U.S. v. Kayser-Roth Corp

• Decision Date: 03 April 2001
• Docket Number: KAYSER-ROTH,No. 00-2038,00-2038
• Citation: 272 F.3d 89
• Parties: (1st Cir. 2001) UNITED STATES OF AMERICA, Plaintiff, Appellee, v.CORPORATION, Defendant, Appellant. Heard
• Court: U.S. Court of Appeals — First Circuit

Page 89

272 F.3d 89 (1st Cir. 2001)

UNITED STATES OF AMERICA, Plaintiff, Appellee, v. KAYSER-ROTH CORPORATION, Defendant, Appellant.

No. 00-2038

United States Court of Appeals For the First Circuit

Heard April 3, 2001

Decided December 3, 2001

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF RHODE ISLAND

[Hon. Ernest C. Torres, U.S. District Judge] J. Daniel Berry, with whom William Carter, William S. Eggling and Ropes & Gray, were on brief, for appellant.

Joan M. Pepin, Attorney, Department of Justice, with whom John C. Cruden, Deputy Assistant Attorney General, John T. Stahr, Donald G. Frankel, Attorneys, Department of Justice, Lloyd Selbst, Senior Enforcement Counsel, and Nina Rivera, Office of General Counsel, Environmental Protection Agency, were on brief, for appellee.

Before Lipez, Circuit Judge, Bownes, Senior Circuit Judge, and Lisi,^* District Court Judge.

LIPEZ, Circuit Judge.

In this appeal, Kayser-Roth Corporation (Kayser-Roth) seeks relief pursuant to Fed. R. Civ. P. 60(b)(5) from a 1990 declaratory judgment finding it liable under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), 42 U.S.C. § 9601 et seq., for future cleanup costs associated with a release of trichloroethylene at a facility of its subsidiary, Stamina Mills, Inc. United States v. Kayser-Roth Corp., 724 F. Supp. 15 (D.R.I. 1989) (Kayser-Roth I). Kayser-Roth asserts that the Supreme Court's decision in United States v. Bestfoods, 524 U.S. 51 (1998), renders the prospective application of the declaratory judgment "no longer equitable" within the meaning of Rule 60(b)(5). Reviewing the Kayser-Roth I judgment in light of Bestfoods, the district court concluded that the principles of direct and derivative liability under CERCLA articulated in Bestfoods would not have altered that original judgment. United States v. Kayser-Roth Corp., 103 F. Supp. 2d 74 (D.R.I. 2000) (Kayser-Roth II). Kayser-Roth appeals that determination, and we affirm.

I.

A. Factual Background

We draw these background facts from Kayser-Roth I. During the time relevant to this litigation, Stamina Mills was a wholly-owned subsidiary of Kayser-Roth.¹ Along with another Kayser-Roth subsidiary and other corporations, Stamina Mills was also part of Kayser-Roth's "Crown Division," a designation created for internal organization purposes only.

Stamina Mills ran a textile manufacturing operation in the village of Forestdale, in the City of North Smithfield, Rhode Island.² The Forestdale mill building had been located on the north side of the Branch River for decades. At one time, the textile production at the Forestdale facility used a soap scouring system to remove oil and dirt from newly-woven fabric. As a result of complaints about discharge and pollution into the Branch River, the soap scouring method was replaced with a system using trichloroethylene (TCE) in March 1969. During one delivery of TCE before November 1969, an indeterminate amount of TCE spilled onto the Stamina Mills property. In addition to this accidental release, there was evidence that Stamina Mills would deposit used quantities of TCE bottoms in a landfill on its property. One witness at trial testified that he saw a truck back up to the landfill to dump a purplish fluid with oily texture. That witness also testified that the odor of TCE emanated from Stamina Mills' building.

In 1979 the Rhode Island Department of Health determined that residential wells near the Stamina Mills site in the Forestdale community contained elevated levels of TCE. In September 1982, the Environmental Protection Agency conducted a hydrogeological study and identified the Stamina Mills site as the source of the TCE. The site was subsequently added to the National Priorities List for cleanup funding. The EPA's costs related to remedial measures at the residential wells and the Stamina Mills site, as well as enforcement, totaled $660,612.71. The Department of Justice incurred an additional $185,879.62 in enforcement costs.

B. 1990 Declaratory Judgment

In 1988, the United States filed an action (the 1988 action) against Kayser-Roth pursuant to 42 U.S.C. § 9607(a)(2) seeking reimbursement of its response costs and a declaration that Kayser-Roth would be liable for any additional response costs incurred in the future relating to the Stamina Mills site.³ It asserted, among its six liability theories, that Kayser-Roth was liable as an "operator" and an "owner" under CERCLA. Judge Boyle found Kayser-Roth liable under both theories. See Kayser-Roth I, 724 F. Supp. at 23-24.

1. Operator Liability

Judge Boyle interpreted the standard for operator liability of a parent corporation as follows: "The parent corporation's control over the subsidiary's management and operations is an essential element of proving operator liability on the parent's part." Id. at 22. Accordingly, Judge Boyle focused on "whether Kayser-Roth exercised control over Stamina Mills management and operations sufficient to find that Kayser-Roth was a de facto operator." Id.

Based upon the evidence heard at a bench trial, Judge Boyle determined that Kayser-Roth was liable as an "operator" under CERCLA. Id. He specifically found the following:

Kayser-Roth exercised pervasive control over Stamina Mills through, among other things: 1) its total monetary control including collections of accounts payable; 2) its restrictions on Stamina Mills' financial budget; 3) its directive that subsidiary-governmental contact, including environmental matters, be funneled directly through Kayser-Roth; 4) its requirement that Stamina Mills' leasing, buying or selling of real estate first be approved by Kayser-Roth; 5) its policy that Kayser-Roth approve any capital transfer or expenditure greater than $5,000; and finally, 6) its placement of Kayser-Roth personnel in almost all Stamina Mills' director and officer positions, as a means of totally ensuring that Kayser-Roth corporate policy was exactly implemented and precisely carried out. These are only examples of Kayser-Roth's practical total control over Stamina Mills' operations.

Id. As further evidence of control, Judge Boyle made findings specific to Kayser-Roth's "actions with regard to environmental matters affecting Stamina Mills":

Illustrative of Kayser-Roth's control are its actions with regard to environmental matters affecting Stamina Mills. Kayser-Roth had the power to control the release or threat of release of TCE, had the power to direct the mechanisms causing the release, and had the ultimate ability to prevent and abate damage. Kayser-Roth knew that Stamina Mills employed a scouring system that used TCE; indeed, Kayser-Roth approved the installation of that system after mandating that a cost-benefit study be made by Stamina Mills. Kayser-Roth not only had the capacity to determine the use of TCE but also was able to direct Stamina Mills on how the TCE should have been handled. There are other examples of Kayser-Roth's participation in Stamina Mills' environmental decision-making. Evidence was introduced that Kayser-Roth issued a directive to its subsidiaries, including Stamina Mills, requiring that Kayser-Roth's Legal Department be notified of any governmental agency or court contact regarding environmental matters. Furthermore, when Stamina Mills was sued in 1974 by the United States for an illegal waste water discharge into the Branch River, the final decision on settlement was made by Kayser-Roth's directors.

Id. at 22-23 (footnote omitted).

2. Owner Liability

In addition, Judge Boyle concluded Kayser-Roth was liable as an "owner" under a veil piercing theory, based "upon analysis of the factors relevant to piercing Stamina Mills' veil, and mindful of the liberal construction CERCLA must be afforded so as not to frustrate probable legislative intent." Id. at 23. Recognizing the preliminary issue as to whether state or federal common law veil-piercing standards should apply, Judge Boyle recited the veil-piercing factors required under each regime. See id. at 20. However, he ultimately left the choice-of-law issue unaddressed, on the basis that "the distinction between state law and a federal rule of decision is of little practical difference." Id. at 20. Judge Boyle then found that many of the factors applicable to the operator liability inquiry were also relevant to owner liability:

Kayser-Roth has exhibited overwhelming pervasive control over Stamina Mills. Many of the same factors used in holding Kayser-Roth liable as an operator are relevant. Kayser-Roth's control over environmental matters; its policy of approving all capital expenditures of greater than $5,000; its stranglehold on income and expenses; its practice of placing Kayser-Roth personnel in Stamina Mills' director positions, thereby precluding other Stamina Mills executives from significant daily decision-making; and its overwhelming control over Stamina Mills' financial and operational structure add flesh to the skeletal proposition that Kayser-Roth's corporate existence should be disregarded. Accordingly, Stamina Mills' veil should be pierced to hold Kayser-Roth liable, not only because public convenience, fairness, and equity dictate such a result, but also due to the all encompassing control which Kayser-Roth had over Stamina Mills as, in fact and deed, an owner. Any other result would provide too much solace to deliberate polluters, who would use this device as an escape.

Id. at 24 (footnote omitted).

As a result of his liability determination, Judge Boyle entered judgment against Kayser-Roth in January 1990 for nearly $1 million in response costs previously incurred by the EPA and interest. In addition, he issued a declaratory judgment (1990 declaratory judgment) holding Kayser-Roth liable for "all further response costs incurred by the United States related to the Stamina Mills Site."⁴

On appeal, we affirmed Judge Boyle's decision as to Kayser-Roth's operator liability....