ELR Citation: ELR 21586
No(s). S 91-3143 (D. Md. Jun 9, 1993)

The court holds that a utility may be liable as a corporate successor under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) and Maryland law for cleanup costs related to coal-tar contamination at a facility in Maryland, because it engaged in substantially the same business as its predecessor. The court first holds that federal common law should be applied in the area of successor liability under CERCLA, and, therefore, the continuity of enterprise test should be used to assess the potential liability of the successor corporation. The nature and purpose of CERCLA, which is to impose national standards in the area of liability for environmental pollution, require the application of federal common law, because application of the various state laws governing successor liability could cripple the effectiveness of CERCLA by creating a patchwork of potentially inconsistent rulings. The court holds that CERCLA liability can attach retroactively, because this was Congress' intent. The court holds that the successor can be held liable as an owner or operator. Lack of ownership of the property by the successor corporation is irrelevant, because the question is whether liability may or may not have accrued to any of the corporation's predecessors. The court also holds that the successor corporation may not escape liability simply because there was no statutory merger. Although there was no such merger, alternative methods for determining potential successor liability remain. Addressing these alternatives as exceptions to the general rule of nonliability, the court holds that there was a continuation of business between the predecessor and successor corporate entities, identity of stockholders, and sufficient identity of directors to justify finding a mere continuation, which serves as one alternative means of finding the successor liable. The court also holds that the failure of the successor corporation to make an express adoption either of specific CERCLA type, or general environmental, liability will not bar a finding of successor liability. Finally, the court holds that each factor of the de facto merger test is satisfied, providing yet another alternative to finding the successor liable. There was continuity of enterprise, continuity of ownership, cessation of the sellers' operations, and assumption by the purchaser of obligations necessary for business. Therefore, the court concludes that the successor can be held liable as a successor, and can and should be considered an owner or operator of the property at issue.

Having determined that the successor can be held liable under CERCLA, the court addresses whether the successor should be held liable. The court examines each of the requisite prima facie elements of CERCLA liability. The court holds that all parties to the litigation are persons under CERCLA, and also are owners and operators under the Act. The court further holds that the substances at issue are hazardous for purposes of CERCLA and that the sites in question are facilities under the Act. The court holds that there has been a disposal of the hazardous substances at the sites in question. The presence of the substances in the soil is proof of a disposal under the Act. The court holds that a release of hazardous substances occurred at the sites. Addressing the final element of the plaintiffs' prima facie case, the incurring of necessary response costs, the court holds that summary judgment is inappropriate on the issue of whether the site investigatory costs were necessary under CERCLA. Although inclined to hold that the site investigatory costs incurred by plaintiff were not necessary, and that therefore it failed to make out the elements of a prima facie case of liability, in the context of the liberal interpretation which courts must accord CERCLA, the court cannot say that the investigation was not necessary despite the fact that an investigation had previously been completed. The court holds that the prevailing party may include all necessary attorney fees as part of the response cost calculation. The absence of attorney fees as a recoverable cost of response will act as a huge and perhaps insurmountable obstacle to those seeking to bring CERCLA private cost recovery actions. Finally as to CERCLA liability, addressing the assertion of the innocent landowner defense, the court holds that significant fact issues as to parties' knowledge or presence of hazardous substances at property adjacent to the site preclude summary judgment as to CERCLA liability.

The court holds that under state law, the successor corporation may be held liable for activities of its predecessor corporation. Liability would be based on a theory shared by the federal and state courts, and the court refers to its prior analysis under CERCLA. The court holds, however, that summary judgment based on the expiration of the relevant statute of limitations against the plaintiffs is inappropriate, and is also inappropriate as to the state-law claims, because the question of what knowledge the plaintiffs had concerning the condition of their property, and when they had it, is clearly material and in dispute.

Counsel for Plaintiffs
Richard W. Fields, Charles H. Samel, Michele Arington
Howrey & Simon
1730 Pennsylvania Ave. NW, Washington DC 20006
(202) 783-0800

Counsel for Defendant
Thomas H. Truitt, J. Brian Molloy, Cynthia J. Morris
Piper & Marbury
1200 19th St. NW, Washington DC 20036
(202) 861-3900