U.S. v. Iron Mountain Mines, Inc., Civ-S-91-768 DFL JFM.

• Decision Date: 30 September 1997
• Docket Number: No. Civ-S-91-768 DFL JFM.,Civ-S-91-768 DFL JFM.
• Citation: 987 F.Supp. 1233
• Court: U.S. District Court — Eastern District of California
• Parties: UNITED STATES of America, Plaintiff, v. IRON MOUNTAIN MINES, INC., et al., Defendants. STATE OF CALIFORNIA, Plaintiff, v. IRON MOUNTAIN MINES, INC., et al., Defendants. And Related Cross-, Counter-, And Third-Party Claims.

987 F.Supp. 1233

UNITED STATES of America, Plaintiff, v. IRON MOUNTAIN MINES, INC., et al., Defendants.

STATE OF CALIFORNIA, Plaintiff, v. IRON MOUNTAIN MINES, INC., et al., Defendants. And Related Cross-, Counter-, And Third-Party Claims.

No. Civ-S-91-768 DFL JFM.

United States District Court, E.D. California.

September 30, 1997.

Paul B. Galvani, Ropes and Gray, Boston, MA, James W. Matthews, Ropes and Gray, Boston, MA, for Rhone-Poulenc Inc.

Thomas H. Hannigan Jr., Ropes and Gray, Boston, MA, Thomas G. Redmon, Wilke Fleury Hoffelt Gould and Birney, Sacramento, CA, for Rhone-Poulenc Basic Chemicals Co.

Michael Brian Hingerty, U.S. Environmental Protection Agency, Regional Counsel, San Francisco, CA, David B. Glazer, U.S. Department of Justice, Environmental Enforcement Section, San Francisco, CA, Yoshinori H. T. Himel, U.S. Attorney, Sacramento, CA, Martin F. McDermott, U.S. Department of Justice, Environment & Natural Resources Division, Washington, DC, for U.S.

Margarita Padilla, California State Attorney General, Oakland, CA, Sara J. Russell, Attorney General's Office of the State of California, Oakland, CA, for State of California.

MEMORANDUM OF OPINION AND ORDER

LEVI, District Judge.

The United States and the State of California (together "the Government") are seeking to recover CERCLA response costs incurred in investigating and abating hazardous substance contamination at Iron Mountain Mine. See 42 U.S.C. § 9607(a). One of the defendants against whom the Government is seeking to recover is Rhône-Poulenc Basic Chemicals Co., Inc. To prevail, the Government must establish that Rhône-Poulenc is a responsible party as defined by CERCLA.¹ The Government and Rhône-Poulenc now cross move for partial adjudication on the limited issue of whether Rhône-Poulenc is a responsible party as the corporate successor to Mountain Copper Company, Ltd. ("Mountain Copper") and its subsidiaries, which owned and operated Iron Mountain Mine from 1896 to 1968.

Rhône-Poulenc's successorship, if it exists at all, is once removed. As a prior owner and operator of Iron Mountain Mine, it is undisputed that Mountain Copper is a responsible party as defined by CERCLA. See 42 U.S.C. § 9607(a)(2). However, Mountain Copper was dissolved some 30 years ago in 1968 when Stauffer Chemical Company ("Stauffer") acquired Mountain Copper's assets, including Iron Mountain Mine. It also is undisputed that thereafter Rhône-Poulenc became the corporate successor to Stauffer. Thus, the question of whether Rhône-Poulenc succeeded to Mountain Copper's liabilities hinges on whether Stauffer became the corporate successor to Mountain Copper. Stauffer's possible successorship to Mountain Copper is the exclusive focus of the cross motions.

I.

In 1894, a group of British investors purchased the Iron Mountain Mine site,² and in 1896, they formed Mountain Copper, a British corporation, to mine the site. Mountain Coppers' corporate headquarters were in London, and all of the corporation's directors and executive officers were located there. Mountain Copper operated Iron Mountain Mine from 1896 to 1955. From 1955 onward, the Mine was operated by Mountain Copper's wholly-owned subsidiary, Mountain Copper of California, which was incorporated in California in 1955.³ Mountain Copper and Mountain Copper of California extracted gold, copper, zinc, and pyrite from Iron Mountain Mine. The mining activity exposed sulfide deposits, which react with rainwater and groundwater to form acid mine drainage, the hazardous substance at issue in this litigation.

Around 1962, mining ceased at Iron Mountain Mine, although Mountain Copper continued to hold onto the site. During this period, the only active operation at Iron Mountain Mine was the operation of a copper cementation plant, which Mountain Copper had installed a few years earlier at the State's request. The purpose of the copper cementation plant was to reduce copper levels in the water that drained out of Iron Mountain Mine.⁴ The small amount of copper cement retrieved from this process was sold, as were the small quantities of hematite present in the waste piles at Iron Mountain Mine.

In addition to maintaining Iron Mountain Mine, Mountain Copper of California operated a plant in Martinez, California, where chemicals were manufactured and sold. The operations at the Martinez plant included the production of copper, zinc, and iron chemicals including Ferric 27, as well as the sale of pyrite cinders generated from the mining operations at Iron Mountain Mine.

Mountain Copper's most valuable asset, however, was its stake in the San Francisco Chemical Company ("SFCC"). SFCC operated large phosphate mines in Idaho and Utah. Until 1956, Mountain Copper owned 100 percent of SFCC's stock. In 1956, Mountain Copper sold half of its shares to Stauffer. Thereafter, the two equal shareholders battled over the direction SFCC should take.

In the 1960's, Stauffer sought to gain control of SFCC. When Mountain Copper refused to sell its remaining one-half stake in SFCC, Stauffer decided to achieve its objective by taking control of Mountain Copper itself. Accordingly, Stauffer made a tender offer for all of Mountain Copper's outstanding stock in 1964. The tender offer was unsuccessful, resulting in Stauffer acquiring only 43 percent of Mountain Copper's outstanding stock. In July 1967, Stauffer made a second tender offer. By August 1967, Stauffer had acquired over 90 percent of Mountain Copper's outstanding stock. Under § 209 of the British Companies Act of 1948, Stauffer then was entitled to acquire Mountain Copper's remaining shares through the legal process. To satisfy British law, Stauffer's 1967 tender offer provided for 75 percent of the consideration to be paid in Stauffer's common stock and 25 percent in cash. The effect of Stauffer's successful tender offer was that Stauffer became the sole shareholder of Mountain Copper and its wholly owned subsidiaries.⁵ It also became the sole shareholder of SFCC. At the time it took control over Mountain Copper, Stauffer intended to integrate Mountain Copper into Stauffer. On July 17, 1967, Roger Gunder, the President of Stauffer, wrote a memorandum describing the take-over. Mr. Gunder wrote that Stauffer "has purchased the assets of the Mountain Copper Company, Limited" and that once the dissolution of Mountain Copper and its subsidiaries had been finalized, SFCC would become a division of Stauffer while Mountain Copper's manufacturing operations would become part of Stauffer's Industrial Chemical Division. U.S.Exh. 6 (Exh. R). Immediately following Stauffer's acquisition of Mountain Copper's stock, Mountain Copper's Board of Directors was replaced with Stauffer directors, officers, and employees, and Mountain Copper's residence and corporate headquarters were transferred from Britain to the United States.

One of the reasons Stauffer wanted to dissolve Mountain Copper and integrate it into Stauffer was to obtain a tax deduction. Mountain Copper of California had significant tax losses from prior years that could be carried over. Stauffer hoped that by dissolving Mountain Copper, it could claim these losses against Stauffer's own income under § 381 of the Internal Revenue Code. The time for carryover on some of Mountain Copper of California's past losses was near expiration, such that the tax breaks would expire if the losses were not taken in 1968. Thus, on November 27, 1968, Mountain Copper's new Board of Directors resolved to wind up Mountain Copper. Stauffer, as Mountain Copper's sole shareholder, approved the dissolution on December 11, 1968, and Albert J. Steiss was appointed as the liquidator.⁶

As part of the liquidation process, Stauffer entered into an Assignment Agreement with Mountain Copper on December 19, 1968. U.S.Exh. 8 (Exh. 2 at 1). Under the terms of the Assignment, Mountain Copper transferred all of its assets to Stauffer. In return, Stauffer agreed to "assume all of the liabilities and contractual obligations of [Mountain Copper] and to surrender for cancellation all of its shares of stock [in Mountain Copper]." The Assignment also provided that it was made pursuant to the resolution of Mountain Copper's Board of Directors calling for "the voluntary winding up of [Mountain Copper] ...."

Included in the assets transferred to Stauffer in the liquidation of Mountain Copper was all stock held by Mountain Copper, including Mountain Copper's shares in its wholly-owned subsidiary, Mountain Copper of California, and its one-half stake in SFCC. Shortly after receiving the Mountain Copper of California stock, Stauffer also dissolved that corporation.⁷ On December 24, 1968, the Board of Directors for Mountain Copper of California resolved to wind up the corporation. R-P Exh. 36. And on December 31, 1968, Stauffer entered into a Grant Deed and Assignment with Mountain Copper of California, which transferred Mountain Copper of California's assets to Stauffer. R-P Exh. 39. In return, Stauffer agreed "to perform and discharge each and all of the contracts, obligations and liabilities of [Mountain Copper of California], including all known debts and liabilities of [Mountain Copper of California]. ..." The Grant Deed and Assignment also contained a proviso that limited Stauffer's liability such that:

nothing herein shall be construed to toll or extend any statute of limitation or rule or period or laches or estoppel beyond the time the same would have run in favor of the Grantor, or to subject the Grantee to any liability other than that, or for any other or further period or extent than that, for which the Grantor would have been liable had this grant, assignment, assumption of liability, or agreement not been made....

R-P Exh. 39.

After Mountain Copper and Mountain Copper of California were dissolved and their assets were acquired by Stauffer as the sole shareholder, Iron Mountain Mine remained mostly inactive. Stauffer continued to operate the copper...