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Soo Line R.R. v. B.J. Carney & Co.

ELR Citation: 23 ELR 20172
Nos. No. 4-92-161, 797 F. Supp. 1472/35 ERC 1911/(D. Minn., 06/23/1992)

The court holds that the owner of a Minnesota site contaminated with hazardous substances has stated a cause of action, under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), the Minnesota Environmental Rights Act (MERA), and common law, against a dissolved corporation that leased the site, statutory trustees of the corporation, a limited partnership that continued the corporation's business, and the general and limited partners of the partnership. The court first holds that the dissolution of the corporation does not bar the site owner's action, because the corporation did not pay off or adequately provide for its debts, or notify all of its creditors of its dissolution, as required by the law of its state of incorporation. Further, the site owner has been prejudiced by the corporation's failure to comply with these requirements, because it learned of the corporation's dissolution only after the two-year period provided by state law for the survival of claims against dissolved corporations. The court notes that even if the corporation had complied with the requirements of the dissolution statute, it would be estopped from denying its existence. While the site owner expressly demanded that the corporation accept responsibility for the release of hazardous substances at the site, the corporation not only concealed the fact of its dissolution, but expressly informed the site owner that the corporation would contact it once it had compiled its records. The court notes that this communication could reasonably be interpreted as a representation that the corporation was in existence. Because the site owner's claims were brought after the survival period had expired and could therefore not be brought against the corporation, the site owner clearly suffered prejudice. Also, estopping the corporation would further the purposes of the state dissolution statute. The court further holds that it would be premature to dismiss the site owner's claims against the corporation's statutory trustees in light of the conclusion that the corporation and its trustees failed to comply with the state dissolution statute.

The court next refuses to dismiss claims against the limited partnership based on the theory that it expressly or impliedly assumed the corporation's debts, because this is a question of fact. The court holds that the site owner adequately pleaded a claim against the limited partnership under the de facto merger theory of successor liability. The site owner alleges that the corporation's capital, which consisted entirely of stock, was exchanged for partnership interests in the limited partnership. Also, the corporation dissolved less than two months after the partnership was formed, and the site owner alleges that the limited partnership carried on the corporation's business under almost identical management and ownership. Additionally, the complaint alleges that the limited partnership assumed the corporation's liabilities. Furthermore, the defendants do not claim that they were prejudiced because of the complaint's lack of particularity. The court also holds that the site owner successfully pleaded a claim under the mere continuity theory, because the complaint alleges that all of the corporation's shareholders became partners in the limited partnership and the limited partnership had the same management as the corporation. Finally, the court holds that the site owner may maintain an action against the limited partnership as a distributee of the corporation's assets, because the site owner did not receive notice of the corporation's dissolution, even though it notified the corporation of its claims before the expiration of the statutory survival period.

The court holds that the site owner has stated valid claims against one of the corporation's former presidents and testamentary trusts that are general partners of the limited partnership. Property received by inheritance is not automatically excluded from CERCLA liability. Although applicable state probate law provides that persons with claims against a deceased must file their claims within 90 days after the mailing of notice of probate and the site owner asserted its claims more than 90 days after such mailing, CERCLA preempts this state law. The court holds that the site owner has a cause of action for joint and several liability against the general and limited partners unless and until the defendants show that the harm is divisible. CERCLA imposes joint and several liability on responsible persons except where they can show that the harm is divisible. The court holds that the site owner has properly pleaded a claim under MERA, because the complaint alleges that the defendants' activities have caused hazardous substances to be released that will continue to contaminate the soil and groundwater at the site. The court holds that the site owner's common-law claims are not barred by state statutes of limitations. Federal law essentially preempts state statutes of limitations if the state-law claims are based on exposure to hazardous substances released into the environment and the applicable limitations period provides for an earlier commencement date than federal law. CERCLA effectively creates a federally mandated discovery rule for the accrual of state-law claims involving releases of hazardous substances that cause or contribute to personal injury or property damage. The site owner alleges that it had no notice of its damages until October 1988, well within the applicable limitations period.

The court holds that the site owner has properly pleaded breach of contract and negligence claims, because it alleges that the corporation breached its lease agreement by failing to maintain the premises in clean condition and its duty to exercise reasonable care by discharging hazardous wastes on the site. The court further holds that the site owner has stated claims for strict liability, trespass, and nuisance, because the complaint alleges damage to property owned by the plaintiff that is adjacent to the contaminated site, which was the only issue relating to these claims that the defendants disputed. Finally, the court holds that the site owner has stated causes of action for contribution and indemnity, because the site owner has properly pleaded several claims against each of the defendants.

Counsel for Plaintiff
Wayne G. Popham, Thomas W. MacLeod
Popham, Haik, Schnobrich & Kaufman
3300 Piper Jaffray Tower
222 S. 9th St., Minneapolis MN 55402
(612) 333-4800

Counsel for Defendants
Delmar R. Ehrich, Douglas A. Holmberg
Faegre & Benson
2200 Norwest Ctr., 90 S. 7th St., Minneapolis MN 55402
(612) 336-3000

MacLAUGHLIN, Chief Judge