MRP Props., LLC v. United States

308 F.Supp.3d 916

MRP PROPERTIES, LLC, et al., Plaintiffs,

v.UNITED STATES of America, Defendant.

Case No. 17–cv–11174

United States District Court, E.D. Michigan, Northern Division.

Signed April 4, 2018

Jill M. Wheaton, Dykema Gossett, Ann Arbor, MI, John A. Ferroli, Dykema Gossett, Grand Rapids, MI, Mark Vincent Donatiello, William James Jackson, William Creeger Petit, Kelley Drye & Warren, LLP, Houston, TX, Givonna S. Long, Kelley Drye & Warren LLP, Chicago, IL, for Plaintiffs.

C. Scott Spear, U.S. Department of Justice Environmental Defense Section, Kate R. Bowers, U.S. Department of Justice Environment & Natural Resources Divisions, Washington, DC, Lynn Marie Dodge, U.S. Attorney's Office, Detroit, MI, for Defendant.

ORDER GRANTING MOTION TO DISMISS AND DISMISSING COMPLAINT WITHOUT PREJUDICE

THOMAS L. LUDINGTON, United States District Judge

Plaintiffs MRP Properties, et al., filed their complaint against Defendant United States of America on April 13, 2017, under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA). Plaintiffs seek payment of response costs arising from investigation and cleanup of contamination at Plaintiffs' refineries, contending that the United States exercised control over the refineries before and during World War II. Am. Compl., ECF No. 1. Plaintiffs did not initially serve the Complaint on Defendant, but filed an Amended Complaint on July 5, 2017, which was served on Defendant. Am. Compl, ECF No. 4.

Defendant filed a motion to dismiss all Plaintiffs other than MRP Properties as improperly joined under Rule 20 or, in the alternative, to sever and transfer those Plaintiffs to a proper venue. Mot. Dismiss, ECF No. 13; Fed. R. Civ. P. 20. The answer deadline was stayed pending the Court's decision on the motion to dismiss or sever. ECF No. 22. The motion to dismiss or sever was denied. ECF No. 26. On January 4, 2018, Defendant filed a motion to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). ECF No. 32. Plaintiffs responded on January 25, 2018. ECF No. 34. Defendant replied on February 8, 2018. ECF No. 35.

I.

Plaintiffs are six wholly owned subsidiaries or affiliates of the Valero Energy Corporation. See Discl. Corp. Aff., ECF No. 5. Plaintiffs collectively own twelve refinery sites (the Sites) located in Michigan, Oklahoma, Kansas, Tennessee, Illinois, Texas, and California. With one exception, Plaintiffs did not own the refineries during WWII, but acquired the refineries afterward. Plaintiffs allege that before and during WWII, the Government controlled the operations of the refining industry. Am. Compl. at 5. Pursuant to Executive Order 9276, President Roosevelt established the Petroleum Administration for War (PAW), and vested PAW with broad discretionary authority to carry out the national plans, policies, and objectives for the petroleum industry. Id. at 7. The PAW divided the nation into districts, and implemented the national policy at a regional and refinery level by orders and directives controlling operations and refinery yields. Id. at 7–8. The executive order provides, in part:

There is established a Petroleum Administration for War, at the head of which shall be a Petroleum Administrator who shall be directly responsible to the President ... The Administrator shall: a. Subject to the provisions of this order, establish basic policies and formulate plans and programs to assure for the prosecution of the war the conservation and most effective development and utilization of petroleum in the United States and its territories and possessions, issue necessary policy and operating directives to parties engaged in the petroleum industry ... c. (1) Obtain from the Departments of War and the Navy, the Office of Lend–Lease Administration, the Department of State and the Board of Economic Warfare, the several divisions and branches of the War Production Board, and such other Federal departments and agencies as may be appropriate, estimates of the amounts of petroleum which will be required from the United States, its territories and possessions, to meet direct and indirect military, and essential industrial and civilian, requirements; and compile and analyze such estimates and submit them to the War Production Board with recommendations for the allocation of petroleum to meet such requirements. (2) Prepare and recommend to the War Production Board estimates of the quantities and kinds of material needed by the petroleum industry to produce, refine, store, distribute (excluding transportation), or otherwise make available the amount of petroleum recommended by the Administrator for allocation by the War Production Board.

Exec. Order No. 9276, 7 FR 100912 (1942).

In their common allegations of fact, Plaintiffs allege that PAW proceeded to operate the nation's refineries by directing and controlling, at the refinery level: "(i) the allocation—by time and amount—of crude oil and other feed stocks ...; (ii) the procurement priorities to obtain services, equipment and parts ...; (iii) the types and specifications of war-related products to be manufactured; (iv) the levels of production for each of those products; (v) the price of the products and profits made; and (vi) to whom the products would be sold within the Government-controlled supply chain." Id. at 9. Plaintiffs allege that by serving as the "de facto operator" of the refineries, the Government released hazardous wastes into the environment and disposed, or intentionally arranged for the disposal, of hazardous waste streams into the environment." Id. at 11. Plaintiffs also allege that the Government specifically exercised control over the hazardous waste management process itself by controlling approval of war-time construction projects, denying approval for some projects "relating to pollution control that were deemed non-essential to the war effort" while approving other projects. Id. at 24.

With respect to specific refineries, Plaintiffs allege that the Government controlled day-to-day operations at each refinery. Id. ¶¶ 31, 38, 46, 54, 62, 65, 70, 78, 85, 91, 101, 115, 121. Plaintiffs' amended complaint further alleges that the Government's control of all inputs and outputs necessarily impacted the hazardous waste profile of their refineries. For example, at eight of the twelve refineries, Plaintiffs allege that Defendant dictated that the refineries would be allocated "sour" crude, whereas the refineries were only equipped to process "sweet" crude. Id. ¶¶ 32, 39, 47, 55, 63, 71, 79, 86. "Due to its higher sulfur content, sour crude was highly corrosive and caused leaks and other problem in equipment that was designed at the time to process sweet crude oil." Id. The Government also controlled the outputs, and issued directives prohibiting refineries from manufacturing certain products (such as civilian gasoline), and specifically directing them to manufacture other products such as kerosene, 100–octane aviation gas (avgas), avgas components (i.e. codimer), 80–octane all-purpose gasoline, and 7–0–2 Navy diesel, among others. Id. ¶¶ 32, 40, 48, 56, 64, 72, 80, 87, 93, 102, 116, 122. The Government also "oversaw" or "dictated" the amount and type of wastes generated and released at each refinery and tracked these production loss statistics. Id. ¶¶ 35, 43, 51, 59, 67, 75, 82, 89, 98, 118, 124. Refinery operations and/or facilities had to be converted to accommodate the Government's demands. Id. ¶¶ 33, 41, 49, 57, 65, 73, 80, 88, 96, 107, 117.

In sum, the Government did everything other than "manually turn the levers and valves." Id. ¶ 23. Thus, Plaintiffs contend that the level of control exercised by PAW was "well beyond the Government's regulatory role," and that the Government is appropriately responsible as an operator and as an arranger under CERCLA. Id. ¶ 26. As such, Plaintiffs contend the Government must pay its share of response costs that Plaintiffs have incurred and continue to incur to dispose of hazardous waste arising from the Government's operation of their refineries during the wartime period.

Plaintiffs' first claim for relief seeks response cost recovery under CERCLA section 107(a), codified at 42 U.S.C. 9607(a). Plaintiffs assert a second claim for relief arising under CERCLA section 113(g)(2), codified at 42 U.S.C. 9613(g)(2), and the declaratory judgment act, 28 U.S.C. 2201(a), seeking a declaratory determination binding the Defendant in subsequent actions to pay response costs or damages.

II.

Defendant argues that Plaintiffs' allegations regarding wartime regulatory authority do not state a claim for operator liability at 11 of the 12 refineries.¹ Mot. at 10–11. Defendant characterizes the Government's control over petroleum inputs, products, prices, and purchasers as "general procurement activities" insufficient to give rise to operator liability under CERCLA. Mot. at 12–14. Defendant contends that Plaintiffs' remaining allegations concerning the Government's control over hazardous waste generation, release, and disposal are conclusory and not entitled to a presumption of truth because they require an unsupported inferential leap. Id. at 14–16. Defendant argues that Plaintiffs have not specifically alleged that the Government "manage[d], direct[ed], or conduct[ed] ... operations having to do with leakage or disposal of hazardous waste, or decisions about compliance with environmental regulations."Id. at 11 (citing Bestfoods , 524 U.S. at 61, 118 S.Ct. 1876 ).

Defendant further contends that Plaintiffs have failed to allege a nexus between the alleged control exercised by the Government and the hazardous waste released at each refinery. Id. Defendant also argues that Plaintiffs have not stated a claim for arranger liability, as Plaintiffs have not alleged that the Government owned or possessed hazardous waste, nor have Plaintiffs alleged that the Government took intentional steps to dispose of hazardous waste. Id. at 18–21. Finally, Defendant...