Kemp Industries, Inc. v. Safety Light Corp.

• Decision Date: 28 June 1994
• Docket Number: Civ. A. No. 92-95 (AJL).
• Parties: KEMP INDUSTRIES, INC. and Apollo Associates, Ltd., Plaintiffs, v. SAFETY LIGHT CORP., USR Industries, Inc., USR Chemicals, Inc., USR Lighting, Inc., USR Metals, Inc., U.S. Natural Resources, Inc., The Prudential Insurance Company of America and John Does I-X, Defendants.
• Court: U.S. District Court — District of New Jersey

857 F. Supp. 373

KEMP INDUSTRIES, INC. and Apollo Associates, Ltd., Plaintiffs, v. SAFETY LIGHT CORP., USR Industries, Inc., USR Chemicals, Inc., USR Lighting, Inc., USR Metals, Inc., U.S. Natural Resources, Inc., The Prudential Insurance Company of America and John Does I-X, Defendants.

Civ. A. No. 92-95 (AJL).

United States District Court, D. New Jersey.

June 28, 1994.

Bruce D. Nimensky, Berger & Bornstein, P.A., Morristown, NJ, for plaintiffs.

Samuel P. Moulthrop, Laura M. Massaia, Riker, Danzig, Scherer, Hyland & Perretti, Morristown, NJ, for defendant The Prudential Ins. Co. of America.

OPINION

LECHNER, District Judge.

This is an action by Kemp Industries ("Kemp") and Apollo Associates, Ltd. ("Apollo") (collectively the "Plaintiffs") against Safety Light Corporation ("Safety Light"), USR Industries, Inc. ("USR Industries"), USR Chemicals, Inc. ("USR Chemicals"), USR Lighting, Inc. ("USR Lighting"), USR Metals, Inc., ("USR Metals"), U.S. Natural Resources, Inc. ("USNR") and The Prudential Insurance Company of America ("Prudential") (collectively the "Defendants") for declaratory, injunctive and monetary relief under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. §§ 9601 et seq., and the New Jersey Spill Compensation and Control Act (the "Spill Act"), N.J.S.A. §§ 58:1023.11 et seq.

On 21-22 March 1994, a bench trial was held to resolve the preliminary issue of whether Prudential is a responsible party under either CERCLA or the Spill Act.¹ For the reasons stated below, Prudential is found not to be a responsible party under either CERCLA or the Spill Act.

Procedural History

On 15 January 1992, Plaintiffs filed a seven-count complaint (the "Complaint") against Safety Light demanding that Safety Light be compelled to "commence removal and remedial action" with respect to environmental hazards on Plaintiffs' property, as well as other declaratory and monetary relief. The Complaint alleged that Safety Light's predecessor-in-interest, United States Radium ("USR"), "utilized unsafe and improper methods to dispose of large quantities of liquid and solid waste." Complaint, ¶ 10.

Count one of the Complaint ("Count I") alleged that these illegal acts entitled Plaintiffs to declaratory, injunctive and monetary relief under CERCLA. Id., ¶¶ 16-27. Count two of the Complaint ("Count II") sought relief under the Spill Act. Id., ¶¶ 28-36. Count three ("Count III") sought recovery under Federal common law. Id., ¶¶ 37-42. Count four ("Count IV") sought to hold Safety Light strictly liable for the damages and cleanup costs and responsibilities associated with Plaintiffs' property. Id., ¶¶ 43-50. Count five ("Count V") sought recovery on the theory of negligence. Id., ¶¶ 51-54. Count six ("Count VI") sought recovery on the theory of nuisance. Id., ¶¶ 55-65. Finally, count seven ("Count VII") sought recovery on the basis of alleged fraud and deceit on the part of Safety Light. Id., ¶¶ 67-70.

On 26 August 1992, Plaintiffs amended the Complaint to include Prudential as a defendant (the "Amended Complaint"). The Amended Complaint was in all other respects substantially identical to the Complaint. On 1 June 1993, Plaintiffs filed a second amendment (the "Second Amended Complaint"), adding USR subsidiaries USR Industries, USR Chemicals, USR Lighting, USR Metals and USNR as defendants. In all other respects, the Second Amended Complaint is substantially identical to the Complaint and the Amended Complaint.

In December 1993, Prudential moved for summary judgment on Counts II, III, IV, V and VI of the Second Amended Complaint. By opinion and order, dated 25 January 1994, Prudential was granted summary judgment on Counts III, IV, V and VI on the ground that these counts were time-barred as to Prudential. See Kemp Industries, Inc. v. Safety Light Corp., 1994 WL 532130 (D.N.J. 25 Jan. 1994). Prudential was also granted summary judgment on part of Count II. Id. As a result, only Count I, Plaintiffs' CERCLA claim, a portion of Count II, Plaintiffs' Spill Act claim, and Count VII, Plaintiff's claim for fraud and deceit, remain in the Second Amended Complaint.

At a status conference, held 7 March 1994, Prudential contended that a substantial issue existed as to whether Prudential could be deemed a responsible party under either CERCLA or the Spill Act. Accordingly, a bench trial was commenced on 21 March 1994 to determine this preliminary issue.

Findings of Fact²

1. Kemp is a corporation organized and existing under the laws of the state of Delaware

and has a place of business in West Milford, New Jersey. See Second Amended Complaint, ¶ 4. Kemp is currently owner of the land and premises designated as lots 12 ("Lot 12") and 13 ("Lot 13") in Block 3901 on the tax map of the Township of Hanover, Morris County, New Jersey (collectively, the "Hanover Site"). Id.

2. Apollo is a limited partnership organized and existing under the laws of the state of New Jersey and has a place of business in Morristown, New Jersey. See id., ¶ 6. Apollo is the owner of lands adjacent to the Hanover Site. Id., ¶ 8. Apollo is also prospective purchaser of the Hanover Site. Id., ¶ 6.

3. USR was a corporation existing under the laws of Delaware, engaged in, among other things, the production of phosphors. See Stipulation, ¶¶ 16-17. In or about 1980, USR underwent corporate restructuring. As a result of the reorganization, USR formed Safety Light, USR Industries, USR Chemicals, USR Lighting, USR Metals and USNR. See Second Amended Complaint, ¶ 8A. Before 21 December 1950, USR owned Lot 13.

4. Prudential is a mutual insurance company organized and existing under the laws of New Jersey. See Stipulation, ¶ 1. Prudential held title to Lot 13 from 21 December 1950 until 24 July 1964. See Stipulation, ¶ 27; Exs. J-16, J-17.

5. During World War II, Prudential invested its assets primarily in war bonds. See Stipulation, ¶ 2. Following the War, in or about 1946, Prudential began to transfer assets from war bonds into other investments. Id., ¶ 3.

6. At this time, income tax rates were high and there was a great deal of uncertainty as to the future of the United States economy. Id., ¶ 3; Tr. at 76. Interest rates and inflation were minimal. See Tr. at 76. This economic climate led to a conservative attitude toward investments. Id. at 77.

The Property Purchase Program

7. In this economic climate, Prudential embarked on a plan to redistribute its assets so as to guarantee a fixed but steady return on its investments. See Stipulation, ¶ 8. Accordingly, in or about 1946, Prudential adopted "a modest program for the purchase of carefully selected income properties and also the purchase of some unimproved property for development...." Id., ¶ 9. This program was referred to as the "Industrial Loan and Property Purchase Program" (the "Program"). Tr. at 74.

8. Pursuant to the Program, Prudential's Mortgage Loan Department was expanded to provide financing for one-story industrial properties. Id. The financing method utilized by the Program was the `sale-leaseback.' Id. at 79.

9. The sale-leaseback emerged as a financing method in the late 1940s. Id. at 122. It is neither a loan nor a sale, but rather a "hybrid financing device" whereby the debtor `sells' property to the creditor in exchange for the amount the debtor requires to acquire the property, and the creditor simultaneously leases the property to the debtor for the debtor's continued use. Id. at 122, 126. "Under this arrangement, the seller receives cash from the transaction and the buyer is assured a tenant and a fixed return on the investment." The Dictionary of Real Estate Appraisal 318 (3d ed. 1993).

10. In a sale-leaseback, the buyer/creditor takes title to the subject property,³ but the seller/debtor retains the primary benefits of ownership, such as "long-term occupancy and control over the property." Tr. at 122. The benefits of such an arrangement to the debtor are that there is little or no capital investment required and the debtor may obtain financing closer to the value of the collateral — the leased property — than in a conventional loan. Id. For example, whereas a lender may not feel comfortable loaning a mortgagor more than 75% of the value of the mortgaged property, the buyer in a sale-leaseback generally provides financing in an amount up to 100% of the value of the subject property. See Tr. at 129; Ellwood Tables for Real Estate Appraising and Financing (the "Ellwood Tables") 115 (2d ed. 1967) ("Despite its all cash nature, the philosophy and economics of purchase-leaseback are little different than those of the level periodic installment, full-amortization mortgage investment. Imagine if you will this type of mortgage investment at 100% of purchase price and you have the most important, initial characteristic of the typical purchase-leaseback transaction."). Prudential's industrial mortgage loans typically provided the mortgagor with only two-thirds of the value of the mortgaged property. Tr. at 74.

11. Because of the increased risk posed by the sale-leaseback configuration, Prudential expected to obtain a return of ½% to ¾% more from such transactions than it could obtain in a conventional mortgage loan. Tr. at 82. In 1950, the average yield on mortgage loans made by Prudential's Mortgage Loan Department in New Jersey was 4.07%. See 1950 Review at 9.

12. "Typical buyers in sale-leasebacks are life insurance companies and pension trusts which are interested primarily in long-term income at a fixed rate of return commensurate with that obtainable from well secured mortgage investments." Ellwood Tables 116; Tr. at 130. "Institutional buyers normally are not in a position to, or at least do not wish to provide real estate management. Consequently, the leases are usually written on an absolutely net basis with the tenant providing all the management and paying all the bills." Ellwood Tables 116.

13. In instituting the Program,...