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Dixon Lumber Company, Inc. v. Austinville Limestone Company, Inc.

United States District Court, W.D. Virginia, Roanoke Division

March 31, 2019




         In this case, plaintiff/counter-defendant Dixon Lumber Company, Inc. (Dixon) and defendant/counter-claimant Austinville Limestone Company, Inc. (ALC), [1] seek cost recovery, contribution, and declaratory relief under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), 42 U.S.C. § 9601 et seq. The overarching issue before the court is who should be held financially responsible for environmental remediation and reclamation of Austin Meadows, a portion of real property located in Wythe County, Virginia, and owned by Dixon.

         The case was tried with the court sitting as finder of fact over the course of three days. Prior to trial, the parties submitted their proposed findings of fact and conclusions of law. (Dkt. Nos. 174, 175.) The trial evidence included a significant number of exhibits, as well as testimony and exhibits from depositions, many of which were not read into the record at trial, but instead submitted after the trial for the court to review. Additionally, the parties submitted their closing arguments in writing after the trial. (Dkt. Nos. 195, 196.)

         Based on the trial evidence, including the deposition testimony, the court issues this memorandum opinion, which constitutes its findings of fact and conclusions of law pursuant to Federal Rule of Civil Procedure 52(a).

         I. OVERVIEW

         This case is fact-intensive, and the parties' arguments are heavily fact-dependent. As a result, this opinion devotes a number of pages to the court's factual findings. But without the broader context of the parties' positions, the importance of certain facts-and a reader unfamiliar with the case-likely will be lost. Accordingly, the court begins with an over-simplified sketch of the relevant events and an overview of the parties' positions, and then continues to its findings of fact.

         The parties are owners of adjoining properties in Wythe County, Virginia. In 1992, there was a discharge of pollutants from the mine tailings pile on a portion of Dixon's property known as “Austin Meadows” into a nearby stream. In response, in 1993, the parties entered into an agreement whereby ALC (who is in the mining business) agreed to remove the mine tailings from Austin Meadows, and, pursuant to a separate consent order that Dixon entered into with Virginia's Department of Environmental Quality (DEQ), the land eventually would be restored to a condition acceptable to DEQ. Virginia's Department of Mines, Minerals and Energy (DMME), which issued ALC a permit to mine the tailings at Austin Meadows, also required reclamation of that portion of Austin Meadows that ALC was mining after its mining operations were completed. Among other disputes, the parties disagree about the effect and interrelation of various agreements between the parties and a critical 1993 preliminary engineering review (PER) that was prepared by ALC and submitted to environmental agencies.

         ALC's removal of the mine tailings proceeded far more slowly than anyone had anticipated, although the parties dispute both the reasons for that slower pace and whether ALC was contractually obligated to complete removal at all, let alone in the five-year time frame set forth in the PER. Nonetheless, for a number of years, the two companies worked mostly cooperatively with each other and with the environmental agencies exercising oversight over the project at Austin Meadows. Over the years, the parties entered into subsequent (but largely identical) agreements, and Dixon and DEQ entered into subsequent consent orders, mostly to extend the time for completing removal of the tailings.

         In June 2013, another important event occurred that is relevant to the parties' claims and the remediation of the property.[2] After a significant rainfall, a long-existing pipe and dam, which were supposed to ensure that a stream known as Jackson Branch went around the tailings pile, failed. This failure caused water to flow over the tailings and resulted in discharges of pollutants into streams and the nearby New River, into which both Jackson Branch and Buddle Branch (another stream near the tailings pile) flowed. These discharges resulted in public complaints and sparked a renewed interest in the site by both DEQ and DMME. Thereafter, Dixon, ALC, DEQ, and DMME entered into a Letter Agreement and agreed to take certain actions to stop the discharges and prevent future discharges. This resulted in additional remediation costs, some of which related to work on the Jackson Branch pipe and dam (the Jackson Branch Costs). In the course of negotiating the specific manner in which the land should be remediated, however, significant disputes arose between the parties about who should be responsible for which costs. The relationship soured, and this lawsuit resulted.

         Under CERCLA, each party seeks to recover from the other certain costs related to the remediation of the property. ALC's counterclaim also includes state law claims for breach of contract and quantum meruit. Each party suggests that the entirety (or nearly the entirety) of the CERCLA response costs should be borne by the other.

         Dixon contends that response costs, and especially those related to that Jackson Branch June 2013 discharge, are ALC's responsibility. Dixon claims that the parties' initial agreement and the PER provided that Dixon would be responsible only for reseeding the land after ALC completed all other reclamation, including removal of pipes as they were uncovered. With regard to the Jackson Branch discharge, Dixon argues that ALC should have removed the tailings completely from the site long before that ever occurred, rather than keeping stockpiles of them onsite for customers to pick up from Austin Meadows without implementing precautions to prevent them being moved by water and wind. Dixon also contends that ALC repeatedly dragged its feet and failed to abide by the terms of the PER and the parties' initial contract to accomplish a timely removal. Had ALC timely removed the tailings and taken them offsite, Dixon contends, then the tailings would not have been on the property and pollutants from the tailings would not have made their way into the water.

         On the Jackson Branch issue, ALC counters that the pipe and dam failed because of Dixon's negligent failure to maintain them and that Dixon knew as of at least 2011 that the pipe and dam needed repairing. But in any event, ALC contends it is not responsible for the Jackson Branch Costs, both because ALC was not an operator in the area where the pipe and dam failed (which was outside its mining permit boundaries) and because the steps taken in response were all steps that were Dixon's responsibility under the original consent order and the parties' agreements.

         One provision of CERCLA, 42 U.S.C. § 9607, subjects to liability “the owner and operator of a . . . facility, ” 9607(a)(1), and also subjects to liability “any person who at the time of disposal of any hazardous substance owned or operated any facility at which such hazardous substances were disposed of, ” 9607(a)(2), for “(A) all costs of removal or remedial action incurred by the United States Government or a State or an Indian tribe not inconsistent with the national contingency plan; (B) any other necessary costs of response incurred by any other person consistent with the national contingency plan; (C) damages for injury to, destruction of, or loss of natural resources . . .” 9607(a)(4). “To establish a prima facie case of liability under CERCLA, a plaintiff must allege that: (1) release of hazardous substances has occurred, (2) at a ‘facility,' as defined by the statute, (3) that caused the plaintiff to incur response costs, and (4) that the defendants are ‘responsible parties,' again, as defined by the statute and interpretive caselaw.” United States v. High Point Chem.. Corp., 7 F.Supp.2d 770, 774 (W.D. Va. 1998). “Any person may seek contribution from any other person who is liable or potentially liable under section 9607(a), ” and “[i]n resolving contribution claims, the court may allocate response costs among liable parties using such equitable factors as the court determines are appropriate.” 42 U.S.C. § 9613(f)(1).

         Importantly, a number of both factual and legal matters relevant to the CERCLA claims were agreed upon prior to trial. Those agreements were memorialized by the court in its November 22, 2017 Order (Dkt. No. 171), and the court adopts them as part of its findings of fact and conclusions of law. Specifically, the parties agree that:

1. ALC qualifies as an operator under 42 U.S.C. § 9607(a)(1);
2. ALC is a potentially responsible party under 42 U.S.C. § 9607(a)(2), if Dixon can prove that, from 1996 to 2015, there was a disposal and not just mere passive contamination or migration;
3. at least a portion of Austin Meadows is a facility under the definition in § 9601;
4. there were releases and/or threatened releases at Austin Meadows during the period of 1996 to 2015;
5. compliance with the national contingency plan is not at issue in this case, i.e., the parties agree that any response costs Dixon can show it has incurred can be presumed to be necessary and consistent with the national contingency plan; and
6. the harm at the site is not divisible for purposes of apportionment of liability but may be divisible for purposes of allocating harm and determining contribution.

(Order 2, Dkt. No. 171.)

         This leaves four primary issues for the court's resolution, which the court explains in more detail in its conclusions of law. The first two bear on whether Dixon can recover from ALC at all. First, did the parties' agreement transfer all CERCLA response costs to Dixon as ALC contends? For the reasons set forth below, the court's answer is “no.” Second, did the entirety of the response costs for Austin Meadows arise from events prior to ALC's becoming an operator, such that there are no discharges for which ALC could be held responsible under CERCLA? Again, the court's answer is “no.” Instead, the court concludes that there were response costs caused by releases that occurred when ALC was an operator, during 1996 to 2015. Third, does ALC bear any responsibility for the Jackson Branch Costs, which arose from failures at a location near ALC's operations, but outside of its permitted area, and thus (ALC argues), out of the CERCLA “facility”? The court's answer is “yes, ” in part because it concludes that the Jackson Branch Costs are properly considered part of the response costs at the facility where ALC was an operator. Fourth and finally, because the court determines that ALC does bear responsibility for some portion of the remediation costs, the court considers the equities in order to determine how to allocate those costs between the parties. The court's conclusions as to the proper allocation are set forth as part of its conclusions of law.


         A. Standard of Review

         Rule 52(a)(1) of the Federal Rules of Civil Procedure requires that the court make specific findings of fact and state conclusions of law separately in any action tried without a jury. Specifically, this court must appraise the testimony and demeanor of witnesses, as well as weigh the evidence and choose among conflicting inferences and conclusions which seem most reasonable. See Burgess v Farrell Lines, Inc., 335 F.2d 885, 889-90 (4th Cir. 1964).

         The court must do more than announce statements of ultimate fact, United States ex rel. Belcon, Inc. v. Sherman Constr. Co., 800 F.2d 1321, 1324 (4th Cir. 1986), but is not required “to make findings on all facts presented or to make detailed evidentiary findings . . . . The ultimate test as to the adequacy of the findings will always be whether they are sufficiently comprehensive and pertinent to the issues to provide a basis for decision and whether they are supported by the evidence, ” Darter v. Greenville Cmty. Hotel Corp., 301 F.2d 70, 75 (4th Cir. 1962).

         B. Findings of Fact

         The court's factual findings are as follows:

         1. Background regarding deposit of tailings and parties' purchases of land

         Prior to separate parcels being sold by Gulf & Western Industries (G&W) to the parties here, the properties now owned by Dixon and ALC were mined by a division of G&W called New Jersey Zinc Company (NJZ). (June 9, 2017 Mem. Op. 2-6, Dkt. No. 69.) NJZ, like many of the previous landowners of the properties, had mined the properties for lead, zinc, and limestone. As part of NJZ's mining operation, limestone tailings were stockpiled on its properties. (Day 1 Trial Tr. 65.)[3] A “tailing” is a waste by-product of a mining operation. (Day 1 Trial Tr. 65; Day 2 Trial Tr. 27, 28 (explaining that “[t]ailings are a waste material from an effort to separate marketable lead, zinc, or other metals from the mined material”; they no longer have “a marketable concentration” of whatever is being mined, “but there is still some concentration of those metals in the limestone sand”).) According to the PER, the tailings at Austin Meadows contained slightly elevated levels of lead and zinc. (Day 1 Trial Tr. 65; Pl. Ex. 147.)

         In 1982, ALC, which is also a mining company, purchased NJZ's operations, equipment, and millions of tons of limestone tailings stockpiled in an area called “Bunker Hill.”[4] (Mem. Op. 4, Dkt. No. 69.) The property was purchased for the purpose of mining. (Day 1 Trial Tr. 65.)

         In 1984, Dixon, a lumber company that had no interest in commercial mining, purchased the remaining adjacent acreage from NJZ for its timber value. (Day 1 Trial Tr. 65.) At the time of that purchase, there was another large stockpile of limestone tailings on that property, located in an area known as “Austin Meadows.” Based on the testimony of witnesses available today, it is unknown whether the Dixon personnel involved in the acquisition of Austin Meadows knew the tailings were on the property. (Dixon 9/28/2017 Dep. 17; Day 2 Trial Tr. 188-89.) There is no evidence that anyone at Dixon knew the limestone tailings were present, and it is undisputed that the site was revegetated at the time of Dixon's purchase and that most of the tailings were below the surface. Nonetheless, due to the passage of time, Dixon cannot state definitively that the persons purchasing on its behalf did not know of the existence of the tailings.[5]

         In the years leading up to the sale of both properties, NJZ's mining operation was regulated under the Clean Water Act, which required the permitting, monitoring, and reporting of storm water discharges from multiple locations, all of which ultimately drained into the New River. Notably, the Austin Meadows portion of NJZ's property was governed by a “No-discharge” certificate which prohibited the discharge of pollutants from the Austin Meadows tailings pile into the Buddle Branch stream, a tributary of the New River. (Pl. Ex. 54; Day 1 Trial Tr. 206.)

         As part of its purchase of NJZ assets and land, ALC assumed the environmental obligations governing its own property, and ALC continued to mine its own property, the Austinville site, after its purchase. ALC also agreed to “maintain its premises” and to “conduct its activities” so as not to cause NJZ to violate the Austin Meadows no-discharge certificate. (Day 1 Trial Tr. 206; Pl. Ex 54, at ¶ 9.) Thus, ALC clearly had knowledge of the Austin Meadows no-discharge certificate. By contrast, Dixon's purchase from NJZ did not include the assumption of any environmental obligations.

         2. Pre-agreement releases or discharges

         In the summer of 1992, Virginia's State Water Control Board inspected Austin Meadows and determined that a 36-inch concrete pipe underdrain that carried Buddle Branch under the Austin Meadows tailings was failing. (Newman Dep. 24, 28.) Thus, portions of the tailings on that property were being discharged into Buddle Branch, and those discharges constituted unpermitted discharges of pollutants coming from Austin Meadows and negatively affected the water quality of Buddle Branch. (Newman Dep. 24, 28.) In August 1992, the State Water Control Board notified Dixon that, as the owner of Austin Meadows, it was responsible for the environmental problems existing on the property. (Def. Ex. 2.) By that time, the Austin Meadows tailings pile had been inactive for approximately twenty years, and, as explained above, the area was revegetated, such that the tailings were largely below the surface. (Day 1 Trial Tr. 71.)

         In August 1993, DEQ issued Dixon, as owner of the property, a Notice of Violation (NOV) for the unpermitted discharges to Buddle Branch. As several DEQ witnesses testified, a NOV is not a finding that there has been a violation, but it is an allegation of a possible violation. (Bazyk Dep. 28, 30, 193; Davenport Dep. 22.)

         3. The parties' agreement, the PER, and the 1994 consent order

         a. The Parties' Agreement

         After the NOV was issued, DEQ worked with ALC and Dixon to help them reach an agreement about how to deal with the discharges related to the tailings on Austin Meadows and how to remediate the site. (Pl. Exs. 214, 215.)

         The Agreement entered into between the parties (Pl. Ex. 146), dated August 1993, was drafted before the PER; ALC drafted both. (Day 1 Trial Tr. 53-54.) This agreement (the 1993/1995 Agreement)[6] contains the following language concerning the parties' obligations and responsibilities:

NOW, THEREFORE, in consideration of the premises and the mutual covenants and conditions hereinafter contained, the parties hereto agree as follows:
1. Austinville Limestone shall prepare the Preliminary Engineering Review (“PER”) required by the Department, on behalf of Dixon, and in connection therewith shall conduct such tests and maintain such equipment as may be necessary in connection with the PER.
2. Dixon shall reimburse Austinville Limestone for direct costs incurred by it samplings and other services performed by other parties at the direction of Austinville Limestone in connection with its performing as provided in Paragraph 1 above, payable within thirty (30) days after receipt of invoices therefor from Austinville Limestone, provided, however, that such reimbursements shall not exceed a total of Two Thousand Dollars ($2, 000.00).
3. Austinville Limestone shall remove the tailings located on the property owned by Dixon described upon Exhibit A attached hereto (“Property”) over a period not to exceed ten (10) years from the date hereof, in connection with the conduct of its business of selling limestone products from Austinville Limestone's adjoining property. The tailings removed by Austinville Limestone shall become its property for handling in such manner as it may determine and the manner in which such tailings are removed shall be at the discretion of Austinville Limestone, subject to direction of the Department.
4. Austinville Limestone's activities on the Property shall be conducted in a manner that complies with standards acceptable to the Department.
5. All activities conducted on the property by Austinville Limestone shall be considered to be remedial actions on behalf of Dixon for purposes of alleviating or reducing possible contamination of the waters and Austinville Limestone shall not be considered to be an “owner” or “operator”‘ for purposes of laws and regulations enforceable by the Department.
6. After removal of the tailings, it shall be Dixon's responsibility for all reclamation and revegetation of the Property as provided in the PER.
7. At any time after Austinville Limestone has completed and submitted the PER to Dixon, Austinville Limestone may at any time, in its discretion, terminate this Agreement and cease its activities related thereto . . . .

(Pl. Ex. 146.)

         The parties dispute the significance and meaning of several of these paragraphs, and the court's resolution of those disputes is set forth in its conclusions of law. One of the disputes concerns the discrepancy between, on the one hand, the ten-year term for removal in Paragraph 3 of the Agreement and, on the other, both the PER, which states that the tailings could be removed in five years (Pl. Ex. 147, at 4-5), and the Consent Order, which requires that removal be completed within five years (Pl. Ex. 150). As to the ten-year term, Garner testified that the term was in the Agreement before the PER was ever prepared. Pursuant to the later-prepared PER, Dixon contends, the removal was to occur over a period of five years. (Day 2 Trial Tr. 292.) Garner testified that the two time-frames were “consistent” because five years is a term “not to exceed” ten years (Day 2 Trial Tr. 293-94). It appears that the Agreement was re-signed in 1995, however, after approval of the PER and after entry of Dixon's Consent Order with DEQ, and it nonetheless continued to provide a ten-year term for removal. At the same time, Paragraph 3 states that the “manner” of removal is “subject to direction of the [DEQ], ” which arguably incorporates the Consent Order, or at least subjects ALC to some direction and control by DEQ.

         b. The Preliminary Engineering Review (PER)

         Consistent with the requirement in Paragraph 1 of the Agreement, ALC prepared the PER, which it submitted to DEQ on October 12, 1993. (Pl. Ex. 147.) The Agreement itself references the PER, and as noted, the Agreement appears to have been signed another time after the PER was completed and approved by DEQ. (Day 1 Trial Tr. 103); see also supra note 6.

         The PER itself is a relatively short document. It contains several sections giving background about the site and its current conditions, which includes background about how ALC had mined the Bunker Hill site and the statement that ALC “plans to use techniques developed at its Bunker Hill site to remove the Austin Meadows tailings without creating an additional adverse effect on water discharge from the site.” (PER at 3, Pl. Ex. 147.)

         The PER contains two sections that detail the proposed work to be done. The first is titled “Extraction Procedures, ” and the second is titled “Reclamation of the Site.” (PER at 4-5, Pl. Ex. 147.) The “Extraction Procedures” section includes the following statements and activities:

Limestone tailings will be removed from the site using techniques successfully employed at the adjacent Bunker Hill site for the past ten years. Work will generally proceed from south to north. All material could be removed within five years from start of the project. . . . Uncovered sections of 36” drain pipe will be moved as extraction activities proceed to the north.
Fabric filter fences will be erected to filter surface drainage before entry into the drain system. Neither Jackson Branch nor Buddle Branch will be re-routed during the course of the project. When tailings extraction is completed, both Jackson and Buddle branches will flow in their original stream channels.
Water discharge samples will be collected on a monthly basis from the pile underdrain discharge (location #4) . . . . If the water discharge ever exceeds 125% of zinc levels shown in Attachment C, activities will be suspended until zinc levels are again under control. Excursions above 125% of present zinc levels will be reported immediately to DEQ. Results of monthly water monitoring samples will be supplied to [DEQ] on a quarterly basis.


         The entirety of the PER section titled “Reclamation” states: “Upon completion of the removal of the material by [ALC], [Dixon] will reseed the area with suitable vegetation and control erosion as needed. [Dixon] will replant any areas disturbed by the mining process in accordance with any agreement with the Virginia Department of Forestry. Dixon intends that, once reclaimed, this land will be reforested as well.” (Id. at 5.)

         According to Susie Dixon Garner, the current president of Dixon, [7] Dixon agreed to the arrangement because it was told that ALC desired to mine and sell the tailings from Austin Meadows as agricultural lime, and, pursuant to the proposed Agreement, she believed that all that Dixon would have to do was to reseed and revegetate the areas that ALC reclaimed upon completion of ALC's work. (Day 2 Trial Tr. 167-68.) Dixon's belief about the respective obligations was based on her review of the 1993/1995 Agreement, the PER, the Consent Order, and related documents. Id. Of course, ALC also stood to benefit from the Agreement because it already engaged in the mining and sale of limestone tailings. As it had anticipated, ALC was able to sell many tons of the tailings to its customers over the years it mined the tailings, and it earned more than five million dollars in gross sales.

         Notably, the PER contains some assertions by ALC that ALC has now admitted either were inaccurate when made, or were otherwise speculative. (Day 1 Trial Tr. 66-68, 75.) These include the estimated amount of tailings at Austin Meadows (600, 000 tons), where the actual number exceeded 900, 000 tons (Day Trial Tr. 238); the annual amounts that ALC had successfully removed from its own property at Bunker Hill; and the statement that the tailings at Austin Meadows could be removed within five years. (Id.)

         c. The 1994 Consent Order

         After approval of the PER by DEQ, Dixon and DEQ entered into a 1994 Special Order on Consent (the 1994 Consent Order), to which ALC is not a party. (Pl. Ex. 150.) The 1994 Consent Order incorporates the PER by reference (Day 1 Trial Tr. 104; Pl. Ex. 153), and it contemplates that tailings removal will be completed within five years (Day 1 Trial Tr. 92). ALC has admitted that DEQ was relying on both the PER and the Consent Order in its oversight and enforcement roles. (Id. at 93.)

         The Consent Order sets forth relevant background and notes that Dixon agrees to comply with the schedule set forth in the attached Appendix. (Pl. Ex. 150.) It further notes that the schedule allows Dixon to enter into an agreement with ALC, which will serve as a contractor for Dixon to remediate the Austin Meadows site through the removal of the limestone tailings pile. (Id. at 1.) The schedule directed Dixon to begin removal of the tailings pile by June 1, 1994, submit monthly water quality monitoring reports, submit annual reports to DEQ, and complete removal of the tailings pile by June 1, 1999. (Id. at 3, Appendix.) The Appendix also expressly provides that Dixon “shall operate this project in accordance with the PER.” (Id. at 3.)

         d. The DMME Mining Permit

         After entry of the Consent Order, ALC submitted a permit application to DMME, seeking to amend its current permit for its own property to include the retrieval of tailings at Austin Meadows. (DMME Permit Appl., Pl. Tr. Ex. 149.) The permit was required for ALC to remove the tailings from Austin Meadows. That application was submitted on November 27, 1995 (Day 1 Trial Tr. 94), and it included the PER as an attachment. (Id.) After ALC's submission of additional information, DMME issued ALC a mining permit. (Day 1 Trial Tr. 102.) Once ALC obtained the permit, it then had the exclusive right to mine tailings on Austin Meadows. (Day 1 Trial Tr. 95.) ALC did not begin removing tailings, though, until 1998.

         4. Timing of tailing removal and timeline of events from 1993 to 2013

         As noted above, under the 1994 Consent Order, tailings removal was supposed to begin by June 1, 1994. (Day 1 Trial Tr. 105, 109-10.) Almost a year later, in May 1995, ALC wrote to Mr. Allen Newman of DEQ; ALC's letter essentially apologized for the delay in starting tailings removal and explained that ALC had been conducting chemical testing to make sure the tailings would be acceptable to ALC's customers. (Pl. Ex. 145.) The letter advised that ALC intended to start the removal during 1995 and that ALC still believed it could meet the 1994 Consent Order's June 1, 1999 deadline. (Id.)

         In fact, though, ALC did not begin removal until 1998, and, even then, the removal progressed slowly. The number of tons that ALC removed from Austin Meadows during the relevant time period is shown below, along with relevant notes:[8]

1998: Removal begins:[9] 18, 676 tons of tailings removed
1999: 99, 752 tons of tailings removed[10]
2000: 15, 012 tons of tailings removed
2001: 42, 649 tons of tailings removed ...

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