# Amicus Curiae Brief — Zollo Drum Co. v. B. F. Goodrich Co. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386013_1201%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Amicus Curiae Brief - **Published:** January 1, 1998 - **Citation:** 524 U.S. 926 ## Text f No. 97-241 ¢ , SEP 5 1997 IN THE SUPREME COURT OF THE UNITED STATES “ it conflicts with the decisions in the First and Sixth Circuits. John S. Boyd Co. v. Boston Gas Co., 992 F.2d 401, 408-09 (1st Cir. 1993); Anspec, 922 F.2d 1240; City Management, 43 F.3d at 250. This split among the circuit courts persists even after O’Melveny due to the Second Circuit’s opinion and other opinions discussed below. The Second Circuit ruling also creates a square conflict with the decisions of the courts of appeals on four closely- related CERCLA liability issues concerning corporate law. First, on the threshold issue of whether a business entity is legally cognizable and subject to CERCLA claims, the courts of appeals have consistently relied on state law. In particular, the Seventh, Eighth and Ninth Circuits applied state corporate law to determine the capacity of a dissolved corporation to be sued under CERCLA. Citizens Elec. Corp. v. Bituminous Fire 3. United States v. Carolina Transformer Co., 978 F.2d 832, 837-38 (4th Cir. 1992); Louisiana-Pacific Corp. v. Asarco, Inc., 909 F.2d 1260, 1263 (9th Cir. 1990); Smithland & Improvement Corp. v. Celotex Corp., 851 F.2d 86, 91-92 (3d Cir. 1988), cert. denied, 488 U.S. 1029 (1989). The Ninth Circuit recently heard oral argument on whether Louisiana Pacific is still good law after O’Melveny. Atchison, T. & S.F Ry. Co. v. Brown & Bryant, Inc., No. 96-15524 (9th Cir. argued May 8, 1997). aa wat bhai 13 & Marine Ins. Co., 68 F.3d 1016, 1019-20 (7th Cir. 1995); Levin Metals Corp. v. Parr-Richmond Terminal Co., 817 F.2d 1448, 1451 (9th Cir. 1987); United States v. Northeastern Pharmaceu- tical & Chem. Co., Inc., 810 F.2d 726, 746 (8th Cir. 1986), cert. denied, 484 U.S. 848 (1987). In light of these opinions, the Second Circuit’s ruling creates the anomaly that state law determines whether a corporation has the capacity to be sued in the first instance, but federal common law is determinative on the issue of successor liability. By way of example, state law applies to situations where a CERCLA claim is made against a company that dissolved, but has not transferred its assets, while federal common law applies where a claim is made against a company that transfers its assets before dissolving. Second, the Eleventh Circuit applied state law rather than federal common law to determine the analogous issue whether limited partners are liable for the acts of a limited partnership under CERCLA. Redwing, 94 F.3d at 1501-02. In Redwing, a case decided after O’Melveny, the Eleventh Circuit applied the Kimbell Foods test and held that, given the popularity of the limited partnership structure as a means of organizing businesses, “we hesitate to upset the expectations investors have under current state law rules by adopting a federal com- mon law rule.” Redwing 94 F.3d at 1502. The exact same con- cerns militate against the Second Circuit’s creation of a federal common law rule of successor liability under CERCLA, which would eviscerate the expectations of investors in perhaps the most common business transaction in this country — asset acquisitions and divestitures. Third, courts of appeals have consistently relied upon state law to determine the validity and interpretation of con- tractual releases and indemnifications of CERCLA liability contained in contracts between potentially responsible parties. Beazer East, Inc. v. Mead Corp., 34 F.3d 206, 212 (3d Cir. 1994), cert. denied, 514 U.S. 1065 (1995); Olin Corp. v. Con- solidated Aluminum Corp., 5 F.3d 10, 15 (2d Cir. 1993); John S. Boyd Co., 992 F.2d at 406; United States v. Hardage, 985 F.2d 1427, 1433 (10th Cir. 1993); Mardan Corp. v. C.G.C. Music, Lid., 804 F.2d 1454, 1457-60 (9th Cir. 1986). Since the corpo- rate successor liability issue, like the contractual release issue, 14 frequently arises from contractual negotiations over the sale of assets between private parties, the case for applying state law to successor liability issues is as strong as for applying state law to interpret release and indemnification provisions. Fourth, the Second Circuit ruling threatens to aggravate an existing conflict among the courts of appeals on whether to create a federal common law rule of liability for a parent cor- poration as the result of the actions of its subsidiary. The Fifth and Sixth Circuits have refused to expand the liability of par- ent corporations under CERCLA beyond that imposed under existing, well-established, state law governing the piercing of corporate veils. United States v. Cordova Chem. Co., 113 F.3d 572, 576-80 (6th Cir. 1997) (en banc) (cert. petition filed Aug. 8, 1997); Joslyn Mfg. Co. v. T:L. James & Co., 893 F.2d 80, 82-83 (Sth Cir. 1990), cert. denied, 498 U.S. 1108 (1991).4 Since the issue of parent/subsidiary liability has traditionally been determined by state corporate law, the Second Circuit’s ruling creates further uncertainty whether federal common law will displace these longstanding state corporate law principles. Il. THE SECOND CIRCUIT’S MISAPPLICATION OF THIS COURT’S PRECEDENT IN ADOPTING A FEDERAL COMMON LAW RULE OF SUCCESSOR LIABILITY UNDER CERCLA HAS CREATED UNACCEPTABLE UNCERTAINTY IN PAST AND FUTURE COMMERCIAL TRANSACTIONS AND IN PENDING LITIGATION. The Second Circuit’s ruling creates enormous uncertainty in both past and present commercial transactions and in pend- ing litigation. Asset acquisitions and divestitures are among the most common commercial transactions. For decades prior to the enactment of CERCLA, NSWMA members and other parties to countless legitimate asset transfers predicated these transactions on the well-settled, traditional state corporate law 4. But see Schiavone v. Pearce, 79 F.3d 248, 254 (2d Cir. 1996); Lansford-Coaldale Joint Water Auth. v. Tonolli Corp., 4 F.3d 1209, 1221 (3d Cir. 1993); United States v. Kayser-Roth Corp., 910 F.2d 24, 27 (1st Cir. 1990), cert. denied, 498 U.S. 1084 (1991). ein Pee 15 rule of non-liability in asset transfers, subject only to very lim- ited, universally known, exceptions. Because CERCLA itself imposes retroactive liability for activities that took place well before its enactment, the Second Circuit’s adoption of an expansive federal common law rule of successor liability under CERCLA will unfairly deprive these very commercial actors of their justified reliance on these traditional state corporate law doctrines. The Second Circuit’s desire to increase the number of responsible parties under CERCLA to defray remediation costs simply does not justify eschewing these tra- ditional state corporate law doctrines. The Second Circuit’s ruling also wreaks havoc on the abil- ity of businesses to structure future commercial transactions. As stated infra, the states’ successor liability doctrine was carefully crafted over decades, and is now virtually uniform. For this reason, commercial actors structured their business transactions against this settled state common law backdrop. In direct contrast, state courts have discredited the expansive federal common law rule of “substantial continuity” under CERCLA endorsed by the Second Circuit. Moreover, those federal courts that have adopted the “substantial continuity” test have applied -it inconsistently. Profound disagreements about the content of the federal common law of CERCLA successor liability exists, and the lower courts directly contra- dict each other on threshold issues regarding the scope and predicates for successor liability under the “substantial conti- nuity” test. Petition for Writ of Certiorari at 15-18 (discussing cases). Using state successor liability doctrine as a guide, it will be decades before there is a coherent and consistent body of federal common law of successor liability under CERCLA. Accordingly, commercial actors attempting to structure busi- ness transactions in the future cannot knew what the federal common law in a particular court will require and how it may differ from state corporate law that will continue to govern all other aspects of the proposed transaction. The end result is that commercial transactions will either be made without the ability to accurately assess potential future liability, or in many cases, will be avoided. 16 Assuming, arguendo, that a consistent federal common law rule of successor liability endorsing “substantial continu- ity” is developed, this expansive rule of successor liability will in and of itself have a chilling affect on asset transfers. A rational prospective purchaser will be reluctant to acquire the assets of a business because, as stated above, it will be extremely difficult to predict or project with any degree of accuracy the contingent liabilities of the seller at all locations where it has ever in the past disposed of, treated or used haz- ardous substances in any phase of its operations. Quite often these contingent liabilities will exceed or even dwarf the value of the purchased assets, thus rendering the assets worthless, and making purchasers unwilling to consummate the transac- tion. Similarly, under an expansive successor liability rule, a company that desires to cease its operations and sell its assets will have a difficult time locating a single buyer for all of its assets at a favorable price. Instead, the selling company will be forced to sell its assets piecemeal at a less advantageous price. Polius, 802 F.2d at 83. The net result is that assets will not be sold or purchased at their true value, and “the benefits of alienability will be lost to commerce... .” Jd. Asset purchas- ers will also be unwilling to acquire a fully integrated business unit from a seller for fear of being saddled with successor liability. Instead, valuable assets will be left to whither on the vine, with a net loss to the seller who is unable to realize the full value of its business unit in a sale. This in turn will result in an economic loss to society. Finally, the issue of successor liability arises in the vast majority of pending CERCLA cases as a result of the ubiquity of asset transfers and CERCLA’s retroactive reach. Billions of dollars of remedial costs are at stake in these cases. Unless the Second Circuit is overturned, the shadow of the Second Cir- cuit’s expansive liability opinion will, at a minimum, require extensive additional litigation and transaction costs regarding this fact-dependent inquiry, and may improperly and finally determine many of these successor liability issues. SS ee —————— aa eeaeaacetatiitaiemeiiiiieiiiiaaaiiaaaiiiaeeiiaililiiial 17 CONCLUSION For the reasons stated above, the Petition for Writ of Certiorari should be granted. Respectfully submitted, Robert D. Fox Counsel of Record John F. Gullace Manko, Gold & Katcher 401 City Avenue - Suite 500 Bala Cynwyd, PA 19004 (610) 660-5700 Attorneys for Amicus Curiae National Solid Waste Management Association Dated: September 5, 1997 --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386013_1201%3A2. Public record. Not legal advice.