Bernstein v. Bankert

• Decision Date: 19 December 2012
• Docket Number: 11–1523.,Nos. 11–1501,s. 11–1501
• Citation: 702 F.3d 964
• Parties: Norman W. BERNSTEIN, et al., Plaintiffs–Appellants/Cross–Appellees, v. Patricia A. BANKERT, et al., Defendant–Appellees, and Auto Owners Mutual Insurance Company, Defendant–Appellee/Cross–Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

702 F.3d 964

Norman W. BERNSTEIN, et al., Plaintiffs–Appellants/Cross–Appellees,

v.Patricia A. BANKERT, et al., Defendant–Appellees,andAuto Owners Mutual Insurance Company, Defendant–Appellee/Cross–Appellant.

Nos. 11–1501, 11–1523.

United States Court of Appeals,Seventh Circuit.

Argued Oct. 31, 2011.

Decided Dec. 19, 2012.

Frederick DeVaney Emhardt (argued), Attorney, Plews, Shadley, Racher & Braun LLP, Indianapolis, IN, for Plaintiffs–Appellants/Cross–Appellees.

Robert M. Chemers (argued), Attorney, Pretzel & Stouffer, Chicago, IL, David L. Taylor (argued), Attorney, Taylor Law Firm, P.C., Indianapolis, IN, John A. Yeager (argued), Attorney, Willingham & Cote, PC, East Lansing, MI, for Defendants–Appellees/Cross–Appellant.

Before KANNE and WILLIAMS, Circuit Judges, and DeGUILIO, District Judge.^*

DeGUILIO, District Judge.

This appeal is the latest chapter in the story of the Environmental Chemical and Conservation Company (“Enviro–Chem”), a defunct Indiana corporation with an expensive environmental legacy. Enviro–Chem conducted waste-handling and disposal operations at three sites north of Zionsville, Indiana, until it closed its doors in the early 1980s, and it left considerable amounts of pollutants behind. The plaintiffs in this action are the trustees of a fund created to finance and oversee the cleanup project at one of those three sites. The defendants are the former owners of the site, their corporate entities (including Enviro–Chem), and their insurers, none of whom have paid into the trust despite an alleged obligation to do so. The plaintiffs sued to recover cleanup costs under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), the Indiana Environmental Legal Actions Statute (“ELA”), and more. The district court dismissed all claims at the summary judgment stage, and the plaintiffs appealed. In response, one of the insurance companies targeted by the plaintiffs filed a conditional cross-appeal, hoping to preserve a favorable outcome even in the event of a reversal of the district court's final judgment. Addressing both appeals, we reverse in part and affirm in part. The case is remanded for further proceedings on the reinstated claims.

BACKGROUND

The appellants—plaintiffs below—are the trustees of the Third Site Trust Fund (“Trustees”). Third Site is a CERCLA site located about five miles north of Zionsville, Indiana. Along with two other CERCLA sites in close proximity—the Enviro–Chem Site to the north and the Northside Sanitary Landfill (“NSL”) to the northeast—Third Site was owned and operated by the Bankert family and their corporate entities at all times relevant to this litigation. Up until the early 1980s, Enviro–Chem, one of those entities, was engaged in brokering and recycling industrial and commercial wastes at all three sites. It is undisputed that Enviro–Chem's operations extended to Third Site; historical aerial photographs depict Third Site being used for tank and drum storage, and former Enviro–Chem employees have indicated that Third Site hosted waste handling and disposal operations.

Enviro–Chem ceased operations in 1982, and shortly thereafter the United States Environmental Protection Agency (“EPA”) undertook an extended effort to clean up the mess it left behind. The cleanup initially focused on the Enviro–Chem Site and the NSL, but in 1987 and 1992 consultants collected soil, groundwater, seepage soil and seepage water samples from Third Site. The samples indicated elevated concentrations of volatile organic compounds (“VOCs”) and semi-volatile organic compounds (“SVOCs”) in the areas tested. Similarly, surface water samples collected by the EPA in 1988 from nearby Finley Creek showed elevated levels of VOCs immediately adjacent to and downstream from Third Site. These results were consistent with additional samples collected in 1985 and 1986 from surface seeps discharging from Third Site and into Finley Creek. In short, Third Site was polluted, and it was transferring its pollutants to Finley Creek. Finley Creek flows south into Eagle Creek Reservoir, and Eagle Creek Reservoir supplies a portion of the drinking water for the City of Indianapolis. The pollution of Finley Creek was therefore cause for real concern.

In 1996, the EPA countered the threat by issuing a Unilateral Administrative Order (“UAO”) outlining a plan to realign Finley Creek. The plan called for eliminating an oxbow, the top of which touched areas of high contamination at Third Site, and for rerouting the creek away from the site and to the south. The realignment project was designated a time-critical removal project, and the respondents to the UAO completed it in September 1996. Subject to periodic maintenance inspections, the EPA approved their performance.

Having averted any significant corruption of the drinking water supply, the EPA turned its attention to cleaning up Third Site itself. In October 1999, the EPA entered into an Administrative Order by Consent (“AOC”) with a number of respondents, each of whom was designated a potentially responsible party (“PRP”) for contamination at the site. The 1999 AOC was divided into two separate parts: one dealing with “Non–Premium Respondents” and one dealing with “Premium Respondents.” The Non–Premium Respondents agreed to undertake an Engineering Evaluation and Cost Analysis (“EE/CA”) of removal alternatives for Third Site. They also agreed to settle a trust—the Third Site Trust, of which the appellants are Trustees—and to fund it to the extent necessary to bankroll the EE/CA and any additional necessary work. Through the Trust, they would reimburse the EPA for past response and oversight costs as well as future oversight costs incurred in conjunction with the EE/CA project. The Premium Respondents, on the other hand, were alleged to be de minimis contributors to the contamination at Third Site. They were entitled to settle out with a defined, onetime monetary contribution to the Trust consistent with 42 U.S.C. § 9622(g).

The Non–Premium Respondents met their obligations under the 1999 AOC and obtained EPA approval of the final EE/CA report on October 24, 2000. No copy of the EPA notice of approval was included in the record, and we only know of it through affidavits submitted with the parties' summary judgment briefs. But, in any case, the parties do not dispute that the 1999 AOC was complied with fully to its completion. In 2001, subsequent to approving the work done under the 1999 AOC, the EPA issued an Enforcement Action Memorandum selecting one of the removal actions for the site identified by the EE/AC and outlining cleanup objectives.

In November 2002, the parties entered into a second AOC to perform the work called for by the Enforcement Action Memorandum. For the most part, the 2002 AOC tracked the form of the 1999 AOC. It included separate provisions addressingthe responsibilities of Premium and Non–Premium Respondents and contained the same reservation of rights and conditional covenants not to sue. Furthermore, the Non–Premium respondents maintained the same responsibilities vis-à-vis the Trust, which was once again assigned to manage the removal effort. At the time this lawsuit was filed, the work to be performed under the 2002 AOC was still ongoing, and no EPA notice of approval had issued.

Under the terms of the 1999 and 2002 AOCs and the corresponding Trust Agreement, the Trustees are empowered to hold and manage funds; to retain engineers and others to carry out the work to be performed under the AOCs; to project future costs; to obtain additional funds as needed from the settlors (i.e., the Non–Premium Respondents); and, subject to prior approval, to bring suit against those who do not meet their obligations to the Trust. The Bankert appellees ¹ were listed as Non–Premium Respondents under the 1999 and 2002 AOCs, but have not met their obligations by paying into the Trust or otherwise.

On April 1, 2008, the Trustees filed a Complaint against the Bankerts and their various insurers in the Southern District of Indiana with six counts: Count I, a CERCLA cost recovery action pursuant to 42 U.S.C. § 9607(a); Count II, seeking a declaratory judgment under CERCLA of the defendants' joint and several liability; Count III, a cost recovery action under the ELA, codified at I.C. § 13–30–9–2; Count IV, negligence; Count V, nuisance; and Count VII,² seeking a declaratory judgment of coverage against the insurers.

On May 30, 2008, one of the Bankerts' former insurers, Auto Owners Mutual Insurance Company (“Auto Owners”), moved to dismiss the Trustees' Complaint against it pursuant to Federal Rules of Civil Procedure 12(b)(6) and 12(d). The coverage provisions of Auto Owners' policies with the Bankerts were previously litigated in connection with cleanup efforts at the Enviro–Chem Site in the 1980s, and Auto Owners argued that the favorable judgment it obtained in that case precluded a finding of coverage in this case. On September 17, 2008, the district court converted the portion of Auto Owners' motion claiming preclusion to a motion for summary judgment and permitted the parties to conduct discovery and submit additional briefing. On March 16, 2010, the district court entered an order denying the motion.

On September 22, 2009, the Bankerts moved for summary judgment on statute of limitations grounds. The Trustees responded, and the Bankerts replied. On December 10, 2009, the Trustees moved to strike a portion of that reply or, in the alternative, for permission to file supplemental briefing. The district court heard oral argument on August 3, 2010. On September 29, 2010 the district court denied the Trustees' motion to strike and granted summary judgment in the Bankerts' favor. First, the district court found that the Trustees could not bring a CERCLA cost recovery claim under 42 U.S.C. § 9607(a), which is what Count I of the Complaint purported to do. Instead, the district court construed the Trustees...