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Hanoverian, Inc. v. Pennsylvania Dep't of Environmental Protection

March 31, 2008

HANOVERIAN, INC. ET AL., PLAINTIFFS
v.
PENNSYLVANIA DEPARTMENT OF ENVIRONMENTAL PROTECTION, DEFENDANT



The opinion of the court was delivered by: (Chief Judge Kane)

MEMORANDUM

Before the court are the Pennsylvania Department of Environmental Protection's motion to remand the above-captioned action to the Pennsylvania Environmental Hearing Board (Doc. No. 6) and its motion for sanctions, including attorney's fees incurred in connection with the removal of the action, against Hanoverian, Inc., Donald Metzger, the 200 Cascade Drive Ordinary Trust, plaintiffs' counsel Donald Litman, and the law firm of Edwards and Litman with which Donald Litman is affiliated (Doc. No. 20). For the reasons that follow, the Court will grant the motion to remand, deny the motion for sanctions with respect to Hanoverian, Inc., Donald Metzger, and the 200 Cascade Drive Ordinary Trust, and grant the motion for sanctions with respect to Donald Litman and the law firm of Litman and Edwards.

I. BACKGROUND

In 1981, the Pennsylvania Department of Environmental Protection ("Department") issued a solid waste permit ("Permit") to Quaker Alloy Casting Company ("Quaker Casting") for a landfill at 200 East Richland Avenue in Myerstown, Pennsylvania ("Landfill"). (Doc. No. 9-3, at 5.) The Department modified the permit on several occasions thereafter, most notably on September 29, 1986, to authorize the transfer of the Landfill's ownership from Quaker Casting to Quaker Alloy, Inc., (Id., at 12) ("Quaker Alloy") and on July 5, 2000, to allow captive processing of residual waste (Id., at 24; see also id., at 26). The application (id., at 30, 37) for the latter modification identifies the applicant as "Quaker Alloy, Inc." and includes Quaker Alloy's employer and taxpayer identification numbers (id., at 31, 37).

A. The Bankruptcy Proceedings

On August 4, 2003, Atchison Casting Corporation ("Atchison") and twelve of its domestic subsidiaries, including Quaker Alloy, ("Debtors") filed voluntary petitions for Chapter 11 bankruptcy relief in the United States Bankruptcy Court for the Western District of Missouri ("Bankruptcy Court"). (Doc. No. 9-5; see also Doc. No. 9-7, at 3.) Quaker Alloy's petition identifies the debtor as "Quaker Alloy, Inc." and, like the application for the July 2000 modification, includes Quaker Alloy's taxpayer identification number. (Id., at 2.) That same day, the Bankruptcy Court issued an order authorizing the joint administration of the Debtors' cases, and directing that all pleadings be filed at the docket number for the Atchison case. (Doc. No. 9-6, at 2.) On January 15, 2004, the Bankruptcy Court entered an order authorizing the sale of Quaker Alloy's assets ("Sale Order") (Doc. No. 9-10), and, one week later, appointed Erlene Krigel ("Krigel") as the trustee in bankruptcy for the Debtors (id.).

The Sale Order authorized the sale of Quaker Alloy's remaining assets subject to, inter alia, the following terms and conditions:

C. The sale of the Assets shall be free and clear of liens and all other claims whatsoever pursuant to section 363(f) of the Bankruptcy Code, whether known or unknown, including, but not limited to, any existing right(s) of first refusal or similar protective right alleged by any party, except as specifically referenced herein, any liens and claims of any of the Debtors' creditors, vendors, supplies, employees or lessors, and the buyers shall not be liable in any way for any claims that any of the foregoing or any other third party may have against the Debtors or the Assets. Any and all alleged liens and claims on such Assets shall be transferred, affixed, and attached to the proceeds of the sale, with the same validity, priority, force, and effect as such liens had been upon the Assets immediately prior to the sale.

E. Subject to the payment by the buyer(s) to Debtors of the purchase price for the Assets, the sale of the Assets by the Debtors to the buyer(s) shall constitute a legal, valid and effective transfer of the Assets and shall vest buyer(s) with all right, title, and interest of the Debtors in and to the Assets, free and clear of all liens pursuant to section 353(g) of the Bankruptcy Code. (Doc. No. 1-7, at 27-28.) At a public auction held March 23, 2004, Hanoverian, Inc. ("Hanoverian") submitted the winning bid of $540,000 for the Landfill. (Doc. No. 27, at 8; Doc. No. 27-2, at 2; Doc. No. 1-4, at 9.) On April 8, 2004, Linda Houseal, the solid waste supervisor at the Department's South-central Regional Office, informed Thomas Marks, an environmental consultant in the employ of Hanoverian, that, pursuant to Pennsylvania law, the Department would require any purchaser of the Landfill to obtain a permit reissuance and bond the Landfill. (Doc. No. 9-3, at 4.) Krigel sold the Landfill to Hanoverian by a quitclaim deed dated April 9, 2004. (Doc. No. 1-7; Doc. No. 1-4, at 11.)

Sometime after purchasing the Landfill, Hanoverian contacted Krigel and expressed an interest in purchasing the corporate name of "Quaker Alloy, Inc." ("Corporate Name"). See In re Atchison Casting Corp., No. 03-50965, Trustee's Motion for Order Authorizing Sale of Corporate Name, at 2 (Bank. W.D. Mo. June 30, 2004). On June 30, 2004, Krigel moved the Bankruptcy Court for authorization to sell the Corporate Name to Hanoverian for $1,500. Id. The Bankruptcy Court subsequently issued an order authorizing the sale (Doc. No. 1-4, at 21), and, by a bill of sale dated August 3, 2004, Krigel transferred "unto Hanoverian, Inc., Trustee for the 200 Cascade Drive Ordinary Trust . . . all of Seller's right, title and interest in and to the corporate name of Quaker Alloy, Inc." (Id., at 25). As the Department observes in its brief, neither the order nor the bill of sale contemplate "the sale of the corporation known up until that time as 'Quaker Alloy, Inc.' or the sale of any rights that corporation had under the Permit." (Doc. No. 9, at 10.) On August 9, 2004, the Debtor previously known as "Quaker Alloy, Inc." filed a notice with the Bankruptcy Court indicating that "it ha[d] changed its corporate name to Quaker Administration, Inc., such name change being occasioned as a result of the sale of the Debtor's corporate name to Hanoverian, Inc., Trustee for the 200 Cascade Drive Ordinary Trust . . . ." (Doc. No. 1-4, at 23.)

B. The Environmental Hearing Board Appeals

On April 24, 2006, Hanoverian's general counsel Craig Edwards ("Edwards") sent a letter to the Department's assistant counsel James Bohan ("Bohan") in which he stated: "With regard to the ownership of [the Landfill], the deeded owner is Hanoverian, Inc. as trustee. The landfill parcel is being transferred to Quaker Alloy, Inc. (which was a name obtained from the bankruptcy trustee). . . . To my knowledge, as [t]rustee for the 200 Cascade Drive Ordinary Trust, Hanoverian, Inc. is not required to be registered to do business in Pennsylvania." (Doc. No. 1-10, at 17.) Fifteen days later, the Department sent a letter to Krigel, notifying her that the Permit had been revoked "[b]y virtue of Quaker Alloy, Inc.'s . . . dissolution, and Quaker Alloy abandoning the permitted facility without providing for final closure." (Doc. No. 9-4, at 5.) The Department sent a copy of the letter to Quaker Alloy at its address of record in Myerstown, Pennsylvania, that same day. (Id., at 3, 8.) Two days later, the letter to Quaker Alloy came back to the Department marked "not deliverable as addressed; unable to forward."

(Id.) In addition to the letters, the Department published notice of the revocation in the July 29, 2006, issue of the Pennsylvania Bulletin. (Doc. No. 9-20, at 2.)

1. The Permit Revocation and Bond Forfeiture Appeals

On August 28, 2006, Hanoverian filed a notice of appeal with the Pennsylvania Environmental Hearing Board ("EHB") challenging the Department's decision to revoke the Permit ("Permit Appeal"). (Doc. No. 1-5, at 6.) In early September, the Department declared the bond for the Landfill, submitted by "Quaker Alloy, Inc." in 1986, forfeited and proceeded to collect thereon. (Doc. No. 9-3, at 15; see also id., at 22; Doc. No. 1-5, at 17.) On October 4, 2006, the Department served Hanoverian with its first set of interrogatories and first request for production of documents in connection with the Permit Appeal. (Doc. No. 9-16.) A good number of the interrogatories questioned Hanoverian's authority to do business in Pennsylvania, either under the name "Hanoverian" or under fictitious names with the words "Quaker" or "Alloy." In particular, the Department requested that Hanoverian:

1. Please list each state: (a) In which Hanoverian has been incorporated as well as the date of incorporation in each state. (b) In which Hanoverian is legally qualified to conduct business. . . .

2. Please list all trade or other names under which Hanoverian has done business from the date of [Hanoverian's] incorporation to the present; and the state(s) in which Hanoverian has done business under each name. . . .

8. In what state(s) does Hanoverian contend that it is doing business as "Quaker Alloy"? . . . If Hanoverian contends that it is doing business as "Quaker Alloy" in Pennsylvania, please: (i) State the factual basis for this contention. (ii) Identify all persons with knowledge or information supporting this contention. (iii) Identify any and all documents containing information relevant to this contention.

(Doc. No. 9-16, at 5, 6, 8.) On November 15, 2006-forty-two days after serving Hanoverian with its first interrogatories-the Department filed a motion to compel discovery with the EHB. (Doc. No. 9-17, at 2.) Five days later, Hanoverian filed a notice of appeal with the EHB, contesting the forfeiture of the bond ("Bond Appeal"). (Doc. No. 1-5, at 12.) On November 22, 2006, Hanoverian filed an application for a certificate of authority (Doc. No. 9-21) and an application for registration of the fictitious name "Quaker Alloy" (Doc. No. 9-22) with the Corporations Bureau of the Pennsylvania Department of State. Edwards executed both applications in his capacity as Hanoverian's general counsel. (Doc. No. 9-21, at 3; Doc. No. 9-22, at 3.)

2. The Administrative Order and the Articles of Amendment

On December 7, 2006, the EHB issued two orders, one granting the Department's motion to compel discovery (Doc. No. 1-8) and another consolidating Hanoverian's appeals under the docket number for the Permit Appeal (Doc. No. 9-17, at 3). That same day, the Department issued an administrative order ("Administrative Order") to Hanoverian and its president Donald Metzger ("Metzger") (Doc. No. 9, at 15), for past and ongoing violations at the Landfill, namely, owning and operating the Landfill without first obtaining a permit reissuance or submitting a bond, and failing to implement an approved closure plan or a provide adequate sampling and analysis (Doc. No. 9-24, at 10-12). Litman responded to the order in a letter sent to Bohan the following week, wherein he asserted, among other things, that "Quaker Alloy, Inc. is no longer the [sic] bankrupt entity, as Quaker Alloy, Inc. (along with all right title [sic] and interest of the name-including the permit) belongs to my client, Hanoverian, Inc." and "Quaker Alloy is alive and well . . . ." (Doc. No. 1-8, at 22.)

On December 26, 2006, Edwards filed articles of amendment to Quaker Alloy's articles of incorporation-more precisely, the articles of incorporation filed by a Missouri attorney in 1994-with the Pennsylvania Corporation Bureau. (Doc. No. 9-23, at 2, 10.) In the filing form that accompanied the articles, Edwards indicated that Quaker Alloy's registered office was "c/o Hanoverian, Inc." in Coopersburg, Pennsylvania, (id.) and attested that "[t]he amendment was adopted by ...


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