US v. CAROLINA TRANSFORMER CO., INC.,

• Decision Date: 13 November 1989
• Docket Number: No. 85-82-CIV-3.,85-82-CIV-3.
• Citation: 739 F. Supp. 1030
• Court: U.S. District Court — Eastern District of North Carolina
• Parties: UNITED STATES of America, Plaintiff, v. CAROLINA TRANSFORMER CO., INC., Dewey K. Strother, Kenneth Strother, and FayTranCo, Inc., Defendants.

739 F. Supp. 1030

UNITED STATES of America, Plaintiff, v. CAROLINA TRANSFORMER CO., INC., Dewey K. Strother, Kenneth Strother, and FayTranCo, Inc., Defendants.

No. 85-82-CIV-3.

United States District Court, E.D. North Carolina, Fayetteville Division.

November 13, 1989.

COPYRIGHT MATERIAL OMITTED

Richard B. Stewart, Asst. Atty. Gen. by Jon A. Mueller, Environmental Enforcement Section Land and Natural Resources Div., U.S. Dept. of Justice, Washington, D.C., Margaret Person Currin, U.S. Atty., E.D.N.C., Stephen A. West, Asst. U.S. Atty., Raleigh, N.C., for plaintiff.

Mark A. Sternlicht, Beaver, Thompson, Holt and Richardson, Fayetteville, N.C., for defendants Carolina Transformer, Dewey Strother and Kenneth Strother.

F. Stuart Clarke, Thorp and Clarke, Fayetteville, N.C., for defendant FayTranCo, Inc.

ORDER

TERRENCE WILLIAM BOYLE, District Judge.

This matter comes before the court upon the government's motion for partial summary judgment on the issue of liability.¹ The defendants Carolina Transformer Company, Inc. ("Carolina Transformer"), Dewey Strother, Kenneth Strother, and FayTranCo, Inc. ("FayTranCo") oppose plaintiff's motion.²

FACTUAL BACKGROUND

This is a civil action brought pursuant to Section 107(a) and (c) of the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), 42 U.S.C. § 9607(a) and (c), as amended by the Superfund Amendments and Reauthorization Act of 1986, Pub.L. No. 99-499 ("SARA"), and the Toxic Substances Control Act ("TSCA"), 15 U.S.C. § 2601 et seq. The complaint seeks recovery of costs incurred by the United States in responding to releases or threatened releases of hazardous substances into the environment from a site located near the city of Fayetteville, North Carolina on Route 301 North, Eastern Boulevard, at the Middle Road Exit (the "site"). The site was the former business location of Carolina Transformer.

The complaint also seeks recovery of an administrative penalty imposed by the United States Environmental Protection Agency ("EPA") against Carolina Transformer for violations of TSCA and related regulations, and treble damages for the defendants' failure to comply with the terms of an Administrative order issued to the defendants by the EPA pursuant to Section 106 of CERCLA, 42 U.S.C. § 9606.

The Carolina Transformer site encompasses approximately five acres of land located in Cumberland County near the headwaters of an unnamed tributary of the Cape Fear River. The area surrounding the site is low-lying and swampy. Surface water drains from the Site through a culvert into the unnamed tributary and eventually flows into the Cape Fear River. Surface water also flows from the site across neighboring tracts of land.

Defendant, Carolina Transformer is a Fayetteville, North Carolina corporation which was engaged in the business of repairing electrical transformers and selling rebuilt transformers from approximately 1959 to 1984. The company also sold some new transformers manufactured by other companies.

The company was originally owned and operated by three individuals, but by 1962 defendant Dewey Strothers had acquired 100% of the stock. Dewey Strother became president of Carolina Transformer in 1967, and subsequently he became chairman of the company's board of directors and continued to receive a recorded salary until 1981. As president and chairman of the board he was responsible for the activities of the company. Defendant Kenneth Strother, Dewey Strother's son, became secretary and a director of the company in 1973. In 1979 Kenneth became president of the company, and he remained so until late 1984.

Originally, director and shareholder meetings were held by Carolina Transformer. However, after Dewey Strothers obtained all of the company's stock, formal director and shareholder meetings were not held.

From at least 1980 to 1985 Dewey Strother used the Carolina Transformer business location as headquarters for a scrap metal and used oil operation, and it appears that this operation continued at FayTranCo, after Carolina Transformer ceased doing business.

Dewey Strother obtained used electrical transformers. Under his personal direction, he then used Carolina Transformer employees and equipment to disassemble the transformers, which included removing the dielectric fluid from the transformers and burning the transformer coils to remove fluid-soaked paper. No tests were made to determine if the fluid contained polychlorinated biphenyls ("PCBs"). Burning the paper off the coils caused the North Carolina Air Pollution Control Board to visit the site. Repeated violations of state air pollution regulations resulted in a state penalty for Carolina Transformer.

After the paper was burned off, the coils and other salvageable metal were sold to scrap dealers in the southeast. Cash and checks amounting to several thousand dollars were made payable to Carolina Transformer and Dewey Strother for the sale of the metal. However none of the checks were deposited in the Carolina Transformer bank account.

In May, 1979, FayTranCo was incorporated in North Carolina by Kenneth Strother and Daniel Wiser, a Carolina Transformer employee, allegedly to manufacture new transformers. However for several years it surreptitiously operated as a division of Carolina Transformer performing repair and rebuilding work. Although it was originally located at 2706 Enterprise Avenue in Fayetteville, in April, 1981, construction of a new building was completed at 2816 Enterprise Avenue. At that time, many Carolina Transformer employees began working for FayTranCo.

Kenneth Strother was president, director, and owner of 50% of FayTranCo's stock. His sister, Sharon Peele, was an officer and owned the other 50% of the stock. Kenneth's stepmother, Sylvia Strother, oversaw the company's bookkeeping as she had done at Carolina Transformer. Although Dewey Strother was not a director or officer of FayTranCo, he owned the company's business location and had his own office at 2816 Enterprise Avenue. Dewey Strother maintained control of the company's operations.

In July, 1978, the State of North Carolina began receiving complaints from individuals living near the site. The residents were fearful that Carolina Transformer was contaminating their well water. The State Division of Environmental Management analyzed the water from wells surrounding the site, and found PCB carrier compounds in some of the wells. Residents were advised not to drink the water, and some residents were subsequently connected with city water. Carolina Transformer actually paid the cost of at least one resident's water connection. Subsequently Carolina Transformer retained an engineer to determine how to solve the PCB problem at the site. Although the engineer devised a plan of action, Carolina Transformer failed to take any corrective measures to prevent further contamination.

During the period from 1980 to 1984, Carolina Transformer moved the majority of its operation to the FayTranCo business location on Enterprise Avenue. Officers, directors, and employees of Carolina Transformer became officers, directors, and employees of FayTranCo. Accounts receivable of Carolina Transformer became accounts receivable of FayTranCo. Customers of Carolina Transformer became customers of FayTranCo. The companies began sharing the same telephone number and mailing address and performing work or services for each other. The bookkeeper of Carolina Transformer does not recall creating separate account books for FayTranCo at the time of this merger.

In January, 1983, the State of North Carolina advised Carolina Transformer that the State intended to proceed against the company for violations of the state PCB standards, and an administrative complaint was filed on August 23, 1984. On December 29, 1983, Carolina Transformer was, by default, assessed a civil penalty of $35,000 by the State for violations of State PCB water pollution control regulations. Carolina Transformer waived its right to an administrative hearing on the matter and requested that the state mitigate the penalty assessed. In support of its request for remission, Carolina Transformer stated that it had been advised by the EPA that the company would be held responsible for costs of cleaning up the Middle Road site. The company further stated that it "reasonably expects, based upon information and belief, that its financial liability under Section 107 of the Comprehensive Environmental Response, Compensation and Liability Act of 1980 will be an extremely large sum." Citing the recalcitrance of the respondent, the State Commission denied the company's request for remission on June 14, 1984.

The United States Environmental Protection Agency brought an administrative action against Carolina Transformer on March 7, 1984, for violations of TSCA regulations. Carolina Transformer also waived its right to a hearing in this matter. An administrative penalty of $26,000 was assessed against the company by default on September 19, 1984. Citing the company's failure to respond to the order, EPA began its cleanup of the Carolina Transformer site on August 12, 1984. The initial removal action was completed on August 22, 1984. In addition, Lumbee River Electric Membership filed a contract claim against Carolina Transformer in August 1983 and obtained a judgment on October 26, 1984.

In an attempt to defeat the claims of creditors or potential judgment creditors of Carolina Transformer, on September 26, 1984, the company transferred portions of its Middle Road business location to David Miller and Edward Pearson. Mr. Miller, a former employee of Carolina Transformer, was an employee of FayTranCo at the time. Mr. Pearson is Kenneth Strother's father-in-law.

Kenneth Strother incorporated Cumberland Electrical Repair on October 3, 1984. The company was created to take over the repair work of Carolina Transformer at the Middle Road site. Edward Pearson was the president,...