Opinion
Cv-93-527-JD.
October 31, 1994
Order
Presently before the court is defendant, David D. Hurlin's Motion for Summary Judgment.
I) History of Case
Plaintiff Chicago Cutlery, Inc. (Chicago) filed the present action seeking damages and recovery of costs it has incurred and will continue to incur to remediate soil and groundwater contamination associated with the manufacturing site (the Site) located in Antrim, N.H. The Environmental Protection Agency inspected the Site on June 30, 1993, finding heavy metals, including chromium and lead, in soil samples taken from both banks of the Great Brook, a stream which flows through the Site. Chicago contends that Goodell Manufacturing (Goodell), a prior owner/operator of the site which manufactured kitchen cutlery, putty knives, scrapers and other items for more than 100 years, used various solvents and lacquers and generated hazardous wastes, which were deposited onto the bank of and into the Great Brook.
Defendant David D. Hurlin (Hurlin) first became employed by Goodell in 1946, working in the packing and press room, then as a sales understudy, sales manager and clerk. He was eventually elected to the Board of Directors and in 1965 replaced his father as Chief Executive Officer (CEO). Hurlin served as director and CEO until 1981.
In 1981, Strombeck Manufacturing Company (Strombeck) purchased all 360 issued and outstanding shares of capital stock of Goodell pursuant to a Stock Purchase Agreement dated August 20, 1981 (Agreement). At that time Hurlin owned the majority of Goodell stock, equal to approximately 150 shares. (See Doc. 14 Exhibit 1, p. 141, Exhibit 3). Goodell was dissolved on February 26, 1982. (See Doc. 14, Exhibit 4). Chicago claims that Hurlin, as CEO, director and shareholder of Goodell, actively directed and participated in the daily operations at the site which led to its contamination and that he was in a position to control and direct hazardous substances handling and disposal practices at the site. Chicago claims that because of his authority and control, Hurlin is liable for response and cleanup costs pursuant to the Comprehensive Environmental Response, Compensation And Liability Act, (CERCLA), 42 U.S.C. ùù 9601 et. seq., as one who "owned or operated [a] facility at which hazardous substances were disposed of". 42 U.S.C. ù 9607(a)(2). Chicago admits its own liability under CERCLA as the current owner of the site. 42 U.S.C. ù9607(a)(1).
In his motion for summary judgment, Hurlin asks the court to find as a matter of law that Chicago is liable under CERLCA as a successor corporation. Hurlin claims that Goodell has evolved into Chicago Cutlery, Inc. via the Agreement between Strombeck and Goodell and various subsequent consolidations and/or mergers. Hurlin also contends Chicago, as successor to Goodell, is liable for claims now made against Hurlin for his conduct while employed by Goodell, based upon indemnification language contained in Goodell's by-laws.
Chicago objects to Hurlin's motion claiming that the issue of successor liability is irrelevant because Chicago admits liability as current owner of the Site. Chicago contends that it is not obligated to indemnify Hurlin for his share of the clean up costs by virtue of the by-laws of Goodell because Goodell is a dissolved corporation. Therefore, Chicago continues, any claim Hurlin may have had against Goodell is now barred by N.H. Rev. Stat. Ann. ù 293-A:106 entitled "Survival of Remedy after Dissolution". Arguing in the alternative, Chicago contends that even if Hurlin's claim was timely, he would still not be entitled to indemnification because the by-laws did not establish an absolute and automatic right to indemnification. Lastly, Chicago claims that Hurlin's claim to indemnification under Goodell's by-laws fails as a matter of law because Chicago is not a successor to Goodell.
II) Discussion
Summary judgment under Fed.R.Civ.P. 56(c) is proper only if, viewing the record in the light most favorable to the non-moving party, the documents on file disclose no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Oliver v. Digital Equipment Corp., 846 F.2d 103, 105 (1st Cir. 1988). "Only disputes over facts that might affect the outcome of the suit" are material. Anderson v. Liberty Lobby Inc., 477 U.S. 242, 248 (1986). A dispute over a material fact is genuine "if the evidence is such that a reasonable jury could return a verdict for the non-moving party." Id.; Oliver, 846 F.2d at 105. The moving party initially must "demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Once the moving party has made the required showing, the adverse party must "go beyond the pleadings" and designate specific facts to demonstrate the existence of a genuine issue for trial. Fed.R.Civ.P. 56(e); Oliver, 846 F.2d at 105.
i) Application of Successor Liability under CERCLA
As stated above, Hurlin asks this court to apply successor liability to the instant case and find Chicago liable under CERCLA as successor to Goodell. When applying the doctrine of successor liability under CERCLA "the court must do so `in such a fashion as to further the goals of [CERCLA].'" Kleen Laundry Dry Cleaning v. Total Waste Management, 817 F. Supp. 225, 231 (D.N.H. 1993) (quoting United States v. Distler, 741 F.Supp. 637, 642 (W.D. Ky. 1990). "While successor liability is permitted under CERCLA, it is not required unless justified by the facts of each case." United States v. Carolina Transformer Company, 978 F.2d 832, 837 (4th Cir. 1992).
[CERCLA] views response liability as a remedial, rather than a punitive measure whose primary aim is to correct the hazardous condition. Just as there is liability for ordinary torts or contractual claims, the obligation to take necessary steps to protect the public should be imposed on a successor corporation.
Expenses can be borne by two sources: the entities which had a specific role in the production or continuation of the hazardous condition, or the taxpayers through federal funds. CERCLA leaves no doubt that Congress intended the burden to fall on the latter only when the responsible parties lacked the wherewithal to meet their obligations.
Congressional intent supports the conclusion that, when choosing between the taxpayers or a successor corporation, the successor should bear the cost. Benefits from the use of the pollutant as well as savings resulting from the failure to use non-hazardous disposal methods inured to the original corporation, its successors and their respective stockholders and accrued only indirectly, if at all, to the general public. We believe it in line with the thrust of the legislation to permit — if not require — successor liability under traditional concepts.
Smith Land and Improv. Corp. v. Celotex Corp., 851 F.2d 86, 91-92 (3rd Cir. 1988), cert. denied, 488 U.S. 1029, 109 S.Ct. 837, 102 L.Ed.2d 969 (1989)) (quoted in Kleen Laundry, supra at 231) See also United States v. Distler, 741 F.Supp. at 641-42 (citing Smith Land with approval).
In determining whether to apply successor liability, the district court in In Re Acushnet River New Bedford Harbor, 712 F. Supp. 1010 (D.Mass 1989) stated:
. . . [i]n the absence of successor liability, the government may find itself without any practical recourse against polluters where, as here, the predecessor corporation is long disbanded, its assets long disbursed, and its shareholders difficult if not impossible to locate should they be held personally liable in any way.
Id. at 1014.
The above quoted material indicates that successor liability is imposed under CERCLA to prevent the imposition of clean up costs on the general public, by holding liable those responsible for creating or continuing the hazardous condition, since they benefited from such action. In this case, Chicago, the present owner of the site, admits its liability under CERCLA. Chicago claims that Hurlin is a responsible party under CERCLA, as a past owner or operator. Should Chicago fail to persuade this court that Hurlin should be held liable for clean up costs at the site, Chicago, not the general public, will bear such costs. Moreover, if Hurlin is found to be an owner or operator of the site, liability may be imposed upon him under CERCLA. ùù9607(a)(2), 9613(f). The facts of this case do not justify the application of successor liability.
If the court imposes liability on Hurlin as owner or operator of the site it would merely be "following the Congressional policy that those who plant their polluted seed should pay for the fruit they bear". United States v. New Castle County, 727 F.Supp. 854, 866 (D.Del. 1989) (citing United States v. Mottolo, 629 F.Supp. 56 (D.N.H. 1984); See also United States v. Carolina Transformer, 978 F.2d at 840 (those responsible for disposal of hazardous wastes, should bear cost of remedying pollution). The use of pollutants as well as savings resulting from the failure to use non-hazardous disposal methods would have "inured to" Goodell and its stockholders, the majority stockholder being Hurlin. Smith Land Improvement Corp., 851 F.2d at 92. Were the court to comply with Hurlin's request and apply successor liability here it would be allowing Hurlin, a potentially responsible party, to evade his responsibility under CERCLA.
(ii) Hurlin as Owner or Operator of the Site
Chicago claims that Hurlin is personally liable under CERCLA as an owner or operator of the site, 42 U.S.C. ù 9607(a)(2). CERCLA imposes liability on "any person who at the time of disposal of any hazardous substance owned or operated any facility at which such hazardous substances were disposed of", 42 U.S.C. ù 9607(a)(2), for costs of removal remediation, and any other costs of response incurred by the government or other persons. 42 U.S.C. ù 9607(a)(A), (B). "[A]n owner or operator is strictly liable for costs incurred in responding to the release of hazardous substance at the facility, subject only to the defenses set forth in ù 9607(b)." United States v. Carolina Transformer Company, 978 F.2d at 836. Those defenses are inapposite to this case.
The following facts are gleaned from the record. Hurlin was CEO, President and director of Goodell from 1965 to 1981. He was also a majority stockholder of Goodell, receiving $1.5 million at the time of its sale to Strombeck. He stated that during his tenure as CEO he "had full responsibility" for the company, including environmental matters, (Doc. 14 Exh. 1, p. 100), while the day-to-day operations of such matters were delegated to Ted Boorum and Pete Boorum, the superintendent and production managers of Goodell. (Doc. 14 Exh. 1 p. 16, 24, 100) Hurlin had daily meetings with the Boorums concerning everything that pertained to the business. (Doc. 14 Exh. 1, 2nd deposition pp. 42-43) Hurlin had authority to tell the Boorums what to do and Hurlin was consulted before they made any changes in the process. (Doc. 14 Exh. 1, 2nd deposition p. 43) Hurlin had knowledge that "swarth" was being dumped on the ground, in the brook or alongside the brook, (Doc. 14 Exh. 1, pp. 19-20), up until sometime, possibly the 1970s, when a sewer was put in at the site. (Doc. 14 Exh. 14, pp. 18, 21, 51) During the time he was CEO of Goodell, Hurlin was aware of the fact that up until the sewer was installed, human waste and grinding waste went into the brook. (Doc. 14 Exh. 1, pp. 66-67) Yet he also stated that he would be surprised if he were told that waste products went into the brook. (Doc. 13 Exh. F, p. 145) He was aware of an exhaust pipe that ran from a building on the premises to the brook which carried wood, steel, brass and grinding from painter's tools. (Doc. 14 Exh. 1, pp. 67-68) Hurlin never received any report that grinding sludge or scum from lead pots or any other waste were thrown into the brook. (Doc. 13, Exh. F, p. 144)
Based on the above facts, the court finds that Hurlin had authority to control the manner of disposal of certain substances at the site during the period from 1965 through 1981. However, the court cannot determine Hurlin's liability under CERCLA as an owner or operator of a site "at which hazardous substances were disposed of" since there is nothing in the record to indicate the substances were hazardous materials. 42 U.S.C. ù 9607(a)(2). Hurlin contends he "was not personally responsible for the disposal of hazardous waste on the site nor did he personally dispose of any such waste". (Doc. 13 Exh. L, p. 2) However, the analysis of several courts in determining whether to hold a corporate individual personally liable under CERCLA has focused not on whether that person was "personally involved in the actual decision to . . . dispose of the hazardous substances . . . [but rather on whether that person] was in charge of and directly responsible for all of [the] operations and . . . had the ultimate authority to control the disposal of . . . hazardous substances". Kelley v. Thomas Solvent Company, 727 F.Supp. 1554, 1561 (W.D.Mich 1989) (quoting United States v. Northeastern Pharmaceutical Chemical Co., 810 F.2d 726, 744-45 (8th Cir. 1986) (also citing United States v. Mottolo, supra); See also Kelly, 727 F. Supp. at 1061 ("vital factor [is whether] `the corporate official is in charge of the operation of the facility in question, and as such is an `operator' within the meaning of CERCLA'".) (quoting New York v. Shore Realty, 759 F.2d 1032, 1052 (2d Cir. 1985).
III) Applicability of Goodell by-law Indemnification Clause Hurlin argues that even if he is liable as an owner or operator, Chicago as Goodell's corporate successor, is bound by the by-laws of Goodell, which contained an indemnification provision for its officers and directors. The by-law states in relevant part:
The Company shall indemnify and reimburse any person made a party to or threatened with or involved in any action, suit or proceeding by reason of the fact that such person . . . was or is a Director, officer or employee of the Company . . . for expenses, including attorneys' fees and such amount of any judgment, money, decree, fine penalty or settlement for which he may have become liable as the Board of Directors deems reasonable, actually incurred by him in connection with the defense or reasonable settlement of any such action, suit or proceeding or any appeal thereon, except in relation to matters as to which such person . . . is finally adjudged to not have acted in good faith in the reasonable belief that his action or failure to act was in the best interests of the Company . . . Determinations with respect to indemnification and reimbursement of a person (unless ordered by a court) shall be made by the Company's Board of Directors acting (1) by majority vote of a disinterested quorum of Directors or (2) if such quorum is not obtainable, as directed by a majority vote of a disinterested quorum of the holders of the outstanding stock at the time entitled to vote for Directors, voting as a single class . . . The Board of Directors shall take such action as it may determine to be appropriate for the purpose of implementing the provisions of this By-law and applicable law.
(Doc 13, Exhibit K, Article II, para. (e))
Interpretation of the language of by-laws is a matter of law for the court to decide. 18A Am. Jur. 2d Corporations ù 323, p. 235. By-laws of a corporation constitute a binding contract as between the corporation and its members and as between members and themselves. 18 Am. Jur. 2d Corporations, ù 310, p. 221; ER Holdings, Inc., v. Norton Co., 735 F.Supp. 1094, 1097 (D.Mass 1990). They are binding on persons who have knowledge of them. Id. at ù 325. Contracts entered into by a corporation "prior to its dissolution survive unless the circumstances are such that the contract must have contemplated its termination on the corporation's dissolution". 19 Am. Jur. 2d Corporations ù 2888, p. 668; See also Fletcher's Cyclopedia Corporations, ù 7115, p. 206-207 (rev'd ed. 1990) (one year term of office for secretary provided in by-laws, subject to removal by directors, terminates on sale of business by corporation and vendee not liable for salary for unexpired term).
The indemnification clause at issue, by its terms, presupposes the continued existence of Goodell and its Board of Directors, in whose hands the determination to indemnify Hurlin rested. That Board never made any such determination. Goodell was dissolved on June 25, 1982, Doc. 14, Exhibit 4, at which point the by-laws ceased to have any legal effect. In the Agreement between Goodell and Strombeck, Strombeck did not agree to indemnify Hurlin in accordance with the by-law indemnification clause. Therefore, Hurlin's claim for indemnification must have been brought, if at all, within three years of the date of dissolution i.e., before June 25, 1985. See N.H. Rev. Stat. Ann. ù 293-A:106.
Hurlin contends that as Goodell's corporate successor, Chicago inherited Goodell's duty to indemnify him and since Chicago exists as a corporate entity, RSA ù 293 does not bar his right to indemnification. Case law submitted by Hurlin's counsel in support of imposing successor liability under the facts of this case is inapposite. In United States v. Lowe, No. 93-2634, 63 U.S.L.W. 2120 (5th Cir. 1994), the issue was whether a corporation is required by its own by-laws to indemnify an officer/director for his liability under CERCLA. Bowen Engineering v. Estate of Reeve, 799 F. Supp. 467 (D.N.J. 1992) is also distinguishable factually as it involved the by-laws of a successor corporation which provided indemnification for officers and directors of a predecessor corporation.
Assuming for the sake of argument that Chicago is a corporate successor to Goodell, the enforceability of by-law indemnification rights against a successor corporation is doubtful, at best. See Corporate Indemnification and Liability Insurance for Directors and Officers, The Business Lawyer, Vol. 33, p. 2000 (April 1978) (there is some doubt as to the enforceability of indemnification rights by officers or directors of a disappearing corporation against a surviving corporation). One article recommends that a by-law contain language stating that a subsequent repeal or modification will not diminish an officer's or director's indemnification rights. See Protecting Corporate Directors and Officers:
Indemnification, 40 Vand. L. R. 737, 762-63 (1987). In the absence of a provision protecting indemnification rights "a director or officer would have to rely on equitable doctrines . . . to avoid being disadvantaged by a change in control". Id. at 763, n. 129.
Under the facts of this case, where there is no language within the by-law protecting Hurlin's indemnification rights after repeal or modification of the by-law or a change in control and where the Stock Purchase Agreement does not state that Strombeck agreed to indemnify Hurlin in accordance with the by-law, the court concludes that the indemnification clause is unenforceable against Chicago. Therefore, Hurlin's claim for indemnification based upon the by-laws of Goodell must fail.
IV) Indemnification Agreement Between Strombeck and Goodell
Section 14 of the Agreement between Strombeck and Goodell, entitled" Indemnification by David D. Hurlin, President and Chief Executive Officer", provides that Hurlin shall indemnify the Buyer for 6 (six) years after the closing date from and against losses, damages, costs, etc . . . resulting from either a breach of warranty contained in the agreement and any product liability claims. See Doc. 13, Exh. A, ù14, p. 33. Hurlin, relying on this clause, states that six (6) years have passed since the Agreement was executed and that Chicago has no other basis for its indemnity claim against him. Contrary to Hurlin's contention, Chicago is not seeking indemnification pursuant to ù 14 of the Agreement. Chicago's complaint clearly indicates that it is seeking indemnification under 42 U.S.C. ù 9613(f), which allows one to seek contribution from another person who is liable under ù 9607(a). This court has determined that Hurlin may be liable under ù 9607(a)(2). The indemnification agreement between Strombeck and Goodell is irrelevant and does not bar Chicago's indemnification claim.
V) Conclusion
The facts of this case do not justify application of successor liability. No matter what the outcome as to responsibility for clean up costs, a private party, not the federal taxpayers, shall bear those costs. The impetus for employing successor liability does not exist in this case.
The deposition testimony of David Hurlin reveals that he was responsible for all operations at the site and had ultimate authority to control the manner in which certain substances were disposed of during his reign as CEO, President and director of Goodell. Absent from the record is any evidence indicating the hazardous or non-hazardous characteristics of these substances. Therefore, the court is unable to determine Hurlin's status as owner or operator of the site under 42 U.S.C. ù 9607(a)(2). The indemnification clause contained in Goodell's by-laws is unenforceable against Chicago and does not shift liability from Hurlin to Chicago.
Chicago's claim for indemnification against Hurlin is based on 42 U.S. C. ù 9613(f). The indemnification agreement between Strombeck and Goodell is irrelevant and does not bar that claim. Defendant's Motion for Summary Judgment is denied.