United States v. Gen Battery Corp Inc

Opinions of the United

2005 Decisions States Court of Appeals

for the Third Circuit

9-6-2005

USA v. Gen Battery Corp Inc

Precedential or Non-Precedential: Precedential

Docket No. 03-3515

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PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 03-3515

UNITED STATES OF AMERICA

v.

GENERAL BATTERY CORPORATION, INC.;

EXIDE CORPORATION

Exide Corporation,

Appellant

On Appeal from the United States District Court

for the Eastern District of Pennsylvania

D.C. Civil Action No. 00-cv-03057

(Honorable Ronald L. Buckwalter)

Argued January 26, 2005

Before: SCIRICA, Chief Judge,

RENDELL and FISHER, Circuit Judges

(Filed September 6, 2005)

ROBERT L. COLLINGS, ESQUIRE (ARGUED)

CARL A. SOLANO, ESQUIRE

Schnader Harrison Segal & Lewis LLP

1600 Market Street, Suite 3600

Philadelphia, Pennsylvania 19103

Attorneys for Appellant

JOHN T. STAHR, ESQUIRE (ARGUED)

United States Department of Justice

Environment and Natural Resources Division

P.O. Box 23795

L'Enfant Plaza Station

Washington, D.C. 20026

NURIYE C. UYGUR, ESQUIRE

Office of United States Attorney

615 Chestnut Street, Suite 1250

Philadelphia, Pennsylvania 19106

Attorneys for Appellee,

United States of America

OPINION OF THE COURT

SCIRICA, Chief Judge.

2

This appeal addresses successor liability under the

Comprehensive Environmental Response, Compensation and

Liability Act of 1980 (CERCLA), 42 U.S.C. § 9601 et seq., for

environmental response costs incurred by the United States at a

lead-contaminated Superfund site. The District Court granted

summary judgment in favor of the United States on a “de facto

merger” theory of successor liability. We will affirm.

I.

The matter begins with a now defunct company, Price

Battery Corporation. From the 1930s through 1966, Price

Battery manufactured lead acid batteries at a plant in Hamburg,

Pennsylvania. During that time, it arranged for the disposal of

waste materials—including spent battery casings—at locations

in and around Hamburg. In 1992, the United States

Environmental Protection Agency discovered two of the

disposal sites, and upon further investigation found three more.

The properties contained elevated levels of lead. After testing

and monitoring, the EPA concluded remedial action was

necessary to protect human health. The United States has since

incurred response costs of several million dollars associated

with the removal of contaminated soil and the installation of a

remedial “cap” at the properties.

Seeking to identify a responsible party under CERCLA,

see 42 U.S.C. § 9607(a)(1)-(4), EPA determined that Price

Battery, through its disposal of battery casings, was responsible

for the lead contamination. Price Battery, however, was long

3

since out of business, having been acquired for cash and stock

by General Battery Corporation in 1966. General Battery, in

turn, merged with Exide Corporation in 2000. The United

States filed this action against Exide, alleging it was responsible

for Price Battery’s CERCLA liability as a successor in interest.

The parties agree that as a consequence of the 2000

merger, Exide is General Battery’s successor. The disputed

issue is whether General Battery, by virtue of its 1966

acquisition of Price Battery, was a successor to Price Battery.

The relevant aspects of the Price/General transaction are as

follows. On February 11, 1966, General Battery, a diversified

public company, entered into an agreement with Price Battery,

a smaller, privately-held battery manufacturing firm. Price

Battery was owned by a single shareholder, William F. Price Sr.,

who sold General Battery most of his company’s assets in

exchange for $2.95 million in cash, 100,000 shares of General

Battery stock, and a seat on General’s board of directors.1 At

1

The only Price Battery asset nominally excluded from the

transaction was its real property, including its manufacturing

plant. Price Battery sold its real property and the building to a

nonprofit development organization for $1.8 million. The

development organization, in turn, leased the facility back to

General Battery until 1978, when the deed was transferred to

General for $1.00. Taking this into account, Price Sr. received

$4.75 million cash and 100,000 shares of General Battery stock

for the Price Battery enterprise.

4

the time, 100,000 General Battery shares were valued at

approximately $1 million and represented 4.537% of General’s

outstanding equity. William Price Sr.’s resulting stake in

General Battery was comparable to that of the company’s co-

founders, W.A. Shea and H.J. Nozensky, who in 1966 remained

on General’s board and held 5.12% and 4.44% of its outstanding

equity, respectively.

Under the agreement, General Battery purchased Price

Battery’s equipment, materials, intellectual property and

inventory. It also assumed Price Battery’s contractual

obligations, including employment contracts, and assumed all

other liabilities appearing on Price Battery’s balance sheet.

General Battery indemnified Price Battery for claims, other than

future tort claims, arising from Price Battery’s operations, and

agreed to continue the employment of three senior Price Battery

officers—the president, the executive vice president, and the

vice president of manufacturing.

After the transaction, General Battery continued

manufacturing batteries at the Hamburg plant. Price Battery’s

plant superintendent and middle managers retained their

positions, as did the union employees, office personnel and sales

force. General Battery produced the same batteries that Price

Battery had produced and honored Price Battery’s contracts with

existing customers and vendors. Price Battery, meanwhile, was

required under the agreement to immediately change its name to

Price Investment Company and to retain $150,000 in cash

pending completion of an audit. The agreement contemplated

5

that following the audit and any corresponding adjustment in the

purchase price, Price Investment would liquidate on or before

December 31, 1966. From the transaction closing in February

of 1966 until filing for a certificate of corporate dissolution in

February of 1967, Price Investment Company had no operations.

On cross-motions for summary judgment, the District

Court held the Price/General transaction constituted a common

law “de facto merger.” In the District Court’s view, the

continuity of location, assets, products, operations, management,

employees, contracts, and shareholders between Price Battery

and General Battery, and the subsequent liquidation and

dissolution of Price Battery, establish General Battery (and now

Exide) as Price Battery’s successors in interest under CERCLA.

United States v. Exide Corp., 2002 U.S. Dist. LEXIS 3303 (E.D.

Pa. Feb. 27, 2002). Following the District Court’s entry of

summary judgment, the parties stipulated to past CERCLA

response costs at the Hamburg site in the amount of $6,500,000.

Exide retained the right to file this appeal as to liability.

II.

The District Court had jurisdiction under CERCLA, 42

U.S.C. § 9613(b), and 28 U.S.C. § 1331. We have jurisdiction

under 28 U.S.C. § 1291. Our summary judgment standard of

review is plenary. In re Mushroom Transp. Co., 382 F.3d 325,

335 (3d Cir. 2004) (drawing all reasonable inferences in favor

of the non-moving party).

6

III.

We return, once again, to the difficult area of indirect

liability under CERCLA.2 CERCLA is a “sweeping” federal

remedial statute, enacted in 1980 to ensure that “everyone who

is potentially responsible for hazardous-waste contamination

may be forced to contribute to the costs of cleanup.” United

States v. Bestfoods, 524 U.S. 51, 56 n.1 (1998) (quoting

Pennsylvania v. Union Gas Co., 491 U.S. 1, 21 (1989) (plurality

opinion of Brennan, J.)) (emphasis in original). “As its name

implies, CERCLA is a comprehensive statute that grants the

President broad power to command government agencies and

private parties to clean up hazardous waste sites.” Id. at 55

(quoting Key Tronic Corp. v. United States, 511 U.S. 809, 814

(1994)).

CERCLA is not, however, “a model of legislative

draftsmanship,” Exxon Corp. v. Hunt, 475 U.S. 355, 363

(1986)—and successor liability is one of its puzzles. Although

2

See, e.g., Alcoa v. Beazer E., 124 F.3d 551 (3d Cir. 1997)

(shareholder, successor and indemnitor liability); SmithKline

Beecham Corp. v. Rohm & Haas Co., 89 F.3d 154 (3d Cir.

1996) (indemnitor and successor liability); United States v. USX

Corp., 68 F.3d 811 (3d Cir. 1995) (shareholder and officer

liability); Lansford-Coaldale Joint Water Auth. v. Tonolli Corp.,

4 F.3d 1209 (3d Cir. 1993) (parent-subsidiary liability); Smith

Land & Improvement Corp. v. Celotex Corp., 851 F.2d 86 (3d

Cir. 1988) (corporate successor liability).

7

the statute fails to address the issue expressly, it is now settled

that CERCLA incorporates common law principles of indirect

corporate liability, including successor liability. See 42 U.S.C.

§ 9601(21) (including “corporations” among the “persons”

covered by CERCLA); 1 U.S.C. § 5 (providing, as a rule of

interpretation, that “the word ‘company’ or ‘association’, when

used in reference to a corporation, shall be deemed to embrace

the words ‘successors and assigns of such company or

association’”); Bestfoods, 524 U.S. at 63-64 (holding CERCLA

incorporates common law of parent/subsidiary veil-piercing);

Smith Land, 851 F.2d at 92 (holding CERCLA imposes

successor liability).3

The threshold issue on appeal is whether to apply a

uniform federal rule of successor liability, or whether to apply

3

The courts of appeals that have addressed the issue are

unanimous in recognizing successor liability under CERCLA.

United States v. Davis, 261 F.3d 1, 54 (1st Cir. 2001); N.Y. v.

Nat’l Servs. Indus., 352 F.3d 682 (2d Cir. 2003); Smith Land,

851 F.2d at 92 (3d Cir. 1988); United States v. Carolina

Transformer Co., 978 F.2d 832, 837 (4th Cir. 1992); Anspec v.

Johnson Controls, Inc., 922 F.2d 1240, 1245 (6th Cir. 1991); N.

Shore Gas Co. v. Salomon, Inc., 152 F.3d 642, 649 (7th Cir.

1998); United States v. Mex. Feed & Seed Co., 980 F.2d 478,

486 (8th Cir. 1992); Atchison, Topeka & Santa Fe Ry. Co. v.

Brown & Bryant, Inc., 159 F.3d 358, 364 (9th Cir. 1997).

8

the law of a particular state. The second issue is whether Exide

is liable as a successor.

A.

We have previously addressed and decided the threshold

issue. In Smith Land, we held that CERCLA successor liability

is a matter of uniform federal law, as derived from “the general

doctrine of successor liability in operation in most states.” 851

F.2d at 92 (3d Cir. 1988). Likewise, we held in Lansford-

Coaldale that “given the federal interest in uniformity in the

application of CERCLA, it is federal common law, and not state

law, which governs” matters of indirect CERCLA liability. 4

F.3d at 1225 (3d Cir. 1993) (discussing parent/subsidiary veil-

piercing).

In the course of holding that CERCLA authorizes

successor liability, we reasoned that “Congress expected the

courts to develop a federal common law to supplement the

statute,” that “[i]n resolving the successor liability issues here,

the district court must consider national uniformity,” and that

“[t]he general doctrine of successor liability in operation in most

states should guide the court’s decision rather than the

excessively narrow statutes which might apply in only a few

states.” Smith Land, 851 F.2d at 91-92. This reasoning is

unambiguous, essential to the Smith Land disposition, and

controlling on the issue before us. Smith Land expressly

rejected the position that a particular state’s successor liability

law applies under CERCLA. Lansford-Coaldale, another

9

indirect liability case under CERCLA, is to the same effect. 4

F.3d at 1225. The Supreme Court has neither addressed nor

disturbed these holdings. See Bestfoods, 524 U.S. at 64 n.9

(noting, but not resolving, disagreement over “whether, in

enforcing CERCLA’s indirect liability, courts should borrow

state law, or instead apply a federal common law”).

Relying principally on O’Melveny & Myers v. FDIC, 512

U.S. 79 (1994), a case decided under the federal banking

statutes, and Davis, 261 F.3d at 54 (1st Cir. 2001), a case

applying state successor liability law under CERCLA, Exide

invites us to overrule Smith Land.

In United States v. Kimbell Foods, Inc., 440 U.S. 715

(1979), the Supreme Court addressed the propriety of applying

state law under an ambiguous or incomplete federal statute. The

Court emphasized that, “[w]hether to adopt state law or to

fashion a nationwide federal rule is a matter of judicial policy

‘dependant upon a variety of considerations always relevant to

the nature of the specific governmental interests and to the

effects upon them of applying state law.’” Id. at 728 (quoting

United States v. Standard Oil, 332 U.S. 301, 310 (1947)). The

issue in Kimbell Foods was whether, absent an express statutory

directive, a uniform federal rule of lien priorities was necessary

under certain federal loan programs. Id. at 718. Employing a

three-factor analysis, the Court answered this question in the

negative, holding state law governed the priority of the liens.

Kimbell Foods considered (1) whether the federal program, by

its very nature, required uniformity; (2) whether application of

10

state law would frustrate specific objectives of the federal

program; and (3) whether application of uniform federal law

would disrupt existing commercial relationships predicated on

state law. Id. at 728-29.

Emphasizing the second Kimbell Foods factor—a

conflict with an identifiable federal interest—the Supreme Court

in O’Melveny cautioned against the unwarranted displacement

of state law, holding that state rules of decision generally fill

interstitial gaps in federal statutes. 512 U.S. at 87. The

displacement of state law is particularly disfavored in the area

of corporate law, because business decisions typically proceed

in reliance on the applicable state standards. Kamen v. Kemper

Fin. Servs., Inc., 500 U.S. 90, 105 (1991). State corporation law

generally should be integrated into the federal statutory regime,

unless there exists “a significant conflict between some federal

policy or interest and the use of state law.” O’Melveny, 512

U.S. at 87; see also Kamen, 500 U.S. at 107; Kimbell Foods,

440 U.S. at 728; see generally Henry J. Friendly, In Praise of

Erie—And of the New Federal Common Law, 39 N.Y.U. L. Rev.

383 (1964). The principal question here, then, is whether

CERCLA requires a uniform federal standard of corporate

successor liability.

As noted, Smith Land and Lansford-Coaldale expressly

held that CERCLA requires uniform federal standards of

successor and veil-piercing liability, respectively. Neither case

has been overruled. O’Melveny, a case brought under a state

law cause of action (as opposed to a federal liability statute),

11

512 U.S. at 83, dealing with the preemptive force of the federal

banking statutes, id. at 86, did not overrule our CERCLA-

specific holdings in Smith Land and Lansford-Coaldale.

O’Melveny involved claims brought by the Federal Deposit

Insurance Corporation (FDIC), as the receiver of a federally

insured bank, under California tort law. The FDIC argued,

notwithstanding its reliance on a state law cause of action, that

uniform federal liability standards should preempt the California

rules of decision. The Supreme Court disagreed, holding the

relevant federal statutes neither authorized nor required the

creation of a preemptive body of federal common law in cases

arising under state law causes of action. Id. at 89. Atherton v.

FDIC, another decision cited by Exide Corporation in which the

Court cautioned against the unwarranted “creation” of federal

common law, also involved the preemptive scope of the federal

banking laws. 519 U.S. 213, 218 (1997).

Smith Land and Lansford-Coaldale, in contrast, held that

uniform standards of indirect corporate liability are necessary

under CERCLA, an environmental liability statute enforced

under its own federal cause of action. O’Melveny and Atherton

neither addressed the CERCLA-specific reasoning of Smith

Land and Lansford-Coaldale nor overruled their CERCLA-

specific holdings.

Bestfoods, a case decided after O’Melveny and Atherton,

is the only Supreme Court decision touching on the CERCLA

question at issue. But the Court there explicitly declined to

resolve the circuit split on whether CERCLA borrows a

12

particular state’s law of indirect corporate liability. Bestfoods,

524 U.S. at 64 n.9. Bestfoods neither cited O’Melveny nor

otherwise suggested that uniform CERCLA successor liability

standards were inappropriate.

If anything, Bestfoods cuts in favor of a uniform federal

standard. Bestfoods applied “fundamental” and “hornbook”

principles of indirect corporate liability, not the law of any

particular state. 524 U.S. at 61-62. The court of appeals in

Bestfoods had applied Michigan law. United States v. Cordova

Chem. Co., 113 F.3d 572, 580 (6th Cir. 1997) (en banc). But the

Supreme Court declined to apply Michigan law and instead

looked to the general “hornbook” rule of veil-piercing. The

Court’s reliance on the general standard is a different matter

than borrowing the law of a particular state. Applying a

particular state’s law requires a state-by-state interpretation of

the federal liability statute—a result, in the case of successor

liability under CERCLA, that we believe conflicts with the

statutory objectives. See discussion infra.

A uniform federal standard is also consistent with recent

Supreme Court decisions in which gaps in federal liability

statutes were filled not with the law of a particular state, but

with general common law principles. Clackamas

Gastroenterology Assocs., P.C. v. Wells, 538 U.S. 440, 448

(2003) (looking to the general common law definition of

“servant” to define the term “employee” under the ADA);

Burlington Indus., Inc. v. Ellerth, 524 U.S. 742, 754 (1998)

(relying on “the general common law of agency, rather than on

13

the law of any particular State,” in defining the term “agent”

under Title VII) (citation omitted). Just as the ADA and Title

VII require uniform federal definitions of the terms “employee”

and “agent,” respectively, CERCLA requires a uniform federal

definition of “successor corporation.” As the Court explained

in Burlington, “[t]he resulting federal rule, based on a body of

case law developed over time, is statutory interpretation

pursuant to congressional direction,” not the free-wheeling

creation of federal common law. 524 U.S. at 755.

For these reasons, we believe that Smith Land and

Lansford-Coaldale have not been undermined by recent

Supreme Court decisions and remain circuit law. See Third

Circuit Internal Operating Procedure 9.1 (“[T]he holding of a

panel in a precedential opinion is binding on subsequent panels.

Thus, no subsequent panel overrules the holding in a

precedential opinion of a previous panel. Court en banc

consideration is required to do so.”).

Moreover, we believe Smith Land is consistent with

CERCLA’s objectives. CERCLA is a federal liability statute,

applicable nationwide to those responsible for hazardous-waste

contamination. Liability under the statute is a matter of federal

law. 42 U.S.C. § 9613(f)(1) (CERCLA contribution actions

“shall be governed by Federal law”); Kimbell Foods, 440 U.S.

at 726 (“This Court has consistently held that federal law

governs questions involving the rights of the United States

arising under nationwide federal programs.”).

14

It is true that successor tort liability, including successor

environmental liability, rests at the intersection of tort and

corporate law—both areas largely regulated by the states. But

it does not necessarily follow that CERCLA’s statutory scheme

is served by borrowing a particular state’s successor liability law

as the federal rule of decision. The choice of law framework

governing successor liability remains unsettled.4 And although

the general doctrine of successor liability is “largely uniform”

under state law, Atchison, 159 F.3d at 363 (9th Cir. 1997)

(citation omitted), this uniformity is less apparent when the

general standards are applied in specific cases.5 Beneath a

4

Compare In re Asbestos Litig. (Bell), 517 A.2d 697, 699

(Del. Super. Ct. 1986) (characterizing successor liability as a

corporate/contract doctrine), with Savage Arms Inc. v. West.

Auto Supply Co., 18 P.3d 49, 53 (Alaska 2001) (collecting cases,

noting that “state courts have split on the question,” and

characterizing successor products liability as a tort doctrine); see

also Ruiz v. Blentech Corp., 89 F.3d 320, 322 (7th Cir. 1996)

(describing a question of successor liability choice of law as

“rather mystifying”); SmithKline Beecham Corp. v. Rohm &

Haas Co., 1995 U.S. Dist. LEXIS 3361, at *12-26 (E.D. Pa.

Mar. 17, 1995) (wrestling with choice of law for CERCLA

successor liability).

5

For example, some states emphasize “continuity of

ownership” as a key element of successor liability. Cargo

Partner AG v. Albatrans Inc., 352 F.3d 41, 47 (2d Cir. 2003)

15

veneer of uniformity, the “entire issue of successor liability . . .

is dreadfully tangled, reflecting the difficulty of striking the

right balance between the competing interests at stake.” EEOC

v. Vucitech, 842 F.2d 936, 944 (7th Cir. 1988).

(New York law). Others do not. Woodrick v. Jack J. Burke

Real Estate, Inc., 703 A.2d 306, 313-14 (N.J. Super. Ct. App.

Div. 1997) (finding de facto merger absent continuity of

ownership). Some states apply unique successorship rules in

products liability and environmental cases. Dawejko v.

Jorgensen Steel Co., 434 A.2d 106, 111-12 (Pa. Super. Ct.

1981); Dep’t of Transp. v. PSC Res., Inc., 419 A.2d 1151 (N.J.

Super. Ct. Law Div. 1980). Others do not. Bielagus v. EMRE

of N.H., Corp., 826 A.2d 559 (N.H. 2003). In some states, the

governing rules are difficult to ascertain. Compare Hart v.

Bruno Mach. Corp., 679 N.Y.S.2d 740 (N.Y. App. Div. 1998)

(applying product line theory of successor liability), with City of

N.Y. v. Charles Pfizer & Co., 688 N.Y.S.2d 23 (N.Y. App. Div.

1999) (rejecting same theory). Even jurisdictions in broad

agreement on the appropriate legal standards may apply them

differently. SmithKline Beecham, 1995 U.S. Dist. LEXIS 3361,

at *23-24 (E.D. Pa. Mar. 17, 1995) (noting differences between

New Jersey and Pennsylvania application of common de facto

merger elements). Reconciling these holdings poses some

difficulty. See Cargo Partner AG v. Albatrans, Inc., 207 F.

Supp. 2d 86, 93-114 (S.D.N.Y. 2001).

16

In Atchison, the Court of Appeals for the Ninth Circuit,

in considered dictum, expressed doubt that a uniform federal

rule of successor liability is necessary under CERCLA. 159

F.3d at 364. The court reasoned that “[i]f state law varied

widely on the issue of successor liability, perhaps the need for

a uniform federal rule would be more apparent.” Id. at 363. But

we respectfully disagree with Atchison’s premise. State law

does vary substantially on the issue of successor liability, and its

unpredictability counsels in favor of CERCLA uniformity.

The successor liability issues raised in this case are

illustrative. Whether a mixed cash/stock acquisition triggers

successor liability under the de facto merger doctrine does not

command uniform treatment among the states.6 Whether

6

Compare Ladenburg Thalmann & Co. v. Tim’s Amusements,

Inc., 275 A.D.2d 243, 248 (N.Y. App. Div. 2001) (finding

continuity of ownership in assets-for-promissory note

transaction), and Fenderson v. Athey Prods. Corp., 581 N.E. 2d

288, 292 (Ill. Ap. Ct. 1991) (Illinois law) (no requirement “that

all or even most of the purchase price” be paid in stock), with

Nova Ribbon Prods. v. Lincoln Ribbon, Inc., 1995 U.S. Dist.

LEXIS 4322, at *20 (E.D. Pa. Mar. 30, 1995) (Pennsylvania

law) (holding de facto merger liability turns on whether

transaction is “primarily” for stock). Even within New Jersey,

the continuity of ownership standard appears unsettled in mixed

cash/stock transactions. Compare Wilson v. Fare Well Corp.,

356 A.2d 458, 461 (N.J. Super. Ct. Law Div. 1976) (imposing

17

successor liability attaches to a transaction where the seller

receives a “small percentage” of the buyer’s outstanding equity

is also unsettled.7 For example, New Jersey corporations may

be held responsible for successor environmental liability from

which New York corporations may be exempt. Compare PSC,

419 A.2d 1151 (N.J. Super. Ct. Law Div. 1980) (applying

expansive theory of successor liability to environmental torts),

with Schumacher v. Richards Shear Co., 451 N.E.2d 195, 198

(N.Y. 1983) (adhering to traditional concepts of successor

liability). We doubt Congress intended to incorporate such

variations under a comprehensive federal liability statute. See

successor liability where stock comprises less than half of

purchase price), with McKee v. Harris-Seybold Co., 264 A.2d

98, 104 (N.J. Super. Ct. Law Div. 1970) (no continuity of

ownership in mixed cash/stock transaction).

7

Compare Cargill, Inc. v. Beaver Coal & Oil Co., Inc., 424

Mass. 356, 361 (1997) (Massachusetts law) (finding continuity

of ownership where seller receives 12.5% stake in acquiring

company), and Glynwed, Inc. v. Plastimatic Inc., 869 F. Supp.

265, 277 (D.N.J. 1994) (New Jersey law) (“continuity of

ownership, not uniformity, is the test”), with Savage Arms, 18

P.3d at 58 (Alaska 2001) (noting that percentage of shares

owned is an “important fact”), and Kaleta v. Whittaker Corp.,

583 N.E.2d 567, 571 (Ill. App. Ct. 1991) (finding no continuity

of ownership where seller received a “de minimis” .00037%

stake in buyer).

18

42 U.S.C. § 9613(f)(1) (CERCLA contribution actions “shall be

governed by Federal law”); Miss. Band of Choctaw Indians v.

Holyfield, 490 U.S. 30, 43 (1989) (“federal statutes are generally

intended to have uniform nationwide application”).

A more uniform and predictable federal liability standard

corresponds with specific CERCLA objectives by encouraging

settlements and facilitating a more liquid market in corporate

and “brownfield” assets. See 42 U.S.C. § 9622 (encouraging

CERCLA settlements “in order to expedite effective remedial

actions and minimize litigation”); § 9607(r) (encouraging

transfer and redevelopment of contaminated property under

CERCLA’s so-called “Brownfield Amendments”)8 ; cf. Polius v.

Clark Equip. Co., 802 F.2d 75, 83 (3d Cir. 1986) (“Unforseeable

8

In 2001, Congress amended CERCLA with the Brownfields

Revitalization Act in order to spur the cleanup, transfer and

redevelopment of contaminated land. Pub. L. No. 107-118, 115

Stat. 2356 (the “Brownfields Amendments”). Among other

goals, the Brownfields Amendments encourage the acquisition

and redevelopment of Superfund sites by according bona fide

asset purchasers a defense to CERCLA liability. 42 U.S.C. §

9607(r)(1). The principal goal of the Amendments is to balance

the interest in cost recovery under CERCLA’s liability

provisions with the economic interest in a liquid market for

“brownfield” assets. Consistent with this purpose, a predictable

test for successor liability lowers transaction costs and

encourages brownfield acquisitions.

19

alterations in successor liability principles complicate transfers

and necessarily increases transaction costs. Major economic

decisions, critical to society, are best made in a climate of

relative certainty and reasonable predictability.”) (citation

omitted).

Smith Land’s application of the “majority” standard

fosters CERCLA predictability. It also accords respect to

existing commercial relationships predicated on the majority

state law, cf. Kimbell Foods, 440 U.S. at 728-29, while ensuring

that responsible parties, including successor corporations,

contribute their fair share to the cleanup of hazardous waste

under the federal program. Accord B.F. Goodrich v. Betkoski,

112 F.3d 88 (2d Cir. 1997) (applying uniform federal standard);

Carolina Transformer, 978 F.2d at 837 (4th Cir. 1992) (same);

Mex. Feed & Seed, 980 F.2d at 487 n.9 (8th Cir. 1992) (dicta);

but see Davis, 261 F.3d at 54 (1st Cir. 2001) (applying state

law); Atchison, 159 F.3d at 361-64 (9th Cir. 1997) (dicta);

Anspec, 922 F.2d at 1250 (6th Cir. 1991) (Kennedy, J.,

concurring).

Davis, the most recent court of appeals decision applying

state law, held that CERCLA incorporates state successor

liability rules unless the particular state law is “hostile to the

federal interests animating CERCLA.” 261 F.3d at 54 (1st Cir.

2001). Davis followed Atchison, where the Court of Appeals for

the Ninth Circuit concluded that borrowing state law is

consistent with CERCLA, because “[i]t is unrealistic to think

that a state would alter general corporate law principles to

20

become a particularly hospitable haven for polluters.” 159 F.3d

at 364 (9th Cir. 1997). As a general matter, we agree it is

unlikely that states would attempt to immunize their

corporations from CERCLA liability. See generally Richard L.

Revesz, Rehabilitating Interstate Competition: Rethinking the

“Race to the Bottom” Rationale for Federal Environmental

Regulation, 67 N.Y.U. L. Rev. 1210 (1992).

But neither Atchison, nor Davis, nor the concurring and

dissenting opinion, address the conflict between CERCLA’s

objectives and borrowing unpredictable state successorship law.

We believe that incorporating variable and uncertain state

successor liability standards would increase significantly

CERCLA litigation and transaction costs—in conflict with the

statutory interests embodied in 42 U.S.C. § 9622, which aims to

encourage early settlements, and § 9607(r), which aims to

facilitate a liquid market in brownfield assets. See In re Tutu

Water Wells CERCLA Litig., 326 F.3d 201, 206 (3d Cir. 2003)

(emphasizing CERCLA’s policy of minimizing litigation costs);

United States v. DiBiase, 45 F.3d 541, 545-46 (1st Cir. 1995)

(explaining CERCLA’s policy of reducing “transaction costs”);

see generally United States v. Charter Int’l Oil Co., 83 F.3d

510, 520 (1st Cir. 1996) (surveying empirical research on the

“huge resources going into the transactions costs of CERCLA

litigation” and observing that reducing these costs was a primary

objective of the 1986 amendments to the statute).

To summarize, the Supreme Court has neither overruled

nor directly undermined Smith Land. Furthermore, a uniform

21

federal standard is appropriate under Kimbell Foods and

O’Melveny: (1) the nature of the federal program, a

comprehensive federal liability statute, counsels in favor of

national uniformity; (2) a uniform successor liability standard is

necessary to advance CERCLA’s remedial objectives and to

facilitate a fluid market in corporate and brownfield assets; and

(3) uniform application of the majority state standard accords

proper respect to commercial relationships predicated on the

majority state law. Therefore, we will apply “the general

doctrine of successor liability in operation in most states.”

Smith Land, 851 F.2d at 92.

The concurring and dissenting opinion contends that we

reach an “unnecessary” holding on this issue, emphasizing that

Pennsylvania law mirrors the majority “de facto merger”

standard and would yield the same result. But Smith Land and

Lansford-Coaldale preclude exclusive reliance on the law of a

particular state. For the reasons stated, we believe these

decisions remain controlling. More fundamentally, because

CERCLA’s goal of minimizing litigation and transaction costs

is ill-served by a case-by-case approach to the question of

successor liability choice-of-law, we need not inquire whether

Pennsylvania law conflicts with or mirrors the majority

successor liability doctrine before holding that a federal rule

applies.

We add a final note on nomenclature and its pitfalls. Part

of the difficulty in this area may stem from imprecise use of the

term “federal common law.” In its strictest sense, federal

22

common law represents the judicial “creation” of law under a

generalized statutory mandate. Atherton, 519 U.S. at 218.

Examples include the federal labor laws, Textile Workers Union

v. Lincoln Mills, 353 U.S. 448 (1957), and ERISA, Firestone

Tire & Rubber Co. v. Bruch, 489 U.S. 101, 110 (1989). In

recent years the Supreme Court has emphasized that the cases

requiring this brand of federal common law are “few and

restricted.” O’Melveny, 512 U.S. at 87 (citation omitted). To

view every ambiguous federal statute as authorizing an

expansive body of “federal common law” would be an invitation

to federal courts to eviscerate both the Erie doctrine and the

concept of dual sovereignty it embodies.

But the “creation” of federal common law must be

distinguished from statutory interpretation. See Atherton, 519

U.S. at 218. Ambiguous federal statutes generally do not

authorize the creation of a new (and preemptive) body of federal

law. Id. But this principle does not require that every federal

statutory gap be filled by way of state-by-state interpretation.

“In almost any statutory scheme, there may be a need for judicial

interpretation of ambiguous or incomplete provisions. But the

authority to construe a statute is fundamentally different from

the authority to fashion a new rule or to provide a new remedy

which Congress has decided not to adopt.” Northwest Airlines,

Inc. v. Transp. Workers Union, 451 U.S. 77, 97 (1981); see also

Atherton, 519 U.S. at 218 (distinguishing the “creation” of

federal common law from “interpretation of a federal statute or

a properly promulgated administrative rule”).

23

In the case of federal liability statutes enforced under a

federal cause of action, the law is generally intended to have

uniform nationwide application. Cmty. for Creative Non-

Violence v. Reid, 490 U.S. 730, 740 (1989) (“federal statutes are

generally intended to have uniform nationwide application”);

Jansen v. Packaging Corp., 123 F.3d 490, 507 (7th Cir. 1997)

(en banc) (Posner, J., concurring and dissenting). The most

recent Supreme Court cases, both decided after O’Melveny and

Atherton, followed this approach. Clackamas, 538 U.S. at 448

(2003); Burlington, 524 U.S. at 754-55 (1998). These decisions

affirm the view that uniform interpretation of an undefined term

in a federal liability statute “is not free-wheeling common-law

rulemaking,” but rather “filling a statutory gap, a standard office

of interpretation.” Jansen, 123 F.3d at 507. Accordingly,

supplying a uniform definition of “successor corporation” under

CERCLA is a matter of interpreting the federal statute. See 42

U.S.C. § 9601(21) (including “corporations” among the

“persons” covered by CERCLA); 1 U.S.C. § 5 (providing, as a

rule of interpretation, that “the word ‘company’ or ‘association’,

when used in reference to a corporation, shall be deemed to

embrace the words ‘successors and assigns of such company or

association’”).

B.

Turning to the appropriate liability standard, we are

mindful of Bestfoods, where the Supreme Court held that

CERCLA incorporates, but does not expand upon,

“fundamental” common law principles of indirect corporate

24

liability. 524 U.S. at 62-64. The general rule of corporate

successorship accepted in most states is non-liability for

acquiring corporations, with the following exceptions:

The purchaser may be liable where: (1) it assumes

liability; (2) the transaction amounts to a

consolidation or merger; (3) the transaction is

fraudulent and intended to provide an escape from

liability; or (4) the purchasing corporation is a

mere continuation of the selling company.

Polius, 802 F.2d at 78 (3d Cir. 1986) (stating general rule); 15

William Meade Fletcher et al., Fletcher Cyclopedia of the Law

of Private Corporations § 7122, at 227-48 (perm. ed., rev. vol.

1999) (collecting cases).

This case involves the “de facto merger” exception,

which has four elements under the majority standard. It applies

where:

(1) There is a continuation of the enterprise of the

seller corporation, so that there is a continuity of

management, personnel, physical location, assets,

and general business operations.

(2) There is a continuity of shareholders which

results from the purchasing corporation paying for

the acquired assets with shares of its own stock,

this stock ultimately coming to be held by the

shareholders of the seller corporation so that they

25

become a constituent part of the purchasing

corporation.

(3) The seller corporation ceases its ordinary

business operations, liquidates, and dissolves as

soon as legally and practically possible.

(4) The purchasing corporation assumes those

obligations of the seller ordinarily necessary for

the uninterrupted continuation of normal business

operations of the seller corporation.

Bud Antle, Inc. v. Eastern Foods, Inc., 758 F.2d 1451, 1457-58

(11th Cir. 1985) (stating the “majority” de facto merger

standard); Keller v. Clark Equip. Co., 715 F.2d 1280, 1291 (8th

Cir. 1983) (same); 15 Fletcher, supra, § 7124.20, at 302 (stating

majority rule and collecting cases). The majority standard

generally tracks the inquiry under Pennsylvania law. See

SmithKline Beecham, 89 F.3d at 162 n.6.

Based on the record, we agree with the District Court that

the Price/General transaction constituted a de facto merger.

(1)

Under prong one—continuity of enterprise—General

Battery purchased all of Price Battery’s equipment and

inventory, assumed tenancy of its manufacturing plant, and

continued its production of batteries. The plant superintendent

and middle managers retained their positions, as did the union

employees, office personnel and sales force. General Battery

26

continued the employment of three senior Price Battery

executives—the president, executive vice president, and vice

president of manufacturing—who, among other duties, remained

active in supervising the Hamburg plant. General Battery was

supplied by Price Battery’s vendors, served Price Battery’s

customers, and manufactured essentially the same battery

products. In every operational respect—from management and

employees to location and assets to products and general

business operations—General Battery continued the Price

Battery enterprise. We agree with the District Court’s

exemplary analysis under this element.

(2)

De facto merger prong two—continuity of

shareholders—presents a closer question. Prior to the

transaction, William Price Sr. was the sole shareholder of Price

Battery. He received from General Battery $2.95 million in

cash, 100,000 shares of General Battery stock, and a seat on

General Battery’s board of directors in exchange for the Price

Battery enterprise. At the time, 100,000 shares of General

Battery stock were valued at approximately $1 million and

represented 4.537% of its outstanding equity. Price Sr.’s

resulting stake in General Battery was comparable to that of the

company’s two co-founders, who owned 5.12% and 4.44% of its

stock, respectively.

The parties dispute whether this mixed cash/stock

transaction evidences the requisite continuity of ownership.

27

Exide contends continuity of ownership is lacking where the

seller receives “primarily” cash and a “small percentage” of the

buyer’s outstanding equity. The United States responds that

“under the de facto merger exception, there is no requirement

that the seller acquire majority control or any other specific

percentage of the buyer, only that there be some continuity of

shareholder ownership.”

The standard applied in most states recognizes continuity

of ownership where “the shareholders of the seller corporation

. . . become a constituent part of the purchasing corporation.”

15 Fletcher, supra, § 7124.20, at 302 (stating general rule);

Keller, 715 F.2d at 1291 (8th Cir. 1983) (same); see also

SmithKline Beecham, 89 F.3d at 162 n.6 (3d Cir. 1996)

(Pennsylvania law).

This standard, which requires continuity rather than

identity of ownership, corresponds with the general purposes of

the successor liability doctrine. See Cargo Partner AG, 352

F.3d at 47 (2d Cir. 2003) (New York law) (holding continuity of

ownership “is the essence of” a de facto merger); Nat. Gypsum

Co. v. Cont. Brands Corp., 895 F. Supp. 328, 337-38 (D. Mass.

1995) (collecting cases). The overriding goal of successor

liability, and of the de facto merger inquiry, is to balance “the

interest in preventing tortfeasors from externalizing the costs of

their misconduct” with “the interest in a fluid market in

corporate assets.” Vucitech, 842 F.2d at 944 (7th Cir. 1988).

28

The continuity of shareholders element is designed to

identify situations where the shareholders of a seller corporation

retain some ownership interest in their assets after cleansing

those assets of liability. See generally Marie T. Reilly, Making

Sense of Successor Liability, 31 Hofstra L. Rev. 745 (2003);

Mark J. Roe, Mergers, Acquisitions and Tort: A Comment on the

Problem of Successor Corporation Liability, 70 Va. L. Rev.

1559 (1984). Successor liability in this context accords a legal

remedy to injured third-parties, preventing the externalization of

the seller’s costs of doing business, and deterring transactions

designed to impose the costs of misconduct on third-parties. See

SmithKline Beecham, 89 F.3d at 164 (discussing remedial

purposes of de facto merger doctrine). Identifying these

transactions is the objective of the continuity of ownership

requirement. Nat’l Gypsum, 895 F. Supp. at 337 (D. Mass.

1995); Cargo Partner AG, 352 F.3d at 47 (2d Cir. 2003).

But the cases do not, as Exide contends, distinguish

sharply between transactions “primarily” for cash versus stock,

or between large versus small percentage interests in the

ongoing enterprise. Rather, only some continuity of ownership

is required. There is no generally accepted common law

distinction between primarily stock mergers, on the one hand,

and primarily cash transactions, on the other.9 Nor does

9

See, e.g., Wilson, 356 A.2d 458 (N.J. Super. Ct. Law Div.

1976) (imposing successor liability where stock comprised less

than half of purchase price); Atlas Tool Co. v. Comm’r, 614 F.2d

29

successor liability necessarily turn on the seller’s percentage

interest in the buyer. 10 Although the “majority” standard is

somewhat unsettled at this frontier of successor liability, the

860, 871 (3d Cir. 1980) (New Jersey law) (“Although there was

no stock transfer here, and only cash was involved, there was

clearly a continuation of stockholder interest.”); Bud Antle, Inc.

v. E. Foods, Inc., 758 F.2d 1451, 1458 (11th Cir. 1985) (“At the

very least, there must be some sort of continuation of the

stockholders’ ownership interests.”); Ametek, Inc. v. Pioneer

Salt & Chem. Co., 709 F. Supp. 556, 560 (E.D. Pa. 1988)

(holding a de facto merger is possible where the seller retains a

“contingent stake . . . in its former business”); Fenderson, 581

N.E. 2d at 292 (Ill. App. Ct. 1991) (no requirement “that all or

even most of the purchase price” be paid in stock).

10

See, e.g., Cargill, 424 Mass. 356 (1997) (Massachusetts

law) (finding continuity of ownership where seller received

12.5% stake in acquiring company); United States v. Keystone

Sanitation Co., 1996 U.S. Dist. LEXIS 13651, at *23-25 (M.D.

Pa. Aug. 22, 1996) (federal law) (finding continuity of

ownership where seller received less than 1% stake in buyer);

T.H.S. Northstar Assocs. v. W.R. Grace & Co., 840 F. Supp. 676

(D. Minn. 1993) (Minnesota law) (finding continuity where

seller’s owners received 2.27% of buyer’s stock); Glynwed, 869

F. Supp. at 277 (D.N.J. 1994) (New Jersey law) (“continuity of

ownership, not uniformity, is the test”).

30

critical “continuity of ownership” inquiry appears to be whether

the owners retained some ongoing interest in their assets.

Continuity of ownership is established under CERCLA

where the owners of the predecessor enterprise become a

“constituent part” of the successor by retaining some ongoing

interest in their assets. See 15 Fletcher, supra, § 7124.20, at 302

(stating majority rule and collecting cases). Under this standard,

William Price Sr. became a “constituent part” of General Battery

when he received 100,000 shares of General Battery stock and

a seat on General’s board in exchange for the Price Battery

enterprise.

(3)

Under the third de facto merger element, it is apparent

that Price Battery ceased operations, liquidated, and dissolved

as soon as legally and practically possible. The Price/General

agreement, which closed in February of 1966, required Price

Battery to discontinue operations immediately and change its

name to Price Investment Company. Price Battery did so. The

agreement also required that Price Investment remain in

existence from February through December of 1966,

maintaining cash reserves pending completion of an audit and

other contingencies. After this waiting period and following any

adjustments in the purchase price, the agreement contemplated

that Price Battery would liquidate and dissolve. Specifically, the

contract provided “for the complete liquidation of Price and the

distribution of all of its assets within the twelve month period

31

beginning [on February 8, 1966].” Price Investment filed for

corporate dissolution on February 8, 1967, and formally

dissolved approximately six months later.

The contractual requirement that Price Battery

immediately change its name, cease operations, and

subsequently liquidate and dissolve, is more characteristic of a

merger than an asset purchase. As recognized under the de facto

merger doctrine, an essential characteristic of a merger is that

one corporation survives while another ceases to exist. Knapp

v. N. Am. Rockwell Corp., 506 F.2d 361, 367 (3d Cir. 1974)

(Pennsylvania law). Here, the Price/General agreement

expressly required the liquidation and dissolution of Price

Battery as a condition of the transaction, suggesting a merger

rather than the mere sale of Price Battery’s assets.

Exide emphasizes Price Investment’s failure to dissolve

immediately, contending that for over a year “the two companies

remained completely independent of each other in management

and operations.” But the more salient fact is that Price Battery

immediately ceased ordinary business operations. Within one

week of the closing date, Price Battery recast itself as Price

Investment Company—a corporate shell that only held cash

reserves pending final settlement with General Battery. Price

Investment had no operations.

The Knapp case presented similar facts. There we held

the seller company dissolved as soon as legally and practically

possible. 506 F.2d at 369 (3d Cir. 1974) (Pennsylvania law).

32

The seller corporation in Knapp had “technically continued to

exist until its dissolution approximately 18 months after the

consummation of the transaction,” id. at 364, but during that

period it “had no substance” and “could not undertake any active

operations.” Id. at 369. As in Knapp, “barren continuation” of

the seller company does not bar application of the de facto

merger doctrine. Id. at 368. We agree with the District Court

that Price Battery ceased operations, liquidated and dissolved as

soon as legally and practically possible.

(4)

Finally, under prong four—assumption of obligations

ordinarily necessary for the uninterrupted continuation of

normal business operations—the Price/General agreement

expressly provided that General Battery would assume Price

Battery’s contractual obligations and all other obligations

appearing on Price Battery’s balance sheet. This unambiguous

assumption of obligations, including employment, sales and

vendor contracts, satisfies the fourth de facto merger element.

C.

In sum, the de facto merger criteria are satisfied. Citing

Polius, Exide responds with the overarching objection that

“imposition of successor liability on a purchasing company long

after the transfer of assets defeats the legitimate expectations the

parties held during negotiation and sale.” 802 F.2d at 83. But

even if we accept this statement as a general proposition, the

response here is twofold. First, application of the traditional de

33

facto merger standard, which generally tracks the Pennsylvania

rule, can hardly come as a surprise to sophisticated corporate

parties who transacted under Pennsylvania law. Second,

CERCLA by its very nature upsets party expectations. Congress

nevertheless viewed retroactive CERCLA liability as necessary

to ensure that those “responsible for any damage, environmental

harm, or injury from chemical poisons may be tagged with the

cost of their actions.” Bestfoods, 524 U.S. at 56 (quoting S.

Rep. No. 96-848, 13 (1980)) (internal punctuation marks

omitted).

We hold that General Battery and Exide, as successors to

Price Battery, are responsible for the CERCLA liability of their

predecessor.

D.

We briefly address the District Court’s alternative

holding that Exide is liable under CERCLA on a “substantial

continuity” theory of successor liability.11 Prior to Bestfoods,

several courts adopted the “substantial continuity” test as a basis

for CERCLA successor liability. See N.Y. v. Nat’l Serv. Indus.,

352 F.3d 682, 687-88 (2d Cir. 2003) (collecting cases).

“Substantial continuity” eliminates certain elements of the de

facto merger analysis—including the continuity of ownership

11

The government does not seek affirmance on the basis of

“substantial continuity” and does not cite any relevant law on

the issue.

34

requirement—and in effect creates a more expansive rule of

liability than is accepted in most states. Id. at 687 (noting

substantial continuity is applied “by only a handful of states”).

Recently, however, several courts of appeals have rejected the

doctrine as inconsistent with Bestfoods, 524 U.S. 51 (1998).12

We agree. Bestfoods held that CERCLA does not, sub silentio,

abrogate fundamental common law principles of indirect

corporate liability. 524 U.S. at 63-64. Accordingly, “substantial

continuity” is untenable as a basis for successor liability under

CERCLA.

IV. Conclusion

We will affirm the judgment of the District Court.

12

See Nat’l Serv. Indus., 352 F.3d at 687 (2d Cir. 2003)

(holding “the substantial continuity doctrine is not part of

general federal common law and, following Bestfoods, should

not be used to determine whether a corporation takes on

CERCLA liability as the result of an asset purchase”); Davis,

261 F.3d at 53 (1st Cir. 2001) (same); Atchison, 159 F.3d 358

(9th Cir. 1998) (same).

35

Concurring in part and dissenting in part

RENDELL, Circuit Judge.

I agree with the majority’s conclusion that the fact pattern

presented was a de facto merger such that successor liability for

purposes of CERCLA exists and therefore concur in its ultimate

ruling. However, I part company with the majority regarding its

decision to announce that the issue of successor liability in this

context is controlled by federal common law. This

determination is unnecessary to the resolution of the issues

before us and runs counter to recent Supreme Court

pronouncements which both call into question the concept of

federal common law and explicitly state that only in the most

limited of circumstances should we look beyond applicable state

law. Moreover, two other courts of appeals – the First and the

Ninth – have considered the precise issue before us and our

opinion perpetuates a split among the courts of appeals. Those

courts have opined that the Supreme Court’s recent directives

cast serious doubt on the advisability of creating federal

common law to dictate the contours of successor liability under

CERCLA.13 The majority, however, embraces the application

13

Interestingly, as we note below, one of the courts – the

Ninth Circuit – had previously followed our lead in Smith Land,

but more recently reevaluated its view in light of later Supreme

Court precedent concluding, as we should, that creating federal

common law should be a last resort.

36

of federal common law, relying instead on the outdated notion

of promoting uniformity.

Over the course of the last decade, and since we decided

Smith Land & Improv. Corp. v. Celotex Corp., 851 F.2d 86 (3d

Cir. 1988) and Lansford-Coaldale Joint Water Auth. v. Tonolli

Corp., 4 F.3d 1209 (3d Cir. 1993), the Supreme Court has issued

several opinions denouncing the creation of federal common law

where state law would otherwise apply. Principally, in

O'Melveny & Myers v. FDIC, 512 U.S. 79 (1994), the Court

rejected the notion that a federal common law rule regarding the

imputation of corporate officer knowledge to a corporation

should be applied in an action against the Federal Deposit

Insurance Corporation (“FDIC”). The Court stated:

The first of these contentions need not detain us

long, as it is so plainly wrong. “There is no

federal general common law, and ... the remote

possibility that corporations may go into federal

receivership is no conceivable basis for adopting

a special federal common-law rule divesting

states of authority over the entire law of

imputation.”

Id. at 83 (internal citation omitted) (citing Bank of America Nat.

Trust & Sav. Assn. v. Parnell, 352 U.S. 29, 33-34 (1956)).

The O'Melveny Court went on to note that, with regard to

“the central question of displacement of [state] law” in favor of

a rule federal in nature:

37

[W]e of course would not contradict an explicit

federal statutory provision. Nor would we adopt

a court-made rule to supplement federal statutory

regulation that is comprehensive and detailed;

matters left unaddressed in such a scheme are

presumably left subject to the disposition

provided by state law.

***

. . . . As we proceed to explain, even assuming

the inapplicability of FIRREA [Financial

Institutions Reform, Recovery, and Enforcement

Act of 1989] this is not one of those cases in

which judicial creation of a special federal rule

would be justified.

Such cases are, as we have said in the past, “few

and restricted,” Wheeldin v. Wheeler, 373 U.S.

647, 651 (1963), limited to situations where there

is a “significant conflict between some federal

policy or interest and the use of state law.”

Wallis v. Pan American Petroleum Corp., 384

U.S. 63, 68 (1966). Our cases uniformly require

the existence of such a conflict as a precondition

for recognition of a federal rule of decision.

Kimbell Foods, 440 U.S. at 728. Not only the

permissibility but also the scope of judicial

displacement of state rules turns upon such a

conflict. What is fatal to respondent’s position in

the present case is that it has identified no

38

significant conflict with an identifiable federal

policy or interest.

O'Melveny & Myers, 512 U.S. at 85, 87-88 (some internal

citations omitted) (emphasis added). While O’Melveny did not

involve CERCLA, nonetheless, the pronouncement of the Court

regarding displacement of state law makes crystal clear that

matters left unaddressed by a comprehensive federal statutory

scheme are presumably left subject to the disposition provided

by state law 14 – there must exist a conflict, identifiable and

14

The issue before us is not the meaning of a term contained

in CERCLA, as was the case in many of the cases cited by the

majority. Rather, the issue before us is whether state or federal

law regarding successor liability will apply when the courts are

fashioning remedies under CERCLA. No one has contended we

are construing a word or phrase in the statute. If we are, we

should request further briefing on this issue as it has not been

addressed by the parties.

CERCLA now counts a “corporation” as a “person” for

purposes of liability, see 42 U.S.C. § 9601(21), but the statute

itself clearly does not reference or provide for successor

liability. Therefore, we are confronted with a matter in an

otherwise detailed federal statutory scheme, not a mere need to

attach meaning to a term of art employed but not defined by

Congress, as was the case in Clackamas Gastroenterology

Assocs., P.C. v. Wells, 538 U.S. 440, 448 (2003) (looking “to the

(continued...)

39

specific, with an important federal policy before we consider

resorting to federal common law.

Three years after deciding O’Melveny, the Supreme Court

again commented on the concept of “federal common law,” in

the case of Atherton v. FDIC, 519 U.S. 213 (1997). In Atherton,

14

(...continued)

common law to fill gaps in statutory text, particularly when an

undefined term has a settled meaning at common law,” in this

case to define “employee under the ADA) (emphasis added);

Burlington Indus. v. Ellerth, 524 U.S. 742, 755 (relying on

general common law of agency to define term “agent” under

Title VII where state court decisions “determinations of

employer liability under state law rely in large part on federal

court decisions”); Mississippi Band of Choctaw Indians v.

Holyfield, 490 U.S. 30, 47, n.22 (1989) (using federal common

law to define “domicile” under the Indian Child Welfare Act

and noting that Congress had, in other parts of the legislation,

stated explicitly where it wanted terms “defined by reference to

tribal law or custom and to state law”); and Cmty. for Creative

Non-Violence v. Reid, 490 U.S. 730, 740 (1989) (employing

federal common law to define “work made for hire” under

provisions of the Copyright Act of 1976, a statute intended to

broadly preempt state statutory and common-law copyright

regulation). These cases would be informative if we too were

focusing on the meaning given to a term in a federal statute, but

that is not our focus.

40

the Court again emphasized the “precondition,” id. at 218, that

a conflict exist to warrant the conception of a federal rule; under

the facts of the case before it, the Court stated that its initial

inquiry must concern whether the application of the relevant

state law standard of care to banks would conflict with, and

thereby significantly undermine, an identifiable federal policy or

interest:

States normally look to the State of a business’

incorporation for the law that provides the

relevant corporate governance general standard of

care. And by analogy, it has been argued, courts

should look to federal law to find the standard of

care governing officers and directors of federally

chartered banks.

To find a justification for federal common law in

this argument, however, is to substitute analogy or

formal symmetry for the controlling legal

requirement, namely, the existence of a need to

create federal common law arising out of a

significant conflict or threat to a federal interest.

O’Melveny, 512 U.S. at 85, 87.

***

In sum, we can find no significant conflict with,

or threat to, a federal interest. The federal need is

far weaker than was present in what the Court has

called the “few and restricted’ instances,”

Milwaukee v. Illinois, 451 U.S. 304, 313 (1981),

41

in which this Court has created a federal common

law.

Atherton, 519 U.S. at 224-25. The Court then detailed such

“few and restricted” cases, which I list in the margin.15 Again,

the Court’s focus was on the presence of a significant conflict.

And, to discern whether a conflict is present, we are not to

evaluate the jurisprudential landscape of all fifty states; rather,

“federal courts should incorporate state law into federal

15

As enumerated by the Court in Atherton: See Hinderlider

v. La Plata River & Cherry Creek Ditch Co., 304 U.S. 92 (1938)

(controversy between two States regarding apportionment of

streamwater); Boyle v. United Technologies Corp., 487 U.S. 500

(1988) (Federal Government contractors and civil liability of

federal officials); United States v. Standard Oil Co. of Cal., 332

U.S. 301, 305 (1947) (relationship between Federal Government

and members of its armed forces); Howard v. Lyons, 360 U.S.

593, 597 (1959) (liability of federal officers in the course of

official duty); Banco Nacional de Cuba v. Sabbatino, 376 U.S.

398, 425 (1964) (relationships with other countries). See also

Texas Industries, Inc. v. Radcliff Materials, Inc., 451 U.S. 630,

641(1981) (“Absent some congressional authorization to

formulate substantive rules of decision, federal common law

exists only in such narrow areas as those concerned with the

rights and obligations of the United States, interstate and

international disputes implicating the conflicting rights of States

or our relations with foreign nations, and admiralty cases”).

42

common law unless the particular state law in question is

inconsistent with the policies underlying the federal statute.”

Kamen v. Kemper Fin. Servs., 111 S. Ct. 1711, 1722 (1991)

(emphasis added).

Most recently, in United States v. Bestfoods, the Court

was called upon to consider whether a parent corporation that

actively participated in, and exercised control over, the

operations of a subsidiary may, without more, be held liable

under CERCLA as an operator of a polluting facility owned or

operated by the subsidiary. 524 U.S. 51, 55 (1998). The Court

answered in the negative, “unless the corporate veil may be

pierced.” Id. In so concluding, the Court expounded upon

certain general principles of corporate law – for example, that

parents are not liable for the acts of their subsidiaries, id. at 62,

along with the “equally fundamental principle of corporate law”

that a corporate veil may be pierced where the corporate form

was misused, id. Significantly, the Court explained:

Nothing in CERCLA purports to rewrite this

well-settled rule, either. CERCLA is thus like

many another congressional enactment in giving

no indication “that the entire corpus of state

corporation law is to be replaced simply because

a plaintiff’s cause of action is based upon a

federal statute,” Burks v. Lasker, 441 U.S. 471,

478, 60 L. Ed. 2d 404, 99 S. Ct. 1831 (1979), and

the failure of the statute to speak to a matter as

fundamental as the liability implications of

corporate ownership demands application of the

rule that “in order to abrogate a common-law

43

principle, the statute must speak directly to the

question addressed by the common law,” United

States v. Texas, 507 U.S. 529, 534, 123 L. Ed. 2d

245, 113 S. Ct. 1631 (1993) (internal quotation

marks omitted). The Court of Appeals was

accordingly correct in holding that when (but only

when) the corporate veil may be pierced, may a

parent corporation be charged with derivative

CERCLA liability for its subsidiary’s actions.

Id. at 63-64 (footnotes omitted).

As noted by the majority, the Bestfoods Court declined to

reach the precise issue before us, noting a “disagreement” as to

whether “courts should borrow state law, or instead apply a

federal common law of veil piercing,” 524 U.S. at 64, n.9, but

sidestepping any conclusion: “Since none of the parties

challenges the Sixth Circuit’s holding that [certain companies]

incurred no derivative liability, the question is not presented in

this case, and we do not address it further,” id. The majority

protests that the Court did not declare the use of federal common

law inappropriate at this juncture or cite to O’Melveny. But the

Court clearly did not need to, or choose to, reach the issue. We

should infer nothing from its silence.

I find more significant the Bestfoods Court’s affirmative

discussion of “norms of corporate behavior,” which it viewed

as constituting crucial reference points, along with the reliability

of bedrock principles of corporate law. See, e.g., 524 U.S. at 70

44

n.13 & 71. I cannot help but conclude that reference to the

“norms” bolsters the view that existing state corporate law

principles should control, and we need not invent federal law, or

deem them “federal”, in order to further CERCLA’s regulatory

scheme. The Court’s discussion of “congressional silence”

concerning these “bedrock” corporate principles, which it

describes as “audible,” supports this view. 524 U.S. at 62. With

respect to the silence wrought by Congress’ failure to address,

in the statute, the claim at issue in Bestfoods, notably, the Court

stated that “CERCLA is thus like many another congressional

enactment in giving no indication ‘that the entire corpus of state

corporation law is to be replaced simply because the plaintiff’s

cause of action is based upon our federal statute.’” Bestfoods,

524 U.S. at 63 (quoting Burks v. Lasker, 441 U.S. 471, 478

(1979)). Indeed, the Bestfoods Court chided the district court in

that case for having “treated CERCLA as though it displaced or

fundamentally altered common law standards of limited

liability” because “such a rule does not arise from congressional

silence, and CERCLA’s silence is dispositive.” 524 U.S. at 70.

Finally, it bears noting that the Supreme Court affirmed the

court of appeals’ determination applying Michigan law that a

parent may be held liable only where the corporate veil may be

pierced. See United States v. Cordova Chem. Co., 113 F.3d 572,

580 (6th Cir. 1997).

After reading these three recent Supreme Court opinions,

I am left with the clear impression that the notion of resorting to

a federal rule of successor liability here, mandating it as

controlling in our Circuit without regard to state law, would not

be endorsed by the Supreme Court. The overarching theme is

that state law should not be displaced unless the particular state

45

law at issue conflicts with an important federal policy.

Noticeably absent is any reference to the majority’s guiding

theme – that of the need for uniformity. And, as I discuss more

fully below, uniformity for uniformity’s sake is not such a

policy.

The courts of appeals that have addressed this issue agree

that the Supreme Court’s recent decisions discussed above have

moved toward reliance on state law, and away from the creation

of federal common law, unless a conflict exists. In Atchison, T.

& S.F. Ry. v. Brown & Bryant, 159 F.3d 358 (9th Cir. 1997), the

Court of Appeals for the Ninth Circuit considered whether the

Supreme Court’s pronouncements on this issue in O'Melveny

and Atherton (Bestfoods had not yet been decided) were clear

enough to cause it to abandon its own previous determination in

Louisiana-Pacific Corp. v. Asarco, Inc., 909 F.2d 1260 (9th Cir.

1990) (adopting Third Circuit’s rationale in Smith Land) that the

parameters of successor liability under CERCLA should be

fashioned by federal common law in order to promote national

uniformity. The Atchison court concluded that although the

Atherton and O’Melveny opinions implicated FIRREA, and not

CERCLA, the underlying analysis was nonetheless applicable

and persuasive. 159 F.3d at 362. Thus, in concluding that the

promotion of national uniformity does not justify application of

federal common law to CERCLA, the Court effectively rejected

its previous determination in Louisiana-Pacific along with that

opinion’s underlying rationale – our own opinion in Smith Land.

Initially, the Atchison Court correctly noted that “simply

because a federal statute is involved does not always mean that

federal courts should fashion a uniform federal rule.” 159 F.3d

46

at 362 (citation omitted). “Frequently, state rules of decision

will furnish an appropriate and convenient measure of the

governing federal law.” Id. The subsequent discussion merits

repeating in full:

In Louisiana-Pacific, we agreed with the Third

Circuit that CERCLA’s “‘meager legislative

history available indicates that Congress expected

the courts to develop a federal common law to

supplement the statute.’” 909 F.2d at 1263

(quoting Smith Land, 851 F.2d 86 at 91). This

legislative history consists of a discussion in

Congress that common law should govern the

issue of joint and several liability under

CERCLA. Louisiana-Pacific recognized that

Congress did not address the particular issue of

successor liability under CERCLA.

O’Melveny tells us that when dealing with a

“comprehensive and detailed” federal statutory

regulation, a court should instead presume that

matters left unaddressed in such a scheme are

subject to state law. “Congress acts . . . against

the background of the total corpus juris of the

states . . . .” Atherton, 117 S. Ct. at 670

(alteration in original). The formation of

corporations and the dissolution and continuing

liability of corporations are traditional areas of

state law. As CERCLA lacks any clear directive

that federal courts develop standards for successor

47

liability, we turn to the Kimbell Foods test, as

clarified by O'Melveny and Atherton.

***

Although Louisiana-Pacific refers to the “need

for national uniformity” as a reason for

developing federal rules for successor liability,

Atherton notes that “to invoke the concept of

‘uniformity’ . . . is not to prove its need.” 117 S.

Ct. at 671; see also O'Melveny, 114 S. Ct. at 2055

(recognizing how generic and “lightly invoked” is

the need for uniformity). Although often invoked

in this context, there has been no real explanation

of the need for uniformity in the particular area of

successor liability - especially since state law will

in many other instances determine whom the EPA

may or may not look to for compensation. If state

law varied widely on the issue of successor

liability, perhaps the need for a uniform federal

rule would be more apparent. This is not the case,

however, as “the law in the fifty states on

corporate dissolution and successor liability is

largely uniform.” Anspec Co. v. Johnson

Controls, Inc., 922 F.2d 1240, 1249 (6th Cir.

1991) (Kennedy, J., concurring) (holding that

state law determines successor liability under

CERCLA). The argued “need” for uniformity thus

stems not from disarray among the various states,

but from the alleged need for a more expansive

view of successor liability than state law currently

48

provides - in other words, the notion that state law

on this issue is inadequate for CERCLA’s

purposes.

But O'Melveny and Atherton also speak to this

argument. Before a court can recognize a federal

rule of decision, there must be a “‘significant

conflict between some federal policy or interest

and the use of state law.’” O'Melveny, 114 S. Ct.

at 2055 (quoting Wallis, 384 U.S. 63 at 68).

Indeed, such a conflict is a “precondition” to

fashioning federal common law rules. Atherton,

117 S. Ct. at 670. The Court’s recent cases clarify

that to demonstrate such a conflict, more than

speculation is required - there must be a “specific,

concrete federal policy or interest that is

compromised” by the application of state law.

O'Melveny, 114 S. Ct. at 2055. We therefore

doubt that the concern noted in Louisiana-Pacific

is sufficient grounds for developing a federal rule

of decision.

Atchison, 159 F.3d at 362-64 (certain internal citations and

footnotes omitted).16 The Atchison Court concluded that it

16

The majority excerpts a line of dicta from Atchison in

which the Court muses that if “state law varied widely on the

issue of successor liability, perhaps the need for a uniform

federal rule would be more apparent.” (Maj. Op. at 17.)

(continued...)

49

would not adopt the “substantial continuation” exception (which

would have expanded federal common law liability). It then

reasoned that because the same result would flow in the case

before it under either state law or federal common law, it need

not decide whether state or federal law governs successor

liability under CERCLA. Id. at 364. Despite bypassing the

question we now consider, it is abundantly clear that the Ninth

Circuit, were its hand forced, would follow the recent directives

of the Supreme Court and hold that state law should govern

successor liability under CERCLA.

Even more recently, and with the benefit of the Bestfoods

opinion, the Court of Appeals for the First Circuit, considering

16

(...continued)

However, as the more fully excerpted passage above shows, the

Court goes on to explain that this need not preoccupy it because,

first and foremost, the Supreme Court has made clear that there

must exist a significant conflict between some federal policy or

interest and the use of state law.

In disagreeing with the Atchison Court on this point, and

by citing what it views as a varied set of state laws concerning

successor liability as the jumping off point for application of a

federal rule, the majority leapfrogs over the critical inquiry –

whether there exists a conflict between Pennsylvania law and an

important federal policy or interest. Lack of uniformity itself

does not satisfy the requirement that a conflict exist – only after

a conflict has been identified does the Supreme Court direct us

to evaluate the need for a uniform rule.

50

displacement of Connecticut state law to determine successor

liability under CERCLA, did just that:

We have concluded that the majority rule is to

apply state law “so long as it is not hostile to the

federal interests animating CERCLA,” and have

applied Massachusetts contracts law to determine

an issue of successor liability. John S. Boyd Co.,

Inc. v. Boston Gas Co., 992 F.2d 401, 406 (1st

Cir. 1993). Recent Supreme Court precedent

confirms that Boyd’s approach is correct. The

Court applied state corporation law in a recent

CERCLA case involving the potential liability of

a parent corporation for its subsidiary and left

little room for the creation of a federal rule of

liability under the statute. See United States v.

Bestfoods, 524 U.S. 51, 63 (1998) (“CERCLA is

. . . like many another congressional enactment in

giving no indication that the entire corpus of state

corporation law is to be replaced simply because

a plaintiff's cause of action is based upon a federal

statute.”) (internal quotation marks omitted). The

Court’s statements in Bestfoods and O'Melveny

demonstrate that to justify the creation of a

federal rule, “there must be a specific, concrete

federal policy or interest that is compromised by

the application of state law.” Atchison, Topeka &

Santa Fe Railway Co. v. Brown & Bryant, Inc.,

159 F.3d 358, 363-64 (9th Cir. 1998) (internal

quotation marks omitted). We see no evidence

that application of state law to the facts of this

51

case would frustrate any federal objective.

Connecticut’s “mere continuation” test thus is the

correct test for determining successor liability for

the hazardous waste disposed.

United States v. Davis, 261 F.3d 1, 54 (1st Cir. 2001).

As recognized by the Atchison and Davis courts, the

Supreme Court has repeatedly emphasized that a specific and

identifiable conflict must be present before we should invoke

and apply a federal rule of decision. Here, no such conflict

exists. Absent evidence that application of Pennsylvania state

law, not the hypothetical application of the law of 49 other

states, does frustrate CERCLA’s purpose – holding liable parties

responsible for the costs associated with the clean up of

hazardous waste sites – and in the face of recent Supreme Court

opinions discouraging the creation of a federal rule of decision,

it is readily apparent that resort to any law other than

Pennsylvania’s is unnecessary and uncalled for.

I subscribe to and seek to reiterate a number of the

majority’s threshold observations, which it appears to note but

then discard: namely, that the Supreme Court has “cautioned

against the unwarranted displacement of state law” (Maj. Op. at

11) (citing O’Melveny, 512 U.S. at 87); additionally, that

“[i]ncorporation of state law is particularly favored in the area

of corporate law, because business decisions proceed in reliance

on the applicable state standards” (Id.) (citing Kamen, 111 S. Ct.

at 1722); and, finally, that absent some significant conflict arises

between a federal policy interest and the use of state law, “state

corporation law generally should be integrated into the federal

52

statutory regime.” (Id.) (citing United States v. Kimbell Foods,

Inc., 440 U.S. 715 (1979)) (other citations omitted). But, it is

not clear to me why, in the face of these guiding principles, the

majority then frames the issue before us simply as “whether

CERCLA requires a uniform federal standard of corporate

successor liability.” (Maj. Op. at 11.)

The majority’s determination that application of federal

common law is warranted here hinges on our previous terse

treatment of the issue in Smith Land & Improv. Corp. v. Celotex

Corp., 851 F.2d 86 (3d Cir. 1988) and Lansford-Coaldale Joint

Water Auth. v. Tonolli Corp., 4 F.3d 1209 (3d Cir. 1993), cases

in which the Court advanced only one animating rationale for

adopting the “general doctrine of successor liability in operation

in most states,” 851 F.2d at 92 – the need for a uniform and

predictable body of law. We did so in a few conclusory

sentences, without any meaningful discussion. Intervening

Supreme Court precedent makes clear, however, that this

rationale is no longer, if it ever was, paramount when evaluating

whether we are confronted with “one of those extraordinary

cases in which the judicial creation of a federal rule of decision

is warranted.” O'Melveny & Myers v. FDIC, 512 U.S. 79, 89

(1994). To the extent SmithLand and Lansford-Coaldale

command us to ignore in our analysis longstanding, ingrained

principles of state corporate law in favor of “that most generic

(and lightly invoked) of alleged federal interests, the interest in

uniformity,” id. at 88, those decisions should be reevaluated.

George Harms Constr. Co. v. Chao, 371 F.3d 156 , 161 (3d Cir.

2004) (“We recognize that we may reevaluate a precedent in

light of intervening authority even without en banc

consideration.”); United States v. Adams, 252 F.3d 276, 286 (3d

53

Cir. 2001) (“Although a panel of this court is bound by, and

lacks authority to overrule, a published decision of a prior panel,

a panel may reevaluate a precedent in light of intervening

authority.”) (internal quotations omitted). We must reevaluate

the exalted position that we previously afforded “uniformity” in

light of the Supreme Court’s direction that we are to employ a

different mode of analysis.17

The majority asserts that resort to federal common law is

necessary because state laws concerning successor liability are

not uniform and thus, without fashioning a federal rule of

decision, predictability will be lacking. To say that the need for

uniformity is the articulated federal policy supplying the

rationale for creating federal common law is to put the analytic

rabbit in the hat, so to speak. If uniform application is indeed

the goal, resort would never be had to state law assuming some

variation as among the different laws. Uniformity cannot be,

and has never been said to be, the single animating principle.

While it is a laudable goal, it is not one that has served as the

basis on which the Supreme Court, or any other court of appeals

to have addressed the issue, has rejected the application of state

law. Rather, as discussed above and made clear in O'Melveny

and Atherton, those courts that have considered rejecting the

application of a particular state law in favor of a federal scheme

have done so only when the state law in question clearly

conflicted with an important federal policy to be advanced. See,

17

To the extent that it could be argued that adopting this

position requires us to convene the Court en banc and overrule

prior opinions, then I would urge that we do so.

54

e.g., Kamen, 500 U.S. at 98; Boyle, 487 U.S. at 504; Texas

Industries, Inc., 451 U.S. at 641; Wallis, 384 U.S. at 68;

Sabbatino, 376 U.S. at 425; Wheeldin, 373 U.S. at 651; Lyons,

360 U.S. at 596; Standard Oil Co. of Cal., 332 U.S. at 305. See

also Redwing Carriers, Inc., v. Saraland Apartments, 94 F.3d

1489, 1501-02 (11th Cir. 1996) (holding that state law should be

adopted as the federal standard for determining whether a

limited partner may be held accountable for the CERCLA

liability of the partnership). These cases also make clear that it

is the second factor of the Kimbell Foods test18 which should

receive paramount consideration. The Supreme Court in

O’Melveny and Atherton cite to the Kimbell Foods test in direct

support of the precept that “when courts decide to fashion rules

of federal common law, ‘the guiding principle is that a

significant conflict between some federal policy or interest and

the use of state law . . . must first be specifically shown.’

Indeed, such a ‘conflict’ is normally a ‘precondition.’”

Atherton, 519 U.S. at 218 (quoting O’Melveny, 512 U.S. at 87,

and citing Kimbell Foods, 440 U.S. at 728). The Court in

18

The Kimbell Foods test details three considerations relevant

to the determination of whether federal common law or state law

should provide the rule of decision: 1) whether the nature of the

federal program requires national uniformity; 2) whether the

application of state law would frustrate specific objectives of the

federal program; and 3) whether the application of federal law

would disrupt commercial relationships predicated on state law.

See Adams v. Madison Realty & Dev., Inc., 937 F.2d 845, 856

(3d Cir. 1991) (citing Kimbell Foods, 440 U.S. at 728-29).

55

Atherton cites to Kimbell Foods an additional time, where it

explains, “To invoke the concept of ‘uniformity,’ [] is not to

prove its need.” 519 U.S. at 220 (citing Kimbell Foods, 440

U.S. at 730 (rejecting “generalized pleas for uniformity”)).

Certainly, neither opinion relies, as the majority seems to do, on

Kimbell Foods’ other espoused consideration – whether the

federal program requires uniformity, or come close to elevating

this factor to the point of deeming it a “precondition,” as has the

Court with respect to the presence of a significant conflict.19

Clearly, the required conflict does not exist here;

application of Pennsylvania law produces the desired result.

Therefore, we need not abandon Pennsylvania law, nor should

we label the rule applied today by the majority “federal.”

Accordingly, I respectfully dissent from the reasoning contained

in the majority’s opinion but concur in the resulting affirmance

of the District Court’s order.

19

Bestfoods does not even cite to Kimbell Foods.

56