United States v. Gen Battery Corp Inc

Opinions of the United
2005 Decisions States Court of Appeals
for the Third Circuit
9-6-2005
USA v. Gen Battery Corp Inc
Precedential or Non-Precedential: Precedential
Docket No. 03-3515
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PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 03-3515
UNITED STATES OF AMERICA
v.
GENERAL BATTERY CORPORATION, INC.;
EXIDE CORPORATION
Exide Corporation,
Appellant
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
D.C. Civil Action No. 00-cv-03057
(Honorable Ronald L. Buckwalter)
Argued January 26, 2005
Before: SCIRICA, Chief Judge,
RENDELL and FISHER, Circuit Judges
(Filed September 6, 2005)
ROBERT L. COLLINGS, ESQUIRE (ARGUED)
CARL A. SOLANO, ESQUIRE
Schnader Harrison Segal & Lewis LLP
1600 Market Street, Suite 3600
Philadelphia, Pennsylvania 19103
Attorneys for Appellant
JOHN T. STAHR, ESQUIRE (ARGUED)
United States Department of Justice
Environment and Natural Resources Division
P.O. Box 23795
L'Enfant Plaza Station
Washington, D.C. 20026
NURIYE C. UYGUR, ESQUIRE
Office of United States Attorney
615 Chestnut Street, Suite 1250
Philadelphia, Pennsylvania 19106
Attorneys for Appellee,
United States of America
OPINION OF THE COURT
SCIRICA, Chief Judge.
2
This appeal addresses successor liability under the
Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (CERCLA), 42 U.S.C. § 9601 et seq., for
environmental response costs incurred by the United States at a
lead-contaminated Superfund site. The District Court granted
summary judgment in favor of the United States on a “de facto
merger” theory of successor liability. We will affirm.
I.
The matter begins with a now defunct company, Price
Battery Corporation. From the 1930s through 1966, Price
Battery manufactured lead acid batteries at a plant in Hamburg,
Pennsylvania. During that time, it arranged for the disposal of
waste materials—including spent battery casings—at locations
in and around Hamburg. In 1992, the United States
Environmental Protection Agency discovered two of the
disposal sites, and upon further investigation found three more.
The properties contained elevated levels of lead. After testing
and monitoring, the EPA concluded remedial action was
necessary to protect human health. The United States has since
incurred response costs of several million dollars associated
with the removal of contaminated soil and the installation of a
remedial “cap” at the properties.
Seeking to identify a responsible party under CERCLA,
see 42 U.S.C. § 9607(a)(1)-(4), EPA determined that Price
Battery, through its disposal of battery casings, was responsible
for the lead contamination. Price Battery, however, was long
3
since out of business, having been acquired for cash and stock
by General Battery Corporation in 1966. General Battery, in
turn, merged with Exide Corporation in 2000. The United
States filed this action against Exide, alleging it was responsible
for Price Battery’s CERCLA liability as a successor in interest.
The parties agree that as a consequence of the 2000
merger, Exide is General Battery’s successor. The disputed
issue is whether General Battery, by virtue of its 1966
acquisition of Price Battery, was a successor to Price Battery.
The relevant aspects of the Price/General transaction are as
follows. On February 11, 1966, General Battery, a diversified
public company, entered into an agreement with Price Battery,
a smaller, privately-held battery manufacturing firm. Price
Battery was owned by a single shareholder, William F. Price Sr.,
who sold General Battery most of his company’s assets in
exchange for $2.95 million in cash, 100,000 shares of General
Battery stock, and a seat on General’s board of directors.1 At
1
The only Price Battery asset nominally excluded from the
transaction was its real property, including its manufacturing
plant. Price Battery sold its real property and the building to a
nonprofit development organization for $1.8 million. The
development organization, in turn, leased the facility back to
General Battery until 1978, when the deed was transferred to
General for $1.00. Taking this into account, Price Sr. received
$4.75 million cash and 100,000 shares of General Battery stock
for the Price Battery enterprise.
4
the time, 100,000 General Battery shares were valued at
approximately $1 million and represented 4.537% of General’s
outstanding equity. William Price Sr.’s resulting stake in
General Battery was comparable to that of the company’s co-
founders, W.A. Shea and H.J. Nozensky, who in 1966 remained
on General’s board and held 5.12% and 4.44% of its outstanding
equity, respectively.
Under the agreement, General Battery purchased Price
Battery’s equipment, materials, intellectual property and
inventory. It also assumed Price Battery’s contractual
obligations, including employment contracts, and assumed all
other liabilities appearing on Price Battery’s balance sheet.
General Battery indemnified Price Battery for claims, other than
future tort claims, arising from Price Battery’s operations, and
agreed to continue the employment of three senior Price Battery
officers—the president, the executive vice president, and the
vice president of manufacturing.
After the transaction, General Battery continued
manufacturing batteries at the Hamburg plant. Price Battery’s
plant superintendent and middle managers retained their
positions, as did the union employees, office personnel and sales
force. General Battery produced the same batteries that Price
Battery had produced and honored Price Battery’s contracts with
existing customers and vendors. Price Battery, meanwhile, was
required under the agreement to immediately change its name to
Price Investment Company and to retain $150,000 in cash
pending completion of an audit. The agreement contemplated
5
that following the audit and any corresponding adjustment in the
purchase price, Price Investment would liquidate on or before
December 31, 1966. From the transaction closing in February
of 1966 until filing for a certificate of corporate dissolution in
February of 1967, Price Investment Company had no operations.
On cross-motions for summary judgment, the District
Court held the Price/General transaction constituted a common
law “de facto merger.” In the District Court’s view, the
continuity of location, assets, products, operations, management,
employees, contracts, and shareholders between Price Battery
and General Battery, and the subsequent liquidation and
dissolution of Price Battery, establish General Battery (and now
Exide) as Price Battery’s successors in interest under CERCLA.
United States v. Exide Corp., 2002 U.S. Dist. LEXIS 3303 (E.D.
Pa. Feb. 27, 2002). Following the District Court’s entry of
summary judgment, the parties stipulated to past CERCLA
response costs at the Hamburg site in the amount of $6,500,000.
Exide retained the right to file this appeal as to liability.
II.
The District Court had jurisdiction under CERCLA, 42
U.S.C. § 9613(b), and 28 U.S.C. § 1331. We have jurisdiction
under 28 U.S.C. § 1291. Our summary judgment standard of
review is plenary. In re Mushroom Transp. Co., 382 F.3d 325,
335 (3d Cir. 2004) (drawing all reasonable inferences in favor
of the non-moving party).
6
III.
We return, once again, to the difficult area of indirect
liability under CERCLA.2 CERCLA is a “sweeping” federal
remedial statute, enacted in 1980 to ensure that “everyone who
is potentially responsible for hazardous-waste contamination
may be forced to contribute to the costs of cleanup.” United
States v. Bestfoods, 524 U.S. 51, 56 n.1 (1998) (quoting
Pennsylvania v. Union Gas Co., 491 U.S. 1, 21 (1989) (plurality
opinion of Brennan, J.)) (emphasis in original). “As its name
implies, CERCLA is a comprehensive statute that grants the
President broad power to command government agencies and
private parties to clean up hazardous waste sites.” Id. at 55(quoting Key Tronic Corp. v. United States, 511 U.S. 809, 814
(1994)).
CERCLA is not, however, “a model of legislative
draftsmanship,” Exxon Corp. v. Hunt, 475 U.S. 355, 363
(1986)—and successor liability is one of its puzzles. Although
2
See, e.g., Alcoa v. Beazer E., 124 F.3d 551 (3d Cir. 1997)
(shareholder, successor and indemnitor liability); SmithKline
Beecham Corp. v. Rohm & Haas Co., 89 F.3d 154 (3d Cir.
1996) (indemnitor and successor liability); United States v. USX
Corp., 68 F.3d 811 (3d Cir. 1995) (shareholder and officer
liability); Lansford-Coaldale Joint Water Auth. v. Tonolli Corp.,
4 F.3d 1209 (3d Cir. 1993) (parent-subsidiary liability); Smith
Land & Improvement Corp. v. Celotex Corp., 851 F.2d 86 (3d
Cir. 1988) (corporate successor liability).
7
the statute fails to address the issue expressly, it is now settled
that CERCLA incorporates common law principles of indirect
corporate liability, including successor liability. See 42 U.S.C.
§ 9601(21) (including “corporations” among the “persons”
covered by CERCLA); 1 U.S.C. § 5 (providing, as a rule of
interpretation, that “the word ‘company’ or ‘association’, when
used in reference to a corporation, shall be deemed to embrace
the words ‘successors and assigns of such company or
association’”); Bestfoods, 524 U.S. at 63-64 (holding CERCLA
incorporates common law of parent/subsidiary veil-piercing);
Smith Land, 851 F.2d at 92 (holding CERCLA imposes
successor liability).3
The threshold issue on appeal is whether to apply a
uniform federal rule of successor liability, or whether to apply
3
The courts of appeals that have addressed the issue are
unanimous in recognizing successor liability under CERCLA.
United States v. Davis, 261 F.3d 1, 54 (1st Cir. 2001); N.Y. v.
Nat’l Servs. Indus., 352 F.3d 682 (2d Cir. 2003); Smith Land,
851 F.2d at 92 (3d Cir. 1988); United States v. Carolina
Transformer Co., 978 F.2d 832, 837 (4th Cir. 1992); Anspec v.
Johnson Controls, Inc., 922 F.2d 1240, 1245 (6th Cir. 1991); N.
Shore Gas Co. v. Salomon, Inc., 152 F.3d 642, 649 (7th Cir.
1998); United States v. Mex. Feed & Seed Co., 980 F.2d 478,
486 (8th Cir. 1992); Atchison, Topeka & Santa Fe Ry. Co. v.
Brown & Bryant, Inc., 159 F.3d 358, 364 (9th Cir. 1997).
8
the law of a particular state. The second issue is whether Exide
is liable as a successor.
A.
We have previously addressed and decided the threshold
issue. In Smith Land, we held that CERCLA successor liability
is a matter of uniform federal law, as derived from “the general
doctrine of successor liability in operation in most states.” 851
F.2d at 92 (3d Cir. 1988). Likewise, we held in Lansford-
Coaldale that “given the federal interest in uniformity in the
application of CERCLA, it is federal common law, and not state
law, which governs” matters of indirect CERCLA liability. 4
F.3d at 1225 (3d Cir. 1993) (discussing parent/subsidiary veil-
piercing).
In the course of holding that CERCLA authorizes
successor liability, we reasoned that “Congress expected the
courts to develop a federal common law to supplement the
statute,” that “[i]n resolving the successor liability issues here,
the district court must consider national uniformity,” and that
“[t]he general doctrine of successor liability in operation in most
states should guide the court’s decision rather than the
excessively narrow statutes which might apply in only a few
states.” Smith Land, 851 F.2d at 91-92. This reasoning is
unambiguous, essential to the Smith Land disposition, and
controlling on the issue before us. Smith Land expressly
rejected the position that a particular state’s successor liability
law applies under CERCLA. Lansford-Coaldale, another
9
indirect liability case under CERCLA, is to the same effect. 4
F.3d at 1225. The Supreme Court has neither addressed nor
disturbed these holdings. See Bestfoods, 524 U.S. at 64 n.9
(noting, but not resolving, disagreement over “whether, in
enforcing CERCLA’s indirect liability, courts should borrow
state law, or instead apply a federal common law”).
Relying principally on O’Melveny & Myers v. FDIC, 512
U.S. 79 (1994), a case decided under the federal banking
statutes, and Davis, 261 F.3d at 54 (1st Cir. 2001), a case
applying state successor liability law under CERCLA, Exide
invites us to overrule Smith Land.
In United States v. Kimbell Foods, Inc., 440 U.S. 715(1979), the Supreme Court addressed the propriety of applying
state law under an ambiguous or incomplete federal statute. The
Court emphasized that, “[w]hether to adopt state law or to
fashion a nationwide federal rule is a matter of judicial policy
‘dependant upon a variety of considerations always relevant to
the nature of the specific governmental interests and to the
effects upon them of applying state law.’” Id. at 728 (quoting
United States v. Standard Oil, 332 U.S. 301, 310 (1947)). The
issue in Kimbell Foods was whether, absent an express statutory
directive, a uniform federal rule of lien priorities was necessary
under certain federal loan programs. Id. at 718. Employing a
three-factor analysis, the Court answered this question in the
negative, holding state law governed the priority of the liens.
Kimbell Foods considered (1) whether the federal program, by
its very nature, required uniformity; (2) whether application of
10
state law would frustrate specific objectives of the federal
program; and (3) whether application of uniform federal law
would disrupt existing commercial relationships predicated on
state law. Id. at 728-29.
Emphasizing the second Kimbell Foods factor—a
conflict with an identifiable federal interest—the Supreme Court
in O’Melveny cautioned against the unwarranted displacement
of state law, holding that state rules of decision generally fill
interstitial gaps in federal statutes. 512 U.S. at 87. The
displacement of state law is particularly disfavored in the area
of corporate law, because business decisions typically proceed
in reliance on the applicable state standards. Kamen v. Kemper
Fin. Servs., Inc., 500 U.S. 90, 105 (1991). State corporation law
generally should be integrated into the federal statutory regime,
unless there exists “a significant conflict between some federal
policy or interest and the use of state law.” O’Melveny, 512
U.S. at 87; see also Kamen, 500 U.S. at 107; Kimbell Foods,
440 U.S. at 728; see generally Henry J. Friendly, In Praise of
Erie—And of the New Federal Common Law, 39 N.Y.U. L. Rev.
383 (1964). The principal question here, then, is whether
CERCLA requires a uniform federal standard of corporate
successor liability.
As noted, Smith Land and Lansford-Coaldale expressly
held that CERCLA requires uniform federal standards of
successor and veil-piercing liability, respectively. Neither case
has been overruled. O’Melveny, a case brought under a state
law cause of action (as opposed to a federal liability statute),
11
512 U.S. at 83, dealing with the preemptive force of the federal
banking statutes, id. at 86, did not overrule our CERCLA-
specific holdings in Smith Land and Lansford-Coaldale.
O’Melveny involved claims brought by the Federal Deposit
Insurance Corporation (FDIC), as the receiver of a federally
insured bank, under California tort law. The FDIC argued,
notwithstanding its reliance on a state law cause of action, that
uniform federal liability standards should preempt the California
rules of decision. The Supreme Court disagreed, holding the
relevant federal statutes neither authorized nor required the
creation of a preemptive body of federal common law in cases
arising under state law causes of action. Id. at 89. Atherton v.
FDIC, another decision cited by Exide Corporation in which the
Court cautioned against the unwarranted “creation” of federal
common law, also involved the preemptive scope of the federal
banking laws. 519 U.S. 213, 218 (1997).
Smith Land and Lansford-Coaldale, in contrast, held that
uniform standards of indirect corporate liability are necessary
under CERCLA, an environmental liability statute enforced
under its own federal cause of action. O’Melveny and Atherton
neither addressed the CERCLA-specific reasoning of Smith
Land and Lansford-Coaldale nor overruled their CERCLA-
specific holdings.
Bestfoods, a case decided after O’Melveny and Atherton,
is the only Supreme Court decision touching on the CERCLA
question at issue. But the Court there explicitly declined to
resolve the circuit split on whether CERCLA borrows a
12
particular state’s law of indirect corporate liability. Bestfoods,
524 U.S. at 64 n.9. Bestfoods neither cited O’Melveny nor
otherwise suggested that uniform CERCLA successor liability
standards were inappropriate.
If anything, Bestfoods cuts in favor of a uniform federal
standard. Bestfoods applied “fundamental” and “hornbook”
principles of indirect corporate liability, not the law of any
particular state. 524 U.S. at 61-62. The court of appeals in
Bestfoods had applied Michigan law. United States v. Cordova
Chem. Co., 113 F.3d 572, 580 (6th Cir. 1997) (en banc). But the
Supreme Court declined to apply Michigan law and instead
looked to the general “hornbook” rule of veil-piercing. The
Court’s reliance on the general standard is a different matter
than borrowing the law of a particular state. Applying a
particular state’s law requires a state-by-state interpretation of
the federal liability statute—a result, in the case of successor
liability under CERCLA, that we believe conflicts with the
statutory objectives. See discussion infra.
A uniform federal standard is also consistent with recent
Supreme Court decisions in which gaps in federal liability
statutes were filled not with the law of a particular state, but
with general common law principles. Clackamas
Gastroenterology Assocs., P.C. v. Wells, 538 U.S. 440, 448
(2003) (looking to the general common law definition of
“servant” to define the term “employee” under the ADA);
Burlington Indus., Inc. v. Ellerth, 524 U.S. 742, 754 (1998)
(relying on “the general common law of agency, rather than on
13
the law of any particular State,” in defining the term “agent”
under Title VII) (citation omitted). Just as the ADA and Title
VII require uniform federal definitions of the terms “employee”
and “agent,” respectively, CERCLA requires a uniform federal
definition of “successor corporation.” As the Court explained
in Burlington, “[t]he resulting federal rule, based on a body of
case law developed over time, is statutory interpretation
pursuant to congressional direction,” not the free-wheeling
creation of federal common law. 524 U.S. at 755.
For these reasons, we believe that Smith Land and
Lansford-Coaldale have not been undermined by recent
Supreme Court decisions and remain circuit law. See Third
Circuit Internal Operating Procedure 9.1 (“[T]he holding of a
panel in a precedential opinion is binding on subsequent panels.
Thus, no subsequent panel overrules the holding in a
precedential opinion of a previous panel. Court en banc
consideration is required to do so.”).
Moreover, we believe Smith Land is consistent with
CERCLA’s objectives. CERCLA is a federal liability statute,
applicable nationwide to those responsible for hazardous-waste
contamination. Liability under the statute is a matter of federal
law. 42 U.S.C. § 9613(f)(1) (CERCLA contribution actions
“shall be governed by Federal law”); Kimbell Foods, 440 U.S.
at 726 (“This Court has consistently held that federal law
governs questions involving the rights of the United States
arising under nationwide federal programs.”).
14
It is true that successor tort liability, including successor
environmental liability, rests at the intersection of tort and
corporate law—both areas largely regulated by the states. But
it does not necessarily follow that CERCLA’s statutory scheme
is served by borrowing a particular state’s successor liability law
as the federal rule of decision. The choice of law framework
governing successor liability remains unsettled.4 And although
the general doctrine of successor liability is “largely uniform”
under state law, Atchison, 159 F.3d at 363 (9th Cir. 1997)
(citation omitted), this uniformity is less apparent when the
general standards are applied in specific cases.5 Beneath a
4
Compare In re Asbestos Litig. (Bell), 517 A.2d 697, 699
(Del. Super. Ct. 1986) (characterizing successor liability as a
corporate/contract doctrine), with Savage Arms Inc. v. West.
Auto Supply Co., 18 P.3d 49, 53 (Alaska 2001) (collecting cases,
noting that “state courts have split on the question,” and
characterizing successor products liability as a tort doctrine); see
also Ruiz v. Blentech Corp., 89 F.3d 320, 322 (7th Cir. 1996)
(describing a question of successor liability choice of law as
“rather mystifying”); SmithKline Beecham Corp. v. Rohm &
Haas Co., 1995 U.S. Dist. LEXIS 3361, at *12-26 (E.D. Pa.
Mar. 17, 1995) (wrestling with choice of law for CERCLA
successor liability).
5
For example, some states emphasize “continuity of
ownership” as a key element of successor liability. Cargo
Partner AG v. Albatrans Inc., 352 F.3d 41, 47 (2d Cir. 2003)
15
veneer of uniformity, the “entire issue of successor liability . . .
is dreadfully tangled, reflecting the difficulty of striking the
right balance between the competing interests at stake.” EEOC
v. Vucitech, 842 F.2d 936, 944 (7th Cir. 1988).
(New York law). Others do not. Woodrick v. Jack J. Burke
Real Estate, Inc., 703 A.2d 306, 313-14 (N.J. Super. Ct. App.
Div. 1997) (finding de facto merger absent continuity of
ownership). Some states apply unique successorship rules in
products liability and environmental cases. Dawejko v.
Jorgensen Steel Co., 434 A.2d 106, 111-12 (Pa. Super. Ct.
1981); Dep’t of Transp. v. PSC Res., Inc., 419 A.2d 1151 (N.J.
Super. Ct. Law Div. 1980). Others do not. Bielagus v. EMRE
of N.H., Corp., 826 A.2d 559 (N.H. 2003). In some states, the
governing rules are difficult to ascertain. Compare Hart v.
Bruno Mach. Corp., 679 N.Y.S.2d 740 (N.Y. App. Div. 1998)
(applying product line theory of successor liability), with City of
N.Y. v. Charles Pfizer & Co., 688 N.Y.S.2d 23 (N.Y. App. Div.
1999) (rejecting same theory). Even jurisdictions in broad
agreement on the appropriate legal standards may apply them
differently. SmithKline Beecham, 1995 U.S. Dist. LEXIS 3361,
at *23-24 (E.D. Pa. Mar. 17, 1995) (noting differences between
New Jersey and Pennsylvania application of common de facto
merger elements). Reconciling these holdings poses some
difficulty. See Cargo Partner AG v. Albatrans, Inc., 207 F.
Supp. 2d 86, 93-114 (S.D.N.Y. 2001).
16
In Atchison, the Court of Appeals for the Ninth Circuit,
in considered dictum, expressed doubt that a uniform federal
rule of successor liability is necessary under CERCLA. 159
F.3d at 364. The court reasoned that “[i]f state law varied
widely on the issue of successor liability, perhaps the need for
a uniform federal rule would be more apparent.” Id. at 363. But
we respectfully disagree with Atchison’s premise. State law
does vary substantially on the issue of successor liability, and its
unpredictability counsels in favor of CERCLA uniformity.
The successor liability issues raised in this case are
illustrative. Whether a mixed cash/stock acquisition triggers
successor liability under the de facto merger doctrine does not
command uniform treatment among the states.6 Whether
6
Compare Ladenburg Thalmann & Co. v. Tim’s Amusements,
Inc., 275 A.D.2d 243, 248 (N.Y. App. Div. 2001) (finding
continuity of ownership in assets-for-promissory note
transaction), and Fenderson v. Athey Prods. Corp., 581 N.E. 2d
288, 292 (Ill. Ap. Ct. 1991) (Illinois law) (no requirement “that
all or even most of the purchase price” be paid in stock), with
Nova Ribbon Prods. v. Lincoln Ribbon, Inc., 1995 U.S. Dist.
LEXIS 4322, at *20 (E.D. Pa. Mar. 30, 1995) (Pennsylvania
law) (holding de facto merger liability turns on whether
transaction is “primarily” for stock). Even within New Jersey,
the continuity of ownership standard appears unsettled in mixed
cash/stock transactions. Compare Wilson v. Fare Well Corp.,
356 A.2d 458, 461 (N.J. Super. Ct. Law Div. 1976) (imposing
17
successor liability attaches to a transaction where the seller
receives a “small percentage” of the buyer’s outstanding equity
is also unsettled.7 For example, New Jersey corporations may
be held responsible for successor environmental liability from
which New York corporations may be exempt. Compare PSC,
419 A.2d 1151 (N.J. Super. Ct. Law Div. 1980) (applying
expansive theory of successor liability to environmental torts),
with Schumacher v. Richards Shear Co., 451 N.E.2d 195, 198
(N.Y. 1983) (adhering to traditional concepts of successor
liability). We doubt Congress intended to incorporate such
variations under a comprehensive federal liability statute. See
successor liability where stock comprises less than half of
purchase price), with McKee v. Harris-Seybold Co., 264 A.2d
98, 104 (N.J. Super. Ct. Law Div. 1970) (no continuity of
ownership in mixed cash/stock transaction).
7
Compare Cargill, Inc. v. Beaver Coal & Oil Co., Inc., 424
Mass. 356, 361 (1997) (Massachusetts law) (finding continuity
of ownership where seller receives 12.5% stake in acquiring
company), and Glynwed, Inc. v. Plastimatic Inc., 869 F. Supp.
265, 277 (D.N.J. 1994) (New Jersey law) (“continuity of
ownership, not uniformity, is the test”), with Savage Arms, 18
P.3d at 58 (Alaska 2001) (noting that percentage of shares
owned is an “important fact”), and Kaleta v. Whittaker Corp.,
583 N.E.2d 567, 571 (Ill. App. Ct. 1991) (finding no continuity
of ownership where seller received a “de minimis” .00037%
stake in buyer).
18
42 U.S.C. § 9613(f)(1) (CERCLA contribution actions “shall be
governed by Federal law”); Miss. Band of Choctaw Indians v.
Holyfield, 490 U.S. 30, 43 (1989) (“federal statutes are generally
intended to have uniform nationwide application”).
A more uniform and predictable federal liability standard
corresponds with specific CERCLA objectives by encouraging
settlements and facilitating a more liquid market in corporate
and “brownfield” assets. See 42 U.S.C. § 9622 (encouraging
CERCLA settlements “in order to expedite effective remedial
actions and minimize litigation”); § 9607(r) (encouraging
transfer and redevelopment of contaminated property under
CERCLA’s so-called “Brownfield Amendments”)8 ; cf. Polius v.
Clark Equip. Co., 802 F.2d 75, 83 (3d Cir. 1986) (“Unforseeable
8
In 2001, Congress amended CERCLA with the Brownfields
Revitalization Act in order to spur the cleanup, transfer and
redevelopment of contaminated land. Pub. L. No. 107-118, 115
Stat. 2356 (the “Brownfields Amendments”). Among other
goals, the Brownfields Amendments encourage the acquisition
and redevelopment of Superfund sites by according bona fide
asset purchasers a defense to CERCLA liability. 42 U.S.C. §
9607(r)(1). The principal goal of the Amendments is to balance
the interest in cost recovery under CERCLA’s liability
provisions with the economic interest in a liquid market for
“brownfield” assets. Consistent with this purpose, a predictable
test for successor liability lowers transaction costs and
encourages brownfield acquisitions.
19
alterations in successor liability principles complicate transfers
and necessarily increases transaction costs. Major economic
decisions, critical to society, are best made in a climate of
relative certainty and reasonable predictability.”) (citation
omitted).
Smith Land’s application of the “majority” standard
fosters CERCLA predictability. It also accords respect to
existing commercial relationships predicated on the majority
state law, cf. Kimbell Foods, 440 U.S. at 728-29, while ensuring
that responsible parties, including successor corporations,
contribute their fair share to the cleanup of hazardous waste
under the federal program. Accord B.F. Goodrich v. Betkoski,
112 F.3d 88 (2d Cir. 1997) (applying uniform federal standard);
Carolina Transformer, 978 F.2d at 837 (4th Cir. 1992) (same);
Mex. Feed & Seed, 980 F.2d at 487 n.9 (8th Cir. 1992) (dicta);
but see Davis, 261 F.3d at 54 (1st Cir. 2001) (applying state
law); Atchison, 159 F.3d at 361-64 (9th Cir. 1997) (dicta);
Anspec, 922 F.2d at 1250 (6th Cir. 1991) (Kennedy, J.,
concurring).
Davis, the most recent court of appeals decision applying
state law, held that CERCLA incorporates state successor
liability rules unless the particular state law is “hostile to the
federal interests animating CERCLA.” 261 F.3d at 54 (1st Cir.
2001). Davis followed Atchison, where the Court of Appeals for
the Ninth Circuit concluded that borrowing state law is
consistent with CERCLA, because “[i]t is unrealistic to think
that a state would alter general corporate law principles to
20
become a particularly hospitable haven for polluters.” 159 F.3d
at 364 (9th Cir. 1997). As a general matter, we agree it is
unlikely that states would attempt to immunize their
corporations from CERCLA liability. See generally Richard L.
Revesz, Rehabilitating Interstate Competition: Rethinking the
“Race to the Bottom” Rationale for Federal Environmental
Regulation, 67 N.Y.U. L. Rev. 1210 (1992).
But neither Atchison, nor Davis, nor the concurring and
dissenting opinion, address the conflict between CERCLA’s
objectives and borrowing unpredictable state successorship law.
We believe that incorporating variable and uncertain state
successor liability standards would increase significantly
CERCLA litigation and transaction costs—in conflict with the
statutory interests embodied in 42 U.S.C. § 9622, which aims to
encourage early settlements, and § 9607(r), which aims to
facilitate a liquid market in brownfield assets. See In re Tutu
Water Wells CERCLA Litig., 326 F.3d 201, 206 (3d Cir. 2003)
(emphasizing CERCLA’s policy of minimizing litigation costs);
United States v. DiBiase, 45 F.3d 541, 545-46 (1st Cir. 1995)
(explaining CERCLA’s policy of reducing “transaction costs”);
see generally United States v. Charter Int’l Oil Co., 83 F.3d
510, 520 (1st Cir. 1996) (surveying empirical research on the
“huge resources going into the transactions costs of CERCLA
litigation” and observing that reducing these costs was a primary
objective of the 1986 amendments to the statute).
To summarize, the Supreme Court has neither overruled
nor directly undermined Smith Land. Furthermore, a uniform
21
federal standard is appropriate under Kimbell Foods and
O’Melveny: (1) the nature of the federal program, a
comprehensive federal liability statute, counsels in favor of
national uniformity; (2) a uniform successor liability standard is
necessary to advance CERCLA’s remedial objectives and to
facilitate a fluid market in corporate and brownfield assets; and
(3) uniform application of the majority state standard accords
proper respect to commercial relationships predicated on the
majority state law. Therefore, we will apply “the general
doctrine of successor liability in operation in most states.”
Smith Land, 851 F.2d at 92.
The concurring and dissenting opinion contends that we
reach an “unnecessary” holding on this issue, emphasizing that
Pennsylvania law mirrors the majority “de facto merger”
standard and would yield the same result. But Smith Land and
Lansford-Coaldale preclude exclusive reliance on the law of a
particular state. For the reasons stated, we believe these
decisions remain controlling. More fundamentally, because
CERCLA’s goal of minimizing litigation and transaction costs
is ill-served by a case-by-case approach to the question of
successor liability choice-of-law, we need not inquire whether
Pennsylvania law conflicts with or mirrors the majority
successor liability doctrine before holding that a federal rule
applies.
We add a final note on nomenclature and its pitfalls. Part
of the difficulty in this area may stem from imprecise use of the
term “federal common law.” In its strictest sense, federal
22
common law represents the judicial “creation” of law under a
generalized statutory mandate. Atherton, 519 U.S. at 218.
Examples include the federal labor laws, Textile Workers Union
v. Lincoln Mills, 353 U.S. 448 (1957), and ERISA, Firestone
Tire & Rubber Co. v. Bruch, 489 U.S. 101, 110 (1989). In
recent years the Supreme Court has emphasized that the cases
requiring this brand of federal common law are “few and
restricted.” O’Melveny, 512 U.S. at 87 (citation omitted). To
view every ambiguous federal statute as authorizing an
expansive body of “federal common law” would be an invitation
to federal courts to eviscerate both the Erie doctrine and the
concept of dual sovereignty it embodies.
But the “creation” of federal common law must be
distinguished from statutory interpretation. See Atherton, 519
U.S. at 218. Ambiguous federal statutes generally do not
authorize the creation of a new (and preemptive) body of federal
law. Id. But this principle does not require that every federal
statutory gap be filled by way of state-by-state interpretation.
“In almost any statutory scheme, there may be a need for judicial
interpretation of ambiguous or incomplete provisions. But the
authority to construe a statute is fundamentally different from
the authority to fashion a new rule or to provide a new remedy
which Congress has decided not to adopt.” Northwest Airlines,
Inc. v. Transp. Workers Union, 451 U.S. 77, 97 (1981); see also
Atherton, 519 U.S. at 218 (distinguishing the “creation” of
federal common law from “interpretation of a federal statute or
a properly promulgated administrative rule”).
23
In the case of federal liability statutes enforced under a
federal cause of action, the law is generally intended to have
uniform nationwide application. Cmty. for Creative Non-
Violence v. Reid, 490 U.S. 730, 740 (1989) (“federal statutes are
generally intended to have uniform nationwide application”);
Jansen v. Packaging Corp., 123 F.3d 490, 507 (7th Cir. 1997)
(en banc) (Posner, J., concurring and dissenting). The most
recent Supreme Court cases, both decided after O’Melveny and
Atherton, followed this approach. Clackamas, 538 U.S. at 448(2003); Burlington, 524 U.S. at 754-55 (1998). These decisions
affirm the view that uniform interpretation of an undefined term
in a federal liability statute “is not free-wheeling common-law
rulemaking,” but rather “filling a statutory gap, a standard office
of interpretation.” Jansen, 123 F.3d at 507. Accordingly,
supplying a uniform definition of “successor corporation” under
CERCLA is a matter of interpreting the federal statute. See 42
U.S.C. § 9601(21) (including “corporations” among the
“persons” covered by CERCLA); 1 U.S.C. § 5 (providing, as a
rule of interpretation, that “the word ‘company’ or ‘association’,
when used in reference to a corporation, shall be deemed to
embrace the words ‘successors and assigns of such company or
association’”).
B.
Turning to the appropriate liability standard, we are
mindful of Bestfoods, where the Supreme Court held that
CERCLA incorporates, but does not expand upon,
“fundamental” common law principles of indirect corporate
24
liability. 524 U.S. at 62-64. The general rule of corporate
successorship accepted in most states is non-liability for
acquiring corporations, with the following exceptions:
The purchaser may be liable where: (1) it assumes
liability; (2) the transaction amounts to a
consolidation or merger; (3) the transaction is
fraudulent and intended to provide an escape from
liability; or (4) the purchasing corporation is a
mere continuation of the selling company.
Polius, 802 F.2d at 78 (3d Cir. 1986) (stating general rule); 15
William Meade Fletcher et al., Fletcher Cyclopedia of the Law
of Private Corporations § 7122, at 227-48 (perm. ed., rev. vol.
1999) (collecting cases).
This case involves the “de facto merger” exception,
which has four elements under the majority standard. It applies
where:
(1) There is a continuation of the enterprise of the
seller corporation, so that there is a continuity of
management, personnel, physical location, assets,
and general business operations.
(2) There is a continuity of shareholders which
results from the purchasing corporation paying for
the acquired assets with shares of its own stock,
this stock ultimately coming to be held by the
shareholders of the seller corporation so that they
25
become a constituent part of the purchasing
corporation.
(3) The seller corporation ceases its ordinary
business operations, liquidates, and dissolves as
soon as legally and practically possible.
(4) The purchasing corporation assumes those
obligations of the seller ordinarily necessary for
the uninterrupted continuation of normal business
operations of the seller corporation.
Bud Antle, Inc. v. Eastern Foods, Inc., 758 F.2d 1451, 1457-58
(11th Cir. 1985) (stating the “majority” de facto merger
standard); Keller v. Clark Equip. Co., 715 F.2d 1280, 1291 (8th
Cir. 1983) (same); 15 Fletcher, supra, § 7124.20, at 302 (stating
majority rule and collecting cases). The majority standard
generally tracks the inquiry under Pennsylvania law. See
SmithKline Beecham, 89 F.3d at 162 n.6.
Based on the record, we agree with the District Court that
the Price/General transaction constituted a de facto merger.
(1)
Under prong one—continuity of enterprise—General
Battery purchased all of Price Battery’s equipment and
inventory, assumed tenancy of its manufacturing plant, and
continued its production of batteries. The plant superintendent
and middle managers retained their positions, as did the union
employees, office personnel and sales force. General Battery
26
continued the employment of three senior Price Battery
executives—the president, executive vice president, and vice
president of manufacturing—who, among other duties, remained
active in supervising the Hamburg plant. General Battery was
supplied by Price Battery’s vendors, served Price Battery’s
customers, and manufactured essentially the same battery
products. In every operational respect—from management and
employees to location and assets to products and general
business operations—General Battery continued the Price
Battery enterprise. We agree with the District Court’s
exemplary analysis under this element.
(2)
De facto merger prong two—continuity of
shareholders—presents a closer question. Prior to the
transaction, William Price Sr. was the sole shareholder of Price
Battery. He received from General Battery $2.95 million in
cash, 100,000 shares of General Battery stock, and a seat on
General Battery’s board of directors in exchange for the Price
Battery enterprise. At the time, 100,000 shares of General
Battery stock were valued at approximately $1 million and
represented 4.537% of its outstanding equity. Price Sr.’s
resulting stake in General Battery was comparable to that of the
company’s two co-founders, who owned 5.12% and 4.44% of its
stock, respectively.
The parties dispute whether this mixed cash/stock
transaction evidences the requisite continuity of ownership.
27
Exide contends continuity of ownership is lacking where the
seller receives “primarily” cash and a “small percentage” of the
buyer’s outstanding equity. The United States responds that
“under the de facto merger exception, there is no requirement
that the seller acquire majority control or any other specific
percentage of the buyer, only that there be some continuity of
shareholder ownership.”
The standard applied in most states recognizes continuity
of ownership where “the shareholders of the seller corporation
. . . become a constituent part of the purchasing corporation.”
15 Fletcher, supra, § 7124.20, at 302 (stating general rule);
Keller, 715 F.2d at 1291 (8th Cir. 1983) (same); see also
SmithKline Beecham, 89 F.3d at 162 n.6 (3d Cir. 1996)
(Pennsylvania law).
This standard, which requires continuity rather than
identity of ownership, corresponds with the general purposes of
the successor liability doctrine. See Cargo Partner AG, 352
F.3d at 47 (2d Cir. 2003) (New York law) (holding continuity of
ownership “is the essence of” a de facto merger); Nat. Gypsum
Co. v. Cont. Brands Corp., 895 F. Supp. 328, 337-38 (D. Mass.
1995) (collecting cases). The overriding goal of successor
liability, and of the de facto merger inquiry, is to balance “the
interest in preventing tortfeasors from externalizing the costs of
their misconduct” with “the interest in a fluid market in
corporate assets.” Vucitech, 842 F.2d at 944 (7th Cir. 1988).
28
The continuity of shareholders element is designed to
identify situations where the shareholders of a seller corporation
retain some ownership interest in their assets after cleansing
those assets of liability. See generally Marie T. Reilly, Making
Sense of Successor Liability, 31 Hofstra L. Rev. 745 (2003);
Mark J. Roe, Mergers, Acquisitions and Tort: A Comment on the
Problem of Successor Corporation Liability, 70 Va. L. Rev.
1559 (1984). Successor liability in this context accords a legal
remedy to injured third-parties, preventing the externalization of
the seller’s costs of doing business, and deterring transactions
designed to impose the costs of misconduct on third-parties. See
SmithKline Beecham, 89 F.3d at 164 (discussing remedial
purposes of de facto merger doctrine). Identifying these
transactions is the objective of the continuity of ownership
requirement. Nat’l Gypsum, 895 F. Supp. at 337 (D. Mass.
1995); Cargo Partner AG, 352 F.3d at 47 (2d Cir. 2003).
But the cases do not, as Exide contends, distinguish
sharply between transactions “primarily” for cash versus stock,
or between large versus small percentage interests in the
ongoing enterprise. Rather, only some continuity of ownership
is required. There is no generally accepted common law
distinction between primarily stock mergers, on the one hand,
and primarily cash transactions, on the other.9 Nor does
9
See, e.g., Wilson, 356 A.2d 458 (N.J. Super. Ct. Law Div.
1976) (imposing successor liability where stock comprised less
than half of purchase price); Atlas Tool Co. v. Comm’r, 614 F.2d
29successor liability necessarily turn on the seller’s percentage
interest in the buyer. 10 Although the “majority” standard is
somewhat unsettled at this frontier of successor liability, the
860, 871 (3d Cir. 1980) (New Jersey law) (“Although there was
no stock transfer here, and only cash was involved, there was
clearly a continuation of stockholder interest.”); Bud Antle, Inc.
v. E. Foods, Inc., 758 F.2d 1451, 1458 (11th Cir. 1985) (“At the
very least, there must be some sort of continuation of the
stockholders’ ownership interests.”); Ametek, Inc. v. Pioneer
Salt & Chem. Co., 709 F. Supp. 556, 560 (E.D. Pa. 1988)
(holding a de facto merger is possible where the seller retains a
“contingent stake . . . in its former business”); Fenderson, 581
N.E. 2d at 292 (Ill. App. Ct. 1991) (no requirement “that all or
even most of the purchase price” be paid in stock).
10
See, e.g., Cargill, 424 Mass. 356 (1997) (Massachusetts
law) (finding continuity of ownership where seller received
12.5% stake in acquiring company); United States v. Keystone
Sanitation Co., 1996 U.S. Dist. LEXIS 13651, at *23-25 (M.D.
Pa. Aug. 22, 1996) (federal law) (finding continuity of
ownership where seller received less than 1% stake in buyer);
T.H.S. Northstar Assocs. v. W.R. Grace & Co., 840 F. Supp. 676(D. Minn. 1993) (Minnesota law) (finding continuity where
seller’s owners received 2.27% of buyer’s stock); Glynwed, 869
F. Supp. at 277 (D.N.J. 1994) (New Jersey law) (“continuity of
ownership, not uniformity, is the test”).
30
critical “continuity of ownership” inquiry appears to be whether
the owners retained some ongoing interest in their assets.
Continuity of ownership is established under CERCLA
where the owners of the predecessor enterprise become a
“constituent part” of the successor by retaining some ongoing
interest in their assets. See 15 Fletcher, supra, § 7124.20, at 302
(stating majority rule and collecting cases). Under this standard,
William Price Sr. became a “constituent part” of General Battery
when he received 100,000 shares of General Battery stock and
a seat on General’s board in exchange for the Price Battery
enterprise.
(3)
Under the third de facto merger element, it is apparent
that Price Battery ceased operations, liquidated, and dissolved
as soon as legally and practically possible. The Price/General
agreement, which closed in February of 1966, required Price
Battery to discontinue operations immediately and change its
name to Price Investment Company. Price Battery did so. The
agreement also required that Price Investment remain in
existence from February through December of 1966,
maintaining cash reserves pending completion of an audit and
other contingencies. After this waiting period and following any
adjustments in the purchase price, the agreement contemplated
that Price Battery would liquidate and dissolve. Specifically, the
contract provided “for the complete liquidation of Price and the
distribution of all of its assets within the twelve month period
31
beginning [on February 8, 1966].” Price Investment filed for
corporate dissolution on February 8, 1967, and formally
dissolved approximately six months later.
The contractual requirement that Price Battery
immediately change its name, cease operations, and
subsequently liquidate and dissolve, is more characteristic of a
merger than an asset purchase. As recognized under the de facto
merger doctrine, an essential characteristic of a merger is that
one corporation survives while another ceases to exist. Knapp
v. N. Am. Rockwell Corp., 506 F.2d 361, 367 (3d Cir. 1974)
(Pennsylvania law). Here, the Price/General agreement
expressly required the liquidation and dissolution of Price
Battery as a condition of the transaction, suggesting a merger
rather than the mere sale of Price Battery’s assets.
Exide emphasizes Price Investment’s failure to dissolve
immediately, contending that for over a year “the two companies
remained completely independent of each other in management
and operations.” But the more salient fact is that Price Battery
immediately ceased ordinary business operations. Within one
week of the closing date, Price Battery recast itself as Price
Investment Company—a corporate shell that only held cash
reserves pending final settlement with General Battery. Price
Investment had no operations.
The Knapp case presented similar facts. There we held
the seller company dissolved as soon as legally and practically
possible. 506 F.2d at 369 (3d Cir. 1974) (Pennsylvania law).
32
The seller corporation in Knapp had “technically continued to
exist until its dissolution approximately 18 months after the
consummation of the transaction,” id. at 364, but during that
period it “had no substance” and “could not undertake any active
operations.” Id. at 369. As in Knapp, “barren continuation” of
the seller company does not bar application of the de facto
merger doctrine. Id. at 368. We agree with the District Court
that Price Battery ceased operations, liquidated and dissolved as
soon as legally and practically possible.
(4)
Finally, under prong four—assumption of obligations
ordinarily necessary for the uninterrupted continuation of
normal business operations—the Price/General agreement
expressly provided that General Battery would assume Price
Battery’s contractual obligations and all other obligations
appearing on Price Battery’s balance sheet. This unambiguous
assumption of obligations, including employment, sales and
vendor contracts, satisfies the fourth de facto merger element.
C.
In sum, the de facto merger criteria are satisfied. Citing
Polius, Exide responds with the overarching objection that
“imposition of successor liability on a purchasing company long
after the transfer of assets defeats the legitimate expectations the
parties held during negotiation and sale.” 802 F.2d at 83. But
even if we accept this statement as a general proposition, the
response here is twofold. First, application of the traditional de
33
facto merger standard, which generally tracks the Pennsylvania
rule, can hardly come as a surprise to sophisticated corporate
parties who transacted under Pennsylvania law. Second,
CERCLA by its very nature upsets party expectations. Congress
nevertheless viewed retroactive CERCLA liability as necessary
to ensure that those “responsible for any damage, environmental
harm, or injury from chemical poisons may be tagged with the
cost of their actions.” Bestfoods, 524 U.S. at 56 (quoting S.
Rep. No. 96-848, 13 (1980)) (internal punctuation marks
omitted).
We hold that General Battery and Exide, as successors to
Price Battery, are responsible for the CERCLA liability of their
predecessor.
D.
We briefly address the District Court’s alternative
holding that Exide is liable under CERCLA on a “substantial
continuity” theory of successor liability.11 Prior to Bestfoods,
several courts adopted the “substantial continuity” test as a basis
for CERCLA successor liability. See N.Y. v. Nat’l Serv. Indus.,
352 F.3d 682, 687-88 (2d Cir. 2003) (collecting cases).
“Substantial continuity” eliminates certain elements of the de
facto merger analysis—including the continuity of ownership
11
The government does not seek affirmance on the basis of
“substantial continuity” and does not cite any relevant law on
the issue.
34
requirement—and in effect creates a more expansive rule of
liability than is accepted in most states. Id. at 687 (noting
substantial continuity is applied “by only a handful of states”).
Recently, however, several courts of appeals have rejected the
doctrine as inconsistent with Bestfoods, 524 U.S. 51 (1998).12
We agree. Bestfoods held that CERCLA does not, sub silentio,
abrogate fundamental common law principles of indirect
corporate liability. 524 U.S. at 63-64. Accordingly, “substantial
continuity” is untenable as a basis for successor liability under
CERCLA.
IV. Conclusion
We will affirm the judgment of the District Court.
12
See Nat’l Serv. Indus., 352 F.3d at 687 (2d Cir. 2003)
(holding “the substantial continuity doctrine is not part of
general federal common law and, following Bestfoods, should
not be used to determine whether a corporation takes on
CERCLA liability as the result of an asset purchase”); Davis,
261 F.3d at 53 (1st Cir. 2001) (same); Atchison, 159 F.3d 358(9th Cir. 1998) (same).
35
Concurring in part and dissenting in part
RENDELL, Circuit Judge.
I agree with the majority’s conclusion that the fact pattern
presented was a de facto merger such that successor liability for
purposes of CERCLA exists and therefore concur in its ultimate
ruling. However, I part company with the majority regarding its
decision to announce that the issue of successor liability in this
context is controlled by federal common law. This
determination is unnecessary to the resolution of the issues
before us and runs counter to recent Supreme Court
pronouncements which both call into question the concept of
federal common law and explicitly state that only in the most
limited of circumstances should we look beyond applicable state
law. Moreover, two other courts of appeals – the First and the
Ninth – have considered the precise issue before us and our
opinion perpetuates a split among the courts of appeals. Those
courts have opined that the Supreme Court’s recent directives
cast serious doubt on the advisability of creating federal
common law to dictate the contours of successor liability under
CERCLA.13 The majority, however, embraces the application
13
Interestingly, as we note below, one of the courts – the
Ninth Circuit – had previously followed our lead in Smith Land,
but more recently reevaluated its view in light of later Supreme
Court precedent concluding, as we should, that creating federal
common law should be a last resort.
36
of federal common law, relying instead on the outdated notion
of promoting uniformity.
Over the course of the last decade, and since we decided
Smith Land & Improv. Corp. v. Celotex Corp., 851 F.2d 86 (3d
Cir. 1988) and Lansford-Coaldale Joint Water Auth. v. Tonolli
Corp., 4 F.3d 1209 (3d Cir. 1993), the Supreme Court has issued
several opinions denouncing the creation of federal common law
where state law would otherwise apply. Principally, in
O'Melveny & Myers v. FDIC, 512 U.S. 79 (1994), the Court
rejected the notion that a federal common law rule regarding the
imputation of corporate officer knowledge to a corporation
should be applied in an action against the Federal Deposit
Insurance Corporation (“FDIC”). The Court stated:
The first of these contentions need not detain us
long, as it is so plainly wrong. “There is no
federal general common law, and ... the remote
possibility that corporations may go into federal
receivership is no conceivable basis for adopting
a special federal common-law rule divesting
states of authority over the entire law of
imputation.”
Id. at 83 (internal citation omitted) (citing Bank of America Nat.
Trust & Sav. Assn. v. Parnell, 352 U.S. 29, 33-34 (1956)).
The O'Melveny Court went on to note that, with regard to
“the central question of displacement of [state] law” in favor of
a rule federal in nature:
37
[W]e of course would not contradict an explicit
federal statutory provision. Nor would we adopt
a court-made rule to supplement federal statutory
regulation that is comprehensive and detailed;
matters left unaddressed in such a scheme are
presumably left subject to the disposition
provided by state law.
***
. . . . As we proceed to explain, even assuming
the inapplicability of FIRREA [Financial
Institutions Reform, Recovery, and Enforcement
Act of 1989] this is not one of those cases in
which judicial creation of a special federal rule
would be justified.
Such cases are, as we have said in the past, “few
and restricted,” Wheeldin v. Wheeler, 373 U.S.
647, 651 (1963), limited to situations where there
is a “significant conflict between some federal
policy or interest and the use of state law.”
Wallis v. Pan American Petroleum Corp., 384
U.S. 63, 68 (1966). Our cases uniformly require
the existence of such a conflict as a precondition
for recognition of a federal rule of decision.
Kimbell Foods, 440 U.S. at 728. Not only the
permissibility but also the scope of judicial
displacement of state rules turns upon such a
conflict. What is fatal to respondent’s position in
the present case is that it has identified no
38
significant conflict with an identifiable federal
policy or interest.
O'Melveny & Myers, 512 U.S. at 85, 87-88 (some internal
citations omitted) (emphasis added). While O’Melveny did not
involve CERCLA, nonetheless, the pronouncement of the Court
regarding displacement of state law makes crystal clear that
matters left unaddressed by a comprehensive federal statutory
scheme are presumably left subject to the disposition provided
by state law 14 – there must exist a conflict, identifiable and
14
The issue before us is not the meaning of a term contained
in CERCLA, as was the case in many of the cases cited by the
majority. Rather, the issue before us is whether state or federal
law regarding successor liability will apply when the courts are
fashioning remedies under CERCLA. No one has contended we
are construing a word or phrase in the statute. If we are, we
should request further briefing on this issue as it has not been
addressed by the parties.
CERCLA now counts a “corporation” as a “person” for
purposes of liability, see 42 U.S.C. § 9601(21), but the statute
itself clearly does not reference or provide for successor
liability. Therefore, we are confronted with a matter in an
otherwise detailed federal statutory scheme, not a mere need to
attach meaning to a term of art employed but not defined by
Congress, as was the case in Clackamas Gastroenterology
Assocs., P.C. v. Wells, 538 U.S. 440, 448 (2003) (looking “to the
(continued...)
39
specific, with an important federal policy before we consider
resorting to federal common law.
Three years after deciding O’Melveny, the Supreme Court
again commented on the concept of “federal common law,” in
the case of Atherton v. FDIC, 519 U.S. 213 (1997). In Atherton,
14
(...continued)
common law to fill gaps in statutory text, particularly when an
undefined term has a settled meaning at common law,” in this
case to define “employee under the ADA) (emphasis added);
Burlington Indus. v. Ellerth, 524 U.S. 742, 755 (relying on
general common law of agency to define term “agent” under
Title VII where state court decisions “determinations of
employer liability under state law rely in large part on federal
court decisions”); Mississippi Band of Choctaw Indians v.
Holyfield, 490 U.S. 30, 47, n.22 (1989) (using federal common
law to define “domicile” under the Indian Child Welfare Act
and noting that Congress had, in other parts of the legislation,
stated explicitly where it wanted terms “defined by reference to
tribal law or custom and to state law”); and Cmty. for Creative
Non-Violence v. Reid, 490 U.S. 730, 740 (1989) (employing
federal common law to define “work made for hire” under
provisions of the Copyright Act of 1976, a statute intended to
broadly preempt state statutory and common-law copyright
regulation). These cases would be informative if we too were
focusing on the meaning given to a term in a federal statute, but
that is not our focus.
40
the Court again emphasized the “precondition,” id. at 218, that
a conflict exist to warrant the conception of a federal rule; under
the facts of the case before it, the Court stated that its initial
inquiry must concern whether the application of the relevant
state law standard of care to banks would conflict with, and
thereby significantly undermine, an identifiable federal policy or
interest:
States normally look to the State of a business’
incorporation for the law that provides the
relevant corporate governance general standard of
care. And by analogy, it has been argued, courts
should look to federal law to find the standard of
care governing officers and directors of federally
chartered banks.
To find a justification for federal common law in
this argument, however, is to substitute analogy or
formal symmetry for the controlling legal
requirement, namely, the existence of a need to
create federal common law arising out of a
significant conflict or threat to a federal interest.
O’Melveny, 512 U.S. at 85, 87.
***
In sum, we can find no significant conflict with,
or threat to, a federal interest. The federal need is
far weaker than was present in what the Court has
called the “few and restricted’ instances,”
Milwaukee v. Illinois, 451 U.S. 304, 313 (1981),
41
in which this Court has created a federal common
law.
Atherton, 519 U.S. at 224-25. The Court then detailed such
“few and restricted” cases, which I list in the margin.15 Again,
the Court’s focus was on the presence of a significant conflict.
And, to discern whether a conflict is present, we are not to
evaluate the jurisprudential landscape of all fifty states; rather,
“federal courts should incorporate state law into federal
15
As enumerated by the Court in Atherton: See Hinderlider
v. La Plata River & Cherry Creek Ditch Co., 304 U.S. 92 (1938)
(controversy between two States regarding apportionment of
streamwater); Boyle v. United Technologies Corp., 487 U.S. 500(1988) (Federal Government contractors and civil liability of
federal officials); United States v. Standard Oil Co. of Cal., 332
U.S. 301, 305 (1947) (relationship between Federal Government
and members of its armed forces); Howard v. Lyons, 360 U.S.
593, 597 (1959) (liability of federal officers in the course of
official duty); Banco Nacional de Cuba v. Sabbatino, 376 U.S.
398, 425 (1964) (relationships with other countries). See also
Texas Industries, Inc. v. Radcliff Materials, Inc., 451 U.S. 630,
641(1981) (“Absent some congressional authorization to
formulate substantive rules of decision, federal common law
exists only in such narrow areas as those concerned with the
rights and obligations of the United States, interstate and
international disputes implicating the conflicting rights of States
or our relations with foreign nations, and admiralty cases”).
42
common law unless the particular state law in question is
inconsistent with the policies underlying the federal statute.”
Kamen v. Kemper Fin. Servs., 111 S. Ct. 1711, 1722 (1991)
(emphasis added).
Most recently, in United States v. Bestfoods, the Court
was called upon to consider whether a parent corporation that
actively participated in, and exercised control over, the
operations of a subsidiary may, without more, be held liable
under CERCLA as an operator of a polluting facility owned or
operated by the subsidiary. 524 U.S. 51, 55 (1998). The Court
answered in the negative, “unless the corporate veil may be
pierced.” Id. In so concluding, the Court expounded upon
certain general principles of corporate law – for example, that
parents are not liable for the acts of their subsidiaries, id. at 62,
along with the “equally fundamental principle of corporate law”
that a corporate veil may be pierced where the corporate form
was misused, id. Significantly, the Court explained:
Nothing in CERCLA purports to rewrite this
well-settled rule, either. CERCLA is thus like
many another congressional enactment in giving
no indication “that the entire corpus of state
corporation law is to be replaced simply because
a plaintiff’s cause of action is based upon a
federal statute,” Burks v. Lasker, 441 U.S. 471,
478, 60 L. Ed. 2d 404, 99 S. Ct. 1831 (1979), and
the failure of the statute to speak to a matter as
fundamental as the liability implications of
corporate ownership demands application of the
rule that “in order to abrogate a common-law
43
principle, the statute must speak directly to the
question addressed by the common law,” United
States v. Texas, 507 U.S. 529, 534, 123 L. Ed. 2d
245, 113 S. Ct. 1631 (1993) (internal quotation
marks omitted). The Court of Appeals was
accordingly correct in holding that when (but only
when) the corporate veil may be pierced, may a
parent corporation be charged with derivative
CERCLA liability for its subsidiary’s actions.
Id. at 63-64 (footnotes omitted).
As noted by the majority, the Bestfoods Court declined to
reach the precise issue before us, noting a “disagreement” as to
whether “courts should borrow state law, or instead apply a
federal common law of veil piercing,” 524 U.S. at 64, n.9, but
sidestepping any conclusion: “Since none of the parties
challenges the Sixth Circuit’s holding that [certain companies]
incurred no derivative liability, the question is not presented in
this case, and we do not address it further,” id. The majority
protests that the Court did not declare the use of federal common
law inappropriate at this juncture or cite to O’Melveny. But the
Court clearly did not need to, or choose to, reach the issue. We
should infer nothing from its silence.
I find more significant the Bestfoods Court’s affirmative
discussion of “norms of corporate behavior,” which it viewed
as constituting crucial reference points, along with the reliability
of bedrock principles of corporate law. See, e.g., 524 U.S. at 70
44
n.13 & 71. I cannot help but conclude that reference to the
“norms” bolsters the view that existing state corporate law
principles should control, and we need not invent federal law, or
deem them “federal”, in order to further CERCLA’s regulatory
scheme. The Court’s discussion of “congressional silence”
concerning these “bedrock” corporate principles, which it
describes as “audible,” supports this view. 524 U.S. at 62. With
respect to the silence wrought by Congress’ failure to address,
in the statute, the claim at issue in Bestfoods, notably, the Court
stated that “CERCLA is thus like many another congressional
enactment in giving no indication ‘that the entire corpus of state
corporation law is to be replaced simply because the plaintiff’s
cause of action is based upon our federal statute.’” Bestfoods,
524 U.S. at 63 (quoting Burks v. Lasker, 441 U.S. 471, 478
(1979)). Indeed, the Bestfoods Court chided the district court in
that case for having “treated CERCLA as though it displaced or
fundamentally altered common law standards of limited
liability” because “such a rule does not arise from congressional
silence, and CERCLA’s silence is dispositive.” 524 U.S. at 70.
Finally, it bears noting that the Supreme Court affirmed the
court of appeals’ determination applying Michigan law that a
parent may be held liable only where the corporate veil may be
pierced. See United States v. Cordova Chem. Co., 113 F.3d 572,
580 (6th Cir. 1997).
After reading these three recent Supreme Court opinions,
I am left with the clear impression that the notion of resorting to
a federal rule of successor liability here, mandating it as
controlling in our Circuit without regard to state law, would not
be endorsed by the Supreme Court. The overarching theme is
that state law should not be displaced unless the particular state
45
law at issue conflicts with an important federal policy.
Noticeably absent is any reference to the majority’s guiding
theme – that of the need for uniformity. And, as I discuss more
fully below, uniformity for uniformity’s sake is not such a
policy.
The courts of appeals that have addressed this issue agree
that the Supreme Court’s recent decisions discussed above have
moved toward reliance on state law, and away from the creation
of federal common law, unless a conflict exists. In Atchison, T.
& S.F. Ry. v. Brown & Bryant, 159 F.3d 358 (9th Cir. 1997), the
Court of Appeals for the Ninth Circuit considered whether the
Supreme Court’s pronouncements on this issue in O'Melveny
and Atherton (Bestfoods had not yet been decided) were clear
enough to cause it to abandon its own previous determination in
Louisiana-Pacific Corp. v. Asarco, Inc., 909 F.2d 1260 (9th Cir.
1990) (adopting Third Circuit’s rationale in Smith Land) that the
parameters of successor liability under CERCLA should be
fashioned by federal common law in order to promote national
uniformity. The Atchison court concluded that although the
Atherton and O’Melveny opinions implicated FIRREA, and not
CERCLA, the underlying analysis was nonetheless applicable
and persuasive. 159 F.3d at 362. Thus, in concluding that the
promotion of national uniformity does not justify application of
federal common law to CERCLA, the Court effectively rejected
its previous determination in Louisiana-Pacific along with that
opinion’s underlying rationale – our own opinion in Smith Land.
Initially, the Atchison Court correctly noted that “simply
because a federal statute is involved does not always mean that
federal courts should fashion a uniform federal rule.” 159 F.3d
46at 362 (citation omitted). “Frequently, state rules of decision
will furnish an appropriate and convenient measure of the
governing federal law.” Id. The subsequent discussion merits
repeating in full:
In Louisiana-Pacific, we agreed with the Third
Circuit that CERCLA’s “‘meager legislative
history available indicates that Congress expected
the courts to develop a federal common law to
supplement the statute.’” 909 F.2d at 1263
(quoting Smith Land, 851 F.2d 86 at 91). This
legislative history consists of a discussion in
Congress that common law should govern the
issue of joint and several liability under
CERCLA. Louisiana-Pacific recognized that
Congress did not address the particular issue of
successor liability under CERCLA.
O’Melveny tells us that when dealing with a
“comprehensive and detailed” federal statutory
regulation, a court should instead presume that
matters left unaddressed in such a scheme are
subject to state law. “Congress acts . . . against
the background of the total corpus juris of the
states . . . .” Atherton, 117 S. Ct. at 670(alteration in original). The formation of
corporations and the dissolution and continuing
liability of corporations are traditional areas of
state law. As CERCLA lacks any clear directive
that federal courts develop standards for successor
47
liability, we turn to the Kimbell Foods test, as
clarified by O'Melveny and Atherton.
***
Although Louisiana-Pacific refers to the “need
for national uniformity” as a reason for
developing federal rules for successor liability,
Atherton notes that “to invoke the concept of
‘uniformity’ . . . is not to prove its need.” 117 S.
Ct. at 671; see also O'Melveny, 114 S. Ct. at 2055(recognizing how generic and “lightly invoked” is
the need for uniformity). Although often invoked
in this context, there has been no real explanation
of the need for uniformity in the particular area of
successor liability - especially since state law will
in many other instances determine whom the EPA
may or may not look to for compensation. If state
law varied widely on the issue of successor
liability, perhaps the need for a uniform federal
rule would be more apparent. This is not the case,
however, as “the law in the fifty states on
corporate dissolution and successor liability is
largely uniform.” Anspec Co. v. Johnson
Controls, Inc., 922 F.2d 1240, 1249 (6th Cir.
1991) (Kennedy, J., concurring) (holding that
state law determines successor liability under
CERCLA). The argued “need” for uniformity thus
stems not from disarray among the various states,
but from the alleged need for a more expansive
view of successor liability than state law currently
48
provides - in other words, the notion that state law
on this issue is inadequate for CERCLA’s
purposes.
But O'Melveny and Atherton also speak to this
argument. Before a court can recognize a federal
rule of decision, there must be a “‘significant
conflict between some federal policy or interest
and the use of state law.’” O'Melveny, 114 S. Ct.
at 2055 (quoting Wallis, 384 U.S. 63 at 68).
Indeed, such a conflict is a “precondition” to
fashioning federal common law rules. Atherton,
117 S. Ct. at 670. The Court’s recent cases clarify
that to demonstrate such a conflict, more than
speculation is required - there must be a “specific,
concrete federal policy or interest that is
compromised” by the application of state law.
O'Melveny, 114 S. Ct. at 2055. We therefore
doubt that the concern noted in Louisiana-Pacific
is sufficient grounds for developing a federal rule
of decision.
Atchison, 159 F.3d at 362-64 (certain internal citations and
footnotes omitted).16 The Atchison Court concluded that it
16
The majority excerpts a line of dicta from Atchison in
which the Court muses that if “state law varied widely on the
issue of successor liability, perhaps the need for a uniform
federal rule would be more apparent.” (Maj. Op. at 17.)
(continued...)
49
would not adopt the “substantial continuation” exception (which
would have expanded federal common law liability). It then
reasoned that because the same result would flow in the case
before it under either state law or federal common law, it need
not decide whether state or federal law governs successor
liability under CERCLA. Id. at 364. Despite bypassing the
question we now consider, it is abundantly clear that the Ninth
Circuit, were its hand forced, would follow the recent directives
of the Supreme Court and hold that state law should govern
successor liability under CERCLA.
Even more recently, and with the benefit of the Bestfoods
opinion, the Court of Appeals for the First Circuit, considering
16
(...continued)
However, as the more fully excerpted passage above shows, the
Court goes on to explain that this need not preoccupy it because,
first and foremost, the Supreme Court has made clear that there
must exist a significant conflict between some federal policy or
interest and the use of state law.
In disagreeing with the Atchison Court on this point, and
by citing what it views as a varied set of state laws concerning
successor liability as the jumping off point for application of a
federal rule, the majority leapfrogs over the critical inquiry –
whether there exists a conflict between Pennsylvania law and an
important federal policy or interest. Lack of uniformity itself
does not satisfy the requirement that a conflict exist – only after
a conflict has been identified does the Supreme Court direct us
to evaluate the need for a uniform rule.
50
displacement of Connecticut state law to determine successor
liability under CERCLA, did just that:
We have concluded that the majority rule is to
apply state law “so long as it is not hostile to the
federal interests animating CERCLA,” and have
applied Massachusetts contracts law to determine
an issue of successor liability. John S. Boyd Co.,
Inc. v. Boston Gas Co., 992 F.2d 401, 406 (1st
Cir. 1993). Recent Supreme Court precedent
confirms that Boyd’s approach is correct. The
Court applied state corporation law in a recent
CERCLA case involving the potential liability of
a parent corporation for its subsidiary and left
little room for the creation of a federal rule of
liability under the statute. See United States v.
Bestfoods, 524 U.S. 51, 63 (1998) (“CERCLA is
. . . like many another congressional enactment in
giving no indication that the entire corpus of state
corporation law is to be replaced simply because
a plaintiff's cause of action is based upon a federal
statute.”) (internal quotation marks omitted). The
Court’s statements in Bestfoods and O'Melveny
demonstrate that to justify the creation of a
federal rule, “there must be a specific, concrete
federal policy or interest that is compromised by
the application of state law.” Atchison, Topeka &
Santa Fe Railway Co. v. Brown & Bryant, Inc.,
159 F.3d 358, 363-64 (9th Cir. 1998) (internal
quotation marks omitted). We see no evidence
that application of state law to the facts of this
51
case would frustrate any federal objective.
Connecticut’s “mere continuation” test thus is the
correct test for determining successor liability for
the hazardous waste disposed.
United States v. Davis, 261 F.3d 1, 54 (1st Cir. 2001).
As recognized by the Atchison and Davis courts, the
Supreme Court has repeatedly emphasized that a specific and
identifiable conflict must be present before we should invoke
and apply a federal rule of decision. Here, no such conflict
exists. Absent evidence that application of Pennsylvania state
law, not the hypothetical application of the law of 49 other
states, does frustrate CERCLA’s purpose – holding liable parties
responsible for the costs associated with the clean up of
hazardous waste sites – and in the face of recent Supreme Court
opinions discouraging the creation of a federal rule of decision,
it is readily apparent that resort to any law other than
Pennsylvania’s is unnecessary and uncalled for.
I subscribe to and seek to reiterate a number of the
majority’s threshold observations, which it appears to note but
then discard: namely, that the Supreme Court has “cautioned
against the unwarranted displacement of state law” (Maj. Op. at
11) (citing O’Melveny, 512 U.S. at 87); additionally, that
“[i]ncorporation of state law is particularly favored in the area
of corporate law, because business decisions proceed in reliance
on the applicable state standards” (Id.) (citing Kamen, 111 S. Ct.
at 1722); and, finally, that absent some significant conflict arises
between a federal policy interest and the use of state law, “state
corporation law generally should be integrated into the federal
52
statutory regime.” (Id.) (citing United States v. Kimbell Foods,
Inc., 440 U.S. 715 (1979)) (other citations omitted). But, it is
not clear to me why, in the face of these guiding principles, the
majority then frames the issue before us simply as “whether
CERCLA requires a uniform federal standard of corporate
successor liability.” (Maj. Op. at 11.)
The majority’s determination that application of federal
common law is warranted here hinges on our previous terse
treatment of the issue in Smith Land & Improv. Corp. v. Celotex
Corp., 851 F.2d 86 (3d Cir. 1988) and Lansford-Coaldale Joint
Water Auth. v. Tonolli Corp., 4 F.3d 1209 (3d Cir. 1993), cases
in which the Court advanced only one animating rationale for
adopting the “general doctrine of successor liability in operation
in most states,” 851 F.2d at 92 – the need for a uniform and
predictable body of law. We did so in a few conclusory
sentences, without any meaningful discussion. Intervening
Supreme Court precedent makes clear, however, that this
rationale is no longer, if it ever was, paramount when evaluating
whether we are confronted with “one of those extraordinary
cases in which the judicial creation of a federal rule of decision
is warranted.” O'Melveny & Myers v. FDIC, 512 U.S. 79, 89
(1994). To the extent SmithLand and Lansford-Coaldale
command us to ignore in our analysis longstanding, ingrained
principles of state corporate law in favor of “that most generic
(and lightly invoked) of alleged federal interests, the interest in
uniformity,” id. at 88, those decisions should be reevaluated.
George Harms Constr. Co. v. Chao, 371 F.3d 156 , 161 (3d Cir.
2004) (“We recognize that we may reevaluate a precedent in
light of intervening authority even without en banc
consideration.”); United States v. Adams, 252 F.3d 276, 286 (3d
53
Cir. 2001) (“Although a panel of this court is bound by, and
lacks authority to overrule, a published decision of a prior panel,
a panel may reevaluate a precedent in light of intervening
authority.”) (internal quotations omitted). We must reevaluate
the exalted position that we previously afforded “uniformity” in
light of the Supreme Court’s direction that we are to employ a
different mode of analysis.17
The majority asserts that resort to federal common law is
necessary because state laws concerning successor liability are
not uniform and thus, without fashioning a federal rule of
decision, predictability will be lacking. To say that the need for
uniformity is the articulated federal policy supplying the
rationale for creating federal common law is to put the analytic
rabbit in the hat, so to speak. If uniform application is indeed
the goal, resort would never be had to state law assuming some
variation as among the different laws. Uniformity cannot be,
and has never been said to be, the single animating principle.
While it is a laudable goal, it is not one that has served as the
basis on which the Supreme Court, or any other court of appeals
to have addressed the issue, has rejected the application of state
law. Rather, as discussed above and made clear in O'Melveny
and Atherton, those courts that have considered rejecting the
application of a particular state law in favor of a federal scheme
have done so only when the state law in question clearly
conflicted with an important federal policy to be advanced. See,
17
To the extent that it could be argued that adopting this
position requires us to convene the Court en banc and overrule
prior opinions, then I would urge that we do so.
54
e.g., Kamen, 500 U.S. at 98; Boyle, 487 U.S. at 504; Texas
Industries, Inc., 451 U.S. at 641; Wallis, 384 U.S. at 68;
Sabbatino, 376 U.S. at 425; Wheeldin, 373 U.S. at 651; Lyons,
360 U.S. at 596; Standard Oil Co. of Cal., 332 U.S. at 305. See
also Redwing Carriers, Inc., v. Saraland Apartments, 94 F.3d
1489, 1501-02 (11th Cir. 1996) (holding that state law should be
adopted as the federal standard for determining whether a
limited partner may be held accountable for the CERCLA
liability of the partnership). These cases also make clear that it
is the second factor of the Kimbell Foods test18 which should
receive paramount consideration. The Supreme Court in
O’Melveny and Atherton cite to the Kimbell Foods test in direct
support of the precept that “when courts decide to fashion rules
of federal common law, ‘the guiding principle is that a
significant conflict between some federal policy or interest and
the use of state law . . . must first be specifically shown.’
Indeed, such a ‘conflict’ is normally a ‘precondition.’”
Atherton, 519 U.S. at 218 (quoting O’Melveny, 512 U.S. at 87,
and citing Kimbell Foods, 440 U.S. at 728). The Court in
18
The Kimbell Foods test details three considerations relevant
to the determination of whether federal common law or state law
should provide the rule of decision: 1) whether the nature of the
federal program requires national uniformity; 2) whether the
application of state law would frustrate specific objectives of the
federal program; and 3) whether the application of federal law
would disrupt commercial relationships predicated on state law.
See Adams v. Madison Realty & Dev., Inc., 937 F.2d 845, 856
(3d Cir. 1991) (citing Kimbell Foods, 440 U.S. at 728-29).
55
Atherton cites to Kimbell Foods an additional time, where it
explains, “To invoke the concept of ‘uniformity,’ [] is not to
prove its need.” 519 U.S. at 220 (citing Kimbell Foods, 440
U.S. at 730 (rejecting “generalized pleas for uniformity”)).
Certainly, neither opinion relies, as the majority seems to do, on
Kimbell Foods’ other espoused consideration – whether the
federal program requires uniformity, or come close to elevating
this factor to the point of deeming it a “precondition,” as has the
Court with respect to the presence of a significant conflict.19
Clearly, the required conflict does not exist here;
application of Pennsylvania law produces the desired result.
Therefore, we need not abandon Pennsylvania law, nor should
we label the rule applied today by the majority “federal.”
Accordingly, I respectfully dissent from the reasoning contained
in the majority’s opinion but concur in the resulting affirmance
of the District Court’s order.
19
Bestfoods does not even cite to Kimbell Foods.
56