dismissal was unreasonable. The parties then settled before the district court could rule on Highlands' motion to dismiss. Highlands' Rule 11 motion, however, was pursued and the district court awarded Highlands $42,000. Fairchild now appeals, arguing that the district court's imposition of sanctions was an abuse of discretion. We agree and therefore reverse.

BACKGROUND

We assume familiarity with the facts set forth in the district court's opinion, Associated Indem. Corp. v. Fairchild Indus., 138 F.R.D. 384 (S.D.N.Y.1991), and summarize only those necessary to our disposition of this appeal.

Fairchild owned a Maryland factory that generated hazardous waste. In the early 1980's, Fairchild contracted with Diggs Sanitation, Inc., then a licensed hazardous waste hauler, to cart Fairchild's hazardous waste to a licensed facility in Pennsylvania, and to dispose of it there. Diggs, however, dumped the waste on its own Maryland property as well as on adjacent land owned by the Cumberland Cement & Supply Company, an innocent third party. The Environmental Protection Agency ("EPA"), which intervened in 1982, now refers to these polluted properties collectively as the Limestone Road Site.

By the time EPA became involved, the environmental damage was already done, and the basic problem at the Limestone Road Site is how it will be cleaned up, how much it will cost and who will pay for it. As is the unhappy custom in these cases, a firestorm of litigation, but precious little clean-up--"site remediation" in the fashionable argot of the environmental Bar--followed. Cumberland Cement fired the first salvo in 1984, suing both Fairchild and

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Diggs in Maryland state court for seven million dollars.

In 1986, the EPA completed a standard Remedial Investigation/Feasibility Study (the "Study") of the Limestone Road Site, and it notified Fairchild that it considered the company a "potentially responsible party" under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), 42 U.S.C. § 9601 et seq. (1988). Thus, the EPA considered Fairchild to be jointly...

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