City of New York v. Exxon Corp.
| Decision Date | 30 March 1990 |
| Docket Number | No. 85 Civ 1939 (KC).,85 Civ 1939 (KC). |
| Citation | 112 BR 540 |
| Parties | The CITY OF NEW YORK, Plaintiff, v. EXXON CORPORATION, et al., Defendants. |
| Court | U.S. District Court — Southern District of New York |
Christopher A. Amato, Asst. Corp. Counsel, Affirmative Litigation Div., New York City, for plaintiff.
Joseph DiBenedetto, Winston & Strawn, New York City, Lawrence A. Amato, Alcan Aluminum Corp., Cleveland, Ohio, for defendants.
This Opinion and Order addresses only the two motions currently pending before the Court which involve defendant Refinemet International, Inc. ("Refinemet"), one of the two remaining defendants in this action, along with Alcan Aluminum Corporation. These two motions are the City of New York's ("the City's") motion for summary judgment against Refinemet, and the City's motion for an order withdrawing a portion of Refinemet's Chapter 11 proceeding from the United States Bankruptcy Court for the Central District of California to this Court. For the reasons stated below, motions are granted in part and denied in part.
The City commenced this action in March of 1985, under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), 42 U.S.C. §§ 9601 et seq., together with various state law claims, against fifteen corporate defendants, charging the defendants with generating hazardous industrial and chemical wastes that were ultimately disposed of at five City landfills. The wastes were transported to the landfills by certain wastehauling companies owned or operated by Russell Mahler. Mahler gained access to the City landfills for the purpose of dumping the waste by bribing an employee of the City's Department of Sanitation. The complaint seeks (i) recovery of the costs incurred to date for evaluating the nature and extent of chemical contamination at the five sites and for emergency measures taken to control the off-site migration of hazardous substances; (ii) a declaratory judgment that defendants are liable for the future costs of investigations and remedial actions at the sites; and (iii) damages for injury to natural resources caused by defendants' wastes.
Although the procedural history of this case is lengthy, that part relevant to defendant Refinemet can be briefly summarized. In June of 1985, Refinemet moved to dismiss the complaint as against it on the ground of lack of personal jurisdiction. The motion was denied in a decision by the late Judge Edward Weinfeld dated April 24, 1986, which also decided motions to dismiss, on various grounds, by other defendants. City of New York v. Exxon Corp. (Exxon I), 633 F.Supp. 609 (S.D.N.Y. 1986).
Most of the defendants, but not Refinemet, then filed three third-party complaints impleading approximately 300 third-party defendants. By order dated January 23, 1987, Judge Weinfeld severed and stayed the third-party actions pending completion of the main action.
In October of 1987, Refinemet filed a petition for reorganization under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Central District of California. The parties disagreed on whether the City's action against Refinemet was automatically stayed by the filing of the Chapter 11 petition. See December 28, 1987 letter from Joseph DiBenedetto, Esq. to Honorable Edward Weinfeld, Exhibit C to Affidavit of Christopher A. Amato, sworn to on August 30, 1989 ("Amato 8/30/89 Aff."); February 17, 1988 letter from Christopher A. Amato to the Court, Exhibit D to Amato 8/30/89 Aff. On June 30, 1988, the City filed a timely proof of claim against Refinemet in the bankruptcy proceeding, informing the bankruptcy court of the existence of the action before this Court and attaching a copy of the Amended Complaint.
On November 23, 1988, this Court approved a Judgment on Consent settling the City's claims against seven of the defendants in this action.1City of New York v. Exxon Corp. (Exxon II), 697 F.Supp. 677 (S.D.N.Y.1988). Subsequently, on May 22, 1989, the Court approved two more Judgments on Consent settling the City's claims against an additional six defendants.2 Since the November 23 and May 22 Judgments eliminate from this action all thirteen defendants that filed third-party complaints and the Judgments explicitly provide for dismissal of the third-party claims, the only remaining defendants in this action are Refinemet and Alcan Aluminum Corporation.
In its motion for summary judgment against Refinemet, filed on September 6, 1989, the City seeks to hold Refinemet, formerly known as Ag-Met, Inc. ("Ag-Met"), liable for the activities of its wholly-owned subsidiary, Newtown Refining Corporation, of which Russell Mahler was president from November of 1976 to November of 1978. Refinemet acquired what came to be known as Newtown on November 3, 1976, when it purchased a waste oil business, consisting of a sprawling network of seven interrelated corporations, substantially owned and operated by Mahler. The purchased assets and stock were transferred to a wholly-owned subsidiary of Ag-Met named Ag-Met Oil Service, Inc. ("Ag-Met Oil"), which was specifically created by Ag-Met to receive the purchased assets. Affidavit of Russell W. Mahler, sworn to on August 21, 1989 ("Mahler Aff."), ¶ 9. Shortly afterwards, Ag-Met Oil changed its name to Newtown Refining Corporation ("Newtown"). Id.
With the exception of one of the seven companies, Northeast Oil Services, Inc. ("Northeast"), of which he owned 75% of the stock, Mahler was the sole shareholder of each of the components of his empire, and served as president of all seven corporations. Mahler Aff. ¶ 4. From approximately 1972 to 1980, Mahler's business involved both reprocessing waste oils and disposing of industrial and chemical wastes picked up from manufacturing facilities in the states of New York, New Jersey, Pennsylvania and Connecticut, among others. Id. The disposal component of Mahler's operations involved the illegal dumping in the City landfills of industrial and chemical wastes which could not be reprocessed into saleable oil, as well as the dumping of waste generated by the reprocessing operation itself. Id. Access to the landfills was gained through bribery of a Sanitation Department employee. Id. ¶ 1.
Until 1977, most of the reprocessing operations were carried out at a Mahler facility located at 37-80 Review Avenue, Long Island City, New York ("the Review Avenue facility"), which also served as the base of operations for the illegal dumping activities. Mahler Aff., ¶ 6. From 1978 onward, the majority of reprocessing operations were split between the Review Avenue facility and another newly acquired facility, located at One River Road, Edgewater, New Jersey ("the Edgewater facility"). Id. ¶ 19. Shortly after its acquisition, the Edgewater facility became the command center for illegal dumping activities. Id.
The City seeks to hold Refinemet liable for the activities of its subsidiary, Newtown, on two theories. First, the City argues that Refinemet is directly liable under CERCLA as a generator and transporter of hazardous substances disposed of at the City's landfills. Second, the City contends that Refinemet is liable for the acts of its subsidiary under traditional corporate veil-piercing standards.
As indicated above, the City served and filed its motion for partial summary judgment against Refinemet on September 6, 1989. Refinemet requested, and the City consented to, four separate adjournments of the City's motion. The final adjournment set a return date for the City's motion of February 12, 1990. Instead of responding to the City's summary judgment motion, Refinemet filed a motion in the California bankruptcy court on February 8, 1990, asking the bankruptcy court to determine the issue of Refinemet's liability to the City under CERCLA. Although styled as a motion for disallowance of the City's bankruptcy claim, Refinemet's motion is based on the same question underlying the City's motion for partial summary judgment: whether Refinemet is liable for the acts of its subsidiary, Newtown. Refinemet advised the Court by letter dated February 9, 1990, of its motion in the bankruptcy court and requested that the City's motion for summary judgment in this action "be stricken from the calendar." Letter dated February 9, 1990, from Joseph DiBenedetto, Esq. to the Court.
In response to Refinemet's actions, the City brought its motion for an order, pursuant to 28 U.S.C. § 157(d), withdrawing those portions of Refinemet's Chapter 11 proceeding which relate to the City's CERCLA claims, including but not limited to Refinemet's motion for disallowance of the City's bankruptcy claim. The City initially brought this motion by order to show cause, which was necessitated by the fast-approaching return date of Refinemet's bankruptcy motion. We held oral argument on the motion on February 26, 1990. At the hearing, Refinemet agreed to adjourn the return date of its motion in the California bankruptcy court, and we ordered Refinemet to respond to the City's motion for partial summary judgment in this Court. That response, and the City's reply, have since been served and filed.
The issues raised by these prior proceedings, and which will be addressed below, include: 1) whether withdrawal of the reference is appropriate; 2) whether the automatic stay applies; 3) whether partial summary judgment is appropriate; and 4) whether we should enjoin the proceedings in California pending the outcome of this action.
As we indicated at the hearing on February 26, 1990, we do not think it appropriate, nor indeed possible, to withdraw a reference to a bankruptcy court which we did not make. Pursuant to 28 U.S.C. § 157(a), "each district court may provide that any or all cases under title 11 and any or all proceedings arising under title 11 or arising in or related to a case under title 11 shall be referred to the bankruptcy...
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