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American International Specialty Lines Insurance Co. v. United States

June 30, 2010

AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE COMPANY, PLAINTIFF,
v.
UNITED STATES OF AMERICA, DEFENDANT.



The opinion of the court was delivered by: A. Howard Matz United States District Judge

FINDINGS OF FACT AND CONCLUSIONS OF LAW (LIABILITY PHASE; POST-TRIAL)

TABLE OF CONTENTS

PAGE

I. FINDINGS OF FACT .................................................................................. 1

A. The Bermite Powder Company and Whittaker Corporation ............. 1

B. The Military Products at Issue in this Litigation ............................... 2

C. Hazardous Substances Used By Bermite in Connection with Production and Refurbishment of Rocket Motors, and Production of GAU-8 Ammunition ................................................... 3

1. Ammonium Perchlorate........................................................... 3

2. Volatile Organic Compounds .................................................. 4

3. Depleted Uranium.................................................................... 4

D. Basic Ordering Agreement for Recycling Rocket Motors and Contracts for the Production of Rocket Motors................................. 5

1. Basic Ordering Agreement to Refurbish and Recycle Rocket Motors.......................................................................... 5

2. Contracts for the Manufacture of New Rocket Motors ........... 6

3. Expected Attrition under Rocket Motor Manufacturing Contracts .................................................................................. 7

E. The Title Vesting Clause in the Rocket Motor Manufacturing Contracts............................................................................................. 8

1. The Government Owned All Work in Progress as a Result of the Title Vesting Clause ......................................... 10

2. As a Result of the Title Vesting Clause, The Government Owned All Perchlorate and Solvents Purchased for Use under the Surviving Rocket Motor Contracts........................ 10

F. Means of Contamination of the Bermite Site by Perchlorate .......... 11

G. Contamination Resulted From Government Furnished Equipment -- "GFE" -- Used in Connection with Rocket Motor Manufacturing Contracts.................................................................. 12

1. The GFE Provided by the Government ................................. 12

2. The GFE was Used in Connection with the Rocket Motor Contracts ................................................................................ 14

3. There Were "Disposals" and "Releases to the Environment" of Perchlorate and Solvent Waste at the GFE ........................................................................................ 15

4. There Is Contamination Around The Buildings Where GFE Was Used and Where Waste from GFE Was Burned... 19

H. Contamination Resulted From the "Hogging Out" Procedures Used on Recycled and New Rockets ............................................... 19

1. Bermite Hogged Out Rocket Motors Owned by the Government under the Recycling Contracts.......................... 19

2. Bermite Hogged Out Rejected New Rocket Motors Which Were Government Owned by Virtue of the Vesting Clause ....................................................................... 21

3. There Were "Disposals" and "Releases to the Environment" of Perchlorate and Solvent Waste as a Result of the Hog Outs........................................................... 22

4. There Is Contamination Around The Area Where Hog Outs Occurred ........................................................................ 23

I. Contamination Resulted From Burning of Hazardous Waste in the Burn Valley ................................................................................ 24

J. Contamination Resulted From Mandated Static Testing of New Rocket Motors.................................................................................. 25

K. Contamination Resulted From the Manufacture/Testing of the GAU-8 PGU-14 Armor Piercing Incendiary Ammunition.............. 26

1. The Honeywell Subcontract for PGU-14 Ammunition......... 26

2. The Government Furnished the Depleted Uranium and Test Barrel For the PGU-14................................................... 26

3. There were "Disposals" and "Releases to the Environment" of Depleted Uranium as a Result of the Test Firing of the PGU-14 Ammunition................................ 27

L. Bermite's Waste Disposal Practices Were Mandated by the Government, and Subject to Government Inspection and Supervision....................................................................................... 28

1. The Government Understood that Bermite's Contracts with the Government Resulted in the Creation and Disposal of Hazardous Waste................................................ 28

2. Government Mandated Disposal Procedures ........................ 28

3. The DCAS Enforced the Government Mandated Disposal Procedures.............................................................................. 30

M. AISLIC Has Incurred Necessary Response Costs As a Result of the Releases ...................................................................................... 31

II. CONCLUSIONS OF LAW........................................................................ 32

A. Jurisdiction ....................................................................................... 32

B. Elements for Cost Recovery and Contribution Claims.................... 33

C. Standard of Proof ............................................................................. 34

D. Hazardous Substances...................................................................... 34

E. Release ............................................................................................. 35

F. Owner Liability ................................................................................ 35

1. Definition of Facility ............................................................. 36

2. Definition of Owner............................................................... 36

3. Definition of Disposal............................................................ 37

4. Disposal at Government Furnished Equipment..................... 39

5. Rocket Motors As Facilities .................................................. 41

6. Government Ownership of Rocket Motors ........................... 42

7. Disposal of Hazardous Substances From the Rocket Motors .................................................................................... 44

8. Disposal at Government-Owned Cannon .............................. 45

9. Conclusion on Owner Liability ............................................. 45

G. Arranger Liability............................................................................. 46

1. Definition of Arranger ........................................................... 46

2. Continuous Ownership Not Required for Arranger .............. 47

3. Arranger Liability Based on Ownership of Perchlorate ........ 47

4. Arranger Liability Based on Ownership of Volatile Organic Compounds .............................................................. 50

5. Arranger Liability Based on Ownership of Depleted Uranium ................................................................................. 50

6. Arranger Liability Based on All Circumstances.................... 50

H. Necessary Response Costs ............................................................... 51

III. CONCLUSION

.......................................................................................... 52

A. Proviso.............................................................................................. 52

I. FINDINGS OF FACT

A. The Bermite Powder Company and Whittaker Corporation

1. The site at issue in this litigation is located at 22116 West Soledad Canyon Road in Santa Clarita, California (the "Site"). It covers approximately 996 acres. Revised PreTrial Conference Order (Doc. No. 112-2), §5 ("PTCO Stip.") #1. See Trial Ex. 291.

2. Perchlorate has been found in the soil and groundwater at the Site. See Stip. Fact No. 2.

3. The Bermite Powder Company ("Bermite") acquired the Site in the 1940s. PTCO Chronology at Ex. A (Document No. 112-3).

4. On September 23, 1967, Whittaker Corporation ("Whittaker") acquired Bermite and assumed its operations at the Site. Trial Ex. 1593 (1967 Acquisition Agreement between Bermite and Whittaker, including Schedules) (the "1967 Acquisition Agreement"); PTCO Stip. #4. Whittaker continued manufacturing large numbers of perchlorate-containing products at the Site for the oil industry through at least 1986. Whittaker's manufacturing activities at the Site ceased in 1987.

5. Perchlorate and solvent waste was created as a result of Whittaker's manufacturing operations at the Site.

6. At all relevant times, Bermite or Whittaker owned all of the land that comprises the Site. The United States at no time owned any of the land at the Site. See Luce Depo. (5/12/09) at 54:25-55:7; Tigue Depo. at 237:11-13.

7. Bermite or Whittaker owned and maintained all of the buildings and structures at the Site. Those companies owned all warehouses, laboratories, production buildings, and places where Bermite and Whittaker stored hazardous waste at the Site.

8. Bermite and Whittaker maintained the grounds of the Site.

9. Bermite and Whittaker provided security for and controlled access to the Site.

10. Whittaker and Bermite were responsible for directing, managing, and controlling all day-to-day operations at the Site, including operations related to waste disposal.

11. Whittaker and Bermite developed various operational procedures for handling solvents, materials, and waste at the Site, including in the propellant plant.

12. Whittaker's Safety Department was responsible for handling, storage, and ultimate disposal of all waste, including perchlorate waste, at the Site.

13. Whittaker was responsible for ensuring that its waste disposal practices were in compliance with all applicable local, state, and federal environmental laws and regulations.

14. Whittaker was solely responsible for obtaining and maintaining all permits needed for the Site, including open burn permits and wastewater discharge permits.

15. Following the 1967 Acquisition, Whittaker maintained the Bermite name and operated Bermite as a separate division. Accordingly, Bermite is referred to herein, both before and after the 1967 acquisition as "Bermite."

16. Following World War II, Bermite provided munitions, ordnance and material to the United States military for use in the country's national defense. Declaration of Max Calkins, Document No. 99 ("Calkins Decl."), ¶¶ 13, 18, 20.

17. From 1954 until 1987, in excess of 90 percent of Bermite's production was for the United States Government.

B. The Military Products at Issue in this Litigation

18. At trial, AISLIC stipulated that it was abandoning its claim that the United States is liable under CERCLA in connection with any activities at the Site during World War II.

19. The only government contracts or agreements that AISLIC alleged as a basis for the United States' liability date between the late-1960s and the mid-1980s.

20. Beginning in the mid-1960's, Bermite produced for the United States rocket motors for use in Sidewinder and Chaparral missiles. The Chaparral and Sidewinder missiles are closely related. The Sidewinder is used by the Navy, while the Chaparral is used by the Army. The missiles use the same type of propellant (known as N-29 propellant). Calkins Decl., ¶¶ 17-19, 30.

21. Bermite produced GAU-8 ammunition for the military from approximately September 1977 until December 1980. One of the types of ammunition produced was an armor-piercing projectile that contained a depleted uranium core. Calkins Decl. ¶¶ 99-102; 2/24/10 AM Tr. 310:1-9 (Calkins); 3/2/10 PM Tr. 1085:1--1082:19 (Williams).*fn1

C. Hazardous Substances Used By Bermite in Connection with Production and Refurbishment of Rocket Motors, and Production of GAU-8 Ammunition

1. Ammonium Perchlorate

22. Ammonium perchlorate was a major component of N-29 propellant. PTCO Stip # 6. N-29 is composed of approximately 67% perchlorate. Declaration of Robert Zoch Document No. 107 ("Zoch Decl.") ¶ 39.

23. Total use of perchlorate to manufacture Sidewinder and Chaparral rocket motors has been estimated to exceed over 1.4 million pounds of perchlorate. Trial Ex. 6553.

24. Partial records obtained by the Government's retained expert, Dr. Jay Brigham, confirm that Kerr-McGee sold more than 400 tons (800,000 pounds) of ammonium perchlorate to Bermite in the 1970s. Trial Exs. 1343-47, 1349-55.

2. Volatile Organic Compounds

25. Bermite used volatile organic compounds ("VOCs"), including trichloroethylene ("TCE"), perchloroethylene (also called tetrachloroethylene or "PCE") and trichloroethane ("TCA"), at various times in its history for degreasing or cleaning Government furnished equipment and machinery and also in making products for the Government. Deposition of Edwin Tigue ("Tigue Depo.") 42:23-43:6, 48:1-20; 49:16-50:1, 58:19-59:10, 83:5-84:8, 85:1-3, 151:15-20.

26. Bermite used TCE until the late 1970's. The United States then authorized Bermite to switch to using PCE after scientific studies demonstrated that TCE had toxic properties. Trial Ex. 1023.0009.

27. In 1982, the United States approved Bermite's use of TCA, a different chlorinated solvent, instead of PCE. Trial Ex. 1001.0018.

28. Among other uses, Bermite employees used VOCs in the propellant plant area to clean equipment, including mandrels, casting and curing assembly, and mixing equipment. Tigue Depo. 42:23-43:9, 48:14-18, 49:16-50:1, 58:19-59:10, 71:4-72:24, 83:5-84:8, 85:1-24, 139:4-8, 140:24-141:12.

29. In addition, the Government required that Bermite use VOCs to clean Sidewinder/Chaparral rocket tubes in the propellant plant area. Tigue Depo. 58:1-59:6; Deposition of Bradley Peach dated February 26, 2009 ("2009 Peach Depo.") 161:21-163:2.

3. Depleted Uranium

30. The GAU-8 armor-piercing incendiary projectiles that were test-fired at Bermite contained a depleted uranium ("DU") core. 3/2/10 PM Tr. 1091:3-1091:18 (Williams: "Q. They shot the actual depleted uranium in order to test it at Bermite? A. Correct."); Calkins Decl. ¶ 101.

D. Basic Ordering Agreement for Recycling Rocket Motors and Contracts for the Production of Rocket Motors

1. Basic Ordering Agreement to Refurbish and Recycle Rocket Motors

31. In 1975, Bermite entered into a Basic Ordering Agreement (DAAH01-76-A-009) with the United States Army to repair, rebuild, refurbish, and retrofit Chaparral rocket motors (the "1975 BOA"). Trial Ex. 66. The Statement of Work for that Basic Ordering Agreement contemplated that Whittaker would perform one of four general tasks:

a. Modify, repair, rebuild, refurbish and/or retrofit Chaparral rocket motors;

b. Furnish and deliver repair parts;

c. Furnish and deliver modification kits; or

d. Supply technical and logistical services and material required in support of the Chaparral rocket motors.

See Trial Ex. 66 at 0066.18-0066.19. It is not possible to determine what particular task Bermite performed at any given time, absent a specific order, given the different tasks set forth in the Agreement. See Trial Day 1, Vol. 2 at 204:19-205:19 (Calkins).

32. One Delivery Order issued under the 1975 BOA has survived. In that Delivery Order, the United States directed Bermite to refurbish 67 Chaparral rocket motors. The United States paid Bermite $1,000 to refurbish each rocket motor. Trial Exs. 67 and 1320.

33. Each Delivery Order issued under the 1975 BOA was a separate contract that incorporated and was subject to the terms of the 1975 BOA. Trial Ex. 66.0025.

34. Circumstantial evidence shows that additional Delivery Orders were issued under the 1975 BOA. Certain surviving records refer to additional Delivery Orders. Trial Ex. 1726. In addition, records maintained by the National Archives reflect that the United States paid Bermite $1,118,000 for work performed under Delivery Orders for the 1975 BOA. Trial Exs. 1320 and 6608; 2/26/10 PM Tr. 815:10-817:5 and 838:6-10 (Brigham); Zoch Decl. ¶ 68. Based on a price of $1,000 per motor, this data implies that Bermite recycled over 1,100 rocket motors for the Army under the 1975 BOA.

35. Bermite removed and disposed of at least some quantities of perchlorate-containing propellant from rocket motors provided it by the Army for recycling. By May 1978, Bermite had generated hazardous waste in connection with the manufacturing of propellant and explosive products, the largest volume of which resulted from "re-loading" Chaparral rocket motors under the 1975 BOA. Trial Ex. 1296.

36. Edwin Tigue, a Whittaker employee who personally oversaw the removal of propellant from rocket motors, testified that the rocket motors that were "hogged out" at the site had not met the specifications and were hogged out on a daily basis by the production department, using water. Tigue Depo, pp. 121-122.

37. Under the 1975 BOA, the Government approved the use of substantial amounts of government-furnished equipment such as casting mandrels needed to load new propellant into recycled rocket motors. Trial Exs. 1209 and 1975. In order to use this equipment to inject new propellant into the rocket motors provided by the Army under the 1975 BOA, Bermite first had to remove the propellant previously contained in the motors. Trial Ex. 67.0003-0008 (Scope of work).

2. Contracts for the Manufacture of New Rocket Motors

38. From 1965-83, the United States issued contracts under which Bermite manufactured and delivered to the Government over 20,000 Chaparral and Sidewinder rocket motors. 2/26/10 PM Tr. 869:12-19 (Brigham); Trial Exs. 98.0001-2 and 6552.0001; Zoch Decl. ¶¶ 40, 55-59, 62. During the same period, Bermite manufactured an additional 2-3,000 rocket motors that were used for test-firing at the Bermite site or that were demilitarized at the site after failing inspection. Zoch Decl. ¶62, Calc. 1.

39. Many of the actual contracts between the United States and Bermite for the production of rocket motors have been lost. This is explained at least in part by the fact that Government policy calls for the destruction of contracts after five to seven years. Given this policy, together with the passage of time, many of the contractual documents for the manufacture of rocket motors have been lost. 2/26/10 AM Tr. 716:5-717:9 (Tamada).

40. Eight contracts for the manufacture of Chaparral or Sidewinder rocket motors remain in existence (the "surviving" rocket motor contracts). Trial Ex. 6542.0001 and exhibits cited therein; Zoch Decl. ¶ 42. The earliest of the surviving contracts was issued in 1971. Trial Ex. 6542. An index to the key provisions of the surviving contracts is found at Trial Ex. 6566.

3. Expected Attrition under Rocket Motor Manufacturing Contracts

41. Attrition is "additional materials that are allocated to a rocket motor contract production, but then become scrap or waste because they're not used to manufacture the rocket." 2/25/10 AM Tr. 474:7-9 (Zoch)

42. Each rocket motor manufacturing contract issued to Bermite intentionally provided excess raw materials in order to account for attrition expected to occur under the contract. Calkins Decl. ¶ 47; 2/23/10 PM Tr. 198:19-199:1 and 200:8-12 (Calkins); 2/24/10 AM Tr. 251:2-253:9 (Calkins); 2/25/10 AM 473:25-474:9 (Zoch); Trial. Ex. 1022.0296 (Bill of Material).

43. The excess raw materials were provided to allow for normal losses of materials that routinely occurred in the course of manufacturing rocket motors.

These planned-for losses included losses due to spillage and generation of dust, accumulation of materials on manufacturing equipment, the need to test-fire a given number of rocket motors, and the need to take into account losses from expected rejection of a small but predictable percentage of rocket motors that failed inspection. Calkins Decl. ¶ 47; 2/23/10 PM Tr. 199:6-200:12 (Calkins).

E. The Title Vesting Clause in the Rocket Motor Manufacturing Contracts

44. Each of the surviving rocket motor contracts and the Basic Ordering Agreements incorporated the provisions of Armed Services Regulation ("ASPR") section 7-104.35, either by reprinting the language of that section, or by incorporating the terms by explicit reference. Calkins Decl. ¶ 94; Tr. Exs. 6566 (chart demonstrating that each surviving contract incorporated ASPR section 7-104.35) and 6558; 2/26/10 AM Tr. 728:3-729:8 (Tamada) and Trial Ex. 6601(ASPR § 7-104.35); Trial Ex. 1696.0129 and 2/26/10 AM Tr. 725:14-26:3 (Tamada).

45. ASPR Section 7-104.35 is titled "Progress Payments" and is hereafter referred to as the "Progress Payment Section." Trial Ex. 1696.0129 and 2/26/10 AM Tr. 725:14--726:3 (Tamada) and Trial Ex. 6601. Part "D" of the Progress Payment Section, which is incorporated into all of the surviving contracts, is entitled "Title," and is hereafter referred to as the "Title Vesting Clause." Trial Ex. 1696.0129 and 2/26/10 AM Tr. 725:14--728:8 (Tamada); Tr. Exs. 6558; 6566 (chart demonstrating that each surviving contract incorporated ASPR section 7-104.35).

46. The Progress Payment Section is currently codified at Federal Acquisition Regulation ("FAR") Section 52.232 of Title 48 of the Code of Federal Regulations. Although the language of the Progress Payment Section has changed slightly over the years, its terms, including the Vesting Clause, have remained basically unchanged since at least 1971. 2/26/10 AM Tr. 729:18-730:10 (Tamada).

Cf. Trial Exs. 6601 (1974 ASPR), 1696.0129 (contract containing 1969 ASPR), and FAR 52.232.-16(d) (48 CFR § 52.232.-16(d)).

47. The Progress Payment Section obligated the United States to make interim (i.e., "progress") payments to the contractor for a stated percentage (typically 80%) of certain costs incurred by the contractor in completing the contract. In exchange, the Progress Payment Section provided the United States with certain rights under the contract, including the rights set forth in the Vesting Clause. Trial Ex. 1696.0128-32; 2/24/10 AM Tr. 296:15-298:2 (Calkins).

48. The Vesting Clause contained in all of the contracts provided that title to "all parts, materials, inventories, work in progress, [and] special tooling" --whether acquired before ("theretofore") or after ("thereafter") the date of the contract -- shall "forthwith vest in the Government" as soon as the items in question were "allocable or properly chargeable" to the contract. Trial Ex. 1696. 0129 and Trial Ex. 6601 at p. 123; Calkins Decl. ¶¶ 94-95.

49. An item is allocable or properly chargeable within the meaning of the Vesting Clause if it is a charge incurred for the benefit of the contract. 2/26/10 AM Tr. 739:2-740:5 (Tamada). See also FAR 31.201-4 (48 CFR) (providing that a cost is allocable where it is incurred for the ...


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