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Schenectady Industrial Corp. v. Upstate Textiles

January 25, 2010


The opinion of the court was delivered by: Gary L. Sharpe District Court Judge


I. Introduction

Plaintiff Schenectady Industrial Corporation (SIC) brought this action against Upstate Textiles, Inc. (Upstate) and Safer Equipment Corp. (Safer) to recover compensation for the use and occupation of SIC's buildings under New York Real Property Law and common law, and for the removal and cleanup of hazardous and petroleum-based substances under CERCLA*fn1 and New York Navigation Law. (See Am. Compl., Dkt. No. 66.) Pending are SIC's motion for summary judgment, (Dkt. No. 72), and Upstate and Safer's cross-motion for summary judgment and sanctions, (Dkt. No. 83). For the reasons that follow, SIC's motion for summary judgment is denied, Upstate and Safer's cross-motion for summary judgment is granted in part and denied in part, and all parties' motions for sanctions are denied.

II. Background

A. Factual History

SIC, a New York corporation, initially instituted suit against Upstate and Safer, both New Jersey corporations, and CommerceWest Bank, a federally chartered institution with its principal place of business in California. (See Compl. ¶¶ 1-4, Dkt. No. 1.) Beginning in May 1994, SIC leased several of its industrial and commercial buildings located on Nott Street in Schenectady, New York, to Twin Rivers Textile Printing & Finishing. (See Am. Compl. ¶¶ 1, 9, Dkt. No. 66.) Twin Rivers became a subsidiary of Guilford Mills, Inc., which subsequently filed for Chapter 11 bankruptcy. (See id. at ¶¶ 10-11.) Twin Rivers' assets were thereafter sold to Greenblatt &Co. (See id. at ¶ 12.)

CommerceWest extended credit to Greenblatt, which was secured by Greenblatt's assets, including Twin Rivers' lease with SIC. (See id. at ¶ 13.) When Greenblatt defaulted on its obligations, CommerceWest foreclosed on its security interest and took possession of Greenblatt's assets. (See id. at ¶ 15.) Thereafter, on April 5, 2004, Twin Prints, LLC acquired CommerceWest's interest in Greenblatt's collateral. (See id. at ¶ 17.) Between July and August 2004, after Twin Prints merged with Mohawk Valley Textiles Printing, LLC, Mohawk assumed the debt obligations Twin Prints owed to CommerceWest and reaffirmed CommerceWest's security interest in its assets, which included the leasehold interest in SIC's Nott Street Buildings. (See id. at ¶¶ 18-19.)

In January 2005, Mohawk defaulted on its obligations to CommerceWest and thereby surrendered its assets, which included the leasehold interest and the inventory and equipment located in the Nott Street Buildings. (See Pl. SMF ¶ 6, Dkt. No. 72:1.) CommerceWest foreclosed on its security interest and took possession of Mohawk's assets. (See id. at ¶ 7.) And under a Bill of Sale dated February 9, 2005, CommerceWest sold all of its interest in the Mohawk assets to Safer for $300,000. (See id. at ¶ 8.) The property acquired under the February 9 Bill of Sale was described as "all equipment, chemicals, dyes, supplies and inventory, including but not limited to" a list of itemized machines and equipment. (See id. at ¶ 9 (citing Maider Aff., Ex. A, Dkt. No. 73:1).) Between February 9 and February 21, 2005, Safer occupied the Nott Street Buildings and was the title owner of the property enumerated in the February 9 Bill of Sale. (See id. at ¶¶ 12-13.) During this period, Safer did not pay SIC rent or any fee for its occupancy. (See id. at ¶ 14.) Immediately thereafter, Safer transferred its interest in the same property referenced in the February 9 Bill of Sale to Upstate for $300,000. (See id. (citing Maider Aff., Ex. B, Dkt. No. 73:1).)

On February 21, 2005, Upstate began using and occupying the Nott Street Buildings. (See id. at ¶ 16.) Prior to its occupancy, Upstate, acting through Philip Neuer as Vice President and General Counsel, made an offer to SIC to enter into a use and occupancy agreement and proposed a $50,000 "lump sum" advance rental payment, which SIC did not accept.*fn2

(See id. at ¶ 17.) Similar negotiations continued from February through June 2005 between SIC, by its counsel, Jonathan Deily, and Upstate, by Neuer. (Id. at ¶ 18.) In a March 24, 2005 letter from Neuer to Deily, Neuer acknowledged Upstate's intent to negotiate "an appropriate fee for the use and occupancy for all or parts" of the Nott Street Buildings. (See Buhrmaster Aff., Ex. C, Dkt. No. 72:4.) Neuer also asserted Upstate's intent to remove all the printing screens and other items stored in the buildings and to "dispose of any of the equipment and inventory which it purchased ... in a manner other than abandonment ...." (Id.)

On April 14, 2005, Deily sent a letter to Neuer proposing rental options for the Nott Street Buildings, which included rent under the terms of the pre-existing Mohawk lease arrangement at $26,556.81 for March and $27,000 per month from April to August 2005, or rent under a month-to-month tenancy based on the square footage of the buildings actually being occupied. (See id., Ex. D.) This letter also notified Upstate that it must enter into an Indemnification and Hold Harmless Agreement, which required, among other things, Upstate to remove all equipment and debris from the buildings and dispose of all debris, trash, and storage drums in accordance with New York regulations at its own expense. (See id.) Neuer sent a responsive letter on April 29, wherein he questioned the rate SIC was seeking as "substantially above market" and offered to pay $7,500 per month from April to July 2005 while continuing to maintain insurance on the premises. (See id., Ex. E.) These sentiments mirrored an earlier letter sent by Neuer to Deily, in which Neuer suggested that the rent should be lowered since Upstate would "not be operating or performing manufacturing activities" during the period of occupancy. (Neuer Aff., Ex. B, Dkt. No. 84:2.) However, Neuer stated that Upstate would remove only what it purchased and would be responsible for any damage caused by such removal, but that Upstate "did not purchase the debris and the garbage and the loose chemicals and dyes." (See Buhrmaster Aff., Ex. E, Dkt. No. 72:4.) Deily rejected Upstate's offers as "patently unreasonable" and reasserted Upstate's failure to pay rent for March and April despite occupying the space for its use and benefit. (Id., Ex. F.) Deily additionally referred to the February 9 Bill of Sale in support of its claim that Upstate was the title owner of all the contents of the Nott Street Buildings. (See id.) On May 9, Upstate mailed a check to SIC for $20,000 as "a good faith payment against use and occupancy charges" and to demonstrate its desire to "proceed with serious negotiations toward a full and final resolution." (Id., Ex. G.)

Ultimately, Upstate vacated and surrendered possession of the Nott Street Buildings on August 31 and completed the "final clean-up" on September 1. (See id., Ex. H.) In a September 2, 2005 letter, Neuer stated that removal of the remaining property resulted in "neither a spill nor a discharge of hazardous materials." (Id.) For the period between February 21 and September 1, 2005, Upstate did not pay SIC anything for rent or use and occupancy beyond the $20,000 "good faith payment." (See Pl. SMF ¶ 26, Dkt. No. 72:1.)

On April 8, 2005, Allison Elliott of the New York State Department of Environmental Conservation (DEC) conducted an inspection of the Nott Street Buildings and found hazardous substances present. (See id. ¶ 30; see also Frantzen Aff., Ex. B, Dkt. No. 72:11.) Elliott prepared a DEC Inspection Form in which she identified the hazardous substances and waste located in and around the Nott Street Buildings. (See Frantzen Aff., Ex. C, Dkt. No. 72:12.) Sometime prior to April 2005, SIC hired Kurt Frantzen,*fn3 a professional environmental risk management consultant, to provide advice regarding environmental management issues at the Nott Street Industrial Park, which included the Nott Street Buildings occupied by Upstate and Safer. (See Frantzen Aff. ¶ 4, Dkt. No. 72:9.) On April 11, Elliott advised Frantzen about the concerns the DEC had regarding the materials, products, and waste present in the Nott Street Buildings and the manner in which Safer and Upstate were dismantling the property located in those buildings. (See id. at ¶ 9.) The following day, the DEC contacted Frantzen by telephone to discuss Upstate's expected departure from the Nott Street Buildings and to inquire into how Upstate would be handling the chemicals, dyes, pigments, used chemicals, and other waste at the facilities. (See id. at ¶ 10.) On April 21, the DEC sent a Hazardous Waste Compliance Inspection report to SIC, advising SIC that it was "operating as an occasional generator of hazardous waste" and that SIC was in violation of the New York regulations' requirements to keep proper records regarding storage and disposal of chemical and hazardous materials and waste. (See Frantzen Aff., Ex. C, Dkt. No. 72:12.)

Upon learning about the DEC's concerns, SIC's representatives, George Robertson and Philip Dixon, asked Frantzen to monitor the situation and perform monthly inspections of the Nott Street Buildings. (See Frantzen Aff. ¶ 11, Dkt. No. 72:9.) Pursuant to this request, Frantzen performed inspections on April 28 and May 26, 2005, and orally reported his findings to Robertson. (See id.) After an extensive inspection on June 9, 2005, Frantzen filed a report with Robertson disclosing the presence of, among other things, drums and portable tanks containing adhesives, solvents, absorbent and other chemicals, dyes, and pigments, some of which had been released onto and into the ground. (See Frantzen Aff., Ex. E, Dkt. No. 72:12.)

On June 21, 2005, following the April 21 "warning letter," the DEC issued a second letter demanding that SIC notify it of the steps to be taken to identify and prevent the release of hazardous substances, and that SIC do so within 15 days to avoid enforcement proceedings. (See id., Ex. F.) During this period from June to August 2005, Upstate was involved in decommissioning, disassembling, and removing the property located in the Nott Street Buildings. (See Def. Resp. SMF ¶ 34, Dkt. No. 84:3.) Upstate collected and safeguarded various containers, tanks, and drums of chemicals and waste, and then staged them at certain locations in the Nott Street Buildings. (See id. at ¶ 38.) However, in pointing to a letter sent to Deily by Neuer on February 28, 2005, Upstate contends that this was done "as a courtesy to [SIC]" and was "not exercis[ing] dominion or control but [was] merely consolidating this area so that spillage and leakage [would] not occur and to facilitate [SIC's] analysis ... as a courtesy and at no cost to [SIC]." (Neuer Aff., Ex. B, Dkt. No. 84:2.)

On August 25, 2005, after performing an inspection, Frantzen sent Robertson, Dixon, and Deily a memorandum in which he detailed his findings, which included: (1) "noticeable discrete (limited) releases of oil, grease, pigment, and other powders and material"; (2) at least 20 to 25 50-gallon tanks of pigments, dyes, or chemicals that had been drained but not cleaned; (3) at least 230 55-gallon drums containing pigments, waste oil, cleaners, and other chemical compounds and solvents; (4) several open barrels with "possible pigments or other chemicals in them"; (5) various other containers containing cleaning agents, solvents, and other chemicals; (6) at least a dozen 330-gallon sealed carboys that may or may not have contained various chemicals; and (7) green pigment stains in the soil surrounding the buildings. (Frantzen Aff., Ex. G, Dkt. No. 72:12.) In this memo, Frantzen also noted the presence of several workers who identified Brian Winning, of Safer, as the individual responsible for decommissioning and cleaning up the site. (See id.) On the same day, August 25, Neuer sent a letter on behalf of Upstate to SIC ...

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