Waste Management of Wisconsin, Inc. v. Uniroyal, Inc.

No. 91-C-1020-S (W.D. Wis. June 2, 1992)

The court holds that it has personal jurisdiction in a private response cost recovery action under § 107 of the Comprehensive Environmental Response, Compensation, and Liability Act (CER-CLA) over corporations succeeding to the assets and liabilities of a tire company that operated a plastics manufacturing plant in Wisconsin, and denies motions by two successor corporations to dismiss the complaint of plaintiff waste management company for failure to state a claim. The court holds that it has personal jurisdiction over the successor corporations under Wisconsin's long-arm statute, because this action claims injury to property within Wisconsin, arising out of an act or omission within Wisconsin by the successor corporations. The successor corporations assumed all responsibility for the liabilities incurred by the tire company for generating and disposing of materials containing hazardous substances that were released into the environment at the two hazardous waste sites cleaned up by the waste management company. Further, the transfer of assets, merger, and reorganization between the tire company and the successor corporations infers responsibility for those liabilities incurred in Wisconsin. This also appears to be an action that arises out of a claim to recover any benefit derived by a successor defendant through its use, ownership, control, or possession of the tire company's tangible property situated within Wisconsin either at the time of the first use, ownership, control, or possession or at the time the action is commenced. Or, it is an action that arises out of a claim that the successor corporations return, restore, or account to the waste management company for any asset or thing of value that was within the state at the time the successor corporations acquired possession or control over it.

The court further holds that the successor corporations have sufficient contacts within Wisconsin to satisfy the due process requirements of the Fourteenth Amendment. The cause of action arose from the successor corporations' contacts within Wisconsin, where the tire company, as far back as 1955, generated liquid waste products. Also, the successor corporations through an intricate system of mergers, organizations, and reorganizations acceded to the assets and liabilities of the tire company, based on conduct that included Wisconsin contacts. It does not offend traditional notions of fair play and substantial justice to bring the successor corporations into this forum where they properly availed themselves of the privilege of conducting business, since they could reasonably anticipate being haled into court in Wisconsin.

[23 ELR 20115]

The court holds that a successor corporation that filed a certificate of dissolution and is having its affairs wound up may be sued in this action, because allowing dissolved corporations to escape liability would be inconsistent with the retroactivity of CERCLA where their affairs remain pending. The court holds that another successor corporation, which has been dissolved and had all its assets distributed, also may be sued.

Counsel for Plaintiff
Robin R. Lunn
Keck, Mahin & Cate
8300 Sears Tower, 233 S. Wacker Dr., Chicago IL 60606
(312) 876-3400

Counsel for Defendants
Gary M. Young
Stafford, Rosenbaum, Rieser & Hansen
Three S. Pinckney St., Ste. 1000
P.O. Box 1784, Madison WI 53701
(608) 256-0226

Shabaz, J.:

Order

This is an action commenced by the plaintiff Waste Management of Wisconsin, Inc., a Wisconsin corporation located in Madison, Wisconsin, against the named defendants under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendment and Reauthorization Act of 1986, 42 U.S.C. § 9601 et seq. ("CERCLA") for past and future costs of response at two Superfund sites located near Stoughton, Wisconsin. Counts I and II of the complaint assert CERCLA claims against defendant Uniroyal, Inc. for the cleanup of the Hagen Farm site and the City Disposal Corporation Landfill site. Counts III and IV allege CERCLA claims against the other defendants, Uniroyal Holding, Inc., CDU Holding, Inc., and Alan R. Elton, Joseph P. Flannery, John R. Graham and Joseph L. Rice, III, as Trustees of CDU Holding, Inc., Liquidating Trust, as successors to Uniroyal, Inc. Waste Management seeks the costs of response and damages incurred to date and a declaration of defendants' liability concerning future costs of response.

Waste Management of Wisconsin, Inc. ("Waste Management") is a Wisconsin corporation with its principal place of business in Madison, Wisconsin. Waste Management was formerly known as City Disposal Corporation.

Uniroyal, Inc. ("Uniroyal") is a New Jersey corporation for which a Certificate of Dissolution was filed on December 2, 1986. Uniroyal was formerly known as United States Rubber Company ("U.S. Rubber").

Uniroyal Holding, Inc. ("Uniroyal Holding") is a New Jersey corporation with its principal place of business in Waterbury, Connecticut.

CDU Holding, Inc. ("CDU Holding") is a Delaware corporation for which a Certificate of Dissolution was filed on December 2, 1986.

Alan R. Elton, Joseph P. Flannery, John R. Graham and Joseph L. Rice, III (the "Trustees") are Trustees of CDU Holding, Inc. Liquidating Trust, a trust created pursuant to the laws of Delaware with its principal place of business in Waterbury, Connecticut.

This Court has jurisdiction over the subject matter of this action pursuant to 28 U.S.C. § 1331 and more particularly under § 113(b) of CERCLA, 42 U.S.C. § 9613(b).

The defendants move pursuant to Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure for an order dismissing the plaintiff's complaint in its entirety. Their memorandum in support particularizes said motion as follows:

1. To dismiss counts I and II of the Complaint against defendant Uniroyal, Inc. ("Uniroyal") for failure to state a claim upon which relief can be granted.

2. To dismiss counts III and IV of the Complaint against the defendants Uniroyal Holding, Inc. ("Uniroyal Holding"), CDU Holding, Inc. ("CDU Holding") and the Trustees of CDU Holding, Inc., Liquidating Trust ("the Liquidating Trust" for lack of personal jurisdiction.

3. To dismiss defendant CDU Holding for failure to state a claim upon which relief can be granted.

In first addressing defendants' motion for lack of personal jurisdiction over the nonresident defendants Uniroyal Holding, CDU Holding and the Liquidating Trust it is recognized that the burden of proof rests upon the party asserting the existence of jurisdiction. Affidavits not having been filed and few apparent factual conflicts having been suggested in the memoranda submitted, this Court accepts the validity of plaintiff's allegations. The jurisdictional facts appear from the complaint and are accepted by the Court for purposes of these motions as follows:

Commencing in 1955 U.S. Rubber owned and operated a plant at Stoughton, Wisconsin (the "Plant"), which was principally involved in the manufacture of a coated plastic material used in products such as auto seat covers.

The production process at the Plant involved the use of solvents and other chemicals. Liquid waste products were generated by the process which consisted of spent solvents and solvent sludge. The production process also generated dry waste scrap such as paper products and rejected plastic-coated materials.

Uniroyal and plaintiff have been identified by the United States Environmental Protection Agency ("USEPA") as responsible parties, pursuant to Section 107 of CERCLA with respect to costs associated with the investigation and cleanup of the Hagen Farm and City Disposal Corporation Landfill, the two sites included in this action.

In 1985, as part of a leveraged buy-out of the company and a reorganization of its business, Uniroyal transferred a portion of its business previously conducted by its Engineered Products Division to Uniroyal Plastics Company, Inc. ("UPC"), a wholly-owned subsidiary. This transfer included the assets and liabilities associated with the Stoughton plant. Thereafter, UPC held itself out to both plaintiff and USEPA as having assumed Uniroyal's liabilities with respect to the Hagen Farm and City Disposal Corporation sites.

In 1987 plaintiff entered into Administrative Orders on Consent with USEPA agreeing to conduct a Remedial Investigation and Feasibility Study ("RI/FS") at each of the sites.

CERCLA § 107 (42 U.S.C. § 9607) provides in pertinent part:

(a) . . . Notwithstanding any other provision or rule of law, and subject only to the defenses set forth in subsection (b) of this section —

* * *

(2) any person who at the time of disposal of any hazardous substance owned or operated any facility at which such hazardous substances were disposed of,

(3) any person who by contract, agreement or otherwise arranged for disposal or treatment, or arranged with a transporter for transport for disposal or treatment, of hazardous substances owned or possessed by such person, by any other party or entity, at any facility or incineration vessel owned or operated by another party or entity and containing such hazardous substances, and

(4) any person who accepts or accepted any hazardous substances for transport to disposal or treatment facilities, incineration vessels or sites selected by such person, from which there is a release, or a threatened release which causes the incurrence of response costs, of a hazardous substance, shall be liable for —

(A) all costs of removal or remedial action incurred by the United States Government or a State or an Indian tribe not inconsistent with the national contingency plan;

(B) any other necessary costs of response incurred by any other person consistent with the national contingency plan;

The Hagen Farm site and the City Disposal site are "facilities" within the meaning of Section 107 and there have been "releases" or "threatened releases" of "hazardous substances" from these sites into the environment within the meaning of Section 107 causing plaintiff to incur and will incur response costs as defined in Section 107.

Plaintiff is a "person" entitled to recover its aforementioned response costs under § 107(a)(4)(B).

Uniroyal "owned or operated" the Hagen facility at the time of disposal of hazardous substances within the meaning of § 107(a)(2).

Uniroyal "arranged for disposal" of hazardous substances at both [23 ELR 20116] the facilities within the meaning of § 107(a)(3), which caused damage to plaintiff.

In the Spring of 1985 Clayton & Dubilier, Inc. ("C&D"), an investment firm specializing in leveraged buy-out transactions, negotiated an agreement with the management of Uniroyal, whereby Uniroyal, at that time a public company, would be taken private in a transaction organized by C&D. The agreement contemplated that C&D and investors affiliated with C&D would make a modest investment of capital in Uniroyal which would be used, together with large borrowings by Uniroyal and secured by its assets, to buy the company from the public. Uniroyal management would be given a large stake in the resulting private company. This agreement was approved by Uniroyal's Board of Directors on May 6, 1985 and by Uniroyal's stockholders on September 23, 1985. At all times relevant hereto Martin H. Dubilier and Joseph L. Rice, III, were the sold directors and stockholders of C&D.

As a vehicle for this transaction C&D incorporated CDU Holding in Delaware. CDU Acquisition, Inc. ("CDU Acquisition"), which was a wholly owned subsidiary of CDU Holding, was incorporated in New Jersey.

The stock in CDU Holding was held as follows: 32.5% by Clayton & Dubilier Private Equity Fund Limited Partnership; 10% by Drexel Burnham Lambert Incorporated or its affiliates; 35% by other investors; and, 22.5% by Uniroyal management. The Uniroyal management group and their respective interests were as follows: Joseph P. Flannery, Chairman of the Board, Chief Executive Officer and President of Uniroyal, 4.9%; Sheldon R. Salzman, Group Vice President of Uniroyal, 2.3%; Robert Alvine, Group Vice President of Uniroyal, 1.7%; Alan R. Elton, Vice President and General Counsel of Uniroyal, 1%; and other Uniroyal executives as a group, 12.6%.

By Certificate of Merger filed September 24, 1985 CDU Acquisition and Uniroyal were merged, with Uniroyal being the surviving company. As part of the merger the then-existing outstanding stock of Uniroyal was converted into a right to receive a cash payment from Uniroyal, and Uniroyal became a wholly-owned subsidiary of CDU Holding.

CDU Holding had no business or function except for its ownership of Uniroyal.

CDU Holding was controlled by the same individuals who managed Uniroyal, principally Messrs. Dubilier, Rice and Flannery.

Messrs. Dubilier, Rice, and Flannery, who controlled CDU Holding, also controlled Uniroyal as the members of the Executive Committee of Uniroyal Board of Directors from the time of the merger until Uniroyal was dissolved.

After the merger was complete C&D and Uniroyal management embarked upon a plan, conceived and directed by Messrs. Dubilier, Rice and Flannery, to liquidate Uniroyal, cut off claims by Uniroyal's creditors and pay the bulk of the proceeds of the liquidation to themselves.

At the same stockholders' meeting at which the leveraged buy-out transaction was approved, the stockholders approved a restructuring of Uniroyal. Uniroyal's businesses which had theretofore been conducted by divisions were put into five separate subsidiaries. The subsidiaries received the assets of a particular business and assumed the liabilities which Uniroyal deemed were associated with those assets. Among the subsidiaries thus created was UPC, which among other things assumed Uniroyal's liabilities associated with the Hagen Farm and City Disposal Corporation sites. UPC accounted for approximately 12% of Uniroyal's sales.

The largest of the operating subsidiaries created was Uniroyal Tire Company, Inc. ("Uniroyal Tire"), the stock in which was transferred by Uniroyal to another newly-created subsidiary, Uniroyal Holding, Inc., after which Uniroyal's assets consisted primarily of its stock in Uniroyal Holding which owned the tire operations.

On December 2, 1986 the owners, directors and officers of Uniroyal and CDU Holding caused certificates of dissolution to be filed for both corporations.

On or about December 2, 1986 the principal remaining asset of Uniroyal, its 15 million shares of Uniroyal Holding, was apparently distributed to the shareholders of the dissolved CDU Holding in direct proportion to their ownership in CDU Holding.

Upon the dissolution of Uniroyal and CDU Holding certain Uniroyal assets, which apparently were earmarked to satisfy some of Uniroyal's pension obligations and transferred to CDU Holding Liquidating Trust. The Trustees have been and are in the process of winding up certain of the affairs of Uniroyal and CDU Holding. The Trustees are all former officers or directors of Uniroyal. Mr. Dubilier was a Trustee until he died. (Emphasis added.)

Uniroyal Holding is a successor to Uniroyal and may be liable to plaintiff under § 107 of CERCLA for the response costs incurred by plaintiff with respect to both sites to date and those that it will incur in the future.

CDU Holding is a successor to Uniroyal and may be liable to plaintiff under § 107 of CERCLA for the response costs incurred by plaintiff with respect to both sites to date and those that it will incur in the future.

CDU Holding, Inc. Liquidating Trust is a successor to Uniroyal and may be liable to plaintiff under § 107 of CERCLA for the response costs incurred by plaintiff with respect to both sites to date and those that it will incur in the future.

Memorandum

The plaintiff Waste Management at Counts III and IV of its complaint seeks to hold the defendants Uniroyal Holding, CDU Holding and the Trustees liable for its costs of response and damages incurred to date, together with its future costs of response as to both the Hagen Farm site and the City Disposal Corporation land fill site as successors to the defendant Uniroyal. Successor corporate liability under CERCLA § 107 has been extensively discussed in several decisions. United States v. Distler, 741 F. Supp. 643 [20 ELR 20942] (W.D. Ky. 1990), Levin Metals v. Parr-Richmond Terminal Co., 817 F.2d 1448 [17 ELR 20737] (9th Cir. 1987), and United States v. Sharon Steel Corp., 681 F. Supp. 1492 [18 ELR 20242] (D. Utah 1987), to name but three. Only defendant CDU Holding, however, opposes successor status in this case. Accordingly, the first issue is to determine whether the successor corporations are subject to the personal jurisdiction of this Court.

Congress under CERCLA has expressly provided for nationwide service of process by the United States but did not so provide for private causes of action, nor can it be implied. It would appear that Congress knows how to authorize nationwide service of process when it wants to so provide. That Congress failed to do so here argues forcefully that such authorization was not its intention. Omni Capital Int'l v. Rudolf Wolff & Co., 484 U.S. 97, 106 (1987).

As the parties apparently agree, Rule 4(e), Federal Rules of Civil Procedure, governs service on out-of-state defendants. It requires that service be made according to the method specified in a federal statute upon which plaintiff's claim is predicated or, if no method is specified, service must be made in accordance with state law. Since the relevant federal statute, 42 U.S.C. § 9601 et seq., specifies no method for serving process, service must comply with Wisconsin law. An examination of those allegations of the complaint to which the Court has previously referred provides sufficient contacts by said defendants with the State of Wisconsin to establish jurisdiction over them as successor corporations.

In its complaint the plaintiff alleges among other things that Uniroyal, Inc. filed its certificate of dissolution in New Jersey on December 2, 1986, and CDU Holding filed its certificate of dissolution in Delaware on December 2, 1986. After the merger Uniroyal had no genuine separate existence from CDU Holding which had no business or function except for its ownership of Uniroyal. Further, CDU Holding was controlled by the same persons who managed Uniroyal. The stock in Uniroyal Tire was transferred to another newly created subsidiary, Uniroyal Holding, Inc. and the shareholders of Uniroyal Holding were then the same as those of Uniroyal. Upon dissolution of Uniroyal and CDU Holding certain Uniroyal assets were transferred to CDU Holding Liquidating Trust and the Trustees are presently in the process of winding up certain of the affairs of Uniroyal and CDU Holding. The plaintiff has sufficiently alleged that CDU Holding, Uniroyal Holding and Liquidating Trust as successor corporations in interest to Uniroyal are subject to the personal jurisdiction of this Court even though no specific reference has been made to the provisions of § 801.05, Wis. Stat., the Wisconsin long arm statute.

From the pertinent allegations of the complaint referred to above the Court can readily determine that § 801.05(3) has been satisfied. [23 ELR 20117] This is an action claiming injury to property within Wisconsin arising out of an act or omission within Wisconsin by the successor defendant corporations. An examination of Mesiti v. Microdot, Inc., 739 F. Supp. 57 (D.N.H. 1990), suggests similarities between the two actions. Here the successor defendants assumed all responsibility for the liabilities incurred by the defendant Uniroyal, Inc. for generating and disposing of materials containing hazardous substances which were released into the environment at the two sites. The transfer of assets, merger and reorganization between the defendant Uniroyal and all successor corporations infers responsibility for those liabilities incurred in Wisconsin. Plaintiff has adequately demonstrated that the successor defendants, Uniroyal Holding, CDU Holding and the Trustees, may be responsible for a tort commenced in Wisconsin. The application of the Wisconsin long arm statute permits this Court to exercise jurisdiction over the successor defendants. Mesiti, at page 60, applying New Hampshire law.

This also appears to be an action which arises out of a claim to recover any benefit derived by a successor defendant through its use, ownership, control or possession of defendant Uniroyal's tangible property situated within this state either at the time of the first use, ownership, control or possession or at the time the action is commenced, § 801.05(6)(b), or a claim that said defendants return, restore, or account to the plaintiff for any asset or thing of value which was within this state at the time the defendants acquired possession or control over it, § 801.05(6)(c).

In any event, the Wisconsin long arm statute having been satisfied, the only remaining inquiry is whether plaintiff has shown that the defendants' contacts with Wisconsin satisfy due process concerns mandated by the Fourteenth Amendment of the United States Constitution.

A state's power to exercise personal jurisdiction over nonresident defendants is limited by the due process clause of the Fourteenth Amendment to the United States Constitution. This Court is satisfied that the successor defendants have minimum contacts with Wisconsin. The cause of action arose from the defendants' contacts within the forum state, Wisconsin, where defendant Uniroyal, as far back as 1955, generated liquid waste products at two Wisconsin sites which were both placed on the national priorities list pursuant to § 105(a)(b) of CERCLA. The successor defendants through an intricate system of mergers, organizations and reorganizations acceded to the assets and liabilities of Uniroyal based upon their conduct which included Wisconsin contacts. It certainly does not offend traditional notions of fair play and substantial justice to bring the successor defendants into this forum where they properly availed themselves of the privilege of conducting business within Wisconsin. The successor defendants could reasonably anticipate being haled into court in Wisconsin because of their previous activities.

Accordingly, the motion to dismiss for lack of personal jurisdiction will be denied.

The defendant CDU Holding next moves for dismissal of Counts III and IV for failure to state a claim upon which relief can be granted, but more specifically upon Rule 17(b), where the capacity of a corporation to sue or be sued shall be determined by the laws under which it was organized.

Although CDU, a Delaware corporation, filed its certificate of dissolution on December 2, 1986, this does not require that its motion to dismiss be granted, particularly where paragraph 64 of the complaint has also been accepted by the Court as true for the purpose of this motion. Certain Uniroyal assets were transferred to CDU Holding Liquidating Trust, and as the parties recognize, the Trustees have been and are in the process of winding up certain of the affairs of Uniroyal and CDU Holding.

Although the defendant CDU Holding cites the decision in Levin Metals where under California corporate law the defendant no longer had the capacity to be sued, this Court believes that Sharon Steel is a sound approach, particularly where as a result of the activities of the Trustees of CDU Holding, Inc. Liquidating Trust, the defendant CDU Holding, Inc. although dissolved, continues to remain alive and well. Even without accepting the propositions that CERCLA's liability provisions preempt state dissolution proceedings; that CERCLA is a broad remedial statute requiring a state corporate code to yield; and that application of state law would frustrate uniform application of CERCLA provisions, allowing dissolved corporations to escape liability would be inconsistent with the retroactivity of CERCLA where their affairs remain pending. This Court is of the opinion that CDU's successor remains active and does not allow a dismissal of CDU Holding, without even considering that fraudulent activity which has also been alleged.

Finally, the defendant Uniroyal has also sought dismissal for failure to state a claim upon which relief can be granted, contending that CERCLA does not impose liability on a dissolved corporation which has distributed all its assets. As with the prior motion, Sharon Steel is the sound approach when determining whether a dissolved corporation should be dismissed where a liquidating trust to which its assets and liabilities have been explicitly and impliedly assigned continues to operate. The finishing touches are still being provided by Uniroyal's successor. Nor is Distler applicable. Not only because the circumstances are not similar, as indicated in the CDU Holding ruling, but even if they were, it does not represent a decision which could be successfully advanced on appeal for the reasoning of Sharon Steel. Accordingly, the motions of CDU Holding and Uniroyal will also be denied.

Order

IT IS ORDERED that the defendants' motions to dismiss are DENIED.