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North Shore Gas Co. v. Salomon, Inc.

ELR Citation: 28 ELR 21500
Nos. 97-2485, 152 F.3d 642/47 ERC 1001/(7th Cir,, 08/05/1998) Aff'd in part, rev'd in part, and remanded

The court holds that the equitable doctrine of successor liability applies under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). In 1941, a coke company sold its interest in a mineral processing company to a utility company and transferred the majority of its remaining assets to a gas company. Decades later, when a new owner of the mineral processing company sought contribution for response costs incurred at the processor's facility, it found that the coke company and the utility company had been dissolved. The new owner, therefore, seeks contribution from the gas company. The court first holds that the district court did noterr when it denied the new owner's motion to dismiss the gas company's action seeking a declaration that it was not liable for remediation costs associated with the facility.

The court then holds that Congress intended the equitable doctrine of successor liability to apply under CERCLA. There is no concern about punishing the successor for the act of the predecessor; CERCLA is a remedial measure that is aimed only at correcting environmentally dangerous conditions. And holding the successor corporation liable for the cost of cleanup is not necessarily unfair because the successor and its shareholders likely will have derived some benefit from the predecessor's use of the pollutant and the savings that resulted from the hazardous disposal methods. The court notes, however, that while CERCLA permits successor liability, it does not require it unless justified by the facts of each case.

The court next holds that the gas company succeeded to the direct CERCLA liabilities of the coke company, assuming that the coke company incurred CERCLA liability as an operator of the facility. Although the gas company did not agree to assume the coke company's direct CERCLA liabilities, the court relies on both the rationale for the de facto merger exception and on the underlying basis of the mere continuation exception. In the context of CERCLA and a reorganization under the Public Utility Holding Company Act of 1935, the policy of the de facto merger exception must find application in this case. The 1941 reorganization plan submitted by the gas and coke companies to the Securities Exchange Commission to comply with the Holding Company Act strongly resembles a de facto merger. After the 1941 plan, the gas and coke companies became a vertically integrated public utility system in form as well as in fact, with the gas company continuing all of the coke company's utility-related operations. If the court were to hold that there were no de facto merger and that hence the gas company could not succeed to the coke company's direct liabilities, the coke company would essentially circumvent CERCLA's prohibition on the transfer of direct liability. Continuity of ownership and control is the linchpin of the court's conclusion that the coke company merely continued on in the gas company after implementation of the 1941 plan. Although there was some variation between the officers and directors of the gas and coke companies after 1941, the essential character was the same. Furthermore, there was identity of stock after the sale of the assets, and there was only one corporation after the purchase of assets. On remand, the district court will have to determine whether the coke company incurred direct CERCLA liability from its activities relating to the facility.

[The district court decision in this litigation is published at 27 ELR 21254.]

Counsel for Plaintiff
Lawrence H. Silverman
Seidman, Silverman & Seidman
600 Third Ave., New York NY 10016
(212) 922-1900

Counsel for Defendant
Richard J. Kissel
Gardner, Carton & Douglas
Quaker Tower
321 N. Clark St., Ste. 3400, Chicago IL 60610
(312) 644-3000

Before Cummings and Kanne, JJ.