US v. Vertac Chemical Corp.

Decision Date09 September 1987
Docket NumberNo. LR-C-80-109,LR-C-80-110.,LR-C-80-109
Citation671 F. Supp. 595
PartiesUNITED STATES of America, Plaintiff, v. VERTAC CHEMICAL CORPORATION and Hercules Incorporated, Defendants. ARKANSAS DEPARTMENT OF POLLUTION CONTROL AND ECOLOGY, Plaintiff, v. VERTAC CHEMICAL CORPORATION and Hercules Incorporated, Defendants.
CourtU.S. District Court — Eastern District of Arkansas
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David Hird, Hazardous Waste Section, Land & Natural Resources Div., U.S. Dept. of Justice, Washington, D.C., Asst. U.S. Atty. Douglas Chavis, Little Rock, Ark., for U.S Phil Deisch (resigned) and Bruce Jones, Ark. Dept. of Pollution Control & Ecology, Little Rock, Ark., for Arkansas Dept. of Pollution Control and Ecology.

Allen Malone, Apperson, Crump, Duzane & Maxwell, Memphis, Tenn., Allan Gates, Mitchell, Williams, Selig Jackson & Tucker, Little Rock, Ark., for Vertac Chemical Corp.

Roxanne Jayne, Law Dept., Hercules, Inc., Wilmington, Del., Charles Schlumberger, Wright, Lindsey & Jennings, Little Rock, Ark., for Hercules, Inc.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

HENRY WOODS, District Judge.

FINDINGS OF FACT
I. The Corporate Structure of Vertac

1. Vertac ceased all of its manufacturing operations at its Jacksonville site in May 1986. From June 30, 1986, Vertac's business consisted of marketing agricultural chemical products. Vertac would purchase raw chemicals, formulate them into product and sell the product. Vertac would also buy formulated product and resell it.

2. Vertac had a supply contract with Dow Chemical, U.S.A. ("Dow") under which it would purchase raw product from Dow for resale, with the latter receiving a percentage of the resale proceeds and retaining a security interest in the materials.

3. In August 1986 Phoenix Capital Enterprises, Inc. ("Phoenix") acquired 100 per cent of Vertac from three Panamanian corporations. Phoenix is owned entirely by C.P. Bomar, Jr. who is its president and sole director. Ann Pekovich is secretary of Phoenix.

4. The minutes of a meeting of the shareholders of Vertac on September 15, 1986, called to fill vacancies on the Board of Directors, disclosed that the sole shareholder in Vertac was Phoenix who executed the minutes by its president, C.P. Bomar, Jr. The secretary was J.L. Hanna. At this meeting Bomar appointed J. Randal Tomblin and Raymond A. Guidi directors.

5. Vertac employed J. Randal Tomblin to serve as president for a two-year term, succeeding Bomar, who had served from 1980 until his resignation on June 30, 1986. Tomblin has served since July 1, 1986 at a salary of $117,500 plus a directors fee of $12,000 and an incentive bonus of $25,000. The contract of employment was executed on Vertac's behalf by Bomar, as Chairman of the Board. (PX 6).

6. On July 15, 1986 the officers of Vertac were as follows:

                           Name                                     Office
                     C. P. Bomar, Jr.                         Director
                           1119 Audubon Drive                 Chairman of the Board
                           Memphis, Tennessee 38117
                     J. R. Tomblin                            Director
                           2816 Hunter Forest Drive           President and
                           Germantown, Tennessee 38138        Chief Executive Officer
                     R. A. Guidi                              Director
                           232 South Highland — Apt # 805     Vice President of Operations
                           Memphis, Tennessee 38111
                     J. L. Hanna                              Vice President of Finance
                           2576 Shepherdwood Lane             and Secretary-Treasurer
                           Germantown, Tennessee 38138
                     G. T. Manley                             Vice President of Marketing
                           5193 Longmeadow
                           Memphis, Tennessee 38134
                     Anne Pekovich                           Assistant Secretary
                          385 North Highland — Apt # 4
                          Memphis, Tennessee 38122
                

(PX 7). Guidi retired in December of 1986.

7. In the latter part of 1986, Vertac's main offices were located in Suites 3121 and 3122 at the Clark Tower, 5100 Poplar Avenue in Memphis, Tennessee. Bomar and Pekovich, Bomar's secretary, were located in Suite 3121. The rest of Vertac's management were located in Suite 3122. Both suites were leased by Vertac. Phoenix's offices were also located in Bomar's office at Suite 3121.

II. Vertac's Plan to Avoid its Environmental Responsibilities

8. On October 2, 1986, Tomblin proposed a "Business Action Plan" to Bomar. Tomblin projected losses for fiscal year 1987 of $2,000,000 to $3,500,000 due in part to Vertac's environmental costs. Tomblin indicated that "it may become necessary to arbitrarily reduce spending at Jacksonville even though it will result in failure to comply with the Administrative Orders and RCRA regulations." (PX 13).

9. As part of the "Business Action Plan," Tomblin proposed to Bomar "the formation of a new marketing company to handle sales and administration of new and existing businesses." Tomblin explained:

First pass budgetary results show a high probability of future success if the high costs of continued environmental issues at Jacksonville are not included. The separation of the business should prevent the Jacksonville environmental issues from depleting the entire financial resources sic of the corporation. Vertac would become the Jacksonville plant and would have to rely on the income from the Trust Fund, fees paid by the new entity for the business, Hercules contributions, and Trust Fund principle sic.

(PX 13).

10. Bomar approved Tomblin's "Business Action Plan," on October 9, 1986. Bomar stated that:

It will be a difficult decision to arbitrarily reduce spending if such results in Vertac's failure to comply with the Administrative Orders and the RCRA regulations. Nevertheless, if such spending is being necessitated by the previously mentioned esoteric regulations, you may have no choice but to make this decision.

Bomar also stated that Tomblin's "comments on the new marketing company ... are in line with our previous thinking and discussions." (PX 14).

III. The Arrangement with Dow

11. As of September 23, 1986, Vertac's debt to Dow exceeded five million (PX 12) and on November 12, 1986 Dow demanded payment in full by December 12, 1986. (PX 16).

12. In late November 1986, Bomar and Tomblin met with Jerry Ytzen of Dow. Bomar explained the concept of forming a new company and that "Vertac would essentially become a site management company for Jacksonville." (PX 18).

13. On November 25, 1985, Tomblin and Hanna met with Dow representatives. Dow expressed concern because $2 million of the $5 million owed by Vertac was unsecured and requested payment in full. Tomblin described the concept of a new company taking over Vertac's businesses. The Dow representatives said they "definitely wanted any new arrangement to be with a new company rather than with Vertac because they were concerned that any collateral they had might be lost in bankruptcy because of priority claims of the EPA." No resolution was reached at the meeting. (PX 19).

14. On December 2, 1986, Dow notified Vertac of the default in its Supply Agreement and Security Agreement and demanded payment in full of the outstanding $5.2 million debt by December 18, 1986. (PX 20 and 21).

IV. InterCapital and Inter-Ag

15. Bomar on December 4, 1986 incorporated InterCapital Industries, Inc. ("Intercapital") as a wholly owned subsidiary of Phoenix with Bomar as president and sole director and Hanna as secretary-treasurer. (PX 23, 24 and 24A).

16. On the same day, December 4, 1986, Bomar incorporated Inter-Ag Corporation ("Inter-Ag") as a wholly owned subsidiary of InterCapital, and Bomar was appointed as sole director. (PX 22).

17. Inter-Ag held an organizational meeting on the next day, December 5, 1986, and designated the following officers: Bomar, president; Tomblin, executive vice president; Manley, vice president; and Hanna, vice president and secretary-treasurer. Subsequently Pekovich was made assistant secretary. (PX 22 and 24).

18. InterCapital's initial capitalization was $9000; Inter-Ag's initial capitalization was $1000, which came out of the $9000 initial investment in InterCapital. (PX 22, 23 and 55). There has been no further infusion of capital into these companies by the parent Phoenix except through loans. (PX 51 and 55).

19. In addition to owning 100 percent of Inter-Ag, InterCapital owns 100 percent of Fluoropak Container Corporation and 80 percent of International Business Centers, Inc.

V. Vertac and Inter-Ag's Relationship with Dow

20. According to notes which are made an exhibit, Bomar and Tomblin met with Dow officials on December 16, 1986 and made the following representations to them: (1) Bomar owns Vertac; (2) the Panamanians no longer have ownership involvement (actually the Panamanian corporations were the preferred stockholders of Phoenix who owned all the stock in Vertac); (3) a new company is needed to carry on the continuing business of Vertac "because of EPA problems"; (4) Inter-Ag has entered into an agreement to acquire the agricultural chemical business of Vertac and requested Dow's consent to the assignment of the contract; and (5) Inter-Ag requested certain arrangements about its debt to Dow. (PX 26).

21. Dow was not satisfied by the December 16 meeting and on December 18 demanded payment in full. (PX 28).

22. Bomar and Tomblin continued to propose that Dow enter into a supply agreement with Inter-Ag, and on December 19, Bomar proposed to Dow that it supply product to Inter-Ag on the same terms as Vertac, pending assignment of the supply contract from Vertac to Inter-Ag. (PX 29 and 30).

23. On December 23, 1986, Dow notified Vertac that its supply agreement was terminated effective December 24. (PX 31 and 32).

24. On December 31, 1986, Bomar resigned as chairman of the board of Vertac, but continued as president and sole director of Vertac's parent, Phoenix. In his letter of resignation, Bomar...

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