Site Owner Dodges Debt

Thanks to a fine-tuned landfill management agreement, a site owner escaped liability for the operator's debts. [Sylvester Material Co., et al. v. Environmental Network and Management Corp., et al., No. 13-99-40, Ohio Ct. App., 3d Dist., Dec. 22, 1999]

Property owner Hocking Environmental Co. entered into a "Management Agreement" with Environmental Network and Management Co. (ENMC), to operate the San-Lan Landfill in Fostoria, Ohio. Under the agreement, ENMC would control day-to-day activities such as construction, maintenance and fee setting. Meanwhile, Hocking could interfere with ENMC's activities only in cases of environmental violations.

Sylvester Material Co. and Adrian Sand & Stone Inc. (the "suppliers") contracted with ENMC for services and materials for the landfill. When ENMC failed to pay the bill, the suppliers filed a lawsuit seeking $90,000 in damages.

Besides naming ENMC as a defendant, the complaint alleged that Hocking also was liable for the unpaid amount because ENMC and Hocking had established a joint venture to operate the landfill. Hocking denied all claims and filed a cross-claim against ENMC. ENMC answered the complaint but ignored the cross-claim. As a result, Hocking obtained a default judgment against ENMC.

In April 1999, the lower court granted the suppliers' motion for summary judgment against ENMC. After hearing all the evidence, the judge ruled in Hocking's favor on all claims.

On appeal, a three-judge panel agreed, finding no joint venture between ENMC and Hocking. Under Ohio law, the plaintiffs had to prove that Hocking and ENMC (a) intended to associate as joint venturers, (b) exercised joint control over the landfill and (c) agreed to share profits and losses.

The suppliers produced insufficient evidence that Hocking intended to have a joint venture relationship with ENMC or that the defendants maintained joint control or community of interest over the landfill. "[T]he contract clearly outlines each party's separate role in the operation of the ... landfill," the opinion stated. [Emphasis added] The panel contrasted ENMC's exclusive control over day-to-day operations with Hocking's limited opportunity to intrude on the site, and noted that ENMC and Hocking never agreed to share profits and losses. "Under the management agreement, ENMC was to pay Hocking a fixed monthly fee," the court added.

The suppliers also argued that they could recover the unpaid amount directly from Hocking because it would be "unjust enrichment" for the owner to benefit from the site improvements without paying for them. However, under Ohio law, the suppliers had to prove that Hocking knew the benefits.

"The management agreement unequivocally stated that ENMC was ... solely responsible for construction of the landfill [and Hocking's] representatives ... testified that they were not aware of [the suppliers'] existence until the ... lawsuit," the court said. Indeed, the court found "no evidence that Hocking was aware of when or how [the suppliers] participated in the preparation of the facility."

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