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United States v. Capital Tax Corp.

February 8, 2007

UNITED STATES OF AMERICA, PLAINTIFF,
v.
CAPITAL TAX CORPORATION, STEPHEN J. PEDI, AND WILLIAM LERCH, DEFENDANTS.
CAPITAL TAX CORPORATION, COUNTER-PLAINTIFF,
v.
UNITED STATES OF AMERICA, COUNTER-DEFENDANT.
CAPITAL TAX CORPORATION, CROSS-PLAINTIFF,
v.
STEPHEN J. PEDI, AND WILLIAM LERCH, CROSS-DEFENDANTS.



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

MEMORANDUM OPINION AND ORDER

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. Capital Tax filed counterclaims against the government and against the other defendants. In a previous ruling in this case, the Court granted the government judgment on the pleadings with respect to Capital Tax's first and second counterclaims against the government. Capital Tax filed an amended counterclaim, and the government moves to dismiss Capital Tax's first counterclaim in its amended countercomplaint.

I. Background

A. The CERCLA Framework

CERCLA (sometimes called the Superfund law) "requires that sites contaminated by toxic wastes be cleaned up by or at the expense of the persons responsible for the contamination." Employers Ins. of Wausau v. Browner, 52 F.3d 656, 660 (7th Cir. 1995). CERCLA "grants the President broad power to command government agencies and private parties to clean up hazardous waste sites." United States v. Bestfoods, 524 U.S. 51, 55 (1998) (quoting Key Tronic Corp. v. United States, 511 U.S. 809, 814 (1994)).

Under CERCLA, the EPA has the authority to effectuate toxic waste cleanup in a couple of ways. First, it can take responsive action itself and then seek reimbursement from the potentially responsible party. 42 U.S.C. § 9607(a)(4)(A). Second, the EPA may require the responsible party to clean up the property. 42 U.S.C. § 9606(a). Specifically, the EPA can issue an administrative order setting out the required remedial action. The EPA can enforce its order by filing suit in federal district court, and in that suit, the EPA can also seek civil penalties and punitive damages against a party who failed to comply with the administrative order. 42 U.S.C. §§ 9606(b), 9607(c)(3). The district court cannot, however, grant civil penalties or punitive damages against a party that had "sufficient cause" for not complying with the order. 42 U.S.C. §§ 9606(b), 9607(c)(3).

For its part, the recipient of the administrative order has at least two options upon receiving the order if it does not believe that it is responsible for the cleanup. First, it can decline to comply with the order and wait for the EPA to file an enforcement suit. Alternatively, the recipient can comply with the order and then petition the EPA for reimbursement of its costs plus interest. 42 U.S.C. § 9606(b)(2)(A). The purpose of this provision is to "encourage potentially responsible parties to conduct a cleanup expeditiously and postpone litigation about responsibility to a later time." Bethlehem Steel Corp. v. Bush, 918 F.2d 1323, 1324 (7th Cir. 1990).

B. Facts Relevant to Capital Tax's Counterclaim

In October 2001, Capital Tax purchased property at a tax sale. Specifically, Capital Tax obtained the tax deeds to several, but not all, parcels at 7411 to 7431 S. Green Street in Chicago, Illinois (the "Site"). At the time Capital Tax obtained the tax deeds, the Site contained paint and other materials left behind by previous owners.

The paint and other materials at the Site caught the attention of the City of Chicago's Department of the Environment ("CDOE"). In April 2002 and July 2003, CDOE found hazardous substances at the Site. In July 2003, CDOE referred the Site to the EPA. After inspecting the Site, the EPA concluded that the Site contained hazardous materials, that hazardous waste had been released at the Site, and that future releases of hazardous materials at the Site were threatened.

On August 15, 2003, the EPA issued a Unilateral Administrative Order ("UAO") demanding that Capital Tax clean up its Site parcels. The UAO set out the work to be done at the site. Specifically, it ordered Capital Tax to, among other things: (1) remove about 10,000 containers of various sizes, 70 tanks and any spillage of waste materials on the floors and in the soil; (2) remove debris to allow safe access to the containers and tanks; (3) stage drums/containers by chemical compatibility; and (4) remove the materials and clean the residue from the tanks before disposal. The UAO also required Capital Tax to notify the EPA--within three business days after the effective date of the UAO--of its intent to comply with the UAO. (The UAO became effective seven days after it was issued, unless the respondent requested a conference, in which case it became effective five days after the conference.) In addition, the UAO set out the non-compliance penalties, which included civil penalties of up to $32,500 per violation per day and punitive damages of up to three times the amount of any cost incurred by the United States as a result of the violation.

Capital Tax did not comply with the Order. Instead, Capital Tax sent to the EPA several letters in which it denied liability. When Capital Tax (and the other defendants) failed to comply with the UAO's, the EPA cleaned up the Site itself. Beginning on October 6, 2003, the EPA, through contractors, removed more than 18,000 drums and containers. The EPA inspected and cleaned the underground storage tanks and manholes. It excavated the soil, backfilled the area and planted grass. The EPA cleaned the interiors of the buildings to remove potential contamination. Finally, the EPA coated lead-painted tanks to prevent the release of lead. Thus far, the EPA has incurred at least $2,036,914.12 in response costs.

The United States filed suit against Capital Tax, among others, to recover costs it incurred or would incur taking remedial action at the Site. The United States also seeks civil penalties and punitive damages against defendants for alleged violations of unilateral administrative orders.

Capital Tax filed counterclaims against the United States. In its first counterclaim, Capital Tax alleged that CERCLA ยง 106(a) denies a potentially responsible party due process. The Court previously granted the government's Rule 12(c) motion with respect to the due process claim. Capital Tax filed an amended countercomplaint in which it asserts a similar due process claim, this time alleging that the EPA followed a "pattern or practice" that violates the due process rights of UAO recipients. Specifically, in the first counterclaim of its amended countercomplaint, Capital Tax alleges that the EPA threatens potentially responsible parties with penalties and punitive damages even when the potentially responsible party presents the EPA with facts demonstrating that the EPA's order was invalid. Capital Tax alleges that the EPA threatens potentially responsible parties with sanctions in order to coerce them into complying with UAO's. Capital Tax also asserts that the EPA uses its ...


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