The opinion of the court was delivered by: SYLVIA H. RAMBO
In this action initiated by the United States of America under the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. § 9607(a), as amended by the Superfund Amendments and Reauthorization Act (SARA), (hereinafter CERCLA, § 107(a)), the original Defendants grouped as "Generator Defendants" have moved for a preliminary injunction. The Generator Defendants seek to prevent and/or halt the dissipation of assets now or formerly belonging to original Defendants Keystone Sanitation Company ("Keystone"), Kenneth Noel, and Anna Noel (collectively, the "Keystone Defendants"). As related matters, the Generator Defendants also filed motions: (1) to amend their deemed crossclaim against the Keystone Defendants
to assert a state law claim for fraudulent conveyance under 39 P.S. Section 351 et seq., and 12 Pa. Cons. Stat. Ann. Section 5101-5110 et seq.; (2) to join as additional defendants to that crossclaim the Noels' four adult children, the separate Trusts created for each of the four children, the Noel Family Trust, Trustee Mary Keller (Anna Noel's sister), and the Flatbush Golf Course, Inc., which formerly was owned by the Noels, but is now in trust for their children; and (3) for a preliminary and permanent injunction against these additional defendants to prevent further conveyances and dissipation of the assets, and to compel the return to Keystone and the Noels of fraudulently conveyed property.
The basic facts underlying the litigation have been set forth in previously published memoranda. An understanding of the instant decision will benefit from a brief reiteration of basic CERCLA law, along with a thorough explanation of the labrynth of facts, motions, and rulings that are intertwined with this request for injunctive relief.
On September 27, 1993, the United States initiated this CERCLA action to recover costs expended by the Environmental Protection Agency (EPA) in responding to the contamination of the Keystone Sanitation Landfill Site up until September 27, 1990. The complaint also seeks a declaratory judgment of the liability of the Defendants for future response costs that will be incurred in implementing remedial action at the Site. Pursuant to CERCLA's § 107(a) framework, the United States named eleven Defendants as potentially responsible parties (PRPs). Eight of the original PRPs -- those referred to as the "Generator Defendants" -- were joined under § 107(3), on the theory that they contracted, agreed, or otherwise arranged to dispose of hazardous waste at the Keystone Site or transport such waste to the Site. These Generator Defendants are represented by Liaison Counsel. The other three original PRPs -- those referred to as the Keystone Defendants, were joined under § 107(a)(1), (2), and/or (3) as the owners or operators of the Keystone Site and as arrangers and transporters of waste to the Site. The Keystone Defendants are represented by the law firm of Reed, Smith, Shaw & McClay.
In August 1994 the Generator Defendants joined numerous Third-Party Defendants as additional PRPs. These Third-Party Defendants are represented by Liaison Counsel, with the exception of Waste Management of Pennsylvania, Inc. (Waste Management).
The Third-Party Defendants, in turn, are now in the process of identifying numerous Fourth-Party Defendants for joinder in the near future.
Under CERCLA's strict liability scheme, each original PRP found to have transported any amount of hazardous waste to the Keystone Site is subject to joint and several liability to the United States regardless of relative responsibility, unless a PRP can show that its harm was divisible. See Tippins Inc. v. USX Corp., 37 F.3d 87, 92 (3d Cir. 1994); United States v. Alcan Aluminum Corp., 964 F.2d 252, 257-58 (3d Cir. 1992) (citations omitted). It follows that, in theory, the United States could recover the full amount of any ultimate judgment from any one liable PRP. As a practical matter, in most CERCLA § 107(a) actions, liability is eventually apportioned among all liable original and additional PRPs through the contribution action available under CERCLA § 113(f)(1) or, more likely, through settlement procedures that encompass equitable contribution principles. Nonetheless, the prospect that a PRP which should bear a substantial share of the ultimate liability will be unable to do so is of serious concern to other CERCLA Defendants.
With this liability scheme confronting them, the Generator Defendants requested this court to grant them injunctive relief based on allegations that the Keystone Defendants have transferred and will continue to transfer Keystone and personal assets to the Noels' adult children or other relatives, or to the children's trusts, for the purpose of removing the assets from the reach of this litigation. Allegations to this effect have been voiced for some time, and it is worth tracking the sequence of motions, conferences, and orders that have addressed the allegations to date.
To begin with, on August 12, 1994, the court approved a stipulation whereby Keystone itself was enjoined from transferring any of its assets pending the outcome of this litigation, with the exception that Keystone could, inter alia, make payments to the Noels in the ordinary course of business, as defined therein. This stipulation did not address the transfer of the Noels' personal assets, or any conveyances by the Keystone Defendants that might have occurred prior to the entry of the stipulation. The Noels refused to sign a stipulation that would limit the amount they could take from Keystone for themselves, or prevent them from disposing of assets previously taken from Keystone after the initiation of the EPA's investigation of the Keystone Site.
On August 24, 1994, the court first addressed the allegations of ongoing dissipation of assets, when it held an in-person conference with counsel for the Generator Defendants, and counsel for the Keystone Defendants. At that conference, the Generator Defendants directly alleged that after the EPA commenced its investigation of the Keystone Site, the Noels commenced a plan to divest themselves and Keystone of assets for the specific purpose of escaping any share of the response costs sought by the United States. The immediate goal of the Generator Defendants at that point was to obtain responses from the Keystone Defendants to discovery requests directed to the Noels' personal finances, the sale of Keystone assets to Waste Management of Pennsylvania, Inc., and the disposition of those proceeds and other sums of money, for the time period between 1990 and August 1994. The Generator Defendants questioned whether the Noels' transferred to themselves proceeds from the sale to Waste Management, or other assets from Keystone. They also questioned the Noels' transfers of funds to their adult children. The Noels refused to respond to the requests, claiming that such information would be pertinent, if ever, to the execution of any eventual judgment, and that requiring the Noels to produce it would be burdensome and invasive of their privacy at that point.
The court disagreed, and on August 26, 1994, issued a memorandum and order directing the Noels to respond to the discovery requests. The court reasoned that one of CERCLA's primary goals was to ensure that those who cause or profit from contamination of the environment will bear the costs of clean-up. As owners of the Keystone Site, the Noels are likely to be held liable for a substantial share of all approved response costs, so the court found it preferable to learn at that time whether there was any merit to the allegations about dissipation of assets. Therefore, the court ordered the Noels to respond to discovery requests directed to the transfer of their personal assets since 1990, the sale of Keystone assets to Waste Management, the disposition of any of the stock and cash received through the sale to Waste Management, and the Noels' financial dealings with Keystone. The court further directed the Keystone Defendants to submit a detailed statement of any privilege claimed in response to the discovery requests. The parties then proceeded with discovery on the assets issue, and the Keystone Defendants did produce certain documents.
On October 19, 1994, the court ruled that due to the inadvertent disclosures, the Keystone Defendants had waived any privilege that might have protected their attorneys' billing statements from disclosure, but narrowly interpreted the waiver to reach only billing statements that referenced narratives and identities of attorneys related to the Keystone Defendants' disposition of assets since 1990. Accordingly, the court directed the Keystone Defendants to produce in unredacted form all attorney billing statements concerning legal services related to any transfers of assets discussed in the court's August 26 order.
The Keystone Defendants did not produce the billing statements but, instead, moved for reconsideration of the order. About the time that motion became ripe, the Generator Defendants filed their request for injunctive relief. The court scheduled an injunction hearing for January 20, 1995, and meanwhile proceeded with the motion for reconsideration. On January 13, the day the court was completing its memorandum on that motion, the parties contacted the court with yet another discovery dispute revolving around the assets issue. The deposition of Anna Noel was being taken for the preliminary injunction hearing, and the Generator Defendants had asked Mrs. Noel about any communications between her and her accountant and/or her attorneys related to the disposition of the assets of Keystone and the Noels. Her counsel asserted an accountant/client privilege, as well as the attorney/client privileges.
After conducting a conference call to discuss the dispute, the court issued the January 13 memorandum, which addressed both the motion for reconsideration and the privilege claims asserted in Anna Noels' deposition. Adhering to its October 19, 1994, ruling, the court again directed the Keystone Defendants to produce the billing memoranda, and further ruled that the same waiver applied to the deposition questions directed to Anna Noels' communications with her attorneys about the transfer of Keystone and personal assets. As to the accountant, the court held that federal common law applied to the issue, and there was no federal accountant/client privilege.
The Keystone Defendants then asked the court to stay the January 13 ruling insofar as it addressed the attorney/client privilege, while they petitioned the Third Circuit Court of Appeals for a writ of mandamus. The court complied, but the Third Circuit denied the mandamus petition by order dated May 12, 1995. The Keystone Defendants then made a request for either panel or en banc rehearing. The Third Circuit refused and issued its mandate on the matter on June 19, 1995. Still resolute, the Keystone Defendants moved this court to continue the stay of its October 19, 1994, and January 13, 1995, orders, while they petitioned for a writ of certiorari to the United States Supreme Court to appeal the Third Circuit's denial of mandamus. The briefing on this latest motion to stay was completed on July 10, 1995, and the court will address it at the end of this memorandum.
Meanwhile, the court had conducted the preliminary injunction hearing on January 20, 1995, which was a consolidated hearing for purposes of the requests for injunctive relief against the Keystone Defendants and the proposed additional crossclaim defendants. The hearing had to be abbreviated due to this court's urgent personal matter. Therefore, the parties agreed to submit the hearing testimony of Anna Noel by deposition. This deposition was taken on January 30, 1995, transcribed, and submitted to the court on February 14, 1995. Thereafter, the parties submitted proposed hearing exhibits as well as additional briefs and correspondence on the issues.
The settlement period now has ended. The court recently ruled on the issue of discovery beyond the administrative record, and in the near future the court will embark upon judicial review of the ROD and administrative record. The Keystone Defendants have suggested that a decision on the ROD is necessary before any decision can be made with respect to the Generator Defendants' request for injunctive relief. The court does not agree that consideration of the request for injunctive relief need be delayed any further, and will now address it.
The threshold issue here is whether a district court has the authority to enjoin a defendant from dissipating assets on the grounds that it is necessary to ensure the ability of the defendant to satisfy a money judgment against it. The court finds that there is such authority, although any encumbrance must be reasonably related to the amount of the ultimate potential judgment. See Hoxworth v. Blinder, Robinson & Co., Inc., 903 F.2d 186, 194-97 (3d Cir. 1990); see also In re Estate of Ferdinand Marcos, Human Rights Litig., 25 F.3d 1467 at 1476 (9th Cir. 1994).
A party seeking such relief must first satisfy the well-established preliminary injunction standards. These standards include: (1) a reasonable likelihood of success on the merits; (2) irreparable injury to the movant if the injunctive relief is not provided; (3) a showing that the grant of injunctive relief will not result in greater harm to the nonmoving party than the denial would visit upon the moving party; and (4) a showing that granting the injunction would serve the public interest. See Gerardi v. Pelullo, 16 F.3d 1363, 1373 (3d Cir. 1994); Hoxworth v. Blinder, 903 F.2d at 197-98.
The Keystone Defendants have made no effort to deny that transfers of assets occurred. They urge, instead, that any transfers were proper and, more important, that the court lacks authority to enjoin any assets in the possession of the Noels or the proposed additional crossclaim defendants. The Keystone Defendants place considerable emphasis on the language in Hoxworth requiring a determination of a "reasonable relationship" between the amount and type of encumbered assets and the expected recovery. They suggest that the Generator Defendants must establish the Keystone Defendants' likely share of liability with precision, as well as the likely inadequacy of their assets to satisfy such liability, and they say that the Generator Defendants cannot do so at this stage of this litigation. They further propose that the Generator Defendants cannot deny liability to the United States, as they have done in certain pleadings and discovery materials, and yet establish a likelihood of harm by being subject to a disproportionate share of CERCLA liability to the United States.
As a corollary, the Keystone Defendants maintain that in order for this court to make an acceptable determination of any party's potential liability for purposes of these injunction proceedings, it must first complete its judicial review of the ROD and rule on whether the costs and expenses claimed by the EPA will, in fact, be assessed against any of the Defendants in this case. In that regard, the Keystone Defendants claim that the only potential liability that is ascertainable at this point amounts to approximately $ 500,000.00 -- that is, the approximate $ 1.4 million actually spent by the EPA on the Keystone Site to date, minus the amount already recovered through the de minimis consent decree entered in the related United States v. Borough of Lemoyne, 4:CV-93-0667 (M.D. Pa. 1994). In sum, their position is that other than this $ 500,000.00 in past response costs, neither their CERCLA liability, nor that of the Generator Defendants, is sufficiently ascertainable to satisfy Hoxworth.
The court does not read Hoxworth as requiring so precise a calculation of potential damages. In Hoxworth, the Third Circuit simply made it clear that a preliminary injunction is appropriate where there are extraordinary circumstances indicating that one is necessary to preserve a damages remedy. The Hoxworth court's caveat was that such relief is never appropriate without an attempt to ensure that the value of the assets encumbered bears some reasonable relationship to the likely amount of plaintiff's expected recovery, and without a determination that an unsatisfied money judgment would constitute irreparable injury to the party seeking the injunction. The Hoxworth court also indicated that the property to be encumbered should be the same as that which would be subject to the any liability at issue in the case. The Hoxworth court vacated the injunction entered in that case because the district court had made no such determinations.
In applying Hoxworth to a CERCLA action, the only sensible approach is to consider CERCLA's strict, joint and several liability, the costs estimated in the ROD, the identity of the PRP against whom injunctive relief is sought, and the property sought to be encumbered and its relationship to the CERCLA action. From there, the court can determine whether to encumber any of the PRP's assets and, if so, how much would bear a reasonable relationship to the ultimate potential liability of the PRP. The court does not believe that Hoxworth's "reasonable relationship" requirement encompasses a precise calculation of each party's ultimate CERCLA liability, a determination that ...