Association of Irritated Residents v. Owens-Illinois, Inc.

• Court: District Court, E.D. California
• Decided: April 30, 2020
• Docket: 1:19-cv-01707
• Status: Unknown

Opinion

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10

11 ASSOCIATION OF IRRITATED ) Case No.: 1:19-cv-1707 DAD JLT RESIDENTS, ) 12 ) FINDINGS AND RECOMMENDATIONS Plaintiff, ) GRANTING PLAINTIFF’S MOTION TO AMEND 13 ) AND LIFT THE STAY v. ) 14 ) (Doc. 8) OWENS-ILLINOIS, INC., ) 15 ) Defendant. ) 16 )

17 The Association of Irritated Residents asserts that violations of the federal Clean Air Act have 18 occurred at a glass manufacturing plant in Tracy, California. (See Doc. 1) Originally, Plaintiff filed 19 the complaint against Owens-Illinois, Inc., asserting that company owns and operates the Tracy Plant. 20 (See id. at 3, ¶ 8) Plaintiff now seeks leave to amend the complaint to identify Owens-Brockway 21 Glass Container Inc. as the only defendant, asserting this is the entity that owned and operated the 22 Tracy Plant, rather than Owens-Illinois. (Doc. 8) For the reasons set forth below, the Court 23 recommends Plaintiff’s motion to amend the complaint and lift the stay be GRANTED. 24 I. Background 25 The Association of Irritated Residents is a non-profit corporation with the mission “to combat 26 the pollution of the air and waters of the San Joaquin Valley of the State of California by raising 27 awareness of sources of pollution, advocating for regulatory oversight, and litigating against polluters 28 in violation of state and federal environmental laws.” (Doc. 1 at 3, ¶ 6) Members of AIR “reside, visit, 1 work, and recreate near” a glass manufacturing plant in Tracy, California (“the Tracy Plant”), and the 2 members “are exposed to the Tracy Plant’s emissions.” (Id., ¶ 7) According to AIR, operations at the 3 Tracy Plant violated permits issued under Title V of the Clean Air Act through bypassing control 4 equipment to vent exhaust from its glass melting furnaces, exceeding the opacity emissions limit, and 5 exceeding the CO emissions limit. (Id. at 2, 6-8, ¶¶ 2, 36-46) AIR asserts its members are “directly 6 injured” through the violations, and their interests include: 7 (1) breathing air in the San Joaquin Valley free from excessive pollution discharges and without the impact of and concern over negative health effects that such emissions 8 cause; (2) enjoying outdoor recreation that is unimpaired by pollution from the Tracy Plant’s emissions; (3) using and enjoying property and viewing and enjoying natural 9 scenery, wildlife, and a sky that is unimpaired by pollution from the Tracy Plant’s excessive emissions; and (4) protecting the natural ecology of the region from air 10 pollution-related impacts.

11 (Id. at 3, ¶ 7) 12 On August 27, 2019, AIR notified the Administrator of the Environmental Protection Agency, 13 the Regional Administrator of the EPA, the Governor of California, the California Air Resources 14 Board (“CARB”), Owens-Illinois, and the plant manager of the Tracy Plant of the above violations 15 alleged in the Complaint and AIR’s intent to sue. (Doc. 1 at 3, ¶ 4) AIR asserts that more than sixty 16 days have passed since its “Notice of Intent to Sue” was served, and “neither EPA nor CARB has 17 commenced or is diligently prosecuting a court action to redress the ongoing violations alleged.” (Id.) 18 AIR initiated this action by filing the Complaint on December 6, 2019, seeking declaratory relief, 19 injunctive relief, and the assessment of civil penalties for the violations. (See id. at 2) 20 On January 8, 2020, Owens-Illinois filed a “Notice of Suggestion of Pendency of Bankruptcy 21 and Automatic Stay of Proceedings.” (Doc. 5) In the Notice, Owens-Illinois informed the Court that 22 “Paddock Enterprises, LLC, successor by merger to Owens-Illinois, Inc. …, commenced a bankruptcy 23 case in the United States Bankruptcy Court for the District of Delaware … by filing a voluntary 24 petition for relief under chapter 11 of title 11 of the United States Code, 11 U.S.C. §§ 101-1532, et 25 seq.” (Id. at 1) In light of the bankruptcy proceeding, In re Paddock Enterprises, LLC, Chapter 11 26 Case No. 20-10028 (LSS), the Court stayed the action on January 15, 2020. (Doc. 6) 27 Plaintiff filed the motion to amend now pending before the Court on April 1, 2020, seeking 28 “leave to amend its Complaint to name a new defendant, Owens-Brockway Glass Container, Inc., and 1 to dismiss the originally-named defendant, Owens-Illinois, Inc.” (Doc. 8 at 2) In addition, AIR 2 requests the Court find “that proceeding against the newly-named defendant, Owens-Brockway Glass 3 Container, Inc., does not implicate the bankruptcy stay because Owens-Brockway Glass Container, Inc. 4 is a non-debtor defendant.” (Id.) Paddock Enterprises, successor by merger to Owens-Illinois, filed its 5 opposition to the motion on April 17, 2020. (Doc. 13) Paddock Enterprises opposes the motion to the 6 extent AIR seeks to dismiss Owens-Illinois without prejudice, asserting the company must be dismissed 7 with prejudice for the stay to be lifted. (See id. at 2) AIR filed its reply on April 24, 2020. (Doc. 14) 8 The Court found the mater suitable for decision without oral arguments, and the motion was 9 taken under submission pursuant to Local Rule 230(g) and General Order 617 on April 27, 2020. 10 II. Leave to Amend 11 Rule 15 of the Federal Rules of Civil Procedure govern the pleading amendments. Pursuant to 12 Rule 15(a), “A party may amend its pleading once as a matter of course within: (A) 21 days after 13 serving it, or (B) if the pleading is one to which a responsive pleading is required, 21 days after service 14 of a responsive pleading or 21 days after service of a motion under Rule 12(b), (e), or (f), whichever is 15 earlier.” Fed. R. Civ. P. 15(a)(1). Thus, under Rule 15(a), a plaintiff “need not obtain leave from the 16 Court to file an amended complaint if Defendants have not filed a responsive pleading.” Palestini v. 17 General Dynamics Corp., 193 F.R.D. 654, 657 (S.D. Cal. 2000). 18 Rule 15(a) “‘complements the liberal pleading and joinder provisions of the federal rules by 19 establishing a time period during which the pleadings may be amended automatically.…’” Clinco v. 20 Roberts, 41 F.Supp. 2d 10808, 1086 (C.D. Cal. 1999) (quoting Wright, et al., Federal Practice & 21 Procedure § 1473, at p.521 (2d ed. 1990)). Significantly, “[w]hen the plaintiff has the right to file an 22 amended complaint as a matter of course, []the plain language of Rule 15(a) shows that the court lacks 23 the discretion to reject the amended complaint based on its alleged futility.” Williams v. Bd. of Regents 24 of Univ. Sys. of Ga., 477 F.3d 1282, 1292 n.6 (11th Cir. 2007). 25 Plaintiff asserts that after Owens-Illinois filed a Notice of Bankruptcy, AIR “learned of the 26 Corporate Family reorganization and discovered that the owner and/or operator of the Tracy Plant is a 27 different corporate entity, Owens-Brockway.” (Doc. 8 at 5) Plaintiff reports that “Owens-Brockway, 28 not Owens-Illinois, is responsible for the violations AIR alleges in its Complaint.” (Id.) Thus, 1 Plaintiff seeks leave to file an amended complaint naming Owens-Brockway as the only defendant, 2 thereby dropping the claims against Owens-Illinois. (See generally Doc. 8 at 5-7; Doc. 8-1) 3 Paddock Enterprises does not oppose the filing of an amended complaint as a matter of course 4 pursuant to Rule 15(a). (See Doc. 13 at 2 [indicating the limited opposition is related to Plaintiff’s 5 request to lift the stay]) Because Owens-Illinois has not filed an answer and Plaintiff is entitled to 6 amend the complaint as a matter of course pursuant to Rule 15(a), the Court recommends the request 7 for leave to file the proposed First Amended Complaint be GRANTED. 8 III. Request to Lift the Stay 9 Plaintiff asserts that Owens-Brockway is a subsidiary of Owens Illinois Group, which is not 10 included in the bankruptcy case. (Doc. 8 at 5; citing Doc. 10-3 at 5 [“Chapter 11 applies only to 11 Paddock and NOT O-I Glass, Inc. or any of its glass-making or related subsidiaries”]) (emphasis in 12 original) Thus, Plaintiff asserts that Owens-Brockway is “not subject to the bankruptcy proceeding or 13 stay.” (Id.) Because Owens-Brockway is a non-debtor defendant, and “AIR will have dismissed all 14 claims against the debtor defendant, Owens-Illinois” with the filing of the proposed amended 15 complaint, Plaintiff requests the Court lift the stay in the action. (Doc. 8 at 7, citing, e.g., Chugach 16 Timber Corp. v. Northern Stevedore & Handling Corp., 23 F.3d 241, 246 (9th Cir. 1994); In re 17 Gronczewski, 444 B.R. 526, 531 (Bankr. E.D. Pa. 2011) [finding that proceeding against non-debtor 18 defendants did not violate bankruptcy stay because the “actions were directed entirely against parties 19 other than the Debtor”]). 20 Paddock Enterprises opposes the motion to amend only to the extent Plaintiff seeks to lift the 21 stay. (Doc. 13 at 2) Paddock Enterprises acknowledges “it is generally true that a bankruptcy stay does 22 not extend to non-debtor defendant,” but asserts three exceptions prevent the stay from being lifted in 23 this action: (1) “the stay extends to non-debtor defendants when the debtor is an indispensable party;” 24 (2) the stay extends to non-debtor defendants when ‘there is such identity between the debtor and the 25 third-party defendant that the debtor may be said to be the real party defendant and that a judgment 26 against the third-party defendant will in effect be a judgment or finding against the debtor;’” and (3) 27 “the stay extends to non-debtor defendants when failing to do so ‘could conceivably have any effect’ on 28 [the] administration of [the] reorganization plan’ of the debtor.” (Id. at 5-6, citing United States v. Dos 1 Cabezas Corp., 995 F.2d 1486, 1491 n.3 (9th Cir. 1993)). Paddock Enterprises maintains that “[i]f 2 Plaintiff wants to lift the stay, it must eliminate the liability its lawsuit represents to Owens-Illinois by, 3 for example, dismissing its claims against Owens-Illinois with prejudice.” (Id. at 13, emphasis in 4 original) 5 A. Whether the Debtor is an indispensable party 6 According to Paddock Enterprises, “Plaintiff, by its own hand, has made Owens-Illinois an 7 indispensable party to this lawsuit.” (Doc. 13 at 4) Paddock Enterprises observes: “Under the Clean 8 Air Act, a plaintiff must provide each alleged violator and regulatory authorities with a 60-day notice 9 prior to commencing litigation.” (Id., citing 42 U.S.C. § 7604(b)) Because Plaintiff did not serve a 10 notice on Owens-Brockway but instead Owens-Illinois, Paddock Enterprises argues that “Plaintiff has 11 not satisfied the jurisdictional prerequisites to allow this case to proceed—at least based on the Notice 12 —in the absence of Owens-Illinois.” (Id. at 5) 13 Importantly, however, the Court lacks discretion to review the sufficiency of the pleading, or 14 merits of an action, when a plaintiff files an amended complaint as a matter of course under Rule 15(a). 15 Williams, 477 F.3d at 1292, n.6. Thus, even if the notice is insufficient to Owens-Brockway, “the court 16 lacks discretion to reject the amended complaint” on these grounds. See id. Regardless, it is 17 undisputed that Paddock Enterprises and Owens-Illinois are “not involved in the glass manufacturing 18 operations at the Tracy Plant.” (Doc. 14 at 6, citing Doc. 13 at 3, Doc. 10-3 at 5) Because Owens- 19 Illinois is not involved with the operations, it cannot be considered an indispensable party to a suit 20 challenging those operations. Thus, the Court finds this exception to lifting a bankruptcy stay does not 21 apply in this action. 22 B. Identity between the Debtor and the third-party defendant 23 Paddock Enterprises asserts there is “such identity between the debtor [Owens-Illinois] and the 24 third party defendant [Owens-Brockway],” to the extent that Owens-Illinois “may be said to be the real 25 party defendant.” (Doc. 13 at 5) Paddock Enterprises asserts this is true because “Plaintiff proposes to 26 litigate the exact same claims, based upon the exact same allegations, as set forth in the exact same 27 citizen-suit Notice, against Brockway Glass instead of Owens-Illinois.” (Id.) 28 Notably, however, Paddock Enterprises fails to show there is identity of the parties and, rather, 1 shows only there is identity of the issues, which is not sufficient. See Dos Cabezas Corp., 995 F.2d at 2 1492, quoting Croyden Assocs. v. Alleco, Inc., 969 F.2d 675, 677 (8th Cir. 1992) (“‘similar legal and 3 factual nexus’ … is not sufficient grounds for extending the automatic stay”). Plaintiff explained that 4 due to the corporate restructuring, O-I Glass has two direct subsidiaries: Paddock Enterprises, which is 5 the successor by merger to Owens-Illinois and “includes all of the Company’s legacy asbestos-related 6 liabilities,” and Owens-Illinois Group, which includes all of the glass operations. (Doc. 8 at 4) 7 Furthermore, Plaintiff asserted that Paddock Enterprises is “structurally isolated from the rest of the 8 Company.” (Id.) Indeed, Paddock Enterprises admitted, “It is undisputed that Owens-Illinois and 9 Brockway Glass are separate and distinct corporate entities.” (Doc. 13 at 3) (emphasis added). Given 10 the admission that the parties are separate entities—and the failure to show an identity between the 11 parties, this exception to lifting a stay does not apply. 12 C. Impact on the reorganization plan 13 Paddock Enterprises asserts, “If Plaintiff is allowed to proceed with this lawsuit against 14 Brockway Glass, Owens-Illinois will face the very real possibility of issue preclusion, joint liability, a 15 multiplicity of actions, and/or inconsistent verdicts if and when Plaintiff decides to pursue Owens- 16 Illinois in the future for these claims.” (Doc. 13 at 6) According to Paddock Enterprises, 17 If Plaintiff is allowed to proceed with this lawsuit against Brockway Glass, Owens- Illinois will face the very real possibility of issue preclusion, joint liability, a 18 multiplicity of actions, and/or inconsistent verdicts if and when Plaintiff decides to pursue Owens-Illinois in the future for these claims. 19 The fundamental problem with Plaintiff’s tactic is that it essentially forces Owens-Illinois into an improper Hobson’s Choice. Owens-Illinois can either: (a) 20 accept a dismissal without prejudice, allow the litigation to proceed in its absence, and leave its interests undefended; or (b) intervene and expend funds to defend itself— 21 funds which will deplete the Owens-Illinois corpus that is held in trust, via the protections afforded to it by the Bankruptcy Code, for the benefit of its existing 22 creditors and its ultimate reorganization.

23 (Id.) 24 In response, Plaintiff argues, “Defendant fails to explain how proceeding with the litigation or 25 a judgment against Owens-Brockway will potentially impact the estate of Owens-Illinois.” (Doc. 14 26 at 8) Plaintiff also observes that “issue preclusion, joint liability, a multiplicity of actions, and/or 27 inconsistent verdicts”—possibilities identified by Paddock Enterprises—are not “related to the 28 bankruptcy reorganization and, even if true, could not prevent the continuation of litigation against a 1 non-debtor defendant.” (Id., citing Dos Cabezas Corp., 995 F.2d at 1492). 2 As Plaintiff observes, Paddock Enterprises fails to show the action against Owens-Brockway 3 would—or could—affect a reorganization plan for Paddock Enterprises. To the contrary, as indicated 4 above, Paddock Enterprises acknowledged the two entities are separate. (Doc. 13 at 3) Furthermore, 5 once the First Amended Complaint is filed, Paddock Enterprises will not have any interests in this 6 action that will be undefended, as it will not be a party to the suit related to operations at the Tracy 7 Plant. Because Owens-Brockway operates the glass operations—in issue in this action—and Paddock 8 Enterprises deals with asbestos-related liabilities and is a separate entity, the Court finds no evidence 9 that a suit against Owens-Brockway has the possibility of affecting the reorganization of Paddock 10 Enterprises. If Paddock is taking the position that, indeed, it and Owens-Brockway or it alone, is the 11 correct party, it has failed to make any clear effort to alert the Court to this fact. Accordingly, 12 Paddock Enterprises fails to show this exception applies. 13 IV. Findings and Recommendations 14 Plaintiff is entitled to file an amended complaint as a matter of course under Rule 15(a), which 15 Defendant does not dispute. Further, the Court finds the bankruptcy should be lifted following the 16 filing of the amended complaint, as Owens-Brockway will be the only defendant and that entity is not 17 involved in the bankruptcy proceedings. Accordingly, the Court RECOMMENDS: Plaintiff’s request 18 for leave to file the First Amended Complaint and lift the stay (Doc. 8) be GRANTED. 19 These Findings and Recommendations are submitted to the United States District Judge 20 assigned to the case, pursuant to the provisions of 28 U.S.C. § 636(b)(1)(B) and Rule 304 of the Local 21 Rules of Practice for the United States District Court, Eastern District of California. Within fourteen 22 days after being served with these Findings and Recommendations, any party may file written 23 objections. Such a document should be captioned “Objections to Magistrate Judge’s Findings and 24 Recommendations.” Any reply to the objections shall be filed within seven days of the date of service 25 of the objections. 26 /// 27 /// 28 /// 1 The parties are is advised that failure to file objections within the specified time may waive the 2 right to appeal the District Court’s order. Martinez v. Ylst, 951 F.2d 1153 (9th Cir. 1991); Wilkerson v. 3 Wheeler, 772 F.3d 834, 834 (9th Cir. 2014). 4 5 IT IS SO ORDERED.

6 Dated: April 30, 2020 /s/ Jennifer L. Thurston 7 UNITED STATES MAGISTRATE JUDGE

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