K.C.1986 Ltd. Partnership v. Reade Mfg.

• Decision Date: 04 January 2007
• Docket Number: No. 06-1944.,No. 05-2068.,No. 05-2064.,05-2064.,06-1944.,05-2068.
• Citation: 472 F.3d 1009
• Parties: K.C.1986 LIMITED PARTNERSHIP, Plaintiff-Appellant, v. READE MANUFACTURING, A Division of Reactive Metals & Alloys Corp.; Reactive Metals & Alloys Corp., Defendants, U.S. Borax, Inc., Defendant-Appellee, Hardee's Food Systems, Inc.; Terracon Environmental, Inc., Defendants. Nancy Reade Forster, As the Personal Representative of the Estate of Charles F. Reade, Third-Party Plaintiff, U.S. Borax, Inc., Third-Party Plaintiff-Appellee, v. DeAngelo Brothers, Inc., DEH Merrywood Company; Habco International, Inc., Third-Party Defendants, Victor Horne, Third-Party Defendant-Appellant, Habco, Inc., Third-Party Defendant, Donald E. Horne, Third-Party Defendant-Appellant, Donald E. Boatright, Third-Party Defendant. K.C.1986 Limited Partnership, Plaintiff, v. Reade Manufacturing, A Division of Reactive Metals & Alloys Corp.; Reactive Metals & Alloys Corp., Defendants, U.S. Borax, Inc., Defendant-Appellee, Hardee's Food Systems, Inc.; Terracon Environmental, Inc., Defendants. Nancy Reade Forster, As the Personal Representative of the Estate of Charles F. Reade, Third-Party Plaintiff, U.S. Borax, Inc., Third-Party Plaintiff-Appellee, v. DeAngelo Brothers, Inc., Third-Party Defendant-Appellant, DEH Merrywood Company; Habco International, Inc.; Victor Horne; HABCO, Inc.; Donald E. Horne; Donald E. Boatright, Third-Party Defendants.
• Court: U.S. Court of Appeals — Eighth Circuit

472 F.3d 1009

K.C.1986 LIMITED PARTNERSHIP, Plaintiff-Appellant, v. READE MANUFACTURING, A Division of Reactive Metals & Alloys Corp.; Reactive Metals & Alloys Corp., Defendants, U.S. Borax, Inc., Defendant-Appellee, Hardee's Food Systems, Inc.; Terracon Environmental, Inc., Defendants.

Nancy Reade Forster, As the Personal Representative of the Estate of Charles F. Reade, Third-Party Plaintiff, U.S. Borax, Inc., Third-Party Plaintiff-Appellee, v. DeAngelo Brothers, Inc., DEH Merrywood Company; Habco International, Inc., Third-Party Defendants, Victor Horne, Third-Party Defendant-Appellant, Habco, Inc., Third-Party Defendant, Donald E. Horne, Third-Party Defendant-Appellant,

Donald E. Boatright, Third-Party Defendant.

K.C.1986 Limited Partnership, Plaintiff, v. Reade Manufacturing, A Division of Reactive Metals & Alloys Corp.; Reactive Metals & Alloys Corp., Defendants, U.S. Borax, Inc., Defendant-Appellee, Hardee's Food Systems, Inc.; Terracon Environmental, Inc., Defendants.

Nancy Reade Forster, As the Personal Representative of the Estate of Charles F. Reade, Third-Party Plaintiff, U.S. Borax, Inc., Third-Party Plaintiff-Appellee, v. DeAngelo Brothers, Inc., Third-Party Defendant-Appellant, DEH Merrywood Company; Habco International, Inc.; Victor Horne; HABCO, Inc.; Donald E. Horne; Donald E. Boatright, Third-Party Defendants.

No. 05-2064.

No. 06-1944.

No. 05-2068.

United States Court of Appeals, Eighth Circuit.

Submitted: January 11, 2006.

Filed: January 4, 2007.

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Stanley A. Reigel, argued, Kansas City, Missouri (Mark E. Johnson and W. Dennis Cross, on the brief), for appellant 05-2064.

Joe B. Whisler, argued, Kansas City, MO, for appellant 05-2068.

Stanley A. Reigel, Kansas City, Missouri, for appellant 06-1944.

Brooks M. Beard, argued, San Francisco, California (Michele B. Corash, Christopher E. Babbitt, and Beth S. Brinkmann, on the brief), for appellee.

Before MURPHY, HANSEN, and SMITH, Circuit Judges.

HANSEN, Circuit Judge.

These consolidated appeals arise out of a contribution action brought pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), 42 U.S.C. § § 9601-9675. The final judgment requires Donald E. Horne, Victor Horne, K.C.1986 Limited Partnership (K.C.1986) (collectively the Horne Appellants), and DeAngelo Brothers, Inc. (DeAngelo) to pay U.S. Borax, Inc. (Borax) 90% of the past response costs incurred by Borax and to be responsible for 90% collectively of the future response costs to clean up a superfund site in North Kansas City, Missouri, known as the Armour Road Superfund Site (the Site). We affirm in part and reverse and remand in part.

I.

The Armour Road Superfund Site has two owners. A portion of the Site has been owned or leased at all relevant times by the Burlington Northern and Santa Fe Railway Company (BNSF) or its predecessor railroads, most notably the Chicago, Burlington & Quincy (CB & Q). The remainder of the Site, the property at 2251 Armour Road in North Kansas City, Missouri, has been owned or leased by a series of companies that manufactured, formulated, and blended herbicides on the property for more than 55 years. The leasehold and ownership list for this property can be divided into the Reade Era (1929-1963), the Borax Era (1963-1968), the Habco Era (1968-1986), and the K.C.1986 Era (1986-present).

As early as 1929, the Reade Manufacturing Company (Reade) conducted herbicide blending and packaging operations at 2251 Armour Road using substantial amounts of arsenic, among other hazardous chemicals, and offering herbicide spraying services to railroad companies across the country, including the BNSF and its predecessors. The Site was significantly contaminated by arsenic during the Reade Era.

From 1963 to 1968, Borax leased the property from Reade. Borax continued to operate a herbicide blending facility there, and additional arsenic contamination occurred at the Site.

In 1968, Habco, Inc. (Habco) purchased the property. Habco was first jointly owned by Donald Boatright and Donald Horne until 1976 and then owned principally by Donald Horne thereafter. Habco's plant manager was Donald Horne's brother, Victor. Victor was responsible for implementing Donald's decisions but was not authorized to make decisions involving substantial amounts of money absent Donald's approval. Like Reade and Borax, Habco mixed and repackaged herbicides at the property, using large volumes of hazardous substances including arsenic, and provided spraying services to railroad companies until 1986. Spills of both granular and liquid chemicals that periodically occurred were not properly collected or disposed. Habco used in-ground mixing vats to blend chemicals and above-ground storage tanks to store chemicals. Over the years, with Donald Horne's approval, Habco removed all but one of the above-ground storage tanks. Donald also authorized an in-ground vat to be drained and backfilled rather than removed because filling it in was cheaper, and he was fearful of what lay beneath it if it were removed. Victor oversaw the project. In 1973, the company settled a lawsuit brought by a neighboring green house alleging that its plants were damaged by herbicide contamination caused by Habco. When Habco transferred the real estate in 1986, only one above-ground tank and two of the three in-ground mixing vats remained.

In 1986, Habco, after deciding to dissolve, sold all of its operating assets (except for the Armour Road real property) to a new company named Habco-Loram, Inc., for approximately $2.6 million. Donald Horne was not a stockholder or a director of Habco-Loram. Habco-Loram paid the purchase price partly in cash ($500,000) and partly by giving Habco its promissory notes secured by the granting of a security interest in certain of its assets to Habco. When Habco dissolved as a corporation, it distributed the notes (and the accompanying security interest) among Habco's shareholders. Donald Horne was the principal stockholder in Habco with approximately 93% of its stock, and he later acquired the other stockholders' (by then noteholders') interests as well. Donald Horne signed a three-year employment agreement with Habco-Loram and served as its president for one year. Habco-Loram's operations, employees, customers, and contracts were essentially identical to what Habco's had been, but it moved its business to a different location. In 1988, two years after its origin, Habco-Loram, apparently unable to meet its obligations, agreed to convey all of the pledged assets to Donald Horne as part of a voluntary foreclosure and in satisfaction of its notes. Donald Horne then formed Habco International, Inc., of which he was the sole stockholder, officer, and director, and using the assets conveyed to him and to his new corporation from Habco-Loram, continued the business operations that Habco-Loram had conducted, which were substantially the same operations conducted by the original Habco, except that Habco International, like Habco-Loram before it, did not own, lease, or use the Site for its herbicide formulation and spraying business.

On March 19, 1997, Neal and Paul DeAngelo, as individuals, purchased the stock of Habco International. Habco International continued its same operations. In October 1998, Habco International merged into DeAngelo Brothers, Inc. (DeAngelo), in accordance with Pennsylvania's corporate merger statute by which DeAngelo took all of Habco International's assets and liabilities. By that time, the district court had determined that Habco International was a successor corporation to Habco for the purposes of this litigation. The district court later concluded that DeAngelo was a successor corporation to Habco International and to Habco.

At the same time that it was selling its operating assets to Habco-Loram, the Board of Directors of Habco agreed to transfer the Armour Road real estate to K.C.1986 Limited Partnership, a holding company formed by Donald Horne for the express purpose of taking title to the property as its only asset. K.C.1986 is still the current owner of the real estate. When Habco dissolved, its 99% interest as the limited partner in K.C.1986 was distributed among Habco's shareholders. Eventually, Donald Horne as an individual acquired all of the 99% limited partner interest in K.C.1986, and he still holds that interest. The remaining 1% interest is owned by DEH Merrywood Corporation, formed by Donald Horne solely to act as the general partner of K.C.1986. He is the sole shareholder, officer, and director of DEH Merrywood, and as such, he retains full and exclusive decision-making authority over the management and control of the property. Donald Horne was aware that leftover herbicides remained on the property, but the property has not been actively used for herbicide manufacturing or blending since 1986.

K.C.1986 immediately sought potential buyers and lessees for the property. Hardees, a prospective lessee, hired Terracon Consultants to perform environmental testing at 2251 Armour Road. Terracon observed an above-ground storage tank at the site that still contained a liquid material, but when it returned for continued assessment, the tank was gone and a large spill had occurred from the removed tank. Donald Horne had authorized the tank's removal. Testing of the spill area revealed heavy concentrations of hazardous substances including arsenic. Terracon notified K.C.1986 in the fall of 1989 that test results indicated the property was contaminated, but Donald Horne did not report the contamination to the Missouri Department of Natural Resources (MDNR).

In 1991, the State of Missouri learned from Terracon that the soil and groundwater at the Site were heavily contaminated with hazardous substances, including arsenic. The EPA became involved and declared it a superfund site. The dispute involving the cleanup of the Site was first brought to federal district...