The opinion of the court was delivered by: John T. Curtin United States District Judge
On September 15, 16, 23, and 24, 2003, this court conducted a non-jury trial on the issue of the liability of third-party defendants Recochem, Inc. ("Recochem")*fn1 and its president, Joseph Kuchar, for contribution pursuant to section 113(f)(1) of the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. § 9613(f)(1), in connection with response costs incurred by third-party plaintiffs Solvent Chemical Company, Inc. ("Solvent"), and its parent company, ICC Industries, Inc. ("ICC"), as a result of the investigation and remediation of environmental contamination associated with property located at and near 3163 Buffalo Avenue, Niagara Falls, New York (the "Site"). The court received the parties' post-trial submissions, and heard summations on May 27, 2004. The following constitutes the court's findings of fact and conclusions of law with regard to Recochem's contribution liability, in accordance with Rule 52 of the Federal Rules of Civil Procedure, based on the trial testimony and exhibits, the parties' post-trial submissions and arguments presented at summation, and the court's prior rulings.
1. Factual and Procedural Summary
This action was originally brought in 1983 by the State of New York against Solvent, ICC, and several other parties alleged to be potentially responsible under CERCLA § 107(a) for recovery of response costs incurred at the Site. In a series of amended thirdparty complaints, Solvent subsequently impleaded more than 80 companies and individuals for contribution under CERCLA § 113(f)(1).*fn2
In December 1996, the State issued a Record of Decision ("ROD") identifying a number of hazardous substances in the soil and groundwater at the Site and calling for specific remedial activities to be undertaken there. Among the contaminants identified in the ROD were various dicholorobenzenes found in the soils and both the overburden and bedrock groundwater, including 1,2-dichlorobenzene ("orthodichlorobenzene" or "ortho;" also referred to as "ODCB"), 1,3-dichlorobenzene ("metadichlorobenzene" or "meta"), and 1,4-dichlorobenzene ("paradichlorobenzene" or "para")--all listed as hazardous substances pursuant to CERCLA § 101(14). See State of New York v. Solvent Chemical Co., Inc., 218 F. Supp. 2d 319, 322 & n. 1 (W.D.N.Y. 2002). Then, in April 1997, Solvent and the State entered into a Consent Decree, in which Solvent agreed to implement the remedy set forth in the ROD while reserving its right to pursue its third-party contribution action (Ex. 268).*fn3 This Consent Decree was approved by this court on October 8, 1997 (Item 655).
On April 3, 1998, Solvent served and filed its Fifth-Amended Third-Party Complaint (Item 746) impleading Recochem and Mr. Kuchar, along with approximately 40 other generators or suppliers of chlorinated benzene material. Solvent alleged that these "Chlorinated Benzene Waste Generators" sold or provided to Solvent chlorinated benzene material*fn4 which could not be used unless it was further processed, resulting in an "arrangement" for the disposal of hazardous substances under CERCLA. Solvent subsequently filed a Sixth-Amended Third-Party Complaint (Ex. 3) adding a claim for "operator" liability under CERCLA based on the allegation that Recochem and Mr. Kuchar actually operated the Solvent plant for a period of time in early 1978 when hazardous substances were disposed of at the Site. Recochem and Mr. Kuchar answered the Fifth-and Sixth-Amended Third-Party Complaints, generally denying that they ever operated the plant (Ex. 4) and alleging as an affirmative defense that the transactions between Solvent and Recochem involving chlorinated benzene material constituted sale of a valuable and useful product rather than an arrangement for disposal of hazardous wastes regulated by CERCLA (Item 855).
The court entertained the parties' cross-motions for summary judgment on these two issues--i.e., whether the sales of chlorinated benzene material by Recochem to Solvent were arrangements for treatment or disposal under CERCLA § 107(a)(3), and whether Recochem or Mr. Kuchar owned or operated the Site at a time when hazardous substances were disposed of there. In a decision and order dated July 22, 2002, the court denied both motions. The court found genuine issues of material fact as to whether the material shipped to Solvent by Recochem was "product" or "waste." See Solvent Chemical, 218 F. Supp. 2d at 340-46. The court also noted that if it "eventually finds that the sales of material from Recochem to Solvent represented an arrangement for disposal and treatment under CERCLA, then Joseph Kuchar may be personally liable as an arranger as well." Id. at 344. Finally, the court found a question of material fact for trial as to whether Recochem or Mr. Kuchar ever owned or operated the Solvent plant. Id. at 349. By subsequent order, the court directed that these issues pertaining to the Recochem defendants' CERCLA liability be tried separately from the other issues in the case (see Item 1230).
As mentioned, the Recochem liability trial took place in September 2003. Solvent presented the expert testimony of Dr. E. Bruce Nauman, Ph.D., as well as the fact testimony of David Rankin (Vice President of Environmental Affairs of Dover Chemical Company, Inc.) and Gregory DelDuce (Solvent's controller during the relevant period). The Recochem defendants presented the testimony of Mr. Kuchar, Ralph C. Carmichael (Vice President of Recochem), and Bertram M. White (former President of Solvent, currently employed by Recochem as a commissioned salesman).*fn5 What follows next is a summary of the testimony and exhibits presented as evidence at the trial which the court finds pertinent to the "useable product/waste" inquiry.
A. Dr. E. Bruce Nauman, Ph.D.*fn6
Dr. Nauman stated at the outset of his testimony his conclusion that "the great majority" of the materials shipped from Recochem to Solvent required further processing to become saleable products (T1 at 17).*fn7 This conclusion was based on his review and analysis of the deposition testimony of Solvent and Recochem employees, the operating records of the two companies, sales documents, customs declarations, control statements, and shipment records. He also reviewed pricing information and process descriptions available in the open literature (T1 at 15-18).
Dr. Nauman explained the process for making chlorobenzene by the direct chlorination route, which was the process most commonly used by chlorobenzene producers during the relevant time period. The process started with benzene and chlorine being fed to reactors, and ultimately resulted in the production of the three marketable grades of chlorinated benzene products of primary interest in this litigation: ortho, para, and meta. According to Dr. Nauman, the process yielded roughly 50% ortho and 50% para, and less than 1% meta. During the relevant time period, para was the principal product, marketed for use as mothballs and as a chemical reactant for making plastics. Ortho was used as a chemical intermediate for making solvents, degreasers, and deodorants. Dr. Nauman found no established use for meta (T1 at 18-23).
As explained by Dr. Nauman, Recochem's process began with an external source of mixed chlorobenzene isomers, rather than with separate streams of benzene and chlorine. The mixture was sent through a crystallizer, where the para formed crystals and was separated from the mixed stream. The resulting "mother liquor" was then run through a centrifuge, where high-purity para was recovered. The remaining mother liquor, which contained some residual para along with whatever ortho and meta was present to begin with, was sent to a distillation column to remove the heavy contaminants and as much meta as possible. The distillation column was capable of producing 70% ortho (T1 at 24-27).
Exhibit 97 is a record of "Chemical Refineries*fn8 Shipments Received," showing the results of laboratory testing performed on various batches of materials sent to Solvent by Recochem between January and October 1976. The materials are listed as "mono" (monochlorobenzene), "meta," "para," "ortho," and "tri's" (trichlorobenzene). Dr. Nauman stated that all of these materials required recovery or reformulation before they could be sold as standard items of commerce. He testified that the industrial acceptance specifications for technical ("tech") grade ortho requires a minimum of 80% ortho content, with no more than 2% meta and tri's, and the remaining 18% to 20% para. Based on these specifications, even in the few instances where the ortho content of the shipment was over 80%,*fn9 the materials sent by Recochem to Solvent during this period had an excessive amount of meta and/or tri's. According to Dr. Nauman, none of these materials constituted saleable product without further processing (T1 at 27-32).
Exhibit 90 is an internal Solvent memorandum from John Farber to Bertram White, dated September 3, 1976, regarding "ortho streams from Kuchar." This memorandum indicates that Solvent had accepted four thousand gallons of material from Recochem without conducting quality control analysis, and when analyzed it was found to contain an unacceptable level of meta. Dr. Farber suggested that Mr. White "protest strongly with Kuchar, as he is to return to us only the ortho originating from our streams and not blend in somebody else's junk" (Ex. 90). According to Dr. Nauman, this transaction refers to materials which were sent by Recochem to Solvent under a "tolling agreement" (explained at further length later in his testimony), and which contained "far too much meta" (T1 at 33-35).
Exhibit 116 is a letter from Joseph Kuchar (Recochem) to Bertram White (Solvent), dated December 22, 1976, in which Kuchar advises White that a recent shipment of material from Solvent to Recochem "containing 87% para[,] 41/2 % Trichlorobenzene[,] and 4% Meta and 31/2 % Ortho . . . is of no interest to us as long as it has the 4% Meta which we cannot remove by economical distillation . . . ." (Ex. 116). According to Dr. Nauman, this letter indicates Recochem was aware that high meta content made the materials "unuseful" (T1 at 36).
Exhibit 83 is a Solvent record depicting a script chart recording of a gas chromatograph analysis of a shipment of material from Recochem. Dr. Nauman stated that he reviewed a number of these gas chromatograph analysis reports in preparation for his expert testimony. This particular report pertained to a shipment in July 1976, and matched the shipment analysis numbers reported on Exhibit 97. The report shows that the material contained 60.4% ortho, 11.6% meta, and a combined meta/para content of 35.1%. The material was "cloudy," with a color reading of between 35 - 40, which Dr. Nauman stated was outside the acceptable range established by the American Public Health Association ("APHA") reference standards. According to Dr. Nauman, the APHA specification for saleable tech ortho was 25 or less. These readings indicated to Dr. Nauman that this material was not saleable as tech ortho. In fact, the sample was originally designated on the chart as "tech ortho," but "tech" had been crossed off (T1 at 36-41).
Exhibit 70 is a Solvent Chemical form reporting the readings from a gas chromatograph analysis chart for a shipment from Recochem dated April 20, 1976. The report indicates that the material contained 10.4% meta, 17.2% para, and 69.9% ortho. It also showed a yellow color, which Dr. Nauman explained indicated that it had failed the APHA color specification test. According to Dr. Nauman, in order to make this material a saleable tech ortho product, it would need to be distilled twice. The first distillation would remove the para, meta, and monochlorobenzenes as overhead streams (which would be chlorinated and redistilled to make refined trichlorobenzenes), and the bottom product would be distilled again to produce an overhead stream of saleable orthodichlorobenzene. The bottom product from the second distillation would be disposed of (T1 at 41-43).
Exhibit 81 is another gas chromatograph chart which was reviewed by Dr. Nauman. It indicates that a June 1976 shipment of Recochem material contained 59.9% ortho, 23.2% para, and 12.5% meta. The material was cloudy but had an APHA reading of 10-20 after filtering (T1 at 43-44).
Exhibit 49 is a letter from Mr. Kuchar to Mr. White dated May 26, 1975, in which Kuchar advised that Recochem was taking a "debit note" from Solvent for more than $12,000 because material received in two recent shipments was too dark in color. According to Dr. Nauman, this communication shows that the color of dichlorobenzene product was important to those in the chemical industry (T1 at 44-46).
Exhibit 8 is a handwritten internal memorandum regarding "rejected low grade orthodichlorobenzene" shipments received by Solvent from Recochem in October and November 1976. The memorandum indicates that these four shipments "do not meet [Solvent's] specifications for color and therefore would cause [Solvent] considerable extra expense for reprocessing to a saleable product" (Ex. 8; T1 at 46-47). According to Dr. Nauman, some reprocessing would be needed in any event; what this memorandum was concerned with was extra reprocessing due to color (T1 at 47).
Dr. Nauman testified at some length about the information contained in Exhibit 78, which is Solvent's "Formula File" listing customer requirements for various product specifications. According to Dr. Nauman, there were two orthodichlorobenzene products in commerce at the time: technical grade and high purity. By way of example, the specifications of the DuPont Company for high-purity ortho required a minimum of 98% ortho and "water white liquid" color (Ex. 78, Bates No. JFM1019873-W). The specifications of the Drew Chemical Company for technical grade ortho was an isomer ratio of minimum 80% ortho to maximum 20% para/meta (id., Bates No. JFM1019872-W; T1 at 48-51). Similar requirements were set forth on Solvent's general customer specification sheet (Ex. 5; T1 at 55-56).
The Formula File also contained specifications from the Cosmopolitan Chemical Company for "N-Grade" ortho, which required a minimum of 50% ortho and was made according to a formula calling for "a blend of Technical grade ortho (80-85%) and a, a, a material containing between (20-30%) ortho" (id., Bates No. JFM1019870-W). According to Dr. Nauman, while this listing of specifications in the Formula File indicates that N-Grade ortho was a product sold by Solvent, it did not represent substantial sales. He also stated that there were no tech grades listed in the Formula File requiring less than 80% ortho (T1 at 51-53).
The Formula File also contained specifications and formulas for two forms of emulsifiable orthodichlorobenzene--referred to as "Emulsolvent"--which was a product used to spray on garbage dumps to cut down odors. Both formulas required tech ortho (Ex. 78, Bates Nos. JFM1019928-W and JFM101929-W; T1 at 53-55).
Exhibit 40 is a letter from Mr. White to a potential customer in Brazil advising that Solvent's ortho material was manufactured in technical grade only, and contained 80-85% orthodichlorobenzene (T1 at 57).
Exhibit 56 is an ICC interoffice memorandum, dated October 16, 1975, discussing methods for the reduction of Solvent's chlorinated benzene inventory at the Niagara Falls plant. The memorandum indicates that Solvent had approximately 8 million pounds of material stored in tanks and drums at the plant at the time. The proposed scheme for reducing the inventory involved selling all readily saleable products, including "Technical Ortho 80-85%" and "Emulsified Ortho," and reprocessing the remaining materials by way of distillation and rechlorination. According to Dr. Nauman, this memorandum documents the steps Solvent would take to make "unsalable" chlorinated benzene materials saleable (T1 at 56-59).
Exhibit 166 is a report of Solvent's overall physical inventory for the month of June, 1977. The report lists "Finished Goods," "Work in Process," "Raw Materials," "Sundry," and "Additives" at various locations, including the Niagara Falls plant. According to Dr. Nauman, "Finished Goods" referred to saleable product on hand, including technical grade ortho, emulsified ortho, and 99% ortho. "Work in Process" included "Crude Dichlors," "Ortho/Para," and "90% Ortho" (Ex. 166; T1 at 59-61).
Exhibit 20 is a table prepared by Dr. Nauman listing industry definitions of technical grade orthodichlorobenzene from various suppliers--specifically, Allied Chemical, Dow Chemical, Canadian Industries, Hooker Chemical, PPG, and Monsanto. As set forth in the supporting documentation (Exs. 21-26), the tech ortho specifications for all of these companies required a minimum 80% orthodichlorobenzene, with the exception of Hooker, which specified a boiling point range consistent with the 80% minimum requirement. Dr. Nauman testified that at no time during his analysis did he see any documentation indicating a specification for tech ortho of less than 80% minimum (T1 at 61-62).
Exhibit 95 is a "Memorandum of Agreement" between Recochem and Solvent dated September 23, 1976. This agreement had two components: (1) a provision for straight sales by Recochem to Solvent of para and ortho, and (2) a "tolling agreement," under which Solvent supplied Recochem with "stream crude dichlorobenzene" which Recochem then processed and returned to Solvent. More specifically, under the straight sales component, Recochem agreed to supply Solvent 300,000 pounds of para at a price of $0.20/lb., and 850,000 pounds of 70% ortho at a price of $0.18/lb. Under the tolling agreement, Solvent agreed to supply Recochem 823,000 pounds of stream crude dichlorobenzene, having the following composition: 4.2% mono, 12.6% meta, 37.3% para, 45.2% ortho, and 0.7% tri. Recochem agreed to process this material into para and ortho streams at a price of $0.08/lb., which would be invoiced by Solvent at $0.12/lb for customs purposes. Recochem would return 23 - 25% para (after 9% loss allowance), as well as the remaining stream of ortho composed of 66% ortho and unspecified smaller quantities of meta, mono, and para. According to Dr. Nauman, the basic intent of the somewhat complex tolling arrangement was that Solvent would send mixed dichlorobenzene material to Recochem, and Recochem would then strip off useful para material, some of which would be sent back to Solvent along with the remaining ortho/meta/mono materials (T1 at 64-68).
Dr. Nauman also performed a comparative evaluation of the prices Solvent paid for various materials required for its reprocessing business and the prevailing market prices for those materials at the time of purchase, as reflected in the Chemical Market Reporter.*fn10
The Chemical Market Reporter is a weekly publication which lists the prices charged by different manufacturers for fungible chemical products (T1 at 62-64). It contains the following introductory disclaimer:
Unless otherwise indicated quotations in this section reflect the list prices prevailing, according to information and belief, on [the particular date] for large lots f.o.b. New York. Chemical quotations reflect list prices of merchant producers accounting for at least 80 percent of annual US production. The listings do not represent bid and asked prices, nor a range over the week. Differences between high and low may be accounted for by differences in quantity, quality or locality. Quotations posted herein do not necessarily reflect prices at which transactions actually may have occurred. (Ex. 13).
Exhibit 12 is a table prepared by Dr. Nauman based on data obtained from the Chemical Market Reporter. It lists "historic prices" on various dates between January 1970 and May 1979 for five chlorobenzene products: MCB (monochlorobenzene), 80% ortho, 98% ortho, para, and 1,2,4 tri. These are the only chlorobenzene products listed in the Chemical Market Reporter, although some lower grades of ortho were considered saleable products for use as emulsifiers, deodorizers, or solvents (T1 at 81). On December 27, 1976, the price for MCB was listed at $0.26 to $0.29/lb.; the price for 80% ortho was $0.30 to $0.33/lb.; the price for 98% ortho was $0.31 to $0.34/lb.; the price of para was $0.22 to $0.26/lb.; and the price of 1,2,4 tri was $0.39/lb. (Ex. 12; T1 at 71-73). As explained by Dr. Nauman, these quotations reflected the list prices for tank car quantities, before discounts. They are broadly representative of prices paid in chemical product transactions between chemical companies, but do not necessarily reflect exact market transaction prices (T1 at 74-76). However, Dr. Nauman's comparative analysis indicated that the prices Solvent paid for chemical products during the relevant period, as set forth in its various contracts with other chemical companies (see, e.g., Exs. 84, 248, 278), were consistent with the Chemical Market Reporter listings (T1 at 76-80).
Dr. Nauman also testified that while "pure" and "80% tech" were the only grades of ortho listed in the Chemical Market Reporter, there were recognized uses for lower grades of ortho in the 1970s. For example, some lower grade ortho material was saleable for use as a solvent and, in an emulsified form, as a deodorizing agent (T1 at 81).
Exhibit 188 is an internal Solvent memorandum dated August 16, 1977 from Ira Lieberman to Bertram White regarding a buildup of inventory for certain products. Listed under the category of "work in progress" is approximately 1.5 million pounds of ortho/para, valued at nearly $360,000. According to Dr. Nauman, the handwritten parenthetical reference to "Kuchar" indicates that this is material Solvent obtained from Recochem (T1 at 82-83, 86).
Exhibit 262 is an internal Solvent memorandum dated September 1, 1978 from E.R. Beu to J. Liggett addressing Solvent's plan for shutting down the Niagara Falls plant and liquidating the inventory on hand. The memorandum outlines proposed alternatives for dealing with the 1.15 million pounds of ortho/para material attributed to Recochem/Kuchar, which was still in inventory. One alternative called for selling the entire amount to Standard Chlorine. Another suggestion was to blend the materials with the 90% and 95% ortho in stock to create 1.1 million pounds of tech ortho, which would still leave 600,000 pounds of ortho/para to be distilled or sold at a distressed price (T1 at 84-85). As of November 22, 1978, 1.057 million pounds of ortho/para remained in inventory (Ex. 264). According to Dr. Nauman, this entire lot was eventually sold to a single company at $0.10/lb. (T1 at 88).
In summary, Dr. Nauman stated his conclusion based on his analysis of the evidence in the record that some of the orthodichlorobenzene material received by Solvent for use in its chemical reprocessing business was obtained from Recochem at prices substantially below market value for technical grade ortho. The material contained high levels of contaminants, particularly metadichlorobenzene, and some of the shipments contained off-color or cloudy material. Several shipments were too low in ortho content. In Dr. Nauman's opinion, this material needed reprocessing before it could become a saleable product (T1 at 88-89).
On cross-examination, Dr. Nauman testified that although the generally recognized standard for tech ortho placed limits on "nonpara" content, none of the chemical manufacturers' specification sheets referred to a 2% meta limit. Certain manufacturers also allowed a higher APHA rating than the 20 - 25 range. He reiterated his opinion that none of the shipments listed on Exhibit 97 (received by Solvent from Recochem between January and October 1976) contained saleable tech ortho. This included the material consisting of more than 80% ortho, which Dr. Nauman found to be not saleable because it also contained more than 2% combined meta and tri's (T1 at 118-31).
Recochem's counsel questioned Dr. Nauman about the specification sheets contained in Solvent's Formula File (Ex. 78). Although DuPont's specification sheet (Bates No. JFM1019873-W) called for 98% ortho, there was nothing in the documents reviewed by Dr. Nauman to indicate that Solvent actually manufactured or sold 98% ortho. Along with Cosmopolitan Chemical, which required 50% ortho content (Bates No. JFM1019870-W), the following companies required less than 80% ortho: Utility Chemical, which also required 50% (Bates No. JFM1019920-W); Milwaukee Solvent, 70% (Bates No. JFM1019892-W); Neville Chemical, 70% (Bates No. JFM1019896-W); Oakite Products, 70% (Bates No. JFM1019902-W); Southland Solvents, 70% (Bates No. JFM1019909-W); and Warren Chemical, 70% (Bates No. JFM1019922-W). In addition, most of the specification sheets indicated that 80% ortho could be made by blending equal amounts of 60% - 65% ortho with high-purity ortho (T1 at 132-39).
Dr. Nauman agreed that Solvent's physical inventory report for June 1977 (Ex. 166) lists no less than ten products containing different grades of ortho (T1 at 140-41).
Dr. Nauman admitted that Hooker Chemical's specifications for ortho requiring a boiling point range of 179.5 centigrade, which he testified on direct was consistent with the 80% minimum requirement for tech ortho, was also consistent with 98% 0rtho (T1 at 142-43).
Dr. Nauman testified that the para sold to Solvent by Recochem at $0.20/lb., pursuant to the September 23, 1977 contract (Ex. 95), was a "modest discount" from the historic price of para listed in the Chemical Market Reporter at $0.22 to $0.26/lb. (Ex. 12). According to Dr. Nauman, this para is in addition to, and distinct from, the 23% - 25% para returned to Solvent after processing the crude dichlor stream. He was not aware that the para received from Recochem was shipped to ICC's customers in Japan (T1 at 143-45).
Dr. Nauman stated that he had reviewed documents indicating sales of tech ortho in the 1970s for less than $0.25/lb. Exhibit 479 is a Solvent/ICC interoffice memorandum dated December 2, 1977, which indicates outstanding invoices due from Recochem for two shipments of tech ortho at $0.18/lb., and one shipment at $0.17/lb. According to Dr. Nauman, this was an accounting mistake (T1 at 150-53).
Dr. Nauman agreed that while the Formula File, the manufacturers' specification sheets, and the Chemical Market Reporter listed only 80% tech ortho and 98% pure ortho, lower grade ortho (50% - 70%) could be sold as marketable product for certain applications. He also agreed that 80% ortho was used for many purposes, including as a reaction solvent for further processing of chemicals such as toluene diisocyanate ("TDI") (T1 at 155-65).
During Dr. Nauman's cross-examination, Recochem's counsel introduced several documents suggesting that Solvent bought and sold orthodichlorobenzene products with an ortho content of less than 80%. For example, Exhibit 320 is an undated table listing weight, cost, quantity, and other characteristics of various Solvent products. The table indicates the same "Unit Standard Cost" ($0.24/lb.) for "Ortho 70%--Record Chem." and "Ortho 99%--ICC Ind." (T2 at 2-3).*fn11
Exhibit 587 is a chart prepared by Recochem's counsel entitled "Ortho Received from Record (1/1/76 - 11/30/76)." According to counsel, this chart summarizes information contained on Exhibit 1 ("Recochem's 'Straight Sales' of Mixed Ortho-Dichlorobenzene Shipments"), Exhibit 306 ("Ortho Received from Record Chemical"), and Exhibit 479 ("Ortho Purchased from Record Chemical through ICC Sales"). The chart indicates "Price/Pound" for each shipment, calculated by dividing the invoice amount by the shipment weight. By way of example, the chart indicates that a shipment dated April 15, 1976 contained 191,860 pounds of 69.9% ortho material with a yellow color, for which Solvent paid $49,226, which works out to $0.25/lb. The shipment dated January 20, 1976 contained 39,000 pounds of 80.5% ortho material with a "water white" color, for which Solvent paid $10,696, which works out to $0.27/lb. The Chemical Market Reporter price range for tech ortho during that time was $0.30 to $0.33/lb. which, when discounted at a rate of ten percent (the standard discount for chemical distributors), yields a price of approximately $0.27/lb. (T2 at 4-26).
Exhibit 329 is an invoice (with an undecipherable date) for 18,000 pounds of tech ortho at $0.16/lb, sold to Milwaukee Solvents. The Formula File contains Milwaukee Solvents' specifications for both 80% tech ortho (Ex. 78, Bates No. JFM1019891-W) and 70% ortho (id., Bates No. JFM1019892-W; T2 at 27- 29).
Exhibit 336 is an inventory summary dated June 30, 1975, indicating that the unit cost for emulsified ortho, tech ortho, and 99% ortho was the same ($0.265/lb.). Exhibit 348 is a Weekly Inventory Activity Report for the week of May 16 - 22, 1978, indicating an "in-house transfer" to ICC Western Hemisphere of 70% ortho. Exhibit 355 is a letter from the State Chemical Manufacturing Company requesting information about the product metadichlorobenzene. Exhibit 357 is a copy of handwritten notes indicating an invoice for a, a, a material for use as a "meta source." According to Dr. Nauman, the market for meta at that time was very limited (T2 at 31).
Exhibit 371 is a list entitled "Chlorobenzene Sales and Revenue Calendar Year 1973," which indicates that Solvent sold three different grades of ortho material during 1972*fn12 --85%, 75%, and 65%, resulting in revenues of over $187,000 (T2 at 32-33).
Exhibit 385 is a list of Solvent's material suppliers and unit prices dated May 18, 1978. The list indicates that Solvent obtained tech ortho from Monsanto at the cost of $0.22/lb., as compared to the Chemical Market Reporter price of $0.30 to $0.33/lb. (T2 at 33-34).
Exhibit 414 is an invoice dated December 21, 1974 from ICC Solvent Chemical Sales Corporation in New York City indicating a sale of ortho 75% to Solvent Chemical Sales Corp. in Malden, Massachusetts (T2 at 34-35).
Exhibit 444 is a memorandum from ICC New York dated June 7, 1977 regarding State Chemical Company's interest in "lower priced Ortho-Rich CB's." The memorandum lists four products being offered for sale: (A) a ortho, a meta, and a para, at $0.20 (delivered); (B) 5% mono, 14% meta, 59% para, 18% ortho, and 3% tri, at $0.20; (C) 10% meta, 20% para, and 70% ortho, at $0.275; and (D) 30% tri, 20 - 30% para, and 34 - 50% ortho, at $0.25. According to Dr. Nauman, this memorandum is an internal document suggesting an offer of sale, and does not represent a transaction involving saleable products (T2 at 35-37).
Exhibit 420 is a memorandum sent to Joseph Kuchar confirming an offer of sale to Recochem of 500 tons of chlorinated benzene material in nine shipments containing various percentages of mono, meta, para, ortho, and tri's. The ortho content per shipment ranges from 24.2% to 53%. According to Dr. Nauman, Solvent was offering these materials for sale to Recochem because of their rich para content (T2 at 37-38).
Various other documents were presented as exhibits indicating that Solvent sold chlorinated benzene materials containing less than 80% ortho to several chemical companies during the 1970s (see, e.g., Exs. 433, 439, 441, 448, 458, 568; T2 at 41-47).
B. Ralph C. Carmichael*fn13
To counter Dr. Nauman's testimony, Recochem offered the testimony of Ralph C. Carmichael, Bertram White, and Joseph Kuchar. Mr. Carmichael is Senior Vice President of Recochem's International and Industrial Sales Division. He testified that Recochem's business currently is divided into two divisions: the consumer division, which operates four plants across Canada where solvents, coolants, and other household chemicals are manufactured; and the industrial chemical division, which operates a plant in Napierville, Quebec and plants in Belgium and Australia. The Napierville plant manufactures chlorinated benzenes and napthalene (T3 at 6-7).*fn14
In the 1970s, Recochem sold chlorinated benzenes in Canada, the United States, and several other countries. The two main products were paradichlorobenzene and orthodichlorobenzene. According to Mr. Carmichael, Recochem sold ortho material containing anywhere from 50% ortho content to 99% ortho content (T3 at 7-9).
Mr. Carmichael testified that in the early 1970s, Recochem was purchasing high-purity para raw materials, with paradichlorobenzene content ranging from 94% to pure para. Recochem's equipment was capable of upgrading the 94% para to 99.5%. The company also sold ortho, which it imported from various sources in the United States, Australia, and Europe. In 1973, when the Arab oil crisis hit, these raw materials became unavailable, and Recochem had to adjust to the market conditions to stay in business. The only raw materials available in reasonable quantities had a much lower para content and contained other chlorinated benzenes such as ortho, meta, and to a lesser extent trichlorobenzene. In order to process these lower grade materials, Recochem modified its Napierville plant by installing new crystallizers to purify the para and by modifying the existing distillation columns in an attempt to purify the ortho. The result was that instead of importing orthodichlorobenzene into Canada, Recochem was able to sell its own ortho product in the Canadian market (T3 at 9-10).
Mr. Carmichael testified that paradichlorobenzene was traditionally used in the Canadian market to make deodorizer blocks, urinal cakes, air fresheners, and moth killers. Orthodichlorobenzene was used to make carbon-removing solvents and degreasers for cleaning automotive engines, industrial machinery, and ships' tanks. Recochem also made a grade of ortho with emulsifiers added to it for use as a deodorizer for portable toilets and garbage dumps. According to Mr. Carmichael, the Canadian market for these solvents and emulsifiers did not require high-purity ortho with greater than 80% ortho content. The high-purity ortho was used as a chemical intermediate to make "agro" products, and the Canadian market for agro chemicals was not large enough to support a Canadian producer (T3 at 11-13, 15).
Mr. Carmichael testified that at the time Recochem began manufacturing its own ortho, it was the only ortho producer in Canada. Canadian Industries Ltd. imported para and ortho materials from its parent company in the United Kingdom and distributed those products in Canada. Canadian Industries was not an ortho producer. When Recochem began producing para and ortho from lower grade raw materials, it impacted Canadian Industries' importation and distribution business, and Recochem eventually made an arrangement for Canadian Industries to become its distributor of chlorinated benzenes in Canada. Allied Chemical Canada specified 80% ortho, which it received from its affiliated plant in Syracuse, New York, for use in the control and recovery of phosgene from the production of toluene diisocyanate at its plant in Corunna, Ontario (T3 at 13-16).
Mr. Carmichael testified that because its Canadian market was strictly solvents, and because it was not able to make higher purity ortho on a consistent basis, Recochem had to work with its customers to develop different formulated products. This resulted in the sale of ortho in various grades containing anywhere from 50% to 80% ortho content. According to Mr. Carmichael, the issue of the 80% minimum requirement for marketable ortho has to do with the freezing point of an 80/20 ortho/para solution, which is minus 16 degrees Celsius. The lower the ortho content, the higher the freezing point--for example, the freezing point for a 75/25 ortho/para solution is minus 4 degrees Celsius. A 70/30 mix has a freezing point of plus 4 degrees Celsius. In a solvent application, the risk is that the para will freeze and begin to crystallize out of the solution. Recochem was able to keep the freezing point of its products low by substituting metadichlorobenzene, which has a much lower freezing point than para. Mr. Carmichael testified that there was a definite market for pure metadichlorobenzene in the 1970s, which was used in the production of a fungicide called propiconazol. Pure meta was produced in Europe by several companies and is still being produced today in Europe, Japan, and China (T3 at 17-21).
Exhibit 458 is a contract between Recochem and Solvent dated February 22, 1971, under which Solvent agreed to sell Recochem certain amounts of "dichlorobenzene and orthodichlorobenzene, still bottoms" over a period of three years and for a price of $0.079/lb. According to Mr. Carmichael, although this contract predates Solvent's move to Niagara Falls, it involves the same kind of product that Recochem bought from Solvent's Niagara facility (T3 at 24-25).
Mr. Carmichael testified at some length as to his understanding of the September 23, 1976 contract between Recochem and Solvent (Ex. 95). According to Mr. Carmichael, Solvent approached Recochem with the proposal to supply Solvent with paradichlorobenzene for a commitment Solvent/ICC had made to a customer in Japan. The first part of the contract was an arrangement to sell Solvent 300,000 pounds of the para material. The second part of the contract involved providing Solvent 850,000 pounds of 70% ortho. The third part of the contract involved the so-called "tolling agreement," under which Solvent agreed to supply Recochem with 823,000 pounds of raw materials having the specified composition of 4.2% mono, 12.6% meta, 37.3% para, 45.2% ortho, and 0.7% tri. This material would then be processed by Recochem at its Napierville plant to obtain pure (99.9%) paradichlorobenzene, which would be sold back to Solvent. The remaining stream of 66% ortho (with some remainder quantities of meta, mono, and para) would be shipped back to Solvent. The reference to "23/25% Paradichlorobenzene" being returned to Solvent meant that Recochem would only be able to extract 23% to 25% of the para from the incoming raw materials, which had a low para content (37.3%) to begin with.
The para material returned to Solvent was pure para. There was no specification for the meta content of the material to be sent ...