United State*
Environmental Protection
Agency
Off ice of
Solid Waste and
Emergency Responae
&EPA
DIRECTIVE NUMBER:
TITLE:
9832.10
Liability of Corpoate Shareholders and Successor
Corporations for Abandoned Sites Under the
Comprehensive Environmental Response, Compensatio
and Liability Act
APPROVALDATE: 7/13/84
EFFECTIVE DATE: 7/13/84
ORIGINATING OFFICE:
CE FINAL
Q DRAFT
LEVEL OF DRAFT
Signed by AA or DAA
D 8 Signed by Office Director
O C Review & Comment
REFERENCE (other documents):
OSWER OSWER OSWER
VE DIRECTIVE DIRECTIVE Dl
-------
United States
Environmental Protection
Agency
Office of
Solid Waste ard
Emergency Response
&EPA
DIRECTIVE NUMBER:
TITLE:
. 10
.
Liability of Corpoate Shareholders and Successor
Corporations for Abandoned Sites Under the
Comprehensive Environmental Response, Compensatio
and Liability Act
APPROVALDATE: 7/13/84
EFFECTIVE DATE: 7/13/84
ORIGINATING OFFICE:
Q FINAL
D DRAFT
LEVEL OF DRAFT
Signed by AA or OAA
D 8 Signed by Office Director
DC Review & Comment
REFERENCE (other documents):
S WER OS WER OS WER
DIRECTIVE DIRECTIVE
-------
Washington. DC 20460
OSWER Directive initiation Request
1. Directive Numo
9832.10
2. Originator Information
Name of Contact Person
Courtney M. Price
: Mail
jOff
i Telephone Code
;382-4l34
3. Title Liability of Corporate Shareholders and Successor Corporations tor Abandonee
Under the Comprehensive Environmental Response, Compensation, and Liability Ac!
(CERCLA)
4. Summary of Directive (include Dnef statement of purpose) Identifies legal principles bearing on cne
to which corporate shareholders and succors corporations may be held liable for
response costs that arise as a result of a release of a hazardous waste facility.
5. Keywords
Shareholders, §107(a)(2)
Sa. Does This Directive Supersede Previous Directives?
b. Does It Supplement Previous Oirective(s)?
I X | No Yes What directive (number, title)
Yes What directive (number, title)
\ X ! No
7. Draft Level
A - Signed by AA/'OAA [ 8 -- Signed by Office Director 1C- For Review & Comment
0 - In Development
8. Document to be distributed to States by Headquarters? I IY0S MM N°
This Request Meets OSWER Directives System Format Standards. ^fc
9. Signature of Lead Office Directives Coordinator
10. Name and Title of Approving Official
Date ^
Date . .
EPA Form 1315-17 (Rev. 5-87) Previous editions are obsolete.
OSWER OSWER OSWER O
VE DIRECTIVE DIRECTIVE DIRECTIVE
-------
\. .._.;/
JUN 13 1984
9832.10
MEMORANDUM
SUBJECT:
FROM:
TO:
Liability of Corporate Shareholders and Successor
Corporations For Abandoned Sites Under the Compre-
hensive Environmental Response, Compensation, and
Liability Act (CERCLA) "
Courtney M. Price _
Assistant Administrator for
and Compliance Monitoring
nforcement
Assistant Administrator for
Solid Waste and Emergency Response
Associate Enforcement Counsel for Waste
Regional Administrators
Regional Counsels
Introduction ' .: . . . .;..'
The following enforcement memorandum, which was prepared
in cooperation with the Office of General Counsel, identifies
legal principles bearing on the extent to which corporate
shareholders and successor corporations may be held liable
for response costs that arise as a result of a release of a
hazardous substance from an abandoned hazardous waste facility.
In the ..discussion section pertaining to each part, the memorandum
reviews the law on the subject from established traditional
jurisprudence to current evolving standards. Although general
rules of liability are delineated, these principles must be
carefully applied to the unique fact pattern of any given
case.
I. THE LIABILITY OF CORPORATE SHAREHOLDERS UNDER CERCLA
Background
Normally, it is the corporate entity that will be held
accountable for cleanup costs under CERCLA. In certain
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9832,10
\ -2-
instances, however/ EPA may want to extend liability to include
corporate shareholders. This may arise, for example, where a
corporation, which had owned or operated a waste disposal site
at the time of the contamination, is no longer in business.
The situation may also occur if a corporation is still in
existence, but does not have sufficient assets to reimburse
the fund for cleanup costs. There are two-additional policy
reasons for extending liability to corporate shareholders.
First, this type of action would promote corporate responsibil-
ity for those shareholders who in fact control the corporate
decision-making process; it would also deter other shareholders
in similar situations from acting irresponsibly. Second, the
establishment of shareholder liability would aid the negotiation
process and motivate responsible parties toward settlement.
Traditional corporation law favors preserving the corporate
entity, thereby insulating shareholders from corporate liability
Nevertheless, as will be discussed below, there are exceptions
to this general principle that would allow a court to disregard
corporate form and impose liability under CERCLA on individual
shareholders.
..Issue .. . .-.:,-... . . --.. ....... . . . .
What is the extent of liability for a corporate share-
holder under CERCLA for response costs that arise as a result
of a release of a hazardous substance from an abandoned hazardoul
waste facility?
. . Summary . .
The question of whether EPA can hold a shareholder of a
corporation liable under CERCLA is a decision that must turn
on the unique facts specific to given situation. Generally,
however, in the interests of public convenience, fairness, and
equity, EPA may disregard the corporate entity when the shareholder
controlled or directed the activities of a corporate hazardous
waste generator, transporter, or facility.
Discussion
Section 107(a)(2) of CERCLA provides that any owner or
operator of a facility which releases a hazardous substance
shall be liable for all necessary response costs resulting
from such a release. Section 101{20)(A)(iii) of CERCLA clearly
states that the term "owner or operator" as applied to abandoned
facilities includes "any person who owned, operated, or otherwise
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98321 T
controlled activities at such facility immediately prior to
such abandonment" (emphasis added).
In addition, Sections 107(a)(3) and 107(a)(4) of CERCLA
impose liability for response costs on any person who arranged
for the disposal or treatment of a hazardous substance (the
generator), as well. as any person who accepted a hazardous
Substance for transport to the disposal or treatment facility
transporter).
The term "person" 4s defined in CERCLA Section 101(21)
as, inter a Ira, an individual, firm, corporation, association,
partnership, or commercial entity. A shareholder may exist
as any of the forms mentioned in Section 101(21). Therefore, a
shareholder may be considered a person under CERCLA and, conse-
quently, held liable for response costs incurred as a result
of a release of a hazardous substance from a CERCLA facility
if the shareholder:
0 Owned, operated, or otherwise controlled activities
at such facility immediately prior to abandonment
[CERCLA Section 107(a)(2); Section 101(20) (A) ( iii )]:
0 Arranged for the disposal or treatment (or
arranged with a transporter for the disposal or
treatment) of the hazardous substance [CERCLA
Section 107(a)(3)l; or
8 Accepted the hazardous substance for transport to
the disposal or treatment facility selected by such
person [CERCLA Section 107(a)(4)J.
Notwithstanding CERCLA's statutory language, courts
normally seek to preserve the corporate form and thus maintain
the principle of limited liability for its shareholders. V
In fact, fundamental "to the theory of corporation law is
the concept that a corporation is a legal separate entity, a
legal being having an existence separate and distinct from
V See Pardo v. Wilson Line of Washington, Inc., 414 F.2d
1145, 1149 (D.C. Cir. 1969); Krivo Industrial Supply Co.
v. National Distillers fc Chem. Corp., 483 F.2d 1098,
1102 (5th Cir. 1973), modified per curiam, 490 F.2d 916
(5th Cir. 1974); Homan and Crimen, Inc. v. Harris, 626
F.2d 1201, 1208 (5th Cir. 1980).
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~4' 9832.10
that of its owners." £/. This concept permits corporate
shareholders "to limit their personal liability to the extent
of their investment." V Thus, although a shareholder may
be considered a "person" under CERCLA (and therefore subject
to the Act's liability provisions), the application of corporate
law would tend to shield the shareholder from such liability.
f
\ Nevertheless, a court may find that the statutory language
i'tself is sufficient to impose shareholder liability notwith-
standing corporation law. V Alternatively, to establish
shareholder liability, a court may find that the general prin-
ciples of corporation law apply but, nonetheless, set aside
the lin-ited liability principle through the application of
the* equitable doctrine of "piercing the corporate veil."
Simply stated, the doctrine of piercing the corporate
veil refers to the process of disregarding the corporate
£/ Krivo Industrial Supply Co. v. National Distillers & Chem.
Corp., 483 F.2d 1098, 1102 (5th Cir. 1973), modified per
curiam, 490 F,2d 916..(5th Cir. 1974).
3/ . Id. .-- ..-;. '-.-. ' - . ; ..-- ; - ;
£/ See United States v. Northeastern Pharmaceutical and
"" Chemical Company, Inc., et al., 80-5066-CV-S-4, memorandum
op. (W.D. Mo., 1984). In Northeastern Pharmaceutical the
district court noted that a literal reading of Section
101(20)(A) "provides that a person who owns interest in a
facility and is actively participating in its management
can be held liable for the disposal of hazardous waste."
(Memorandum op. at 36.) The court went on to find that
there was sufficient evidence to impose liability on one
of the defendants pursuant to this statutory definition
of "owner and operator," and the Section 107(a)(l) liability
provision of the Act. The fact that the defendant was a
major stockholder did not necessitate the application of
corporate law, and thus the principle of limited liability:
"To hold otherwise and allow (the defendant] to be shielded
by the corporate veil 'would frustrate congressional purpose
by exempting from the operation of the Act a large class
of persons who are uniquely qualified to assume the burden
imposed by (CERCLA]." (Memorandum op. at 37, citation
omitted.)
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9832,10
-5-
entity to hold either corporate shareholders or specific
individuals liable for corporate activities. £/
In order to determine whether to disregard corporate form
and thereby pierce the corporate veil, courts generally have
sought to establish two primary elements. £/ First, that the
Corporation and the shareholder share such a unity of interest
and ownership between them that the two no longer exist as
distinct entities. 7/ Second, that a failure to disregard the
corporate form would* create an inequitable result. £/
The first element may be established by demonstrating
that the corporation was controlled by an "alter ego." This
would not include "mere majority or complete stock control,
but complete domination, not only of finances, but of policy
and business practice in respect to the transaction attacked
V See Henn, LAW OF CORPORATIONS SS143, 146 (1961). This
doctrine applies with equal force to parent-subsidiary
relationships (i .e., where one corporation owns the
controlling stock of another corporation).
£/ Generally, courts have sought to establish these elements
in the context of various theories, such as the "identity,
"instrumentality," "alter ego," and "agency" theories.
Although these terms actually suggest different concepts,
each employs similiar criteria for deciding whether to
pierce the corporate veil.
Z-/. See, United States v. Standard Beauty Supply Stores, .
Inc., 561 F.2d 774, 777 (9th Cir. 1977); FMC Fin. Corp.
v. Murphree, 632 F.2d 413, 422 (5th Cir. 1980).
£/ See Automotriz Del Golfo de Cal. S.A. v. Resnick, 47 Cal.
2d 792, 796, 306 P.2d 1 (1957); DeWitt Truck Broker, Inc.
v. W. Ray Flenuning Fruit Co., 540 F.2d 681, 689 (4th
Cir. 1976). Some jurisdictions require a third element
for piercing the corporate veil: that the corporate
structure must have worked an injustice on, or was the
proximate cause of injury to, the party seeking relief.
See e.g., Berger v. Columbia Broadcasting System, Inc.,
453 F.2d 991, 995 (5th Cir. 1972), cert, denied, 409
U.S. 848, 93 S.Ct. 54, 34 L.Ed.2d 89 (1972); Lowendahl
v. Baltimore & O.R.R., 247 A.D. 144, 287 N.Y.S. 62, 76
(1936), aff'd 272 N.Y. 360, 6 N.E.2d 56 (Ct. App. 1936),
but see, Brunswick Corp. v. Waxman, 599 F.2d 34, 35-36
(2d Cir. 1979).
. -f-.
-------
-b-
so that the corporate entity as to this transaction had at the
time no separate mind, will or existence of its own." £/
In analyzing this first element, courts have generally
considered the degree to which corporate "formalities have
been followed [so as] to maintain a separate corporate iden-
tity." *y For example, the corporate veil has been pierced
|n instances where there had been a failure to maintain adequate
Corporate records, or where corporate finances had not been
kept separate from personal accounts. H/
The second element of the test is satisfied when the
failure to disregard the corporate entity would result in
fraud or injustice. I2/ This would occur, for example, in
cases where there has been a failure to adequately capital-
ize for the debts normally assocated with the business
undertaking, 13/ or where the corporate form has been employed
to misrepresent or defraud a creditor. *V ,
V Berger v. Columbia Broadcasting System, Inc., 453 F.2d
~ 991, 995 (5th Cir. 1972), cert, denied, 409 U.S. 848,
93 S.Ct. 54, 34 L.Ed.2d 89 (1972).
.i£/. Labadie Coal Co. v. Black, 672.F.2d 92, 96 (D.C. Cir.
1982); See DeWitt Truck Broker, Inc. v. W. Ray.Flemming.
Fruit Co., 540 F.2d 681, 686 n. 14 (collecting cases)
(4th Cir. 1976).
*V Lakota Girl Scout C. , Inc. v. Havey Fund-Rais. Man., Inc.,
519 F.2d 634, 638 (8th Cir. 1975); Dudley v. Smith, 504
F.2d 979, 982 (5th Cir. 1974).
Some courts require that .there be actual fraud or injustice
akin to fraud. See Chengelis v. Cenco Instruments Corp.,
386 F. Supp 862 (W.D. Pa.) aff'd mem., 523 F.2d 1050 (3d
Cir. 1975). Most jurisdictions do not require proof of
actual fraud. See DeWitt Truck Brokers v. W. Ray Flemming
Fruit Co., 540 F.2d 681, 684 (4th Cir. 1976).
See Anderson v. Abbot, 321 U.S. 349, 362, 64 S.Ct. 531,
88 L.Ed. 793 (1944); Machinery Rental, Inc. v. Herpel
(In re Multiponics, Inc.), 622 F.2d 709, 717 (5th Cir.
1980).
14/ See FMC Fin. Corp. v. Murphree, 632 F.2d 413, 423 (5th
CTr. 1980).
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In applying the dual analysis, courts act under consider-
ations of equity; therefore, the question of whether the
corporate veil will be lifted is largely one of fact, unique
to a given set of circumstances. However, the substantive
law applicable to a.case may also have great importance. For
^xample, in applying state corporation law, state courts have
been generally reluctant to pierce the corporate veil. 15/
Federal courts, however, in applying federal standards,~~h~ave
shown more willingness^ to disregard the corporate entity and
hold individuals liable for corporate actions. 16/
In many instances federal decisions do draw upon state
law and state interpretations of common law for guidance. I7/
However, federal courts that are involved with federal
question litigation are not bound by state substantive law
or rulings. 18/ In such cases, either federal common law
. . ... . -
See discussion in Note, Piercing the Corporate Law veil;
The Alter Ego Doctrine Under Federal Common Law, 95
Harvard L.R. 853, 855 (1982).
it is well settled that a corporate entity must be dis-
regarded whenever it was formed or used to circumvent
the provisions of a statute. See United States v. Lehigh
Valley R.R., 220 U.S. 257, 259, 31 S.Ct. 387, 55 L.Ed.
458 (1911); Schenley Distillers Corp. v. United States,
326 U.S. 432, 437, 66 S.Ct. 247, 90 L.Ed. 181 (1945);
Kavanaugh v. Ford Motor Co., 353 F.2d 710, 717 (7th
Cir.1965); Casanova Guns, Inc. v. Connally, 454 F.2d
1320, 1322 (7th Cir. 1972).
See Seymour v. Hull t Moreland Eng'g, 605 F.2d 1105 (9th
Cir. 1979); Rules of Decision Act, 28 U.S..C. 51652 (1976).
Generally, federal courts will adopt state law when to
do so is reasonable and not contrary to existing federal
policy. United States v. Polizzi, 500 F.2d 856, 907 (1974).
See also discussion in note 19, infra. :
18/ UNITED STATES CONSTITUTION art. VI, cl. 2. ..;
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-8-
or specific statutory directives may determine whether or not
to pierce the corporate veil. 19/
See Anderson v. Abbot, 321 U.S. 349, 642 S.Ct. 531, 88
L.Ed. 793 (1944); Town of Brookline v. Gorsuch, .667 F.2d
215, 221 (1981). For a general discussion of federal
common law and piercing the corporate veil see, note 15,
supra. The decision as to whether to apply state law or
a federal standard is dependent on many factors:
"These factors include the extent to which: (1) a
need exists for national uniformity; (2) a federal
rule would disrupt commercial relationships predicated
on state law; (3) application of state law would
frustrate specific objectives of the federal program;
(4) implementation of a particular rule would cause
administrative hardships or would aid in administrative
conveniences; (5) the regulations lend weight to the
application of a uniform rule; (6) the action in
question has a direct effect on financial obligations
. of the United States; and (7) substantial federal
interest in the outcome of the litigation exists.
Even with the use of these factors, however, whether
state law will be adopted as the federal rule or
a unique federal uniform rule of decision will be
formulated remains unclear. The courts have failed
to either mention the applicable law or to state the
underlying rationale for their choice of which law to
apply." Note, Piercing the Corporate Veil in Federal
Courts! Is Circumvention of a Statute Enough?, 13 Pace
L.J. 1245, 1249 (1982) (citations omitted).
In discussions concerning CERCLA, the courts and Congress
have addressed several of the above mentioned factors.
CERCLA. For example, the need for national uniformity to
carry out the federal superfund program has been clearly
stated in United States v. Chem-Dyne, C-l-82-840, slip op.
(S.D. Ohio, Oct. 11, 1983). In Chem-Dyne, the court stated
that the purpose of CERCLA was to ensure the development
of a uniform rule of law, and the court pointed out the
dangers of a variable standard on hazardous waste disposal
practices that are clearly interstate. (Slip op. at
11-13.) See also, Ohio v. Georgeotf, 562 F. Supp. 1300,
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9832,10
The general rule applied by federal courts to cases in-
volving federal statutes is that "a corporate entity may be
disregarded in the interests of public convenience, fairness
and equity." 20/ In applying this rule, "federal courts
ifill look closely at the purpose of the federal statute to
determine whether that statute places importance on the
corporate form." ££/ Furthermore, where a statute contains
specific directives on when the corporate entity may be
disregarded and individuals held liable for the acts or debts
of a valid corporation, courts must defer to the congressional
mandate. ££/
Thus, even under general principles of corporation law,
courts may consider the language of statute in determining
whether to impose liability on corporate shareholders.
Therefore, a court may use the statutory language of CERCLA
either as a rationale for piercing a corporate veil (when
corporation law is applied) or as an independent statutory
basis for imposing liability (notwithstanding the general
principles of corporation law). 23/
.J'A
(continued)/
1312 (N.D. Ohio, 1983); 126 Cong. Rec. H. 11,787 (Dec.
3, 1983).
The Chem-Dyne court stated that "the improper disposal
or release of hazardous substances is an enormous and
complex problem of national magnitude involving uniquely
federal interests." (Slip op. at 11.) The court further
noted that "a driving force toward the development of
CERCLA was the recognition that a response to this
pervasive condition at the State level was generally
inadequate: and that the United States has a unique
federal financial interest in the trust fund that is
funded by general and excise taxes." (Slip op. at 11,
citing, 5 U.S. Code Cong. & Ad. News at 6,142.) See
also, 126 Cong. Rec. at H. 11,801.
20/ Capital Telephone Company, Inc. v. F.C.C. , 498 F.2d 734,
. 738 (D.C. Cir, 1974) .
/ Town of Brook line v. Gorsuch, 667 F.2d 215, 221 (1981).
££/ Anderson v. Abbot, 321 U.S. 349, 365, 64 S.Ct. 531,
88 L.Ed 793 ( 1944).
£V See discussion, supra, note 4.
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~10~ 9832.10
Conclusion
The Agency should rely upon the statutory language of the
Act as the.basis foif imposing liability on any person who
controlled or directed the activities of a hazardous waste
facility immediately prior to abandonment, or on any person
fcho is a generator or transporter, notwithstanding the fact
that that individual is a shareholder. Additionally, and
alternatively, the Agency may rely on the general principles
of corporation law to pierce the corporate veil by applying
the current federal standard of public convenience, fairness,
and equity. However, when seeking to pierce the corporate
veil, the Agency should be prepared to apply the traditional
dual test previously discussed in order to provide additional
support for extending liability to corporate shareholders.
II. THE LIABILITY OF SUCCESSOR CORPORATIONS UNDER CERCLA
Background
Section 107(a)(2) of CERCLA extends liability for response
costs to "any person who at the time of disposal of any hazardoui
substance owned or operated any facility at which such hazardous
substances were iisposed of." Situations may arise, however,
where a corporation, which previously had owned or operated a
hazardous waste facility, now transfers corporate ownership to
another corporation. In such cases, it is important to determine
whether the liability of the predecessor corporation's action
regarding the disposal of hazardous waste is also transferred
to the successor corporation. 2V
Issue
What is the extent of liability for successor corporations
under CERCLA?
24/ The discussion that follows is equally applicable to
successor corporations of generators and transporters
associated with hazardous substances released from CERCLA
facility.
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Summary
When corporatefownership is transferred from one cor-
poration to another, the successor corporation is liable for
the acts of its predecessor if the new corporation acquired
Ownership by merger or consolidation. If, however, the
Acquisition was through the sale or transfer of assets, the
successor corporation is not liable unless:
a) The purchasing corporation expressly or .,,/
impliedly agrees to assume such obligations;
b) The transaction amounts to a "de facto" consoli-
dation or merger;
c) The purchasing corporation is merely a continu-
ation of the selling corporation; or
d) The transaction was fraudulently entered into
in order to escape liability.
Notwithstanding the above criteria, a successor cor;
may be held liable for the acts of the predecessor
oration if the new corporation continues substantial!
corpora-
tion may be held liable for the acts of the predecessor
corporation if the new corporation continues substantially
the same business operations as the selling corporation.
Discussion
The liability of a successor corporation, according to
traditional corporation law. is dependent on the structure of
the corporate acquistion. 2V corporate ownership may be
transferred in one of three ways: 1) through the 'sale of stock
to another corporation; 2) by a merger or consolidation with
another corporation; or 3) by the sale of its assets to another
corporation. 26/ Where a corporation is acquired through the
purchase of aTl of its outstanding stock, the corporate
entity remains intact and retains its liabilities, despite
/ See N.J. Transp. Dep't v. PSC Resources, Inc., 175 N.J.
Super. 447, 419 A.2d 1151 (Super. Ct. Law Div. 1980).
2£/ Note, Torts - Product Liability - Successor Corporation
Strictly Liable for Defective Products Manufactured by
the Predecessor Corporation, 27 Villanova L.R. 411, 412
(1980) (citations omitted) (hereinafter cited as Note,
Torts - Product Liability).
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.-12-
9832.K
the change of ownership." 27/ By the same token, a purchasing
corporation retains liability for claims against the predecessor
company if the transaction is in the form of a merger or con-
solidation. 28/ Where, however, the acquisition is in the form
of a sale or other transference of all of a corporation's assets
to a successor corporation, the latter is not liable for the
debts and liabilities of the predecessor corporation. 29/
; There are four exceptions to this general rule of non-
liability in asset acquisitions. A successor corporation
is liable for the actions of its predecessor corporation if
one of the following is shown:
1) The purchaser expressly or impliedly
agrees to assume such obligations;
H
2) The transaction amounts to a "de facto
consolidation or merger;
3) The purchasing corporation is merely a
continuation of the selling corpor-
ation; or
4) The transaction is entered into fraudulently
in order to escape liability. 30/
The application of the traditional corporate law approach
to successor liability has in many instances led to particularly
27/ N.J. Transp. Dep't v. PSC Resources, Inc., 175 N.J.
Super. 447, 419 A.2d 1157 (Super. Ct. Law Div. 1980).
2°/ Id. A merger occurs when one of the combining corpor-
ations continues to exist; a consolidation exists when
all of the combining corporations are dissolved and an
entirely new corporation is formed.
29/ See N.J. Transp. Dep't v. PSC Resources, Inc., 175 N.J.
Super. 447, 419 A.2d 1151 (Super. Ct. Law Div. 1980),
citing, Jackson v. N.J. Manu. Ins. Co., 166 N.J. Super.
488, 454 (Super. Ct. App. Div. 1979), cert, denied, 81
N.J. 330 (1979).
2£/ Id., Note, Torts - Product Liability, supra note, 26 at
413 n. 15-18.
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-13- 9832,10;
". -* " .- . ".-.'"".-' ..',.,*'
harsh and unjust results, especially with respect to product
liability cases. 3V * Therefore, in an effort to provide an
adequate remedy and to protect injured consumers, courts
have broadened the exemptions to the general rule by either
modifying or recasting the "de facto" and "mere continuation"
exemptions to include an element of public policy. 3_2/
' *" /
More recently, however, the general rule has been aban-
doned altogether by se'veral jurisdictions and, in essence, a
new theory for establishing successor liability has evolved
based upon the similarity of business operations. 33/ The
new approach has been cast by one court in the following way:
"tWJhere...the successor corporation acquires
all or substantially all of the assets of the
predecessor corporation for cash and continues
£*/ See McKee v. Harris-Seybold Co., 109 N.J. Super. 555,
264 A.2d 98 (Super. Ct. Law Div.. 1970), aff'd per 'curiam,
118 N.J. Super. 480, 288 A.2d 585 (Super. Ct. App. Div.
1972); Kloberdanz v. Joy Mfg. Co. 288 F.Supp. 817 (D.
Colo. 1968).
32/ See N.J. Transp. Dep't v. PSC Resources, Inc., 175 N.J..
Super. 447, 419 A.2d 1151 (Super. Ct. Law Div. 1980);
See also, Knapp v. North Am. Rockwell Corp., 506 F.2d
361 (3d Cir. 1974), cert, denied, 421 U.S. 965 (1975);
Cyr v. B. Offen & Co., 501 F.2d 11-45 (1st Cir. 1975);
Turner v. Bituminous Gas Co., 397 Mich. 406, 244 N.W.2d
873 (1976>~
The theory has also been referred to as the "product-
line" approach. In adopting this new approach to
successor liability, some courts have abandoned the
traditional rule of non-liability in asset acquisitions.
See e.g., Ray v. Alad Corp., 19 Cal. 3d 22, 560 P.2d
3, 136 Cal. Rptr. 574 (1977). Other courts have con-
sidered the new approach as an exemption to the general.
rule. See e.g., Daweko v. Jorgensen Steel Co., 290 Pa.
Super. Ct. 15, 434 A.2d 106 (1981); Note, Torts - Product
Liability, supra note, 26 at 418 n. 38. And, a few
jurisdictions have rejected the new approach. See
Travis v. Harris Corp., 565 F.2d 443 (7th Cir. 1977);
Tucker v. Paxson Mach. Co., 645 F.2d 620 (8th Cir. 1981).
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-14- 983Zl'G
essentially the same manufacturing operation
as the predecessor corporation the successor
remains liable for the products liability claims
of its predecessor." 34/
£ This theory of establishing successor liability differs
iJrom the "de facto" and "mere continuation" exemptions in that
the new approach does not examine whether there is a continuity
of corporate structure or ownership (e.g., whether the predecessor
and successor corporation share a common director or officer).
Instead, according to the new theory, liability will be imposed
if the successor corporation continues essentially the same
manufacturing or business operation as its predecessor corporation,
even if no continuity of ownership exists between them. 35/
Until recently, this new approach for establishing successor
liability was confined mostly to product liability cases.
However, a recent New Jersey decision extended its application
to the area of environmental torts. The Superior Court of New
Jersey, in N.J. Transportation Department v. PSC Resources,
Inc. 2£/» rejected the traditional corporate approach to
successor liability where the defendant and its predecessor
corporation had allegedly discharged hazardous wastes. The
court reasoned that the underlying policy rationale for
abandonment of the traditional approach in defective product
cases is applicable to environmental torts. Therefore, the
court held that a corporation which purchased assets of another
corporation and engaged in the practice of discharging hazar-
dous waste into a state-owned lake is strictly liable for
present and previous discharges made by itself and the prede-
cessor corporation because the successor continued the same
waste disposal practice as its predecessor.
34/ Ramirez v. Amstead Indus., Inc., 171 N.J. Super. 261, 278,
408 A.2d 818 (Super. Ct. App. Div. 1979), aff'd, 86 N.J.
332, 431 A.2d 811 (1981).
2V See Rajr'v. Alad Corp., 19 Cal. 3d 22, 560 P.2d 3, 136 Cal.
Rptr. 574 (1977); some form of acquisition, however, is
still required. See Meisal v. Modern Press, 97 Wash.
2d 403, 645 P.2d 693.
2£/ 175 N.J. Super. 447, 419 A.2d 1151 (Super. Ct. Law Div.
1980);
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A similar "continuity of business operation" approach has
been used in cases involving statutory violations. *'/ The
Ninth Circuit, for.example, held in a case involving~the Federal
Insecticide, Fungicide, and Rodenticide Act (FIFRA] ££/, that
"EPA's authority to extend liability to successor corporations
stems from the purpose of the statute it administers, which is
fo regulate pesticides to protect the national environment." 39/
furthermore, the court noted that "(t]he agency may pursue the"
objectives of the Act ty imposing successor liability where it
will facilitate enforcement of the Act." 40/ After establishing
that there had been violations of FIFRA by the predecessor
corporation, the court found that there was substantial continuity
of business operation between the predecessor and successor
corporations to warrant imposition of successor liability.
Although CERCLA is not primarily a regulatory statute,
public policy considerations and the legislative history of
the Act clearly indicate that federal law would be applicable
to CERCLA situations involving successor liability. 4V
Therefore, it is reasonable to assume that courts wouTd similarly
adopt the federal "continuity of business operation approach"
in cases involving CERCLA.
Conclusion .: . ..... . -\
In establishing successor liability under CERCLA, the
37/ See Golden State Bottling Co. v. NLRB, 414 U.S. 168, 94
S.Ct. 414, 38 L.Ed2d 388 (1973); Slack v. Havens, 522
F.2d 1091 (9th Cir. 1975).
2£/ 7 U.S.C. $136 e£ seq.
39/ Oner II, Inc. v. United States Environ. Protection
Agency, 597 F.2d 184, 186 (9th Cir. 1979).
fO/ id.
**/ See discussion, supra, n. 19; One of Congress1 primary
concerns in enacting CERCLA was to alleviate the vast
national health hazard created by inactive and abandoned
disposal sites. See e.g., Remarks of Rep. Florio, 126
Cong. Rec. H. 9,154 (Sept. 19, 1980), 126 Cong. Rec.
H. 11,773 (Dec. 3. 1980).
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9832,l₯
-16-
Agency should initially utilize the "continuity of business
operation" approach of federal law. However, to provide
additional support or. an alternative basis for successor
Corporation liability, the Agency should be prepared to apply
the traditional exemptions to the general rule of non-liability
in asset acquisitions.
*
cc: A. James Barnes, General Counsel
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