Aon Environmental Services Group
By Claire Juliana of Aon Risk Solutions
Numerous cases, including a recent one from the United States District Court for the District of Maine, have made clear that corporate successors can be held liable for remediation necessitated by their predecessors’ ownership of or operations at a facility under the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601 et seq. United States of America v. ConAgra Grocery Products Company, 2014 U.S. Dist. LEXIS 32621 (D.C. Me. 2014).
In ConAgra, this particular saga of corporate successorship and environmental liability started in 1952 with the A.C. Lawrence Leather Company (“Old Lawrence”) - a leather manufacturer that owned several tanneries in the United States. Following its merger into Swift & Company (“Swift”), Old Lawrence became a division of Swift. In 1953, Swift purchased various parcels of land in South Paris, Maine, including a parcel which housed a leather tannery, and a parcel across the Little Androscoggin River that contained settling lagoons (the “Lagoons Site”). These parcels were used by other tannery operations for some time prior to Swift’s purchase. Old Lawrence built a new facility and, in 1955, began operations at the South Paris tannery. In 1973, Swift transferred Old Lawrence, including the South Paris tannery and Lagoon Sites, to Estech, Inc. (“Estech”), as part of a merger and reorganization. Estech owned Old Lawrence’s leather manufacturing business until 1976, when it sold the tannery to a group of former tannery employees (“New Lawrence”) who continued to operate the tannery and use the Lagoons Site until 1985 when it ceased operations. In 2000, the town of South Paris received a complaint regarding “green ooze” on the bank of the Little Androscoggin River near the Lagoons Site. In 2006, the government began a removal action and completed its work at the Lagoons Site in 2007. In 2011, the government filed a complaint against ConAgra as successor in interest to Swift and Estech, seeking recovery for $5.67 million in costs the government incurred in its cleanup of hazardous wastes at the Lagoons Site.
In its holding that ConAgra was liable, the District Court noted that under CERCLA, liability extends not only to the potentially responsible parties, but also to the corporate successors of those parties. In this case because of hazardous releases from the operations conducted between 1953 and 1975, Old Lawrence qualified as a potentially responsible party. The issues the court was called upon to resolve were (1) whether Estech took responsibility for all of Old Lawrence’s pre-1973 environmental liabilities in the plan of merger and reorganization; and (2) whether ConAgra was Estech’s successor for purposes of successor liability under CERCLA.
With respect to the first question, under Delaware law, the general rule for successor liability is that when a company sells or otherwise transfers all of its assets to another company, the buyer of those assets is generally not responsible for the seller’s liabilities unless one of the following exceptions applies: (1) the buyer assumes liability; (2) the “sale” is a de facto merger or consolidation; (3) the “sale” is a mere continuation of the predecessor under a different name; or (4) the sale involves fraud. The court first rejected the government’s contention that the transfer of Old Lawrence to Estech was not an asset sale but a corporate reorganization in which Swift’s liability was automatically transferred to Estech inasmuch as the government failed to provide any authority to support this position. As to whether Estech had expressly assumed the liability (the only other potentially relevant exception), the court noted that at the time of the transfer, seven years prior to the enactment of CERCLA in 1980, it would be impossible to say that the parties intended for Estech to assume Swift’s “unrealized, perhaps uncontemplated, contingent liabilities” arising from Old Lawrence. That said, the court did note that Estech did operate Old Lawrence from 1973 through 1976 and, as such, was clearly a potentially responsible party for those liabilities.
Having established the liability of Estech, the court then had to determine whether ConAgra could be held liable as Estech’s corporate successor. The court reviewed the active and often times confusing record of corporate succession of Estech over the course of the next 24 years starting with the sale of the assets of Old Lawrence by Estech to New Lawrence (which, notwithstanding the general rule, the court indicated would not have allowed Estech to divest itself of its CERCLA liabilities nor terminate them by contract terms). This corporate path included a series of acquisitions, stock transfers, and mergers through and with various Beatrice entities, throughout which Estech maintained its own corporate form. In 1991 Estech merged into a Beatrice entity (thereby transferring its liability to such entity). There followed a series of mergers through and among various other Beatrice entities, the survivor of which merged into Hunt-Wesson, which in 1999 changed its name to ConAgra Grocer Products Company. Based upon the record and because ConAgra failed to effectively dispute any of the links in this chain, the court held that that the facts established ConAgra’s status as Estech’s successor for purposes of CERCLA liability.
This case underscores the broad reach of CERCLA, which here translates into a very costly tannery cleanup obligation for ConAgra, a food conglomerate, and which is likely to be appealed. It is possible that there may be coverage for the liabilities under Old Lawrence general liability policies but that odyssey – finding insurance policies from the mid - 1970s and enforcing coverage as a predecessor, will not be without pain or cost. The lesson to distill from this case is that the reach of CERCLA is formidable and that the nature of the corporate form will not automatically protect against such liabilities. Careful attention must be paid to the drafting of contract language for such acquisitions, transfers and mergers especially as to how those liabilities, (or even “unrealized, perhaps uncontemplated, contingent liabilities”) are intended to be addressed by the contracting parties so that these liabilities do not become liabilities to an unexpected “successor”.