Opposition Brief — Exide Technologies Technologies v. United States (No. 05-1269)

(Y Suoreme Court, 0.S.

FILED

JUN 2 2 2006

No. 05-1269

In the Supreme Court of the Gnited States

EXIDE TECHNOLOGIES, FKA EXIDE CORPORATION,

PETITIONER

v.

UNITED STATES OF AMERICA

ON PFTITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

BRIEF FOR THE UNITED STATES IN OPPOSITION

PAUL D. CLEMENT

Solicitor General

Counsel of Record

SUE ELLEN WOOLDRIDGE

Assistant Attorney General

GREER S. GOLDMAN

JOHN T. STAHR

Attorneys

Department of Justice

Washington, D.C. 20530-0001

(202) 514-2217

ERK |

QUESTION PRESENTED

Whether the de facto merger rule should be applied

as a matter of federal common law or Pennsylvania law

for the purpose of determining whether petitioner is

liable as a corporate successor under the Comprehensive

Environmental Response, Compensation, and Liability

Act of 1980, 42 U.S.C. 9601 et seq.

(1)

TABLE OF CONTENTS

Page

Cet BNI ioe kv.s'n ns Med nna va be kaa bebe Oe eee 1

SP ern an ee: many spore en sp rary rere atte ]

RI i o's NER ian 6 PCRS ERA ae 2

Sa Peer en ere ee amen a ney pire ee 10

PEO POP re rey eT ee ree Le 19

TABLE OF AUTHORITIES

Cases:

Atchison, Topeka & Santa Fe Ry. v. Brown &

Bryant, Inc., 132 F.3d 1295 (9th Cir. 1997),

amended, 159 F.3d 358 (9th Cir. 1998) ........... 8,13

Atherton v. FDIC, 519 U.S. 213 (1997) ........... 6, 10, 11

_ B.F. Goodrich v. Betkoski, 99 F.3d 505 (2d Cir. 1996),

cert. denied, 524 U.S. 926 (1998)... 1... cc ccc cece 13

Berg Chilling Sys., Inc. v. Hull Corp., 435 F.3d 455

COG Kiet. GD sand ctasdveccvideuncsediaenes 16, 17

Black v. Cutter Labs., 351 U.S. 292 (1956) ............. 15

California v. Rooney, 483 U.S. 307 (1987) ............. 15

Commonwealth v. Lavelle, 555 A.2d 218 (Pa. Super.

ee Peeve t rere ere re ee 15

Cooper Indus., Inc. v. Aviall Servs., Inc., 543 U.S. 157

(HPO) ac cucwcuabeus vanucasueeeeueneees a eee tekoes 3

Farris v. Glen Alden Corp., 143 A.2d 25 (Pa. 1958) ..... 18

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

be Bey ry rer iy reer eee ree 2,3

(IIT)

IV

Cases—Continued: Page

Lansford-Coaldale Joint Water Auth. v. Tonolli

Corp., 4 F.3d 1209 (Sd Cir. 1993) ....... 0... cece ees 8

New York v. National Servs. Indus., Inc., 352 F.3d

Se Gr EE ak dc ceekooNs eyes VES eee br See 9,13

O’Melveny & Myers v. FDIC, 512 U.S. 79

3 ROR eet eeepc re re Se ne nee 6, 10, 11

Pennsylvania v. Union Gas Co., 491 U.S. 1 (1989) .... 2,3

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

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

SEE ohh ikea tio RE K DKA AST eC 7, 16, 17, 18

Seminole Tribe of Florida v. Florida, 517 U.S. 44

| Err Ry eat Oye Ne RENE EOE yee eee ee 2

Smith Land & Improvement Corp. v. Celotex Corp.,

851 F.2d 86 (3d Cir. 1988), cert. denied, 488 U.S.

BE INE: ob Ads cKb sce tae na Sa cee wee a eens 6,8

Smithkline Beecham Corp. v. Rohm & Haas Co.,

89 F.3d 154 (3d Cir. 1996) ............. 6, 7, 8, 9, 15, 17

Sommerville v. United States, 376 U.S. 909 (1964) ..... 16

United States v. Bestfoods, 524 U.S. 51

CU oka ca a aa a Sa om oeees ocak 2, 3, 6, 11, 12

United States v. Carolina Transformer Co., 978 F.2d

gg tl rr rere yr Pre rre 6, 13

United States v. Davis, 261 F.3d 1 (1st Cir. 2001) .... 8,18

United States v. Texas, 507 U.S. 529 (1998) ............ 12

Wallis v. Pan Am. Petroleum Corp., 384 U.S. 68 |

SRN Saad ces Va eae ana pace Oa eens ees 11

Statutes and regulations: Page

Comprehensive Environmental Response,

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

8 eg ee eee er a ee ye errr TOT ey es ee 2

UG tee Us RL och hon on cee nbee seis 3

O21, BE I PC 5 ise dcevewres coisas 3

5 Tat, SE ARS, Ss nk oss en ee aves eins 3

§ 104, 42 U.S.C. 9604 (2000 & Supp. III 2003) ..... 3

Se US 0 Rb a enal cea wkewea ee 3

Da Bee i. SOD Gi oie wena de caaus 3, 4, 11

§ 107(a)(1)-(4)(A), 42 U.S.C. 9607 (a)(1)-(4)(A) ..... 3

§ 107(aX3), 42 U.S.C. S60T(aMS) .. 2.2... eee 4,5

Exec. Order No. 12,580, 3 C.F.R. 193 (1988) ............ 3

ee ae Pe hs hath CS Aa ee ee 3

Miscellaneous:

15 William Meade Fletcher et al., Fletcher Cyclopedia

of the Law of Private Corporations (perm. ed., rev.

MER epee e Rah GRR IDES A nO De PORE CIE Lease MPa EE ped 8,9

Robert L. Stern et al., Supreme Court Practice (8th

MONEE: a5 < Cha SSR eee ee eae re eee 16

In the Supreme Court of the Gnited States

No. 05-1269

EXIDE TECHNOLOGIES, FKA EXIDE CORPORATION,

PETITIONER

Vv.

UNITED STATES OF AMERICA

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

BRIEF FOR THE UNITED STATES IN OPPOSITION

OPINIONS BELOW

The opinion of the court of appeals (Pet. App. Al-

A44) is reported at 423 F.3d 294. The memoranda of the

district court (Pet. App. A45-A72) are unreported.

JURISDICTION

The judgment of the court of appeals was entered on

September 6, 2005. A petition for rehearing was denied

on November 4, 2005 (Pet. App. A80-A81). On January

20, 2006, Justice Souter extended the time within which

to file a petition for a writ of certiorari to and including

April 3, 2006, and the petition was filed on March 31,

2006. The jurisdiction of this Court is invoked under 28

U.S.C. 1254(1).

(1)

STATEMENT

The United States sued petitioner Exide Technolo-

gies to recover the government’s costs of responding to

the improper disposal of hazardous substances under

the Comprehensive Environmental Response, Compen-

sation, and Liability Act of 1980 (CERCLA), 42 U.S.C.

9601 et seg. The United States District Court for the

Eastern District of Pennsylvania ruled that petitioner

was liable as the corporate successor of the entity that

disposed of the hazardous substances. Pet. App. A45-

A79. The court of appeals affirmed. /d. at Al-A44. The

majority concluded that petitioner was liable as a suc-

cessor under the de facto merger rule, which the major-

ity applied as a matter of federal law. /d. at Al-A27.

Judge Rendell, concurring in part and dissenting in

part, reached the same result by applying the same de

facto merger rule as a matter of state law. Jd. at A27-

A44,

1. Congress enacted CERCLA “in response to the

serious environmental and health risks posed by indus-

trial pollution.” United States v. Bestfoods, 524 U.S. 51,

55 (1998). That Act “grants the President broad power

to command government agencies and private parties to

clean up hazardous waste sites.” Key Tronic Corp. v.

United States, 511 U.S. 809, 814 (1994). It “both pro-

vides a mechanism for cleaning up hazardous-waste

sites, and imposes the costs of the cleanup on those re-

sponsible for the contamination.” Pennsylvania v. Un-

ion Gas Co., 491 U.S. 1, 7 (1989) (citations omitted),

overruled on other grounds, Seminole Tribe of Florida

v. Florida, 517 U.S. 44 (1996). “The remedy that Con-

gress felt it needed in CERCLA is sweeping: everyone

who is potentially responsible for hazardous-waste con-

3

tamination may be forced to contribute to the costs of

cleanup.” Bestfoods, 524 U.S. at 56 n.1 (quoting Penn-

sylvania v. Union Gas Co., 491 U.S. at 21).

CERCLA provides the President, acting primarily

through the Environmental Protection Agency (EPA),

with several alternatives for cleaning up sites contami-

nated with hazardous substance.' As one alternative,

EPA can itself undertake response actions, using the

Hazardous Substances Superfund. See CERCLA § 104,

42 U.S.C. 9604 (2000 & Supp. III 2003); Cooper Indus.,

Inc. v. Aviall Servs., Inc., 543 U.S. 157, 161 (2004). The

United States can then recover EPA’s response costs

from responsible parties through a cost recovery action.

See CERCLA § 107(a), 42 U.S.C. 9607(a); Cooper

Indus., 543 U.S. at 161°

Section 107 of CERCLA “sets forth the scope of the

liabilities that may be imposed on private parties and

the defenses that they may assert.” Key Tronic, 511

U.S. at 814. Under Section 107(a)(1)-(4)(A), responsible

parties are liable for “all costs of removal or remedial

action incurred” by the United States “not inconsistent

with the national contingency plan.” 42 U.S.C.

9607(a)(1)-(4)(A); see Cooper Indus., 543 U.S. at 161.°

" CERCLA grants authority to the President, who has delegated

various powers to EPA. See Exec. Order No. 12,580, 3 C.F.R. 193

(1988).

* CERCLA designates cleanup actions as either “removal” actions

or “remedial” actions, and it designates either type of cleanup as a

“response” action. CERCLA § 101(23), (24) and (25), 42 U.S.C. 9601

(23), (24) and (25).

* The national contingency plan (NCP), promulgated as a regulation

pursuant to Section 105, 42 U.S.C. 9605, prescribes requirements for

selection and implementation of removal and remedial actions. 40

C.F.R. Pt. 300.

4

Section 107(a) identifies four categories of responsible

parties. 42 U.S.C. 9607(a). They include a person

who—by contract, agreement, or otherwise—arranged

for disposal or treatment of hazardous substances owned

or possessed by such person at any facility owned or

operated by another party. See 42 U.S.C. 9607(a)(3).

2. The United States brought this action to recover

EPA’s costs in responding to hazardous substance con-

tamination at the Hamburg Lead Superfund Site in the

Borough of Hamburg, Berks County, Pennsylvania.

From the 1940s until early 1966, the Price Battery Cor-

poration (Price) operated a lead-acid battery manufac-

turing plant in Hamburg that used lead plates from old

batteries. Price employees brought the used batteries

to the Hamburg plant, split them open, and reused the

plates as part of the process of creating new batteries.

Price’s employees then dumped the junk battery cas-

ings, containing lead residue, .at various locations in and

around Hamburg. Pet. App. A2, A46.

Beginning in August 1993, EPA conducted a removal

assessment at two locations where Price had dumped

broken battery casings, and EPA found elevated levels

of lead far exceeding the applicable removal action lev-

els. See Pet. App. A2, A48. At those and other later-

discovered locations, EPA conducted various response

actions, including removal of battery casings, excavation

and transportation of lead contaminated soil and debris

off-site for treatment, installation of paving and soil

caps, and additional monitoring. /bid. EPA has gener-

ally completed active work, but continues to monitor the

locations.

3. Price no longer exists. On February 11, 1966,

General Battery Corporation (General) purchased Price

and took over operation of the Hamburg Plant. See Pet.

5

App. A2-A3. Under the purchase agreement, General

purchased virtually all of Price’s assets, id. at A3 & n.1,

and General assumed all of Price’s existing obligations,

ibid., including “its existing contracts of every kind and

description, oral or written,” id. at A62. The purchase

agreement and related documents stated that General

intended to operate the business of Price as a separate

division, identified as “new Price,” and Price agreed to

change its name, effective as of closing, to Price Invest-

ment Co. See ibid.

In exchange, William F. Price, Sr., the chairman of

the board and sole shareholder of Price, received ap-

proximately $2.95 million in cash, and 100,000 shares of

General’s common stock valued as of the closing at ap-

proximately $1 million. Pet. App. A3. Price, Sr.’s stock

interest represented approximately 4.537% of General’s

outstanding shares. /bid. That amount was comparable

to the holdings of General’s cofounders. /bid. The pur-

chase agreement required that Price, Sr., serve with the

co-founders on General’s board of directors, and Price,

Sr., also served on General’s executive committee. /bid.;

id. at A60.

In 2000, General merged with petitioner, and peti-

tioner has remained in business as the surviving corpo-

ration. Pet. App. A2, A48.

4. The United States filed this action against Gen-

eral on June 15, 2000, asserting that Price was liable

under Section 107(a)(3) of CERCLA for response costs

as a party that arranged for disposal of hazardous sub-

stances and that General was a successor to the liabili-

ties of Price. See C.A. App. 47 1 4. Upon General’s

merger with petitioner, the United States filed an

amended complaint, naming petitioner as successor to

General’s liabilities. See id. at 4715. Petitioner did not

6

contest that it is the successor to General’s CERCLA

liabilities, or that Price arranged for the disposal of haz-

ardous substances, but it did contest that General was a

successor to Price’s liabilities.

The district court granted summary judgment to the

United States on the issue of liability, holding that Gen-

eral was a successor to Price. Pet. App. A45, A71-A72.

The court held, in accordance with Third Circuit prece-

dent, that general federal common law rather than state

law governs successor liability. /d. at A51-A58; see

Smith Land & Improvement Corp. v. Celotex Corp., 851

F.2d 86, 91-92 (3d Cir. 1988), cert. denied, 488 U.S. 1029

(1989).* The court rejected the contention that Smith

Land is no longer valid in light of this Court’s subse-

quent decisions in O’Melveny & Myers v. FDIC, 512

U.S. 79 (1994), Atherton v. FDIC, 519 U.S. 213 (1997),

and United States v. Bestfoods, 524 U.S. 51 (1998). Pet.

App. A55-A57.

The court also held that it need not resolve whether

federal common law should reflect the traditional de

facto merger test or the broader “substantial continuity”

test, see United States v. Carolina Transformer Co., 978

F.2d 832, 837-838 (4th Cir. 1992), because General was

responsible for Price’s liability under either standard.

Pet. App. A57-A58. With respect to the de facto merger

' The parties agreed that, if state law applied, Pennsylvania law

would govern the Price-General transaction. The hazardous substance

contamination and Price’s conduct occurred in Pennsylvania, and Price

was organized under the laws of Pennsylvania. See C.A. App. 714 4(a)

(purchase agreement). Thus, Pennsylvania “had the most significant

relationship to the events and parties and the greatest interest in the

successor liability of businesses located, and committing environmental

torts, in Pennsylvania.” Smithkline Beecham Corp. v. Rohm & Haas

Co., 89 F.3d 154, 162 n.5 (3d Cir. 1996).

7

rule, the court concluded that it should consider the

“traditional” four factors to determine whether the pur-

chase transaction was a de facto merger. /d. at A58-A59

(citing Smithkline Beecham Corp. v. Rohm & Haas Co.,

89 F.3d 154, 162 n.6 (3d Cir. 1996) (identifying the four

factors for a de facto merger under Pennsylvania law);

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

310 (3d Cir.), cert. denied, 474 U.S. 980 (1985) (citing the

same factors as looked to by “most courts”)).

The district court concluded that, under the four-

factor test, it must determine whether: (1) there is a

continuation of the enterprise; (2) there is a continuity

of shareholders such that the shareholders of the seller

become a “constituent part” of the purchasing corpora-

tion; (3) the seller ceased its ordinary business opera-

tions, liquidated and dissolved as soon as legally and

practically possible; and (4) the purchasing corporation

assumed the obligations of the seller ordinarily neces-

sary for the uninterrupted continuation of normal busi-

ness operations. Pet. App. A58-A59. The court made

detailed findings as to each element, concluding that the

Price-General transaction was a de facto merger. /d. at

A58-A67.

After finding petitioner liable, the district court en-

tered a final judgment in accordance with a joint stipula-

tion concerning costs, under which petitioner agreed

that it would be liable for past response costs of

$6,475,529.20, and also liable for future costs. Pet. App.

A78-A79.

5. The court of appeals affirmed. Pet. App. Al-A44.

Applying Smith Land, the court held that CERCLA

successor liability is determined as “a matter of uniform

federal law, as derived from ‘the general doctrine of suc-

cessor liability in operation in most states.’” Jd. at A6

8

(quoting Smrth Land, 851 F.2d at 92, and citing Lans-

ford-Coaldale Joint Water Auth. v. Tonolli Corp., 4 F.3d

1209 (3d Cir. 1993)). The court of appeals agreed with

the district court that Smith Land has not been under-

mined by O’Melveny, Atherton, or Bestfoods, or by the

subsequent decisions of other courts of appeals in

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

(rejecting the “substantial continuity” test applied as

federal common law), and Atchison, Topeka & Santa Fe

Railway v. Brown & Bryant, Inc., 132 F.3d 1295 (9th

Cir. 1997), amended, 159 F.3d 358 (9th Cir. 1998) (also

rejecting the “substantial continuity” test). Pet. App.

A8-A11, Al6.

The court of appeals concluded that the de facto

merger rule, as followed in most States, requires appli-

cation of the four-factor test set forth by the district

court. Pet. App. Al19-A20 (citing 15 William Meade

Fletcher et al., Fletcher Cyclopedia of the Law of Pri-

vate Corporations § 7124.20, at 302 (perm. ed., rev. vol.

1999) (Fletcher) (stating majority rule and collecting

cases)). The court also found that the majority rule

“generally tracks the inquiry under Pennsylvania law.”

Id. at A20 (citing Smithkline Beecham, 89 F.3d at 162

n.6 (the “requirements for a de facto merger in Pennsyl-

vania are” the four cited factors)).

The court of appeals examined the Price-General

transaction in light of the four-factor test and affirmed

the district court’s conclusion that the transaction con-

stituted a de facto merger. Pet. App. A20. The court

concluded that the transaction resulted in continuity of

the enterprise because General purchased all of Price’s

equipment and inventory, assumed tenancy of its plant,

continued production of essentially the same products,

sold to the same customers, and retained key personnel.

9

Id. at A20-A21. The court also concluded that the trans-

action resulted in continuity of shareholders because the

shareholder of the seller corporation became “a constit-

uent part of the purchasing corporation.” /d. at A22

(quoting 15 Fletcher § 7124.20, at 302; Smithkline

Beecham, 89 F.3d at 162 n.6). The court further con-

cluded that Price “ceased operations, liquidated, and

dissolved as soon as legally and practically possible,” id.

at A24, and that the Price-General agreement provided

expressly that General “would assume Price Battery’s

contractual obligations and all other obligations appear-

ing on Price Battery’s balance sheet,” id. at A26.

The court of appeals rejected, however, the district

court’s alternative ground for its ruling based on the

“substantial continuity” doctrine. Pet. App. A27. The

court of appeals concluded that the substantial continu-

ity test creates “a more expansive rule of liability than

is accepted in most states” and that, in light of

Bestfoods, that test “is untenable as a basis for succes-

sor liability under CERCLA.” /bid. (citing New York v.

National Serv. Indus., Inc., 352 F.3d 682, 687 (2d Cir.

2003)).

Judge Rendell concurred in part and dissented in

part. Pet. App. A28-A44. She agreed with the major-

ity’s determination “that the fact pattern presented was

a de facto merger such that successor liability for pur-

poses of CERCLA exists,” and she concurred in the

court’s “ultimate ruling.” Jd. at A28. Judge Rendell

disagreed, however, with the majority’s view that “the

issue of successor liability in this context is controlled by

federal common law.” /bid. She would have reached the

same result under Pennsylvania law. /d. at A44.

10

ARGUMENT

The court of appeals correctly ruled that petitioner

is liable under CERCLA as a corporate successor pursu-

ant to the de facto merger rule. In reaching that conclu-

sion, the court expressed its view that Congress has di-

rected the courts to apply a uniform federal rule of suc-

cessor liability, but both the legal standard and the re-

sult would be the same if the de facto merger rule were

applied as a matter of state law. The court of appeals’

reasoning is consistent in result with that of other courts

of appeals that have applied state rules of decision to

determine successor liability. Its decision presents no

conflict on the specific question at issue—whether peti-

tioner is liable as a successor. Accordingly, there is no

warrant for this Court’s review.

1. Petitioner incorrectly contends (Pet. 5-9) that the

court of appeals’ decision in this case conflicts with deci-

sions of this Court respecting the application of federal

common law. This Court has cautioned against the un-

warranted creation of federal common law, but it has not

ruled that courts may never find a federal rule of deci-

sion appropriate. The Court has not addressed the

question whether successor liability under CERCLA is

governed by federal or state law, and the court of ap-

peals’ resolution of that issue, whether correct or not,

presents no conflict with any decision of this Court.

This Court has recognized that, while federal courts

routinely identify federal rules of decision in the course

of interpreting federal statutes, they generally do not

have license to engage in “the judicial ‘creation’ of a spe-

cial federal rule of decision.” Atherton v. FDIC, 519

U.S. 218, 218 (1997); see O'Melveny & Myers v. FDIC,

512 U.S. 79, 87 (1994); ef. Empire Healthchoice Assur-

i]

ance, Inc. v. McVeigh, No. 05-200 (June 15, 2006), slip

op. 10-11. If Congress has not expressly displaced an

otherwise applicable state rule of decision, the courts

may create an overriding federal rule only if there is “a

significant conflict between some federal policy or inter-

est and the use of state law.” Atherton, 519 U.S. at 218

(quoting Wallis v. Pan Am. Petroleum Corp., 384 U.S.

63, 68 (1966)); see O'Melveny, 512 U.S. at 87. This Court

concluded that there was no need for a judicially created

federal rule of decision in the situations posed in Ather-

ton and O’Melveny, which each involved liability stan-

dards pertaining to federally insured savings institu-

tions.

This case involves the liability of responsible parties

under CERCLA for the government’s costs of environ-

mental cleanup. While CERCLA sets out a general

standard for liability, see CERCLA § 107(a), 42 U.S.C.

9607(a), it does not specifically address when a corpo-

rate successor of a concededly liable party may be sub-

ject to CERCLA liability. The question has therefore

arisen whether the courts should adopt a federal rule of

successor liability, as a matter of federal common law,

or whether the courts should apply the relevant state

law rule of suecessor liability. This Court’s decision in

United States v. Bestfoods, 524 U.S. 51 (1998), which

addressed the liability of a parent corporation for the

actions of its subsidiary, suggested, without deciding,

that federal courts adjudicating such issues under

CERCLA should usually look to the general corpus of

state law rules respecting corporate liability.”

» The Court ruled in Bestfoods that a corporate parent that “actively

participated in, and exercised control over, the operations of the facility

itself,” may be held “directly liable in its own right,” under Section

107(a) of CERCLA, as an operator of a subsidiary’s facility. 524 U.S.

12

Petitioner contends that the court of appeals’ deci-

sion in this case to adopt a federal common law rule of

successor liability conflicts with Bestfoods, Atherton,

and O’Melveny. The court of appeals’ decision to apply

a federal common law rule, rather than the applicable

Pennsylvania rule of successor liability, is arguably in

tension with those decisions, which each caution against

the adoption of federal common law rules that would

displace established state law standards. The court of

appeals’ decision, however, plainly does not conflict with

any of those decisions, because none of them addresses

the application of federal common law in the specific

context of successor liability under CERCLA. This

Court has never had occasion to address the application

of federal common law in that context, and while the

court of appeals’ decision might appear, at an abstract

level, to depart from this Court’s general teachings, it

does not present a conflict warranting this Court’s re-

view.

2. Petitioner incorrectly asserts (Pet. 9-11) that the

court of appeals’ decision conflicts with decisions of the

at 55. The Court added, with respect to corporate veil piercing, that

CERCLA is “like many another congressional enactment in giving no

indication that ‘the entire corpus of state corporation law is to be

replaced simply because a plaintiff’s cause of action is based upon a

federal statute,’ and the failure of the statute to speak to a matter as

fundamental as the liability implications of corporate ownership

demands application of the rule that ‘{i]n order to abrogate a common-

law principle, the statute must speak directly to the question addressed

by the common law.’” /d. at 63 (citation omitted and brackets in

original), quoting United States v. Texas, 507 U.S. 529, 534 (1993). The

Court, however, expressly declined to address whether “in enforcing

CERCLA’s indirect liability, courts should borrow state law, or instead

apply a federal common law of veil piercing,” because that question “is

not presented in this case.” Jd. at 63 n.9.

13

First, Second, and Ninth Circuits addressing successor

liability. See New York v. National Servs. Indus., Inc.,

352 F.3d 682, 686-687 (2d Cir. 2003); United States v.

Davis, 261 F.3d 1, 53-54 (1st Cir. 2001); Atchison, To-

peka & Santa Fe Ry. v. Brown & Brant, Inc., 132 F.3d

1295 (9th Cir. 1997), amended, 159 F.3d 358, 362-364

(9th Cir. 1998). Those decisions all rejected the “sub-

stantial continuity” theory of CERCLA-based successor

liability. The court of appeals’ decision in this case,

which also expressly rejected the “substantial continu-

ity” theory of CERCLA-based successor liability, see

Pet. App. A27 & n.12, does not create a conflict with

those decisions.

a. Before this Court’s decision in Bestfoods, several

courts of appeals had adopted the substantial continuity

theory as a CERCLA-specifie federal common law rule.

See B.F. Goodrich v. Betkoski, 99 F.3d 505, 518-520 (2d

Cir. 1996), cert. denied, 524 U.S. 926 (1998); United

States v. Carolina Transformer Co., 978 F.2d 832, 837-

838 (4th Cir. 1992). As the court of appeals in this case

explained, the substantial continuity doctrine provides

a broader basis for liability than traditional successor

liability tests because, most significantly, it eliminates

the requirement under the de facto merger rule of a con-

tinuity of shareholders. Pet. App. A27.

Following this Court’s decision in Bestfoods, the

First, Second, and Ninth Circuits declined to employ the

substantial continuity doctrine because it departs from

traditional common law principles. See National Servs.

Indus., 352 F.3d at 686 (the substantial continuity test

“is not a sufficiently well established part of the common

law of corporate liability to satisfy Bestfoods’ dictate

that common law must govern”); Davis, 261 F.3d at 53-

54 (accord); Atchison, 159 F.3d at 364 (determining not

14

“to extend the ‘mere continuation’ exception to include

the broader notion of a ‘substantial continuation’”).

The court of appeals in this case expressly agreed

that the substantial continuity doctrine, which “creates

a more expansive rule of liability than is accepted in

most states,” does not provide an appropriate basis for

a federal common law rule of CERCLA-based successor

liability. Pet. App. A27 & n.12. Citing Bestfoods, the

court concluded that “CERCLA does not, sub silentio,

abrogate fundamental common law principles of indirect

corporate liability” and that the substantial continuity

doctrine is “untenable as a basis for successor liability

under CERCLA.” Jbid. The court of appeals thus

reached the same result as the First, Second, and Ninth

Circuits in rejecting the substantial continuity theory as

a basis for CERCLA-based successor liability, and its

decision accordingly creates no conflict with the deci-

sions of those circuits."

b. Petitioner nevertheless asserts that the court of

appeals’ decision gives rise to a conflict because that

court ultimately concluded that petitioner should be sub-

ject to CERCLA liability as a successor, under the tra-

ditional de facto merger test followed by most States, as

a matter of federal common law. Pet. 10-11. Petitioner

urges that this Court’s review is warranted because, if

the court of appeals had adhered to the reasoning of the

First, Second, and Ninth Circuits, it would have applied

the de facto merger test as a matter of state law. /bid.

° Although the United States relied on the substantial continuity

doctrine as an alternative basis for liability in the district court, Pet.

App. A52-A53, the United States did not defend the district court’s

invocation of that doctrine in the court of appeals, see id. at A27 n.11,

and it has not sought review of the court of appeals’ rejection of that

theory of liability.

15

The fact remains, however, that the courts of appeals

would all apply the same test on the facts of this case.

This Court does not grant review to resolve inconse-

quential inconsistencies among the courts of appeals

with respect to'their reasoning. See, e.g., California v.

Rooney, 483 U.S. 307, 311 (1987) (per curiam) (“This

Court ‘reviews judgments, not statements in opinions.’”

(quoting Black v. Cutter Labs., 351 U.S. 292, 297

(1956))).

3. Petitioner additionally urges (Pet. 11-14) that the

court of appeals’ decision to apply the de facto merger

test as a matter of federal law, rather than state law,

presents an important question in its own right that

warrants this Court’s review. To the contrary, however,

that issue is of no practical importance because its reso-

lution in this case would not change the result. As the

district court and all members of the court of appeals

panel recognized, the district court would have applied

the same four-factor test under Pennsylvania law. See

Pet. App. A19-A20 (majority decision); zd. at A44

(Rendell, J., concurring in part and dissenting in part);

id. at A51-A52 (district court).

As the court of appeals explained, it derived its de

facto merger test from the four-factor standard followed

by most States. See Pet. App. A19-A20. That test “gen-

erally tracks the inquiry under Pennsylvania law.” /d.

at A20; see Smithkline Beecham Corp. v. Rohm & Haas

Co., 89 F.3d 154, 162 n.6 (3d Cir. 1996) (the “require-

ments for a de facto merger in Pennsylvania” are the

same four cited elements); see Commonwealth v.

Lavelle, 555 A.2d 218, 227-228 (Pa. Super. Ct. 1989) (set-

ting forth the four factors). Judge Rendell similarly

concluded that there is no conflict between Pennsylvania

law and the majority state law rule, observing that “we

16

need not abandon Pennsylvania law.” Pet. App. A44.

The district court agreed. See id. at A51-A52. The

Third Circuit has since reaffirmed that same four-factor

test in applying the de facto merger rule under Pennsyl-

vania law. Berg Chilling Sys., Inc. v. Hull Corp., 435

F.3d 455, 468-469 (2006) (citing Philadelphia Elec. Co.

v. Hercules, Inc., 762 F.2d 303, 310 (3d Cir. 1985) (apply-

ing Pennsylvania law), cert. denied, 474 U.S. 980 (1985)).

The court of appeals carefully examined the district

court’s detailed findings under each element of the test

and affirmed the district court’s conclusion that “the de

facto merger criteria are satisfied.” Pet. App. A26.

Judge Rendell, in concurring as to petitioner’s liability,

also reached that conclusion, finding that “the fact pat-

tern presented was a de facto merger” establishing suc-

cessor liability. Jd. at A28. Thus, the majority and

Judge Rendell clearly applied the same test, and

reached the same result, in concluding that petitioner

was liable as a successor.

This Court does not grant certiorari to resolve an

asserted conflict among courts of appeals where the res-

olution of that conflict would not affect the ultimate out-

come of the case before it. See Robert L. Stern et al.,

Supreme Court Practice 231 (8th ed. 2002) (citing this

Court’s denial of a writ of certiorari in Sommerville v.

United States, 376 U.S. 909 (1964), as an example of a

case in which “the resolution of the conflict could not

change the result reached below, since the petitioner

would be liable under either federal or state law”). Ev-

ery judge that has reviewed this case has correctly con-

cluded that the outcome would be the same whether the

de facto merger standard is applied as a uniform federal

rule or as Pennsylvania law. There accordingly is no

warrant for this Court’s review.

17

4, Petitioner argues (Pet. 14-17) that the district

court and the court of appeals erred in concluding that

the transaction between General and Price constituted

a de facto merger under the prevailing common law

standard reflected in Pennsylvania law. Petitioner is

mistaken, but in any event, that issue, which rests on a

fact-specific application of common law principles, does

not present a question warranting this Court’s review.

Petitioner contends (Pet. 15) that the court of ap-

peals’ application of the de facto merger test diverges

from Pennsylvania law because General’s stock payment

to William Price, Sr., constituted 4.537% of its outstand-

ing shares, which petitioner views as inadequate to es-

tablish continuity of shareholders under the de facto

merger test reflected in Pennsylvania law. Pennsylva-

-nia, like most other States, however, provides that a con-

tinuity of shareholders exists if the purchasing corpora-

tion pays with shares of its stock such that the share-

holders of the seller “become a constituent part of the

purchasing corporation.” Smithkline Beecham, 89 F.3d

at 162 n.6; see Berg Chilling Sys., 435 F.3d at 469; Phil-

adelphia Elec. Co., 762 F.2d at 310. The district court

and the court of appeals in this case applied precisely

that test. Pet. App. A24, A64-A65.'

Petitioner argues (Pet. 15) that the “transfer of less

than a controlling interest” is insufficient to establish a

* Petitioner’s assertions (Pet. 14-15) that no Pennsylvania court has

found a de facto merger “without” a stock transfer, and that the

“absence” of a transfer is “fatal” or at least creates a “strong presump-

tion” against a de facto merger, are irrelevant because in this case there

was a stock transfer. See Berg Chilling Sys., 435 F.3d at 469 (holding

under Pennsylvania law that there is “a strong presumption against

imposing successor ijiability” where there is “no stock transfer’).

18

continuity of shareholders.” But the state courts, in-

cluding the courts of Pennsylvania, have not required

any minimum percentage stock transfer or any particu-

lar stock-to-cash ratio for a transaction. Pet. App. A23

& nn.9-10 (discussing cases).” Rather, the courts deter-

mine on the facts of a given transaction whether the

seller shareholders have become a “constituent part” of

the purchasing corporation. See id. at A20, A58-A59."°

The district court here undertook that analysis and cor-

rectly concluded that Price, Sr., became a “constituent

part” of General. See id. at A64-A65."!

“Petitioner bases that argument ona “holistic view” of Pennsylvania

corporate law and refers to several Pennsylvania statutes relating to

shareholder rights to challenge transactions under a de facto merger

theory. See Pet. 15-16. Petitioner concedes, however, that those

statutory enactments “do not abrogate the equitable principles of

successor liability.” Pet. 16.

“ The court of appeals noted, for instance, that continuity of

ownership has been found where a seller received 12.5%, 2.27%, and

even less than 1% of the buyer’s stock. Pet. App. A23 n.10. In Farris

v. Glen Alden Corp., 143 A.2d 25 (Pa. 1958), cited by petitioner (Pet. 15),

the court noted that the seller’s stockholders acquired a majority of the

purchaser’s shares. 143 A.2d at 31. The court did not, however,

establish a requirement that there be a majority stock acquisition, nor

did the court discuss or establish any particular stock acquisition

standard at all. The court simply described the evidence “in the present

case,” from which it found a de facto merger. /bid.

"See, e.g., Philadelphia Elec. Co., 762 F.2d at 310 (“It is the duty

of the court to examine the substance of the transaction to ascertain its

purpose and true intent.”); Farris, 143 A.2d at 28 (“to determine

properly the nature of a corporate transaction, we must refer not only

to all the provisions of the agreement, but also to the consequences of

the transaction and to the purposes of the provisions of the corporation

law said to be applicable”).

'' Petitioner cites (Pet. 13) a statement by the court of appeals that

the state law standard is “somewhat unsettled” as to mixed stock and

19

In any event, the court of appeals correctly identified

the proper four-part test for a de facto merger, whether

that test is viewed as a matter of federal or Pennsylva-

nia law. Petitioner’s contention that the lower courts

misapplied one element of that test to the facts of this

case presents no question of national importance war-

ranting this Court’s review.

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted.

PAUL D. CLEMENT

Solicitor General

SUE ELLEN WOOLDRIDGE

Assistant Attorney General

GREER S. GOLDMAN

JOHN T. STAHR

Attorneys

JUNE 2006

cash transactions. The court of appeals nevertheless concluded that the

general test for continuity of shareholders is clear and rests on whether

“the owners of the predecessor enterprise become a ‘constituent part’

of the successor by retaining some ongoing interest in their assets.”

Pet. App. A24.