In the
United States Court of Appeals
For the Seventh Circuit
No. 07-3744
U NITED S TATES OF A MERICA,
Plaintiff-Appellee,
v.
C APITAL T AX C ORPORATION,
Defendant-Appellant.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 04 C 4138—George M. Marovich, Judge.
A RGUED M AY 5, 2008—D ECIDED S EPTEMBER 19, 2008
Before C UDAHY, P OSNER and R OVNER, Circuit Judges.
C UDAHY, Circuit Judge. Capital Tax Corporation (Capital
Tax) is an Illinois company that purchases distressed
real estate properties and resells them for profit. At a
Cook County scavenger sale in October 2001, Capital Tax
successfully bid on tax certificates to a derelict paint
factory on the south side of Chicago. Capital Tax claims
that it then entered into an agreement to sell the property
to a man named Mervyn Dukatt. Pursuant to this
alleged contract, Capital Tax exercised its option on the
2 No. 07-3744
tax deed and delivered possession of the property to
Dukatt. Capital Tax retained legal title to the property,
however, as security for the remainder of the purchase
price. Dukatt never made another payment, leaving
Capital Tax with title to an unwanted property.
Both the Chicago Department of the Environment
(CDOE) and the Environmental Protection Agency (EPA)
were called to the old paint factory after receiving com-
plaints that toxic paint products were leaking out of the
factory into nearby streets and sewers. The inspections
revealed thousands of rusty and leaking barrels con-
taining hazardous waste. The EPA ordered Capital Tax to
dispose of the waste but Capital Tax refused; the EPA
cleaned up the site itself. The Government then brought
this suit under Section 107(a) of the Comprehensive
Environmental Response, Compensation, and Liability Act
of 1980 (CERCLA) for the response costs it incurred. See
42 U.S.C. § 9607(a). The district court granted summary
judgment in favor of the Government on both liability and
damages. Capital Tax now appeals, raising two basic
arguments. First, it claims that it is not liable under
CERCLA because it is not the “owner” of the facility.
Second, even if it is liable, Capital Tax claims that it is
only responsible for the cleanup of the parcels it owned.
I.
The hazardous waste site facility at issue in the present
case is an old paint manufacturing facility located at 7411-
7431 South Green Street in Chicago, Illinois. For many
years, this facility was operated by the National Lacquer
and Paint Company, Inc., which produced paint products
No. 07-3744 3
and stored the chemicals and materials used to produce
them. This facility, which we call the “National Lacquer
site,” consists of four two-story buildings, two one-story
buildings and two yards; it is situated on one acre of
land in a mixed industrial, commercial and residential
area of Chicago. Although the site is now divided into
seven parcels (Parcels 5, 26, 8, 9, 10, 11 and 12), it was
historically operated as a single plant.1 When viewed on
a map, the seven rectangular parcels are stacked neatly
on top of one another. Each parcel is connected to the
others by a fire door or passageway, and several of the
parcels share common yards.
In December 1995, William Lerch and Steven Pedi,
through their newly created company, National Lacquer
Company (National Lacquer), purchased the assets of the
old National Lacquer and Paint Company. From 1995 to
2002, National Lacquer reclaimed paint, manufactured
paints and coatings, and performed furniture stripping
operations at the site. The company used a number of
different hazardous materials, which were stored all over
the site.2 It is undisputed that hazardous materials leaked
1
Parcel 5 contained the warehouse; Parcel 26 contained the
main office and the warehouse yard; Parcel 8 contained the
main mixing room; Parcel 9 contained the roller mill room and
part of the storage yard; Parcel 10 contained the pigment room
and part of the storage yard; Parcel 11 contained the wash
department and part of the storage yard; and Parcel 12 con-
tained the bar mill room.
2
The chemicals included the following substances: ethyl
acetate, xylene, methylene chloride, methyl ethyl ketone, methyl
(continued...)
4 No. 07-3744
or were spilled onto the ground throughout this period. In
January 1998, for example, the CDOE inspected the site
and found “hundreds of rusty, damaged and leaking
pails, cans and jars.” Not only were these paint products
spilling onto the floor, rainwater from a leaky roof mixed
with the paint and flowed across the floor into drains
and sewers and eventually into the street.
By 2001, National Lacquer had fallen behind on its
property taxes, and Cook County made five of the seven
parcels available for sale (Pedi retained title to Parcels 8
and 10). At tax scavenger sales, potential buyers bid on
the delinquent taxes, and the winning bidder receives a
tax certificate for the property. If the original owner fails
to redeem the delinquent taxes within a statutory period,
the tax sale bidder then has the right to petition for a
tax deed to the property. Tax certificates do not pass title;
they are similar to an option to later obtain title if the
certificate holder chooses to exercise that option. Represen-
tatives of Capital Tax visited the National Lacquer site
before the scavenger sale and conducted a limited inspec-
tion. While they were not able to enter the property, it was
apparent to them that the property was a former paint
factory. Capital Tax then successfully bid on the tax
certificates.
After purchasing the tax certificates but before ob-
taining the tax deeds, Capital Tax claims that it struck a
2
(...continued)
isobutyl ketone and phosphoric acid. All of these substances
are listed as “hazardous substances” under CERCLA. See 40
C.F.R. § 302.4 (2002).
No. 07-3744 5
deal with Dukatt in which Capital Tax agreed to obtain the
tax deeds to the property and to convey them to Dukatt in
exchange for about $25,000. No written agreement was
ever made. Because Capital Tax did not typically obtain
the tax deeds until they had a buyer, Dukatt gave Capital
Tax a $15,000 check ostensibly as partial payment for the
property. On October 30, 2001, Capital Tax obtained tax
deeds for four of the parcels. On February 14, 2002, it
obtained a tax deed for the fifth parcel. Capital Tax also
obtained an order of eviction to secure possession of the
site from its previous owner, Lerch. 3 After that, Capital
Tax had very little to do with the property.
Dukatt, however, was frequently at the site. He had the
keys to the property and the office. Capital Tax deferred to
him on all matters regarding the site. Dukatt hired workers
who, over the course of two or three weeks, cut up and
removed the paint machines that had been in the garage.
They also prepared and replaced an overhead door and
knocked down two walls. This work allegedly cost Dukatt
$10,000. In April 2002, the CDOE responded to a call
concerning a spill of hazardous materials at the site. It
discovered that paint containers had recently been
moved from parcel to parcel; trails of spilled product
traced the movement of these substances. It is unclear
whether it was Dukatt, Lerch or perhaps a third party
who moved the containers. The CDOE, however, noted
that Capital Tax had made little effort to secure the site
3
Dukatt met the sheriff’s department when it arrived to carry
out the eviction and represented himself to be an “agent” of
Capital Tax.
6 No. 07-3744
and it issued Capital Tax a notice of violation for “allowing
a spill of hazardous substances due to container move-
ment at the Site.” On July 23, 2003, the CDOE officially
requested that Capital Tax clean up the site. Capital Tax
refused. It later explained that it “didn’t care” about the
site because it considered it to be Dukatt’s problem.
The CDOE referred the matter to the EPA. On July 31,
2003, the EPA conducted its own inspection of the site. The
EPA found more than 10,000 containers of various sizes,
including gallon drums, storage tanks, cylindrical mixing
tanks, vats, buckets, compressed gas cylinders, laboratory
jars and bottles—most of which contained hazardous
substances. Many of the containers were unsealed, leaking
or otherwise deteriorating. The EPA also found evidence
of trespassing on the site. On August 15, 2003, the EPA
issued a Unilateral Administrative Order (UAO) demand-
ing that Capital Tax clean its five parcels. Capital Tax did
not comply. So, on October 6, 2003, the EPA removed
the hazardous materials itself. The EPA also cleaned
manholes and pits, excavated the top foot of storage yard
soil, backfilled and planted the storage yard with grass. It
sealed the tanks and pressure washed interior floors
and walls to remove potential contamination.
The Government then filed suit against Capital Tax, Pedi
and Lerch under CERCLA to recover the costs of the
cleanup. The Government also sought civil penalties, see
42 U.S.C § 9606(b), and punitive damages, see 42 U.S.C.
§ 9607(c)(3), against Capital Tax for failing to comply with
the UAOs. Capital Tax denied that it was liable under
CERCLA, raising the “security interest” exemption under
42 U.S.C. § 9601(20)(A) and an “innocent landowner”
No. 07-3744 7
defense under 42 U.S.C. § 9607(b)(3). On April 11, 2006, the
Government moved for partial summary judgment on
liability, which the district court granted. On August 24,
2006, the Government moved for summary judgment on
damages, which the district court also granted, finding
Capital Tax jointly and severally liable to the Government
for $2,681,337.79 in response costs. It also assessed civil
penalties in the amount of $230,250.00.
II.
The first major issue here is Capital Tax’s liability under
§ 107(a) of CERCLA for the response costs incurred by
the Government in the cleanup of the National Lacquer
site. Under 42 U.S.C. § 9606(a), the Government may
order potentially responsible parties to clean up hazardous
waste sites. Further, under 42 U.S.C. § 9604(a), the Gov-
ernment is authorized to conduct its own cleanups of
hazardous waste sites using the Hazardous Waste
Superfund. The Government can then bring an action
under § 107(a) to recover damages from potentially
responsible parties. See 42 U.S.C. § 9607(a). In either case,
the “polluter pays.” Cf. United States v. Burlington Northern
& Sante Fe Ry. Co., 520 F.3d 918, 941 (9th Cir. 2008).
To establish liability under § 107(a), the Government
must show that: (1) “the site in question is a ‘facility’ as
defined in § 101(9); the (2) the defendant is a responsible
party under § 107(a); (3) a release or a threatened release
of a hazardous substance has occurred; and (4) the release
or threatened release has caused the plaintiff to incur
response costs.” Kerr-McGee Chem. Corp. v. Lefton Iron &
8 No. 07-3744
Metal Co., 14 F.3d 321, 325 (7th Cir. 1994). Capital Tax
concedes three of these elements.4 The only element in
issue here is the second element: whether Capital Tax is
a responsible party under § 107(a).
CERCLA is strict liability statute. See Nutrasweet Co. v. X-
L Eng’g Co., 227 F.3d 776, 784 (7th Cir. 2000). Liability is
imposed when a party is found to have a statutorily
defined “connection” with the facility; that connection
makes the party responsible regardless of causation. See
United States v. Hercules, 247 F.3d 706, 716 (8th Cir. 2001).
Section 107(a) lists four different categories of potentially
responsible parties. See 42 U.S.C. §§ 9607(a)(1)-(4). The
only category in issue here is specified by § 107(a)(1),
which makes the current “owner and operator of . . . a
facility” liable for cleanup costs. See 42 U.S.C. § 9607(a)(1).
The Government has not claimed in this court that
Capital Tax “operated” the facility in any way. Thus, the
Government’s argument is that Capital Tax is liable for
response costs simply because it is the current “owner” of
the facility. 42 U.S.C. § 9607(a)(1).
There is very little we can glean from the statute about
the meaning of ownership. CERCLA defines “owner” as
4
Capital Tax concedes that the National Lacquer site is either
a “facility” or, in its view, several different “facilities.” The
“releases” in this case included, among other things, the leaking
and evaporation of toxic paint products and chemicals stored
in leaky and deteriorating containers. Finally, no one disputes
that the EPA incurred over two million dollars in response
costs when it cleaned up the National Lacquer site.
No. 07-3744 9
“any person owning” a facility. 42 U.S.C. § 9601(20)(A).
The circularity in the statutory language suggests that “the
statutory terms have their ordinary meanings rather
than unusual or technical meanings.” Sidney S. Arst Co. v.
Pipefitters Welfare Educ. Fund, 25 F.3d 417, 419 n.1 (7th
Cir. 1994). The generality of the term of the term “owner”
also suggests that Congress intended us to turn to “com-
mon law analogies.” Edward Hines Lumber Co. v. Vulcan
Materials Co., 861 F.2d 155, 157 (7th Cir. 1988). Congress did
state, however, that the definition of “owner does not
include a person who, without participating in the man-
agement of a . . . facility, holds indicia of ownership
primarily to protect his security interest in the vessel
or facility.” 42 U.S.C. § 9601(20)(A) (emphasis added). A
“security interest” is “a right under a mortgage, deed of
trust, assignment, judgment lien, pledge, security agree-
ment, factoring agreement, or lease and any other right
accruing to a person to secure the repayment of money,
the performance of a duty, or any other obligation by a
nonaffiliated person.” 42 U.S.C. § 9601(20)(G)(vi). This
has become known as the “security interest” exclusion,
and the party seeking to assert it bears the burden of
establishing it. See Monarch Tile, Inc. v City of Florence, 212
F.3d 1219, 1222 (11th Cir. 2000).
The Government claims that Capital Tax is the “owner”
under § 107(a)(1) because it holds legal title to five of the
seven parcels at the National Lacquer site. Capital Tax
does not dispute that it has legal title to those parcels and
thus holds “indicia of ownership.” Capital Tax contends,
however, that it sold the parcels to Dukatt. According to
Capital Tax, it only holds legal title to the property as
10 No. 07-3744
security for the balance of the purchase price under the
contract. See 42 U.S.C. § 9601(20)(A). The district court
rejected this argument. It emphasized that Capital Tax
had not taken the title in order to secure a loan. Indeed, as
the district court noted, Capital Tax had never loaned
money to anyone—not Dukatt, not Pedi and not Lerch.
Because Capital Tax was not a “lender,” the district court
reasoned, its interest in the property was not a security
interest.
We agree with the district court that Capital Tax’s
argument is sometimes confusing. But the basic legal
principle underlying Capital Tax’s argument—that equita-
ble ownership passed from Capital Tax to Dukatt when
the land sale contract was executed—has a long history
at common law. “The rule in the vast majority of juris-
dictions is that on entering into a contract for the pur-
chase of land, the purchaser is the owner in equity of the
land, and the seller holds legal title as security for pay-
ment of the purchase price.” 17 R ICHARD A. L ORD ,
W ILLISTON ON C ONTRACTS § 50:42 (4th ed. 2000). Echoing
this rule, we have held in the bankruptcy context that
an installment land sales contract is “merely a security
agreement where the vendor holds legal title in trust
solely as security for the payment of the purchase price.”
In re Streets & Beard Farm Partnership, 882 F.2d 233, 235 (7th
Cir. 1989) (applying Illinois law). Perhaps Capital Tax’s
constant reference to the “security interest” exception
has caused some confusion here, for Capital Tax is not a
No. 07-3744 11
typical creditor.5 Capital Tax’s argument would be more
easily understood if it simply argued that it is the former
owner of the facility—not the current owner—and thus
not liable under § 107(a)(1). This, of course, is a classic
“equitable conversion” argument. Although there might
be some merit in the district’s court’s conclusion that
Capital Tax is not a “secured creditor,” we think the
more appropriate methodology under the particular
facts presented here is to address the issue under the
ownership provision of § 107(a)(1).
The central question here is what role, if any, the doctrine
of equitable conversion plays in the definition of owner-
ship under CERCLA. As we have already explained, the
statute gives little concrete guidance on the issue. Congress
intended courts, in defining § 107(a)(1), to draw analogies
to common law, see Edward Hines, 861 F.2d at 157, and to
the ordinary meaning of the term ownership, see Sidney S.
Arst, 25 F.3d at 419 n.1. It is notable that two courts of
appeals have held that public or quasi-public companies
5
Capital Tax does have a colorable argument regarding the
“security interest” exclusion. The exclusion covers more than
“typical” lending scenarios: it covers “any . . . right accruing to
a person to secure the repayment of money, the performance of
a duty, or any other obligation.” 42 U.S.C. § 9601(20)(G)(vi).
Further, the exclusion explicitly recognizes that a person can
hold “indicia of ownership,” such as legal title, and yet not be
the owner under CERCLA. Id. As one court has stated, “under
the security interest exception the court must determine why
[a party] holds such indicia of ownership.” In re Bergsoe Metal
Corp., 910 F.2d 668, 671 (9th Cir. 1990).
12 No. 07-3744
that hold legal title to property in order to secure the
recoupment of development costs are not “owners” under
CERCLA. See Monarch Tile, 212 F.3d at 1222; In re Bergsoe,
910 F.2d at 671. More specifically, a number of district
courts have applied the doctrine of equitable conversion
in CERCLA cases, both under § 107(a)(1)’s “ownership”
provision and under the “security interest” exclusion. See,
e.g., United States v. Union Corp., 259 F. Supp. 2d 356, 395
(E.D. Pa. 2003); K.C. 1986 Ltd. P’ship v. Reade Mfg., 33
F. Supp. 2d 820, 834 (W.D. Mo. 1998). United States v.
Webzeb Enters., Inc., 809 F. Supp. 646, 652 (S.D. Ind. 1992);
Snediker Devs. Ltd. P’ship v. Evans, 773 F. Supp. 984, 987-88
(E.D. Mich. 1991). Thus, it is difficult to dismiss Capital
Tax’s argument out of hand.
So we must determine whether, in applying the
doctrine of equitable conversion in the CERCLA context,
we should attempt to fashion our own federal rule or
look to applicable Illinois law as the federal standard. See
United States v. Kimbell Foods, Inc., 440 U.S. 715, 727-28, 99
S. Ct. 1448, 1457-58, 59 L. Ed.2d 711 (1979). There is no
need to escalate the scope of the inquiry by attempting
to apply a federal common law here; instead, we merely
look to state law for guidance in interpreting the statute.
Of course, federal law, as a formal matter, ultimately
governs the definition of ownership under § 107(a). Id. at
726, 99 S. Ct. 1448. But this case presents a particularly
strong case for the employment of relevant state law as
the proper guide to the federal standard. Cf. Redwing
Carriers, Inc. v. Saraland Apartments, 94 F.3d 1489 (11th Cir.
1996) (adopting state partnership law as the federal
standard to determine ownership under CERCLA).
No. 07-3744 13
Property relations have historically been governed by
state law. See, e.g., Butner v. United States, 440 U.S. 48, 99
S. Ct. 914, 59 L.Ed.2d 136 (1979); Oregon ex rel. State Land
Board v. Corvallis Sand & Gravel Co., 429 U.S. 363, 378, 97
S. Ct. 582, 50 L. Ed.2d 550 (1977). When Congress in-
structed courts to look to the traditional, common-law
meaning of ownership in interpreting CERCLA, it was
certainly aware of this history. And Congress gave no
indication that it intended to take a new course. Cf. United
States v. Bestfoods, 524 U.S. 51, 62, 118 S. Ct. 1876, 141 L.
Ed.2d 43 (1998) (“nothing in CERCLA purports to reject
this bedrock principle [of corporate law], and against
this venerable common-law backdrop, the congressional
silence is audible”). The understanding that state law
governs property and the expectations built around that
understanding strongly suggest that the federal standard
should be rooted in an adoption of state property law.
This conclusion is bolstered by the fact that there is no
practical alternative to this approach. To invent out of
whole cloth a distinctly federal law of property would
be inappropriate, if not impossible.6
6
We think the reasonable approach is simply to look to state
law for guidance in interpreting the statute. This conclusion also
follows from United States v. Kimbell Foods, Inc., 440 U.S. 715,
727-28, 99 S. Ct. 1448, 59 L. Ed.2d 711 (1979).
First, we note that state laws are already generally uniform on
the point raised here; states are in substantial agreement about
the operation of the doctrine of equitable conversion. See
17 R ICHARD A. L ORD , W ILLISTON ON C ONTRACTS § 50:42 (4th
ed. 2000).
(continued...)
14 No. 07-3744
The Illinois doctrine of equitable conversion provides
that a valid land sale agreement transfers equitable title
to the purchaser. See Shay v. Penrose, 25 Ill.2d 447, 185
N.E.2d 218, 219-20 (1962). Thus, “when the owner enters
into a valid and enforceable contract for the sale of realty,
the seller continues to hold legal title, but in trust for
the buyer; the buyer becomes the equitable owner and
holds the purchase money in trust for the seller.” In re
Estate of Martinek, 140 Ill. App. 3d 621, 488 N.E.2d 1332,
1336 (Ill. Ct. App. 1986). But “[t]he doctrine of equitable
conversion does not apply where equitable considera-
tions intervene or where the parties intend otherwise.”
Eade v. Brownlee, 29 Ill.2d 214, 193 N.E.2d 786, 788 (1963).
In addition, in order to invoke the doctrine of equitable
conversion, the party must show that “a valid and enforce-
6
(...continued)
Second, CERCLA policy would not be undermined by a
reference to state law. It is highly unlikely that states would
alter core principles of property law or amend their statutes of
fraud in order to affect their impact on pollution liability.
Changes to the basic principles of property law would poten-
tially have wide-ranging effects that would be difficult to limit.
It is unlikely that states would attempt to manipulate these
doctrines to affect responsibility for environmental violations.
Third, we believe that deviation from state law here might be
inequitable. Citizens naturally look to state law to determine
their relative rights and obligations with respect to the issue
of property. It would seem unfair for a party who was not an
“owner” under state law to face liability under a federal
statute based on “ownership.”
No. 07-3744 15
able contract [has been] entered into.” Shay, 25 Ill.2d 447,
185 N.E.2d at 220. This presents an obstacle for Capital Tax
because, under the Illinois Statute of Frauds, a valid
contract for the sale of land must generally be in writing.
See 740 ILL. C OMP. S TAT. 80/2 (2004). Capital Tax has no
such written agreement; it concedes that the contract
was oral.
Illinois courts, however, have also routinely recognized
exceptions to the Statute of Frauds. The relevant excep-
tion here is part performance. Under Illinois law, a con-
tract is taken outside the Statute of Frauds if the buyer
makes whole or partial payment of the purchase price,
takes possession of the property and makes substantial
and lasting improvements to it.7 See Manias v. Yeck, 11 Ill.
2d 512, 144 N.E.2d 596, 600 (1957); Thomas v. Moore, 55 Ill.
App. 3d 907, 370 N.E.2d 809, 812 (Ill. Ct. App. 1977); Meyer
v. Surkin, 262 Ill. App. 83, 90 (Ill. App. Ct. 1931). Further,
the evidence must be “referable” to the contract—that is,
it must actually suggest the existence of a a sales agree-
ment. McCallister v. McCallister, 342 Ill. 231, 173 N.E. 745,
748 (1930); Weir v. Weir, 287 Ill. 495, 501-02, 122 N.E.
7
Because Capital Tax—the seller of the property—is seeking to
establish the validity and enforceability of the contract, it
must also establish that it has partially performed its own
obligations under the contract. See R ESTATEMENT (S ECOND ) OF
C ONTRACTS § 129 cmt. e (1979). In fact, Capital Tax has pur-
ported to show that it has fully performed: not only did it obtain
the tax deeds as promised, it also secured an order placing
Dukatt in possession of the property.
16 No. 07-3744
868 (1919). If the actions that purport to show part per-
formance are easily explained without reference to a
contract, the Statute of Frauds is not satisfied. Appropriate
parol evidence must leave “no reasonable doubt in the
mind of the court” that a contract has been formed.
Weir, 287 Ill. at 502, 122 N.E. 868.
Capital Tax has presented some evidence to support
each element of part performance—partial payment,
possession and valuable improvements. But the probative
value of the evidence is unclear. With respect to partial
payment, Capital Tax asserts that Dukatt gave Capital Tax
a check for $15,000. The check stated that is was for
“taxes,” which Capital Tax claims to be a reference to
the “taxes” component of the purchase price. Still, there
is no evidence that the check specifically refers to the
National Lacquer site. Dukatt worked with the principals
of Capital Tax on other deals and with other properties;
the check could easily have referred to some other deal.
Although it may very well display his signature, the
check is actually not from Dukatt; it is from an entity
called “Snowball’s Plaza.” Given these uncertainties, we
find it perplexing that Capital Tax did not ask Dukatt at
his deposition why he had written the check.
Capital Tax also asserts that Dukatt took possession of
the property and did work on the garage. It is unclear
whether this work would constitute “lasting and valu-
able” improvements under Illinois law. More importantly,
again, we doubt whether this activity was actually “refer-
able” to the contract. Dukatt was loosely affiliated with
Capital Tax—a “friend” of the corporation—and, at times,
No. 07-3744 17
he even represented himself to be “agent” of Capital Tax.
Dukatt had frequent conversations with the principals
of Capital Tax about the facility. Perhaps Dukatt, when
he did work on the garage, was working under Capital
Tax’s direction. While we do not know the exact nature
of the relationship between the parties, Dukatt’s presence
at the site does not necessarily imply that he was acting
as if he owned the site.
The district court did not address these issues given
its disposition of the case. From this record, it is difficult
for us to determine whether Capital Tax had a valid and
enforceable contract for the sale of land under Illinois
law. If there is no valid contract, then Capital Tax is the
“owner” under § 107(a)(1) and is liable under CERCLA. If
there is a valid contract and if equitable conversion
applies, Capital Tax is not the “owner” under § 107(a)(1)
and is not liable under CERCLA. The case will likely
turn on whether the facts show that Dukatt was, in fact, a
bona fide buyer. Especially given the substantial liability
in this case and the uncertainty surrounding many of
the issues, it is not for us to resolve them in the first
instance. We must remand to the district court to give
fresh and full consideration to the question whether
Capital Tax had an enforceable land sales contract under
Illinois law and whether the doctrine of equitable con-
version applies in this case.
III.
We now consider Capital Tax’s alternative argument
that it should not be held jointly and severally liable for
18 No. 07-3744
all the removal costs and instead be found liable for only
a portion of those costs. Unlike the first issue, we can
answer the divisibility question on the record before us
because there are no substantial disagreements about the
facts. Once a party is found to be liable under CERCLA, the
party is jointly and severally liable for all of the EPA’s
response costs, “regardless of that party’s relative fault.”
Metropolitan Water Reclamation Dist. of Greater Chicago v.
North American Galvanizing & Coating, Inc., 473 F.3d 824,
827 (7th Cir. 2007). Courts, however, do recognize one
judicially created exception to joint and several liability
under § 107(a). If a liable party can establish that the harm
is divisible—that is, that there is a reasonable means of
apportioning the harm among the responsible par-
ties—then that party is not subject to joint and several
liability. See United States v. Township of Brighton, 153
F.3d 307, 317-18 (6th Cir. 1998).
The concept of divisibility has largely been derived
from § 433A of the Restatement (Second) of Torts. See,
e.g., United States v. Alcan Aluminum Corp. (Alcan III), 315
F.3d 179, 186 (2d Cir. 2003); United States v. Monsanto Co.,
858 F.2d 160, 171-72 (4th Cir.1988). Some courts have
noted that the “fit” between § 433A and CERCLA is
actually quite unclear: § 433A focuses on causation
while CERCLA is a strict liability statute.8 See Burlington
Northern, 520 F.3d at 937-39; Hercules, 247 F.3d at 715-16.
8
We reiterate that we follow the Restatement and common
law “only to the extent that [they are] compatible with the
provisions of CERCLA.” Hercules, 247 F.3d at 717.
No. 07-3744 19
The Restatement does suggest, however, that liability
can be apportioned if Capital Tax can show that its
portion of the damages is susceptible of a “reasonable
estimate.” In re Bell Petroleum Servs., 3 F.3d 889, 904 (5th
Cir. 1993). Divisibility is the exception, however, not the
rule.9 Metropolitan Water, 473 F.3d at 827 n.3. Thus, the
burden of establishing divisibility is on the defendant.
See Alcan III, 315 F.3d at 185.
One method of creating a reasonable estimate of dam-
ages is to show that the contamination at the facility is
geographically divisible. See, e.g., Chem-Nuclear Systems,
Inc. v. Bush, 292 F.3d 254, 255 (C.A.D.C. 2002). A landowner
can establish divisibility by “demonstrating a reasonable
basis for concluding that a certain proportion of the
contamination did not originate on the portion of
the facility that the landowner owned.” Burlington North-
ern, 520 F.3d at 938. Typically, this will involve showing
that the “site consists of non-contiguous areas of soil
contamination.” Hercules, 247 F.3d at 717-18 (quotations
omitted). It is difficult to prove divisibility when the
9
Divisibility analysis “brings causation principles into the
case—through the backdoor, after being denied entry at the
front door.” United States v. Alcan Alum. Corp. (Alcan II), 990 F.2d
711, 722, (2d Cir. 1993) (quotations omitted). It “has the potential
to eviscerate the strict liability principles of CERCLA,”
Burlington Northern, 520 F.3d at 940, “because defendants who
can show that the harm is divisible . . . could whittle their
liability to zero.” Township of Brighton, 153 F.3d at 318. Thus,
we have stated that divisibility is a “rare scenario.”
Metropolitan Water, 473 F.3d at 827 n.3.
20 No. 07-3744
facility functioned as a “dynamic, unitary operation” in
which materials were moved from location to location
during the production process. Burlington Northern, 520
F.3d at 958. Further, the “migratory potential” and “actual
migration” of the resulting toxic substances can preclude
a finding of divisibility. See O’Neil, 883 F.2d at 178-79.
Commingling and cross-contamination will often indi-
cate an indivisible facility. See Alcan III, 315 F.3d at 186.
Capital Tax’s argument that the harm is divisible in
this case is based entirely on property lines. Capital Tax
argues that it cannot be liable for the two parcels of land
that it does not own. But the EPA has broad discretion
in defining the boundaries of a particular facility, and the
boundaries are normally based on the extent of the con-
tamination. See Township of Brighton, 153 F.3d at 313. The
boundaries of the facility do not necessarily reflect prop-
erty boundaries, see id., and liability can extend beyond
what the defendants actually own. See Burlington
Northern, 520 F.3d at 943-44 (responsible party owned
19% of the facility); United States v. Rohm & Haas Co., 2 F.3d
1265 (3d Cir. 1993) (responsible party owned 10% of the
facility).
In the present case, contamination was found on
almost every parcel of the facility. Further, all of these
parcels are contiguous. Capital Tax’s parcels are actually
interspersed with Lerch’s parcels. Parcels 8 and 10, which
are owned by Lerch, formed the main mixing room and
the pigment room. Parcel 9, which is owned by Capital
Tax, contained the roller mill room and was situated
right between Parcels 8 and 10. Doors connected the three
parcels, and the roller mill room and the pigment room
No. 07-3744 21
both emptied out onto the storage yard. Further, Capital
Tax owned the parcel to the north of Parcels 8 and the
parcel to the south of Parcel 10. The EPA’s Site Sketch
reveals that, while containers were found all over the
premises, many were concentrated on these three
parcels and in the storage yard shared by Capital Tax
and Lerch.
When the factory was in operation, materials passed
through all these rooms at some point in the production
process—that is, it was a “dynamic, unitary operation.”
Burlington Northern, 520 F.3d at 958. As the district court
noted, Capital Tax’s mistake is in attempting to apportion
liability based on where the hazardous materials were
located on the day they were removed. Those hazardous
materials could easily have originated in another part of
the plant. As in the game of “musical chairs,” the fact
that the chemicals came to rest in any particular place
when production ended was largely happenstance. Thus,
Capital Tax cannot show that the hazardous substances
found just outside its property lines did not “originate”
on its property. Burlington Northern, 520 F.3d at 938.
More importantly, there is undisputed evidence that the
products and chemicals continued to migrate between
parcels after operations at the facility had ceased. Contain-
ers were deteriorating and leaking. Indeed, paint and
other chemicals mixed with rain water from the leaking
roof and were washed to other parts of the building and
onto the streets. Chemicals would evaporate into the air,
leaving resin that could easily travel to contiguous par-
cels. Further, it is undisputed that individuals were
22 No. 07-3744
actually moving containers from parcel to parcel, spilling
paint and other substances in the process. It is immaterial
whether Capital Tax actually moved any of these con-
tainers because it failed to secure the premises from
third parties and, in general, turned a blind eye to the
property. Because we have commingling, cross-contamina-
tion and migration occurring on a site that formerly
operated as a single, unitary operation, there is no
basis for apportionment. See Burlington Northern, 520 F.3d
at 956-58.
Finally, Capital Tax believes that the costs can be reason-
ably apportioned because the EPA tracked and docu-
mented all the containers that were removed from the
site. We note that the relevant document does not appear
to include the costs associated with cleaning the facility,
excavating the contaminated ground or sealing off the
tanks. Nor does it include travel costs, payroll costs,
indirect costs, Department of Justice enforcement costs
or interest. More importantly, the fact that containers
were actually moved from parcel to parcel raises real
doubts about the relevance of where all the containers of
waste were on the date of removal. Put simply, a CERCLA
owner may not move barrels of hazardous substances
across property lines (or allow them to be so moved) in
order to reduce its liability under CERCLA.
IV.
Capital Tax also argues that the district judge erred in
assessing costs and penalties based on the removal of
waste from parcels 8 and 10. On August 15, 2003, the
EPA issued a UAO directing Capital Tax to “perform
No. 07-3744 23
removal action within the Site which is owned by Respon-
dent or to which Respondent has moved hazardous
wastes.” Capital Tax failed to comply with this order.
CERCLA provides that any person “who, without suffi-
cient cause, willfully violates, or fails or refuses to
comply with, any order of the President under subsection
(a) of this Section may . . . be fined not more than [$27,500]
for each day in which such violation occurs or such
failure to comply continues.” 42 U.S.C. § 9606(b) (1). A
“sufficient cause” for failing to comply is a reasonable
belief that one is not liable under CERCLA. See United
States v. Barkman, No. CIV. A. 96-6395, 1998 WL 962018, at
*17 (E.D. Penn. Dec. 17, 1998). Because we are remanding
this case to district court on the issue of liability, we find
it appropriate to vacate the award of damages. The
district court may reassess the issue of penalties, if it
deems that action necessary, after resolving the liability
issue.
V.
For the reasons discussed above, the decision of the
district court is V ACATED and the case R EMANDED for
further proceedings in accord with this opinion.
9-19-08