Bedford Affiliates v. Sills

• Decision Date: 28 September 1998
• Docket Number: 97-9267,Docket Nos. 97-9245
• Citation: 156 F.3d 416
• Parties: , 29 Envtl. L. Rep. 20,229 BEDFORD AFFILIATES, Plaintiff-Counter-Defendant-Appellee-Cross-Appellant, v. Richard SILLS, Defendant-Third-Party-Plaintiff-Appellant-Cross-Appellee, Harvey Manheimer and Beverly Manheimer, Defendants-Cross-Defendants-Cross-Claimants- Counter-Claimants-Appellees, D & L Cleaners of New York, Inc., Cross-Claimant-Counter-Claimant-Third-Party-Defendant.
• Court: U.S. Court of Appeals — Second Circuit

Page 416

156 F.3d 416

47 ERC 1449, 29 Envtl. L. Rep. 20,229

BEDFORD AFFILIATES Plaintiff-Counter-Defendant-Appellee-Cross-Appellant, v. Richard SILLS Defendant-Third-Party-Plaintiff-Appellant-Cross-Appellee Harvey Manheimer and Beverly Manheimer Defendants-Cross-Defendants-Cross-Claimants- Counter-Claimants-Appellees, D & L Cleaners of New York, Inc., Cross-Claimant-Counter-Claimant-Third-Party-Defendant.

Docket Nos. 97-9245, 97-9267.

United States Court of Appeals, Second Circuit.

Argued May 15, 1998.

Decided Sept. 28, 1998.

Richard G. Leland, Rosenman & Colin LLP, New York, New York, for Appellant Richard Sills.

Robert G. Del Gadio, Uniondale, New York (Peter J. Tomao, Del Gadio & Tomao, Uniondale, New York, of counsel), for Appellee Bedford Affiliates.

Before: CARDAMONE, McLAUGHLIN, and JACOBS, Circuit Judges.

CARDAMONE, Circuit Judge:

Defendant Richard Sills appeals from a judgment, entered on August 6, 1997 in the United States District Court for the Eastern District of New York (Mishler, J.), holding him responsible under the Comprehensive Environmental Responses, Compensation and Liability Act (CERCLA), 42 U.S.C. § 9607(a), for costs incurred from the cleanup of discharges of a cleaning solvent used in the operation of his dry cleaning business. Sills also appeals from an order entered on September 17, 1997 in the same court, denying his motion for a new trial on the issue of the allocation of damages. Plaintiff Bedford Affiliates, the owner of the property where the dry cleaning store was located, cross-appeals from the August judgment that held it liable for part of the same cleanup costs and denied it recovery of attorney's fees. One of the questions plaintiff raises is whether it, as a party "innocent" of causing a hazardous spill, should completely escape liability for the costs of the cleanup. The answer is "no." To be innocent in a CERCLA response cost suit, one must be innocent in the eyes of the law. To be ignorant of the contaminated condition of one's property may be a generic form of innocence, but not the kind that will escape liability under the statute.

BACKGROUND

1. Facts

This litigation arises from the environmental cleanup of real property located at 71 Forest Avenue, Glen Cove, New York (Site). Bedford Affiliates (Bedford), as the property owner, brought suit to recover cleanup costs from defendants Harvey and Beverly Manheimer (Manheimers) and Richard Sills (Sills), the tenants in possession. The following facts are gleaned from the bench trial held before Judge Mishler.

Bedford is a New York general partnership that purchased the Site on August 22, 1952 as vacant land and has held title ever since. Ten years after the purchase, Bedford agreed to lease the Site to Nassolk Construction Corp. (Nassolk) for 21 years, beginning May 1, 1962 and ending April 30, 1983 (May 1962 Nassolk Lease). The May 1962 Nassolk Lease further granted Nassolk an option to renew the lease for 21 more years.

Nassolk, as planned, constructed a retail dry cleaning store on the Site. The dry cleaning facility became operational in 1962. Nassolk immediately assigned its May 1962 Lease to the Manheimers' predecessors in interest. Under the terms of that lease, a lessee of the Site was obligated to maintain it properly, in compliance with state and federal laws, and return it to the lessor in good condition. On September 30, 1982 the Manheimers, as co-trustees of a trust that held the leasehold interest at that time, exercised the option to renew the May 1962 Nassolk Lease until April 30, 2004. The leasehold interest transferred to the Manheimers in February 1983 when the trust terminated.

From 1962 until 1973, the Site was subleased to at least four separate retail dry cleaning operators. On July 1, 1973 RonGlen Cleaners (RonGlen) subleased the property and operated the store until March 30, 1988. Defendant Richard Sills was RonGlen's sole officer, director and shareholder throughout the corporation's existence. Although he hired Richard Quarterman to manage limited aspects of the store's daily business, Sills continued to manage and maintain significant control over the store's operations.

Tetrachloroethylene, commonly known as "perc," is a widely used dry cleaning solvent. It is also a hazardous substance as that term is defined under CERCLA, 42 U.S.C. § 9601(14) (1994). The district court found that three releases of perc occurred at the Site during RonGlen's tenancy. The first was evidenced by a letter received by Quarterman from the Nassau County Department of Health dated November 30, 1978. The letter expressed concern regarding leakage of perc through a dryer hose from the back of the building. Quarterman delivered the letter to Sills, who told him to remove the hose and "[t]ake anything that is dripping outside, bring it inside and run it to the city drain." Quarterman complied by laying down copper tubing to run the perc directly into the city drain. Neither Sills nor Quarterman reported this incident to anyone.

A second incident occurred when the handle of a dry cleaning machine broke, causing 25 gallons of perc to spill onto the floor and flow into a dirt trench. Quarterman had the contaminated soil removed and put into a dumpster. Quarterman and Sills did not report this incident to anyone either. A third incident arose when a faulty door gasket caused a dry cleaning machine to drip. RonGlen continued to operate the machine for two days until a new gasket was obtained to replace the defective one.

Because no one at RonGlen disclosed these incidents, Bedford did not learn of the contamination until September 1990--after RonGlen had vacated the premises and assigned its sublease to D & L Cleaners of New York (D & L)--when it hired Richard D. Galli, an environmental consultant, to investigate the pollution potential from the operation of the dry cleaning business. Galli reported that the soil and groundwater at the Site tested positive for perc, and made several recommendations, including notifying the County Health Department. After Galli performed additional sampling, he issued a second report in November 1990, which recommended terminating all unpermitted discharges immediately and implementing a plan for the removal of contaminated soil. Galli again advised Bedford to contact the County Health Department.

Instead of immediately contacting the county agency, Bedford sent a letter by counsel to the Manheimers on December 3, 1990. The letter notified the Manheimers of the unlawful contamination at the Site--a material breach of the May 1962 Nassolk Lease--and demanded they remedy the situation or risk eviction. Over a year passed before Bedford's attorneys sent two more letters of similar import to both the Manheimers and their current dry cleaning tenant, D & L, on January 30, 1992 and June 24, 1992. Although these demands to cure were ignored, the Manheimers continued to pay Bedford monthly rent for the Site.

Because of the contaminated condition of the Site, Bedford terminated the May 1962 Nassolk Lease by letter dated July 7, 1992. It subsequently commenced a holdover proceeding in state court on July 29, 1992 to recover possession of the premises. Bedford, the Manheimers and D & L eventually reached a stipulation of settlement on October 30, 1992 that terminated the May 1962 Nassolk Lease between the Manheimers and Bedford and the sublease between the Manheimers and D & L. The settlement provided D & L would remain in possession of the Site and pay directly to Bedford a "use and occupancy" fee until a direct lease was negotiated with Bedford, or until D & L vacated the Site. Bedford agreed to avoid undue interference with D & L's business during Bedford's on-going investigation at the Site.

With D & L remaining as a tenant at the Site, Bedford, through its attorney, initiated negotiations with the New York State Department of Environmental Conservation (DEC). On October 12, 1993 those negotiations culminated in a consent order, pursuant to which Bedford agreed to begin cleanup procedures by submitting and implementing a Preliminary Site Assessment (PSA) work plan. Since the plan required that the premises be vacant, Bedford brought an action in state court to evict D & L. D & L vacated the Site on December 15, 1993 pursuant to a stipulation of settlement dated September 21, 1993.

Meanwhile, Bedford retained Tyree Brothers Environmental Services, Inc. (Tyree) as its environmental contractor. Tyree prepared a PSA work plan, which the DEC approved on July 5, 1994. The plan was not subject to public comment. Tyree implemented the plan from May 1994 through January 1995, excavating significant amounts of soil in an unsuccessful attempt to locate a clean point that showed no contamination above DEC guideline levels. What these efforts did reveal was that substantial contamination had migrated outward from the initial releases of perc. Soil taken from the Site tested for the presence of perc in the amount of 170 parts per million, exceeding the DEC standard of less than one part per million. After removing the soil, Tyree took soil borings and installed a monitoring well. These borings samples showed contamination as well, and the PSA findings were reported by the contractor to Bedford and the DEC. The DEC responded by classifying the Site on its April 1996 registry as a "significant threat to the public health or environment" and called for action to be taken.

Ordinarily, the next step in the cleanup process would be a remedial investigation/feasibility study, which typically involves the development of a citizen participation program before the election of a final remedy. See N.Y. Comp.Codes R. & Regs. tit. 6, § 375-1.5(b) (1997). In this case, however, Bedford and the DEC entered into a second consent order on February 24, 1995. Pursuant to this order, Bedford agreed to submit and implement an interim remedial measure (IRM) work plan so that immediate remedial action...