Appendix — Philadelphia Electric Co. v. Hercules Inc.
Supreme Court brief1985
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ee iC Supreme Court, U.S.
B5-477 | fire
No.__ SEP 18 1006
— JOSEPH F. SPANIOL, JR.
IN THE CLERK
SUPREME COURT OF THE UNITED STATES
October Term, 1985
PHILADELPHIA ELECTRIC COMPANY,
Petitioner-Appellant
v.
HERCULES INCORPORATED,
Respondent-A ppellee
and
GOULD, INC.
ON WRIT OF CERTIORARI TO
THE UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
APPENDICES IN SUPPORT OF PETITION
FOR WRIT OF CERTIORARI
Patrick W. Kittredge, Esquire
Joseph M. Donley, Esquire
KITTREDGE, KAUFMAN & DONLEY
800 North American Building
121 South Broad Street
Philadelphia, PA 19107
(215) 732-2700
Counsel of Record for Petitioner
Robert Emmet Hernan, Esquire
Co-Counsel for Petitioner
PACKARD PRESS / LEGAL DIVISION, 10th & SPRING GARDEN STREETS, PHILA., PA. 19123 (215) 236-2000
TABLE OF CONTENTS
Page
Decision of the United States Court of Appeals
for the Third Circuit, Philadelphia Electric
Company v. Hercules Incorporated and Gould,
Inc., Case No. 84-1159 (May 28, 1985)......
Decision of the United States District Court for
the Eastern District of Pennsylvania, Philadel-
phia Electric Company v. Hercules Incorpo-
rated and Gould, Inc., Case No. 82-0690
Be Bo re ne
Decision of the United States Court of Appeals
for the Third Circuit, Philadelphia Electric
Company v. Hercules Incorporated and Gould,
Inc., Case No. 84-1159 (June 21, 1985)......
Special Interrogatories Answered by Jury in
United States District Court for the Eastern
District of Pennsylvania, Philadelpnia Electric
Company v. Hercules Incorporated and Gould,
Peg Se Pe I os cic cae eka ve eae
33
935
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UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 84-1159
PHILADELPHIA ELECTRIC COMPANY
v. 7
HERCULES, INC.
and
GOULD, INC.,
Hercules, Inc., Appellant
!
Appeal From the United States
District Court for the
Eastern District of Pennsylvania
D.C. Civ. No. 82-0690
Argued: December 14, 1984
Before: GARTI{ and HIGGINBOTHAM,
: Circuit Judges, and. , ©
McCUNE, District Judge*
"(Filed May 28, 1985)
JOHN GERALD GLEESON, ESQUIRE (Argued) __, ‘
HERCULES, INC.
Hercules Plaza. See
Wilmington, DE 19899 Xs
*Honorable Barron P. McCune, United States District Court for the
Western District of Pennsylvania, sitting by designation.
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JOSEPH G. MANTA, ESQUIRE
JOHN C. SULLIVAN, ESQUIRE
FRUMKIN & MANTA
Suite 1818
Three Penn Center Plaza
Philadelphia, PA 19102
Altorneys for Hercules, Inc.
JOSEPH M. DONLEY, ESQUIRE (Argued)
ROBERT EMMET HERNAN, ESQUIRE
KITTREDGE, KAUFFMAN & DONLEY
. 890 North American Building
121 South Broad Street
Philadelphia, PA 19107
Attorneys for Philadelphia Electric Co.
KEAN K. McDONALD, ESQUIRE
LaBRUM & DOAK
700 IVB Building
1700 Market Street
Philadelphia, PA 19103
Attorney for Gould, Inc.
OPINION OF THE COURT
A. LEON HIGGINBOTHAM, JR., Circuit Judge.
This is an appeal from a final judgment of the
district court in favor of Philadelphia Elect: ic Company
(“PECO”) and against Hercules, Inc. (“Hercules”) in the
amount of $394,910.14, and further ordering Hercules
to take all appropriate action to eliminate pollution on.
a property owned by PECO in Chester, Pennsylvania.
The case was tried to a jury on theories of public and
private nuisance. For the reasons set forth in the
opinion that follows, we will reverse the judgment
against Hercules on PECO's claims, and vacate the
injunction.
A-3
Prior to October of 1971, the Pennsylvania
Industrial Chemical Corporation (“PICCO”") owned a
tract of land abutting the Delaware River in Chester,
Pennsylvania where it operated a hydrocarbon resin
manufacturing plint. At the time PICCO acquired the
property (“the Chester site”) there was an inlet located
at the southern end that opened into the Delaware
River. Sometime later PICCO filled in the shoreline at
the inlet and thereby created a lake (“the PICCO
pond”). During the period it conducted operations on
the Chester site, the evidence tended to show, PICCO
deposited or buried various resins and their
by-products in the PICCO pond and possibly other
locations. . re
In 1971 PICCO ceased operations on the Chester
site and sold the facility to Gould, Inc. (“Gould”). Gould
did not conduct any operations on the Chester site,
other than leasing certain tanks to ABM Disposal
Services Company (“ABM”), which used them to store
large quantities of various waste materials, though
apparently not resins or resinous by-products.
In mid- 1973, PECO -- which operated a plant on an
adjoining piece of land -- obtained an option to
purchase the Chester site from Gould. Prior to
exercising its option, a PECO representative inspected
the site on more than one occasion, including walking
tours along the banks of the Delaware River and the
banks of the PICCO pond. PECO learned that Gould's
tenant, ABM, had caused a number of spills on the site,
including oil spills in the pond area, and was informed
that ABM was a “sloppy tenant”. ABM was unable to
clean up the Chester site in time to meet Gould's
original deadline for vacating the premises, a condition
of the PECO purchase agreement. PECO exercised its
option and acquired the property in March of 1974.
PECO has conducted no operations on the Chester
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site, but has leased a portion of the land to American
Refining Group, Inc.
In 1980 the Pennsylvania Department of
Environmental Resources (“DER”) discovered that
resinous materials similar to those once produced by
PICCO were seeping from the banks of the Delaware
River at the Chester site, and that the PICCO pond was
contaminated with the same material. On August 22,
1980 PECO received the following letter from a DER
Water Quality Specialist:
This is to confirm the results of an inspection
conducted on July 15, 1980. . . which revealed
that a resinous materiai was leaching from the
bank of the Delaware River from PECO property
located between Jeffrey and Ward Streets.
Such condition is in violation of Title 25, Chapter
101, Section 2 of the Rules and Regulations of
the Department of Environmental Resources
regarding Specia! Water Pollution Regulations. '
During our preliminary survey of the site you
Stated that the property was once owned by
Pennsylvania Industrial Chemical Company which
operated a resin disposal lagoon on site. You
mentioned that core samples had been taken of
this site, that the contents of the lagoon had been
pumped to a storage tank and samples of this
material were being analyzed. In order that we may
evaluate the impact of this material on the
Delaware River we request that a copy of the core
sampling results and a copy of chemical analysis of
the substance be submitted to the Department. If
the core sampling does not provide sufficient data,
additional monitoring may be required.
1. These are regulations promulgated pursuant to authority
granted by the Pennsylvania Clean Streams Law. 35 Pa. Cons.
Stat. Ann. § 691.5 (Purdon Supp. 1983).
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It was also noted that a remnant of the resin lagoon
remains on site. During our inspection you
indicated that this lagoon was going to be cleaned
out and abandoned. Please indicate how and when
this work will be accomplished.
In response, PECO developed a plan whereby the
remaining pond resin would be removed to a land fill,
and the PICCO pond area would be backfilled and
reysraded. DER approved this plan on November 21,
1980. PECO produced evidence indicating that itt
incurred expenses of $338,328.69 in implementing the
clean-up, and an additional $7,578 in collecting and
car!ing away resinous material that continued to leach
to the surface at various places around the Chester sile
during the summers of 1981-1983. PECO also
introduced evidence of $67,500 in lost rentals from
American Refining due to the continuing leaching.
In a letter dated March 10, 1981, DER expressed
satisfaction with the clean-up of the pond area, but
reported (nat a February 27, 1981 inspection revealed
resins still on the Delaware River bank and continued
leaching of resins into the River. PECO was asked to
“submit in writing . . . Philadelphia Electric's position
on the control or clean-up of the resin material
remaining on the bank.” After PECO expressed
reluctance to spend any additional money on clean-up
of the Chester sile, DER wrote PECO again, on May 28,
1981:
Leachate analysis of the resin on the river bank
indicates that there is a leaching problem from the
resin. Such discharge constitutes an unpermitted
discharge to the waters of the Commonwealth and
is a violation of the Clean Streams Law, subject to
the penalties provided therein. It is therefore
required that the resin material on the river bank
be removed.
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The record does not reveal that DER or PECO has taken
any further action regarding the resinous material on
the river bank, and PECO’s witness testified at trial
that the condition still existed. .
On February 16, 1982, PECO instituted suit
against Gould and Hercules, which had acquired the
remaining assets of PICCO in 1973, in exchange for
Hercules stock. (PICCO was dissolved on January 9,
1976.) Hercules cross-claimed against Gould, On
cross-motions for summary judgment the district
~ court ruled that Hercules was liable as PICCO's
corporate successor under the express terms of the
Agreement and Plan of Reorganization (“the
Agreement”) it entered into with PICCO, and because
the transaction was a de facto merger. A jury trial was
held in July of 1983. PECO, stating that discovery had
shown no wrongdoing on the part of Gould, offered no
evidence against Gould.’ At trial Hercules attempted to
show that the pollution was not consistent with
PICCO’'s operations on the Chester site, but was
consistent with the operations of ABM and other
industrial plants in the area. At the close of evidence,
the jury was instructed on principles of public and
private nuisance. The jury’s verdict was rendered in
the form of answeis to special interrogatories:
1. Do you find by a preponderance of the evidence
tht PICCO caused the contamination of the
property now owned by Philadelphia Electric
Company? YES.
2. Doyou find by a preponderance of the evidence
that the contamination on the property now
2. After trial PECO revealed that it had actually released
Gould from liability in consideration of $5,000. Though we do
not approve of this lack of candor, we do not belicve that
Hercules was prejudiced or that reversal is required on this
ground.
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owned by Philadelphia Electric Company
continues to pollute the groundwater or the
Delaware River? YES.
3. In what amount do you award damages?
$345,906.69.
4. Doyou find by a preponderance of the evidence
that ABM's activities contributed to the
contamination of the Philadelphia Electric
Company property? YES.
5. Was Gould aware of ABM's activities and
permitted them to continue? NO,
Based on these answers, the district court
moulded a verdict and entered judgment for PECO
against Hercules in the amount of $394,910.14, which
included delay damages of $49,003.45 pursuant to
Pennsylvania Rule of Civil Procedure 238, entered
judgment for Gould on Hercules’ cross-claim, and
issued an injunction as follows:
IT IS FURTHER ORDERED and DECREED that
Hercules, Inc. shall forthwith take all appropriate
action to abate and eliminate the contamination
on the property of the Philadelphia Electric
Company located at the Chester site and abate the
further pollution of the groundwater and the
Delaware River adjacent to the property by
cullecting and removing all pollutants in
accordance with all applicable rules and
regulations of the Pennsylvania Department of
Environmental Resources, the United States
Environmental Protection Agency, and any other
appropriate state or federal regulatory agency.
In this appeal Hercules contends, inter alia, that
the district court erred in ruling that tt was liable as
PICCO’s successor, and that PECO had no cause of
action against it for public or private nuisance. The
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parties are agreed that the substantive law of
Pennsylvania governs this diversity case.
“As a general rule.” under Pennsylvania common
law, “when one company sells or transfers all its assets
to another, the successor company does not embrace
the HMabilittes of the predecessor simply because it
succeeded to the predecessor's assets.” McClinton v.
Rockford Punch Press & Manufacturing Company,
549 F. Supp. 835, 837 (E.D. Pa. 1982). Four exceptions
to the general rule of nonliability are widely recognized,
in Pennsylvania and elsewhere. Thus, where (1) the
purchaser of assets expressly or impliedly agrees to
assume obligations of the transferor; (2) the
transaction amounts to a consolidation or de facto
merger; (3) the purchasing corporation is merely a
continuation of the transferor corporation: or (4) the
transaction is fraudulently entered into to escape
liability, a successor corporation may be held
responsible for the debts and liabilities of its
predecessor. See Shane v. Hobam, Inc., 332 F. Supp.
526 (E.D. Pa. 1971); Granthum v. Textile Machine
Works, 230 Pa. Super. 199, 326 A.2d 449 (1974). See
generally 15 W. Fietcher, Cyclopedia of the Law of
Private Corporations § 7122 (rev. perm. ed. 1983). “A
fifth circumstance, sometimes included as an
exception to the general rule, is where the transfer was
without adequate consideration and provisions were
not made for creditors of the transferor.” Husak v.
Berkel, Inc., 234 Pa. Super. 452, 457, 341 A.2d 174,
176 (1975). In addition, Pennsylvania has recently
adopted the more controversial “product-line”’
exception in products liability cases. See Dawejko v.
Jorgensen Steel Co., 290 Pa. Super. 15, 434 A.2d 106
(1981); Savini v. Kent Machine Works, 525 F. Supp.
711 (E.D. Pa. 1981). See generally Comment,
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Expanding the Products Liability of Successor
Corporations, 27 Hast. L. Rev. 1305 (1976). In the
instant case the district court found, as a imatter of
law, that Hercules had expressly assumed PICCO's
liabilities and that the transaction amounted to a de
Jacto merger. We agree with the district court as to
both theories of successor liability.
A. Express Assumption of Liability
Article IV, paragraph 4.1 (iii) of the Agreement
provided for:
[tlhe assumption by Hercules of all the debts,
obligations and liabilities of Picco as of the Closing
Date, excepting therefrom the liabilities arising
out of the breach of any warranty of Picco
contained herein, in any certificate or other
instrument furnished hereunder, any mis-
representation by Picco herein, or the failure of
Picco to perform under any of its agreements and
contracts herein, and except liabilities of Picco set
forth in subsection (iv) for which cash is
specifically reserved herein.
As the district court noted, under this language
Hercules broadly assumed all liabilitites incurred by
Picco as of the closing date, subject to a few limited
exceptions. In such cases, it is of no consequence that
the specific liability at issue is not enumerated. See
Bouton v. Litton Industries, 423 F.2d 643 (3d Cir.
1970); Bippus v. Norton Company , 437 F. Supp. 104
(E.D. Pa. 1977). Unless this Hability comes within one
of the express exceptions, Hercules may be held to have
assumed it.
Hercules seeks to avoid this result by juxtaposing
the exception for “Iabilities arising out of the breach of
any warranty of Picco” with Picco’s warranty, in article
I, paragraph 1.4 of the Agreement, that “at the date
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hereof Picco has no material liabilittes, contingent or
otherwise, not reflected in the Picco Balance Sheet, not
otherwise herein disclosed, and all such financial
statements have been prepared in accordance with
penerally accepled accounting principles consistently
applied throughout the periods involved.” Hercules
contends that in light of this warranty, it is apparent
that it did not assume liabilities, such as the one al
issue, that we ¢ contingent or unknown at the closing
date. We find this contention unpersuasive. As we read
the exception for liabilities arising out of breach of
warranty by PICCO, it would seem to preserve the
rights of Hercules as against PICCO in the event of a
breach; it does not pertain to the rights of injured third
parties.’ Moreover, we doubt that there is a breach of
the warranty here. Because, as Hercules concedes, the
liability was unknown as of the date of the Agreement,
PICCO could not have been responsible for disclosing
it. Cf. Bouton v. Litton Industries, 423 F.2d at 652.
Our conclusion that Hercules’ assumption of
liability did not exclude liabilities that were unknown
or contingent is bolstered by a comparison of the
language employed here with that used in cases where
such liabilities were deemed to be excluded. In Lopata
v. Bemts Company, 383 F. Supp. 342 (E.D. Pa. 1974),
vacated, 517 F.2d 1398 (3d Cir.), judgment
reinstated, 406 F. Supp. 521 (1975), affd, 546 F.2d
417 (1976), the agreement at Issue provided that the
purchaser of the assets “shall not assume any
liabilities of the seller nor take the assets subject to any
liabilities whether fixed or contingent, known or
unknown,” except as specifically provided. Id. at 344.
3. See Carlin v. Pennsylvania Power and Light Co., 363 Pa.
543, 545, 70 A.2d 349, 351 (1950) (“The cause of action
owned by the plaintiff is distinct from the cause of action
arising out of the duty of the addittonal defendant to idemnily
the defendant.”).
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In McCullough v. National Bank of Union City , 12
Pa. Super. 452, 193 A. 65 (1937), the defendant bank
purchased the assets of a closed bank and assumed
responsibility for 60% of its “known, existing
‘Habilities.” In Travis v. Harris Corp., 565 F.2d 443 (7th
Cir. 1977) the purchaser assumed “all debts,
obligations, contracts ~..d Habilities of (the transferor]
of any kind, character or description, whether accrued,
absolute, contingent or otherwise, as reflected on the
balance sheets, books of account and other records of
{the transferor] on the date hereof.” 565 F.2d at 446.
This language was deemed to exclude unknown
liabilities. In light of the clear and specific language
that has been used to effect the excision of unknown
or contingent liabilities in other cases, we must decline
to follow Hercules’ rather strained interpretation of the
Agreement at issue. We conclude that Hercules has
assumed any liability PICCG may have had due to
pollution of the Chester site.
B. De Facto Merger
Judge McGlynn’s excellent discussion of this
theory of successor liability is worth setting out in full:
As previously noted, the Hercules-PICCO
agreement was entitled an Agreement and Plan of
Reorganization. However, because of the complex
nature of corporate reorganizations and
acquisitions the intrinsic nat))re of a transaction
cannot be ascertained merely from the form by
which it is structured. It is the duty of the court to
examine the substance of the transaction tc
ascertain its purpose and true intent. Knapp v.
North American Rockwell Corp. , 506 F.2d 361 (3d
Cir. 1974) (Rosenn, J., concurring), cert. denied
421 U.S. 965, 95 S.Ct. 1955, 44 L.Ed. 2d 452
(1575).
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ln determining whether a particular transaction
amounts to a de facto merger as distinguished
from an ordinary purchase and sale of assets most
courts look to the following factors:
(1) There is a continuation of the enterprise of
the seller corporation, so that there is continuily
of management, personnel, physical location,
assets, and general business operations.
(2) There is a continuity of shareholders which
results from the purchasing corporation paying
for the acquired assets with shares of its own
stuck, this stock ultimately coming to be held by
the shareholders of the seller corporation so that
they become a constituent part of the
purchasing coporation.
(3) The seller corporation ceases its ordinary
business operations, liquidates, and dissolves as
soon as legally and practically possible.
(4) The purchasing corporation assumes those
obligations of the seller ordinarily necessary for
the uninterrupted continuation of normal
business operations of the seller corporation.
See e.g., Shannon v. Samuel Langston Company,
379 F. Supp. 797, 801 (W.D. Mich. 1974); McKee
v. Harris Seybold Co., Div. of Harris-Int. Corp.,
109 N.J. Super. 555, 264 A.2d 98, 103-105 [(Law
Div. 1970)], affd, 118 N.J. Super. 480, 288 A.2d
585 (App. Div. 1972); See also Knapp, 506 F.2d at
365.
In Knapp, the plaintiff was injured in 1969 when
his hand was caught in a machine that had been
designed and manufactured by Textile Machine
Works, (TMW) and sold to plaintiffs employer in
1966 or 1967. 506 F.2d at [362]. In April of 1968,
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eighteen months prior to plaintiffs injuries, TMW
entered into an agreement with North Aimerican
Rockwell Corp., (Rockwell) whereby Rockwell
acquired substantially all of the assets and
liabilities of TMW in exchange for Rockwell stock.
The agreement also stipulated that TMW was to
dissolve as soon as possible. Id. at 363. Knapp
brought his action against Rockwell in 1971
alleging his injuries resulted [rom the negligence of
TMW in designing and manufacturing the
machine and that Rockwell, as TMW’s successor,
was liable for such injuries. The transaction
between TMW and Rockwell was characterized as a
sale of assets. Id. at [362-63].
In reversing the district court's award of
summary judgment in favor of Rockwell, the Court
of Appeals held that, for the purposes of
determining liability for tortiously injured parties,
the Rockwell-TMW transaction should be treated
as a de facto merger thereby subjecting Rockwell to
liability for injuries caused by defective products
distributed by TMW prior to the transaction. Id. at
367.
While cognizant of the general rule of nonliability
for a corporation which merely purchases
-another’s assets, the Knapp court nevertheless
looked beyond the form of the transaction. In
doing so the court enumerated several factors as
indicia of a de facto merger: the exchange of
substantially all of TMW's assets and liabilities for
Rockwell stock; the nominal amount of cash which
Rockwell left with TMW to cover the expenses of the
transfer with the proviso that any funds remaining
after dissolution was [sic] to be returned to
Rockwell; and finally, the requirement that TMW
was to distribute the Rockwell stock to its
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shareholders and dissolve as soon as practicable.
Id. at 363.
The factors which the Knapp court focused on in
imposing liability on the successor corporation are
likewise present here. The Hercules-PICCO
agreement provided that Hercules was to acquire
all the assets and substantially all of the liabilities
of PICCO in exchange for Hercules stock; PICCO
was to use its best efforts to keep its business
organization intact, to keep available to Hercules
the service of its present employees and to
maintain its relationship with its customers and
suppliers for Hercules’ benefit: PICCQO’s
management and personnel became a part of
Hercules; PICCO was required, to the extent
permitted by law, to transfer to Hercules the right
to use its corporate name; PICCO was left with a
nominal amount of money to dispose of its
expenses in connection with the transaction and
any money remaining was to be returned to
Hercules; PICCO was required to dissolve as soon
as practicable; and finally, following closing,
Hercules continued to operate the PICCO plants,
produce the same PICCO products and
represented to PICCO’s customers that PICCO
resins had became a part of Hercules’ Organics
Department.
Philadelphia Electric Co. v. Hercules, Inc., 587 F.
Supp. 144, 151-152 (E.D. Pa. 1984) (footnote omitted).
There is little that we can add to Judge McGlynn’s
thoughtful analysis and we adopt it as our own.
Indeed, Hercules does not argue that the district court
misapprehended or misapplied the elements of a de
Jacto merger. Rather, Hercules argues that the district
court erred in assuming that the Pennsylvania courts
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would apply this doctrine in an environmental
nuisance case. Hercules cites Dawejko v. Jorgensen
Steel Co., supra, for the proposition that the
Pennsylvania courts, in determining whether
successor liability ’s appropriate, will first look to see
whether the same social policy considerations
underlying strict products liability are thereby
promoted. Since these policies would not be promoted
by imposing successor liability he-e, it is argued, the
de facto merger doctrine should not be applied:
Hercules’ contention is entirely without merit. In
Dawejko, the Pennsylvania Superior Court adopted a
new exception to the general rule of nonliability -- the
so-called “product-line” exception -- that applies only
in products liability cases. Not surprisingly the court
did consider whether the policies of strict products
liability would be promoted by adopting the
product-line exception, but the court made it quite
clear that it was expanding the reach of successor
liability, and not in any way limiting the scope of
established exceptions:
One may retain the traditional exceptions but
expand their boundaries, so that “merger” or
“continuation” are held to include cases they once
would not have included. Or one may adopt a new
exception, such as the product-line exception. We
believe it better to adopt a new exception... . By
adopting a new exception. . . the other exceptions
then remaining, to deal with cases not so much
aliected by the policy considerations that have led
to the rule of strict liability for defective products.
290 Pa. Super. at 25-26, 434 A.2d at 111. We believe
that the de faclo merger docirine is supported by
“social policy considerations” independent of any
particular cause of action, see In re Penn Central
Securities Litigation, 367 F. Supp. 1158, 1170 (E.D.
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Pa. 1973) (“The de facto merger doctrine is a
Judge-made device for avoiding patent injustice which
might befall a parly simply because a merger has been
called something else.”), and that the Pennsylvania
courts would apply it in a wide variety of cases,
including this one. See generally Farris v. Glen Alden
Corp., 393 Pa. 427, 432, 143 A.2d 25, 28 (1958); 15 W.
Fletcher, Cyclopedia of the Law of Private
Corporations 88 7122-7123.5 (rev. perm. ed. 1983).
If.
Having determined that Hercules may be liable as
PICCO’'s successor for unknown and contingent
liabilities, we must analyze the relationship between
Hercules and PECO as that of a vendor and remote
vendee of land. Hercules argues that this relationship
is governed by the rule of caveat emptor, subject to
limited exceptions not applicable here, and that a
vendee has no cause of action against a vendor
sounding in private nuisance for conditions existing
on the land transferred. After carefully considering this
question of first impression, we are persuaded that
under Pennsylvania law Hercules cannot, as a matter of
law, be held liable to PECO on a private nuisance
theory. Phe Reporter’s Note to Restatement (Second)
of Torts § 352 (1965) sums up the prevailing view
regarding the liability of a vendor of land:
Under the ancient doctrine of caveat emptor,
the original rule was that, in the absence of
express agreement, the vendor of land was not
liable to his vendee, or a fortiori to any other
person, for the condition of the land existing at
the time of transfer. As to sales of land this rule
has retained much of its original force, and the
linplied warranties which have grown up around
the sale of chattels never have developed. This is
perhaps because great importance always has
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been attached to the deed of conveyance, which
is taken to represent the full agreement of the
parties, and to exclude all other terms and
liabilities. The vendee is required to make his
own Inspection of the premises, and the vendor
is not responsible to him for their defective
condition, existing at the time of transfer.
See also M. Friedman, Contracts and Conveyances of
Real Property § 1.2(n), at 37 (4th ed. 1984) (“[I]n the
sule of realty this doctrine [caveat emptor) not only
applies, it flourishes.”).
As the Pennsylvania Supreme Court has said:
“Generally speaking, the rule is that in the absence of
fraud or mispresentation a vendor is responsible for
the quality of property being sold by him only to the
extent for which he expressly agrees to be
responsil,le. . . . The theory of the doctrine is that the
buyer and seller deal at arm's length, each with an
equal means of knowledge concerning the subject of
the sale, and that therefore the buyer should be
afforded only those protections for which he
specifically contracts.” Elderkin v. Gaster, 447 Pa.
118, 124, 288 A.2d 771, 774-75 (1972) (footnote
omitted). In Elderkin the court abolished the rule of
caveat emptor as to the sale of new homes by a
builder-vendor and, in accordance with a national
trend, adopted a theory of implied warranties. See
generally 6A Powell on Real Property chap. 84A
(1984). But the reasoning of the Elderkin opinion*
leaves us with no doubt that where, as here,
corporations of roughly equal resources contract for
4. Elderkin, like other decisions adopting implied warranty
theories, is based on the theory that as between the
builder-vendor and the home buyer, the builder-vendor ts in
by far the better position tn terms of expertise and bargaining
power. We find no reason to assume such a disparity exists in .
the instant case.
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the sale of an industrial property, and especially where
the dispute is over a condition on the land rather than
a structure? caveat emptor remains the rule.
A number of general exceptions to the rule of
caveat emptor, mostly dealing with liability for
personal injuries or property damage resulting from
latent dangerous conditions, have been recognized.
See Quashnock v. Frost, 299 Pa. Super. 9, 445 A.2d
121 (1982); Shane v. Hoffmann, 227 Pa. Super. 176,
324 A.2d 532 (1974); Restatement (Second) of Torts
§ 353; Annot., 18 A-L.R.4th 1168 (1982); Annot., 48
A.L.R.3d 1027 (1973). PECO concedes that these
exceptions do not apply in this case. (Indeed, PECO
appears to argue that because the exceptions do not
apply, neither does the rule. This, of course, does not
follow.) PECO’s tack has been to cast its cause of action
for the condition of the Chester site as one for private
nuisance. We, however, do not believe that PEC ) can
escape the rule of caveat emptor by this route.
Restatement (Second) of Torts § 821D defines a
“private nuisance” as “a nontrespassory invasion of
another's interest in the private use and enjoyment of
land.” The briefs and arguments, as well as the district
court's opinion, 587 F. Supp. at 152-54, give much
attention to the questions of whether the condition
created by Hercules on the Chester site amounted toa
nuisance, and whether Hercules remains liable for the
nuisance even after vacating the land. For the purposes
of our decision, we may assume that Hercules created a
nuisance, and that it remains liable for this condition...
See Restatement (Second) of Torts §840¢.. The crucial
5. Compare those cases holding that there are no implied
warranties in the sale of unimproved jand. Conklin v. Hurley.
428 So.2d 654 (Fla. 1983); Witty v. Schramm, 62 Ill. App. 3d
185, 379 N.E.2d 333 (1978); Cook v. Salishan Properties, 279
Or. 333, 569 P.2d 1033 (1977); Jackson v. River Pines. Inc..
276 S.C. 29, 274 S.E.2d 912 (1981).
A-19
and difficult question for us is to *vhom Hercules may
be liable.
The parties have cited no case rom Pennsylvania
or any other jurisdiction, and we have found none, that
permits a purchaser of real property to recover trom the
seller on a private nulsance theory for conditions
existing on the very land transferred, and thereby to
circumvent limitations on vendor liability inherent in
the rule of caveat emptor. In a somewhat analogous
circumstance, courts have not permitted tenants to
circumvent traditional limitations on the liability ol
lessors by the expedient of casting their cause of action
for detective conditions existing on premises (over
which they have assumed control) as one for private
nuisance. See Collette v. Piela, 141 Conn. 382, 106
A.2d 473 (1954); Clerken v. Cohen, 315 IlLApp. 222,
42 N.E.2d 846 (1942). In Harris v. Lewistown Trust
Co., 326 Pa. 145, 191 A. 34 (1937), overruled in pari
on other grounds, Reitmeyer v. Sprecher, 431 Pa. 284,
243 A.2d 395 (1968), the Supreme Court ol
Pennsylvania held that the doctrine that a landlord not
in possession may be liable for injuries resulting from a
“condition amounting to a nuisance” is confined to
“the owners or occupants of near-by property, persons
temporarily on such property, or persons on a
neighboring highway or other places.” 326 Pa. at 153,
191 A. at 38.° Recovery on this theory was not available
io -tenants or their invitees: “A breach of duty owed to
one class of persons cannot create a cause of action in
favor of a person not within the class. A plaintiff must
show that as to him there was a breach of duty.” 326
6. Cf. Restatement (Second) of Torts § 840A and comment «
thereto (“If the vendor or lessor has himself created on the
land a condition that results in a nuisance, .... his
responsibility toward those outside of his land is such that
he is not free to terminate his Hability to them. . . by passin
the land itself on to a third person.”) (emphasis added).
A-20
Pa. at 152. 191 A. at 38.’ Similarly, under the doctrine
of caveat empior Hercules owed only a limited duty to
Gould and, in turn, to PECO. PECO concedes that this
duty was not violated. PECO cannot recover in private
nuisance for the violation of a duty Hercules may have
owed to others -- namely, its neighbors."
We believe that this result is consonant with the
historical role of private nuisance law as a means of
efficiently resolving conflicts between neighboring,
contemporaneous land uses. See Essick v. Shillam,
347 Pa. 373, 376, 32 A.2d 416, 418 (1943) (“An owner
has a right, barring malice and negligence, to any use
of his property, unless by its continuous use he
prevents his neighbors from enjoying the use of their
property to their damage.”) (emphasis added).” All of
the very useful and sophisticated economic analyses of
private nuisance remedies published in recent years
proceed on the basis that the goal of nuisance law is to
7. The limitation on landlord ability that the Harris case
imposed -- preventing recovery by a lessee injured due to a
condition the landlord promised to repair -- was much
criticized and eventually overruled by Reltmeyer. We believe.
however. that insular as it stands for the proposition that
salutary limitations on vendor or lessor Hability to vendees
and lessees cannot be circumvented by asserting a breach of a
duty owed to third parties, Harris reflects sound tort theory.
8. The record shows that prior to its purchase of the Chester
site, PECO also owned an adjoining piece of land. and thus
was a neighbor of Hercules. PECO does not. however. allege
that pollution of the Chester site interfered with its use and
enjoyment of this adjoining site.
9. See also 5 Powell on Real Property § 704, at 320 (“The
basic criterion in the whole law of private nuisance is
reasonableness of conduct.... The concluson of
‘unreasonableness’ depends then upon Hability-inviting
conduct of the defendant plus a finding that this conduct
violates a protected interest of the neighbor-plaintiff.”)
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achieve efficient and equitable solutions to problems
created by discordant land uses."® In this light
nuisance law can be seen as a coinplement to zoning
regulations, see Beuscher & Morrison, Judicial
Zoning Through Recent Nuisance Cases, 1955 Wis. L.
Rev. 440, 452 (“[Tjhe state in nuisance cases is
exercising, through the judicial arm, the same basic
power of the sovereign that it exercises through the
legislative arm in zoning.”), and not as an additional
type of consumer proicction for purchasers of realty.
Neighbors, unlike the purchasers of the land upon
which a nuisance exists, have no opportunity to
protect themselves through inspection and
negotiation. The record shows that PECO acted as a
sophisticated and responsible purchaser -- inquiring
(emphasis added); Rabin, Nuisance Law: Rethinking
Fundamental Assumptions, 63 Va. L. Rev. 1299, 1319 (1977)
(“An interference is not a nuisance unless, among other
things, it substantially interferes with the use and enjoyment
of neighboring land.”) (emphasis added); 2 F. Pollock & F.
Maitland, The History of English Law 53 (2d ed. 1911)
(Nuisance is caused “by things erected, made, or done not on
the soil possessed by the complainant bul on neighboring
WOR, ..0 2+ Law endeavours to protect the person who Is seized
of land, not merely in the possession of the land, but In the
enjoyment of those rights against his neighbours which he
would be en'itled to were he seized under a good tille.”)
(emphasis added).
10.- ' See generally Calabres! & Melamed, Property Rules,
Liability Rules. and Inalienability: One View of the
Cathedral, 85 Harv. L. Rev. 1089 (1972); Ellickson,
Allernatives to Zontng: Covenants, Nuisance Rules, and
Fines as Land Use Controls. 40 U. Chi. L. Rev. 681 (1973);
Polinsky, Resolving Nuisance Disputes: The Simple
Economics of Injuncttve and Damage Remedies, 32 Stan. L.
Rev. 1075 (1986); Rabin, Nuisance Law: Rethinking
Fundamental Assumptions, 63 Va. L. Rev. 1299 (1977);
Comment, Internalizing Eaternalittes: Nuisance Law and
Economie Efficiency, 53 N.Y.U. L. Rev. 219 (1978).
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into the past use of the Chester site, and inspecting it
carefully. We find it inconceivable that the price it
offered Gould did not reflect the possibility of
environmental risks, even if the exact cendition giving
rise to this suit was not discovered.
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 transferred -- where
there has been no fraudulent concealment -- would in
effect negate the market's allocations of resources and
risks, and subject vendors who may have originally
sold their land at appropriately discounted prices to
unbargained-for liability to remote vendees. To so
extend private nuisance beyond its historical role
would render it little more than an epithet, “and an
epithet does not make out a cause of action.” Miller v.
Morse, 9 A.1D.2d 188, 192 N.Y.S.2d 571, 576 (1959).
Such an extension of common law doctrine is
particularly hazardous in an area, such as
environmental pollution, where Congress and the state
legislatures are actively seeking to achieve a socially
acceptable definition of rights and liabilities. We
conclude that PECO did not have a cause of action
against Hercules sounding in private nuisance.
IV.
The doctrine of public nuisance protects interests
quite different from those implicated in actions for
private nuisance, and PECO’s claim for public
nuisance requires separate consideration. Whereas
private nuisance requires an invasion of another's
interest in the private use and enjoyment of land, a
public nutsance is “an unreasonable interference with
a right common to the general public.” Restatement
(Second) of Torts § 821B(1). An action for public
nuisance may lie even though neither the plaintiff nor
the defendant acts in the exercise of private property
A-23
rights.'' As William Prosser once wrote:
There are, then, two and only two kinds of
nuisance, which are quite unrelated except in the
vague general way that each of them causes
inconventence to someone, and in the common
name, which naturally has led the courts to apply
to the two some of the same substantive rules of
law. A private nuisance is narrowly restricted to
the invasion of interests in the use and enjoyment
of land. It is only a tort, and the remedy for it lies
exclusively with the individual whose rights have
been disturbed. A public nuisance is a species of
catch-all low-grade criminal offense, consisting of
an interference with the rights of the community
at large, which may include anything from the
blocking of a highway to a gaming-house or
indecent exposure. Altihough as in the case of other
crimes, the normal remedy is in the hands of the
State, a public nuisance may also be a private one,
when it interferes with private land. The seeds of
confusion were sown when courts began to hold
that a tort action would lie even for a purely public
nuisance if the plaintiff had suffered “particular
damage.”
Prosser, Private Action for Public Nuisance, 52 Va. L.
Kev. 997, 999 (1966) (footnotes omitted). In analyzing
the public nuisance claim, we are not concerned with
the happenstance that PECO now occupies the very
land PICCO occupied when it allegedly created the
condition that has polluted the Delaware River
Thus, commercial fishermen and clam diggers operating
in public waters can recover on a public nuisance theory for
harm to the waters and marine life caused by oil discharged
from a tanker In transii. See Burgess v. M/V Tamano, 370 F.
Supp. 247 (D. Me. 1973).
A-24
waters,"? or that the continuing source of that
pollution is located on that land.” The question before
us is whether PECO has standing to bring an
individual action for damages or injunctive relief for
interference with a public right.
Restatement (Second) of Torts § 821C(1) provides:
ln order to recover damages in an individual
action for a public nuisance, one must have
suffered harm of a kind different from that
suffered by other members of the public
exercising the right common to the general
public that was the subject of interference.
‘he same requirements apply to individual plaintiffs
secking injunctive relief. Restatement (Second) of
Torts § 821C(2); Prosser, supra, 52 Va. L. Rev. at 1006.
PECO argues that the expense it incurred in cleaning
up the offending condition constituted the harm
requisite for standing to sue for public nuisance. We
disagree. Though pecuniary harm certainly may be
harm of a different kind from that suffered by the
general public, see Restatement (Second) of Torts
§ 821C comment h,"* we find in this case no allegation
or evidence that PECO suffered this harm “exercising
12. Though Hercules disputes it. we may assume that the
jury could properly have found that the leachin, — resins into
the Delaware Kiver was a public nuisance and that PICCO was
responsible for it.
13. Accordingly, we reject Hercules’ contentions that the
limitations on private nulsance discussed in Part Ill, supra,
i pply equally to public nutsance, and that it is improper for a
claimant to recover for or seek abatement of public nuisance
when the alleged cause of the public nuisance is its own
property.
14. It may be that under Pennsylvania law harm of a
magnitude greater than that suffered by the general public ts
sufficient to confer standing. See Pennsylvania Society for
the Prevention of Cruchty to Animals v. Bravo Enterprises.
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the right common to the general public that was the
subject of interference.” The public right that was
interfered with was the right to “pure water”. See
Commonwealth v. Barnes & Tucker Company, 455
Pa. 392, 412-13, 319 A.2d 871, 882 (1974); Pa. Const.
art. I, § 27. PECO does not allege that it used the
waters of the Delaware River itself, or that it was
directly harmed tn any way by the pollution of those
waters. Thus, this is not a case “where an established
business made commercial use of the public right with
which the defendant interfered.” Prosser, supra, 52
Va. L. Rev. at 1013-14 (footnote omitted). If PECO -- as
a riparian landowner -- had suffered damage to its land
or its »perations as a result of the pollution of the
Delaware, it would possibly have a claim for public
nuisance. But the condition of the Chester site was not
the result of the pollution, it was the cause of it. DER
required PECO, as owner of the Chester site, to remove
the sources of the pollution, PECO has been specially
harmed only in the exercise of its private property
rights over the Chester site. PECO has suffered no
“particular damage” in the exercise of a right common
to the general public, and it lacks stam !ing to sue for
public nuisance.
V.
PECO argues that even if, as we have now held, it
had no cause of action against Hercules for public or
428 Pa. 350. 360, 237 A.2d 342, 348 (1968). This distinction
is not, however. important in the instani case. As the
discussion that follows points out. even if PECO has suffered
a harm both different in kind and greater tn degree than that
suffered by the general public, it has not suffered that harm
in the exercise of a right common to the general public. Cf.
Burgess v. M/VV Tamano, 370 F. Supp. 247 {D. Me. 1973)
(businesses operating on beach did not have standing to sue
for pollution of swiniming waters, even though they lost
customers as a resull.).
A-26
private nuisance, insofar as the judgment of the
district court assessed damages against Hercules it
should be affirmed on common law principles of
indemnification. The short answer to PECO's
contention is that under Pennsylvania law a cause of
action for indemnity between jointly Hable defendants
ard a plaintiffs cause of action for the underlying
wrong are entirely distinct, see Carlin v. Pennsylvania
Power and Light Company, 363 Pa. 543, 70 A.2d 349
(1950), and as an appellate court we should be chary of
upholding a judgment on the basis of a cause of action
that was neither pleaded, proved, nor submitted to the
jury by the district court. Perhaps this would be
possible were there a complete identity of factual
issues,'® but a brief review of the principles of
indemnification show that such fs not the case here.
Under Pennsylvania law, the right to indemnity
“enures to a person who, without active fault on his
own part, has been compelled, by reason of some legal
obligation to pay damages occasioned by the
negligence of another.” Burbage v. Boiler Engineering
& Supply Company, 433 Pa. 319, 326, 249 A.2d 563,
567 (1969). Under a threat of legal action by the DER
pursuant to the Pennsylvania Clean Streams Law,
PECO negotiated and carried out a plan to clean up the
Chester site. (The jury’s verdict against Hercules
reflected the cost PECO incurred in implementing the
clean-up.) PECO was not, however, required to fight
DER to a final judgment in order to be eligible for
15. “An appellate court may affirm a result reached by the
district court on dilferent reasons, as long as the record
supports the judgment.” Guthrie v. Lady Jane Collieries, Inc..
722 F.2d 1141, 1145 n.1 (3d Cir. 1983) femphasis added).
Where, as here, a case ts tried before a jury under one cause of
action, it seems most unlikely that the record could support
affirmance of a judgment for the plaintiff on the basis of an
entirely distinct cause of action.
A-27
indemnity. It is not penalized for acting responsibly.
“To recover indemnity where there has been such a
voluntary payment, however, it must appear that the
party paying was himself legally liable and could have
been compelled to satisfy the claim.” Tugboai Indian
Company v. A/S Ivarans Redert, 334 Pa. 15, 21,5 A.2d
153, 156 (1939)(emphasis in original)."®
“Thus, the indemnitee may be required to
establish his case against the indemnitor tn the same
way that the claimant against him would have been
obligated to do, namely, by a preponderance of the
evidence. A mere showing by a party seeking Indemnity
that there was a reasonable possibility that it might
have been held liable if it had not settled ... is not
sufficient to recover indemnity; actual legal liability
must be shown.” 41 Am. Jur. 2d Indemnity § 33, at
723 (1968) (footnotes omitted). See also Martinique
Shoes v. New York Progressive Wood Heel Company,
207 Pa. Super. 404, 217 A.2d 781 (1966). The issue of
liability, of PECO or Hercules, under the Clean Streams
Law pursuant to which the DER purported to act,'” has
16. It is further required that the party seeking Indemnity
give “proper notice” and “establish that the settlement was
fair and reasonable.” Id. Hercules has not disputed that it was
informed of PECO’s negotiations with DER, and that the
amounts PECO expended in cleaning up the Chester site were
reasonable
a7: The Clean Streams law provides that “[njo person or
municipality shall discharge or permit the discharge of
industrial wastes in any manner, directly or indirectly, into
any of the waters of the Commonwealth unless such
discharge is authorized by the rules and regulations of the
department [DER] or such person or municipality has first
obtained a permit from the department. ... A discharge of
industrial wastes without a permit or contrary to the terms
and conditions of a permit or contrary to the rules and
regulations of the department is hereby declared to be a
nulsance.” 35 Pa. Cons. Stat. Ann. § 691.307 (Purdon Supp.
1983).
A-28
not been tried. Though the Clean Streams Law declares
that all violations are nuisances, that docs not mean
that all public nuisances give rise to liability under this
statute. The jury has not been instructed as to the
elements of such liability'® and its answers to the
special interrogatories cannot be transmuted into
findings on this issue.'® Thus, we cannot on the basis
18.
19.
It is doubtful that DER could have compelled PECO to
clean up the Chester site on a common law public nuisance
theory, since the common law, in contrast to the Clean
Streams Law, tinpused liability only on those whose conduct
(even tf without fault) had been a legal cause of the nuisance,
and not simply on the basis of ownership of the offending
land. Compare Commonwealth v. Barnes & Tucker Co., 23
Pa. Commw. 496, 509-510, 353 A.2d 471, 478-79 (1976),
aff'd, 472 Pa. 115, 371 A.2d 461, appeal dismissed, 434 U.S.
807 (1977), with National Wood Preservers v. Commonwealth,
4189 Pa. 221, 237-2410. 414 A.2d 37, 45-47. appeal dismissed,
449 U.S. 803 (1980).
PECO's eleventh-hour attempt to add a claim against
Hercules based on the Clean Streams Law was denied.
Nonetheless. the jury was Instructed as follows:
There is a statute of Pennsylvania which provides it shall
be unlawful for any person. and person includes
corporations, or a municipality, to put or place into any of
the waters of the Commonwealth. or allow or permit to be
discharged from the property owned or occupied by such
person or municipality. any substance of any kind or
character resulting in pollution.
Now, if you find there was a violation of this statute, you
must find there was Created a public nuisance as a matter
of law.
This instruction, dealing with the public nuisance claim,
cannot be construed as placing Hability under the Clean
Streams Law at issue. Though we need not reach the
question, this instruction , ») have been so incomplete as to
be prejudicial error.
Nor are DEK ’s allegations, contained in its letters to
PECO, see Part I supra. conclusive of the issue of liability
under the Clean Streams Law.
A-29
of this record uphold the award of damages on PECO’s
indemnification theory.
Even if the record clearly supported the conclusion
that PECO “could have been compelled” through legal
action by DER pursuant to the Clean Streams Law to
incur these exy;.cnses in cleaning up the condition
created by PICCO, it is not at all clear that under
Pennsylvania law Hercules is liable over to PECO for
indemnity. “The right of indemnity rests upon a
difference between the primary and secondary liability
of two persons each of whom is made responsible by
law to an injured party.” Burbage v. Boiler
Engineering & Supply Company, 433 Pa. at 326, 249
A.2d at 567.
The difference between primary and secondary
liability is not based on a difference in degrees of
negligence or on any doctrine of comparative
negligence but rather on a difference in the
character or kind of the wrongs which cause the
injury and in the nature of the legal obligations
owed by each of the wrongdoers to the injured
person. Secondary as distinguished from primary
liability rests upon a fault that is imputed or
constructive only, being based on some legal
obligation between the parties or arising from
some positive rule of statutory or common law or
because of a failure to discover or correct a defect
or remedy a dangerous condition caused by the act
of the one primarily responsible.
433 Pa. at 326-67, 249 A.2d at 567 (emphasis in
original). There can be no indemnity as between
parties that each bear primary responsibility for a
wrong, regardless of their relative degrees of fault. Here
we have the converse situation. Both PECO and
Hercules are liable for the condition of the Chester site,
if at all, vicariously -- PECO as the successor to PICCO
in title to the land, Hercules as the successor to
A-30
TICCO's other assets. We have found no Pennsylvania
case determining where the risk of loss falls in such
circumstances. At least one court has held that there
can be no common law indemnification as between two
parties whose liability is vicarious. See Liberty Mutual
Insurance Company v. Curtis Noll Corporation, 112
Mich. App. 182, 315 N.W.2d 890 (1982) (two
“product-line’” successors to company that
manufactured defective product). Arguably, the
liability of a party that has constructively merged with
a polluter is of a character or kind different from that of
a party who succeeded to title in the offending land. We
need not, however, attempt to ascertain what general
rule the Supreme Court of Pennsylvania would adopt.
“Indemnity turns upon what is equitable and fair in
measuring the comparative responsibilities of these
defendants, should both be held liable.” District of
Columbia v. Nordstrom, 327 F.2d 863, 867 (D.C. Cir.
1963); see also United States v. Savage Truck Line,
209 F.2d 442, 447 (4th Cir. 1953) (“[T]he inquiry is
always whether the difference in the gravity of the
faults of the participants is so great as to throw the
whole loss upon one.”), cert. denied, 347 U.S. 952
(1954). In the special circumstances of this case --
where the Chester site had been sold by PICCO well
' before the acquisition of PICCO’s other assets by
Hercules, and where PECO had an opportunity to
protect itself through inspection and negotiation --
neither considerations of equity nor considerations of
which party was best situated to prevent the pollution
of the Delaware River waters compel the conclusion
that the entire loss ought to be shifted from PECO to
Hercules. Indeed, essentially the same _ policy
considerations that counsel adherence to the rule of
caveat emptor in this situation militate against
shifting the loss to Hercules on an indemnity theory.
We conclude that the judgment of the district court
A-31
cannot be affirmed, insofar as it assessed damages, on
a theory of common law indemnification.
We emphasize that our decision today should not
be interpreted as standing for the general proposition
that a partly that contaminates land, or the successors
to its assets, can escape liability by the expedient of
selling the land. To the contrary, it would seem that
there are many avenues by which such a party may be
held accountable.?” We hold only that in this case the
purchaser of that land, PCO -- though we recognize
that it acted as a responsible corporate cilizen -- had no
cause of action against the vendor's successor,
Hercules, for private nuisance, public nuisance, or
common law indemnity.
CONCLUSION
For the foregoing reasons, the injunction
requiring Hercules to clean up the Chester site will be
vacated, and the judgment of the district court on
PECO’s claims against Hercules will be reversed.
20. For example, Hercules could be lable to neighboring
landowners in private nuisance, or to users of Delaware River
waters in public nuisance. DER or the federal Environmental
Protection Agency may be able to proceed directly against
Hercules On statutory or public nulsance theories.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
Jor the Tiird Circuit
Se Oi ml nn eR Cl tia a eS
A-33
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
PHILADELPHIA ELECTRIC COMPANY : CIVIL ACTION
v. 7
HERCULES, INCORPORATED
and
GOULD, INC. | NO. 82-0690
Ma MORANDUM OF DECISION
McGLYNN, J. February 22, 1984
In April of 1980 the Commonwealth of Pennsylva-
nia, Department of Environmental Resources, (DER),
discovered a hydrocarbon resinous material, which it
deemed to be a pollutant, on property owned by Phila-
delphia Electric Company, (PECQO), in Chester, Penn-
sylvania, (Chester Site). The DER required PECO to
remove this resinous material from the property and the
banks of the Delaware River.!
In February of 1982, PECO brought this suit claim-
ing negligence, private nuisance and public nuisance
against Hercules Incorporated, (Hercules), on the
ground that Hercules’ predecessor in interest, Pennsyl-
vania Industrial Chemical Corporation, (PICCO), had
caused the contamination during its operation of a pet-
rochemical plant at the Chester Site in the period from
1945 to 1971. Since PICCO had sold the property to
Gould, Inc., (Gould), in 1971, who thereafter sold to
PECO in 1974, PECO’s complaint also included claims
of nuisance, deceit and/or misrepresentation against
Gould, on the ground that Gould contributed to the con-
tamination and/or knew of the contamination but did not
1. DER issued a citation against PECO on August 22, 1980 for
violations of the Clean Streams Law. Pa. Stat. Ann. tit. 35, §691.01
et seq.
A-34
disclose this condition when it sold the property to PECO
in 1974. 2 Both Hercules and Gould denied the claims of
PECO and cross-claimed against each other. Jurisdiction
of the case was based upon diversity of citizenship be-
tween the parties. See 28 U.S.C. § 1332 (West Supp.
1983). After a five day trial, the jury returned a verdict in
favor of PECO% and in favor of Gould on the cross-claims.
Presently before the court are Hercules’ motions for
judgment notwithstanding the verdict, pursuant to Fed.
R. Civ. P. 50(b), and, in the alternative, for a new trial,
pursuant to Fed. R. Civ. P. 59. Generally, a jury’s verdict
may be set aside only if manifest injustice will result if it
were allowed to stand. The court may not substitute its
own judgment for that of the jury merely because the
court may have reached a different conclusion. To grant
a motion for judgment n.o.v., the court must find, as a
matter of law, that the plaintiff failed to adduce sufficient
facts to justify the verdict. Neville Chemical Co. v. Union
Carbide Corp., 422 F.2d 1205, 1210 (3d Cir. 1970), cert.
denied, 400 U.S. 826 (1970).
However, a motion for a new trial, unlike a motion
for a judgment n.o.v., does not seek a final judgment but
another trial. Thus a motion for a new trial is within the
sound discretion of the trial judge and should be granted
only when the verdict is palpably contrary to the clear
weight of the evidence or when a miscarriage of justice
has occurred. Lind v. Schenley Industries, Inc., 278 F.2d
79, 88-89 (3d Cir. 1960), cert. denied, 364 U.S. 835
2. At trial, PECO presented no evidence against Gould, there-
fore at the close of PECO’s case | granted Gould's motion for a di-
rected verdict pursuant to Fed. R. Civ. P. 50(a).
3. Prior to trial the parties filed cross-motions for summary
judgment pursuant to Fed. R. Civ. P. 56 on the issue of corporate
successor liability. | denied Hercules’ motion and granted PECO's
motion holding that Hercules was the successor in interest of
PICCO.
A-35
(1960); J. Moore & J. Wicker, 6A Moore’s Federal Prac-
tice 959.08 (2d ed. 1983). For the reasons set forth
herein, Hercules’ motions will be denied.
I. CORPORATE SUCCESSOR LIABILITY
Hercules’ first argument is that the court errone-
ously denied its motion for summary jud* nent on the
issue of corporate successor liability. The’ .quiry regard-
ing corporate successor liability commen: es with Penn-
sylvania law, for it controls the outcome of this diversity
suit. Erie Railroad Company v. Tompkins, 304 U.S. 64
(1938).
The general rule in Pennsylvania is that when one
corporation merely sells or transfers all of its assets to a
successor corporation, the successor does not acquire
the liabilities of the transferor corporation merely be-
cause of its succession to the transferor’s assets. Husak
| v. Berkel Incorporated, 234 Pa. Super. 452, 341 A.2d
{ 174, 176 (1975). There are, however, certain exceptions
| io this rule. Liability for obligations of a selling corpora-
| tion may be imposed on the purchasing corporation
when: (1) the purchaser expressly or impliedly agrees to
assume such obligation; (2) the transaction amounts to
a consolidation or merger; (3) the purchasing corpora-
tion is merely a continuation of the selling corporation; or
(4) the transaction is fraudulently entered into to escape
liability. See Shane v. Hobam, Incerporated, 332 F. Supp.
526, 527 (E.D. Pa. 1971). A fifth circumstance, some-
times included as an exception to the general rule, is
where the transfer was without adequate consideration
and provisions were not made for creditors of tne
transferor. See Lopata v. Bemis Co., Inc., 383 F.Supp.
| 342 (E.D. Pa. 1974); McKee v. Harris Seybold Co., Div.
| of Harris-Int. Corp., 109 N.J. Super. 555, 264 A.2d 98
(1970). Additionally, Pennsylvania has recently adopted
| a product-line exception. Dawejko v. Jorgensen Steel Co.,
a Te Se ee See eS
|
|
0 ee ae a
A-36
290 Pa. Super. 15, 434 A.2d 106, 111 (1981); Amader v.
Pittsburgh Corning Corp., 546 F. Supp. 1033 (E.D. Pa.
1982).
In order to determine whether the sale of assets in
this case falls within one of the six exceptions to the gen-
eral rule of nonliability it will be necessary to examine
the circumstances of the sale of PICCO assets. It is clear
that if one of these exceptions apply, Hercules can be
held liable for the acts of its predecessor in interest.4
Shane, 332 F. Supp. at 527.
The contract of sale between Hercules and PICCO is
entitled an Agreement and Plan of Reorganization
(Agreement). After setting forth the warranties of the re-
spective corporations, the Agreement provides in Article
IV §4.1 that PICCO was to convey:
all of its properties and assets of every kind and de-
scription as a going concern together with but not
limited to cash, monies on deposit, goodwill, includ-
ing the right to use of the name PICCO, customer
lists, credit and sales records and all other interests
to which it has any right by ownership, use or oth-
erwise ...
. [in exchange for 240,000 shares of common
stock of Hercules® and]...
(ii) The assumption by Hercules of any and all ob-
ligations and liabilities of PICCO under the various
agreements, contracts, leases, licenses and other
4. Hercules’ ciaim that PECO brought this action beyond the
applicable statute of iimitations is without merit since PECO sued
Hercules, not its predecessor PICCO. See Knapp v. North American
Rockwell Corp., 506 F.2d 361 (3d Cir. 1974), cert. denied, 421 U.S.
965 (1975); Pa. Stat. Ann. tit. 15 §2111 (Purdon 1983).
5. Asa result of a subsequent stock split by Hercules, PICCO
received 480,000 shares of Hercules stock which was distributed to
its shareholders.
em
oe ee ee ee ee en
A-37
writing referred to in Article I herein, including
those specifically excepted from the representations
in Article I; and
(iii) The assumption by Hercules of all the debts, ob-
ligations and liabilities of PICCO as of the Closing
Date, excepting therefrom the liabilities arising out
of the breach of any warranty of PICCO contained
herein, in any certificate or other instrument fur-
nished hereunder, any misrepresentation by PICCO
herein, or the failure of PICCO to perform under any
of its agreements and contracts herein, and except
liabilities of PICCO set forth in subsection (iv) for
which cash is specifically reserved herein.
In light of the exceptions to nonliability for a corpo-
rate purchaser of assets, the threshold question which
this court must address is whether Hercules either ex-
pressly or impliedly assumed the instant liability when it
entered into this contract with PICCO.
A buyer of assets can avoid the implied assumption
of liabilities by enumerating liabilities assumed and ex-
plicitly excluding the assumption of liabilities not enu-
merated. Klobendanz v. Joy Manufacturing Co., 288 F.
Supp. 817, 822 (D. Col. 1968); cf. Menacho v. Adamson
United Co., 420 F. Supp. 128, 133 (D.N.J. 1976), citing
McKee v. Harris Seybold Co., Div. of Harris-Int. Corp.,
109 N.J. Super. 555, 563, 264 A.2d 98, 102 (Super Ct.
1970), affd 118 N.J. Super. 480, 288 A.2d 588 (Super
Ct. App. Div. 1972). In the instant contract, however,
Hercules broadly assumed all of PICCO’s liabilities with
certain limited exceptions. Therefore, unless one of the
exceptions apply, Hercules can be held to have assumed
the liability at issue.
Citing Neville Chemical Co. v. Union Carbide Cor-
poration, 422 F.2d 1205 (3d Cir. 1970) and Husak v.
Berkel, Incorporated, 234 Pa. Super. 452, 341 A.2d 174
(1975), Hercules maintains, however, that the law of
A-38
Pennsylvania supports the proposition that assumptions
of liability are to be strictly construed in favor of
nonliability. I do not agree.
In Neville, the plaintiff, a manufacturer of hydrocar-
bon resins, brought an action against the defendant, a
petrochemical company, on the basis of negligence and
breach of express and implied warranties for its failure to
notify plaintiff of changes made in its process of manu-
facturing unsaturated oil for plaintiff, where such
changes caused plaintiff's final product to give off an in-
tolerable odor. Having concluded that there was suffi-
cient evidence to uphold the jury’s verdict that the
defendant was negligent, the Neville court was faced
with the question of whether the contract which the par-
ties entered into insulated the defendant from liability for
its own negligence.® Id. at 1216. (emphasis added). In
finding that the contract clause did not exculpate the
defendant from liability for its own negligence the
Neville court held that while the general Jaw of Pennsyl-
vania is that a private party may validly contract to relieve
6. The pertinent language of the Neville contract provides:
Paragraph 7
Failure of Buyer to give notice of any claim with respect to
any material delivered hereunder within fifteen (15) days after
the receipt of such material shall be an unqualified acceptance
of such material and a waiver by Buyer of all claims with respect
thereto. Buyer assumes all risk and liability for the results ob-
tained by the use of any material delivered hereunder in man-
ufacturing processes of Buyer or in combination with other
substances. No claim of any kind, whether as to material deliv-
ered or for nondelivery of material, shall be greater in amount
than the purchase price of the material in respect of which such
claim is made.
In the first sentence of Paragraph 9 of the contract, it is
provided:
This Agreement contains all of the representations and
agreements between the parties hereto and no warranties shall
be implied.
Neville, 422 F.2d at 1216.
A-39
himself from liability for the consequences of its own
negligent acts, these contracts are not favored by the law
and will be strictly construed with every doubt resolved
against the party seeking their protection. Id. at 1221.
Likewise, Hercules’ reliance on Husak v. Berkel, In-
corporated, 234 Pa. Super. 452, 341 A.2d 174 (1975), is
misplaced. In Husak the plaintiff brought suit against
Berkel seeking damages for personal injuries he sus-
tained from a defective food grinding machine which
plaintiff alleged Berkel’s predecessor company had man-
ufactured. Berkel, in turn, joined SCM as an additional
defendant claiming that SCM not Berkel had succeeded
to the liabilities of the manufacturer of the defective food
grinding machine. 341 A.2d at 176. SCM moved for
summary judgment on the basis of corporate successor
liability. The facts which were established with respect
to this issue demonstrated that SCM was indeed the suc-
cessor to the manufacturer of the defective machine. Id.
Nonetheless, SCM argued that Berkel’s predecessor had
assumed the liability for the injury when it purchased
the assets and liabilities of the division of the company
which had manufactured the defective machine.” On
the basis of these facts the lower court granted SCM’s
summary judgmert motion. On appeal, the Superior
Court of Pennsylvania determined that although SCM
would ordinarily be held liable on these claims as the
successor of the company which manufactured the ma-
chine the question was whether, in light of the contract
clause, Berkel’s predecessor had assumed the liability for
7. The contract entered into between SCM’s and Berkel’s pred-
ecessors in interest which SCM claimed insulated it from liability for
the disputed injury provided in pertinent part that:
... [Berkel] . . . agrees to assume all liabilities, obligations, con-
tracts, orders for the purchase of material and warranties of . . .
SCM ... made in connection with the manufacture and sale of
products assigned hereunder to ... Berkel ... as part of the
commercial and industrial line.
Husak, 341 A.2d at 177.
ae
A-40
the instant injury. Id. at 177. In reversing the trial court’s
award of summary judgment, the court found that the
disputed contractual clause lacked sufficient precision to
meet the standards required to relieve SCM, as a matter
of law, from liability for negligence or strict liability in
connection with the production of a defective machine
manufactured by its predecessor. Id. at 178.
In both Neville and Husak the court strictly con-
strued a contract where one party to the contract sought
to insulate itself from liability for its own negligent acts.
This is not the situation before the court today, however,
and therefore neither of these cases are controlling here.
Thus the only question is whether one of the exceptions
to Hercules’ broad assumption of liability applies.
The gravamen of Hercules’ claim of nonliability as
the successor of PICCO is that PICCO breached its war-
ranty regarding the accuracy of its financial statements
when it failed to include the instant liability on its bal-
ance sheet at the time of closing. However, this liability
was unknown at the time of sale and, therefore, could not
have been reflected in any financial statement. None-
theless, Hercules argues that its contract with PICCO
was very Clear in this regard and because the instant li-
ability was not disclosed, it was not assumed.
Bouton v. Litton Industries, Inc., 423 F.2d 643 (3d
Cir. 1970) is instructive on this issue. In Bouton the sell-
ing corporation, McKiernan-Terry, (M-T), entered into
an agreement and plan of reorganization in September of
1962 with Litton Industries, Inc., (Litton), wherein
Litton acquired all the assets, business and goodwill of
M-T in exchange for Litton stock and the assumption by
Litton of certain M-T liabilities. Id. at 645. Plaintiffs,
trustees in liquidation M-T, brought a motion for sum-
mary judgment against Litton arguing that Litton was
obligated, by contract, to assume the defense of certain
actions brought against M-T and to pay any judgments
arising therefrom. Id. at 646. The disputed action, which
is pertinent to the instant case, involved two personal
ea Th Mma neal
A-41
injury claims which arose out of accidents allegedly
caused by the failure of aircraft arresting engines made
and sold by M-T in 1958. These claims occurred in 1963
and 1964 and were therefore unknown liabilities at the
time of closing. Id. at 645.
On appeal from the district court’s award of sum-
mary judgment in favor of the plaintiff, Litton argued
that because the liabilities for the personal injuries were
not reflected in M-T’s balance sheet, M-T breached its
warranty and thus Litton should not be held liable for the
injuries. In affirming the district court’s decision, the
Court of Appeals dismissed Litton’s argument stating:
The only facet of the agreement to which Litton can
point with even slight comfort in support of its con-
tentions that it did not assume the obligation to in-
sure against or pay the product liability claims is the
absence of an express reference in the contract to
such claims arising from future accidents. That ab-
sence is not significant. The draftsman throughout
referred to broad categories of liabilities, not to nar-
row specifics.
Id.
Similarly, the court in Bippus v. Norton Co., 437 F.
Supp. 104 (E.D. Pa. 1977), when faced with cross-
motions for summary judgment on the issue of corporate
successor liability, found that the absence of a reference
to a product liability claim in an agreement for acquisi-
tion was not a bar to holding the successor corporation
liable for the injuries. Id. at 107. The Bippus court
pointed to the broad categories of liabilities assumed and
concluded that the absence of a specific reference to
product liability was not significant. Id.
In the instant case the Hercules-PICCO contract
provided for the broad assumption of liabilities with cer-
tain limited exceptions. As such, Hercules’ claim that it
did not assume the liability for environmental pollution
A-42
because it was not included in PICCO’s balance sheet at
closing is without merit and, accordingly, I conclude that
successor liability can be imposed upon Hercules.
Moreoever, successor liability can be found on the
additional ground that the sale of assets was a de facto
merger.
As previously noted, the Hercules-PICCO agree-
ment was entitled an Agreement and Plan of Reorgani-
zation. However, because of the complex nature of
corporate reorganizations and acquisitions the intrinsic
nature of a transaction cannot be ascertained merely
from the form by which it is structured. It is the duty of
the court to examine the substance of the transaction to
ascertain its purpose and true intent. Knapp v. North
American Rockwell Corp., 506 F. 2d 361 (3d Cir. 1974)
(Rosenn, J., concurring), cert. denied 421 U.S. 965
(1975).
In determining whether a particular transaction
amounts to a de facto merger as distinguished from an
ordinary purchase and sale of assets most courts look to
the following factors:
(1) There is a continuation of the enterprise of the
seller corporation, so that there is continuity of man-
agement, personnel, physical location, assets, and
general business operations.
(2) There is a continuity of shareholders which re-
sults from the purchasing corporation paying for the
acquired assets with shares of its own stock, this
stock ultimately coming to be held by the sharehold-
ers of the seller corporation so that they become a
constituent part of the purchasing corporation
(3) The seller corporation ceases its ordinary busi-
ness operations, liquidates, and dissolves as soon as
legally and practically possible.
A-43
(4) The purchasing corporation assumes those obli-
; gations of the seller ordinarily necessary for the
uninterrupted continuation of normal business op-
erations of the seller corporation.
See e.g., Shannon v. Samuel Langston Company, 379 F.
Supp. 797, 801 (W.D. Mich. 1974); McKee v. Harris
Seybold Co., Div. of Harris-Int. Corp., 109 N.J. Super.
| 555, 264 A.2d 98, 103-105, affd, 118 N.J. 480, 288 A.2d
585 (App. Div. 1972); See also Knapp, 506 F.2d at 365.
In Knapp, the plaintiff was injured in 1969 when his
hand was caught in a machine that had been designed
and manufactured by Textile Machine Works, (TMW)
and sold to plaintiff's employer in 1966 or 1967. 506 F.2d
at 361. In April of 1968, eighteen months prior to
plaintiff's injuries, TMW entered into an agreement with
North American R_ x well Corp., (Rockwell) whereby
| Rockwell acquirec Juostantially all of the assets and li-
abilities of TMW in exchange for Rockwell stock. The
agreement also stipulated that TMW was to dissolve as
soon as possible. Id. at 363. Knapp brought his action
against Rockwell in 1971 alleging his injuries resulted
from the negligence of TMW in designing and manu-
facturing the machine and that Rockwell, as TMW’s suc-
cessor, was liable for such injuries. The transaction
between TMW and Rockwell was characterized as a sale
of assets. Id. at 361.
In reversing the district court’s award of summary
judgment in favor of Rockwell, the Court of Appeals held
that, for the purposes of determining liability for
tortiously injured parties, the Rockwell-TMW transac-
tion should be treated as a de factor merger thereby sub-
jecting Rockwell to liability for injuries caused by
defective products distributed by TMW prior to the trans-
action. Id. at 367.
While cognizant of the general rule of nonliability for
a corporation which merely purchases another’s assets,
the Knapp court nevertheless looked beyond the form of
‘
Mid me AES rR Ng PNA tN Dk nA Nee Bet nsw i tae natin ES <All tas
A-44
the transaction. In doing so the court enumerated sev-
eral factors as indicia of a de factor merger: the exchange
of substantially all of TMW’s assets and liabilities for
Rockwell stock; the nominal amount of cash which
Rockwell left with TMW to cover the expenses of the
transfer with the proviso that any funds remaining after
dissolution was to be returned to Rockwell; and finally,
the requirement that TMW was to distribute the
Rockwell stock to its shareholders and dissolve as soon as
practicable. Id. at 363.
The factors which the Knapp court focused on in
imposing liability on the successor corporation are like-
wise present here. The Hercules-PICCO agreement pro-
vided that Hercules was to acquire all the assets and
substantially all of the liabilities of PICCO in exchange
for Hercules stock; PICCO was to use its best efforts to
keep its business organization intact, to keep available to
Hercules the service of its present employees and to
maintain its relationship with its customers and suppli-
ers for Hercules’ benefit; PICCO’s management and per-
sonnel became a part of Hercules; PICCO was required,
to the extent permitted by law, to transfer to Hercules the
right to use its corporate name; PICCO was left with a
nominal amount of money to dispose of its expenses in
connection with the transaction and any money remain-
ing was to be returned to Hercules; PICCO was required
to dissolve as soon as practicable; and finally, foliowing
closing, Hercules continued to operate the PICCO
plants, produce the same PICCO products and repre-
sented to PICCO’s customers that PICCO resins had be-
come a part of Hercules’ Organics Department.
Despite the factual similarity between Knapp and
the instant case Hercules argues, relying on Terry v.
Penn Central Corp., 527 F. Supp. 118, affd 668 F.2d
8. See Summary Judgment Motion Exhibits P-D, P-E, P-F, &
P-J.
PO tt ng lt a
ee
A-45
188 (3d Cir. 1981), that Pennsylvania has rarely invoked
the de facto merger doctrine. Hercules’ reliance on Terry
is misplaced.
In Terry the plaintiff shareholders sought to enjoin
defendant, Penn Central, through a subsidiary, from pro-
ceeding with an acquisition of defendant, Colt Indus-
tries, unless and until the plaintiffs were afforded the
right to dissent and vote. Id. at 120. Plaintiffs claimed
that the acquisition amounted to a de facto merger. Id. at
132. Faced with the issue of the rights of dissenting
shareholders, Judge Pollak refused to apply the de facto
merger exception in light of legislative changes which
restricted the availability of that doctrine in dissenting
shareholder cases. Id. at 133. However, in reaching this
conclusion, Judge Pollak pointed out the obvious distinc-
tion:
The question in... [Knapp] ... was one of essen-
tially the survivorship of tort liability and one would
certainly hope that courts would look to that issue in
an entirely different way from the analysis that goes
to determining the rights of shareholders to dissent
and to vote.
Id. at 134.
After a careful examination of the substarice of the
transaction between Hercules and PICCO, it was my
conclusion that not only did Hercules assume the liabil-
ities of PICCO but also that the Hercules-PICCO
transaction constituted a de facto merger. Therefore,
Hercules’ motion for summary judgment on this issue
was denied and PECO’s motion was granted.
Il. NUISANCE CLAIMS
Hercules’ second contention in support of its motion
for judgment n.o.v. and/or in the alternative for a new
trial is that, as a matter of law, PECO is not entitled to
nuisance damages.
A-46
The essence of a nuisance is an interference with
the use and enjoyment of land. W. Prosser, Handbook of
the Law of Torts, §89, at 591 (4th ed. 1971). As a general
rule, one who creates a nuisance is liable for the result-
ing damages and ordinarily his liability continues for as
long as the nuisance continues. Smith v. Elliot, 9 Pa. 345
(1848); Ryan v. Commonwealth Dept. of Environmental
Resources, 30 Pa. Cmwlth. 180, 373 A.2d 475 (1977);
See New Jersey Dept. of Environmental Protection v.
Exxon Corp., 151 N.J. Super. 464, 376 A.2d 1339 (Ch.
Div. 1977).
Relying on Bouy v. Fidelity-Phila. Trust Co., 338 Pa.
5, 12 A.2d 7 (1940), Hercules’ first argument is that
PECO is not entitled to relief because the injury sus-
tained was not transmitted beyond the land where the
objectionable condition existed.
The reliance on Bouy is misplaced. In the first place,
Bouy was bottomed on Harris v. Lewistown, 326 Pa.
150, 191 A. 37 (1937) which was expressly overruled by
Reitmeyer v. Sprecher, 431 Pa. 284, 243 A.2d 395
(1969). Secondly, unlike the physical injury problem
faced by the court in Bouy this case involves pollution,
the effects of which were transmitted “beyond the
boundaries of the land upon which the objectionable
condition exists.” Bouy, 338 Pa. at 8.
The Clean Streams Law (Pa. Stat. Ann. tit. 35,
§691.1 et seq, Purdon 1977) expands the law of nuisance
in the area of environmental pollution to impose liability
on an owner or occupier of land for pollution which exists
on his land irrespective of who was responsible for cre-
ating it. National Wood Preservers, Inc. v. Common-
wealth of Penna., Department of Environmental
Resources, 489 Pa. 221, 414 A.2d 37 (1980). In Ryan v.
Commonwealth, Dept. of Environmental Resources, 30
Pa. Cmwlth. 180, 373 A.2d 475 (1975) the DER required
a former lessee of a landfill to enter the land he previ-
ously leased in order to correct the nuisances which he
|
|
:
|
|
A-47
created during the lease. 373 A.2d at 476. Ryan chal-
lenged the authority of the DER to make him comply
with the order because he was not presently the owner or
occupier of the land. Id. at 477. Despite Ryan's
non-proprietary status, the court found that the DER had
the “express, unconditional authority to protect the
health of the citizens of this Commonwealth by ordering
the abatement of nuisances.” Id.
Moreover, the Clean Streams Law is a codification of
the common law of nuisance relating to streams and wa-
terways. Com. ex rel Shumaker v. New York & Pennsyl-
vania Co., 367 Pa. 40, 79 A.2d 439, 444 (1951).
“It is a principle of the common law, that the erection
of anything in the upper part of a stream of water,
which poisons, corrupts or renders it offensive and
unwholesome, is actionable. And that principle not
only stands with reason, but is supported by unques-
tionable authority ancient and modern.
Howell v. McCay, 3 Rawle 256 (1832). Thus, there can
be no question that if there are pollutants on property
which are contaminating the waterways, an action can
be brought against the property owner to abate the nui-
sance.
Hercules, however, takes the position that the con-
trolling principles are those set forth in Restatment (Sec-
ond) of Torts §352 amd 353 (1965).° I do not agree.
9. §352. Dangerous Conditions Existing at Time Vendor Trans-
fers Possession.
Except as stated in §353, a vendor of land is not subject to li-
ability for physical harm caused to his vendee or others while
upon the land after the vendee has taken possession by any dan-
gerous condition, whether natural or artifical, which existed at
the time that the vendee took possession.
§353. Undisclosed Dangerous Conditions Known to Vendor
(1) A vendor of land who conceals or fails to disclose to his
vendee any condition, whether natural or artifical , which in-
volves unreasonable risk to persons on the land, is subject to
A-48
Section 352 sets forth the general rule of nonliability
of a vendor or transferor of land for physical harm suf-
fered by a vendee or others due to a dangerous condition
which existed on the land at the time of transfer. Section
353 carves out a narrow exception whereby the vendor
will be subject to liability if he fails to disclose or conceals
any condition which involves an unreasonable risk of
harm to persons on the land. Neither section is applica-
ble since they address a vendor’s liability for physical
harm to persons on the land whereas the instant case
involves a claim for the costs of abating a nuisance. Thus
§840A provides the rule:
A vendor or lessor of land upon which there is a
condition involving a nuisance for which he would
be subject to liability if he continued in possession
remains subject to to liability for the continuation of
the nuisance after he transfers the land.
Restatement of Torts (Second) §840A.
Hercules urges the court to ignore this section be-
cause it has not been expressly adopted by the courts of
Pennsylvania. But neither has it been rejected and as a
NOTES (Continued )
liability to the vendee and others upon the land with the consent
of the vendee or his subvendee for physical harm caused by the
condition after the vendee has taken possession, if
(a) the vendee does not know or have reason to know of the
condition or the risk involved, and
(b) the vendor knows or has reason to know of the condi
tion, and realizes or should realize the risk involved, and has
reason to believe that the vendee will not discover the condition
or realize the risk.
2) If the vendor actively conceals the condition, the liability
stated in Subsection (1) continues until the vendee discovers it
and has reasonable opportunity to take effective precautions
against it. Otherwise the liability continues only until the
vendee has had reasonable opportunity to discover the condition
and to take such precautions.
ae mere CL a ee AE cL amr eh Lelie nell it
bh waar
A-49
general matter, the Pennsylvania courts have “not hes-
itated to adopt sections of the [Restatement] when [their]
common law precedents varied from the Restatement or
when the Pennsylvania common-law provide[s] no
answer.” Gilbert v. Korvette, Inc., 457 Pa. 602, 611-612,
n.25, 327 A.2d 94, 100 n.25 (1975). (citing cases). There
is no question in my mind that when and if the Supreme
Court of Pennsylvania is presented with the opportunity
it would accept §840A as a statement of the rule in Penn-
sylvania. This is implicit in Ryan v. Commonwealth,
Dept. of Environmental Resources, 30 Pa. Cmwlth. 180,
373 A.2d 475 (1975); National Wood Preservers, Inc. v.
Commonwealth, Dept. of Environmental Resources, 489
Pa. 221, 414 A.2d 37 (1980).
Moreover, my conclusion that Hercules can be held
accountable for the abatement of the nuisance which its
predecessor created is supported by analogous cases in
other jurisdictions. See State v. Ole Olsen, Ltd., 352
N.Y.S. 2d 97 (1973) (offensive sewage disposal units in
a number of housing developments created a nuisance
for which builder can be responsible); City of Jackson,
Mississippi v. Filtrol Corp., 624 F.2d 1384, 1390 (5th
Cir. 1980) (court permitted an easement holder to re-
cover damages in nuisance against the owner of the
»yroperty who had contaminated its subsoil with sulfuric
acid. )
{ have no difficulty in predicting that if the Supreme
Court of Pennsylvania had this case before it, it would
impose liability on Hercules for the nuisance which its
predecessor created at the Chester site.
Ili. THE INJUNCTION
The most sub. ».ial of Hercules’ post-verdict
claims is that the cou: erred in ordering mandatory re-
lief. In response to special interrogatories the jury found
A-50
that PICCO caused the contamination of the property !°
and that the contamination continues to pollute the
groundwater and the Delaware River.'!! Based on these
findings I entered the following order:
... IT IS FURTHER ORDERED AND DE-
CREED that Hercules, Inc. shall forthwith take all
appropriate action to abate and eliminate the con-
tamination on the property of the Phiiadelphia Elec-
tric Company located at the Chester Site and abate
the further poilution of the ground water and the
Delaware River adjacent to the property by collect-
ing and removing all pollutants in accordance with
all applicable rules and regulations of the Pennsyl-
vania Department of Environmental Resources, the
United States Environmental Protection Agency,
and any other appropriate state or federal regulatory
agency;...
Hercules makes three arguments with respect to the
injunction: first, that this court lacked the authority to
award the injunction; second, that there was insufficient
evidence to warrant mandatory relief; and last,,that it
was substantially prejudiced because it proceeded to trial
on the basis that injunctive relief was not an issue.
PECO’s complaint alleged that Hercules’ predeces-
sor, PICCO, created a continuing nuisance on the
10. The jury responded “yes” to special interrogatory #1 which
asked
“Do you find by a preponderance of the evidence that
PICCO caused the contamination on the property now owned by
Philadelphia Electric Company?
11. The jury responded “yes” to special interrogatory #2 which
asked:
“Do you find by a preponderence of the evidence that the
contamination on the property now owned by Philadelphia Elec-
tric Compnay continues to pollute the ground water on the Del-
aware River.”
ween ak
A-51
Chester Site, See Paragraphs 8, 10, 17, 22 and 23 of Com-
plaint, and it supported this claim by evidence showing
as follows: PICCO, Hercules, predecessor was a resin
manufacturing plant; during PICCO’s operation of the
Chester Site it dumped resins into a lagoon on the prop-
erty to neutralize their acidic quality; a DER represen-
tative visited the Chester Site and found a resincus
material in the lagoon and oozing from the banks of the
property into the Delawa1: River; samples taken from
the property turned out to be hydrocarbon resins which
compared favorably to resins identified as PICCO mate-
rials; this hydrocarbon resinous material was in the
groundwater under the property and leaching from the
banks of the property into the Delaware River; and lastly,
this material is presently oozing from the surface of the
property.
Hercules offered evidence that Gould, not its prede-
cessor PICCO, created the nuisance on the land but the
jury, rejected this version of the facts and found in favor
of PECO. There was ample evidence to support the jury’s
determination and I can find no basis upon which to
overturn that finding.
The jury’s determination that the contamination on
the Chester Site continues to pollute the groundwater
and the Delaware River is grounds for injunctive relief.
It has long been the rule in Pennsylvania that once a
continuing nuisance is established, an injunction is an
appropriate remedy. Krocker v. Westmoreland Mill Co.,
274 Pa. 143, 117 A. 669 (1922); Keppel v. Lehigh Coal
and Navigation Co., 200 Pa. 649, 50 A. 302 (1901);
Steward v. Foltz’s Appeal, 56 Pa. 413 (1867); Bradley v.
Valicenti, 185 Pa. Super. 403, 138 A.2d 238 (1958).
Hercules’ bald assertion that it has been substan-
tially prejudiced by the granting of an injunction finds
little substance in the record.
The Complaint stated a claim for a continuing nui-
sance and in addition to damages, the prayer requested
“such other and further relief as may be just.” This was
A-52
clearly sufficient to put defendant on notice particularly
in light of the fact that the only practical way to abate a
continuing nuisance is by mandatory relief. Moreover,
Fed. R.Civ.P. 54(c) provides, in part, “every final judg-
ment shall grant the relief to which the party in whose
favor it is rendered is entitled, even if the party has not
demanded such relief in his pleadings.” (emphasis
added). Also, it should be noted that plaintiff's pretrial
memorandum filed eleven days before the commence-
ment of trial specifically requested injunctive relief.
Hercules neither objected nor moved to strike this de-
mand.
Finally, if Hercules believed that relief from a con-
tinuing nuisance was not an issue in the case, it certainly
would have objected to Interrogatory #2 (See Footnote
11, supra) as irrelevant and immaterial, but it did not.
Hercules’ argument that injunctive relief was not an is-
sue because I denied PECO’s motion on the eve of trial
to amend that Complaint to assert a claim under the
Clean Streams Law is without merit. That statute ex-
pressly provides that actions under the Clean Streams
Law are not to be construed as the exclusive remedy for
abating nuisances. Pa. Stat. Ann. tit. 35 § 691.701
(Purdon 1977).
Hercules’ also maintains that the teaching of United
States v. 47 Bottles More or Less, Etc., 320 F. 2d 564 (3d
Cir. 1963), precludes the granting of an .njunction un-
der the circumstances presented here. I do not agree.
47 Bottles involved a condemnation proceeding un-
der the Federal Food, Drug and Cosmetic Act wherein
the govenment was permitted to amend its complaint to
add a prayer for injunctive relief at the conclusion of the
trial. Id. at 567. In reversing the award of injunctive re-
lief the court held that the trial judge abused his discre-
tion in permitting the injection of a new and different
prayer for relief at the terminal stage of the case after the
evidence had been closed and the court had made its
findings. Id. at 573.
A-53
Such is not the case here. Hercules had ample notice
before trial of the plaintiff's demands. Significantly, the
court in 47 Bottles distinguished United States v. 184
Barrels of Dried Whole Eggs, 53 F. Supp. 652 (E.D. Wis.
1943) by pointing out that there the amendment re-
questing injunctive relief was made “at an early stage of
the trial.” 320 F.2d at 574.
Hercules’ remaining contentions find no support in
the record and therefore will not be discussed. Hercules’
motion for judgment n.o.v. and/or in the alternative, for
a new trial are therefore denied.
A-54
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
PHILADELPHIA ELECTRIC COMPANY : CIVIL ACTION
Vv.
HERCULES. INCORPORATED
and
GOULD. INC. - NO. 82-0690
ORDER
AND NOW, this 22nd day of FEBRUARY, 1984,
upon consideration of the Motion for Judgment Not-
withstanding the Verdict and/or for a New Trial filed on
behalf of Hercules, Incorporated, it is hereby
ORDERED that the motion be and the same is
hereby DENIED
BY THE COURT:
JOSEPH L. McGLYNN, JR. J.
A-55
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 84-1159
PHILADELPHIA ELECTRIC COMPANY
v.
HERCULES, INC.
and
GOULD, INC.,
Hercules, Inc., Appellant
SUR PETITION FOR REHEARING
Present: GIBBONS, HUNTER, GARTH,
HIGGINBOTHAM, BECKER, STAPLETON
and MANSMANN, Circuit Judges,
and McCUNE, District Judge*
* Honorable Barron P. McCune, United States District Court for
the Western District of Pennsylvania, sitting by designation.
A-56
The petition for rehearing filed by Petitioner-
Appellee, Philadelphia Electric Company, in 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 ac-
tive service, and no judge who concurred in the decision
having asked “»r rehearing, and a majority of the circuit
judges of the circuit in regular active service not having
voted for rehearing by the court in banc, the petition for
rehearing is denied.
BY THE COURT,
Circuit Judge
Dated: June 21, 1985
/
r_2 -
A-57
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
PHILADELPHIA ELECTRIC COMPANY : CIVIL ACTION
v. |
HERCULES, INC.
and
GOULD, INC. | NO. 82-0690
SPECIAL INTERROGATORIES
1. Do you find by a preponderence of the evidence that
PICCO caused the contamination of the property
now owned by Philadelphia Electric Company?
Yes X No
If your answer is no, do not answer any other ques-
tions. If your answer is yes, go on to the next ques-
tion.
2. Do you find by a preponderance of the evidence that
the contamination on the property now owned by
Philadelphia Electric Company continues to pollute
the groundwater or the Delaware River.
Yes X No
3. In what amount do you award damages?
$345,906.69
4. Do you find by a preponderance of the evidence that
ABM’s activities contributed to the contamination of
the Philadelphia Electric Company property?
Yes X No
A-58
. Was Gould aware of ABM’s activities and permitted
them to continue?
Yes X No
If your answer is Yes, by what percentage did ABM’s
activities contribute to the total contamination?
Hercules %
ABM X
100%
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.