U.S. v. Power Engineering Co., Civ.A. 97-B-1654.

• Decision Date: 17 August 1998
• Docket Number: No. Civ.A. 97-B-1654.,Civ.A. 97-B-1654.
• Parties: UNITED STATES of America, Plaintiff, v. POWER ENGINEERING COMPANY, Redoubt, Ltd., and Richard J. Lilienthal, Defendants/Third Party Plaintiffs, v. Jack LILIENTHAL, Third Party Defendant.
• Court: U.S. District Court — District of Colorado

10 F.Supp.2d 1165

UNITED STATES of America, Plaintiff, v. POWER ENGINEERING COMPANY, Redoubt, Ltd., and Richard J. Lilienthal, Defendants/Third Party Plaintiffs, v. Jack LILIENTHAL, Third Party Defendant.

No. Civ.A. 97-B-1654.

United States District Court, D. Colorado.

August 17, 1998.

John N. Moscato, Environmental Enforcement Section, Environment & Natl. Resources Div., U.S. Department of Justice, Denver, CO, Linda A. Surbaugh, Assistant U.S. Attorney, Denver, CO, Thomas E. Sitz, Enforcement Attorney, U.S. Environmental Protection Agency, Region VIII, Denver, CO, for plaintiff.

John R. McBride, John J. Zodrow, Zodrow, et al., P.C., Denver, CO, for defendants.

MEMORANDUM OPINION AND ORDER

BABCOCK, District Judge.

Plaintiff, United States of America ("the United States"), acting on behalf of the Environmental Protection Agency, moves for the issuance of an order requiring defendants, Power Engineering Company ("Power Engineering"), Redoubt, Ltd. ("Redoubt"), and Richard J. Lilienthal (collectively, "defendants"), to obtain financial assurances in the form of a surety bond that satisfies state regulations adopted by the Colorado Department of Public Health and Environment, found at 6 COLO.CODE REGS. 1007-3 § 266.14(f). The United States also moves to vacate the established briefing schedule regarding the jurisdictional issue raised at the August 6, 1998 hearing. The United States' motion is adequately briefed and oral argument will not materially aid its resolution. For the reasons set forth below, I grant the United States' motion.

I. PROCEDURAL HISTORY

The United States commenced this action on August 1, 1997, alleging eight claims: (1) treatment of hazardous waste without a permit or interim status; (2) disposal of hazardous waste without a permit or interim status; (3) shipment of hazardous waste to an unpermitted facility; (4) improper container management; (5) storage of hazardous waste without a permit or interim status; (6) failure to provide employee training; (7) failure to have a hazardous waste contingency plan; and (8) illegal operations (failure to have a groundwater monitoring program, failure to have a closure plan, failure to minimize releases of hazardous waste, and failure to obtain and provide financial assurances for closure and post-closure). The United States also alleges that Power Engineering has failed to comply with a CDPHE Administrative Compliance Order. Subject matter jurisdiction exists pursuant to 28 U.S.C. § 1331 (1997).

The United States filed a motion for preliminary injunction on January 16, 1998, requesting issuance of an order requiring defendants to comply with Colorado hazardous waste regulations. These regulations require owners and operators of all hazardous waste facilities to document that they have secured the resources required to close their facilities in an appropriate and safe manner, and to pay third-party claims that may arise from facility operations. A preliminary injunction hearing was held beginning May 11, 1998. On June 10, 1998, I issued a Memorandum Opinion and Order ("the June 10 order") granting the United States' motion for preliminary injunction. The June 10 order directs defendants to provide financial assurances in the amount of $3,500,000 or show cause why they have not provided such financial assurances within thirty days.

Defendants filed a "Show Cause Submission" on July 10, 1998 that states defendants were in the process of finalizing trust arrangements and that the trust would be finalized within ten business days. Three draft trust agreements were attached to defendants' Show Cause Submission. These three draft trust agreements indicated that defendants intended the following properties to constitute the res of the trust: (1) Richard Lilienthal's undivided one-half interest in real property located in Eagle County, Colorado (current estimated value of $1,200,000.00); (2) real property owned by Redoubt, Ltd. on which the Power Engineering facility operates (current estimated value $0.00; stated value in draft trust agreement of $2,000,000.00); and (3) 9,340 shares of UNUM stock owned by Power Engineering (current estimated value $520,000.00).

The United States filed a response to defendants' Show Cause Submission on July 24, 1998, objecting on four grounds. First, the United States argued that defendants' proposed trusts do not provide for joint and several liability because each trust has a separate grantor. The United States contended that one trust, rather than three separate trusts, should exist. Second, the United States argued that defendants impermissibly altered the trust agreement language required by Colorado regulations. Colorado regulations state: "Payments made to the Trustee shall consist of cash or securities acceptable to the Trustee." 6 COLO.CODE REGS. 1007-3 §§ 266.14(a) and 266.18(a)(1). The draft trust agreements impermissibly state:

Contributions of Property made to the Trustee for the Fund may consist of the property set forth in the District Court's Order and other property acceptable to the Trustee.

(Ex. A to Def.'s Show Cause Submission at 2.) The United States contends that, because the June 10 order requires defendants to "provide financial assurance in the amount of $3,500,000 pursuant to 6 COLO.CODE REGS. 1007-3 § 266 and all applicable subparts," any trust must consist of cash or securities and not real property to ensure liquidity and prevent the diminishment of the trust res by subsequent impairment, such as tax liens. A letter from one of the bankers contacted by defendants also indicates that Norwest Bank would only establish a trust or escrow fund to hold assets "in liquid form." (Ltr. from Martinez of Norwest Bank of 7/20/98, Ex. A to Plf.'s Resp. to Def.'s Show Cause Submission.)

Third, the United States argued that two of the three properties proposed as trust res are inadequate. The United States contended that Richard Lilienthal's undivided one-half interest in real property located in Eagle County, Colorado (current estimated value of $1,200,000), is subject to a restrictive covenant regarding conveyance and has already been quitclaimed to Richard Lilienthal's wife. Defendants disputed this contention. The United States also contended that the property owned by Redoubt on which the Power Engineering facility operates is worthless until remediated. Thus, the only proposed res acceptable to the United States is the stock owned by Power Engineering.

Fourth, the United States objected to other language of the draft trust agreements. Defendants modified the trust language, mandated by 6 COLO.CODE REGS. 1007-3 §§ 266.14(a) and 266.18(a)(1), regarding payment of remediation costs out of trust assets. The proposed trust agreements give defendants more power over trust assets than envisioned by Colorado regulations. In summary, the United States objects to defendants' failure to comply with the June 10 order, attempt to fund the proposed trusts with real property instead of cash or securities, attempt to provide real property that has an impaired value, and proposal to modify the trust agreement in a manner that allows defendants to authorize or prohibit payments from the trust assets. The United States did not move for contempt, but averred that the question of contempt "is one for the Court to determine." (Plf.'s Resp. to Def.'s Show Cause Submission at 9.)

Defendants filed a supplement to their show cause submission on July 27, 1998. Defendants contended that Norwest Bank did not disclose its objection to acting as Trustee of a trust funded by real property until July 20, 1998. Since receipt of the letter from Norwest Bank, Defendants allege that they have contacted eleven "companies" regarding the trust arrangement "previously ... discussed with Norwest Bank." (Def.'s Supp. at 2.)

A status conference was held on August 6, 1998 to address defendants' compliance with the June 10 order. At the commencement of the hearing, I raised the issue of whether defendants' Notice of Appeal, filed July 22, 1998, divested this court of jurisdiction to enforce the June 10 order. Neither the United States nor defendants were prepared to argue this issue. Thus, I established a briefing schedule that would have concluded on September 11, 1998.

Also during the status conference, the issues raised by defendants' Show Cause Submission and the United States' objections were addressed. I indicated that the United States' objections to the form of trusts proposed by defendants were valid. The June 10 order requires compliance with Colorado regulations and defendants' proposed trusts ignore many of important trust features mandated by these regulations, such as the type of res and powers of the grantor. I also noted that the United States' concerns regarding the property used to fund the trusts had merit. Clearly, Redoubt's land is not worth $2,000,000. The very purpose of financial assurances is to ensure that liquid assets exist to pay for remediation if defendants ignore their remediation responsibility. Although Redoubt's contaminated land may be valuable if remediated, the land surely does not constitute a valid financial assurance in its unremediated state.

Lastly, I noted at the August 6 status conference that the June 10 order is broadly worded. Nowhere does the June 10 order require defendants to provide financial assurances in the form of a trust funded by property discussed in that order. Rather, the June 10 order requires defendants to "provide financial assurance in the amount of $3,500,000 pursuant to 6 COLO.CODE REGS. 1007-3 § 266 and all applicable subparts." (Ord. of 6/10/98 at 46.) While I necessarily discussed defendants' personal and real property in the June 10 order, I did so only in assessing whether defendants had the ability to provide financial assurances. The order merely states:

[Power Engineering's] readily available cash of $800,000, when combined with Lilienthal's directly...