STATE OF OHIO, EX REL. JIM PETRO v. PURE TECH SYSTEMS, INC., ET AL.
No. 101447
Court of Appeals of Ohio, EIGHTH APPELLATE DISTRICT, COUNTY OF CUYAHOGA
April 30, 2015
[Cite as State ex rel. Petro v. Pure Tech Sys., Inc., 2015-Ohio-1638.]
STATE OF OHIO, EX REL. JIM PETRO PLAINTIFF-APPELLEE vs. PURE TECH SYSTEMS, INC., ET AL. DEFENDANTS-APPELLANTS
JUDGMENT: AFFIRMED
Civil Appeal from the Cuyahoga County Court of Common Pleas Case No. CV-06-597766
BEFORE: Jones, P.J., E.A. Gallagher, J., and Stewart, J.
RELEASED AND JOURNALIZED: April 30, 2015
David M. Cuppage
Scott D. Simpkins
Climaco Wilcox Peca Tarantino & Garofoli
55 Public Square
Suite 1950
Cleveland, Ohio 44113
ATTORNEYS FOR APPELLEE
Mike DeWine
Ohio Attorney General
BY: Timothy J. Kern
Brian Ball
Assistant Attorneys General
Environmental Enforcement
30 East Broad Street, 25th Floor
Columbus, Ohio 43215
{¶1} The appellants in this case are Pure Tech Systems, Inc., K&B Capital, Inc., and Robert Kattula. They are three of the five defendants in this action, that was initiated in 2006 by the state of Ohio, through its attorney general, to enforce the state‘s hazardous waste and water pollution control laws. They appeal the trial court‘s judgments (1) granting the state‘s motion for summary judgment and denying their motion for summary judgment, (2) granting the state injunctive relief against them, (3) piercing the corporate veil to hold Kattula personally liable, (4) ordering civil penalties against them, and (5) holding Kattula in contempt of court. We affirm.
I. Procedural History
{¶2} In addition to the appellants, the December 2006 second amended complaint named Research Oil Company and Alan Gressel as defendants. The second amended complaint set forth 19 counts alleging that the defendants violated numerous Ohio hazardous waste and water pollution control laws. The appellants answered the second amended complaint and defendant Gressel filed a motion to dismiss.
{¶3} Defendant Research Oil Company failed to answer or otherwise defend against the second amended complaint, and in 2007 default judgment was granted against it. After a penalty hearing was had, the trial court assessed $846,000 against Research Oil Company. In 2009, defendant Gressel settled with the state by entering into a consent order, under which he had to pay a $4,500 civil penalty.
{¶4} The appellants filed a motion for summary judgment and the state filed a
{¶5} In May 2014, after a hearing had been held, the trial court assessed approximately $6.1 million in civil penalties against appellants, jointly and severally. The court also found Kattula in contempt of court.
II. Facts
{¶6} This case revolves around hazardous waste operations that occurred at a facility located at 2777-79 Broadway Avenue, permanent parcel numbers 122-27-012 and 122-27-020. Broadway Avenue was formally known as Rockefeller Avenue. The facility in general is commonly referred to as the “Rockefeller Avenue facility,” and parcel number 122-27-012 is commonly referred to as the “Hill property.” At issue here was whether the Hill property, that was subject to numerous environmental violations, was under the control of the defendants.
Background
{¶7} The record demonstrates that the facility and surrounding land have served as the grounds for petroleum and hazardous substance operations dating back to the 1880s when a Rockefeller oil refinery (the Standard Oil Company) operated there. The
{¶8} In 1967, the city of Cleveland purchased the property from the Standard Oil Company. The city was in control of the property until 1989, and operated the separator on the property. In 1989, the city sold the property to defendant Research Oil. Pursuant to the city and Research Oil‘s purchase agreement, Research Oil was required to operate the separator and comply with all environmental regulations.
{¶9} Research Oil divided the property, thereby creating parcel numbers 122-27-012 and 122-27-020. Defendant Gressel was the president, CEO, and director of Research Oil. Research Oil also used the Transport Road facility. During its period of control over the property, Research Oil was cited numerous times by the state and city of Cleveland for environmental violations. Because of the citations, the Ohio EPA ordered “closure” of the facility.1
{¶10} In 1998, Research Oil borrowed $3.5 million from Finova Capital Corporation. In exchange for the loan, Research Oil granted Finova a security interest in its assets.
{¶11} In 1999, Research Oil defaulted under the terms of the loan and had to surrender the agreed upon assets to Finova. At the time, there were still numerous
Appellant Kattula Purchases Property
{¶12} Appellant Kattula and representatives from Finova began discussing the possibility of Kattula purchasing the Research Oil assets. To that end, Kattula met with representatives from the Ohio EPA. It is Kattula‘s position that at no time during his meetings with the EPA representatives was the Hill property ever discussed. Gregory Orr, the representative from the EPA who met with Kattula, testified that he discussed the general conditions and obligations relative to the “Research Oil facilities.”
{¶13} Kattula ultimately purchased the Research Oil assets. To effectuate the purchase, in July 1999, Kattula had a company, Mason Plastics, Inc., an Ohio corporation formed in 1998 and of which Kattula was the sole shareholder, purchase the Research Oil assets from Finova. Mason Plastics then transferred the assets to another of Kattula‘s businesses, appellant Pure Tech. Pure Tech was registered as an Ohio corporation on July 15, 1999, and the assets were transferred to it on July 26, 1999. Kattula was Pure Tech‘s sole shareholder. Kattula maintains that none of these transfers included the Hill property. Pursuant to these transfers, defendant Research Oil came to be under Kattula‘s control.2
{¶14} Pure Tech then became the “operator” of the Transport Road and Rockefeller
{¶15} To effectuate the operation of the facilities, Kattula had to secure a line of credit. Kattula formed another business, appellant K&B, that guaranteed the line of credit and provided financing for various undertakings relative to operating the facilities. Kattula‘s wife owned 1% of K&B, and the remaining 99% was owned by the Kattula family‘s trust. K&B was a Michigan corporation formed in May 2000. It was registered as an Ohio foreign limited liability company in September 2003.
{¶16} Appellant Pure Tech operated an oil reprocessing business on the property. Kattula maintains that the business only operated at the Transport Road facility; he maintains that neither he nor any of his businesses had any involvement with the Hill property.
{¶17} In 1999, Pure Tech entered into a consent order with the state of Ohio to address air quality issues at the Transport Road facility. Also in 1999, Kattula and the state entered into a second consent order that detailed the closure of hazardous waste operations at the Transport Road facility.
Rockefeller Avenue Facility
{¶18} In November 1999, the city of Cleveland inspected the property and found violations of the city and state fire codes; the violations included one at the Hill property and related to a lack of permits for the installation of above ground storage tanks. A citation, that ordered closure of the facility, was issued to Pure Tech. Pure Tech‘s plant
{¶19} In March 2000, Pure Tech entered into a consent order with the city of Cleveland to address the property violations, including the Hill property violation. Kattula signed the order as “president” of Pure Tech.
{¶20} Meanwhile, Gregory Orr, from the Ohio EPA, became aware in December 1999 that the city of Cleveland had initiated regulatory compliance actions against Pure Tech. In March 2000, the Ohio EPA began regulatory compliance actions against Pure Tech, and as a result of the actions, Pure Tech entered into two consent orders with the Ohio EPA.
{¶21} Mason (Kattula‘s company) took additional loans from Finova to get funds for the environmental remediation. Pure Tech guaranteed Mason‘s obligations and provided Finova with a secured interest in the assets. Under the agreement, Pure Tech was to conduct closure of the Rockefeller Avenue facility.
{¶22} In 2001, Mason and Pure Tech defaulted under the terms of the agreement and litigation ensued. The parties reached a settlement, under which K&B purchased Finova‘s security interests in the assets of Mason and Pure Tech. The property was then assigned to TAJ Graphics, L.L.C.,3 another one of Kattula‘s businesses.
{¶24} Further facts will be discussed in addressing the assignments of error.
III. Assignments of Error
- The trial court committed reversible error in denying Appellants‘, Kattula‘s, Pure Tech Systems, Inc.‘s and K&B Capital, Inc.‘s, motion for summary judgment and granting Appellee‘s motion for summary judgment against Pure Tech Systems, Inc. and K&B Capital, Inc. because appellee failed to raise a genuine issue of material fact that appellants were owners, operators or generators of hazardous waste at the Hill property.
- The trial court committed reversible error in denying appellants‘, Kattula‘s, Pure Tech System Inc.‘s and K&B Capital, LLC‘s, motion for summary judgment and granting appellee‘s motion for summary judgment against Pure Tech Systems. Inc. and K&B Capital, LLC because appellee‘s claims were barred by the applicable statute of limitations.
- The trial court committed reversible error in granting appellee‘s motion for summary judgment against Pure Tech Systems Inc. and K&B Capital, Inc. because appellee failed to submit any sworn, certified or authenticated documentary evidence.
- The trial court‘s judgment in favor of appellee and against appellant Kattula is against the manifest weight of the evidence because there is no evidence that Kattula was an owner, operator or generator of hazardous waste at the Hill property.
- The trial court‘s judgment in favor of appellee and against appellant Kattula is against the manifest weight of the evidence because there is no evidence to justify piercing the corporate veil.
The trial court‘s judgment in favor of appellee and against appellant Kattula is against the manifest weight of the evidence because there is no evidence that Kattula personally participated in any of the alleged statutory violations at the Hill property. - The trial court committed reversible error in entering a permanent injunction against all appellants because appellee failed to join a necessary and indispensable party.
- The trial court committed reversible error in entering a permanent injunction against all appellants because the order is not authorized by any statute.
- The trial court committed reversible error in ordering the appellants to pay civil penalties.
- The trial court committed reversible error in finding appellant Kattula in continuing contempt of court.
IV. Law and Analysis
Summary Judgment
{¶25} In the first four assignments of error, appellants contend that the trial court erred in denying their motion for summary judgment and granting the state‘s motion for summary judgment. We review the trial court‘s judgment de novo, using the same standard that the trial court applies under
Owners, Operators or Generators of Hazardous Waste at Hill Property
{¶26} In the first assignment of error, appellants contend that the trial court erred in granting the state‘s summary judgment motion because the state failed to demonstrate that they were owners, operators or generators of hazardous waste at the Hill property. We disagree.
{¶27} The record demonstrates that Pure Tech and K&B were indeed owners or operators of the Hill property. For example, in regard to Pure Tech, its response to the city of Cleveland‘s violations after the city‘s November 1999 inspection of the property was that it would get the required permits so that above ground storage tanks on the Hill property would be in compliance. Further, in 2000, Kattula entered into a consent order with the city to address violations, including the Hill property violation.
{¶28} In regard to K&B, it acquired the assets of Pure Tech. The law is clear that when there is a transfer of assets involving real property on which hazardous wastes are generated, stored and spilled, the liability accompanying the asset also transfers. For example,
{¶29} Further, both K&B and Pure Tech admitted in their answer to the second
{¶30} In light of the above, the evidence demonstrated that Pure Tech and K&B were owners, operators or generators of hazardous waste at the Hill property. Summary judgment was, therefore, properly granted in favor of the state on this issue.
{¶31} Appellants’ first assignment of error is overruled.
Statute of Limitations and Long Arm Statute
{¶32} For their second assigned error, the appellants contend that the state‘s action against them was barred by the statute of limitations. They also contend that they could not be served with the state‘s second amended complaint because they no longer operated in the state of Ohio. We disagree with both contentions.
{¶33} This action was brought under
{¶35} Appellants also contend in this assignment of error that service of process and jurisdiction could not be obtained after June 2001 because that is when K&B and Pure Tech ceased business operations in Ohio. But
{¶36} The record demonstrates that appellants were “transacting business” in Ohio
{¶37} In light of the above, the second assignment of error is overruled.
State‘s Evidence in Support of Summary Judgment
{¶38} In their third assignment of error, appellants contend that the state failed to submit sworn, certified, or authenticated documentation in support of its summary judgment motion, and the trial court, therefore, erred in relying on the state‘s documentation.
{¶39} Under
[s]ummary judgment shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, written admissions, affidavits, transcripts of evidence, and written stipulations of fact, if any, timely filed in the action, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.
Our review of the record demonstrates that the state properly supported its summary judgment motion with appropriate evidence pursuant to
{¶40} Collectively, this evidence established that appellants were owners, operators, or generators of hazardous waste at the Hill property and were in violation of environmental laws and regulations. The third assignment of error is, therefore,
Kattula as an Owner, Operator, or Generator of Hazardous Waste: Piercing Corporate Veil
{¶41} In the fourth and fifth assignments of error, Kattula challenges the trial court‘s finding that he, in his individual capacity, was an owner, operator, or generator of hazardous waste at the Hill Property and, thus, its judgment piercing the corporate veil. In the sixth assignment of error, Kattula contends that there was no evidence that he personally participated in the violations at the Hill property.
{¶42} In Dombroski v. WellPoint, Inc., 119 Ohio St.3d 506, 2008-Ohio-4827, 895 N.E.2d 538, ¶ 18, the Supreme Court of Ohio stated the following in regard to determining whether to pierce the corporate veil:
In Belvedere [Condominium Unit Owners’ Assn. v. R.E. Roark Cos., Inc., 67 Ohio St.3d 274, 617 N.E.2d 1075 (1993)], this court established a three-pronged test for courts to use when deciding whether to pierce the corporate veil, based on a test developed by the United States Court of Appeals for the Sixth Circuit in Bucyrus-Erie Co. v. Gen. Prods. Corp. (C.A.6, 1981), 643 F.2d 413, 418. Belvedere, 67 Ohio St.3d at 288-289. This test focuses on the extent of the shareholder‘s control of the corporation and whether the shareholder misused the control so as to commit specific egregious acts that injured the plaintiff: “The corporate form may be disregarded and individual shareholders held liable for wrongs committed by the corporation when (1) control over the corporation by those to be held liable was so complete that the corporation has no separate mind, will, or existence of its own, (2) control over the corporation by those to be held liable was exercised in such a manner as to commit fraud or an illegal act against the person seeking to disregard the corporate entity, and (3) injury or unjust loss resulted to the plaintiff from such control and wrong.” Id. at paragraph three of the syllabus. All three prongs of the test must be met for piercing to occur.
{¶43} Kattula maintains that, as it relates to the Hill property, “there is not a shred
{¶44} For example, in March 2000, Kattula entered into a consent order as president of Pure Tech with the city of Cleveland to address numerous violations at the Rockefeller facility, which included the Hill property. One of the violations was specific to the Hill property, and a representative from Pure Tech had previously responded to the city as to how the company was going to address the violation.
{¶45} The record further demonstrates that Kattula was in complete control of Pure Tech, K&B, Research Oil, TAJ, and Mason. He was the sole shareholder of at least Mason and Pure Tech, and K&B was his family‘s business. He used these companies to conduct his personal dealings. In fact, K&B conducted significant business activity in Ohio, including purchasing Pure Tech‘s assets and sale of the assets to GEM before it was even registered as a business in Ohio. Similarly, TAJ engaged in real estate transfers with Research Oil prior to being registered as an Ohio business. The record supports the trial court‘s finding that Kattula controlled the appellant corporations such that they had no separate mind, will, or existence of their own, which is the first Belvedere finding for piercing the corporate veil.
{¶46} The record also shows that Kattula assumed personal liability for the corporate liabilities of Pure Tech, Research Oil, TAJ, and Mason. For example, he personally paid $1.5 million to GEM for environmental corrective actions. He even conducted business for the companies on his own personal stationery.
{¶48} The record demonstrates that Kattula exercised control over the appellant corporations in such a manner that it would be fraudulent not to hold him personally accountable for the violations at issue here, which meets the second Belvedere prong for piercing the corporate veil.
{¶49} The final prong of the Belvedere test, that the state would suffer an injury or unjust loss because of Kattula‘s control if he were not held personally liable, was also demonstrated. As discussed, Kattula controlled the appellant companies. The companies failed to address ongoing hazardous waste violations. The violations were harmful to the environment and citizens of the state.
{¶50} The law has allowed that in situations relating to public health and welfare laws, persons, including corporate officers, can be held individually liable for a corporation‘s violation of public health legislation. United States v. Park, 421 U.S. 658,
{¶51} In light of the above, the record demonstrates that the appellant corporations existed at the will of Kattula, and that in exercising control over them, Kattula was personally involved in their violations of law. The trial court therefore did not err in piercing the corporate veil to hold him personally liable.
{¶52} The fourth, fifth, and sixth assignments of error are overruled.
Permanent Injunction
{¶53} In their seventh assignment of error, appellants contend that the trial court erred in granting a permanent injunction against them because the state failed to join a necessary and indispensable party, the current owner of the Hill property. In their eighth assignment of error, appellants contend that the trial court erred in entering a permanent injunction against them because such an order was not authorized by any statute.
{¶54}
A person who is subject to service of process shall be joined as a party in the action if (1) in his absence complete relief cannot be accorded among those already parties, or (2) he claims an interest relating to the subject of the action and is so situated that the disposition of the action in his absence may (a) as a practical matter impair or impede his ability to protect that interest or (b) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of his claimed interest, or (3) he has an interest relating to the subject of the action as an assignor, assignee, subrogor, or subrogee.
{¶55} In its injunction order, the court addressed the possibility that a person or
{¶56} The record here demonstrates that appellants were the owners, operators of hazardous waste at the property, that led to the state filing this action in 2006. Thus, they were the parties responsible for the violations. There was no need to make the current property owner a party to this case. The record does not demonstrate that (1) the current owner‘s interest were impaired; (2) the appellants were subjected to a “substantial risk of incurring double, multiple or otherwise inconsistent obligations” by virtues of the current owner‘s claimed interest; or (3) that complete relief cannot be had with the appellants as parties.
{¶57} Moreover, the Ohio Supreme Court has held that when the state seeks injunctive relief for violations of statutory and regulatory violations, it is not bound by the strict requirements of traditional equity as developed in private litigation. Akerman v. Tri-City Geriatric & Health Care, Inc., 55 Ohio St.2d 51, 56, 378 N.E.2d 145 (1978). Rather, the state need only prove that the conditions set forth by the statue authorizing
{¶58} The state‘s request for injunctive relief was based on ”
[t]he attorney general * * * where a violation has occurred, is occurring, or may occur, upon request of the * * * director of environmental protection, shall criminally prosecute to termination or bring an action for injunction against any person who has violated, is violating, or is threatening to violate any section of this chapter, rules adopted under this chapter, or terms or conditions of permits, licenses, variances, or orders issued under this chapter.
{¶59} In light of the above, the state was authorized by statute to obtain injunctive relief and it was not necessary to join the current property owner to do so. The seventh and eighth assignments of error are therefore overruled.
Civil Penalties
{¶60} For the ninth assignment of error, appellants contend that the trial court erred by ordering them to pay civil penalties.
{¶61} The state‘s request for civil penalties was made under
{¶62} If there has been a violation of environmental law, a trial court has no
{¶63} Upon review, we find that the trial court did not abuse its discretion in determining the amount of the penalties. It considered many facts in reaching its determination. For example, some of the chemicals at the Rockefeller Avenue facility were carcinogenic, and the extent of their risk to the environment and human health were unknown. The trial court also considered that Kattula was aware of the closure order and violations for numerous years, and he avoided the costs associated with the orders because of his recalcitrance. The court also considered the significant costs incurred by the state
{¶64} We find that the trial court gave proper consideration to the factors used to determine a civil penalty and calculated an amount that would serve the purpose for a civil penalty, that is, punish the offenders and deter others.
{¶65} In light of the above, the ninth assignment of error is overruled.
Contempt Order Against Kattula
{¶66} In the final assignment of error, Kattula contends that the trial court erred in finding him in civil contempt.
{¶67} As stated in ConTex, Inc. v. Consol. Technologies, Inc., 40 Ohio App.3d 94, 531 N.E.2d 1353 (1st Dist.1988):
The purpose of sanctions imposed for civil contempt is to coerce compliance with the underlying order or to compensate the complainant for loss sustained by the contemnor‘s disobedience. Punishment for civil contempt may, therefore, be either: (1) remedial or compensatory in the form of a fine to compensate the complainant for the contemnor‘s past disobedience; or (2) coercive and prospective, i.e., designed to aid the complainant by bringing the defendant into compliance with the order, and conditional, wherein confinement may be terminated by the contemnor‘s adherence to the court‘s order.
(Citations omitted.) Id. at 96.
{¶68} The standard of proof for civil contempt is clear and convincing evidence. Brown v. Executive 200, Inc., 64 Ohio St.2d 250, 253, 416 N.E.2d 610 (1980). Thus, if the trial court had before it competent and credible evidence an appellate court cannot reverse the trial court‘s decision. ConTex at 97. “To show contempt, it is necessary to establish a valid court order, knowledge of the order, and a violation of it.” Arthur Young
{¶69} Kattula contends that he never had notice that the order assessing civil penalties was to be assessed against him. We disagree.
{¶70} The record demonstrates that as early as 2000, Kattula was put on notice of environmental concerns at the Rockefeller Avenue facility. It was at this time that the Ohio EPA started to pursue closure proceedings. Throughout the ensuing years, appellants, including Kattula, had actual notice of the liabilities. Specifically, in August 2007, default judgment was awarded to the state against Research Oil, that Kattula owned and operated. Further, in March 2012, the state‘s motion for summary judgment against Pure Tech and K&B was granted; as with Research Oil, Kattula owned and operated Pure Tech and K&B.
{¶71} In sum, the record demonstrates that Kattula was in complete control of the defendant companies and, despite that, did not follow the court‘s orders regarding closure of the Rockefeller Avenue facility.
{¶72} In light of the above, the tenth assignment of error is overruled.
{¶73} Judgments affirmed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate issue out of this court directing the Cuyahoga County Court of Common Pleas to carry this judgment into execution.
A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of the Rules of Appellate Procedure.
LARRY A. JONES, SR., PRESIDING JUDGE
EILEEN A. GALLAGHER, J., and
MELODY J. STEWART, J., CONCUR