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United States v. Capital Tax Corp.

January 4, 2007


The opinion of the court was delivered by: Judge George M. Marovich


Plaintiff the United States of America ("United States" or the "government") filed suit against defendants Capital Tax Corporation ("Capital Tax"), Stephen J. Pedi ("Pedi") and William Lerch ("Lerch") alleging claims arising under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), 42 U.S.C. §§ 9601-9675. In Count I, pursuant to CERCLA §§ 107(a) and 113(g)(2), the United States seeks to recover from defendants costs it incurred taking remedial action at a hazardous waste site. In Counts II and III, the United States seeks civil penalties (pursuant to CERCLA § 106(b)) and punitive damages (pursuant to CERCLA § 107(c)(3)) against defendants for alleged violations of unilateral administrative orders. In Count IV, the United States asserts a claim against Lerch for information pursuant to CERCLA § 104(e)(5)(B). Finally, in Count V, the government asserts a claim against Pedi for fraudulent transfer.

The United States has filed a motion for summary judgment as to liability on Count I. (It has also filed a motion for summary judgment as to remedies, but that motion has been continued pending a ruling on this motion for summary judgment.) For the reasons set forth below, the Court grants the government's motion for summary judgment.

I. Background

Local Rule 56.1 outlines the requirements for the introduction of facts parties would like considered in connection with a motion for summary judgment. As the Court notes on its website (and has mentioned in multiple opinions), the Court enforces Local Rule 56.1 strictly. See Thomas v. CitiMortgage, Inc., Case No. 03 C 6177, 2005 WL 1712266 at *1 n. 1 (N.D. Ill. Jul. 20, 2005); Perez v. City of Batavia, Case No. 98 C 8226, 2004 WL 2967153 at *10 (N.D. Ill. Nov. 23, 2004); see also Ammons v. Aramark Uniform Services, Inc., 368 F.3d 809, 817-818 (7th Cir. 2004). Facts that are argued but do not conform with the rule are not considered by the Court. For example, facts included in a party's brief but not in its statement of facts are not considered by the Court because to do so would rob the other party of the opportunity to show that such facts are disputed. Where one party supports a fact with admissible evidence and the other party fails to controvert the fact with citation to evidence admissible for summary judgment purposes, the Court deems the fact admitted. See Ammons v. Aramark Uniform Services, Inc., 368 F.3d 809, 817-818 (7th Cir. 2004). At the summary judgment stage, it is not sufficient merely to deny a fact or to claim a lack of knowledge (as defendants often have with respect to the government's statement of facts). The non-moving party must come forward with contrary evidence. This, however, does not absolve a party of its initial burden of putting forth admissible evidence to support his or its facts. Asserted "facts" not supported by deposition testimony, documents, affidavits or other evidence admissible for summary judgment purposes are not considered by the Court.

Unless otherwise noted, the following facts are undisputed.

This CERCLA suit concerns property located at 7411-7431 South Green Street (the "Site") in Chicago, Illinois. The Site is approximately one acre and contains seven parcels with the following Cook County index numbers: 20-29-230-005 ("Parcel 5"), 20-29-230-026 ("Parcel 26"), 20-29-230-008 ("Parcel 8"), 20-29-230-009 ("Parcel 9"), 20-29-230-010 ("Parcel 10"), 20-29-230-011 ("Parcel 11"), 20-29-230-012 ("Parcel 12") (collectively, the "Site Parcels"). A number of buildings sit on the Site. A warehouse sits on Site Parcel 5. A main office and a warehouse yard sit on Parcel 26. A main mixing room sits on Site Parcel 8. A roller mill room, a pigment room, a wash department and a ball mill room sit on Site Parcels 9, 10, 11 and 12, respectively. A storage yard, which is just west of those rooms, sits on Site Parcels 9, 10 and 11. Above the rooms is a laboratory. Defendants Pedi and Lerch admit that the Site is a facility under Section 101(9) of CERCLA, 42 U.S.C. § 9601(9), because it consists of areas where hazardous substances have been deposited, stored, disposed of, placed or otherwise came to be located. For the same reasons, defendant Capital Tax admits that the Site constitutes several facilities under CERCLA.

Pedi and Lerch's involvement with the Site

Prior to December 1995, a company called the National Lacquer and Paint Company, Inc. operated the Site. It is not clear from the record who owned the National Lacquer and Paint Company, Inc., but it is clear that Pedi and Lerch agreed to purchase the assets and property of the old National Lacquer and Paint Company, Inc. Pedi agreed to put up the money, and Lerch agreed to run the business.

On or about August 16, 1995, someone (it is not clear from the record who) incorporated a new corporation, the National Lacquer Company ("National Lacquer"). Pedi was the sole shareholder upon incorporation, but Lerch and Pedi agreed that at some point in the future, Pedi would transfer half of the shares to Lerch. Lerch became the treasurer of National Lacquer in 1999. Lerch became a fifty percent owner and director of National Lacquer in 2000.

In December 1995, National Lacquer purchased all of the assets--excluding the real property--of the National Lacquer and Paint Company, Inc. The real property was transferred to a trust, in which Pedi owned the sole beneficial interest. Pedi remains the beneficiary of the trust that holds title to Parcel 8 and Parcel 10. From December 12, 1995 to October 30, 2001, Pedi was the beneficial owner of the trust holding title to Parcels 5, 9, 11 and 26. From December 12, 1995 to February 14, 2002, Pedi was the beneficiary of the trust that held title to Parcel 12.

Before the December 1995 sale, Pedi inspected the Site. He noticed "hazardous waste materials" at the Site. At the time of the sale, the Site contained: 1500 pounds of ethyl acetate, 500 pounds of xylene, 2000 pounds of methylene chloride, 600 pounds of methyl ethyl ketone, 375 pounds of methyl isobutyl ketone and 55 pounds of phosphoric acid. The parties agree that these substances are listed as hazardous under CERCLA. Pedi did not take any steps to safeguard the hazardous substances at the Site.

National Lacquer operated at the Site from late l995 to late 2002. During that time, it reclaimed paint at the Site to produce specialized coatings. It also stripped furniture. Lerch, as manager, directed all National Lacquer operations--including paint reclamation--at the Site. Lerch ordered raw materials and was responsible for directing their use. In addition, Lerch directed his employees to send raw materials from another business to National Lacquer. Specifically, Lerch also operated a company called NiChem, and some of the materials used by National Lacquer were shipped to it from NiChem.

In addition, Lerch was also responsible for decisions regarding the handling and disposal of hazardous wastes for National Lacquer. Lerch admitted that the paints made by National Lacquer were hazardous. He was responsible for all decisions related to environmental problems at the Site. Among other things, Lerch contracted with Strong Environmental for the removal, disposal and analysis of hazardous substances at the Site.

Although Pedi believed that Lerch was not running the Site properly, Pedi did nothing about it.

At various points during the time National Lacquer operated the Site, hazardous materials leaked or spilled. The Site constantly smelled of solvents, which suggested (to Lerch, among others) that the facility was potentially flammable. In June 1997, a spill at the Site caused a solvent odor in the sewers on Green Street.

In January 1998, the Chicago Department of the Environment ("CDOE") inspected the Site. It found about 100 old cans of paint in a building with a leaking roof. It also found that the floor of the building was covered with water and paint from leaking cans. In May 1998, the CDOE and the Chicago Fire Department conducted an investigation at the Site. They found hundreds of rusty, damaged and leaking pails, cans and jars. They also found the roof was still leaking. Water mixed with product was flowing underneath an exterior door and into the street.

On or about July 30, 1998, Lerch and National Lacquer entered into a settlement agreement with the City of Chicago regarding hazardous waste at the Site. Under the settlement agreement, Lerch and National Lacquer agreed to "repair or dispose of in an approved manner defective containers which are permitting leakage or spillage throughout the premises."

More generally, the storage yard at the Site contained more than one hundred 55-gallon drums and drums of other sizes. The drums contained solvents and other hazardous materials. Throughout the time when National Lacquer operated the Site, the drums leaked. When the drums leaked, solvents evaporated and left behind a resin.

The warehouse (on Parcel 5) contained numerous damaged cans of paint, some of which leaked or spilled. Some of the cans continued to leak until the contents could be transferred to other containers. The leaked paint ran onto the concrete floor of the warehouse. In addition, the roof of the warehouse leaked during a portion of the time when National Lacquer operated the Site.

At some point, a National Lacquer employee took "sludge" from the bottom of machinery at the Site and deposited the "sludge" in a neighbor's garbage cans. The "sludge" contained methyl ketone, which the parties agree is a substance listed as hazardous under CERCLA.

Capital Tax's involvement with the Site

Capital Tax became involved with the Site when the taxes became delinquent and Capital Tax obtained tax deeds to several parcels.

Defendant Capital Tax is an Illinois Corporation, whose shares are owned by Gilbert Balin, Timothy Balin and Jonathan Smith ("Smith"). Capital Tax is in the business of purchasing real estate, primarily by (1) purchasing properties under foreclosure; or (2) bidding at "scavenger" tax sales. When a property is at least two years' delinquent with respect to taxes, it is subject to a scavenger auction. The winning bidder receives a tax certificate for the property. If the property's owner fails to pay the delinquent taxes within a certain period of time, the winning bidder has the right to petition for a tax deed to the property.

Capital Tax's usual practice with respect to scavenger sales was as follows. Gilbert Balin was responsible for visually inspecting properties on which Capital Tax was considering bidding. He conducted a "more in depth" inspection if Capital Tax obtained a tax certificate. That helped Capital Tax to determine whether to obtain a tax deed.

Capital Tax obtained tax deeds for portions of the Site at issue in this case. Before bidding on the property at a scavenger sale, Gilbert Balin visited the Site on behalf of Capital Tax. Capital Tax bid on and obtained tax certificates for Parcels 5, 26, 9 and 11. Gilbert Balin visited the Site again in order to determine whether Capital Tax should obtain tax deeds for the parcels. By February 2001, Capital Tax was aware that the Site was a paint factory. On October 30, 2001, Capital Tax obtained tax deeds for Parcels 5, 26, 9 and 11.

Capital Tax later obtained the tax deed for an additional parcel. On February 14, 2003, Cook County issued Capital Tax a tax deed for Parcel 12.*fn1 Thus, Capital Tax currently owns five of the seven parcels at the Site.

When Capital Tax obtained the deeds, however, they intended to resell the property. Capital Tax had already reached an agreement with Mervyn Dukatt ("Dukatt"), who had worked with Capital Tax in the past, to convey the parcels to Dukatt. Dukatt paid Capital Tax part but not all of the undisclosed purchase price. To this day, Dukatt has not paid the remainder of the purchase price.

The Eviction

It seems that even after Capital Tax obtained deeds to most of the parcels, Lerch was less than anxious to vacate the premises. When Lerch refused to surrender possession of Parcels 5, 26, 9 and 11, Capital Tax filed with the Circuit Court of Cook County an application for an order of possession. The Circuit Court of Cook County granted the order of possession, which was effective January 7, 2002.

On January 29, 2002, at the request of Capital Tax, deputies from the Cook County Sheriff's office went to the Site to evict Lerch from the parcels owned by Capital Tax. Dukatt was also present at the eviction, and he represented himself to the deputies as an agent of Capital Tax. The undisputed evidence is that the Sheriff's deputies evicted Lerch only from the office and warehouse, which are located on Parcel 26.

There remained the problem of National Lacquer's materials and supplies at the Site. For example, during the January 29, 2002 visit, Dukatt noticed paint cans in the warehouse from where he was standing in the office. Capital Tax deferred to Dukatt with respect to decisions about National Lacquer's materials at the Site. Lerch and Dukatt (unbeknownst to Capital Tax) agreed that Lerch would be allowed to remove National Lacquer property from the office (which was on Parcel 26). Lerch removed some materials but left other materials behind. On subsequent visits to the Site, Dukatt saw numerous cans and drums in the storage yard. Dukatt informed Smith that there was paint at the Site.

Dukatt (on his own behalf) visited the Site several times. He was overseeing work in the garage at Parcel 12. Dukatt had hired workers who, over the course of two or three weeks, cut up and removed the paint machines that had been in the garage. They also repaired and replaced an overhead door and knocked down two walls. ...

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