Approval and agreement may sound like the same thing, but the recent Court of Federal Claims decision in Pioneer Reserve, LLC v United States (November 21, 2014) points out that the difference can be very important.  Pioneer and the United States executed a mitigation banking instrument, which gave Pioneer “wetlands mitigation credits” that it could sell to developers.  Pioneer sold some of the credits.  The Army Corps of Engineers then reduced the number of credits to which Pioneer was entitled and Pioneer sued for breach of contract.

The government moved to dismiss the suit, arguing that approval of the mitigation banking instrument was a regulatory act (see 33 CFR 325 for the regulations regarding such instruments).  The signature of the representative of the Army Corps of Engineers was thus, approval of the request for credits and not a contract binding the government to issue a specified number of credits. The Court of Federal Claims disagreed, finding that the document was a contract binding the government.

The court relied on the language of the instrument, rather than the nature of the instrument.  That is, whether the instrument is a contract or merely a regulatory instrument depends on whether the document consists of “regulatory proclamations” or “manifests the government’s intent to contract.”  Here, there were definite terms and conditions indicating that there had been negotiations.  This bargaining was evidence of an agreement.  Thus, this instrument was a contract that could be enforced against the government in the Federal Court of Claims.

In United States v Conagra Grocery Products Company, LLC, 2014 WL 971973 (D. Maine 2014), the court held that Conagra could be liable for cleanup costs as corporate successor to the liabilities of a corporate successor to a corporate successor to a corporate successor, even though some of the intervening transactions were asset purchases.  In following the twisted chain of corporate transactions, the court provided a good review of the basics of how CERCLA liabilities transfer from corporation to corporation.

The contamination at the site was begun by a leather tanning business known as the A.C. Lawrence Leather Company (“Old Lawrence”).  In December 1952 Old Lawrence was merged into Swift & Company.  In 1973, Swift transferred Old Lawrence to Estech as part of a corporate reorganization and merger in which Swift transferred all of its chemical and energy businesses to Esmark, and Estech was the Esmark subsidiary that operated the leather business.  In 1976, Estech sold the tannery to a group of former tannery employees who formed the company that the court referred to as New Lawrence.  The court noted a dispute between the parties over the extent to which the New Lawrence acquired Old Lawrence environmental liabilities by contract.  In 1984, Esmark’s stock was transferred to Beatrice Companies, Inc.  (BCI).  In 1991, Estech was merged into BCI.  Between 1991 and 1993, in a series of mergers, BCI merged into Beatrice Company, which merged into Hunt-Wesson, Inc., and in 1999 Hunt-Wesson changed its name to Conagra, which became an LLC in 2005.  The question is whether Conagra has the environmental liabilities of Old Lawrence.

The government claimed that the Conagra has Old Lawrence’s environmental liabilities.  Conagra moved for summary judgment claiming it could not have those liabilities and that motion was denied.  The court reasoned as follows:  When a corporation owns all of the stock of another corporation, the company that owns the stock does not have CERCLA liability simply because the subsidiary it owns or operates has corporate liability.  Under basic corporate law principles, the two corporations are separate entities and whether the corporate parent has the liabilities of the subsidiary is based on traditional corporate veil piercing analysis – not by CERCLA law.  However, when a corporation merges with another, it brings its corporate liabilities into the merged entity.

The court first analyzed whether Estech had acquired the Old Lawrence liabilities and then whether Conagra was a corporate successor to Estech.  Estech acquired assets of Swift in 1973.  The general rule is that an asset purchaser does not obtain the liabilities of the seller of the assets unless the buyer assumes the liabilities by contract, the sale is a de facto merger or the sale is a mere continuation of the predecessor under a different name.  The court examined the language of the contract to determine whether environmental liabilities had been transferred and concluded that the matter could not be determined on summary judgment.  However, the contract issue only affected the 1955-1973 Old Lawrence liabilities.  Estech operated Old Lawrence from 1973-1976 and thus clearly had the Old Lawrence liabilities for those years.

The court next discussed whether Conagra is Estech’s successor.  The court noted that Estech obtained Old Lawrence in Swift’s 1973 corporate reorganization and that when it sold Old Lawrence in an asset sale to New Lawrence in 1976, it did not divest itself of the Old Lawrence liabilities.  Even if those liabilities were transferred to New Lawrence by contract, Estech would remain liable to the government.  In 1984, Esmark was acquired by Beatrice; in 1986 the Estech stock was transferred from Esmark to Beatrice; the Esmark stock was then transferred several more times.  The court noted that as long as Estech retained its corporate form, its parent corporations did not acquire its environmental liabilities.   However, in 1991 Estech merged into BCI thereby transferring its liabilities to BCI.  BCI then merged into Beatrice, which merged into Hunt-Wesson, which changed its name to Conagra.  Conagra is thus Estech’s corporate successor.

So how does one protect against the receipt of old, long forgotten environmental problems?  Maintaining separate corporate forms helps.  Asset acquisition helps.  Examining corporate history helps, but make sure you also examine contracts.  It is important to note that environmental liabilities are much easier to acquire than to divest.  Indeed, one generally cannot transfer environmental liabilities by contract and expect the government to be bound by that transfer.  The case could also demonstrate that trying to make things so complicated that people will not be able to follow generally does not work.  Environmental liabilities are large enough that there is a whole industry out there searching for other potentially responsible parties.

A recent decision by a federal district court in Illinois answered the above question by concluding that the danger does not have to be very imminent.  Indeed, a plaintiff could state a claim by alleging that contamination that had been in the ground for more than 50 years and is not currently threatening anyone, may create an imminent danger.  City of Evanston v Texaco, 2014 WL 683736 (N.D,.Ill, February 2014).

The City instituted a RCRA citizen’s suit against an oil company and the owner of a property that was formerly occupied by a gas station. The oil company moved to dismiss arguing that the contamination was more than 50 years old, no one was permitted to drink the groundwater, the site was paved over and therefore, there could not be an “imminent and substantial endangerment.”  The court denied the motion, noting that the statute allows a suit where “hazardous waste may present an imminent and substantial endangerment.”  By emphasizing the word “may” the court allowed the case to proceed.

The case should probably not be read to mean that an imminent endangerment does not need to be imminent.  Instead, the better read is that courts may be hesitant to resolve such claims on a motion to dismiss.  The decision gives the City the opportunity to prove its case, but leaves open the future finding, after discover, that there is no imminent endangerment in this case.

The United States Supreme Court has agreed to hear a case interpreting the CERCLA provision that preempts State statutes of limitations. Section 9658 of CERCLA provides that for actions brought under State law relating to hazardous substances or pollutants, the statute of limitations cannot begin to run until the injured party knew or should have know of the injury. This provision preserves claims that might otherwise be time-barred.

There is a split in the federal circuits regarding what section 9658 means for statutes of repose. The difference between a statute of limitations and a statute of repose is that a statute of limitations bars claims that are brought a specified amount of time after a claim arises, which generally means after the injury, while a statute of repose bars claims a specified amount of time after an event (such as a sale of property) even if that event has not caused injury.  The Fourth Circuit Court of Appeals held that section 9658 applies to statutes of repose.  Waldburger v CTS Corporation, 723 F.3d 434 (2013).

The Supreme Court will decide whether, when section 9658 said “statute of limitations” it also meant “statute of repose.” The decision will impact not only what state law claims can be brought against alleged polluters, but it could also provide significant guidance regarding how to read CERCLA. Recent Supreme Court decisions have counseled lower courts to pay more attention to the language of CERCLA and if that trend considers, the Court will not extend the provision to statutes of repose.

A New York court recently concluded that sampling data cannot be protected from disclosure under either the attorney client privilege or the attorney work product doctrine. In Abbo-Bradley v City of Niagara Falls, __ F.Supp.2d __ (W.D. N.Y. July 2013), plaintiffs instituted an action alleging that they had suffered personal injury and property damage as a result of releases of hazardous waste. Shortly thereafter, plaintiffs sought a temporary restraining order to require defendants to provide plaintiffs with advance notice of any sampling and an opportunity to take split samples. An agreement was reached regarding the language of such an order. Then, when plaintiff’s began sampling, defendants sought a similar order requiring plaintiffs to provide advance notice and an opportunity to split samples. Plaintiffs objected to the proposed order based on the attorney work product doctrine.

The court noted that the work product doctrine protects two types of materials that are prepared for litigation: (1)documents that contain the opinions or mental impressions of attorneys and (2) factual investigations and technical analyses. The court noted that attorney opinions and strategies receive more protection than factual analyses. Work product does not, however, protect the factual material that is the source of the work product (i.e.,facts used by the attorney to develop strategy or facts analyzed by techical experts). Here, the court noted that defendants were not seeking mental impressions or strategies or the results of plaintiffs’ technical analysis. They were merely seeking facutal information to assure that all parties have access to the same material. The court also noted that the attorney client privilege could not protect this information because that protects confidential communications from attorney to client and the source of this information is not the client.

This decision raises questions about the common practice of having the attorney retain the consultant so that the consutant’s findings will be protected. The decision suggests that any such protection will be limited. The factual data is likely not to be protected, but the analyses can be protected.

In Litgo New Jersey, Inc. v Commissioner of New Jersey Department of Environmental Protection, 2013 WL 3985003 (3d Cir. August 2013), the Third Ciruit Court of Appeals discussed the issue of when a party who has liability as current owner also has liability as current operator. While both the current owner and the current operator can be strictly liable under CERCLA for response costs, the issue has signifcance for allocation among responsible parties.

Appellants were parties who had purchased contaminated property with the intent to develop the proerty. They engaged in various investigation and remediation activities and sued a prior owner and the United States government to recover response costs. After a trial, the court found that the current owner and operator was liable for 70% of the costs. On appeal, one of the arguments raised by the appellants was that, while they could have liability as current owner, they could not have liability as current operator.

Appellants’ argument was based on language in the Supreme Court’s decision in United States v Best Foods, 524 U.S. 51 (1998), which could be read to indicate that to be liable as an operator one needs to be involved in activities at site that result in liability (such as generation and disposal of hazardsous waste). The Third Circuit rejected that interpretation, concluding that anyone who manages or conducts the affairs of a facility is an operator. Applellants argued that this would lead to unfair results by adding to the liability of “innocent” purchasers. The court, however, explained that the result was compelled by the language of CERCLA, which distinguishes between persons who have liability because they operated the facility at the time of disposal of hazardous substances and persons who are the current operator, without regard to whether they are there is any current disposal activity.

The decision helps clarify the meaning of the Best Foods decision. The issue often comes up in the context of lenders, who do not take title, but engage in activities that could be construed as operation. The common question, which made sense in light of Best Foods, was whether they could be liable as operator if their activities had nothing to do with hazardous substances. While most answered that question in the affirmative, this decision makes that more clear.

Earlier this summer, the Environmental Protection Agency published a report entitled “Our Built Environments: A Technical Review of the Interactions Among Land Use, Transportation, and Environmental Quality.” The document examines the interactions among these factors in a manner that is different from the way environmental impacts are often looked at. For example, the redevelopment of a contaminated site is looked at positively, not only because of the improvement to that site, but also based on the fact that such reuse means that a new site, undeveloped site will not be developed by this project. It also recommends developing more compactly because such development will reduce the need for transportation infrastructue and encourage walking instead of driving. The report describes numerous ways to reduce the environmental impacts of development projects and should be a valuable resource.


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