U.S. v. Carolina Transformer Co.

• Decision Date: 03 November 1992
• Docket Number: No. 91-1046,91-1046
• Citation: 978 F.2d 832
• Parties: , 23 Envtl. L. Rep. 20,365 UNITED STATES of America, Plaintiff-Appellee, v. CAROLINA TRANSFORMER COMPANY; Dewey Strother; Kenneth Ray Strother; Faytranco, Incorporated, Defendants-Appellants.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 832

978 F.2d 832

35 ERC 1873, 23 Envtl. L. Rep. 20,365

UNITED STATES of America, Plaintiff-Appellee, v. CAROLINA TRANSFORMER COMPANY;

Dewey Strother; Kenneth Ray Strother; Faytranco,

Incorporated, Defendants-Appellants.

No. 91-1046.

United States Court of Appeals, Fourth Circuit.

Argued Oct. 2, 1991.

Decided Oct. 20, 1992.

As Amended Nov. 3, 1992.

James McDaniel Johnson, Bryan, Jones, Johnson & Snow, Dunn, N.C., argued, for defendants-appellants.

Edward J. Shawaker, Environmental & Natural Resources Div., U.S. Dept. of Justice, Washington, D.C., argued (Richard B. Stewart, Asst. Atty. Gen., John A. Bryson, Jon A. Mueller, Evelyn S. Ying, Environmental & Natural Resources Div., U.S. Dept. of Justice, Washington, D.C., Margaret P. Currin, U.S. Atty., Stephen A. West, Asst. U.S. Atty., Raleigh, N.C., on brief), for plaintiff-appellee.

Before WIDENER and NIEMEYER, Circuit Judges, and MICHAEL, United States District Judge for the Western District of Virginia, sitting by designation.

OPINION

WIDENER, Circuit Judge:

This case, which arises under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), 42 U.S.C. § 9601 et seq., stems from the removal of soil contaminated with polychlorinated biphenyls (PCBs) from a site formerly owned and operated by Carolina Transformer, Inc. From 1959 until 1984, Carolina Transformer salvaged and repaired used electrical transformers at the site. During the salvage and repair operations, dielectric fluid from inside the transformers (also known as transformer oil), which contains the carcinogen PCB, was spilled or dumped on the ground at the site. In this action, the United States sued Carolina Transformer Co., Inc., FayTranCo., Inc., Dewey Strother and Kenneth Strother to recover costs incurred in decontaminating the Carolina Transformer site. The United States also sought to recover punitive damages for the defendants' refusal to comply with an administrative order issued by the United States Environmental Protection Agency (EPA) pursuant to Section 106 of CERCLA, 42 U.S.C. § 9606. ¹

The district court granted summary judgment in favor of the United States, finding all of the defendants jointly and severally liable for the costs incurred in decontaminating the Carolina Transformer site, and for punitive damages for their refusal, without sufficient cause, to comply with EPA's cleanup order. 739 F.Supp. 1030. In a subsequent order, the district court awarded the United States its response costs, plus punitive damages in the amount of three times the Government's costs.

FayTranCo and the individual defendants, Dewey and Kenneth Strother, appeal. They raise two major issues. First, the Strothers contend that summary judgment was improperly granted against them because there were material issues of fact as to whether either of them "owned or operated" the Carolina Transformer site within the meaning of CERCLA § 107(a), 42 U.S.C. § 9607(a). Second, FayTranCo. contends that material issues of fact remain as to whether it was a successor-in- interest to Carolina Transformer and, therefore, liable for Carolina Transformer's acts.

We review the grant or denial of summary judgment de novo, applying the same standard applied by the district court. Overstreet v. Kentucky Central Life Ins. Co., 950 F.2d 931, 938 (4th Cir.1991). On summary judgment, we must draw all justifiable inferences in favor of the nonmoving party, including questions of credibility and of the weight to be accorded particular evidence. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 2513, 91 L.Ed.2d 202 (1986).

The background facts of the case follow. Dewey Strother and two others formed Carolina Transformer Co., Inc. in 1959 for the purpose of repairing and rebuilding electrical transformers and selling rebuilt transformers. Dewey Strother became Carolina Transformer's sole stockholder in 1962 and remained such at all times relevant here. He was Carolina Transformer's president from 1962 through December 1981 and was chairman of its board of directors from 1977 through 1981.

Kenneth Strother, Dewey Strother's son, was a director and secretary of Carolina Transformer from 1973 through 1984, and took over as its president on January 1, 1982, a position Kenneth held until September, 1984. Carolina Transformer stopped doing business in late 1984 or early 1985.

FayTranCo., Inc. was incorporated in 1979 by Daniel Wiser and Kenneth Strother. FayTranCo's initial board of directors consisted of Kenneth Strother, Daniel Wiser, and Merriel Williams, who later succeeded Kenneth Strother as President of Carolina Transformer. In addition to being an incorporator and member of the board of FayTranCo, Kenneth Strother was its president from 1979 at least until the time of the third amended complaint, which was filed in September 1988. Kenneth Strother and Sharon Peele, his sister, each owned half of FayTranCo's outstanding stock. Kenneth's stepmother, Sylvia Strother, supervised the bookkeeping at FayTranCo, as she had done at Carolina Transformer.

The controversy in this case involved Carolina Transformer's business location, a five-acre tract on Middle Road near Fayetteville, North Carolina (the Middle Road site). Carolina Transformer itself, as a corporate entity, owned the site. The Middle Road site is lowlying and swampy. Surface water drains from the site through a culvert into an unnamed tributary of the Cape Fear River.

From 1967 through late 1984, Carolina Transformer operated an electrical transformer rebuilding, repair and sales business on the Middle Road site. Transformers were delivered to the site and stored until repaired. During the salvage operations, transformer oil containing polychlorinated biphenyls (PCBs) was dumped, spilled or leaked from the used transformers onto the ground at the Carolina Transformer site. It is admitted by the defendants that PCBs are hazardous substances within the meaning of CERCLA § 101(14), 42 U.S.C. § 9601(14).

In 1984, the EPA determined that the oil containing PCB had migrated from the surface of the site through leaching and surface water flow, and that a release or substantial threat of release of PCBs into the environment existed at the site. On March 5, 1984, EPA issued an administrative order pursuant to CERCLA § 106(a), 42 U.S.C. § 9606(a), directing Carolina Transformer to remove PCB-contaminated soil from the site and to conduct other response actions. Carolina Transformer failed to comply with the order, and, as a result, in August 1984, the EPA itself performed a clean-up operation at the site. ² Carolina Transformer stopped doing business at the Middle Road site in January 1984. At this time Carolina Transformer sold its vehicles, shop equipment and surplus copper to FayTranCo for a total of $50,934. In September 1984, Carolina Transformer conveyed the Middle Road site itself to David Miller and Edward Pearson. Pearson and Miller then conveyed the property to Cumberland Electrical Repair, Inc., which had been formed for the purpose of taking over the Carolina Transformer operation at Middle Road. A creditor of Carolina Transformer attacked these two transfers as fraudulent conveyances, and a state court agreed, ordering that Cumberland Electrical Repair reconvey the property to Carolina Transformer.

The district court granted the Government's motion for summary judgment against the individual defendants, Dewey Strother and Kenneth Strother, finding them jointly and severally liable for the total amount of the Government's response costs. They argue that the district court erred in granting summary judgment against them because there are material issues of fact as to whether either of them "owned or operated" the Carolina Transformer site within the meaning of CERCLA § 107(a), 42 U.S.C. § 9607(a).

Subsequent to the argument of this appeal, we decided Nurad, Inc. v. Hooper & Sons Co., 966 F.2d 837 (4th Cir.1992), which addressed some of the questions presented here. ³ As Nurad holds, § 9607(a) imposes liability for costs incurred in responding to a "release" of hazardous substances at any "facility" upon any person who "owned" or "operated" the facility at the time of "disposal" of a hazardous substance. 42 U.S.C. § 9607(a)(2). A facility is defined to include any "area" in and around which hazardous substances have "come to be located". Nurad, 966 F.2d at 842-843. Such an owner or operator is strictly liable for costs incurred in responding to the release of hazardous substance at the facility, subject only to the defenses set forth in § 9607(b), which are not applicable here. Nurad, 966 F.2d at 841. CERCLA authorizes joint and several liability. United States v. Monsanto Co., 858 F.2d 160, 171 (4th Cir.1988), cert denied, 490 U.S. 1106, 109 S.Ct. 3156, 104 L.Ed.2d 1019 (1989).

Dewey and Kenneth Strother do not contest that the transformer oil containing PCBs is a hazardous substance, or that the Carolina Transformer site is a "facility," or that, if they are liable as owners or operators, the imposition of joint and several liability is proper. Their argument on appeal is that the district court erred in granting summary judgment for the Government because material issues of fact remain as to their status as "owners" or "operators" of the Carolina Transformer facility at the time of "disposal" of a hazardous substance.

Because we find that both Dewey and Kenneth Strother qualify as "operators" of the Carolina Transformer facility at the time that a hazardous substance was "disposed" there, we need not consider whether Dewey Strother, as the sole shareholder of Carolina Transformer, could qualify as an "owner" of the facility based on a theory of piercing the corporate veil.

Our decision in Nurad considered the meaning of the word "operator" in § 9607(a)(2). ⁴ In Nurad, a private party and present owner, Nurad, sought recovery under § 9607 for the costs it had incurred in removing and...