Seventh Circuit Court of Appeals Commentary : In Their Opinion : Lawyer & Attorney Michael E. Rigney : Kelley Drye & Warren Law Firm

SIERRA CLUB v. KHANJEE HOLDING (US) (August 24, 2011)

Franklin County Power wanted to build a coal power plant in southern Illinois. It applied to the Illinois Environmental Protection Agency for a permit in 2000. The EPA issued the permit. By its terms, the permit would become invalid if construction was not commenced within 18 months. Khanjee Holding became lead developer for the project in 2002. The project was delayed due to collateral disputes. In late 2004, the EPA determined, at least on a preliminary basis, that the permit had expired. Sierra Club filed suit to prevent construction of the power plant. The district court granted the motion for summary judgment and enjoined construction. The Seventh Circuit affirmed (opinion and intheiropinion), concluding that Sierra Club had standing to sue, that the defendants failed to commence construction within the required 18 months, and that the permit had expired. Sierra Club sought penalties and fees in the district court. Judge Gilbert (S.D. Ill.) imposed a $100,000 statutory penalty and awarded attorneys fees and costs. Khanjee appeals.

In their opinion, Seventh Circuit Judges Bauer, Ripple, and Williams affirmed. The Court first addressed Khanjee's challenge to subject matter jurisdiction under the Clean Air Act. It noted that it had decided the jurisdictional issue in the first appeal and that it had become the law of the case. It rejected Khanjee's argument that the doctrine did not appy to subject matter jurisdiction, although it recognized some earlier precedents that suggested as much. On the merits, the Court concluded that Khanjee had waived its constitutional violation claims and was left only with its claim that its relationship with the other original defendants was insufficient to support a penalty. The Court rejected that argument both on the law of the case doctrine and, alternatively, on the merits. Even if, as Khanjee argues, the Claim Air Act citizen suit provision allows an action only against an owner or operator, Khanjee exercised enough control over the project that it can be considered an owner or operator. With respect to the size of the penalty, the Court concluded that the district court considered all the appropriate factors and imposed a reasonable penalty. Finally, the Court found that the district court did not abuse its discretion in awarding fees and costs. It rejected Khanjee’s argument that a court should not award fees to "well-funded" parties.

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UNITED STATES v. GEORGE A. WHITING PAPER CO. (May 4, 2011)

The Fox River flows through central and eastern Wisconsin. The river is heavily contaminated with PCBs. The most prevalent PCB is Aroclor 1242 but the river also contains Aroclor 1254 and 1260. The United States brought suit under CERCLA against 11 potentially responsible parties, including Appleton Papers Inc. and NCR, in 2009. Appleton and NCR are currently involved in a cleanup at the river and are seeking contribution from many other PRPs. The United States filed suit against several de minimis defendants and provided notice of proposed settlements. Appleton and NCR objected. After revising one settlement upward based on the objection, the United States moved for approval of the settlements. Appleton and NCR intervened. Judge Griesbach (E.D. Wis.) approved the settlements. Appleton and NCR appeal.

In their opinion, Circuit Judges Kanne and Tinder and District Judge Herndon affirmed. The Court first noted its "double dose" of deference. The district judge should approve the settlement if it is fair and reasonable and consistent with CERCLA. The Court, in turn, reviews that decision for an abuse of discretion only. The Court first concluded that there was a substantial amount of information in the record which provided a rational basis for the district court's conclusion. The Court then rejected, simply because it was false, appellants' contention that the government's comparative fault analysis did not include all PCB discharges. Finally, the Court concluded that Appleton and NCR failed to meet their "heavy burden" of showing that the government was wrong in its toxicity calculations. The district court did not abuse its discretion in finding those calculations reasonable.

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ADKINS v. VIM RECYCLING, INC. (May 3, 2011)

VIM Recycling operates a waste dump in Elkhart, Indiana. It entered into an Agreed Order with the Indiana Department of Environmental Management in 2007 relating principally to the removal of certain waste it referred to as "C" grade waste. When VIM did not comply with the order by the September 2008 deadline, IDEM sued them in state court. A group of area residents attempted to intervene and expand the scope of the lawsuit beyond "C" waste. They also sought damages. When the state court judge limited their intervention to the original scope of the lawsuit, they withdrew their claims. Instead, in October, they brought a RCRA suit in federal court, after providing the required notice and waiting the required time period. Their federal suit included claims relating not only to "C" waste, but also to “A”, “B”, and “C&D” wastes. It sought relief both under RCRA’s "violation" provision, alleging that VIM violated several Indiana regulations, and under RCRA’s "endangerment" provision, alleging that the VIM waste site presented an imminent and substantial danger. About a month later, IDEM brought a second lawsuit in state court, this one relating to "B" waste. VIM moved to dismiss the RCRA "violation" action on the grounds that RCRA prohibited a private action when the state is diligently prosecuting an action. VIM also asked for abstention under both Burford and Colorado River. Chief Judge Simon (N.D. Ind.) agreed, dismissed the "violation" count, and abstained on the "endangerment" count. Plaintiffs appeal.

In their opinion, Circuit Judges Ripple (concurring in part and dissenting in part) and Hamilton and District Judge Murphy reversed and remanded. The Court first addressed the "violation" count and the statutory bar. The Court corrected the parties’ treatment of the issue as jurisdictional, noting the Supreme Court's recent reminders to distinguish between truly jurisdictional rules and other, claims-processing rules. The RCRA statutory bar is a claims-processing rule. On the merits, the statutory bar prohibits the commencement of an action if a state "has commenced and is diligently prosecuting" an action requiring compliance with the same standard or regulation. The Court concluded that neither IDEM action totally barred the private action. The second action was not "commenced" at the time of the federal action so it cannot bar the action. The first action was commenced before the federal action so it bars the federal action -- but only to the extent that the claims overlap. The RCRA plaintiffs’ "C" claims were properly dismissed but the plaintiffs' other claims with respect to other types of waste can be pursued. The Court turned to the two abstention doctrines at issue in the case. Although the Court noted that it was applying an abuse of discretion standard of review, it also noted that federal courts have a "virtually unflagging obligation" to exercise their jurisdiction and should not abstain from doing so except in exceptional circumstances. Colorado River abstention comes into play when there are parallel state and federal proceedings and judicial economy supports abstention. But there must be both parallel proceedings and exceptional circumstances. Here, the Court found neither. The parties are not the same, the claims are not the same, and the state court case would not dispose of the federal case. Furthermore, Congress, in enacting RCRA, expressly contemplated simultaneous federal and state court proceedings. The Court concluded that the district court did abuse its discretion in adopting Colorado River abstention. Burford abstention, on the other hand, comes into play when a federal proceeding could be disruptive to a coherent state policy on a matter of public concern. But the Court noted that Burford abstention requires a state forum with specialized expertise. Since the IDEM cases are proceeding before a court of general jurisdiction, Burford abstention simply does not apply.

Judge Ripple concurred with most of the majority's conclusions but dissented with respect to Colorado River abstention. He believed that the simultaneous proceedings were a "recipe for delay, confusion, and wasted judicial resources" and satisfied the requirements for Colorado River abstention.

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UNITED STATES v. CINERGY CORP. (October 12, 2010)

Cinergy Corp. (and its affiliates) owns several electric power plants in the Midwest. Years ago, the U.S. EPA charged Cinergy with violations of the Clean Air Act at several of its facilities. Specifically, the agency alleged that the company made "major" modifications that resulted in increased nitrogen oxide and sulfur dioxide emissions without obtaining a permit. In an earlier appeal, the Seventh Circuit held that the federal regulation at issue required emissions to be measured on an annual, rather than an hourly, basis. On remand to Judge McKinney (S.D. Ind.), the case was tried. A jury found that four of the alleged modifications were likely to have increased the sulfur dioxide and nitrogen oxide annual emissions and should have been permitted. Cinergy appeals.

In their opinion, Chief Judge Easterbrook and Judges Posner and Rovner reversed. The Court addressed the verdict with respect to the two pollutants separately. With respect to sulfur dioxide, Indiana's implementation plan in effect at the time of the modifications did use hourly capacity rather than annual emissions to determine the necessity of a permit. This was true even though: the federal statute and regulation defined it otherwise, Indiana had agreed to revise its plan, and Indiana had actually adopted appropriate amendments to its plan -- but it failed to submit the plan for approval for several years. The Court concluded that Cinergy could not be held liable when it complied with the approved Indiana plan. With respect to nitrogen oxide, the parties agree that the annual emissions standard governs. Here, Cinergy attacks the agency's experts and the formula they used to predict those annual emissions. In effect, the expert witnesses testified that an increase in capacity would result in an equal increase in generation and pollutant emissions. The Court concluded that that formula was only appropriate in the case of a baseload generating plant, which is in almost continuous operation. It did not take into consideration the operational differences between baseload, cycling, and peaking plants. The plant at issue is a cycling plant and operated on a regular, although not continuous, schedule. Although there are methods for predicting annual emissions from a cycling plant, the Court concluded that a remand was not necessary. The agency conceded that it could not prove its case if the expert testimony was disallowed.

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MCEVOY v. IEI BARGE SERVICES (September 7, 2010)

IEI Barge Services (Services) is a bulk material handler with a facility on the banks of the Mississippi River in East Dubuque, Illinois. Among other materials, Services handles coal, receiving it from train cars and loading it onto river barges. Several of Services' neighbors, including Charles McEvoy, complained that the coal-handling activity releases coal dust which, in turn, is blown onto their properties. McEvoy filed suit in early 2006 under the citizen-suit provisions of the Clean Air Act. Other neighbors filed similar suits in early 2007. The theory of recovery in both suits is that Services' violation of two Illinois environmental regulations provided plaintiffs with a remedy under the Act. Judge Kapala (N.D. Ill.) granted summary judgment to Services in both cases. The plaintiffs appealed -- the appeals were consolidated.

In their opinion, Chief Judge Easterbrook and Judges Bauer and Wood affirmed. The Court turned its attention to the Act. The citizen-suit provision of the Act permits a private action against a person who is alleged to have violated "an emission standard or limitation under this chapter." Under the definition of that phrase, the enforceable standards and limitations are (as is relevant to the appeal): a) an "emission limitation, standard of performance or emission standard," and b) "any other standard, limitation, or schedule established under any permit issued pursuant to [another section of the Act] or under any applicable State implementation plan." In order to be enforceable under the Act, therefore, the Illinois regulations at issue must qualify under one of those two definitions. Before proceeding to an application of the Act to the regulations, the Court expressed its disagreement with the district court's interpretation of the second prong. The district court found that the phrase was ambiguous and concluded that the better reading was that it allowed enforcement only of a standard contained in a permit -- as opposed to a standard contained in a permit or a State implementation plan. The Court found that the statute was not ambiguous and that the natural reading allowed for enforcement of a standard contained in a permit or a State implementation plan. The first regulation the plaintiffs seek to enforce is entitled "Prohibition of Air Pollution" and, in the Court's words, says little more than "thou shall not pollute." The Court concluded that this "broad, hortatory statement" does not qualify as a standard or limitation enforceable under the Act. The second regulation, the "Fugitive Particulate Matter" regulation, presented a closer question. The regulation contained more specifics than the general prohibition, but fell far short of other highly specific standards contained in Illinois' regulations. The Court referred to some of the undefined words in the regulation: "visible," "an observer," "looking generally," "at a point beyond," etc. The Court noted that other Illinois regulations contain more specific metrics subject to objective measurement. The Fugitive Particulate Matter regulation does not. Finding no additional guidance or definitions to guide its interpretation, he Court concluded that the regulation could not be enforced through the Act.

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HABITAT EDUCATION CENTER v. U.S. FOREST SERVICE (June 29, 2010)

The federal government has been managing over 1,000,000 acres of forest in the Chequamegon-Nicolet National Forest in northern Wisconsin for almost 100 years. In the last eight years, the U.S. Forest Service has proposed 17 different timber sale projects. Habitat Education Center has administratively challenged almost every project. One of those projects is the Twentymile sale, announced in 2004, covering almost 9,000 acres. The Center argued that the sale, particularly in conjunction with a prior sale on immediately adjacent property, would have a negative impact on wildlife. The Forest Service authorized the project in February of 2007 over the Center's objections. The Center's administrative appeal was also unsuccessful. They filed suit in June 2007, contending that the Forest Service' environmental impact statement failed to consider the cumulative impacts of "past, present, and reasonably foreseeable future actions," in violation of the National Environmental Policy Act (NEPA). In November of 2008, just before argument on cross motions for summary judgment, the Forest Service announced another sale, the Twin Ghost project, on immediately adjacent property. Judge Adelman (E.D. Wis.) asked for supplemental briefing but ultimately concluded that the project was not "reasonably foreseeable" under NEPA at the time of the Twentymile project authorization and granted summary judgment to the Forest Service. The Center appeals.

In their opinion, Circuit Judges Flaum and Wood and District Judge St. Eve affirmed. The Court first addressed the Forest Service's argument that the Center forfeited any claim with respect to the Twin Ghost project by not raising it in the administrative process. Instead of addressing the Center's possible forfeiture, the Court concluded that the Forest Service waived the forfeiture argument by not raising it sufficiently in the district court in the supplemental briefing. On the merits, the Court noted that several of its sister circuits (specifically citing cases from the 1st, 3rd, 9th, and 11th) have held that the effects of a contemplated project need not be discussed if there is not yet a meaningful basis for assessing the impact of the project. The Court concurred with that approach. At the time the Twentymile project was approved, the Service had not even identified the goals of the Twin Ghost project. Of course, as the Court noted, the Twin Ghost project assessment must include a thorough analysis of the cumulative effects of the Twin Ghost and Twentymile projects. Any negative cumulative effects can be addressed during that process. Finally, the Court did concede that the better practice would have been for the Service to disclose the current state of contemplated future projects, even if a thorough analysis was not possible.  

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UNITED STATES v. APEX OIL CO. (August 25, 2009)

Years ago, a corporate predecessor of Apex Oil Co. owned a refinery near Hartford, Illinois. According to the EPA, the operation of the refinery contributed to the contamination of the groundwater in the area. The United States brought an action, pursuant to the Resource Conservation and Recovery Act (RCRA), for an injunction to require Apex to clean up the site. Apex argued that its earlier discharge in bankruptcy relieved it of any cleanup obligation. The district court issued the injunction. Apex appeals.

In their opinion, Judges Cudahy, Posner and Kanne affirmed. The Court identified the principal issue on appeal as whether the government's claim for the injunction was discharged in bankruptcy. Under the bankruptcy laws, the Court stated that a debtor is discharged from any "liability on a claim." A "claim" is further defined as a "right to payment" or a "right to an equitable remedy for breach of performance if such breach gives rise to a right to payment." The Court concluded that the natural reading of the bankruptcy provision is that an equitable claim is dischargeable if the holder can obtain a money judgment in lieu of the injunction under certain circumstances. Here, however, the statute under which the government sought the injunction (RCRA) does not authorize any form of money judgment -- the only remedy available to the government is a cleanup order. The fact that the cleanup order would require a significant payment by Apex did not convert the injunction into a money judgment. The Court distinguished the Supreme Court's opinion in Kovacs. In Kovacs, the plaintiffs were seeking money from the debtor. Apex also challenged the injunction itself on vagueness grounds. The Court actually agreed that the injunction was vague and that it has in the past insisted on compliance with the requirement that an injunction describe in some reasonable detail the acts required. However, the Court concluded that that policy applies when compliance with the rule is feasible. Here, the subject of the injunction is a complicated refinery remediation. In such cases, more leeway is necessary.

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FRIENDS OF MILWAUKEE’S RIVERS v. MILWAUKEE METROPOLITAN SEWERAGE DISTRICT (February 13, 2009)

Friends of Milwaukee’s Rivers (“FMR”) filed a citizen suit under the Clean Water Act (“CWA”) against the Milwaukee Metropolitan Sewerage District (“MMSD”). FMR alleged that MMSD sewer overflows violated the CWA and MMSD’s permit. Wisconsin sued the MMSD the very same day. MMSD and Wisconsin settled their case soon thereafter. The settlement provided that MMSD would spend over $900 million in upgrades to its sewer system. On MMSD’s motion, the court dismissed FMR’s suit on two bases: the CWA itself and res judicata. On appeal, the Seventh Circuit reversed and remanded. The Court held that the CWA did not bar the suit because FMR filed first. With respect to res judicata, the Court held that the privity requirement depended on whether the settlement constituted “diligent prosecution,” defined as whether it was “calculated to result in compliance.” The Court remanded to the district court for that determination. After an evidentiary hearing and briefing, the district court found for the MMSD and dismissed the complaint on res judicata grounds. FMR appeals.

In their opinion, Judges Bauer, Cudahy and Wood affirmed. FMR’s main argument on appeal was that the lower court failed to give adequate weight to post-settlement evidence. Principally, FMR argued that massive sewer overflows in 2004 were evidence that the 2002 settlement terms did not result in compliance. The Court first looked at the “central” evidence – i.e., the evidence that existed at the time of the settlement. When the parties act in good faith and address all the known problems and foreseeable consequences, diligent prosecution exists without regard to later events. Turning its attention to post-settlement evidence, the Court found little authority and identified several problems with the consideration of post-settlement evidence. However, it also recognized that post-settlement evidence could be particularly probative of the adequacy of an agreement. The Court rejected the notion that it was wholly irrelevant, but refused to identify any bright-line test for its use. The admissibility and weight of post-settlement evidence will depend on the circumstances of a case. The Court determined that the district court did give adequate consideration to the post-settlement overflows. The district court merely believed the evidence presented by the MMSD that the overflows would not have been violations and that the settlement improvements would have prevented the overflows. The Court also determined that the lower court gave adequate consideration to the post-settlement enforcement activities of Wisconsin.

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SIERRA CLUB V. FRANKLIN COUNTY POWER (October 27, 2008)

In August of 2000, Franklin County Power of Illinois (“FCPI”) applied to the Illinois EPA (“IEPA”) for a Prevention of Significant Deterioration permit in order to construct a power plant. The IEPA issued the permit on July 3, 2001. The permit provided that it would become invalid if FCPI: a) did not begin construction of the plant’s boilers within eighteen months, or b) discontinued construction for eighteen months, or c) failed to complete construction within a reasonable time. On December 2, 2002, FCPI contracted with an engineering and construction company to work with it exclusively to negotiate a construction contract. On December 18, FCPI arranged for excavation to begin. Excavation equipment was delivered to the site on January 3, 2003. Although the contractor began the excavation on January 8, it terminated its work in February because of a dispute. The landlord filled in the excavation in July. FCPI began the excavation anew in September of 2004. Shortly afterward, the IEPA determined that construction had commenced. In November, the IEPA made a preliminary determination that the permit had expired. The determination was appealed and the appeal is still pending. In May of 2005, the Sierra Club filed suit under the citizen suit provision of the Clean Air Act (“CAA”). FCPI moved to dismiss and for summary judgment on the grounds that the permit was valid and that Sierra Club lacked standing. The district court denied the motion. Instead, it entered summary judgment for Sierra Club and permanently enjoined FCPI from building the power plant until it obtained a permit.

In their opinion, Judges Bauer, Ripple, and Williams affirmed. The Court first addressed Sierra Club’s standing. An organization has standing only if: a) one of its members has standing, b) the interests at stake in the litigation are germane to the organization’s purpose, and c) an individual’s participation is not required. FCPI challenged only the first prong. Sierra Club relied on its member Barbara McKasson. In order to prevail on summary judgment, Sierra Club had to submit evidence to establish that: a) she suffered an actual or imminent, concrete injury, b) the injury is traceable to the actions complained of, and c) a favorable decision would likely redress the injury. McKasson stated that she and her family have regularly traveled to within three miles of the proposed plant site and there engaged in such activities as camping, fishing, and kayaking. The Court found that Sierra Club satisfied the individual standing test: a) McKasson will either be exposed to pollutants if she continues her trips or will have to forego the trips, either of which is sufficient injury, b) the injury is actual even though the plant is not yet built, c) the injury is traceable to the plant, even if the plant reduces its emissions, and d) an injunction will redress the harm for some period of time, even if FCPI eventually obtains a new permit.

The Court next addressed FCPI’s claim that Sierra Club’s action is not ripe until IEPA issues a decision on the permit appeal. The Court said that the plain language of the CAA allows a citizen suit against a person who is alleged to be in violation of a permit or who proposes to construct without a permit. The Court found that FCPI was either in violation of the permit because it failed to commence construction in time or, if the expired permit is akin to no permit, it is proposing to build one without one. Either way, the Court found that the suit was proper under the CAA.

On the issue of whether FCPI “commenced” construction, the Court stated that FCPI could commence construction in either of two ways.  It could begin “ a continuous program of physical on-site construction” or it could enter into binding contracts to complete construction within a reasonable tim.  To qualify, the contracts could not be canceled without a substantial penalty.  FCPI argued that there were genuine issues of fact regarding this test, precluding summary judgment. The Court had little trouble concluding that FCPI could not meet the continuous construction test. The only work it did was to excavate a hole. Even that was not permanent, since it was later filled in. The Court also found that FCPI lapsed in its construction activities for over eighteen months, even if it did begin on time. The Court also rejected FCPI’s argument that it’s binding contract meant that it had “commenced construction.” The contract was merely an agreement to negotiate in good faith in an attempt to reach an agreement on a construction contract. The fact that it contained a penalty clause was not enough to make it a qualifying contract.

Finally, FCPI argued that the district court had no authority to enter an injunction or, in the alternative, that it erred in not applying the traditional four-part analysis for injunctive relief. The Court relied on the plain language of the CAA to reject FCPI’s lack of authority argument. Although the Court was a little more troubled by the second argument, it also resolved it in Sierra Club’s favor. It first found that the lower court’s merits decision that FCPI did not have a valid permit accomplished essentially the same thing as an injunction - it required FCPI to get a permit. The Court’s also conducted its own analysis of the four factors and found that they favored Sierra Club. 

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SYCAMORE INDUSTRIAL PARK ASSOC. v. ERICSSON  (October 20, 2008)

Ericsson used to manufacture wiring and cable at its 28-acre, nine-building facility in Sycamore, Illinois. The buildings were heated by two large steam boilers and a network of piping. Most of the system is insulated. In January of 1983, Ericsson ceased its operations and decided to sell the property. Michael Kreiger, Ericsson’s property manager at the site, decided to buy the property and operate it as an industrial park. Between December of 1984 and the spring of 1985, Ericsson installed natural gas heaters throughout the property and discontinued the use of the steam boiler system. Meanwhile, Kreiger agreed to buy the building and formed Sycamore Industrial Park Associates (“Sycamore”) to hold title to the property after the purchase. The sale closed in May of 1985 and the property was immediately assigned to Sycamore. Sycamore discovered asbestos in the insulation of the boilers and associated piping. Sycamore brought an action against Ericsson based on CERCLA and RCRA to compel it to remove the asbestos. The court granted summary judgment for Ericsson, holding that the abandonment of the insulation in place was neither a CERCLA “disposal” nor a RCRA “handling, storage, treatment, transportation, or disposal.” Sycamore appeals.

In their opinion, Judges Flaum, Williams, and Sykes affirmed. The Court first addressed the CERCLA claim. To prevail, Sycamore had to show that Ericsson owned the facility at the time it “discharged, deposited, injected, dumped, spilled, or leaked” a solid or hazardous waste. The Court referred to its prior decision in G.J. Leasing for the proposition that asbestos abandoned in place in a structure does not create CERCLA liability, even when the structure is sold. CERCLA “disposal” requires a threat that the asbestos will be emitted or discharged into air or water. Here, all of the asbestos is enclosed and not a threat to enter the environment. The Court found no CERCLA liability and proceeded to address the RCRA count. To prevail on its RCRA count, the Court stated that Sycamore had to show that Ericsson “handled, stored, treated, transported, or disposed of” solid or hazardous waste. Because RCRA and CERCLA use the same definition of disposal, the Court adopted its analysis of the CERCLA claim to conclude that there was no RCRA disposal either. The district court properly entered judgment for Ericsson on the both counts. 

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 UNITED STATES V. CAPITAL TAX CORP. (September 19, 2008)

National Lacquer operated a paint and coatings business on Chicago’s south side for years. Hazardous materials were used, stored, and spilled at the site. When National Lacquer fell on hard times and lagged on its property taxes, the county made five of the seven separate parcels comprising the site available at a tax scavenger sale. Capital Tax Corporation (“Capital”), which buys and sells distressed properties, acquired tax certificates to the five parcels. The certificates did not pass title but gave Capital the option, if the parcels were not redeemed by the owner, to petition for a tax deed. Capital then (it is alleged) entered into an oral agreement for the sale of the parcels to Dukatt. Capital obtained the tax deeds only after receiving a payment from Dukatt, ostensibly a partial payment for the property. Beginning in 2002, the local and federal environmental authorities became interested and inspected the property. The EPA ordered Capital to clean up the property. After Capital refused, the EPA conducted its own cleanup. It sued Capital (and the owners of the other two parcels) to recover the costs of cleanup, civil penalties, and punitive damages. The district court granted summary judgment to the government on liability and damages. It found Capital jointly and severally liable for response costs in excess of $2.6 million and assessed civil penalties of $230,250. Capital appeals.

In their opinion, Judges Cudahy, Posner, and Rovner vacated the decision of the district court and remanded. After a brief statement regarding the government’s authority to conduct the cleanup and impose strict joint and several liability in defined circumstances, the court moved directly to the government’s basis for holding Capital liable. The government argued that Capital was liable as an “owner” because it held legal title to several of the parcels. Capital, on the other hand, argued that it held title only as security for the balance of the agreed sales price. It therefore fit into an exception whereby a person who “holds indicia of ownership primarily to protect his security interest” in land is not an “owner.” The district court had rejected Capital’s argument because it did not hold title as a traditional security interest.

The Court decided that the parties' reliance on the "security interest" exemption to the definition of owner was the wrong way to analyze the issue. In fact, the Court declined to decide that issue, although it found Capital's argument "colorable." Instead, it defined the issue as whether Capital was even an "owner" under section 107(a)(1) of CERCLA. The Court recognized the long-held principle that the equitable interest in the five parcels passed from Capital to Dukatt at the time of the contract for sale. The more difficult questions it faced were whether that doctrine, equitable conversion, was recognized by CERCLA and, if so, whether the court should develop a federal common law or rely on state law. On the first question, the Court noted that CERCLA did rely on common law analogies. The court cited favorably to two federal appellate cases and a number of district court cases that had held that a holder of legal title in a non-traditional arrangement was not an owner under CERCLA. Relying on these cases as well as general principles of common sense and common law analogies, the court found a sufficient basis to proceed in its analysis. On the second question, it saw no need for a federal common law. It held that state property law should apply in determining property ownership under CERCLA. Because neither the equitable conversion nor the Illinois property law issues were fully developed in the court below, the Court remanded for a full consideration by the district court of whether there was an enforceable land sales contract under Illinois law and whether the doctrine of equitable conversion applies in the case.

Capital also argued that it should have been liable for only a portion of the costs of cleanup. The Court recognized the CERCLA principle that a party can avoid joint and several liability if it can carry the burden of establishing divisibility of harm. Capital relied on an EPA document that tracked the parcels from which each of thousands of containers was removed. But the fact that the document did not include many other costs of cleanup, as well as the facts that a) many of the containers had been moved, b) the facility was historically operated as a single enterprise, and c) spills and leaks caused the product to cross parcel lines led the court to reject Capital’s divisibility argument.

Finally, the Court did not rule on Capital’s objection to the imposition of costs and penalties related to the two parcels it did not own. Given that it was remanding on liability, it vacated the district court’s award of damages for reassessment, if necessary, after the determination of liability. 
 

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