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United States v. Land O'Lakes, Inc.

United States District Court, W.D. Oklahoma

February 22, 2017




         Three decades ago, the United States settled claims with Hudson Oil Refining Company for Hudson's alleged violations of the Resource Conservation and Recovery Act (RCRA) that occurred through the operation of its Oklahoma Refinery. Now, years later, the United States has returned to recoup costs it has incurred and apparently will incur in cleaning up hazardous materials that were released before Hudson owned the Refinery. Yet it seeks to recover not under RCRA, but under an entirely different statute-the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA)- and not from Hudson, but from the party that owned the Refinery before Hudson: Defendant Land O'Lakes, Inc.[1] Defendants insist the Government's CERCLA claims are precluded for a variety of reasons. The Government counters by asking this Court to dismiss Defendants' two counterclaims and to strike eight of its affirmative defenses. (Doc. 34). Defendants have also moved to strike a portion of the Government's Reply brief that it deems procedurally improper. (Doc. 50). For the reasons that follow, the Court GRANTS the Government's Motion (Doc. 34) and DENIES the Defendants' Motion (Doc. 50).


         Hudson's Civil Suit Settlement over the Cushing Refinery

         Call it an ill-fated omen that the small creek of ominous name in Cushing, Oklahoma, was collecting discharge from the local oil and gas refinery. Skull Creek, which winds through the eastern portion of the now-defunct Hudson Oil Refinery Site, had historically received waste from the Refinery. And though the Refinery produced liquid propane gas, gasoline, aviation fuel, diesel fuel, and other fuel oils over the course of its history from 1915-1982, it had not always been in the hands of Hudson. A company called Midland Cooperative Wholesale owned and operated at least part of the Site from 1943 to 1977, during which it allegedly released several hazardous substances that the Government argues now make Midland, or rather its successors-the current Defendants-liable under CERCLA.[2] It was not until 1977 that Midland sold the Site to Hudson.

         Evidently, Hudson's operation of the Site, which ceased in 1982, did not comply with federal law either. The Environmental Protection Agency (EPA) sued Hudson two years later for violating the hazardous waste management requirements of RCRA, 42 U.S.C. § 6901-92k. Of note, RCRA was the Government's sole cause of action in that case; it brought no claims under CERCLA or any other statute. Eventually, though, the EPA and Hudson resolved these claims through settlement. In 1987, this Court entered a Final Consent Decree that required Hudson to undertake RCRA corrective action (i.e., clean-up) activities at the Refinery. See United States of America v. Hudson Refining Co., Inc., and Hudson Oil Co., Inc., No. CIV-84-2027-A (W.D. Okla. 1984) at Doc. 14, Ex. 9. Though each party challenges the other's interpretation of the Decree, its express terms included that the “United States hereby covenants not to sue Defendants and their successors and assigns of the Cushing Refinery for corrective action claims under Section 3008(h) of RCRA, 42 U.S.C. § 6928(h) . . . .” Id. The Government's suit with Hudson came to a close in 1994 when this Court, finding that Hudson had satisfied the conditions of the Consent Decree, entered an Order for Closure of the 1987 Consent Decree and released Hudson from further obligations.

         Hudson's Bankruptcy

         Hudson, in the meantime, faced financial strains. Along with its related companies, it filed Chapter 11 Bankruptcy in 1984 in the U.S. Bankruptcy Court for the District of Kansas. Those proceedings, in which both the Government and Land O'Lakes were creditors and which spanned a number of years, brought about three orders that Land O'Lakes insists are relevant in deciding the Government's Motion today. First, the Bankruptcy Court in 1989 approved a sale of the Cushing Refinery free of all liens and claims. (Doc. 14, Ex. 1). Second, it confirmed a Chapter 11 reorganization plan the following year. (Doc. 14, Ex. 2). And third, it entered its Final Decree in June 1996, finding that “the property dealt with by the Plan is free and clear of all claims and interests of creditors of the Debtor.” (Doc. 14, Ex. 3). Land O'Lakes had held a $5 million mortgage against the Cushing Refinery. After negotiation with the EPA and sale of the Refinery, Land O'Lakes apparently received $1, 755, 000 from sale proceeds. In any event, with the entering of the Final Decree, the bankruptcy estate of Hudson was closed.

         The EPA's Response Actions

         Yet as of 1995, there were still issues surrounding the old Hudson Refinery: the EPA's testing revealed that the Site had never been entirely decontaminated. So in 1998, the EPA initiated an emergency removal action at the Site pursuant to § 104(a) of CERCLA, 42 U.S.C. § 9604(a)(1).[3] Clean-up, inspections, and investigations continued through December 1999. Not surprisingly, the EPA wanted reimbursement for these removal costs and wanted a CERCLA Remedial Investigation and Feasibility Study done at the Site to ascertain the need for further action. To that end, it sent Defendant Land O'Lakes a Special Notice and Demand Letter, pursuant to § 107 of CERCLA. That provision provides that the owner or operator of a facility (or a person who owned or operated a facility) that disposed of hazardous substances will be liable for the costs of removal or remedial actions incurred by the Government. 42 U.S.C. § 9604(a)(1)-(2).

         To be sure, Land O'Lakes had nothing to do with the Government's earlier civil action against Hudson. Rather, in 1982 Land O'Lakes had merged with Midland Cooperative Wholesale, the prior owner of the Refinery. The Government's Demand Letter sought to recover costs incurred in cleaning up substances allegedly released during Midland's pre-1977 operation of the facility. Land O'Lakes, arguing it had no liability at the Site, declined to clean up the Site. So the EPA conducted additional CERCLA removal from 2001 to 2003, and along with the Oklahoma Department of Environmental Quality, performed a Remedial Investigation and Feasibility Study from 2004 to 2007 to identify possible remedies for cleaning up the Site. After the EPA incorporated those findings into a CERCLA Record of Decision that identified the final cleanup remedies for the Site, it sent yet another Special Notice to Land O'Lakes directing it to carry out those remedies. Once more, Land O'Lakes said no. In response, the EPA issued Land O'Lakes a unilateral administrative order (UAO) under § 106(a) of CERCLA, 42 U.S.C. § 9606(a), requiring Land O'Lakes to perform the remedial design and action work at the Site.[4] With little choice-§ 9606(b) dictates that refusal can result in a fine of $25, 000 per day-Land O'Lakes alerted the EPA in February 2009 that it intended to comply with the UAO.[5] To do so, Land O'Lakes then formed Cushing, Oklahoma Brownfields, LLC, a week later to acquire the Site to enable clean up. Brownfields still holds title to the majority of the Site.

         Clean up continued until 2015 with the EPA overseeing Land O'Lakes' work under the 2009 UAO. Finally, in June 2015, the United States formally demanded CERCLA reimbursement costs of $23, 424, 243.76 allegedly incurred by the EPA in cleaning up the Site through February 28, 2015, plus interest in the amount of $4, 818, 215.45.

         The Civil Suits Between Land O'Lakes and the United States

         Rather than pay these amounts, Land O'Lakes sued the Government, seeking a declaratory judgment that it was not liable to the Government for past costs to clean up the Site under CERCLA and asserting a citizen-suit claim under RCRA. This Court dismissed that suit for lack of subject matter jurisdiction: CERCLA “bar[red] subject matter jurisdiction over [Land O'Lakes'] claims unless and until the EPA file[d] a cost recovery claim under § 107 of CERCLA. At that time, [Land O'Lakes] could pursue these claims as defenses to liability under CERCLA.” Land O'Lakes, Inc. v. United States, No. CIV-15-683-R, 2016 WL 552966, at *3 (W.D. Okla. Feb. 10, 2016).[6] Now the EPA has done just that. Alleging that Land O'Lakes (through its predecessor Midland) released hazardous substances at the Site before 1977 (when it sold the Refinery to Hudson), thereby inviting liability under CERCLA, [7] the Government seeks the recovery of costs that it either has incurred or will incur in cleaning up the Site. In response, Defendants assert two counterclaims and several affirmative defenses. The Government asks this Court to strike several of those affirmative defenses and to dismiss the two counterclaims. (Doc. 34). Defendants have also asked this Court to strike a portion of the Government's Reply brief that they allege is procedurally improper. (Doc. 50).


         The Court first takes up Defendants' Motion to Strike a portion of the Government's Reply (Doc. 49) that Defendants argue is procedurally improper for the Government's failure to raise the issue in its original Motion to Strike. By way of background, the Government originally asked the Court to strike Defendants' affirmative defenses that were based on the Government's civil settlement with Hudson. When Defendants responded by arguing that the Government failed to grasp that Hudson's earlier bankruptcy proceedings barred this CERCLA action, the Government's Reply then requested the Court strike Defendants' affirmative defenses that relied on the bankruptcy proceedings-defenses three, four, five, and six.

         “[T]he general rule in this circuit is that a party waives issues and arguments raised for the first time in a reply brief.” M.D. Mark, Inc. v. Kerr-McGee Corp., 565 F.3d 753, 768 n.7 (10th Cir. 2009); see also Wheeler v. Comm'r, 521 F.3d 1289, 1291 (10th Cir.2008) (“issues raised by an appellant for the first time on appeal in a reply brief are generally deemed waived”). That said, the exception to the rule is when “the new issue argued in the reply brief is offered in response to an argument raised in the [defendants'] brief.” Beaudry v. Corr. Corp. of Am., 331 F.3d 1164, 1166 n.3 (10th Cir. 2003). Here, the Government originally moved to strike Defendants' Hudson-settlement-affirmative defenses (seven through ten), never mentioning the impact of the bankruptcy proceedings. In response, Defendants, arguing that the Government's motion ignored the impact of the bankruptcy proceedings, devoted half of their brief to explaining why the Orders from the bankruptcy case bar this CERCLA action. Defendants opened the door to a decision on the impact of the bankruptcy proceedings. Defendants' Motion to Strike is therefore denied.


         The Government has moved to strike Defendants' affirmative defenses three through ten. Defenses seven through ten all argue, in some form or fashion, that the United States' 1987 settlement with Hudson, specifically the Consent Decree entered by the Court, bars the United States from bringing its CERCLA claims. Because the Consent Decree does not provide Defendants with any release of liability on potential CERCLA claims, those affirmative defenses must be stricken as a matter of law. Similarly, Defendants affirmative defenses three through six contend that orders entered by the Court in Hudson's bankruptcy proceedings preclude the Government's case. Those arguments are legally insufficient and are stricken as well.

         Standard of Review on a Motion to Strike

         Federal Rule of Civil Procedure 12(f) allows a court to “strike from a pleading an insufficient defense.” The rule “conserve[s] time and resources by avoiding litigation of issues which will not affect the outcome of a case.” Sierra Club v. Tri-State Generation and Transmission Ass'n, Inc., 173 F.R.D. 275, 285 (D. Colo. 1997). It also serves “to minimize delay, prejudice, and confusion by narrowing the issues for discovery and trial.” Resolution Trust Corp. v. Schonacher, 844 F.Supp. 689, 691 (D. Kan. 1994). And in deciding a motion to strike an affirmative defense, “the Court must examine each affirmative defense at issue to ascertain whether any question of fact or law is raised by the defense. If a defense raises such a question, then the motion to strike is improper and the issue must be decided subsequently on the merits, when more information is available.” United States v. Hardage, 116 F.R.D. 460, 463 (W.D. Okla. 1987). The decision to strike a defense, however, remains “within the district court's sound discretion.” Unger v. U.S. West, Inc., 889 F.Supp. 419, 422 (D. Colo. 1995). That said, insufficient defenses may be stricken where, “as a matter of law, the defense cannot succeed under any circumstances.” F.D.I.C. v. Isham, 782 F.Supp. 524, 530 (D. Colo. 1992). And in particular, “[i]t is not unusual . . . for courts to use a motion to strike for dealing with insufficient defenses raised in CERCLA cost recovery actions.” Kelley v. Thomas Solvent Co., 714 F.Supp. 1439, 1442 (W.D. Mich. 1989).

         Land O'Lakes' Affirmative Defenses Seven, Eight, and Ten

         Three of Land O'Lakes' affirmative defenses center on the civil-suit settlement between Hudson and EPA, specifically the Consent Decree entered by the Court in 1987 and the Closure Order entered in 1994. Because those defenses flow from a plain misreading of the those Orders, all must be stricken under Rule 12(f) for lack of sufficient legal basis: the Government never covenanted not to sue for CERCLA violations, and in any event, the Government expressly reserved the right to sue under other federal statutes such as CERCLA.

         A consent decree, such as the one entered in the Hudson case, is simply “a negotiated agreement that is entered as a judgment of the court.” Sinclair Oil Corp. v. Scherer, 7 F.3d 191, 193 (10th Cir. 1993). It is an order “to be construed for enforcement purposes basically as a contract, ” meaning that “the terms of the decree and the respective obligations of the parties must be found within the four corners of the consent decree.” 194. With that in mind, the Court turns to the Defendants' affirmative defenses predicated on the 1987 Consent Decree.

         First consider Defendants' seventh affirmative defense: that Land O'Lakes “is covered by, and the beneficiary of, the protections from environmental liability it received in the Lawsuit Orders [the Consent Decree and Closure Order] regarding the [Cushing Refinery] Site.” (Doc. 14, at 26). As evidence of their status as beneficiaries under the Consent Decree, they point to the Consent Decree's condition that “United States hereby covenants not to sue Defendants and their successors and assigns of the Cushing Refinery for corrective action claims under Section 3008(h) of RCRA, 42 U.S.C. § 6928(h), for conditions addressed in the United States' Second Amended complaint that were known by the United States and existing as of the date of lodging of this decree.” (Doc. 14, at 26) (emphasis in original). Also relevant, they insist, is the Consent Decree's provision that the covenant not to sue “shall be applicable to Defendants' immediate predecessor in interest of the Cushing Refinery.” (Id.). In other words, Defendants contend the Government covenanted not to sue them ...

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