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United States v. Parish Chemical Co.

United States District Court, D. Utah, Central Division

October 24, 2017

UNITED STATES OF AMERICA, Plaintiff,
v.
PARISH CHEMICAL COMPANY, and UINTAH PHARMACEUTICAL CORPORATION, et al., Defendants.

          MEMORANDUM DECISION AND ORDER APPROVING THE PUBLIC SALE FREE AND CLEAR OF PARISH CHEMICAL PROPERTY, APPROVING RELATED BIDDING AND AUCTION PROCEDURES, AND GRANTING RELATED RELIEF

          CLARK WADDOUPS UNITED STATES DISTRICT JUDGE

         Currently pending before the Court is the motion by Bret F. Randall, as Trustee (“Trustee”) of the PCC Redevelopment Trust (the “Trust”), for an Order (the “Sale Order”) approving bidding procedures, an auction, and the sale of the property of the Trust (the “Trust Property”) free and clear of liens (the “Sale Motion”). (See ECF No. 186.) The Trust holds the former assets of Parish Chemical Company (“PCC”) and Uintah Pharmaceutical Corporation (“UPC”) (collectively, “Parish Chemical”), pursuant to the Trust Agreement dated November 12, 2012 (the “Trust Agreement”), which is Appendix A to the Consent Decree entered by the Court in this action on March 26, 2013 as ECF No. 180 (the “Consent Decree”). The legal description and a more detailed description of the Trust Property is attached as Attachment 1.

         RWI Investments L.C. (“RWI”) owns property adjoining the Trust Property, which it currently leases to a drywall business, and also holds an easement on the Trust Property. (See ECF No. 189, pp. 5-6.) RWI objects to the sale of the Trust Property free and clear of its easement because RWI and its lessee would have to relocate the business at “significant expense.” (Id. at 7.) In its objection, RWI argues that (1) the United States' Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) lien on the Trust Property was not perfected under Utah law and thus is junior to RWI's easement interest, and (2) the court lacks authority to extinguish RWI's easement in these circumstances. (See id.) After a hearing on the Sale Motion and RWI's objections, the court sought supplemental briefing on two issues: (1) whether CERCLA preempts state lien filing requirements and (2) whether the court has authority to extinguish RWI's property interest in this proceeding. (See ECF No. 194.) After the United States, the Trustee, and RWI each submitted supplemental briefing, (see ECF Nos. 198, 199, 200, 201), the court took the Sale Motion and RWI's objections under advisement.

         After consideration of the Sale Motion and RWI's objections, oral arguments and supplemental briefing, relevant case law, and the record in this case, the court now GRANTS the Trustee's Sale Motion, (ECF No. 186). The court first outlines the factual background relevant to its decision, and then addresses each of RWI's objections to the sale free and clear of its interest. The court ultimately concludes that: (1) the United States' lien substantially and substantively complied with Utah lien notice requirements and RWI was on constructive notice of the lien when it secured its easement, such that the lien is superior to the easement; and (2) the court has authority to order the sale of the Property free and clear, migrating RWI's interest to the proceeds of the sale, if any exist after the United States' lien is satisfied.

         BACKGROUND

         1. The Trust Property & CERCLA Lien

         On July 16, 1980, the United States Steel Corporation conveyed the property now constituting the Trust Property to Parish Chemical Company (PCC). In 1981, PCC changed its name to Geneva Chemical Company and quitclaimed the Trust Property to Uintah Pharmaceutical Corporation (UPC). (United States' Reply at 3; see Ex. A, ECF No. 193-1.)

         Based on these transactions, the Environmental Protection Agency (EPA) determined that UPC owned the Trust Property at the time the EPA was preparing a CERCLA Lien record for the Property. On February 19, 2009, the EPA sent UPC a letter entitled Notice of Potential Liability and Intent to Perfect a Superfund Lien. (Ex. C, pp. 3-15, ECF No. 193-3.) Because UPC previously had been involuntarily dissolved by the State of Utah, the EPA sent the notice not only to UPC's Registered Agent at the Property address, but also to the UPC President and the Director of the Utah Division of Corporations and Commercial Code (UDCCC), in accordance with Utah law. (Id. at 4.) Along with the names and addresses associated with UPC and UDCCC, the Notice included the precise legal description of the property on which the lien would arise, an explanation of the basis of the lien, and the address of the EPA's regional enforcement officials handling the matter. (Id. at 3-7.) The Notice included other pertinent information, such as descriptions of the relevant CERCLA provisions providing for the lien and its duration; explanation of the owner's opportunity to contest the lien record with the EPA; and notation of the certified mailing article numbers for each recipient's address. (Id.)

         On March 12, 2009, the EPA filed the Notice of Federal Lien with the Utah County Recorder. (Ex. C, pp. 17-23, ECF No. 193-3.) The Notice includes UPC's name and address; the precise legal description of the property; an explanation of the basis of the lien, with citation to relevant CERCLA provisions; the names and address of the EPA's regional enforcement officials; and the Utah County Recorder's stamp with the date of the lien filing. (Id.)

         On April 3, 2009, the EPA sent UPC a letter notifying it of the perfection of the CERCLA Lien by recording the Notice of Federal Lien with the Utah County Recorder on March 12, 2009. (Ex. C, pp. 25-38, ECF No. 193-3.) This letter contained similar information as in the February notice and attached the recorded Notice of Federal Lien. (See Id. at 25-30.)

         In February 2010, UPC conveyed the Property back to PCC by a Special Warranty Deed. (Reply at 4; see Ex. D, ECF No. 193-4.) On July 1, 2011, nearly two years after EPA recorded its CERCLA Lien, PCC and RWI executed an Option Agreement for Perpetual Easement, and then a Grant of Perpetual Easement, which was recorded on October 14, 2011. (Exs. B & C to Sale Mot., ECF No. 186.)

         2. The Current Proceeding

         The United States filed this lawsuit against PCC and UPC on September 8, 2009, a few months after it filed its Notice of Federal Lien. The United States sued Parish Chemical (PCC and UPC, collectively) for releases and threatened releases of hazardous substances on the Trust Property and violations under the Resource Conservation and Recovery Act, 42 U.S.C. §§ 6901 et seq. (“RCRA”), and to recover the costs incurred in responding to the release or threatened release of hazardous substances under Section 107 of CERCLA, 42 U.S.C. § 9607. (See Compl., ECF No. 2.) The court entered a preliminary injunction in 2011 and appointed a receiver in June 2012. (See ECF Nos. 59, 133, 135.) On March 26, 2013, the Court approved the Consent Decree between the EPA and the receiver, on behalf of Parish Chemical, which provided for the resolution of the CERCLA claims brought by the EPA and for the creation of the Trust for the benefit of the EPA. The court appointed Bret F. Randall, the movant here, as Trustee. (See ECF Nos. 179, 180.)

         In September 2012, RWI sought to intervene in this action to assert an interest arising from agreements with the Utah Department of Transportation (UDOT) and Parish Chemical related to UDOT's Geneva Road Widening Project, which took portions of RWI and Parish Chemical's adjoining properties. (See ECF Nos. 149, 150.) The facts RWI attests to in its motion speak to its knowledge of the EPA's lien on the Parish Chemical property and RWI's negotiation of the easement in the shadow of this lien. For example, the United States noted in opposing intervention that UDOT substantially compensated RWI to address its losses from the road-widening, to the tune of $800, 000. (See ECF No. 157, p. 4 & Exs.) This sum specifically provided for the loss of parking and to allow for the razing of one building on RWI's property so that a parking lot could be built for the remaining building. (Id. at 4.) It also included sums to fund RWI's move to an alternate location. (Id.)

         Instead of relocating, RWI stated in its motion that it purchased a “perpetual easement from Parish Chemical on a segment of the Parish Chemical property directly adjoining [RWI's] property.” (ECF No. 150, p. 2, ¶ 4.) RWI also stated that “[a] Phase II environmental report was required in order to close the easement agreement between [RWI] and Parish Chemical and in order for UDOT to provide permanent fencing and parking on that portion of the Parish Chemical property.” (Id. ¶ 6 (emphasis added).) This was because the EPA “required UDOT to obtain a Phase II environmental report to ensure the property UDOT condemned was not contaminated prior to the EPA agreeing to release its lien on title to UDOT.” (Id. ¶ 7 (emphasis added).) RWI, UDOT, and Parish Chemical entered into agreements that would reimburse RWI for funding the Phase II environmental report and for permanent fencing and parking. (Id. at 3, ¶¶ 8-9.) Ultimately, RWI withdrew its motion to intervene before any decision by this court was rendered. (ECF No. 162.)

         Now, after the CERCLA removal action has been completed on the Parish Chemical property (the Trust Property), the Trustee has moved the court for an order of sale of the Trust Property “free and clear” of RWI's easement interest, (ECF No. 186), and RWI has objected, (ECF No. 189). The Trustee notes that, “[a]t this time, the Trustee has a duty to obtain the greatest value possible for the Trust Property to maximize recovery of the EPA's removal costs.” (ECF No. 186, p. 6.) The Trustee also notes that RWI's easement, “because it is not subject to demolition liabilities, represents a significant share of the value of the Trust Property.” (Id. at 3.)

         ANALYSIS

         Considering RWI's objections in light of this case history, the court concludes, first, that it need not address whether CERCLA preempts state law on lien filing requirements because the EPA's Notice of Federal Lien complied with Utah law in substance and meaning. Additionally, the court finds that RWI had constructive notice of the lien at the time it secured its easement on the Trust Property. Second, the court finds that it has authority to approve the sale of the Trust Property free and clear of RWI's easement interest. Therefore, the court approves the Trustee's Sale Motion and procedures therein, as further described below.

         I. The CERCLA Lien substantially and substantively complies with Utah law.

         The United States secured a federal lien under CERCLA to recover its costs in this removal action. See 42 U.S.C. § 9607(l) (“Federal lien”). CERCLA Section 107(l)(1), which describes the lien generally, provides that:

[a]ll costs and damages for which a person is liable to the United States under subsection (a) of this section . . . shall constitute a lien in favor of the United States upon all real property which-
(A) belong to such person; and
(B) are subject to or affected by a removal or remedial action.

42 U.S.C. § 9607(l)(1). Section 107(l)(2) addresses when the statutory lien arises and its duration:

The lien imposed by this subsection shall arise at the later of the following:
(A) The time costs are first incurred by the United States with respect to the response action under this chapter.
(B) The time that the person referred to in paragraph 1 is provided (by certified or registered mail) written notice of potential liability.
Such lien shall continue until the liability for the costs (or a judgment against the person arising out of such liability) is satisfied or becomes unenforceable through operation of the statute of limitations provided in section 9613 of this title.

Id. § 9607(l)(2). Finally, section 107(l)(3), entitled “Notice and validity, ” addresses the rights of third parties that may be affected by the federal statutory lien. Because the parties disagree on the provision's interpretation, the court quotes it in full:

The lien imposed by this subsection shall be subject to the rights of any purchaser, holder of a security interest, or judgment lien creditor whose interest is perfected under applicable State law before notice of the lien has been filed in the appropriate office within the State (or county or other governmental subdivision), as designated by State law, in which the real property subject to the lien is located. Any such purchaser, holder of a security interest, or judgment lien creditor shall be afforded the same protections against the lien imposed by this subsection as are afforded under State law against a judgment lien which arises out of an unsecured obligation and which arises as of the time of the filing of the notice of the lien imposed by this subsection. If the State has not by law designated one office for the receipt of such notices of liens, the notice shall be filed in the office of the clerk of the United States district court for the district in which the real property is located. For purposes of this subsection, the terms “purchaser” and “security interest” shall have the definitions provided under section 6323(h) of Title 26.

Id. § 9607(l)(3). The parties do not dispute, but rather assume, that RWI's easement has been perfected under applicable Utah law; therefore, RWI contends, if the United States' lien was not perfected under Utah law, its lien is inferior to RWI's easement.

         In interpreting section 107(l)(3)'s effect on the superiority of the United States' lien over state-perfected interests, the parties disagree about the meaning of the language stating “[t]he lien imposed by this subsection shall be subject to the rights of any purchaser . . . whose interest is perfected under applicable State law before notice of the lien has been filed in the appropriate office within the State (or county or other governmental subdivision), as designated by State law, in which the real property subject to the lien is located.” Id. § 9607(l)(3) (emphasis added). The United States interprets this provision to mean that it must file its lien notice in the location designated by state law, but that the contents of the notice need not necessarily adhere to state law. RWI interprets this provision to mean that CERCLA lien notices must comply with state law as to both content and recording location.

         Viewed in context of the full language of the provision, the court believes that the more natural reading supports the United States' position that the provision only deals with the filing of the lien notice in the location designated by state law. The court, however, recognizes the ambiguity in the statutory language. As RWI points out, both interpretations may be reasonable, particularly because CERLA does not lay out its own lien filing requirements.

         But the court need not resolve the statutory ambiguity in this case, or address the underlying question of whether federal law would preempt state lien notice requirements, because the court finds the United States' Notice of Federal Lien documents comply with the purposes and substance of the Utah lien notice requirements.[1]

         The Utah notice requirements for lien filings in effect at the time of this lien filing state, in relevant part:

(1) A lien claimant or the lien claimant's agent shall send by certified mail a written copy of the notice of lien to the last-known address of the person against whom the notice of lien is filed no later than 30 days after the day on which a lien claimant or the lien claimant's authorized agent files a ...

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