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G.J. Leasing Co., Inc. v. Union Electric Co.

May 4, 1995






Appeal from the United States District Court for the Southern District of Illinois, East St. Louis Division. No. 91 C 158--J. Phil Gilbert, Chief Judge.

Before POSNER, Chief Judge, FLAUM, Circuit Judge, and MCDADE, District Judge. *fn1

POSNER, Chief Judge.



G.J. Leasing--we can ignore the other plaintiff--filed this suit in 1991 against Union Electric, which in 1979 had sold a 52-acre tract containing a decommissioned power plant to G.J. Leasing's predecessor. The suit charges that the sale constituted the disposal (or the arranging of the disposal) of a hazardous substance, namely the asbestos in the plant. If this is right, then the seller, Union Electric, as the owner of the facility at which the hazardous substance was disposed of, or, equally, as the arranger of the disposal, was responsible under sections 107(a)(2) or (3) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) for the costs of cleaning up. 42 U.S.C. secs. 9607(a)(2), (3). The suit also charges that the sale constituted an abnormally dangerous activity within the meaning of Illinois tort law, making Union Electric strictly liable for the consequences, which include the clean-up costs. After resolving some issues, and refusing to resolve others, at the summary judgment stage, 825 F. Supp. 1363 (S.D. Ill. 1993), Chief Judge Gilbert conducted an elevenday bench trial, after which he entered judgment for Union Electric accompanied by detailed findings of fact. 854 F. Supp. 539 (S.D. Ill. 1994).

The appeal is marred by a grave error on the part of the appellant. In the part of its opening brief labeled "Standard of Review," G.J. Leasing tells us that appellate review of the district judge's resolution of mixed questions of law and fact is plenary. The term "mixed question of law and fact" refers to questions about the application of a rule or standard to the particular facts of the case. The question whether the defendant in a personal injury suit was negligent is a familiar illustration. For the proposition that the district judge's answer to such questions (when he is the trier of fact, rather than merely presiding at a jury trial or reviewing an administrative determination) is to be given no deference by us, G.J. Leasing cited a single case, and from a different circuit. In this court the rule, to which there are some exceptions but none applicable to the CERCLA issues, is that a district judge's determinations of mixed questions of fact and law, as of questions purely of fact, can be set aside on appeal only if clearly erroneous. E.g., Williams v. Commissioner, 1 F.3d 502, 505 (7th Cir. 1993). Union Electric pointed this out in its brief, to which G.J. Leasing responded weakly in its reply brief that "while there is divergence in this Circuit on the appropriate standard of review, the older and more prevailing rule is that when the trial court's ultimate determination is a mixed question, it is more freely reviewable than under the 'clearly erroneous' test. That rule has not been overturned by this Court and must govern today." It has been overturned. The three cases that G.J. Leasing cites for the "older and more prevailing rule" come two from the 1950s and one, the most recent, from 1976. It may be the older rule; it certainly is not the prevailing rule in this circuit.

G.J. Leasing's misstep concerning the standard of review is important because many of the questions in the case are mixed questions of fact and law, such as whether the sale of the power-plant complex was the disposal or an arrangement for the disposal of a hazardous substance, whether Union Electric used due care in preparing the property for sale, and whether the costs that G.J. Leasing incurred to remove asbestos from the site were necessary. G.J. Leasing has explained why it thinks the answers given by the district judge were erroneous, but not why it thinks the errors clear enough to be reversible by us.

We have gotten ahead of our story, however, and must return to the beginning. The beginning is 1923, when Union Electric built and put into operation the Cahokia Power Plant, a major coal-burning electrical-generating plant, on a tract of land in an industrialized area along the Mississippi River in Sauget, Illinois, opposite St. Louis. The generation of electricity creates tremendous heat. As was common in those days, asbestos was used as the principal material for heat insulation, not only in the walls and ceilings of the plant itself but also in the boilers, generators, turbine, steam lines, and other equipment installed in it. The Cahokia Power Plant became the major source of electricity throughout its region. Later the plant was converted from coal to oil. By 1976 the 52-acre tract included not only the plant but also a warehouse, office building, truck-maintenance facility, several above-ground and underground petroleum storage tanks, and mooring rights on the river shore. The rub was that the plant, including its equipment, was obsolete. All of Union Electric's demand was being supplied by its other plants, which were newer and cheaper to operate. Union Electric decided to decommission the plant, and it did so that year. The only motive in decommissioning was that the plant had become uneconomical. The fact that there was asbestos insulation in the building and its equipment played no role. And there is no evidence that if Union Electric had continued using the plant it would have had to do something about the asbestos. The asbestos was not leaking, and there is, as we shall see, no general duty to remove asbestos from a building.

Having no further use for the property, Union Electric decided to sell it lock, stock, and barrel, as is, with all equipment included. It was understood that the purchaser, rather than using the power-generating equipment or removing it for sale to someone else who could use it, might decide to demolish it on the site in order to recover the considerable amount of iron, steel, copper, and lead that the equipment contained. But Union Electric had no interest in what a purchaser might want the property for. It just wanted to sell to the highest bidder and get out. It invited bids from 82 firms. Some were specialists in salvage. Others were manufacturers, oil companies, barge operators, and other companies that might have a use for the property other than as a mine of valuable metals. The bidders were invited to tour the property. The tours were interrupted by serious flooding which occurred in March 1978 and resulted in considerable damage to the now unoccupied power plant and its disused equipment. The district judge found, however, not clearly erroneously, that Union Electric cleaned up the property completely and that it was in excellent condition when the tours resumed.

The high bidder (at $1.6 million) did turn out to be a salvage and demolition contractor, by the name of G&S Motor Equipment. The purchase was actually a joint venture between G&S and Sarnelli Brothers, another salvage contractor. One of the losing bidders was G.J. Leasing, which after losing went to G&S and Sarnelli and made the following deal: G&S and Sarnelli would resell the property to G.J. Leasing for $1 million, but Sarnelli would retain the right to salvage valuable metals from the power equipment. G.J. Leasing had no interest in recovering valuable metals. It was in the transportation business and wanted to develop the property as an intermodal transportation facility. The salvage operation must have been expected to yield a sufficient profit to bring the total consideration for the resale up to, and probably at least a little higher than, the $1.6 million price that G&S and Sarnelli had agreed to pay Union Electric. G&S and G.J. Leasing alike had toured the property extensively before the purchase and repurchase were consummated. They knew there was asbestos in the insulation of the equipment and parts of the building. There is no claim of fraud.

Union Electric knew all about the intended resale, which in fact occurred the same day as the sale itself, in 1979. Sarnelli went to work the following year. Its deal with G.J. Leasing gave it two years in which to salvage valuable metals from the equipment. It went through the power plant like a tornado and left the building a shambles. Some of the asbestos insulation was torn or smashed. Sarnelli removed some of the asbestos from the property (duly notifying the environmental authorities of this, as it was required to do by law), but left some lying around.

Nothing happened for a while. Then in 1984 G.J. Leasing hired a former sheet metal worker, Marvin Schwartz, to convert the property into an intermodal transportation facility. Schwartz was either ignorant of or casual about the potential hazards of asbestos (or maybe both) and made no effort to remove any of the asbestos in the building, even though his own demolition activities, undertaken as part of the conversion, were extensive (they included the use of dynamite to destroy an ancillary structure attached to the power plant building) and further damaged the asbestos insulation. While all this was going on, G.J. Leasing began storing grain in the basement of the building, though we were reassured to learn at the oral argument that the grain was intended for horses rather than for humans.

Finally in 1988 G.J. Leasing woke up to the possibility of an asbestos problem, and it hired an expert, David Schau, to investigate. He found a good deal of asbestos insulation in deteriorated condition. While the number of asbestos fibers in the air was insufficient to pose a hazard to the workers at the emerging intermodal facility, he was concerned that continued flaking of the asbestos would eventually cause a problem. He recommended that the facility not be used for the storage of grain and that the amount of time a worker was allowed to spend in the building be limited. (The only exposure to asbestos is within the building. There is no danger to any other part of the site, or to the river, or to occupants of adjacent properties.) G.J. Leasing decided instead to remove at least some of the asbestos, and did so at a cost of a little more than $200,000--which it wants back in this suit, along with a declaration that Union Electric is liable for the costs, in a yet to be determined amount, of removing other asbestos from the building.

Asbestos is a hazardous substance within the meaning of CERCLA. 3550 Stevens Creek Associates v. Barclays Bank, 915 F.2d 1355, 1360 (9th Cir. 1990). But Union Electric argues that the sale of a building that happens to contain asbestos insulation is not the disposal of a hazardous substance within the meaning of the Act, or even the arranging for the disposal (which the Act treats similarly), merely because the purchaser, or the purchaser's purchaser, or some other successor in ownership, decides to remove some or all of the asbestos in the building. There are many routes to this conclusion, but the simplest is that the sale of a product which contains a hazardous substance cannot be equated to the disposal of the substance itself or even the making of arrangements for its subsequent disposal, id. at 1359-65; Florida Power & Light Co. v. Allis Chalmers Corp., 893 F.2d 1313 (11th Cir. 1990); compare Louisiana-Pacific Corp. v. ASARCO, Inc., 24 F.3d 1565, ...

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