AM Intern., Inc. v. Datacard Corp.

• Decision Date: 11 February 1997
• Docket Number: No. 96-1621,96-1621
• Parties: , 65 USLW 2567, 65 USLW 2583, 30 Bankr.Ct.Dec. 434, Bankr. L. Rep. P 77,260, 27 Envtl. L. Rep. 20,503 AM INTERNATIONAL, INC., Plaintiff-Appellant, v. DATACARD CORPORATION, DBS, Inc., Addressograph Farrington, Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1342

106 F.3d 1342

44 ERC 1001, 65 USLW 2567, 65 USLW

2583, 30 Bankr.Ct.Dec. 434,

Bankr. L. Rep. P 77,260, 27 Envtl. L. Rep. 20,503

AM INTERNATIONAL, INC., Plaintiff-Appellant, v. DATACARD CORPORATION, DBS, Inc., Addressograph Farrington, Inc., Defendants-Appellees.

No. 96-1621.

United States Court of Appeals, Seventh Circuit.

Argued Sept. 4, 1996.

Decided Feb. 11, 1997.

Lewis S. Rosenbloom, Jerome B. Meites, Jonathan M. Cyrluk, McDermott, Will & Emery, Chicago, IL, John W. Watson, Michael E. Barry (argued), Roberta M. Saielli, Richard J. Kissel, Gardner, Carton & Douglas, Chicago, IL, for Plaintiff-Appellant.

John W. Costello, W. Scott Nehs, Wildman, Harrold, Allen & Dixon, Chicago, IL, Michael J. Wahoske (argued), B. Andrew Brown, Dorsey & Whitney, Minneapolis, MN, for Defendants-Appellees.

Before RIPPLE, DIANE P. WOOD, and EVANS, Circuit Judges.

EVANS, Circuit Judge.

For nearly 25 years, AM International (AMI) spilled hazardous chemicals at an industrial site in Holmesville, Ohio. This case involves the claims of a subsequent purchaser of the site, Datacard Corporation, arising out of the site's cleanup. Before the district court, AMI argued that its liability had been discharged in bankruptcy. The court disagreed and awarded Datacard response costs, an injunction requiring AMI to perform the cleanup, and attorney fees. As we'll explain below, we affirm the award of response costs and the injunction, but reverse the award of attorney fees. First, the facts.

From 1959 to 1981 AMI housed two of its divisions, Multigraphics and Addressograph, at the Holmesville site. On part of the site Multigraphics operated a "tank farm." The farm consisted of nine tanks ranging in capacity from 6,000 to 8,000 gallons. Multigraphics used the tanks to mix tetrachloroethylene (TTE) with naphtha to produce "Blankrola," a cleaning solvent. When mixing the chemicals, Multigraphics' employees sometimes spilled a little. Sometimes they spilled a lot. In 1971, for example, an employee named Ron Proper didn't exactly live up to his name. Instead, Mr. Proper failed to properly close a valve, a misstep that allowed thousands of gallons of Blankrola to pour onto the ground.

In November 1981 AMI sold the site and Addressograph to a company called DBS, Inc. In order to allow Multigraphics to continue producing Blankrola in Holmesville, however, AMI retained ownership of the tanks and leased the tank farm grounds back from DBS. When AMI sold Addressograph many of AMI's employees, including Ron Proper, jumped ship and signed on with DBS. Five months later, in April 1982, AMI petitioned for reorganization under chapter 11 of the Bankruptcy Code, 11 U.S.C. § 101 et seq., in the Northern District of Illinois. During and after the bankruptcy, which was confirmed in September 1984, AMI continued to mix--and spill--TTE, naphtha, and Blankrola. In May 1985, AMI finally put the lid on its tank farm operations.

About a year later, Datacard entered the picture. Datacard planned to buy DBS and, as part of its due diligence, conducted an environmental audit of the Holmesville site. The audit turned up soil contamination and a layer of Blankrola at least 12 inches thick floating on the groundwater. Despite the find, Datacard went ahead with the purchase, figuring it had a good shot at recovering its cleanup costs from AMI and that the cleanup would only run about $350,000--small change in comparison to the $52 million it was shelling out to buy DBS.

After completing the purchase, Datacard syphoned the Blankrola off of the groundwater and gave AMI, the State of Ohio, and the EPA notice that it planned to sue for its response costs and an injunction ordering AMI to clean up its own mess. After receiving this notice, AMI raced back to the federal courthouse for the Northern District of Illinois and sought a judgment declaring that Datacard's claims had been discharged in bankruptcy. In turn, Datacard filed counterclaims against AMI, requesting damages and injunctive relief under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), 42 U.S.C. § 9601 et seq., the Resource Conservation and Recovery Act (RCRA), 42 U.S.C. § 6901 et seq., and state common law. In 1992, the district court granted summary judgment for AMI on the state law claims but denied it on the CERCLA and RCRA claims. Among other things, the court found that a genuine issue of material fact existed as to whether DBS had sufficient information to give rise to a CERCLA claim before AMI's bankruptcy was confirmed in 1984. AMI cried foul and moved to reopen discovery, arguing the "sufficient information" standard applied by the district court was a substantial departure from established precedent. Sensing AMI was merely trying to fine tune over 4 years of discovery, the court denied the request.

In 1993, with the Illinois case almost 6 years old and still pending, AMI found itself back in troubled financial waters and once again petitioned for reorganization in bankruptcy, this time in Delaware. In an effort to liquidate Datacard's claims, the Delaware bankruptcy court lifted the automatic stay and gave the green light for the Illinois case to go to trial. After a 3-day bench trial AMI filed its post-trial brief, requesting that Datacard's claims be disallowed under § 502(e)(1)(B) of the Bankruptcy Code. The district court struck that portion of the brief, finding that the Delaware court retained exclusive jurisdiction on the allowance of claims and that AMI waived the affirmative defense of disallowance by failing to raise it before--or even during--the trial.

In September 1994 the district court entered judgment for Datacard and, with a few minor changes, adopted Datacard's proposed findings of fact and conclusions of law. Specifically, the court found: Datacard's claims had not been discharged; Datacard was entitled to its response costs, attorney fees, and interest under CERCLA; Datacard was entitled to contribution from AMI for any future judgments entered against Datacard for response costs; and Datacard was entitled to both an injunction requiring AMI to perform any future cleanup and an award of attorney fees on its RCRA and CERCLA citizen suit claims.

We review the district court's findings of fact for clear error and its legal conclusions de novo. Maher v. Harris Trust & Sav. Bank, 75 F.3d 1182 (7th Cir.1996). However, we will apply the clearly erroneous standard with a little more bite where a district court has adopted a party's findings of fact verbatim. Andre v. Bendix Corp., 774 F.2d 786, 800 (7th Cir.1985).

AMI first argues that the district court erred in allowing Datacard to directly pursue response costs under CERCLA § 107(a)(4)(B), 42 U.S.C. § 9607(a)(4)(B). Only innocent parties, AMI says, can sue under § 107(a)(4)(B). Datacard was limited, AMI asserts, to a claim for contribution under § 113(f). We disagree. In Akzo Coatings, Inc. v. Aigner Corp., 30 F.3d 761 (7th Cir.1994), we held that cost recovery disputes between two potentially responsible parties should ordinarily be addressed as claims for contribution under § 113(f). However, we noted if a landowner faces liability solely because a third party spilled or allowed hazardous waste to migrate onto its property, the landowner may directly sue for its response costs. Id. at 764. In this case, Datacard presumably paid less for DBS because it knew it was buying into an expensive cleanup. While that may have rendered Datacard a little less "innocent" than the landowner described in Akzo, Datacard did not take part in the manufacture of Blankrola. Instead, Datacard--like a party forced to clean up contamination on its property due to a third party's spill--faces liability merely due to its status as landowner. As a result, Datacard qualifies under Akzo's exception and can directly pursue its response costs under § 107(a)(4)(B).

AMI next challenges the district court's finding that neither Datacard's CERCLA nor RCRA claims were discharged in bankruptcy. We have considered when a CERCLA claim arises for discharge purposes before. See In re Chicago, Milwaukee, St. P. & Pac. R.R., 974 F.2d 775 (7th Cir.1992) (Chicago I); In re Chicago, Milwaukee, St. P. & Pac. R.R., 3 F.3d 200 (7th Cir.1993) (Chicago II). Although both Chicago I & II involved the discharge of CERCLA claims under the now-repealed Bankruptcy Act of 1898, our reasoning was not limited to Bankruptcy Act cases. See Chicago I, 974 F.2d at 781 (explaining that both the Act and code define dischargeable claims broadly). See also Ninth Ave. Remedial Group v. Allis-Chalmers Corp., 195 B.R. 716 (N.D.Ind.1996) (applying Chicago I & II to claim arising under the Bankruptcy Code); In re Jensen, 995 F.2d 925, 929 (9th Cir.1993) (adopting test from Chicago I in a code case). To determine whether Datacard's CERCLA claims were discharged, then, we need to start with a quick look at Chicago I & II.

In Chicago I, the Milwaukee Road petitioned for reorganization under the bankruptcy act in 1977. Two years later one of its trains crashed in Tacoma, Washington, spilling large amounts of copper ore and arsenic. In 1984 the Washington Department of Transportation (DOT) purchased the crash site from the bankruptcy trustee. In June 1985 the Washington Department of Energy checked the soil at the site and sent the folks at Transportation a letter which said the site needed to be cleaned up. The DOT then took its own soil samples and in November received results confirming the contamination. Despite having direct knowledge of the contamination at least a month before the Milwaukee Road's December 26, 1985, bankruptcy court bar date, the DOT didn't file a claim until 1989. We affirmed the district court's decision to discharge the DOT's claim, reasoning, for discharge purposes, a CERCLA claim arises when the claimant can "tie the bankruptcy debtor to a known release of a hazardous substance which this potential claimant knows will...