Browning v. Flexsteel Indus., Inc.

• Decision Date: 25 June 2013
• Docket Number: Cause No. 3:11–CV–480 JD.
• Citation: 955 F.Supp.2d 900
• Parties: Christopher BROWNING, et al., Plaintiffs v. FLEXSTEEL INDUSTRIES, INC., et al., Defendants.
• Court: U.S. District Court — Northern District of Indiana

955 F.Supp.2d 900

Christopher BROWNING, et al., Plaintiffs

v.FLEXSTEEL INDUSTRIES, INC., et al., Defendants.

Cause No. 3:11–CV–480 JD.

United States District Court,

N.D. Indiana,

South Bend Division.

June 25, 2013.

Melissa A. Gardner, William C. Wagner, Rodney L. Michael, Jr., Thomas A. Barnard, Taft Stettinius & Hollister LLP, Indianapolis, IN, Ian J. Forte, Jonathan Robert Slabaugh, Michael A. Christofeno, Cosentino and Christofeno, Elkhart, IN, for Plaintiffs.

Brian E. Casey, Kelly J. Hartzler, Robert G. Devetski, Eric Robley Thomason, Barnes & Thornburg LLP, South Bend, IN, Charles M. Denton, II, Barnes & Thornburg LLP, Grand Rapids, MI, David E. Wright, Gregory P. Cafouros, James A. Knauer, Stephen A. Starks, Kroger Gardis & Regas LLP, Indianapolis, IN, James R. Byron, Thorne Grodnik LLP, Elkhart, IN, Timothy W. Woods, J. Thomas Vetne, Jones Obenchain LLP, South Bend, IN, for Defendants.

MEMORANDUM OPINION AND ORDER

JON E. DEGUILIO, District Judge.

Before the Court is the defendants' Joint Motion to Dismiss Counts I and II of the First Amended Complaint [DE 74]. These two Counts are brought under the citizen suit provision of the Racketeer Influenced and Corrupt Practices Act (“RICO”), 18 U.S.C. § 1964(c). The Court has previously ruled on motions to dismiss the remaining counts, dismissing Count III but allowing Counts IV and V to proceed. Although the plaintiffs allege that the various defendants have engaged in many troubling activities, including environmental crimes, mail fraud, and possibly obstruction of justice, they have not stated a claim that any defendants violated RICO, because the complaint does not adequately allege either a RICO “enterprise” or a “pattern of racketeering activity.” The Court will therefore grant the defendants' joint motion to dismiss Counts I and II.

I. BACKGROUND

In its previous order, the Court summarized the plaintiffs' complaint:

The plaintiffs here are residents or owners in a housing development subject to severe groundwater contamination allegedlycaused by the defendants' unpermitted and unlawful dumping of industrial solvents and other hazardous waste. In addition to a toxic tort suit in Indiana state court, they filed a five count complaint in this court. Counts I and II seek treble damages under the Racketeer Influenced and Corrupt Practices Act (“RICO”) for an alleged scheme of mail and wire fraud and obstruction of justice designed to conceal the violations and responsibility from the EPA and the public. Counts III and IV seek injunctive relief under the Resource Recovery and Conservation Act (“RCRA”). In Count V, plaintiff Fred Lands, who owns the site on which defendants allegedly dumped their hazardous waste, seeks damages under the Indiana Responsible Property Transfer Law (“RPTL”).

See DE 107 at 1–2. That order also summarized the plaintiffs' allegations regarding the defendants contamination of the groundwater underneath the plaintiffs' property. This order will not recount those facts, except to the extent necessary to understand the plaintiffs' RICO claims, which by-and-large allege an attempt by the defendants to conceal their environmental crimes and evade liability for their actions.

From 1983 until 1997, defendant David Dygert operated Dygert Seating, Inc. (“DSI”) on two adjacent tracts of land in Elkhart, Indiana—23542 Cooper Drive and 53381 Marina Drive. (These, together, are referred to as “the site” throughout this order.) The Cooper Drive facility was used for metalwork in connection with seat-manufacturing; the Marina Drive facility was used to manufacture foam seats that were attached to metal frames. During this time, the plaintiffs allege that Dygert and his employees (including defendants Greg Lucchese and Gerald Alexander) dumped industrial solvents, including trichloroethylene (“TCE”), methylene chloride, and 1, 1, 1 trichloroethane (TCA), directly into the ground, in violation of RCRA. See First Amended Complaint, DE 24, ¶¶ 124–126.

In 1996, DSI ran into financial difficulties and was liquidated in connection with a Chapter 11 bankruptcy in March 1997. Id. ¶ 13. Flexsteel Industries purchased its assets, hired most of its workforce, and continued to run Dygert Seating at the site as a division of Flexsteel. Id. Just prior to Flexsteel's acquisition of DSI's assets, Flexsteel and DSI jointly ordered a “Phase I Environmental Site Assessment” for the site from Weaver Boos Consultants. Id. at ¶ 376. Weaver Boos interviewed Greg Lucchese as part of its assessment, and he falsely reported that to the best of his knowledge, there were no environmental concerns associated with the facilities. Id. ¶ 379. He also allegedly instructed DSI employees to conceal evidence of dumping from Weaver Boos. Id. ¶ 384. Weaver Boos concluded that “the results of the Phase I ESA revealed no evidence of recognized environmental conditions in connection with the subject property,” and mailed its report to Flexsteel's headquarters in Dubuque, Iowa. Id. ¶ 399.

When Flexsteel acquired DSI's assets, it discovered several barrels of solvent and waste oil that DSI had accumulated on the site. Id. ¶¶ 261–63. Neither DSI nor Flexsteel had an Environmental Protection Agengy (“EPA”) identification number for the site, and therefore could not lawfully transport and dispose of this waste. Id. ¶ 774. Knowing that applying for the required identification number would reveal that hazardous waste was being generated on the site and expose Flexsteel to RCRA inspection (as well as, apparently, waste generator fees for the site), Flexsteel hired Tris Gour to devise a scheme to dispose of the waste from a site at which DSI had formerly operated its Goshen Cushion division, and which had previously been issued an EPA identification number. Id. ¶¶ 270–71. As part of Gour's plan, Flexsteel illegally transported the barrels of hazardous waste from the DSI site (and perhaps from other Flexsteel locations) to the Goshen Cushion site. Id. Then, in his capacity as CEO of the defunct (but still extant) DSI, David Dygert falsely certified to the Indiana Department of Environmental Management (“IDEM”) that the waste had been generated at the Goshen Cushion site. Id. ¶¶ 326–330. The scheme worked, and IDEM reissued the previous EPA identification number, which Flexsteel used to dispose of the hazardous waste that it had collected at the Goshen Cushion site.

Flexsteel continued operations at the site through its Dygert Seating Division, and the unlawful dumping of hazardous materials continued unabated throughout its tenure on the property. Greg Lucchese ceased employment with Flexsteel in April 2000, and David Dygert and Gerald Alexander stopped working for Flexsteel on January 1, 2002. In 2002, Flexsteel obtained another Phase I Environmental Site Assessment from Weaver Boos. Id. ¶ 401. Weaver Boos reviewed its 1997 report and conducted additional interviews, but Flexsteel again falsely denied knowledge of any environmental conditions on the property. Id. ¶¶ 401–429. Weaver Boos again concluded that its “assessment has revealed no evidence of recognized environmental conditions in connection with [the site],” and again mailed the report to Flexsteel's headquarters in Iowa. Id. ¶ 430.

In 2005, Flexsteel sold the Cooper Drive property to plaintiff Fred Lands, without revealing the environmental contamination. Id. ¶ 433. As part of their purchase agreement, Flexsteel and Lands agreed to split the cost of a Phase I Environmental Site Assessment. Id. ¶ 433. Rather than conduct a new assessment, however, Flexsteel sent Lands a copy of the 2002 Phase I report, which it knew was—had caused to be—inaccurate. Id. ¶ 435. Relying on the 2002 Report, and without knowledge of the true environmental condition of the property, Lands closed on the purchase of the Cooper Drive Property and now owns the site. Id. ¶¶ 437–440.

In August 2007, area residents (including many of the plaintiffs) had their tap water tested and discovered significant TCE contamination well above federal maximum levels. EPA and IDEM responded by providing bottled water and carbon filters and entered into a cooperative agreement to investigate, monitor, and evaluate the site. See DE 67–2. In April 2008, IDEM and EPA conducted groundwater testing in and up gradient of the plaintiffs' subdivision and identified a plume of groundwater contamination originating at the site. See DE 24 ¶¶ 450–452. Dygert learned of the EPA investigation in August 2008 and sent an e-mail to EPA claiming that he knew of no contaminates used during the time when he ran operations at the site for DSI, Flexsteel, or succeeding companies. Id. ¶ 476. Later that month, an EPA agent contacted Greg Lucchese as part of the investigation. Id. ¶ 525. In a phone interview, Lucchese falsely stated that “the company did not use degreaser or solvents in the production process.” Id. ¶ 526.

In September 2008, IDEM's site inspection report concluded that “[t]he drinking water in residential wells continues to contain elevated levels of [volatile organic compounds] (some above [the federal maximum containment levels] ) prior to filters, and additional private wells have the potential to become contaminated because ground water flow is toward more residentialwells which are not currently impacted.” See DE 67–6 at 61–62. Within two months, the EPA had connected 26 homes, including the plaintiffs', to municipal water. See DE 67–8 at 3. The EPA has not yet, however, definitively identified DSI or Flexsteel as the source of the contamination. Id. ¶ 473; DE 94 at 7.

In March 2011, the plaintiffs in this action (except for Fred Lands) filed suit in Elkhart Circuit Court seeking damages and injunctive relief arising out of the contamination of the site, including claims for trespass, nuisance, negligence, negligent infliction of emotional distress, punitive damages, and for relief under Indiana's Environmental Legal Action statute. That case is still pending, as far as ...