United States District Court, N.D. Illinois, Eastern Division
ALLIED WASTE TRANSPORTATION, INC., Plaintiff/Counter-defendant,
BELLEMEAD DEVELOPMENT CORP., et al., Defendants/Counter-plaintiffs.
MEMORANDUM OPINION AND ORDER
EDMOND E. CHANG, District Judge.
Plaintiff Allied Waste Transportation, Inc. and Defendant John Sexton Sand & Gravel Corporation are members of a partnership formed to operate a sanitary landfill in Hillside, Illinois. Allied filed this action against Sexton and two of its executives: Sexton's Director of Operations, Todd S. Daniels, and Sexton's President, Arthur A. Daniels. The cleaning-up and closing of the facility ended up costing millions of dollars more than anticipated, with Allied bearing the brunt of the costs. In this suit, Allied wants to recover response costs incurred in closing and monitoring the facility under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), 42 U.S.C. § 9601 et seq. R. 44, First Am. Compl ¶ 1. Allied also filed a separate count against Sexton alleging breach of the partnership agreement. Id.
Sexton argues that Allied's exclusive remedy under the partnership agreement for Sexton's admitted failure to contribute to cleanup costs is adjustment of Sexton's partnership interest. R. 46, Sexton's Answer at 25-26. Alternatively, Sexton argues that Allied's claims for damages are not ripe because there has been no final partnership accounting. Id. at 27-28. Todd and Arthur Daniels argue that they are agents of the partnership, and Allied is barred from seeking recovery against them under the partnership agreement and agency principles for acts taken within the scope of the agency. R. 47, A. Daniels's Answer at 24; R. 48, T. Daniels's Answer at 25. Both Sexton and Daniels filed counterclaims for breach of the partnership agreement based on Allied's refusal to indemnify Sexton and Daniels for liability, including attorneys' fees, arising from this action. Sexton's Answer at 30-31; A. Daniels's Answer at 27-28; T. Daniels's Answer at 28-29. Sexton and the Daniels now move for judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c). R. 62, Sexton's Mot. J. Pleadings; R. 65, Daniels's Mot. J. Pleadings. For the reasons stated below, the motions are denied.
A. The Partnership
In 1980, Sexton and Browning-Ferris Industries of Illinois, Inc. formed a general partnership called Congress Development Company (CDC). First Am. Compl. ¶¶ 10-11. The purpose of the partnership was to own and operate a landfill in Hillside, Illinois. Id. See also R. 44-1, Pl.'s Exh. A, Partnership Agreement at § 1.02. Sexton and Browning-Ferris agreed that Sexton would operate and manage the landfill on CDC's behalf. Partnership Agreement at § 1.09(l). As officers of Sexton, Todd and Arthur Daniels were involved in Sexton's operation of the landfill. First Am. Compl. ¶¶ 30-31. On September 22, 1999, Browning-Ferris assigned its interest in CDC to Allied with Sexton's consent. Id. ¶ 18. Sexton continued to operate the landfill until February 2007, when the partners amended the agreement to designate Allied as the operator of the landfill. Id. ¶ 19.
Sexton and Browning-Ferris initially contributed equal capital to the partnership and each owned fifty percent of CDC. First Am. Compl. ¶ 12; Partnership Agreement at § 2.01(a)-(b). Under Section 2.01 of the Partnership Agreement, CDC would first generate any additional needed capital by arranging a line of credit. Partnership Agreement at § 2.01(d). If credit was not available, each partner would contribute the additional capital equally. Id. at § 2.01(e). If one partner failed to contribute its equal share of additional capital, the partners agreed that "the interests of the Partners shall be adjusted" to reflect each partner's relative contribution. Id. In the original partnership agreement, the partners also agreed to share the profits and losses of CDC "according to their interests in the Partnership at the time of the determination of the profits and losses." Id. at § 2.02. The partnership interests remained equal until around February 2007. First Am. Compl. ¶ 12.
In addition to sharing profits and losses, the partners agreed to share liability for "any and all judgments, claims or penalties against the Partnership or either of the Partners or the Operator, and their respective officers, directors, employees and agents." Partnership Agreement at § 9.03. Under Section 9.03, partners "shall be jointly liable for and shall share equally in" any liability, including attorneys' fees, incurred on behalf of the partnership. Id. The partners would not share liability for an actor's "acts of wilful misconduct, gross negligence[, ] or reckless disregard of its or their duties and responsibilities." Id.
B. Environmental Cleanup
As a result of CDC's operation of the landfill, hazardous substances were released into the leachate and groundwater of the landfill site. First Am. Compl. ¶¶ 26-28. On January 26, 2006, the State of Illinois filed suit against CDC. The State alleged that CDC and the partners violated "various statutes and regulations and the terms of the Clean Air Act." Id. ¶¶ 39-40. CDC ultimately settled the case with the State in 2010. Id. ¶ 41. Under the settlement agreement, CDC was required to pay the State $1 million in penalties and $200, 000 in costs. Id. Allied claims that it paid these expenses without any contribution from Sexton. Id. See also Sexton's Answer at 14-15 ("Sexton states that it was never asked to contribute to the settlement but admits it did not contribute.").
The Village of Hillside also sued CDC based on the operation of the landfill. First Am. Compl. ¶ 33. On March 9, 2007, CDC and the partners entered into an Agreed Order with the Village, under which the parties agreed that the landfill would stop accepting solid waste by June 15, 2008. Id. ¶ 34. Under the Agreed Order, CDC was required to compensate the Village of Hillside for "continued oversight, inspection, and consultation related to" the closure of the landfill. Id. ¶ 34. Allied claims that these expenses totaled more than $1 million. Id. ¶ 35. Allied paid the Village of Hillside without contribution from Sexton. Id. See also Sexton's Answer at 13 ("Sexton states that it was never asked to contribute to the Village payments set forth in the Agreed Order but admits it did not pay any of them.").
A month later, Samuel J. Roti, owner of a neighboring hotel, sued CDC, alleging that the odors from the landfill harmed the hotel's profitability. First Am. Compl. ¶¶ 36-37. CDC and the partners settled the lawsuit in November 2009. Id. ¶ 38. Allied again alleges that it paid all of the settlement costs (at least those not covered by insurance) without contribution from Sexton. Id. In addition to these settlement costs, Allied has paid all of CDC's expenses related to complying with federal and state statutory requirements, investigating the release of hazardous substances, and remediating any release of hazardous substances. Id. ¶¶ 53-55. See also Sexton's Answer at 18-19 ("Sexton has remained unable to contribute its share of the losses."). Allied claims that, since 2007, these expenses have totaled nearly $125 million. First Am. Compl. ¶ 53.
After CDC settled with the State of Illinois, Hillside, and Roti, Allied and Sexton executed an amendment to the partnership agreement. See Partnership Agreement at Fifth Amendment. The amendment acknowledged that Sexton failed to contribute its one-half share of capital contributions and stated that the partners' interests had been adjusted accordingly. Id. at Fifth Amendment ¶ 14. Though the partners' interests were adjusted, the partners added the following provision to the end of Section 2.01(e):
The adjustment of the Partners' interests shall not, in any way, reduce or eliminate the obligations of each Partner to contribute its one-half share of all additional capital required by the Partnership under this Section 2.01(e) of the Agreement, and to pay its one-half share of ...