Petition for Writ of Certiorari — Celotex Corp. v. Smith Land & Improvement Corp.

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IN THI

SUPREME COURT OF THE UNITED STATES

October Term. 1988

THE CELOTEX CORPORATION and

RAPID-AMERICAN CORPORATION

Petitioners.

SMITH LAND & IMPROVEMENT CORPORATION,

Respondent.

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

Gilbert F. Casellas

Judith B. Wait

(Counsel of Record)

MONTGOMERY, MCCRACKEN

WALKER & RHOADS

Three Parkway, 20th Floor

Philadelphia, PA 19102

Attorneys for Petitioners

The Celotex Corporation and

Rapid-American Corporation

October 28, 1988

PACKARD PRESS / LEGAL DIVISION, 10th & SPRING GARDEN STREETS, PHILA, PA. 19123 (215) 236-2000

QUESTIONS PRESENTED FOR REVIEW

1. Is the Court of Appeals required by this Court’s

rulings on Federal Rule of Civil Procedure 56 to affirm

summary judgment if alternative, narrower grounds

exist for doing so?

2. May a company not otherwise liable succeed

through merger to environmental liabilities for real

property sold by its predecessor years before the merger

under a statute, the Comprehensive Environmental Re-

sponse, Compensation and Liability Act (“CERCLA”),

which did not exist at the time of the merger and which

expressly limits liability to certain enumerated parties?

TABLE OF CONTENTS

Page

QUESTIONS PRESENTED FOR REVIEW...... i

TABLE OF AUTTORORI IIe ccc ccccccccscccsccn Vv

SPOS AEG EU 6g OR a es EAs 6 ooo 5 68 0b eR aa 1

ELON POW CRAO 6ne si ceed na vsciscouctaes 4

STATUTORY PROVISIONS AND COURT

FURS ae BE WR WIS dso nes des Gas e ee va saee

I. THE COURT OF APPEALS IGNORED THIS

COURT'S DECISIONS CONCERNING RULE

56 BY REFUSING TO AFFIRM A SUMMARY

JUDGMENT ON THE ALTERNATIVE AND

NARROWER GROUNDS WHICH EXISTED.

Il. THERE IS NO SUPPORT FOR EXPANDING

SECTION 107(a) OF CERCLA TO IMPOSE

LIABILITY ON SUCCESSORS TO THE ENU-

MERATED POTENTIALLY RESPONSIBLE

PARTIES ESPECIALLY WHERE SUCH LIA-

BILITY IS IMPOSED FOR CONDITIONS ON

REAL PROPERTY SOLD BY THE PREDE-

CESSOR YEARS BEFORE THE MERGER

AND ARE CREATED BY A STATUTE

WHICH DID NOT EXIST AT THE TIME OF

Pi 8: ee een a a ae ee

A. The Plain Language of CERCLA Does Not

Support Imposing Successor Liability... .

B. The Legislative History of CERCLA Dem-

onstrates That Successor Liability Should

Not Em EUNGOQNE voscs ses oeae head beecks

TABLE OF CONTENTS — (Continued)

Page

C. The Imposition of Successor Liability Un-

der CERCLA Where the Predecessor-

Successor Relationship Arises After the

Property in Question Is Sold Could Para-

lyze Corporate Mergers................- 19

CO NEIE s odes ch cen cere eenercscecensccues 21

EE, cb acaba casa e Sk se eh S600 r eee 408 A-1

RULE 28.2 STATEMENTS. 2... cccccsscsescces A-1

TEXT OF COURT RULES INVOLVED ......... A-2

TEXT OF STATUTORY PROVISIONS IN-

tok y 5 Sr er ee ee net Pee ee eee A-3

OPINION OF THE UNITED STATES COURT OF

APPEALS FOR THE THIRD CIRCUIT (851 F.2d

ioe eo eo scbawethh cee teaches een eee es eeesan A-5

JUDGMENT OF THE UNITED STATES COURT

OF APPEALS FOR THE THIRD CIRCUIT .... A-19

ORDERS OF THE UNITED STATES COURT OF

APPEALS FOR THE THIRD CIRCUIT

Order Denying Rehearing and Rehearing In

Banc, Dated August 1, 1988 ..............- A-21

Order Staying Issuance of Certified Judgment

in Lieu of Mandate Until November 6, 1988,

Dated August 22, 19GB . .. 2.2 ce ccwescewces A-22

MEMORANDUM OPINION AND ORDER

OF THE UNITED STATES DISTRICT COURT

FOR THE MIDDLE DISTRICT OF PENNSYLVA-

NIA IN SMITH LAND & IMPROVEMENT COR-

PORATION V. RAPID-AMERICAN CORPORA-

ME on xs sc 8 WS MORK OKO OAK ENON ERS S EN ONTO ES A-23

TABLE OF CONTENTS — (Continued)

Page

MEMORANDUM OPINION AND ORDER OF

THE UNITED STATES DISTRICT COURT FOR

THE MIDDLE DISTRICT OF PENNSYLVANIA

IN SMITH LAND & IMPROVEMENT CORPORA-

TION V. THE CELOTEX CORPORATION..... A-31

REPORT OF MAGISTRATE OF THE UNITED

STATES DISTRICT COURT FOR THE MIDDLE

DISTRICT OF PENNSYLVANIA IN SMITH

LAND & IMPROVEMENT CORPORATION V.

RAPID-AMERICAN CORPORATION.......... A-35

REPORT OF MAGISTRATE OF THE UNITED

STATES DISTRICT COURT FOR THE MIDDLE

DISTRICT OF PENNSYLVANIA IN SMITH

LAND & IMPROVEMENT CORPORATION V.

Baek CREA CORPORA IIONN 6 occ dsc cick A-44

TABLE OF AUTHORITIES

Cases: Page

Anderson v. Liberty Lobby, Inc., 477 US. 242

(3906) 50k cecideniske eee 10

Bernitsky v. United States, 620 F.2d 948 (3d Cir.),

cert. denied, 449 U.S. 870 (1980)............ 9

Cadillac Fairview/Cadillac, Inc. v. Dow Chemical

Company, 14 Envtl. L. Rep. (Envtl. L. Inst.)

20376 (C.D. Cal. March 5, 1984), rev'd on other

grounds, 18 Envtl. L. Rep. (Envtl. L. Inst.)

20470 (D.C. Cir. February 25, 1988) ...... 18, 19

Celotex v. Catrett, 477 U.S. 317 (1986)......... a, 10

Consumer Product Safety Commission v. GTE Syl-

vattia, Inc., 447 U.S. 104 (IFO). 6 occ nen casts 15

Frey & Son v. Cudahy Packing Co., 256 U.S. 208

CERZ1) ons cence esos eeee ene eee 9

Helvering v. Gowran, 302 U.S. 238 {1937}, reh'g

denied, 302 US. TG4 (TRF wk oho cesta sean a, 9

Idaho v. Bunker Hill Co., 635 F. Supp. 665 (D.

liao T9G6) «ooo ip eeeaeeee eee 18

Langnes v. Green, 282 U.S. 531 (1931) .......... 9

Neal v. Carey Canadian Mines, Ltd., 548 F. Supp.

357 (E.D. Pa. 1982), aff'd sub nom. Van

Buskirk v. Carey Canadian Mines, Ltd., 760

PF .28 461 (36 Cov. I ot 5 eu eens eee 12

New York v. Shore Realty Corp., 759 F.2d 1032 (2d

ae = | BP re re ry ie ye 17, 18

Oner IJ, Inc. v. EPA, 597 F.2d 184 (9th Cir.

GTO) sv xa ile i pk ea Oe eee i?

Philadelphia Electric Co. v. Hercules, Inc., 762 F.2d

303 (3d Cir.), cert. denied, 474 U.S. 980

(T9GS) bc enced eee eee 6. 7

TABLE OF AUTHORITIES — (Continued)

Cases: Page

Stelos Co. v. Hosiery Motor-Mend Corp., 295 U.S.

EST CIGD) scab ineea beens see 9

T & E Industries, Inc. v. Safety Light Corp., 680 F.

Supp. GHG (2).N.2.. RGD o.5.6.60 60.08 6s dees caes 19

Transamerica Mortgage Advisors, Inc. v. Lewis,

444 US. 11 (ED FEes oaetec bhnsnsceeeeseee 15

United States v. American Railway Express Co.,

265 U.S. 425 CERRO. v 0ee 66 6n0eseakineeeree 9

United States v. Bliss, 667 F. Supp. 1298 (E.D. Mo.

1GB7) we vncccvdccecaua ced seae en anes 19

United States v. Conservation Chemical Co., 619 F.

Supp. 162 (W.D. MEO. BOGS) 00s secssseesseses 18

United States v. Holt State Bank, 270 U.S. 49

(1926) 2. e vceuducanssesseeueeese eee 9

United States v. Wade, 577 F. Supp. 1326 (E.D. Pa.

19GS) . . occkvcececebussueaseuuueeleuaes 18

Statutes:

28 U.S.A. $1294 1) . ccccvencvcsssceta see 5

28 U.S.C. GISSE acess diievsssse eee 5

42 U.34.. GROUT) 6s cn ccenseusa scene eee passim

42 U.S.C. GOCE SEM As kkcncuuunsetesuneeeee passim

29 U.S.C. § G135G9, 1506, 150O. cco e es ences eeeees 16

STU DA FSS 0 vce saecieewses esse eee 16

20 U.S.C. GAGE) 0 ies sdeeaseunassaseeeeeiee 16

26 U.S.C. GORGE 006 centeveceseuu canes en eae 16

TABLE OF AUTHORITIES — (Continued)

Statutes: Page

Superfund Amendments and Reauthorization Act

of 1986, Pub.L. No. 99-499, 100 Stat. 1613

By A rea eer ee es er er re ee ers 16

Court Rules:

Rs an nga U capeawun eee ede wan on 5, 10

ee Oe Ps a Ss oc obec kencnedecaaaceuns 12

Legislative Materials:

H. Rep. No. 99-253(1), 99th Cong., 2d Sess.1,

55, reprinted in 1986 U.S. Code Cong. & Ad.

PO GRU SUE San Gb swede bp eaedasen creases E

H. Rep. No. 96-1016, Part 1 96th Cong., 2d Sess. 1,

29, reprinted in 1980 U.S. Code Cong. & Ad

ee RR aR se atacn tact RE a ae 16

Other Authorities:

10A J. Wright, A. Miller, M. Kane, Federal Practice

and Procedure, §2727 (2d ed. 1983).......... lv

1OA J. Wright, A. Miller, M. Kane, Federal Practice

and Procedure, §2720 (2d ed 1983).......... 11

Vil

No. 88-

IN THE

SUPREME COURT OF THE UNITED STATES

October Term, 1988

THE CELOTEX CORPORATION AND

RAPID-AMERICAN CORPORATION,

Petitioners,

Vv.

SMITH LAND & IMPROVEMENT CORPORATION,

Respondent.

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

INTRODUCTION

Petitioners seek the issuance of a Writ of Certiorari

to review the judgment of the United States Court of

Appeals for the Third Circuit in Smith Land & Improve-

ment Corporation v. The Celotex Corporation, Smith

Land & Improvement Corporation v. Rapid-American

Corporation, 851 F.2d 86 (3d Cir. 1988), which vacated

summary judgment in favor of The Celotex Corporation

(“Celotex”) and Rapid-American Corporation (“Rapid-

American’) and remanded the case to the United States

District Court for the Middle District of Pennsylvania.

This was an action brought by Smith Land & Improve-

ment Corporation (“Smith Land”) under the Compre-

hensive Environmental Response, Compensation and

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

reimbursement of certain response costs Smith Land

incurred to abate asbestos on property sold to it in 1963

by the Philip Carey Manufacturing Company (“Philip

Carey”), a company which ceased to exist in 1967 as a

result of mergers.

This Court recently held that the plain language of

Rule 56(c) of the Federal Rules of Civil Procedure

mandates entry of summary judgment “against a party

who fails to make a showing sufficient to establish the

existence of an element essential to that party’s case,

and on which that party will bear the burden of proof at

trial.” Celotex v. Catrett, 477 U.S. 317, 322 (1986).

Moreover, this Court has long held that Rule 56 requires

an appellate court to affirm on any alternative grounds

which establish that the movant is entitled to judgment

as a mattei of law. Helvering v. Gowran, 302 U.S. 238,

245 (1937), reh'g denied, 302 U.S. 781 (1938).

Petitioners submit that the Third Circuit abdicated

its responsibility under Rule 56 by not deciding the more

narrow and dispositive question which would have pro-

vided the court with an alternative basis on which to

affirm the district court’s entry of summary judgment

for petitioners. As such, the Third Circuit’s decision

conflicts with decisions of this Court as to the standard

of review of district courts’ grants of summary judg-

ment.

Further, with no support in either case law or

legislative history, the Third Circuit extended the reach

of section 107(a) of CERCLA and concluded that it was

meant to include successors to the enumerated poten-

tially responsible parties. Thus, it held that the general

doctrine of corporate successor liability is appropriate in

CERCLA contribution claims. 851 F.2d at 92. Although

the Court stated that “Congressional intent” supported

the view that such liability should be imposed, nowhere

did the court identify the source of such “Congressional

intent”. Id.

The impact of the Third Circuit’s unwarranted ex-

pansion of liability under CERCLA to include all succes-

sors to all potentially responsible parties is far from

theoretical. As Congress itself has noted,

The Office of Technology Assessment now esti-

mates there may be as many as 10,000 Superfund

sites across the Nation, or an average of 23 sites per

Congressional district. These sites range from in-

dustrial plants to river beds to city dumps where

small businesses and households have disposed of

solvents, paints and cleaning fluids. We now under-

stand that a cleanup frequently goes far beyond

simple removal of barrels. If often involves years of

pumping contaminated water from aquifers. The

total cost of completing the Superfund program is

estimated to be as much as $100 billion. The total

time will be decades.

H. Rep. No. 99-253(1), 99th Cong., 2d Sess. 1, 55,

reprinted in 1986 U.S. Code Cong. & Ad. News 2835,

2837. The Third Circuit has concluded that Congress

intended to impose this enormous liability on the corpo-

rate successor to every party enumerated in section

107(a) of CERCLA, regardless of its nexus, or lack

thereof, to the property in question.

The Third Circuit’s broad holding is likely to pro-

duce a chilling effect on mergers. A party contemplating

a merger will not only have to inquire into and investi-

gate the possible contamination of the target company’s

current land holdings; it will also have to investigate the

possible contamination of the target company’s prior

land holdings, though currently owned by someone else,

and the possible contamination of the target company’s

predecessors’ land holdings. In many cases, such a

burdensome and costly inquiry is impossible. Section

107(a) of CERCLA clearly and unequivocally limits its

reach to the four enumerated parties. The Third Cir-

cuit’s extension of section 107(a) to include successors

to such parties could not have been contemplated by

Congress.

OPINIONS BELOW

The opinion of the Court of Appeals for the Third

Circuit is reported at Smith Land & Improvement Cor-

poration v. The Celotex Corporation, Smith Land &

Improvement Corporation v. Rapid-American Corpora-

tion, 851 F.2d 86 (3d Cir. 1988).

The opinions of the United States District Court for

the Middle District of Pennsylvania have not been

published in any official reporters. Citations for the two

opinions are Smith Land & Improvement Corporation v.

Rapid-American Corporation, No. 86-0116 (M.D. Pa.

September 21, 1987) and Smith Land & Improvement

Corporation v. The Celotex Corporation, No. 86-1151

(M.D. Pa. September 22, 1987). The district court’s

opinion regarding the Rapid-American case appears in

an unofficial reporter, the citation for which is Smith

Land & Improvement Corporation v. Rapid-American

Corporation, 18 Envtl. L. Rep. (Envtl. L. Inst.) 20769

(M.D. Pa. September 21, 1987).

The district court initially submitted the two cases to

Magistrate Smyser for his recommendation. Magistrate

Smyser’s reports have not been published. Citations for

these reports are Smith Land & Improvement Corpora-

tion v. Rapid-American Corporation, No. 86-0116

(M.D. Pa. June 16, 1987) and Smith Land & Improve-

ment Corporation v. The Celotex Corporation, No. 86-

1151 (M.D. Pa. June 16, 1987).

STATEMENT OF JURISDICTION

Petitioners seek review of the judgment of the

United States Court of Appeals for the Third Circuit.

This judgment was entered on June 30, 1988. The Third

Circuit denied petitioners’ Petition for Rehearing in

Banc on August 1, 1988. This Petition is filed within

ninety days of the denial of rehearing. The appellate

jurisdiction of this Court is based on 28 U.S.C.

§1254(1).

STATUTORY PROVISIONS AND

COURT RULES INVOLVED

This case involves consideration of sections 107(a)

and 113(f)(1) of the Comprehensive Environmental

Response, Compensation and Liability Act cf 1980. It

also invoives consideration of Rule 56(c) of the Federal

Rules of Civil Procedure. The text of the statutory

provisions and rule cited above are set forth in-full in the

Appendix.

STATEMENT OF THE CASE

In this action, Smith Land seeks reimbursement

from Celotex and Rapid-American under CERCLA for

certain costs it incurred to abate asbestos on real prop-

erty which it purchased in 1963 from the Philip Carey

Manufacturing Company (“Philip Carey’) and which is

located in Plymouth Meeting, Pennsylvania.! Smith

Land incurred such costs in responding to a demand for

remedial measures made by the Environmental Protec-

tion Agency (“EPA”) in 1984. In the complaints in these

consolidated actions, Smith Land alleged that the district

court has subject matter jurisdiction pursuant to 28

U.S.C. §1331 and 42 U.S.C. §9613.

1. Smith Land’s immediate predecessor, Exeter Investment,

Inc. (“Exeter”), was the actual purchaser of the property. Smith

Land’s current president, Richard Jordan, was Secretary of Exeter

at the time of this purchase and was active in the negotiations at the

time of the purchase. Smith Land currently occupies the property.

It is undisputed that Celotex and Rapid-American

never owned the property at issue. Celotex’s only con-

nection with Philip Carey, the alleged contaminator?,

arose in 1972, nine years after Philip Carey sold the

property, when Celotex, through a series of corporate

mergers, acquired an interest in Philip Carey. Rapid-

American’s involvement is more tenuous — it did not

even come into existence until 1972, nine years after the

conveyance.?

The property at issue is a 160-acre tract of land. The

subject of the litigation is a 20-acre, 30-foot high pile of

limestone material alleged to contain asbestos. It is also

undisputed that Smith Land inspected the property

several times before the purchase, considered the pile a

“negative” factor in the decision to purchase, and was

provided with and failed to avail itself of the opportunity

to perform test borings on the property prior to the

conveyance.

On this basis and relying on the Third Circuit’s

decision in Philadelphia Electric Co. v. Hercules, Inc.,

762 F.2d 303 (3d Cir.), cert. denied, 474 U.S. 980

(1985), the United States District Court for the Middle

District of Pennsylvania, following the conclusion of

discovery, entered summary judgment for Celotex and

Rapid-American and denied summary judgment for

Smith Land. On June 30, 1988, the Court of Appeals for

the Third Circuit entered an order vacating the judg-

ments of the district court.

The only basis for Smith Land’s appeal of the district

court’s entry of summary judgment for Celotex and

2. There is no admissible evidence which shows that Philip

Carey was responsible for disposing of the asbestos on the subject

property. See infra at pp. 10 to 13.

3. This was the result of a merger between an Ohio Rapid-

American and Glen Alden Corporation. By this time Glen Alden

(into which Philip Carey did not merge until June 1, 1967) had

already transferred all the assets and liabilities of Philip Carey.

Rapid-American and its denial of partial summary judg-

ment for Smith Land was the district court’s conclusion

that the caveat emptor defense, as approved by the Third

Circuit in Philadelphia Electric Co. v. Hercules, Inc., 762

F.2d 303 (3d Cir.), cert. denied, 474 U.S. 980 (1985),

barred Smith Land from its right to recover contribution

from Celotex and Rapid-American under CERCLA.

In the Third Circuit, Celotex and Rapid-American

not only addressed the caveat emptor defense, the only

legal issue raised by Smith Land, but also renewed

arguments, both factual and legal, raised before the

district court as to why the entry of summary judgment

for Celotex and Rapid-American was appropriate and

why it would have been inappropriate as to Smith Land.

The Third Circuit considered only the single and

rather broad legal issue which Smith Land put before

the Court, disregarded the other more narrow, disposi-

tive issues raised by Celotex and Rapid-American in

their appellate briefs and abdicated its responsibility

under this Court’s prior holdings which required it to

affirm on other grounds. Because these other narrow

issues provided alternative grounds for affirming the

district court’s decision, and because the Third Circuit’s

broad pronouncement regarding successor liability un-

der CERCLA could have a paralyzing effect on future

corporate transactions, Celotex and Rapid-American pe-

titioned the Third Circuit for a rehearing in banc.

On August 1, 1988, the Third Circuit denied rehear-

ing and rehearing in banc.

REASONS FOR GRANTING THE WRIT

I. THE COURT OF APPEALS IGNORED THIS

COURT’S DECISIONS CONCERNING RULE 56 BY

REFUSING TO AFFIRM A SUMMARY JUDGMENT

ON THE ALTERNATIVE AND NARROW GROUNDS

WHICH EXISTED

The sole issue addressed by the Third Circuit in its

opinion in this case is that of successor liability under

CERCLA. This issue becomes important only if the

liability of the predecessor is established. Celotex and

Rapid-American presented as a more narrow, but none-

theless dispositive, alternative ground for affirming the

district court’s entry of summary judgment the fact that

. Smith Land had offered no admissible evidence to show

that Philip Carey, the alleged predecessor, would have

been liable under CERCLA.* The Third Circuit ex-

pressly refused to consider this ground. In so doing, the

Third Circuit ignored two lines of well-established Su-

preme Court cases. The first line consists of those cases

which hold that an appellate court must affirm a lower

court’s decision if there is any ground for affirmance,

even if the ground relied upon by the lower court is a

wrong one. The second line of cases are those which

hold that a court must enter summary judgment for a

moving party where no admissible evidence has been

presented on an issue essential to the opposing party’s

case.

In response to Celotex’s and Rapid-American’s ar-

gument that there was no admissible evidence as to

Philip Carey’s liability under CERCLA, the Third Circuit

4. Philip Carey no longer exists as a separate corporation.

Celotex and Rapid-American are alleged to have succeeded to Philip

Carey’s liabilities through a series of statutory mergers. Thus, the

only way Celotex and Rapid-American can be deemed to have

succeeded to CERCLA liabilities is if Philip Carey would have been

liable under CERCLA, were Philip Carey still in existence today.

stated only: “[w]Je assume at this juncture — but absent

findings do not decide — that [Philip] Carey produced

the scrap pile that precipitated the EPA action.” 851

F.2d at 90. The Third Circuit’s refusal to consider this

alternative ground is inconsistent with the Supreme

Court’s pronouncement in Helvering v. Gowran, 302

U.S. 238 (1937), reh’g denied, 302 U.S. 781 (1938): “In

the review of judicial proceedings the rule is settled that

if the decision below is correct, it must be affirmed,

although the lower court relied upon a wrong ground or

gave a wrong reason.” 302 U.S. at 245 (citing Frey &

Son v. Cudahy Packing Co., 256 U.S. 208 (1921);

United States v. American Railway Express Co., 265

U.S. 425 (1924); United States v. Holt State Bank, 270

U.S. 49 (1926); Langnes v. Green, 282 U.S. 531 (1931);

Stelios Co. v. Hosiery Motor — Mend Corp., 295 U.S. 237

(1935); United States v. Williams, 278 U.S. 255

(1929)).5

Had the Third Circuit considered the alternative

basis presented to it for affirming the district court’s

decision — i.e., the inadmissibility of evidence presented

to support Smith Land’s burden of proof — it would have

had to conclude, consistent with other Supreme Court

precedent, that the entry of summary judgment for

Celotex and Rapid-American and the denial of partial

summary judgment for Smith Land was appropriate.

5. The Third Circuit’s refusal to consider the narrow alterna-

tive ground presented by Celotex and Rapid-American for affirming

the district court’s decision also fails to pay heed to circuit court

decisions following Helvering, and in particular, the Third Circuit’s

own decision in Bernitsky v. United States, 620 F.2d 948, 950 (3d

Cir.), cert. denied, 449 U.S. 870 (1980). In Bernitsky, the court

refused to affirm the entry of summary judgment on the purely

legal ground forming the basis of the district court’s decision, but

instead affirmed on a factual ground, concluding that summary

judgment was appropriate because of the absence of disputed facts.

This Court held in Celotex v. Catrett, 477 U.S. 317

(1986), that summary judgment for the moving party is

mandated where there is insufficient evidence to estab-

lish the existence of an element on which the non-

moving party bears the burden of proof:

In our view, the plain language of Rule S6(c)

mandates the entry of summary judgment, after

adequate time for discovery and upon motion,

against a party who fails to make a showing suffi-

cient to establish the existence of an element essen-

tial to that party’s case, and on which that party will

bear the burden of proof at trial.

477 U.S. at 322.

As to what constitutes a “sufficient” showing, this

Court held in Anderson v. Liberty Lobby, Inc., 477 U.S.

242 (1986), as follows:

The inquiry performed is the threshold inquiry as to

whether there is a need for a trial — whether, in

other words, there are any genuine factual issues

that properly can be resolved only by a finder of fact

because they may reasonably be resolved in favor of

either party.

477 U.S. at 250. Implicit in this Court’s requirement,

that the evidence which the non-moving party produces

present a triable issue for a jury, is the requirement that

such evidence be admissible. See 10A J. Wright, A.

Miller, M. Kane, Federal Practice and Procedure §2727

(2d ed. 1983) (Rule 56(e) requires the adversary to set

forth facts that would be admissible in evidence).

In this case, Smith Land had come forward with no

admissible evidence on an issue essential to its case at

the time discovery was closed (which was prior to the

filing of summary judgment motions) and has not come

forward with any such evidence at any time thereafter.

In order to support its burden of proof on the issue of

Philip Carey’s liability under CERCLA, Smith Land

should have come forward with admissible evidence to

show that Philip Carey owned the property now belong-

ing to Smith Land at the time of disposal of the asbestos-

containing waste, or that it transported such wastes on

its property.® In opposition to both Celotex’s and Rapid-

American’s Motion for Summary Judgment, and on its

own Motion for Partial Summary Judgment as to

Celotex,” the only evidence which Smith Land came

6. Section 113(f)(1) of CERCLA, on which Smith Land bases

its claims against Celotex and Rapid-American for contribution,

provides that any “person may seek contribution from any other

person who is liable or potentially liable under section 9607(a) of

this title.” 42 U.S.C. §9613(f)(1). Section 9607(a), in turn, enumer-

ates four categories of potentially liable parties: the current land-

owner (section 9607(a)(1)), the hauler of hazardous substances on

property not its own (section 9607(a)(3)), the transporter of haz-

ardous substances (section 9607(a)(4)), or the landowner on whose

property hazardous substances were once deposited during the

period of his ownership (section 9607(a)(2)). Since Smith Land has

nowhere alleged or argued that Philip Carey is the current land-

owner, or hauled hazardous waste on property not its own, the only

conceivable bases for considering Philip Carey’s liability is as an

owner of the property at the time of disposal (section 9607(a)(2)) or

aS a person who accepts any hazardous substances for transport

(section 9607(a)(4)).

7. Neither Celotex nor Rapid-American moved for summary

judgment on the absence of admissible evidence to show that Philip

Carey would have been liable under CERCLA. This ground was a

basis for Smith Land’s own Motion for Partial Summary Judgment

against Celotex, however. Smith Land’s failure to come forward

with any admissible evidence to demonstrate Philip Carey’s requi-

site involvement not only defeats Smith Land’s Motion for Partial

Summary Judgment, (the denial of which was a basis for Smith

Land’s appeal to the Third Circuit), but also mandates the entry of

summary judgment for Celotex on this issue. See generally 10A J.

Wright, A. Miller, M. Kane, Federal Practice and Procedure §2720

(2d ed. 1983) (“[t]he grant of judgment for the non-moving party

clearly is proper if both sides agree that there are no material fact

issues and join in the request that the case be decided, for the

moving or the non-moving side, on the basis of a motion for

judgment made by only one of them”).

While Smith Land never formally moved for summary judg-

ment as to Rapid-American, it did so informally in its opposition to

forward with was a few pages of trial testimony from an

unrelated personal injury action against Celotex. Neal v.

Carey Canadian Mines, Ltd., 548 F. Supp. 357 (E.D. Pa.

- 1982), aff'd sub nom. VanBuskirk v. Carey Canadian

Mines, Ltd., 760 F.2d 481 (3d Cir. 1985). The Neal case

was brought by former Philip Carey employees seeking

to recover for injuries received allegedly as a result of

their exposure to asbestos during their employment at

Philip Carey’s Plymouth Meeting plant. The trial testi-

mony offered was that of Harry Belz, one of the plaintiffs

in that action, during which he stated that he dumped

asbestos-containing materials onto Philip Carey’s prop-

erty while in Philip Carey’s employ.

As argued below, such testimony is inadmissible

hearsay as it relates to both Celotex and Rapid-

American. Under Rule 804(b)(1) of the Federal Rules of

Evidence, the former testimony of an _ unavailable

declarant’ is admissible only where:

. the party against whom the testimony is now

offered, or, in a civil action or proceeding, a

predecessor-in-interest, had an opportunity and sim-

ilar motive to develop testimony by direct, cross or

redirect examination.

Fed. R. Evid. 804(b)(1). Because Rapid-American was

not a party to the Neal case in which Mr. Belz testified,

it had no opportunity to cross-examine him. Therefore,

Mr. Belz’s testimony is inadmissible hearsay as it relates

to Rapid-American.

Mr. Belz’s testimony is also inadmissible hearsay as

it relates to Celotex. Since the Neal case in which Mr.

Belz testified did not require resolution of the issue of

NOTES (Continued)

Rapid-American’s Motion for Summary Judgment, where it asked

the district court to grant summary judgment in its favor. Thus,

the entry of summary judgment for Rapid-American is also appro-

priate.

8. Mr. Belz is now deceased.

whether Philip Carey disposed of asbestos on the subject

property (and in fact the court made no such finding on

this issue), but only whether Mr. Belz and others were

exposed to asbestos, Celotex did not have the requisite

motive to conduct any extensive cross-examination of

Harry Belz on this issue.

This absence of admissible evidence on the issue of

Philip Carey’s role with respect to the asbestos found on

Smith Land’s property constituted an appropriate

ground for affirmance of the district court’s entry of

summary judgment for both _Celotex and Rapid-

American. The Third Circuit erred both by failing to

consider this ground and by ignoring Supreme Court

precedent mandating the entry of summary judgment in

such circumstances.

Il. THERE IS NO SUPPORT FOR EXPANDING SEC-

TION 107(a) OF CERCLA TO IMPOSE LIABILITY

ON SUCCESSORS TO THE ENUMERATED POTEN-

TIALLY RESPONSIBLE PARTIES ESPECIALLY

WHERE SUCH LIABILITY IS IMPOSED FOR CON-

DITIONS ON REAL PROPERTY SOLD BY THE

PREDECESSOR YEARS BEFORE THE MERGER

AND IS CREATED BY A STATUTE WHICH DID NOT

EXIST AT THE TIME OF THE MERGER

A. The Plain Language of CERCLA Does Not Support

Imposing Successor Liability

Smith Land is proceeding against Celotex for con-

tribution under section 113(f)(1) of CERCLA, 42 U.S.C.

§9613(f)(1) (Supp. 1987). This provision states, in per-

tinent part, that “[a]ny person may seek contribution

from any other person who is liable or potentially liable

under section 9607(a) of this title.” 42 U.S.C.

§9613(f)(1) (emphasis supplied). As is apparent from

the plain language of this provision, a determination of

whether a party is potentially liable under section

107(a) is preliminary to any determination of whether

that party may be held liable to another for contribution.

The four classes of potentially liable persons under

CERCLA as defined by section 107(a) are:

(1) The owner and operator of a vessel (otherwise

subject to the jurisdiction of the United States) or a

facility,

(2) any person who at the time of disposal of any

hazardous substance owned or operated any facility

at which such hazardous substances were disposed

of,

(3) any person who by contract, agreement, or

otherwise arranged for disposal or treatment or

arranged with a transporter for transport for disposal

or treatment, of hazardous substances owned or

possessed by such person, by any other party or

entity, at any facility owned or operated by another

party or entity and containing such hazardous sub-

stances, and

(4) any person who accepts or accepted any haz-

ardous substances for transport to disposal or treat-

ment facilities or sites selected by such person, from

which there is a release, or a threatened release

which causes the incurrence of response costs, of a

hazardous substance, ...

42 U.S.C. §9607(a) (in pertinent part).

It is undisputed that Celotex and Rapid-American

do not fall into any of these categories. Celotex never

owned or operated the subject property, never arranged

for the disposal of the hazardous substances discovered

by the EPA on Smith Land’s property, and never ac-

cepted such substances for transport; Celotex had no

relationship whatsoever with Philip Carey, the prior

owner, until 1972, nine years after the subject property

had been conveyed to Smith Land’s predecessor, Exeter

Investment, Inc. (“Exeter”). Rapid-American did not

come into existence until 1972.

It is likewise undisputed that CERCLA contains no

provision for imposing liability upon the corporate suc-

cessors to the four enumerated categories of potentially

responsible parties set forth in section 107(a), 42 U.S.C.

§9607(a). Thus, the Court of Appeals’ interpretation of

the statute violates the very language of the statute.

This Court has often invoked the “familiar canon of

statutory construction that the starting point for inter-

preting a statute is the language of the statute itself.

Absent a clearly expressed legislative intention to the

contrary, that language must ordinarily be regarded as

conclusive.” Consumer Product Safety Commission v.

GTE Sylvania, Inc., 447 U.S. 102, 108 (1980). This

Court has further held that “it is an elemental canon of

statutory construction that where a statute expressly

provides a particular remedy or remedies, a court must

be chary of reading others into it.” Transamerica Mort-

gage Advisors, Inc. v. Lewis, 444 U.S. 11, 19 (1979).

In this case, the statute clearly limits liability to the

four enumerated parties. If Congress had intended to

include successors, it clearly could have said so.

B. The Legislative History of CERCLA Demonstrates

That Successor Liability Should Not Be Imposed

Despite the clear and conclusive language of the

statute, the Third Circuit held that “Congressional in-

tent” supports the view that such liability should be

imposed. 851 F.2d at 92. More specifically, the Third

Circuit stated that “Congressional intent supports the

conclusion that, when choosing between the taxpayers

or a successor corporation, the successor should bear the

cost.” Jd. Beyond the fact that the Third Circuit failed to

identify any source of such congressional intent, this

statement incorrectly assumes that situations wili fre-

quently arise where the only possible party upon whom

the EPA may shift the costs of clean-up will be the

successor to the party responsible for contaminating the

property. That is not the present situation, where there

is a current landowner, and in fact will rarely, if ever, be

the situation, given CERCLA’s elaborate provision for

cost recovery by the EPA from one of four potentially

responsible parties: the current landowvier (section

107(a)(1)), the hauler of hazardous substances (section

107(a)(3)), the transporter of hazardous substances

(section 107(a)(4)), or the landowner on whose property

hazardous substances were once deposited during the

period of his ownership (section 107(a)(2)).

If any Congressional intent can be gleaned from the

statutory scheme itself, it would be that section 107(a) of

CERCLA was not intended to apply to successors in

light of Congress’s already detailed and comprehensive

enumeration of potentially responsible parties. Despite

the extensive amendments to CERCLA in 1986, which

were intended to address and correct problems arising

out of experience with the Act, no changes were made to

expand the list of responsible parties. See Superfund

Amendments and Reauthorization Act of 19%6, Pub. L.

No. 99-499, 100 Stat. 1613 (1986).°

Moreover, the Third Circuit cites no legislative his-

tory for its view that it is “the thrust of the legislation to

9. Moreover, originally Congress contemplated only two cate-

gories of “responsible parties”: (1) persons who owned or operated

the facility at the time of disposal; and (2) generators or parties

disposing of hazardous waste at the facility. H. Rep. No. 96-1016,

Part I, 96th Cong., 2d Sess. 1, 29, reprinted in 1980 U.S. Code

Cong. & Ad. News 6119, 6132. Congress later expanded the

definition of potentially responsible parties by adding the two

additional categories which the current statute includes. Had

Congress intended to impose liability on successors, it could have

done so between the issuance of the House Report and the final

enactment of CERCLA.

Finally, there are numerous Statutory examples of Congress

expressly including provisions imposing liability on corporate suc-

cessors. E.g., 29 U.S.C. §§1369, 1384, 1398 (Employee Retirement

Income Security Act of 1974); 30 U.S.C. §932 (Mine Safety &

Health Amendments Act of 1977); 26 U.S.C. §468(B) (Tax Reform

Act of 1986); 26 U.S.C. §6901 (Internal Revenue Code).

permit — if not require — successor liability under

traditional concepts.” 851 F.2d at 91. The only authority

cited is Oner IT, Inc. v. EPA, 597 F.2d 184 (9th Cir.

1979). That case is inapposite for several reasons. First,

that case construes the Federal Insecticide, Fungicide

and Rodenticide Act, not CERCLA. Secondly, two of the

Ninth Circuit’s justifications for imposing successor

liability in that case were: (1) the fact that the successor

was aware of its predecessor’s violations of the Act at the

time it succeeded to the interests of the predecessor, and

(2) the fact that the successor continued in the business

of distributing pesticides.

In the present case, neither Celotex nor Rapid-

American were aware of any CERCLA violations at the

time of the relevant mergers, because, imter alia, in

1972 CERCLA did not exist. Moreover, neither Celotex

nor Rapid-American ever occupied Philip Carey’s prop-

erty; that property, prior to the relevant mergers, had

been sold to Smith Land.

Accordingly, because the same justifications for

imposing liability in Oner do not exist here, it does not

provide authority for imposing successor liability on

either Rapid-American or Celotex in this case.

Federal courts have been reluctant to read section

107(a) of CERCLA expansively to include parties who

do not fall within its letter, and the Third Circuit’s

opinion below is inconsistent in principle with numer-

ous holdings in comparable cases. For example, when

faced with the question of whether officers and share-

holders of companies can be held liable under section

107(a), even though such individuals did not single-

handedly dispose of or arrange for disposal of the waste,

courts have imposed liability only where such persons

have had an active participation in the management of

the disposal facility or direct involvement in the disposal

of the hazardous wastes. See, e.g., New York v. Shore

Realty Corp., 759 F.2d 1032 (2d Cir. 1985) (holding

majority shareholder of the facility liable as “owner or

operator” since he participated in management of the

facility); United States v. Conservation Chemical Co.,

619 F. Supp. 162 (W.D. Mo. 1985) (refusing to enter

summary judgment on CERCLA count against corpo-

rate officer of corporation which owned and operated the

facilities since there was insufficient evidence to dem-

onstrate his personal participation and involvement);

United States v. Wade, 577 F. Supp. 1326 (E.D. Pa.

1983) (refusing to impose CERCLA liability on corpo-

rate officer who personally delivered drums of hazardous

substance to site, finding testimony inadequate to estab-

lish direct participation in disposal of hazardous waste).

Likewise, courts have not imposed CERCLA liability

on parent corporations which themselves do not fall

under the letter of section 107(a) unless the parent has

control over the management and operation of the

contaminating subsidiary. See Idaho v. Bunker Hill Co.,

635 F. Supp. 665 (D. Idaho 1986).

The United States District Court for the Central

District of California strictly construed this provision and

refused to impose liability on the successor, based on the

fact that the successor did not itself fall into one of the

enumerated categories and that there was no proof that

the predecessor did.!° Cadillac Fairview/Cadillac, Inc. v.

Dow Chemical Company, 14 Envtl. L. Rep. (Envtl. L.

Inst.) 20376 (C.D. Cal. March 5, 1984), rev'd on other

10. The plaintiff in Cadillac had brought an action against a

number of defendants under 42 U.S.C. §9607 seeking to require

them to remove wastes left on his property by a prior owner. One of

the defendants, Cabot, Cabot & Forbes Interim (“CCFI’), was the

successor-in-interest to entities which previously owned the site on

which the hazardous substances were disposed and apparently was

also a previous owner itself. The court observed that the only

provision on which liability could possibly be based was 42 U.S.C.

§9607(a)(2), covering entities who owned or operated the facility at

the time of disposal. Reasoning that the defendant was not alleged

to have owned or operated the facility at the time the waste was

disposed of, the court granted CCFI’s motion to dismiss.

grounds, 18 Envtl. L. Rep. (Envtl. L. Inst.) 20470 (D.C.

Cir. February 25, 1988).!}

In the present case, neither Celotex nor Rapid-

American had direct or indirect involvement whatsoever

either with the disposal of the asbestos waste on the

subject property, or with the management of Philip

Carey at the time of the alleged disposal. Thus, even

under the more expansive constructions of liability un-

der section 107(a) of CERCLA, Celotex is not a respon-

sible party, and therefore cannot and should not be liable

for contribution to Smith Land under section 113(f)(1).

C. The Imposition of Successor Liability Under CERCLA

Where the Predecessor-Successor Relationship Arises

After the Contaminated Property is Sold Could Para-

lyze Corporate Mergers

The Third Circuit has not set any limits on its

holding. Ostensibly it applies to successors to all four

categories of potentially responsible parties set forth in

section 107(a) of CERCLA, without regard to whether

the events which give rise to the successor-predecessor

relationship take place before or after the property in

question is sold.

11. In addition to the court in Cadillac, two other disirict

courts have confronted the issue of successor liability under CER-

CLA. The first was the United States District Court for the Eastern

District of Missouri in United States v. Bliss, 667 F. Supp. 1298

(E.D. Mo. 1987). While that court imposed CERCLA liability on the

successor, the case is distinguishable on a number of grounds. The

most obvious ground is the fact that the successor continued the

operations of its predecessor, maintained the same office, and in

fact advertised itself as the predecessor. /d. at 1308. The second

court to have confronted the issue was the United States District

Court for the District of New Jersey in T & E Industries, Inc. v.

Safety Light Corp., 680 F. Supp. 696 (D.N.J. 1988). That court also

imposed CERCLA liabilities on the successor. As is apparent from

the complete absence of any discussion by the court of the propriety

of imposing successor liability under CERCLA, that particular issue

does not appear to have been raised or briefed by the parties.

Imposing liability on successor corporations where

the events leading to successorship take place after the

sale of property could paralyze corporate mergers. To

avoid liability, the party contemplating a merger would

be forced to investigate not only the current land hold-

ings of the target company, but also all its prior land

holdings and, to continue the reasoning of the Third

Circuit, all land holdings ever owned by the predecessor

of the target company. Such an investigation would be

not only burdensome and expensive, but in many in-

stances inconclusive. Accordingly, in all probability,

companies would choose not to merge rather than face

the expense and uncertainty such an investigation

would undoubtedly yield.

Where the merger which gives rise to the successor-

predecessor relationship takes place after the property is

sold, obviously only the buyer can perform ‘e requisite

investigation of the property at the time of sale. It is

therefore far more reasonable to impose CERCLA liabil-

ities on the buver alone in such circumstances.

Applying this reasoning to the present case, Smith

Land, when it purchased the property in 1963, was in a

much better position to evaluate the risks involved in

purchasing Philip Carey’s property than either Celotex

or Rapid-American a decade later, when contemplating

the mergers involving Philip Carey. Because Smith

Land, not Philip Carey, owned the property at that time,

neither Celotex nor Rapid-American had any opportu-

nity to inspect the property, nor would they have been

able to require Philip Carey to clean up any contamina-

tion they might have found had they inspected it.

Accordingly, even if this Court agrees with the Third

Circuit’s conclusion that section 107(a) of CERCLA

should be judicially expanded to include successors to

the four groups of potentially responsible parties, an

exception should be created for situations where the

contaminated property is sold prior to the events which

give rise to the predecessor-successor relationship.

CONCLUSION

For the foregoing reasons, petitioners respectfully

request that a Writ of Certiorari issue to review the

judgment of the Third Circuit vacating the district

court’s entry of summary judgment for The Celotex

Corporation and Rapid-American Corporation.

Respectfully submitted,

Gilbert F. Casellas

Judith B. Wait

(Counsel of Record)

MONTGOMERY, MCCRACKEN,

WALKER & RHOADS

Three Parkway — 20th Floor

Philadelphia, PA 19102-1355

(215) 563-0650

Attorneys for Petitioners

The Celotex Corporation and

Rapid-American Corporation

APPENDIX TO

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF

APPEALS FOR THE THIRD CIRCUIT

RULE 28.1 STATEMENTS

Pursuant to Rule 28.1 of the Rules of Supreme

Court, the petitioners herein make the following state-

ments disclosing parents, non-wholly owned subsidiar-

ies and affiliates.

The Celotex Corporation:

Jim Walter Corporation (parent)

Rapid-American Corporation:

Riklis Family Corporation (parent)

A-1

TEXT OF COURT RULES INVOLVED

Rule 56(c) of the Federal Rules of Civil Procedure

provides:

tion shall be served at least 10 days before the time fixed

for the hearing. The adverse party prior to the day of

hearing may serve opposing affidavits. The judgment

sought shall be rendered forthwith if the pleadings,

depositions, answers to interrogatories, and admissions

on file, together with the affidavits, if any, show that

there is no genuine issue as to any material fact and that

the moving party is entitled to a judgment as a matter of

law. A summary judgment, interlocutory in character,

may be rendered on the issue of liability alone although

there is a genuine issue as to the amount of damages.

A-2

A-3

TEXT OF STATUTORY PROVISIONS INVOLVED

Section 107(a) of the Comprehensive Environmental Re-

sponse, Compensation and Liability Act of 1980, 42 U.S.C.

§$9607(a), provides:

(a) Covered persons; scope

Notwithstanding any other provision or rule of law,

and subject only to the defenses set forth in subsection

(b) of this section —

(1) the owner and operator of a vessel (other-

wise subject to the jurisdiction of the United States)

or a facility,

(2) any person who at the time of disposal of

any hazardous substance owned or operated any

facility at which such hazardous substances were

disposed of,

(3) any person who by contract, agreement, or

otherwise arranged for disposal or treatment, or

arranged with a transporter for transport for disposal

or treatment, of hazardous substances owned or

possessed by such person, by any other party or

entity, at any facility owned or operated by another

party or entity and containing such hazardous sub-

stances, and

(4) any person who accepts or accepted any

hazardous substances for transport to disposal or

treatment facilities or sites selected by such person,

from which there is a release, or a threatened release

which causes the incurrence of response costs, of a

hazardous substance, shall be liable for—

(A) all costs of removal or remedial action

incurred by the United States Government or a

State not inconsistent with the-national contin-

gency plan;

A-4

(B) any other necessary costs of response

incurred by any other person consistent with

the national contingency plan; and

loss of natural resources, including the reason-

able costs of assessing such injury, destruction,

or loss resulting from such a release.

Section 113(f)(1) of the Comprehensive Environmental

Response, Compensation Liability Act of 1980, 42 U.S.C.

§9613(f)(1) (Supp. 1987), provides:

(f) Contribution

(1) Contribution

Any person may seek contribution from any other

person who is liable or potentially liable under section

9607(a) of this title, during or following any civil action

under section 9606 of this title or under section 9607(a)

of this title. Such claims shall be brought in accordance

with this section and the Federal Rules of Civil Proce-

dure, and shall be governed by Federal law. In resolving

contribution claims, the court may allocate response

costs among liable parties using such equitable factors

as the court determines are appropriate. Nothing in this

subsection shall diminish the right of any person to

bring an action for contribution in the absence of a civil

action under section 9606 or section 9607 of this title.

A-5

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

Nos. 87-5740 and 87-5741

SMITH LAND & IMPROVEMENT CORPORATION,

Appellant in 87-5740

Vv.

THE CELOTEX CORPORATION

SMITH LAND & IMPROVEMENT CORPORATION,

Appellant in 87-5741

RAPID-AMERICAN CORPORATION,

APPEAL FROM THE UNITED STATES

DISTRICT COURT FOR THE

MIDDLE DISTRICT OF PENNSYLVANIA

(D.C. Civil Nos. 86-1151 & 86-0116)

Argued March 9, 1988

Before: WEIS, GREENBERG and ALDISERT,

Circuit Judges

Filed June 30, 1988

R. Stephen Shibla, Esquire (ARGUED)

Joel R. Burcat, Esquire

Donna M.J. Clark, Esquire

Rhoads & Sinon

410 North Third Street

P.O. Box 1146

Harrisburg, PA 17108-1146

Attorneys for Smith Land & Improvement Corporation

A-6

Gilbert F. Casellas, Esquire (ARGUED)

Judith B. Wait, Esquire

Montgomery, McCracken, Walker & Rhoads

Three Parkway — 20th Floor

Philadelphia, PA 19102-1355

Attorneys for Appellees The Celotex Corporation and

Raptd-American Corporation

Roger J. Marzulla, Esquire

. Acting Assistant Attorney General

Robert L. Klarquist, Esquire

Elizabeth Ann Peterson, Esquire

Department of Justice

Land & Natural Resources Division

Washington, D.C. 20530

Attorneys for Amicus Curiae The United States of

America

A-7

OPINION OF THE COURT

WEIS, Circuit Judge.*

This is a suit by a purchaser of land seeking contri-

bution toward expenses incurred in the clean-up of a

hazardous waste site. The defendant invoked and the

district court accepted the defense of caveat emptor. A

review of the Comprehensive Environmental Response,

Compensation, and Liability Act (CERCLA), 42 U.S.C.

§§9601-75, convinces us that caveat emptor, though it

may affect the amount of an award, is not a permissible

defense to liability. We also conclude that the general

doctrine of corporate successor liability is appropriate in

CERCLA contribufion claims. Accordingly, we will va-

cate the judgment entered in favor of defendants and

remand for further proceedings.

Plaintiff owns a tract of land in Plymouth Township,

Pennsylvania, on which is deposited a large pile of

manufacturing waste containing asbestos. In July 1984,

the Environmental Protection Agency informed plaintiff

that unless it took steps to alleviate the asbestos hazard

the federal government would perform the work and

then pursue reimbursement. Plaintiff proceeded to cor-

rect the condition to EPA’s satisfaction, allegedly incur-

ring costs of $218,945.44.

Before reaching a settlement with the EPA, plaintiff

notified defendants of its intention to seek indemnifica-

tion. Plaintiff asserts that defendants are corporate suc-

cessors to the Philip Carey Company (Carey), which had

created the large waste pile in the course of manufac-

turing asbestos products. Carey sold the land to the

plaintiff’s predecessor in 1963.

* At the time of oral argument on this case, the Honorable

Joseph F. Weis, Jr., was an active circuit judge. Since that time,

Judge Weis has assumed senior status.

A-8

When defendants failed to accept responsibility for

clean-up, plaintiff filed suit alleging causes of action

under CERCLA and various state law theories including

nuisance, unjust enrichment, and common law indem-

nity. Relying on Philadelphia Elec. Co. v. Hercules, Inc.,

762 F.2d 303 (3d Cir.), cert. denied, 474 U.S. 980

(1985), the district court, holding that caveat emptor

applied, entered summary judgment for defendants.

The plaintiff's predecessor, wrote the court, “bought the

land in an open, arm’s-length” transaction, without

concealment. “In the eyes of the law, the plaintiff

calculated or must be held to have caiculated the risk of

future clean-up costs into the amount it was willing to

pay for the land.” That Hercules was precipitated by a

State agency acting under state law, from the court’s

standpoint, did not suffice to distinguish the case from

the CERCLA claim at hand.

The court noted that the plaintiff's predecessor was

a sophisticated company which had inspected the land

on five occasions, known of its past use, and admitted

that the pile of waste was a “negative” factor in the

decision to purchase the land. Despite the plaintiff's

assertion that it lacked knowledge about the hazards of

asbestos, the court concluded that the “price plaintiff

paid for the land reflected the possibility of environmen-

tal risks.”

Plaintiff does not now challenge the rulings on the

state claims, but appeals only the judgment entered on

the federal claim. Plaintiff argues that CERCLA permits

only limited and specific defenses and that “caveat

emptor is not among them. Defendants respond that

they never owned or conducted any operation on the

property and hence cannot be liable. In the alternative,

defendants argue that if found responsible on a theory of

successor liabilitv, then they may assert the caveat

emptor defense against this experienced purchaser.

A-9

A number of CERCLA’s provisions are pertinent

here. Section 9607(a) provides that:

“Notwithstanding any other provision or rule of law,

and subject only to the defenses set forth in subsec-

tion (b) of this section —

(1) the owner and operator of a... facility, [and]

(2) any person who at the time of disposal of any

hazardous substance owned or operated any facility

at which such hazardous substances were disposed

Shall be liable for —

(A) all costs of .. . remedial action incurred by the

United State Government or a State...

(B) any other necessary costs of response incurred

by any other person consistent with the national

contingency plan... .”

42 U.S.C. §9607(a). Subsection (b) lists available de-

fenses as an act of God, an act of war, or an act or

omission of a third party (other than employees or agents

of the defendants or in certain contractual relationships

with them). Jd. §9607(b).

Section 9613(f)(1) provides that “[a]ny person may

seek contribution from any other person who is liable...

under section 9607(a).” Such claims “shall be governed

by Federal law.” In resolving contribution claims, “the

court may allocate response costs among liable parties

using such equitable factors as the court determines are

appropriate.” /d. Furthermore, a person “who has re-

solved its liability to the United States . . . for some or all

of a response action... in an administrative or judicially

approved settlement may seek contribution from any

A-10

person who is not party to a_ settlement. /d.

$9613(f)(3)(A).

In short, the current owner of a facility as well as the

entity that owned the facility at the time the hazardous

substance was deposited are liable under CERCLA for

the expense of rectifying the condition. The statute does

not list caveat emptor as a defense against initial liability.

Contribution may be enforced against one who is liable

under the Act, but a court may utilize equitable factors

in determining the amount allocated.

Setting aside complicating factors for the moment, if

defendants had deposited hazardous substances on the

land after passage of CERCLA and thereafter sold the

tract, then plaintiff could recover an amount deemed

equitable for proper expenses in abating the hazardous

Situation. On this premise, we review the facts and

holding in Hercules.

In that case, the state required the landowner to stop

the leaching of polluting chemicals from its property in

violation of the Pennsylvania Clean Streams Law, Pa.

Stat. Ann. tit. 35, §691 (Purdon 1977 & 1988 Supp.).

Having expended substantial sums to comply with state

law, the current owner sought indemnification from the

successor corporation of the entity that had deposited

the offending substances.

We proceeded on the assumption that the parties to

the suit acted in the capacity of vendor and vendee of

land. We held that under Pennsylvania law the plaintiff

had no standing to sue for public nuisance, that caveat

emptor barred recovery on a private nuisance theory,

and that “essentially the same policy considerations that

counsel adherence to the rule of caveat emptor in this

Situation militate against shifting the loss to [the defen-

dants] on an indemnity theory.” Hercules, 762 F.2d at

316, 318.

The record there showed that the plaintiff had

carefully inspected the land before purchase and had

inquired into its past use. We found it “inconceivable

A-11

that the price it offered . . . did not reflect the possibility

of environmental risks.” Jd. at 314.

“Where, as here, the rule of caveat emptor applies,

allowing a vendee a cause of action for private

nuisance for conditions existing on the land trans-

ferred — where there has been no fraudulent con-

cealment — would in effect negate the market’s

allocations of resources and risks, and subject ven-

dors who may have originally sold their land at

appropriately discounted prices to unbargained-for

liability to remote vendees.”

Id. at 314-315.

The ruling ‘n Hercules !s distinguishable in several

significant aspects. Defenses available under state com-

mon law are not necessarily allowed by the federal

Statute. As noted above, CERCLA provides explicitly

that contribution claims shall be governed by federal

law. The decisions we reached in Hercules sitting in

diversity, therefore, cannot be transplanted to a

CERCLA claim as a matter of course.

The defenses enumerated in section 9607(b) are not

exclusive in suits for contribution. Other sections sug-

gest additional defenses in a broad sense; for example,

the Act limits to three years the period in which an

action may be brought, 42 U.S.C.A. §9613(g) (1983 &

1988 West Supp.). A party which has resolved its

liability to the government is not liable for contribution;

the settlement may reduce the claim pro tanto. See id.

§9613(f)(2). In addition, agreements to indemnify or

hold harmless are enforceable between the parties but

not against the government. See td. $9607(e). Moreover,

the defenses in section 9607(b) coexist with equitable

considerations that may mitigate damages. See H.R.

Rep. No. 253(1), 99th Cong., Ist Sess. 1, 80 (1985),

reprinted tn 1986 U.S. Code Cong. & Admin. News

2835, 2862. See also Belthoff, Private Cost Recovery

A-12

Actions Under Section 107 of CERCLA, 11 Colum. J.

Envtl. L. 141, 183 (1986).

Although not a defense to a government suit for

cleanup costs, caveat emptor if applied between private

parties arguably would not contradict the statutory text.

Several considerations, however, lead us to conclude

that this venerable doctrine is not in keeping with the

policies underlying CERCLA. First, caveat emptor com-

pletely bars recovery by a purchaser regardless of other

equities affecting the parties. That result frustrates

congress’s desire to encourage clean-up by any respon-

sible party. If fair apportionment of the expense is not

assured, it is unlikely that one party will undertake

remedial actions promptly when it could simply delay,

awaiting a legal ruling on the contribution liability of

other responsible parties.

Second, CERCLA authorizes the government to

seek reimbursement of response costs from any of the

responsible parties, leaving them to share the expense

equitably. As the House report recognizes, choosing one

defendant from among several can cause ill will between

the government and the unlucky party selected. See

H.R. Rep. No. 253(1), supra, at 80, reprinted in 1986

U.S. Code Cong. & Admin. News 2862.

Recognizing that case law had established a right of

contribution, the House Report stated:

“This section [9607] clarifies and confirms the right

of a person held jointly and severally liable under

CERCLA to seek contribution from other potentially

liable parties, when the person believes that it has

assumed a Share of the cleanup or cost that may be

greater than its equitable share under the circum-

stances. * * * Although the only defenses to liability

remain those set forth in Section [9607(b)], courts

are to resolve such claims on a case-by-case basis,

taking into account relevant equitable considera-

tions.”

Id. at 2861-62.

A-13

Doctrines such as caveat emptor and “clean hands,”

which in some cases could bar relief regardless of the

degree of culpability of the parties, do not comport with

congressional objectives. In the words of one district

judge, “the ‘unclean hands’ doctrine espoused in Mar-

dan Corp. v. C.G.C. Music, Ltd., 600 F. Supp. 1049,

1057 (D. Ariz. 1984), aff’d, 804 F.2d 1454 (9th Cir.

1986), has no place in CERCLA actions.” Chemical

Waste Management v. Armstrong World Indus., 669 F.

Supp. 1285, 1291 n.7 (E.D. Pa. 1987).}

CERCLA expressly conditions the amount of con-

tribution on the application of equitable considerations.

As Hercules explained, if the tract’s price is reduced to

allow for future environmental clean-up claims, the

purchaser should not be entitled to double compensa-

tion. Nonetheless, the amount of the discount, if any,

the cost of response, and other considerations may enter

into the allocation of contribution by the district court in

its exercise of discretion.

We conclude, therefore, that under CERCLA the

doctrine of caveat emptor is not a defense to liability for

contribution but may only be considered in mitigation of

amount due.

1. The duty of inspection implicit in caveat emptor has not

been ignored in CERCLA. Congress, however, approached that

obligation from a different perspective and imposed stringent limi-

tations. The Act relieves a landowner from initial liability on proof

that after “all appropriate inquiry . . . consistent with good commer-

cial or customary practice” the owner had no reason to know of the

presence of a hazardous substance. 42 U.S.C. §9601(35)(B). Noth-

ing in the statute, however, proscribes contribution from a previous

owner that has been unable to establish the defense or is otherwise

found liable.

Il.

The elimination of the caveat emptor defense does

not resolve all the issues on this appeal. Other factors

complicate the ultimate result.

This is not a straightforward suit between vendor

and vendee. As defendants point out, they never owned

or operated the facility. We assume at this juncture —

but absent findings do not determine — that Carey

previously cwned the land and produced the asbestos

scrap pile which precipitated the EPA action. Through a

series of transactions beginning in 1967, the interest of

Carey apparently settled in the hands of defendants

Celotex and Rapid-American. The parties do not dispute

these facts in the current procedural posture of the case;

however, plaintiff argues that defendants are responsi-

ble for Carey’s derelictons on a theory of corporate

successor liability.

Other corporate reorganizations during the relevant

period have not been fully explored in the record.

Nevertheless, the factual picture of these transforma-

tions that has emerged is clear enough to discuss the

general concept of successor liability as it may apply in

CERCLA actions.

Corporate successor liability is neither completely

novel nor of recent vintage. Blackstone described the

continung vitality of a corporation. “[A]ll the individual

members that have existed from the foundation to the

present time, or that shall ever hereafter exist, are but

one person in law, a person that never dies; in like

manner as the river Thames is still the same river,

though the parts which compose it are changing every

instant.” 1 W. Blackstone, Commentaries *467-69,

quoted in Polius v. Clark Equip. Co., 802 F.2d 75, 77 (3d

Cir. 1986). Changes in ownership of a corporation’s

stock will not affect the rights and obligations of the

cempany itself. The corporation survives as an entity

A-15

separate and distinct from its shareholders even if all the

stock is purchased by another corporation.

In general, when two corporations merge pursuant

to statutory provisions, liabilities become the responsi-

bility of the surviving company. “In case of merger of

one corporation into another, where one of the corpora-

tions ceases to exist and the other corporation continues

in existence, the latter corporation is liable for the debts,

contracts and torts of the former, at least to the extent of

the property and assets received, and this liability is

often expressly imposed by statute.” 15 W. Fletcher,

Cyclopedia of the Law of Private Corporations §7121, at

185 (rev. perm. ed. 1983).

Similarly, where a new corporation is created by

consolidation, unless otherwise provided by statute, the

new company assumes the debts and iabilities of the

constituent companies and “is entitled to avail itself of

the same defenses as were available to the old compa-

nies.” See id. §7117, at 178.

When no Statutory merger or consolidation occurs,

but one corporation buys all of the assets of another, the

successor wil not be saddled with the seller’s liability

except under certain conditions. See Polius, 802 F.2d at

77; Hercules, 762 F.2d at 308. The record here indicates

that nothing other than statutory mergers or consolida-

tions occurred; therefore, the sale of assets or the de

facto merger doctrines? do not appear pertinent.

2. For commentary on this aspect of successor liability, see

Barnard, EPA’s Policy of Corporate Successor Liability Under

CERCLA, 6 Stan. Envtl. L.J. 78 (1986-87); Note, Successor Corpo-

rate Liability for Improper Disposal of Hazardous Waste, 7 W. New

Eng. L. Rev. 909 (1985). The EPA in a 1984 memorandum of its

counsel has taken the position that a successor corporation is liable

for the acts of its predecessor under a “continuity of business

operation approach.” EPA Memorandum, “Liability of Corporate

Shareholders and Successor Corporations for Abandoned Sites

under CERCLA.” Courtney M. Price, Assistant Admin. for Enforce-

ment and Compliance Monitoring (June 13, 1984).

A-16

It is not surprising that, as a hastily conceived and

briefly debated piece of legislation, CERCLA failed to

address many important issues, including corporate

successor liability. The meager legislative history avail-

able indicates that Congress expected the courts to

develop a federal common law to supplement the stat-

ute. See United States v. Bliss, 667 F. Supp. 1298, 1308

n.8 (E.D. Mo. 1987); United States v. Chem-Dyne Corp.,

572 F. Supp. 802, 808 (S.D. Ohio 1983).

The concerns that have led to a corporation’s com-

-mon law liability of a corporation for the torts of its

predecessor are equally applicable to the assessment of

responsibility for clean-up costs under CERCLA. The

Act views response liability as a remedial, rather than a

punitive, measure whose primary aim is to correct the

hazardous condition. Just as there is liability for ordinary

torts or contractual claims, the obligation to take neces-

Sary steps to protect the public should be imposed on a

successor corporation.

The costs associated with clean-up must be ab-

sorbed somewhere. Congress has emphasized funding

by responsible parties, but if they cannot be ascertained

or cannot pay the sums necessary, federal monies may

be used.

Expenses can be borne by two sources: the-entities

which had a specific role in the production or continu-

ation of the hazardous condition, or the taxpayers

through federal funds. CERCLA leaves no doubt that

Congress intended the burden to fall on the latter only

when the responsible parties lacked the wherewithal to

meet their obligations.

Congressional intent supports the conclusion that,

when choosing between the taxpayers or a successor

corporation, the successor should bear the cost. Benefits

from use of the pollutant as well as savings resulting

from the failure to use non-hazardous disposal methods

inured to the original corporation, its successors, and

A-17

their respective stockholders and accrued only indi-

rectly, if at all, to the general public. We believe it in line

with the thrust of the legislation to permit — if not

require — successor liability under traditional concepts.

See Oner II, Inc. v. E.P.A., 597 F.2d 184 (9th Cir. 1979).

As recounted above, because the district court in

this case held that the caveat emptor doctrine precluded

the plaintiff’s recovery, it had no occasion to consider

the question of successor liability. Consequently, the

record contains no factual findings or rulings on the

legal effect of the various statutes which might affect the

liability passed on through merger or consolidation.

In resolving the successor liability issues here, the

district court must consider national uniformity; other-

wise, CERCLA aims may be evaded easily by a respon-

sible party’s choice to arrange a merger or consolidation

under the laws of particular states which unduly restrict

successor liability. Cf United States v. Northeastern

Pharmaceutical & Chem. Co., 810 F.2d 726 (8th Cir.

1986), cert. denied, Ui enn s SO & wm 146

(1987). The general doctrine of successor liability in

operation in most states should guide the court’s deci-

sion rather than the excessively narrow statutes which

might apply in only a few states.

To summarize, our study of CERCLA persuades us

that Congress intended to impose successor liability on

corporations which either have merged with or have

consolidated with a corporation that is a responsible

party as defined in the Act. We will remand to the

district court for further proceedings to fully explore that

issue in light of the circumstances.

Ill.

The parties have not briefed nor raised the question

of retroactivity as it pertains to the liability of a party for

actions which occurred before enactment of CERCLA in

1980, or before passage of the amendments establishing

A-18

contribution in 1986. Consequently, we do not rule on

that issue but commend it to the district court for review

and resolution. See Northeastern Pharmaceutical &

Chem. Co., 810 F.2d at 732; United States v. Rohm &

Haas Co., 669 F. Supp. 672, 676-77 (D.N.J. 1987);

Mayor of Boonton v. Drew Chemical Corp., 621 F. Supp.

663, 668 (D.N.J. 1985); United States v. Tyson, 25 Env.

Rep. Cas. (BNA) 1897, 1908-09 (E.D. Pa. 1986); United

States v. Price, 523 F. Supp. 1055, 1071-72 (D.N.J.

1981), aff'd, 688 F.2d 204 (3d Cir. 1982). For commen-

tary and a collection of related cases see Blaymore,

Retroactive Application of Superfund: Can Old Dogs Be

Taught New Tricks?, 12 B.C. Envtl. Aff. L. Rev. 1

(1985); Freeman, /nappopriate and Unconstitutional

Retroactive Application of Superfund Liability, 42 Bus.

Law, 215 (1986); Developments, Taxic Waste Litiga-

tion, 99 Harv. L. Rev. 1458, 1539, 1555 (1986).

The judgrnent of the district court will be vacated

and the case will be remanded for further proceedings

consistent with this opinion.

A True Copy:

Teste:

Clerk of the United States Court of Appeals

for the Third Circuit

A-19

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

Nos. 87-5740 and 87-5741

SMITH LAND AND IMPROVEMENT CORPORATION,

Appellant in No. 87-5740

VS.

THE CELOTEX CORPORATION

SMITH LAND AND IMPROVEMENT CORPORATION,

Appellant in No. 87-5741

VS.

RAPID-AMERICAN CORPORATION

(D.C. Civil No. 86-1151)

ON APPEAL FROM THE UNITED STATES

DISTRICT COURT FOR THE MIDDLE DISTRICT

OF PENNSYLVANIA

Present: WEIS, GREENBERG and ALDISERT, Cir-

cuit Judges

JUDGMENT

This cause came on to be heard on the record from

the United States District Court for the Middle District

of Pennsylvania and was argued by counsel March 9,

1988.

On consideration whereof, it is now here ordered

and adjudged by this Court that the judgments of the

said District Court, entered September 21, 1987 in D. C.

Civil No. 86-0116 and September 22, 1987 in D. C. Civil

No. 86-1151, be, and the same are hereby vacated and

A-20

the causes remanded to the said District Court for

further proceedings consistent with the opinion of this

Court.

ATTEST:

/s/ Sally Mrvos

Clerk

June 30, 1988

A-21

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

Nos. 87-5740 and 87-5741

SMITH LAND AND IMPROVEMENT CORPORATION,

Appellant in 87-5740

Vv.

THE CELOTEX CORPORATION

SMITH LAND AND IMPROVEMENT CORPORATION,

Appellant in 87-5741

RAPID-AMERICAN CORPORATION

(D.C. Civil Nos. 86-1151 and 86-0116)

SUR PETITION FOR REHEARING

BEFORE: GIBBONS, Chief Judge, and SEITZ, HIG-

GINBOTHAM, SLOVITER, BECKER, STAPLETON,

MANSMANN, GREENBERG, HUTCHINSON, SCI-

RICA, COWEN, ALDISERT and WEIS, Circuit Judges

The petition for rehearing filed by appellees tn the

above-entitled case having been submitted to the judges

who participated in the decision of this Court and to all

the other available circuit judges of the circuit in regular

active service, and no judge who concurred in the

decision having asked for rehearing, and a majority of

the circuit judges of the circuit in regular service not

having voted for rehearing, the petition for rehearing by

the panei and the Court in banc, is denied.

BY THE COURT

/s/ Morton Greenberg

Circuit Judge

Dated: AUG 1 - 1988

A-22

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

Nos. 87-5740/41

SMITH LAND AND IMPROVEMENT CORPORATION,

Apy <llant

VS.

RAPID-AMERICAN CORPORATION

Appellee in No. 87-5740

and

THE CELOTEX CORPORATION

Appellee in No. 87-5741

Pursuant to Rule 41(b) of the Federal Rules of

Appellate Procedure, it is ORDERED that issuance of

the certified judgment in lieu of formal mandate in the

above cause be, and it is hereby stayed until November

6, 1988.

/s/ Weis

Circuit Judge

Dated: AUG 22 1988

A-23

IN THE UNITED STATES DISTRICT COURT

FOR THE MIDDLE DISTRICT OF PENNSYLVANIA

SMITH LAND AND IMPROVEMENT

CORPORATION, :

Plaintiff:

VS. : CIVIL NO. 86-0116

(Judge Kosik)

RAPID-AMERICAN CORPORATION

Defendant :

MEMORANDUM

This matter is before us on a defense motion for

summary judgment which was filed on February 17,

1987. Also pending is the plaintiff's motion to amend

paragraphs 25 and 26 of the complaint. Both motions

have been referred to United States Magistrate J. An-

drew Smyser for a report and recommendation. On June

16, 1987, Magistrate Smyser issued his report in which

he recommends that this court grant the plaintiff’s

motion to amend the complaint and grant the defen-

dant’s motion for summary judgment. The plaintiff has

filed objections to said report of the Magistrate.

At the outset, the court will grant plaintiff’s motion

to amend paragraphs 25 and 26 of the complaint. As

noted by the Magistrate, this motion of the plaintiff has

not been opposed by the defendant. Additionally, the

defendant has not objected to the Magistrate’s recom-

mendation with respect to the motion to amend.

The relevant facts of this case are as follcws: In

1963, the Philip Carey Manufacturing Company con-

veyed a 160-acre tract of land to Exeter Investment, Inc.

At the time of the conveyance, Exeter Investment was a

~ wholly owned subsidiary of the plaintiff, Smith Land &

A-24

Improvement Corporation. Subsequent to the convey-

ance, Exeter Investment merged with the plaintiff com-

pany. The plaintiff alleges that prior to the 1963 convey-

ance, the Carey Company deposited asbestos-containing

waste on the conveyed property. In 1984, the United

States Environmental Protection Agency informed the

plaintiff that the property which it acquired from the

Carey Company contained asbestos and that the plaintiff

was responsible for the clean-up costs. The plaintiff

spent substantial sums of money complying with the

EPA’s clean-up order. The plaintiff now seeks reim-

bursement for the clean-up costs from the defendant,

Rapid-American Corporation, on the theory that its

predecessor, Philip Carey Manufacturing Company, was

liable for the clean-up debt.

The plaintiff commenced this action on January 21,

1986. The complaint originally contained seven counts.

However, the court dismissed Counts II and III of the

complaint on August 12, 1986. In Count I the plaintiff

seeks to recover from the defendant its costs to respond

to the EPA clean-up order pursuant to the Comprehen-

sive Environmental Response Compensation & Liability

Act [CERCLA], 42 U.S.C. §9601, et seq.! Count IV is a

pendent state common law nuisance claim. Count V is a

pendent state common law vicarious liability claim.

Count VI sets forth a claim for restitution on the basis of

1. The defendant contends that this is not a case instituted

under CERCLA. The plaintiff claims that its case is based upon a

cause of action under CERCLA. We agree with the plaintiff that

Count I is based upon CERCLA. The CERCLA creates a private

cause of action. See 42 U.S.C. §9607. See also Fishel v. Westing-

house Elec. Corp., 617 F. Supp. 1531, 1534-1535 (M. D. Pa. 1985).

The plaintiff has sufficiently alleged that the defendant is liable to it

pursuant to the CERCLA, 42 U.S.C. §9607(a)(2), (3) and (4). See

amended paragraphs 25-26 of the complaint, Doc. 27. Moreover,

the plaintiff claims that the defendant is a responsible party under

CERCLA since it owned the property at the time of disposal of the

asbestos and it transported asbestos to the property.

A-25

unjust enrichment. Finally, Count VII contains a claim

for common law indemnity.

In his report, the Magistrate states that the defen-

dant is entitled to summary judgment as to Counts I, IV,

V and VII. The Magistrate bases his conclusion upon a

recent Third Circuit Court of Appeals case, namely

Philadelphia Electric Co. v. Hercules, Inc., 762 F.2d 303

(3d Cir. 1985), cert. denied, VU. S. , 106 5. Ct.

184 (1985). The plaintiff contends that the Philadelphia

Electric case is inapplicable to the instant case. The

court has reviewed the Philadelphia Electric case and

the plaintiff’s objections and finds that the stated case is

dispositive of the present case with respect to > Counts I,

IV, V and VII.

In Philadelphia Electric the plaintiff bought indus-

trial land from the defendant. Subsequently, the Penn-

sylvania Department of Environmental Resources

[DER] discovered that the plaintiff’s land was contami-

nating the environment. The DER directed the plaintiff

to clean-up its land pursuant to the Pennsylvania Clean

Streams Law, and the plaintiff did so. Thereafter, the

plaintiff brought suit seeking recovery of the monies it

spent to clean-up its land claiming negligence, private

and public nuisance, and indemnity against the defen-

dant corporation whose predecessor in interest had

owned the property which the plaintiff purchased. The

plaintiff based its suit on the ground that the defendant’s

predecessor in interest caused the contamination of

ground water and a river during its operation of a

chemical plant on the property.

In Philadelphia Electric, supra, 762 F.2d at 312, the

court stated that the law in Pennsylvania “is that in the

absence of fraud or misrepresentation a vendor is re-

sponsible for the quality of property being sold by him

only to the extent for which he expressly agrees to be

responsible.... ” [Citation omitted]. The court also

stated that where, as in the case sub judice, corporations

of roughly equal resources contract for the sale of an

i a ll |

A-26

industrial property the rule of caveat emptor applies. Ja

at 313. This is true especially where, as in the instant

case, the dispute is over a condition on the land rather

than a structure. Jd. The Philadelphia Electric Court

further held that a purchaser of real property cannot

recover from the seller on a private nuisance theory for

conditions existing on the land that was transferred. Jd.

Additionally, no public nuisance cause of action exists

against a vendor of industrial property for pollutants

existing on the land sold. /d. at 316. Finally, the Phila-

delphia Electric Court held that the plaintiff, who was

required by the DER to clean up land which it pur-

chased from the defendant, has no indemnity cause of

action against the defendant seller or a successor corpo-

ration of the seller. Jd. at 316-317.

The plaintiff does not dispute the findings in Phila-

delphia Electric. Rather, the plaintiff attempts to distin-

guish Philadelphia Electric from the present case. The

plaintiff argues that Philadelphia Electric does not in-

volve a case brought under CERCLA as does the case at

bar. This court concurs with the Magistrate that the

Philadelphia Electric case is applicable to the present

case even though the clean up in the present case was

ordered by the EPA under CERCLA and the clean-up in

Philadelphia Electric was prompted by the DER under

the Pennsylvania Clean Streams Law. As this court

interprets Philadelphia Electric, it is not germane under

what environmental law a landowner is directed to

clean-up contaminated land.? What is important is the

court’s aforementioned holding in Philadelphia Electric

pertaining to the past landowner’s liability to the present

landowner. The EPA in the present case could have

2. The plaintiff fails to explain how Philadelphia Electric is

distinguishable from the present case based upon the underlying

governmental agency filing the enforcement action. Moreover, the

plaintiff has not cited a single case which makes a distinction

between a clean-up action initiated under CERCLA as opposed to

the Pennsylvania Clean Streams Law.

A-27

proceeded against either the plaintiff or the defendant.

However, this fact has nothing to do with the plaintiff’s

right as present landowner to recover from the defen-

dant as former landowner the costs of the clean-up. As

Stated, caveat emptor is the rule when determining the

plaintiff’s right to recover its clean-up costs from the

defendant. The plaintiff does not dispute the Magistra-

te’s finding that the defendant’s predecessor did not

conceal the presence of asbestos on the land when the

plaintiff’s predecessor purchased it. Moreover, there is

no evidence in this case which indicates any conceal-

ment with respect to the asbestos on the property when

it was purchased by plaintiff’s predecessor.

The record shows that plaintiff’s predecessor acted

as a sophisticated and responsible purchaser. It knew of

the past use of the land and it inspected the land on

more than five [5] occasions before it purchased the

land. The plaintiff's predecessor was aware of the quarry

holes on the property as well as a 30-foot high pile of

material covering twenty [20] acres of the property. The

agreement of sale for the property in question also

allowed the prospective purchaser, plaintiff’s predeces-

sor, to perform test borings at the property before

completing the transfer of ownership of the land. The

plaintiff's predecessor elected not to conduct any tests

on the land. It is clear that the price plaintiff paid for the

land reflected the possibility of environmental risks.

Furthermore, the plaintiff could have added a provision

in the agreement of sale to deal with any required future

clean-up costs, but it did not do so.

The plaintiff also cla‘:ns that the Magistrate erred

with respect to his recommendation to dismiss its com-

mon law counts by not considering the affidavit of its

president, Mr. Richard E. Jordan. The plaintiff states

that according to Mr. Jordan’s affidavit, the plaintiff was

neither involved with asbestos in any way nor was it

aware that asbestos was a hazardous material before

being so informed by the EPA in 1984. The plaintiff

iia aie, |

A-28

contends that since at the time when it bought the

subject land from the defendant’s predecessor it was not

a sophisticated purchaser with respect to the hazards of

asbestos, the sale was not an arms-length land sale.

Therefore, the plaintiff argues that it could not have

considered the cost of future clean-up when it pur-

chased the land.

The Magistrate has concluded that the plaintiff’s

predecessor bought the land in an open, arms-length

land sale. The Magistrate states that the plaintiff calcu-

lated the risk of future clean-up costs into the purchase

price of the land. The court finds no error with the

Magistrate’s conclusions.

As stated above, plaintiff’s predecessor inspected

the land more than five [5] times before purchasing it.

Plaintiff’s predecessor was aware that the land con-

tained a 30-foot high pile of waste which covered twenty

[20] acres of the land. In fact, Mr. Jordan, who at the

time was Secretary to plaintiff’s predecessor, admitted

that the pile of waste was a “negative” factor in the

decision to purchase the land from defendant’s prede-

cessor. Plaintiff’s predecessor also had the opportunity

to test the land, but it did not do so. Once again, there is

no evidence in the record to indicate that the defendant’s

predecessor tried to conceal anything from the plaintiff’s

predecessor. Nor does the plaintiff offer any evidence to

demonstrate concealment. Therefore, the record is clear

that plaintiff’s predecessor acted as a sophisticated and

responsible purchaser when it bought the land in ques-

tion from defendant’s predecessor.

Accordingly, the court will grant the defendant’s

summary judgment motion with respect to Counts I, IV,

V and VII of the complaint based upon the Philadelphia

Electric case.

Next, the Magistrate recommends that the defen-

dant is entitled to summary judgment with respect to

tae plaintiff's unjust enrichment claim contained in

A-29

Count VI of the complaint. The plaintiff has objected to

this recommendation.

There are two essential elements to establish a claim

for unjust enrichment: [1] an enrichment and [2] an

injustice resulting if recovery for the enrichment is

denied. Peterson v. Crown Financial Corp., 661 F.2d

287, 295 (3d Cir. 1981). The Magistrate states that the

plaintiff has failed to meet the first element of an unjust

enrichment claim. Specifically, the Magistrate states

that the defendant was not enriched just because the

government brought an enforcement action against the

plaintiff instead of the defendant. The plaintiff contends

that the defendant was enriched because it saved the

defendant from incurring the costly clean-up expense.

The plaintiff also argues that the defendant was en-

riched because it satisfied a debt and duty of the

defendant’s.

The court agrees with the Magistrate that both the

plaintiff and the defendant were liable to clean up the

asbestos on the land. However, just because the EPA

chose the plaintiff to do the clean-up work, does not

mean that the defendant was enriched. The plaintiff

continually argues that the defendant was spared the

clean-up costs. Yet the plaintiff fails to realize that it was

equally responsible to clean up its land. Additionally,

there is no injustice in requiring a landowner to clean

contaminated materials from its land and preventing the

landowner from recovering against the prior landowner

if the condition was obvious at the time of the land sale

and the prior landowner did not attempt to conceal the

condition. Therefore, summary judgment will be

granted in favor of the defendant with respect to Count

VI.

Based upon the foregoing, the court will adopt the

report of the Magistrate and grant the defendant’s

motion for summary judgment as to all counts.

An appropriate Order will issue.

A-30

ORDER AND JUDGMENT

NOW, this 21st day of September, 1987, IT IS

HEREBY ORDERED THAT:

[1] the Magistrate’s report dated June 16, 1987

is adopted by the court;

[2] plaintiff’s February 17, 1987 motion to

amend paragraphs 25 and 26 of the complaint is

granted;

[3] defendant’s motion for summary judgment

is granted as to all counts of the complaint;

[4] judgment is entered in favor of the defen-

dant and against the plaintiff; and

[5] the Clerk of Court is directed to close this

case and to send a copy of this Memorandum and

Order to United States Magistrate Smyser.

/s/ Edwin Kosik

Edwin M. Kosik

United States District Judge

A-31

IN THE UNITED STATES DISTRICT COURT

FOR THE MIDDLE DISTRICT OF PENNSYLVANIA

SMITH LAND AND IMPROVEMENT : CIVIL NO.

CORPORATION : 86-1151

Plaintiff : (Judge Kosik)

VS.

THE CELOTEX CORPORATION

Defendant

MEMORANDUM

The plaintiff, Smith Land & Improvement Corpora-

tion, filed this action on August 18, 1986 against the

defendant, the Celotex Corporation. The facts of this

case are identical to another case pending before this

court, namely Smith Land & Improvement Corporation

v. Rapid-American Corporation, Civil No. 86-0116. Both

the defendant Celotex and _ the _ defendant

Rapid-American are successor corporations to a com-

pany which sold a tract of land to a predecessor company

of the plaintiff. The land sold to the plaintiff’s predeces-

sor by the defendants’ predecessor contained asbestos

waste. In both the present case and the Rapid-American

case, the plaintiff is seeking recovery from the successor

corporations of the original landowner for the costs it

incurred in cleaning up the environmental hazards from

the land.

The Celotex and the Rapid-American cases were

—referred to United States Magistrate J. Andrew Smyser

by the court for a report and recommendation on various

outstanding motions, including the motions for sum-

mary judgment filed by the defendants in both cases.

The Magistrate has concluded that the case of Philadel-

phia Electric Co. v. Hercules, Inc., 762 F.2d 303 (3d Cir.

1985), cert. denied, ___US. ___, 106 S. Ct. 184 (1985),

A-32 :

is dispositive of the Celotex and Rapid American cases.

In Rapid American this court has already ruled that the

Philadelphia Electric case warrants the granting of the

defendant’s summary judgment motion.! Since the facts

and issues of the instant case are identical to those of the

Rapid American case, the court, relying upon Philadel-

phia Electric, supra, will adopt herein its September 21,

1987 Memorandum and Order filed in Civil No. 86-

0116.2 Therefore, as the court has held in Rapid Amer-

ican, the defendant in the present case is not liable to

the plaintiff as a matter of law. Accordingly, the motion

for summary judgment of defendant Celotex will be

granted and plaintiff Smith Land’s motion for partial

summary judgment will therefore be denied.

Also pending in the case at bar are the plaintiff’s

motion to compel discovery and for sanctions, the plain-

tiff’s motion for leave to amend paragraphs 25 and 26 of

its complaint, and the defendant’s motion for sanctions.

The Magistrate recommends that this court should

grant the plaintiff’s motion to amend its complaint, but

deny the plaintiff’s motion to compel discovery and for

sanctions, and the defendant’s motion for sanctions. The

plaintiff objects to the Magistrate’s recommendations

that its motion to compel discovery and for sanctions be

denied. The defendant requests that this court adopt the

Magistrate's report except for its recommended denial! of

1. See September 21, 1987 Memorandum and Order of Civil

No. 86-0116, Doc. 40.

2. The court wishes to note that the plaintiff has objected to

the Magistrate’s report in the case at bar as well as in the Rapid

American case. However, with respect to the summary judgment

motion of defendant Celotex, the plaintiff has adopted the objec-

tions, Doc. 53, Civil No. 86-1151. Because this court considered the

plaintiff’s objections in its Rapid American decision, it will not

readdress these same objections in the present case.

A-33

the defendant’s motion for sanctions. Since no objec-

tions were filed against the Magistrate’s recommenda-

tion concerning the plaintiff’s motion to amend its

complaint, said motion will be granted.

The court has reviewed the Magistrate’s report

concerning the remaining outstanding motions and the

objections thereto submitted by both parties. The court

finds no error with any of the Magistrate’s recommen-

dations and shall adopt them in fuli. As stated above, the

court has found merit to the defendant’s motion for

summary judgment. The present motions are of no

consequence with respect to the defendant’s entitlement

to summary judgment. Based upon this fact alone, the

current motions shall be denied as moot.

An appropriate Order will issue.

ORDER AND JUDGMENT

NOW, this 22 day of September, 1987, IT IS

HEREBY ORDERED THAT:

[1] the report and recommendation of the Mag-

istrate dated June 16, 1987 is adopted by the court;

(2] plaintiff’s motion to amend its complaint is

granted;

[3] plaintiff’s motion to compel discovery and

for sanctions is denied;

[4] defendant’s motion for sanctions is denied;

(S] plaintiff’s motion for partial summary judg-

ment is denied;

[6] defendant’s motion for summary judgment

is granted;

(7] judgment is entered in favor of the defen-

dant and against the plaintiff; and

A-34

[8] the Clerk of Court is directed to close this

case and to send a copy of this Memorandum and

Order to United States Magistrate Smyser.

/s/ Edwin Kosik

Edwin M. Kosik

United States District Judge

A-35

IN THE UNITED STATES DISTRICT COURT

FOR THE MIDDLE DISTRICT OF PENNSYLVANIA

SMITH LAND AND IMPROVEMENT _ -: CIVIL ACTION

CORPORATION, : NO. 86-0116

Plaintiff

V. (Judge Kosik)

RAPID-AMERICAN CORPORATION;

Defendant

REPORT OF MAGISTRATE

There are two motions outstanding in this case. One

is the defendant’s motion for summary judgment, filed

on February 17, 1987. The other is the plaintiff’s motion

for leave to amend the complaint, filed also on February

17, 1987. The motion for summary judgment has been

fully briefed and is ready for disposition. A brief in

support of the motion for leave to amend was filed, but

no opposing brief was filed.

The motion for leave to amend the complaint is not

opposed. Rule 401.6, Rules of Court, M.D.Pa. It should

be granted for that reason.

The defendant asserts in support of its motion for

summary judgment that the following facts are material

to the disposition of this case and are not in dispute:

1. On December 17, 1963, Exeter Investment,

Inc. purchased a 160-acre tract of land situated

adjacent to Exit 25 of the Pennsylvania Turnpike in

Plymouth Township, Pennsylvania (the “subject

property”) from the Philip Carey Manufacturing

Company (“Philip Carey’).

2. Exeter Investment, Inc. (“Exeter”) is Smith

Land & Improvement Corporation’s predecessor by

merger. The merger was accomplished in 1975

when Exeter merged with several other companies

into a company known as L.B. Smith of New York,

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Inc. and L.B. Smith of New York, Inc. changed its

name to Smith Land & Improvement Corporation

(“Smith Land”).

3. One of the key persons from Exeter involved

in the negotiations leading to the purchase was

Richard E. Jordan, then Secretary of Exeter and

now President of Smith Land.

4. Mr. Jordan inspected the subject property on

more than five occasions prior to its purchase. On

those occasions he took note of the three quarry

holes on the property as well as the 30-foot high pile

of material (“Pile”) filling Whiting Lake, the subject

of this litigation.

5. This 30-foot high Pile covers twenty acres of

the property.

6. Mr. Jordan admitted that the Pile was a

“negative” factor in the decision to purchase the

subject property.

7. The Agreement of Sale for the subject prop-

erty permitted the purchaser to perform test borings

before title passed, but the purchaser did not do so.

8. On December 2, 1974, Mr. Jordan, then

Vice-President of Exeter, signed a Land Fill Agree-

ment with Paoli Construction Company, which per-

mitted Paoli Construction Company to dump fill on

plaintiff’s Plymouth Meeting property.

9. The Land Fill Agreement makes reference to

the presence of asbestos on the subject property on

the third page, where it describes an area designated

for dumping as “an area where asbestos has hereto-

fore been deposited.”

10. Following Exeter’s merger and subsequent

name change to “Smith Land & Improvement Cor-

poration” in June, 1975, Smith Land assumed all of

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Exeter’s obligations under the Land Fill Agreement

with Paoli Construction Company.

11. Rapid-American Corporation (‘Rapid-

American’’) is a Delaware corporation with its prin-

cipal place of business in New York.

12. There was no relationship between Rapid-

American and Philip Carey prior to 1963 or during

the period Philip Carey is alleged to have disposed of

asbestos on the subject property.

13. On November 3, 1972, an Ohio “Rapid-

American Corporation” merged with and into Glen

Alden Corporation (“Glen Alden’) and the survivor

of that merger changed its name _ to

“Rapid-American Corporation.” On January 30,

1981 Rapid-American Corporation merged into Ken-

ton Corporation, which was incorporated in Dela-

ware, and the survivor of that merger changed iis

name to Rapid-American Corporation, the defen-

dant herein.

14. On June 1, 1967, 5% year prior to its

merger with Rapid-American, Glen Alden merged

with the Philip Carey Manufacturing Company

(“Old Carey”). Simultaneously with this merger,

Glen Alden transferred all the assets and liabilities it

acquired from Old Carey to a newly formed subsid-

iary. The Philip Carey Manufacturing Company

(“New Carey’). In this transaction New Carey, inter

alia, assumed all of the liabilities of Old Carey. In

April of 1970, New Carey merged into Briggs Man-

ufacturing Company, and the survivor of that

merger changed its name to Panacon Corporation.

On April 17, 1972 Glen Alden sold its controlling

stock interest in Panacon to the Celotex Corpora-

tion.

15. On or about March 20, 1984, Smith Land

received notice from the Environmental Protection

A-38

Agency (“EPA”) of the presence of acbestos on the

subject property.

16. On or about July 31, 1984, the EPA in-

formed Smith Land that it was a potentially respon-

sible party under the Comprehensive Environmen-

tal Response, Compensation and Liability Act of

1980 (“CERCLA”), 42 U.S.C. §9601, et seg. and

that it would be required to reimburse the federal

government for clean-up costs with respect to the

asbestos unless plaintiff undertook the clean-up

itself.

17. On September 6, 1984, Smith Land re-

sponded to the EPA’s demand to take action and

submitted a plan of remedial measures. In carrying

out this plan, Smith Land engaged a contractor in

the fall of 1984 to reslope the Pile. By December 3,

1984, Smith Land had spent $87,498.00 in pay-

ments to this contractor for resloping work. At some

point, the EPA found the resloping work by this

contractor unsatisfactory and Smith Land re-

sponded by spending an additional $17,500.00 for

resloping by a different contractor.

18. Smith Land has thus far spent a total of

$218,945.44 on costs in connection with its clean-

up efforts. Of this amount, $48,000.00 is for 480

hours of work (at a rate of $100.00 per hour) by

Smith Land’s president, Richard E. Jordan.

19. On November 20, 1985. Smith Land signed

a Consent Agreement and Order of the EPA which

formally settled the EPA’s claims against Smith

Land.

20. On September 30, 1985, Smith Land noti-

fied Rapid-American of its intentions to seek indem-

nification from Rapid-American for its expenses in

responding to the EPA’s demands.

A-39

These facts are admitted by the plaintiff, with these

exceptions: (1) the plaintiff corrects the date of purchase

to December 13, 1963; (2) the plaintiff, with respect to

paragraph 3 above, admits only that Richard E. Jordan

was the Secretary to Exeter in 1963 and was involved in

the negotiations for the premises; (3) the plaintiff de-

nies, in reference to paragraph 17 above, that the EPA

found the grading and sloping to be unsatisfactory, but

admits that additional work had to be done to meet all of

the EPA’s demands; and (4) the plaintiff denies, in

reference to paragraph 19 above, that the EPA’s claims

are settled, and asserts that a future, additional EPA

enforcement action is a possibility. Apart from these

disagreements over the facts, which for the_ reasons

which follow are not disputes concerning material facts,

the plaintiff objects to the relevance of some of the

foregoing facts asserted in support of the defendant’s

summary judgment motion.

The complaint in this case, which was filed on

January 21, 1986, contains seven counts. Counts II and

III were dismissed by Order of August 12, 1986. Count

I sets forth a cause of action under CERCLA, 42 USCS

§9607(a)(2)(3) and (4).! Count IV sets forth a pendent

State common law nuisance claim. Count V sets forth a

pendent state common law vicarious liability claim.

Count VI sets forth a claim for restitution on the grounds

of unjust enrichment. Count VII sets forth a claim for

common law indemnity.

Summary judgment is to be granted under Rule 56

of the Federal Rules of Civil Procedure when no material

facts are in dispute and as a matter of law under those

undisputed facts a party is entitled to judgment. Sun

Refining and Marketing Co. v. Rago, 741 F.2d 670 (3d

Cir. 1984). Here, the parties have constructively agreed

that no material facts are in dispute. The plaintiff asserts

1. See Motion for Leave to File Amendment to Complaint, Doc.

27.

A-40

rather that it instead of the defendant is entitled to

summary judgment on these facts.

The defendant asserts a number of alternative argu-

ments in support of its summary judgment motion,

including that the plaintiff has unclean hands and is

estopped from pursuing the claims it now pursues. We

conclude that most of the defendant’s arguments need

not be reached and that the defendant is entitled to

summary judgment as to Counts I, IV, V and VII by

direct application of Third Circuit precedent to the

undisputed material facts presented here. We also con-

clude that the defendant is entitled to summary judg-

ment as to Count VI for the reasons set forth hereinafter.

The decision of the United States Court of Appeals

for the Third Circuit in Philadelphia Electric Co. v.

Hercules, Inc., 762 F.2d 303 (3d Cir. 1985), cert. denied,

Rica , 106 S.Ct. 184 (1985) is dispositive of

Counts I, IV and VII. In that case, the court noted that

under Pennsylvania law a vendor of land is liable in the

absence of fraud or misrepresentation for the quality of

property that is sold only to the extent that the vendor

expressly agrees to be responsible. The court held that

the purchaser of an industrial property has no private or

public nuisance cause of action against a vendor for

environmental contaminants existing on the land. The

court held also that the current landowner, who has

been required to incur expenses to clean up the land as

the result of a governmental agency's action requiring

such a clean-up, has no indemnity cause of action

against the vendor or a successor corporation of the

vendor. Eath- (the current owner and the successor

corporation) being vicariously liable for the condition on

the land, the court concluded that equity does not favor

shifting the loss away from a sophisticated purchaser

who knew of the condition of the land when it was

purchased.

The plaintiff presents no persuasive argument that

the Philadelphia Electric decision is distinguishable or

A-41

inapplicable. Much of the plaintiff’s brief is devoted to

an argument that Rapid-American is the successor to

Philip Carey. Plaintiff argues the general liability of a

successor corporation for the liabilities of the predeces-

sor corporation. The plaintiff argues that the defendant,

had the EPA proceeded against it, would have been

liable for the clean-up costs. All of these propositions are

true but, under the Philadelphia Electric-rationale, not

relevant. The plaintiff notes that the court in Philadel-

phia Electric did not hold that a party that contaminates

land or its successors can escape liability dy the expedi-

ent of selling the land. That proposition ts correct, but

the court in Philadelphia Electric did clearly hold that as

between the successor to the former (contaminating)

landowner and the present landowner, there is no liabil-

ity on the part of the former landowner to the present

landowner for clean-up costs absent special circum-

stances such as a concealment of the offensive condi-

tion(s) by the vendor of the land.

The Philadelphia Electric decision did not involve a

CERCLA cause of action such as is involved here. Here,

the clean-up action was brought against the plaintiff by

the EPA under CERCLA and Count I of the complaint

here is based on CERCLA. But the fact that the clean-up

here was prompted by an action by the EPA under

CERCLA instead of by the Pennsylvania Department of

Environmental Resources under the Pennsylvania

Clean Streams Law is not a material distinction for

purposes of the application of Philadelphia Electric.

There, in deciding the question of the past landowner’s

liability to the present landowner, the court assumed

that either of those entities could be held accountable for

clean-up costs in an action against it by the governmen-

tal agency. The court made it clear that the fact of the

past and present owner's liability to the public and to

public agencies to accomplish the clean-up is not a

significant or even a germane factor in deciding the

question of the present landowner’s right to recover from

A-42

the former landowner for the costs of the clean-up. In

the one context, the paramount interest of the public

requires that any one of the range of persons reasonably

heid accountable for the clean-up be so held. In the

other context, traditional considerations of caveat emp-

tor predominate. The undisputed facts here leave no

room for surmise that the presence of asbestos on the

land when plaintiff’s predecessor bought it was con-

cealed by the defendant’s predecessor. It was not. The

plaintiff's predecessor bought the land in an open,

arms-length land sale. In the eyes of the law, the

plaintiff calculated or must be held to have calculated

the risk of future clean-up costs into the amount that it

was willing to pay for the land. An agreement for the

purchase of land could presumably provide for the

manner in which monies are to flow as between the

parties in the event of future clean-up costs mandated by

a public agency. Here, there was no such agreement.

Summary judgment for the defendant must be granted

by direct application of the Philadelphia Electric deci-

sion.

With respect to the unjust enrichment claim in

Count VI, the defendant asserts entitlement to summary

judgment because there is no evidence of an enrich-

ment of the defendant, but only evidence of a detriment

to the plaintiff.

In order to recover on a claim for unjust enrichment

and restitution, a party must show: (1) an enrichment

and (2) an injustice resulting if recovery for the enrich-

ment is denied. Peterson v. Crown Financial Corp., 661

F.2d 287 (3d Cir. 1981); Efco Importers v. Halsobrunn,

500 F.Supp. 152 (E.D. Pa. 1980); Visor Builders, Inc. v.

Devon E. Tranter, Inc., 470 F.Supp. 911 (M.D.Pa.

1978); Belmont Industries v. Bechtel Corp., 425 F.Supp.

524 (E.D.Pa. 1976).

In our view, the defendant may not be deemed to

have been enriched merely because an enforcement

A-43

action has been brought against another party instead of

against the defendant.

The fact that one of either of two parties may under

the law be held responsible by the public to do an act

which costs money does not itself support the inference

that the other party who is not so required is enriched.

But even if some inference of an enrichment were

possible in such circumstances, a finding of an unjust

enrichment would not be possible under the circum-

stances presented here because such a finding would be

inconsistent with the principle of caveat emptor which

underlies the decision in Philadelphia Electric and

would therefore be inconsistent with the Philadelphia

Electric decision. As we understand that decision, it may

leave open the possibility of a cause of action by a prior

landowner who has been required to pay clean-up costs

aS against a sophisticated and fully informed current

landowner, but it forecloses such a claim by the current

landowner against the former landowner.

There is not an injustice in the public requiring a

landowner to clean environmental hazards from the

land. There is not an injustice in holding the landowner

accountable for such a condition and in foreclosing

recovery by the landowner against the prior landowner if

the condition was known or apparent at the time of the

land transfer and there was no misrepresentation. Thus,

defendant is entitled to summary judgment as to Count

VI.

For the foregoing reasons, it is recommended that

the plaintiff’s motion to amend the complaint be granted

and that defendant’s motion for summary judgment as

to all remaining counts be granted.

/s/ J. Andrew Smyser

J. Andrew Smyser

United States Magistrate

Dated: June 16, 1987

A-44

IN THE UNITED STATES DISTRICT COURT

FOR THE MIDDLE DISTRICT OF PENNSYLVANIA

SMITH LAND AND CIVIL ACTION

IMPROVEMENT : NO. 86-1151

CORPORATION, :

Plaintiff (Judge Kosik)

THE CELOTEX CORPORATION

Defendant

REPORT OF MAGISTRATE

This case is for all material purposes indistinguish-

able on the merits from Smith Land & Improvement

Corporation v. Rapid-American Corporation, M.D.Pa.

Civil No. 86-0116. The defendant Celotex here, like the

defendant Rapid-American in that case, is a successor

corporation to the Philip Carey Manufacturing Company

and other companies which owned the Plymouth Meet-

ing land involved in these cases at the time when

asbestos waste was dumped upon the land. In a Report

of Magistrate of this date in that case, we have recom-

mended that summary judgment be granted as to all

remaining counts in favor of that defendant. We adopt

that Report herein and make the same recommendation

as to Celotex, the defendant here, whose status in

relationship to the plaintiff is materially the same as the

status of the defendant in M.D.Pa. Civil No. 86-0116.

A-45

In this case, in addition to the defendant’s motion for

summary judgment, there are the following other out-

standing motions: the plaintiff’s motion for partial sum-

mary judgment, the plaintiff’s motion to compel discov-

ery and for sanctions, the plaintiff’s motion for leave to

amend its complaint, and the defendant’s motion for

sanctions.

The plaintiff’s motion for partial summary judg-

ment seeks summary judgment in plaintiff’s favor as to

the question of Celotex’s liability for all past and future

clean-up costs on the land in question. For the reasons

Stated in our Report of Magistrate in M.D.Pa. Civil No.

86-0116, and more to the point for the reasons stated in

Philadelphia Electric Co. v. Hercules, Inc., 762 F.2d 303

(3d Cir. 1985), cert. denied, ____U.S. , 106 S.Ct.

184 (1985), the defendant is not liable to the plaintiff as

a matter of law and the plaintiff’s motion for partial

summary judgment should therefore be denied.

The plaintiff’s motion for leave to amend its com-

plaint parallels the motion for leave to amend in M.D.Pa.

Civil No. 86-0116. Here, the motion for leave to amend

is opposed. The proposed amendment to the complaint

makes no difference at all with respect to the defen-

dant’s entitlement to summary judgment, although Ce-

lotex opposes the motion on the grounds of prejudice

because it had already filed its motion for summary

judgment when Smith Land sought to amend its com-

plaint. Although it has no effect on the outcome of the

case, as we understand and apply the applicable law, the

plaintiff’s motion for leave to amend should be granted

to ensure that a review of the court’s grant of summary

judgment in plaintiff’s favor, if that is the court’s deci-

sion, may go forward on the basis of a consideration of all

of the plaintiff’s theories of recovery.

A review of the cross motions relating to alleged

wrong-doing by the respective opposing parties in the

course of discovery and litigation requires the conclu-

sions that; first, none of these contentions and disputes

A-46

affect or have any potential to affect the defendant’s

entitlement to summary judgment; and, second, these

motions and their underlying contentions do not need to

be resolved in view of the defendant’s entitlement to

summary judgment.

The only justifications which would arguably war-

tant the resolution of the cross motions for sanctions

would be the preservation of the integrity of the litigation

process and the determination of entitlement to attor-

ney’s fees. For all other purposes, the motions are clearly

moot.

With these considerations in mind, we have re-

viewed the sixteen instances of alleged discovery abuse

on defendant’s part raised in the plaintiff’s brief and we

have reviewed the reasons set forth by the defendant in

support of its contention that the plaintiff should be

sanctioned.

A review of the motions reveals clearly that both

parties have very prematurely resorted to requests for

sanctions. The plaintiff finds fault and bad faith in the

defendant’s responses to various discovery requests by

the plaintiff, but in each instance the defendant has

provided an explanation for its response which is rea-

sonable at least on its face. The plaintiff’s point of view,

according to which the defendant has been evasive and

untruthful, is not of sufficient dimension to allow for the

possibility that its discovery requests, viewed from the-

defendant’s point of view, were not so clear and unam-

biguous as the plaintiff viewed them to be. The plaintiff

also is harshly critical of the failure of the defendant, a

successor corporation, to provide facts based upon per-

sonal knowledge about the activities of the predecessor

corporation, but the plaintiff makes no showing of a

continuity of corporate personnel such as would permit

answers based upon personal knowledge.! In some

1. At page 35 of its brief, plaintiff makes this argument:

Celotex’s entire tactic in refusing proper discovery is

A-47

matters, the plaintiff accuses the defendant of being

evasive in refusing to admit to facts, but the defendant

demonstrates the existence of evidence which would

support the counter inference which the defendant

would advocate. Given the fact that none of the areas of

inquiry in which the plaintiff claims the defendant failed

to diligently make discovery are material to tire question

of the defendant’s entitlement to summary judgment,

and given that the defendant’s explanations for its

responses are reasonable, it would constitute a waste of

judicial resources to go into the plaintiff’s allegations in

greater depth. Specifically, it would be wasteful to

conduct a hearing upon this collateral matter.

The defendant’s motion for sanctions is based upon

the fact that the plaintiff filed a motion for sanctions, a

motion for partial summary judgment and a motion to

amend the complaint. Apparently filed in the belief that

the best defense is to go on the offensive, this motion in

combination with the plaintiff’s motion has the potential

Capacity to entirely divert the court away from adjudi-

cating actual disputes in favor of deciding squabbles

between lawyers. The court should not be so diverted. In

a case so squarely and properly amenable to a decision

based upon directly controlling precedent, no valid pur-

pose is to be served by considering these collateral

matters at length.

exemplified by its interpretation of the word “knowledge”...

Celotex’s definition is frivolous and not made in good faith.

How, pray tell, would a corporate entity ever be engaged in

“personal observation or experience”? A corporation acts only

through its directors, officers and duly appointed agents, in-

cluding its attorneys.

If, however, none of these persons have personal knowledge of the

activities of the predecessor corporation, it would not appear to have

been unreasonable for Celotex to indicate that it as an entity did not

have personal knowledge. Plaintiff’s resort to a motion for sanctions

was premature. What was called for was a more pointed subsequent

discovery effort which would have either obtained the information

sought or established actual bad faith on defendant's part.

A-48

Even though the plaintiff’s motion for sanctions

seems not to state a meritorious basis for sanctions,

particulariy in view of the defendant’s response to it, that

alone is not a basis to conclude that it was filed in bad

faith. Defendant’s counsel might well have construed

the plaintiff’s discovery requests less rigidly, might well

have made reference to information that would have

been helpful to plaintiff’s position (and such references

could have been ma¢e in such a manner as to reserve to

defendant its own inferences and arguiments), and could

certainly have generally been more cooperative in dis-

covery. If defendant’s counsel had proceeded witn dis-

covery in a cooperative manner rather than disclosing no

more than was directly, unambiguously and clearly

asked for, the plaintiff’s motion would doubtless not

have been filed. The defendant’s motion for sanctions on

this basis is, therefore, meritless and deserves no further

attention.

The defendant also bases its sanctions motion on the

fact that plaintiff sought leave to amend its complaint

and the fact that the plaintiff has sought summary

judgment. In: M.D.Pa. Civil No. 86-0116, the defendant

did not even:oppose the plaintiff’s motion to amend its

complaint. Here, the motion to amend is deemed so

objectionable as to warrant sanctions. The amended

complaint does not affect the defendant's summary

judgment theory or its right to summary judgment. The

defendant’s ‘motion for sanctions on the theory that the

plaintiff’s motion to amend is in bad faith is without

merit. With respect to the plaintiff’s motion for sum-

mary judgment, we think that the piaintiff’s course of

action has not been irresponsible or in bad faith. It

agrees in essence with the defendant that no material

facts are in dispute, and it argues its position that the

defendant as a successor corporation to the former

landowner is responsible for the asbestos clean-up costs.

It agrees implicitly that the case is ripe for resolution by

the court by the device of summary judgment. It has not

A-49

attempted to defeat summary judgment by attempting to

make it appear that some material facts are in dispute.

The plaintiff’s legal position in this case lacks foun-

dation, we have concluded, because of the Philadelphia

Electric decision. The plaintiff asserts that Philadelphia

Electric is inapposite because that was not a CERCLA .

case. We think this distinction on balance to be imma-

terial when weighed against the analysis in Philadelphia

Electric, but we cannot say that the plaintiff’s legal

position is frivolous or in bad faith and, moreover, we

believe that the plaintiff's implicit acquiescence in the

proposition that this case should be resolved by sum-

mary judgment affirmatively represents procedural good

faith.

For the foregoing reasons, it is recommended that

the plaintiff's motion for leave to amend the complaint

be granted, that the plaintiff’s motion to compel discov-

ery and for sanctions and the defendant’s motion for

sanctions be denied, that the plaintiff’s motion for

partial summary judgment be denied and that the

defendant’s motion for summary judgment be granted.

/s/ J. Andrew Smyser

J. Andrew Smyser

United States Magistrate

Dated: June 16, 1987.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.