Ninth Ave. Remedial Group v. Allis-Chalmers Corp.

ORDER

This matter is before the Court on Defendant Clark Refining & Marketing Inc.’s Motion to Dismiss or, Alternatively, for Summary Judgment, filed February 6, 1995; Defendant Clark Refining & Marketing, Inc.’s Motion to Dismiss or, Alternatively, for Summary Judgment Against Crossclaim of Defendant Barber-Greene Company, filed June 14, 1995; and Defendant Clark Refining & Marketing, Inc.’s Motion to Dismiss or, Alternatively, for Summary Judgment Against Crossclaim of Defendant Commander Packaging Corporation, filed August 1, 1995. Plaintiffs, the Ninth Avenue Remedial Group and its members (collectively “Ninth Avenue Group”), and Defendant/Cross-Plaintiff Barber-Greene Compa *720 ny filed responses to the motions. For the reasons set forth below, the motions are DENIED.

BACKGROUND

This case concerns the Ninth Avenue Dump Superfund site in Gary, Indiana. The site, which operated as a chemical and industrial waste disposal facility during the 1970’s, has been contaminated by releases or threatened releases of the hazardous substances dumped there. Plaintiff, Ninth Avenue Remedial Group, has conducted and is conducting cleanup activities at the Ninth Avenue site under the approval of the Environmental Protection Agency (“EPA”).

The Ninth Avenue Remedial Group is an unincorporated voluntary association of corporations which its members created to take collective actions relating to the site. All of its members, who are also Plaintiffs in this action, have been named in orders issued by the EPA instructing them to undertake the cleanup of the site. The Group and its members now sue several Defendants under the Comprehensive Environmental Response Compensation and Liability Act of 1980 as amended (“CERCLA”), 42 U.S.C. §§ 9607 and 9613, for contributions to the cleanup costs which amount to over $20 million.

In their complaint, Plaintiffs allege that Defendants, including Clark Refining & Marketing, Inc. (“Clark”), are “covered persons” as defined by CERCLA, 42 U.S.C. § 9607(a)(3), and that EPA has identified many of the Defendants as potentially responsible parties (“PRP’s”) within the meaning of the Act in one or more of its orders relating to the site. Specifically, Plaintiffs allege that each Defendant “by contract, agreement or otherwise, arranged (or is the successor in interest of an entity that arranged) for the disposal or treatment at the Site, or arranged with a transporter for the disposal or treatment at the Site of hazardous substances.” Compl. ¶8. See CERC-LA, 42 U.S.C. § 9607(a)(3). The Ninth Avenue Group claims that Defendants are strictly, jointly and severally liable for all past and future response costs associated with the site.

According to Clark, Apex Oil Company (“Apex”) purchased Clark Oil & Refining Corporation (“Old Clark”) in 1981. In December of 1987, Apex and its subsidiaries, including Old Clark, sought protection from creditors under Chapter 11 of the Bankruptcy Code. After a period of negotiations, the Horsham Corporation, through its subsidiary, AOC Acquisition Corporation, agreed to purchase certain assets of Apex and its subsidiaries, including many of Old Clark’s facilities. AOC Acquisition later changed its name to Clark Refining & Marketing, Inc., now a Defendant in this action.

The asset purchase agreement between Apex and AOC/Clark provided that Clark would not assume any liability for claims arising from the operation of Old Clark’s facilities prior to the sale. In particular, the agreement excluded assumption of liability for environmental claims:

[AOC/Clark] shall assume no liabilities, claims, commitments or obligations of any Seller, disclosed or undisclosed, except as expressly assumed by the purchaser pursuant to [the purchase agreement]. [Apex and its subsidiaries] shall remain liable, except as may be disallowed or discharged in the Bankruptcy Case or otherwise affected by any plan or plans of reorganization confirmed in the Bankruptcy Case, for each and every obligation or liability of such Seller, whether or not related to the Purchased Assets or Seller’s Business Sold other than the assumed liabilities ... including ... (ii) any liability (other than Assumed Liabilities) for any and all claims, demands, causes of actions, proceedings, and/or suits, damages, losses (of any kind, including actual, compensatory and punitive), including the cost of correcting or compensation for injuries of any kind, including those to persons, property, the environment, or natural resources[], and for fines, interest, penalties, losses, and other costs of any kind, including court costs, engineering costs, and attorneys fees[], under any Applicable Law (“Environmental Claims”), relating to protection of health, safety or the environment or imposing liability or standards of conduct concerning any hazardous or nonhazardous material, waste or substance (including any Environmental Law) which *721 are commenced against or are incurred by Purchaser and arise out of or relate to ownership, business, occupation, use, maintenance or operation of the Purchased Assets of Seller’s Business Sold prior to the Closing Date by any Seller or any Subsidiary or Affiliate of any Seller.

(Defendant’s Exhibit 3 — Asset Purchase Agreement § 2.3)

In November 1988 the bankruptcy court approved the agreement for the sale of assets to AOC/Clark “free and clear of all liens, claims, taxes, encumbrances, obligations, contractual commitments, and interests,” pursuant to 7 U.S.C. § 363(f). In re Apex Oil Co., 92 B.R. 847 (Bankr.E.D.Mo.1988) (order approving sale of assets to AOC/Clark). In addition, the order provided that “the rights of creditors and other parties in interest asserting a lien or other interest against the Purchased Assets shall attach to the Purchase Price; ... liens and interests against the Purchased Assets shall be of no further force and effect.” Id. Two years later, in August 1990, the bankruptcy court entered an order confirming the Chapter 11 reorganization plan for Apex and its subsidiaries. The order discharged the debtors of any claims arising prior to the confirmation order. In re Apex Oil Co., 118 B.R. 683, 713 (Bankr.E.D.Mo.1990).

DISCUSSION

Standard of Review

When deciding a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) the court must assume the truth of plaintiffs well-pleaded allegations and make all possible inferences in plaintiffs favor. Albright v. Oliver, 510 U.S. 266, -, 114 S.Ct. 807, 810, 127 L.Ed.2d 114 (1994); Prince v. Rescorp Realty, 940 F.2d 1104, 1106 (7th Cir.1991); Janowsky v. U.S., 913 F.2d 393, 395 (7th Cir.1990). The court should not dismiss the complaint “unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.” Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957); Prince, 940 F.2d at 1106.

If the court considers matters outside the pleadings when deciding a Federal Rule of Civil Procedure 12(b)(6) motion to dismiss, the court should treat the motion as one for summary judgment. Fed.R.Civ.P. 12(b). As Clark explains in its reply, however, the Court could consider some of the documents introduced by Clark with the motion without converting the motion to dismiss into a motion for summary judgment. Courts can take judicial notice of matters of public record without converting a motion to dismiss into a motion for summary judgment. Henson v. C.S.C. Credit Services, 29 F.3d 280, 284 (7th Cir.1994). In United States v. Wood, 925 F.2d 1580,1582 (7th Cir.1991), for example, the court considered the ease file of prior bankruptcy proceedings involving one of the parties. The language of the cases cited above and others cited by Defendant do not mandate the courts to consider matters of public records when deciding motions to dismiss; the eases simply state that the courts may consider the documents if appropriate.

Most of the documents submitted by Clark are orders from the Bankruptcy Court of the Eastern District of Missouri where Apex and Old Clark filed for bankruptcy. Clearly, this' Court could consider the previous orders of another federal court when deciding a motion to dismiss. Clark also included several self-authenticated certificates of incorporation which are official public records. However, Clark includes other documents, such as an affidavit and an asset purchase agreement, which the Court will consider only under summary judgment. Because not all the documents submitted by Defendant qualify for judicial notice, the Court only will look at the pleadings when deciding the motion to dismiss. The Court will apply the summary judgment standard when considering the documents submitted by Defendant.

When deciding a motion to dismiss under summary judgment standards, granting summary judgment is proper only if the movant demonstrates that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. See Nebraska v. Wyoming and Colorado, 507 U.S. 584, 113 S.Ct. 1689, 1694, 123 L.Ed.2d 317 (1993); Celotex Corp. v. Catrett, 477 U.S. *722 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). In other words, the record must reveal that no reasonable jury could find for the nonmovant. Karazanos v. Navistar Int’l Transp. Corp., 948 F.2d 332, 335 (7th Cir.1991); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986). In deciding the motion, a court must read all facts in the light most favorable to the nonmoving party. Anderson, 477 U.S. at 255,106 S.Ct. at 2513-14; Nucor Corp. v. Aceros Y Maquilas De Occidente, 28 F.3d 572, 583 (7th Cir.1994).

If, through the documents included with the motion, the moving party demonstrates an absence of a genuine issue of material fact, the nonmovant may not rest upon mere allegations but “must set forth specific facts showing that there is a genuine issue for trial.” Fed.R.Civ.P. 56(e); Becker v. Tenenbaum-Hill Assoc., Inc., 914 F.2d 107, 110 (7th Cir.1990); Schroeder v. Lufthansa German Airlines, 875 F.2d 613, 620 (7th Cir.1989). “Only disputes over facts that might affect the outcome of the suit under governing law will properly preclude the entry of summary judgment.” Anderson, 477 U.S. at 248, 106 S.Ct. at 2510.

Rule 12(b)(6) requires that the Court give the parties a reasonable opportunity to present all pertinent materials before treating a motion to dismiss as one for summary judgment. However, Plaintiffs and Cross-Plaintiffs (collectively “Plaintiffs”) cannot claim surprise if the Court applies the summary judgment standard when considering the motions because the movant explicitly filed the motions in the alternative as summary judgment motions. In any case, Plaintiffs are not prejudiced by the lack of explicit notice from the Court because the Court has decided to deny the motions.

Issues

Essentially Clark argues that as a matter of law it cannot be liable for the response costs incurred in cleaning the Ninth Avenue site for two reasons. First, Clark argues that it is a different company from the company that disposed of the hazardous materials at the Ninth Avenue site and that it did not assume Old Clark’s liabilities when it purchased the assets from the Old Clark at an arm’s length transaction. Clark therefore alleges that it. is a distinct asset purchaser to which successor liability does not apply. Clark adds that successor liability cannot apply in this case because Old Clark, the predecessor company, is a viable company that can satisfy Plaintiffs’ claims.

Second, Clark claims that when it purchased the assets from Old Clark during the bankruptcy proceedings, the bankruptcy court approved an order clearing the assets sold from all claims and obligations, including those arising from CERCLA liability. Clark concludes that any claims associated with the assets were discharged because of the free and clear sale made pursuant to Bankruptcy Code and approved by the bankruptcy court.

A SUCCESSOR LIABILITY

The general rule is that a purchaser of assets does not acquire the liabilities of the seller. Chicago Truck Drivers, Helpers and Warehouse Workers Union Pension Fund v. Tasemkin, Inc., 59 F.3d 48 (7th Cir.1995). There are four exceptions to this general rule. They allow successor liability if: (1) the purchaser explicitly or implicitly agrees to assume liability; (2) the transaction amounts to a de facto merger or consolidation; (3) the purchasing corporation is merely a continuation of the seller; or (4) the parties negotiated the transaction fraudulently to escape the liability. U.S. v. Mexico Feed & Seed Co., Inc., 980 F.2d 478, 487 (8th Cir.1992); U.S. v. Carolina Transformer Co., 978 F.2d 832, 838 (4th Cir.1992); Lmdsiana-Pacific Corp. v. Asarco, Inc., 909 F.2d 1260, 1263 (9th Cir.1990); Hunt’s Generator Committee v. Babcock & Wilcox Co., 863 F.Supp. 879, 882 (E.D.Wis.1994); Allied Corp. v. Acme Solvents Reclaiming, Inc., 812 F.Supp. 124, 127 (N.D.Ill.1993). These four exceptions describe corporate reorganizations that ultimately leave the real ownership unchanged. Tasemkin, 59 F.3d at 49.

The Seventh Circuit has not reviewed the issue of successor liability under CERCLA but other circuits have concluded that successor liability does apply to CERC-LA cases. See Mexico Feed, 980 F.2d 478 *723 (8th Cir.1992); Carolina Transformer, 978 F.2d 832 (4th Cir.1992); Anspec Co., Inc. v. Johnson Controls, Inc., 922 F.2d 1240 (6th Cir.1991); Louisiana-Pacific, 909 F.2d 1260 (9th Cir.1990); Smith Land & Improvement Corp. v. Celotex Corp., 851 F.2d 86 (3d Cir.1988), ce rt. denied, 488 U.S. 1029, 109 S.Ct. 837, 102 L.Ed.2d 969 (1989). The Third Circuit was the first to apply successor liability in a CERCLA case where an asbestos manufacturer had merged into another company, the successor. See Smith Land, 851 F.2d 86; see also Anspec Co., 922 F.2d 1240 (applying CERCLA successor liability to a corporate merger). Although Smith Land involved a merger, that case provided the basis for the decisions of other circuit courts that have applied successor liability in the context of asset purchases.

In Louisiana-Pacific Corp., 909 F.2d 1260, the Ninth Circuit held that Congress intended successor liability to apply to CERCLA and it expanded the analysis of Smith Land to apply successor liability in the context of an asset purchase. Id. at 1262-63. In that action, plaintiff sued for the recovery of cleanup costs from the successor which had purchased the assets of a company that marketed waste. The Ninth Circuit concluded that asset purchasers were liable as successors if they fell under one of the four exceptions listed above.

The Fourth Circuit in Carolina Transformer, 978 F.2d 832, and the Eighth Circuit in Mexico Feed, 980 F.2d 478, agreed that the successor liability doctrine applies to CERCLA cases involving asset purchases. Several district courts in this Circuit have followed the trend in other circuits, finding that an asset purchaser can be liable under CERCLA due to successor liability. See Hunt’s Generator Committee, 863 F.Supp. 879; Allied Corp., 812 F.Supp. 124.

These courts found support for their decisions both in the language and in the purpose of the statute. Section 9601(21) of CERC-LA, 42 U.S.C., defines “persons” who might be liable under the Act as provided in section 9607. “Persons” include, among others, firms, corporations, joint ventures, partnerships, associations and commercial entities. Although CERCLA does not define these terms, section 5 of title 1 of the United States Code, which applies to the construction of all federal statutes, states that words like “company” or “association,” when used in reference to a corporation, include the successors and assigns of such company. Therefore, several courts have concluded that, when it listed companies or corporations as possibly liable persons under CERC-LA, Congress must have intended to include their successors. Mexico Feed, 980 F.2d at 486; Anspec Co., 922 F.2d at 1247.

The courts also have found that such construction of the statutory language was consistent with the legislative purpose of the Act of imposing the cost of the harm created by hazardous waste on those responsible for the production and disposal of the waste. Anspec Co., 922 F.2d at 1247; see also Smith Land & Improvement, 851 F.2d at 91-92. “Even in cases of good faith, a bona-fide successor reaps the economic benefits of its predecessor’s use of hazardous -disposal methods, and, as the recipient of the benefits, is also responsible for the costs of those benefits.” Mexico Feed, 980 F.2d at 487.

Most of the cases cited above have applied federal common law when applying successor liability under CERCLA. See Mexico Feed, 980 F.2d at 487 n. 9; Carolina Transformer, 978 F.2d at 837-39; Louisiana-Pacific, 909 F.2d at 1263; Hunt’s Generator Committee, 863 F.Supp. at 882; see also Smith Land & Improvement, 851 F.2d at 91. Only the Sixth Circuit has held that state law should determine successor liability. See Anspec Co., 922 F.2d at 1248.

This Court finds the opinions of the cases cited above persuasive and will apply the successor liability doctrine in the determination of this case. Because most courts apply federal common law to the successor liability questions under CERCLA, and because the Seventh Circuit has applied federal common law when considering successor liability under other federal statutes, see, e.g., Tasemkin, 59 F.3d at 49; EEOC v. G-K-G, Inc., 39 F.3d 740, 748 (7th Cir.1994), this Court will apply federal common law to the issue of successor liability in this case.

*724 Applying the traditional succes-sorship doctrine to the case at hand, the only successorship exception that appears relevant from the motions and responses before the Court is the third exception for mere continuity of business enterprise. In other words, Clark would be liable for claims against Old Clark if Clark is merely a continuity of Old Clark’s business. Under the traditional application of the mere continuity exception, a corporate successor is the continuation of the predecessor if only one corporation remains after the transfer of assets and there is identity of stockholders and directors between the two corporations. Carolina Transformer Co., 978 F.2d at 838; Kleen Laundry & Dry Cleaning Services v. Total Waste Management Corp., 817 F.Supp. 225, 231 (N.D.N.H.1993); Allied Corp., 812 F.Supp. at 129. This exception encompasses the situation where one corporation sells its assets to another with the same people owning both corporations. City Environmental, Inc. v. U.S. Chemical Co., 814 F.Supp. 624, 635 (E.D.Mich.1993).

Some courts have adopted a similar but broader test for business continuity, called the “substantial continuity” or “continuity of enterprise” test, to determine successor liability under CERCLA. See Mexico Feed, 980 F.2d at 487; Kleen Laundry & Dry Cleaning, 817 F.Supp. at 231; Hunt’s Generator Committee, 863 F.Supp. at 883. This more expansive test of successorship has been applied also in cases such as labor law and product liability cases where “the public policy vindicated by recovery from the implicated assets is paramount to that supported by the traditional rules delimiting successor liability.” Mexico Feed, 980 F.2d at 487. The courts that have applied the substantial continuity test have concluded that environmental cleanup is one of those situations in which public policy dictates that the traditional notions of successor liability should be broadened. Hunt’s Generator Committee, 863 F.Supp. at 883; see also Mexico Feed, 980 F.2d at 478.

The substantial continuity test does consider identity of stock, stockholders and corporate officers, but those factors are not determinative. Mexico Feed, 980 F.2d at 488 n. 10. Under the substantial continuity test, the court considers, in addition, a series of factors to determine whether one corporation is the successor of another: (1) retention of the same employees; (2) retention of the same supervisoiy personnel; (3) retention of the same production facilities in the same location; (4) production of the same product; (5) retention of the same name; (6) continuity of assets; (7) continuity of general business operations; and (8) whether the successor holds itself out as a continuation of the previous enterprise. Mexico Feed, 980 F.2d at 488 n. 10; Carolina Transformer Co., 978 F.2d at 838; Hunt’s Generator, 863 F.Supp. at 883; Kleen Laundry & Dry Cleaning, 817 F.Supp. at 231. The court should also consider whether “the transfer to the new corporation was part of an effort to continue the business of the former corporation yet avoid its existing or potential state or federal environmental liability.” Carolina Transformer Co., 978 F.2d at 838; see also Hunt’s Generator Committee, 863 F.Supp. at 883.

The Ninth Circuit was the first that considered whether to apply the substantial continuity test to determine successor liability under CERCLA. See Louisiana-Pacific Corp., 909 F.2d 1260. In that case, the court refused to apply the more expansive test because the successor did not have notice of the potential CERCLA liability and, more importantly accordingly to the Ninth Circuit, because the successor did not continue the business enterprise of its predecessor.

The Fourth Circuit applied the broader substantial continuity test and found successor liability in Carolina Transformer, 978 F.2d 832. There, the successor company had been incorporated in the midst of the predecessor’s growing environmental problems and the assets had been sold to the successor for a price under their fair value. Id. at 838-39. The same family owned the asset seller and purchaser (the father owned the predecessor, and the son and daughter owned the successor), and several directors had sat on the board of both companies. Other factors that the court noted were that the owners of the successor had been officers in the predecessor, most of the management remained the same, the product was practically the *725 same, and the owner of the old company, while not in an official position in the successor company, was involved with the successor company and even could write corporate checks on its behalf. Id. at 839.

The Eighth Circuit applied the test in Mexico Feed, 980 F.2d 478, but it stated that it would not find a bcmafide purchaser liable unless the purchaser knew of the potential liability. Id. at 488. “The factor of knowledge or notice ensure[s] that ‘substantial continuation’ corporations ... will be able to protect themselves through purchase price adjustments or satisfactory indemnity provisions.” Id. at 488. In that case, the court found that the successor had no knowledge of the liability and no ties to the seller corporation. Id. at 489. Even though the successor retained the same employees, delivered the same service to the same clients, and kept the name of the predecessor for several years, the court concluded that there was no successor liability under the broader substantial continuity test, because of the lack of notice or ties between the successor and predecessor corporations. Id. at 489-90. The court also concluded that there was no successor liability under the more traditional mere continuity test because there was no identity of directors and shareholders. Id. at 487.

In Hunt’s Generator Committee, 863 F.Supp. 879, the Wisconsin court discussed both the traditional mere continuation test and the substantial continuity test. While the court did not exclude the possibility that liability under substantial continuity could be established without actual knowledge of the potential claim, the court considered that factor to be very significant. Id. at 884. Finally, the court held that the successor was not liable despite the fact that it continued the same business with the same employees to the same clients out of the same location and with some of the original corporation officers, because the ownership of the companies did not overlap, the successor had no knowledge of the potential liability, and the predecessor, who had been a waste generator, had not dumped in the CERCLA site for four years before the asset sale. See also Allied Corp., 812 F.Supp. 124, 129 (where the Northern District of Illinois refused to apply the substantial continuity test because the successor in that case had no knowledge of potential liability); U.S. v. Atlas Minerals & Chemicals, Inc., 824 F.Supp. 46 (E.D.Pa.1993) (refusing to apply the substantial continuity test when the successor did not know of or was not responsible for the dumping of the waste). 1 But see U.S. v. Peirce, No. 83 CV 1623 (1995) WL 356017, at *3 (N.D.N.Y. February 21, 1995) (holding that the substantial continuity test applies to asset purchase cases irrespective of the lack of knowledge or ties between the corporations; these elements are significant but not determinative); Kleen Laundry & Dry Cleaning Services, 867 F.Supp. 1136,1144 (finding that a successor can be held liable under CERCLA even if it did not know that the predecessor had engaged in conduct that could lead to CERC-LA liability).

While some courts have rejected outright the substantial continuity test for CERCLA cases, see, e.g., Sylvester Bros. Dev. Co. v. Burlington N.R.R., 772 F.Supp. 443, 449 (D.Minn.1990), several opinions suggest that the Seventh Circuit would use the substantial continuity test when applying successor liability under federal common law. These opinions indicate that the Seventh Circuit would require knowledge of potential CERC-LA liability by the purchaser before holding it liable as the successor under the substantial continuity exception. See Tasemkin, 59 F.3d 48; G-K-G, 39 F.3d 740.

The Seventh Circuit has used the substantial continuity exception when determining successor liability under federal common law in cases involving employment discrimination and union pension funds. Expanding the traditional exceptions of successor liability, the Seventh Circuit stated that when federal rights or federal policies are at stake, the law *726 allows suits against genuinely distinct purchasers of assets “if (1) the successor had notice of the claim before the acquisition; and (2) there was ‘substantial continuity in the operation of the business before and after the sale.’” Tasemkin, 59 F.3d at 49; G-K-G, 39 F.3d at 747-48.