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U.S. District Court Addresses the Issue of CERCLA Defendants that are ‘Dead and Buried’ Corporations, Liability as ‘Persons’ and the Importance of Discovery

Plaintiffs, Garrett Day LLC and the Ohio Development Services Agency, spent some $1.7 million cleaning hazardous substances released from a century-old paper mill in Dayton, Ohio (Site). In this case, they brought a § 107 of CERCLA cost recovery claim, and state causes of action, against several defendants—Harrison Holdings, L.P.; HPM Investors, Inc.; and HHP, Inc. (HPP Defendants). The HPP Defendants filed a Fed. Civ. P. 12(b)92) motion for lack of personal jurisdiction alleging that the HPP Defendants no longer exist and are, in fact, “dead and buried,” meaning, that they lack the capacity to sue or be sued and are not “persons” within the meaning of CERCLA. The U.S. District Court for the Southern District of Ohio did not grant the HPP Defendants judgment on the pleadings as discovery would be required to ascertain the merits of their dead and buried claims given the HPP Defendants’ reliance on evidence outside the scope of the pleadings. The HPP Defendants will be permitted to establish through discovery whether the corporation is “buried” with no assets whatsoever—such that it no longer exists, metaphorically. [Garret Day LLC v. International Paper Company, ___F.Supp.3d___, Case No. 3:15-cv-00036, (S.D. Oh. Nov. 15, 2017).]

 

Background

Regarding HPM Investors, plaintiffs’ alleged that this entity purchased the Site in 1972.

Plaintiffs alleged that HPP, Inc. was one of the general partners of Howard Paper Group, which in 1989, acquired Howard Paper Mills II, the Site’s former owner.

As for Howard Paper Group, the complaint alleged that in June of 1991, this entity sold its business to several Fox River Paper entities through an alleged asset purchase agreement. Plaintiffs alleged:

 

  • While the Fox River Paper purchase agreement was labeled an asset purchase agreement, Fox River Paper took over Howard Paper Mills, Inc.’s entire business. Put another way, the transaction represented a complete acquisition of Howard Paper Group’s operations and business by Fox River Paper. Id.

Following this transaction, Howard Paper Group no longer operated in any capacity. The most salient feature of the transaction, as plaintiffs alleged, was that Howard Paper Group did not appear to transfer to Fox River Paper Howard Paper Group’s environmental liabilities—which Plaintiffs alleged were most certainly known to the parties at that time:

 

  • Put simply, [plaintiffs alleged] For River Paper and Howard Paper Group amounted to a de facto merger or consolidation. Id.

The HPP Defendants alleged that there are dead and buried as therefore not subject to CERCLA liability. Plaintiffs alleged that the dead-and-buried rule is inconsistent with CERCLA and would not apply in this case for a number of reasons. Some CERCLA background is necessary.

CERCLA is designed:

 

  • . . .to promote the timely cleanup of hazardous waste sites and to ensure that the costs of such cleanup efforts were borne by those responsible for the contamination. Burlington Northern and Santa Fe Ry. Co. v. U.S., 556 U.S. 599, 602 (2009).

The court went on to state that:

 

  • Appreciating the risk that never-ending litigation might impede a ‘swift and effective response to hazardous waste sites,’ Congress authorized…potentially responsible parties to launch clean-up efforts first, then recover the costs from other responsible parties later—through settlements, consent decrees and, if need be, judgments. RSR Corp. v. Commercial Metals Co., 496 F.3d 552, 555 (6th Cir. 2007).

Plaintiffs sought to hold the HPP Defendants liable for their costs under CERCLA provisions that provide:

 

  • . . .any person who at the time of disposal of any hazardous substance owned or operated any facility at which such hazardous substances were disposed of, shall be liable for other necessary costs of response incurred by any other person consistent with the national contingency plan.

What then is a “dead” business? A “dead” business is dissolved but has assets that a CERCLA plaintiff might reach. A dead and buried business is dissolved with no remaining assets:

 

  • In other words, the operations of a dead business entity have perished and its remaining assets are moribund. A dead and buried business entity is pushing up the daisies.

 

The Court’s Ruling

The District Court first examined whether a dead-and-buried business entity is not a “person” under CERCLA. The U.S. Court of Appeals for the Sixth Circuit had not addressed this issue, but two U.S. District Judges in Ohio accepted that a corporation cannot be sued under CERCLA once it is dead-and-buried, notably in:. Stychno v. Ohio Edison Co., 806 F.Supp. 663, 670 (N.D. Ohio 1992). In that case, the lower court held that:

 

  • . . .where the funeral is still going on and corporate assets that might be used to pay cleanup costs have not yet been distributed to shareholders there is no good reason not to hold that corporation liable under CERCLA. [Internal quotations omitted.]

 

 

The Role of Discovery

However, advancing this rule in this instance did not assist the HPP Defendants as it remained to be seen whether, as a factual matter, whether these entities were dead-and-buried. The court found that:

  • The HPP Defendants, however, overlook the crucial role that discovery plays in determining whether a CERCLA defendant is dead-and-buried. Id.

For example, in Traverse Bay Are Interm. School Dist. v. Hitco, Inc., 762 F.Supp. 1298 (W.D. Mich. 1991), discovery was needed as to defendant Parson’s remaining assets. The District Court explained:

 

  • [T]he question whether Parsons still holds assets whether it is a ‘person’ under CERCLA are intertwined. Although an existing corporation is clearly a ‘person’ under CERCLA, a non-existent corporation cannot be included within that definition. In such a case there is no entity to sue or to defend against a lawsuit, and any judgments entered by the court would be unenforceable, much less uncollectible. To use the Gilman court’s analogy, although [defendant] Hitco may have shown that Parson’s is ‘dead,’ in order to fulfill CERCLA’s remedial goals, plaintiff is entitled to determine whether the corporation has been ‘buried.’ If it is established through discovery that Parsons hold no assets whatsoever, then it no longer exists. In that situation it is not a ‘person’ under CERCLA and no lawsuit can be maintained against it.” Id., underlined in original.

 

Conclusion and Implications

Whether the HPP Defendants are dead and buried will be borne out by discovery. The merits of the HPP Defendants’ claim that the weight of CERCLA authority holds that a corporation cannot be sued once it is both dead and buried is not affirmatively stated. Once decision, Town of Oyster Bay v. Occidental Chemical Corp., 987 F.Supp. 182, 200 (E.D. N.Y. 1997) holds that “…a corporation’s dead and buried status is irrelevant to a determination as to whether it can be subject to suit under CERCLA. For more information about the status of this case, see: https://scholar.google.com/scholar_case?case=16502136283512065258&q=Garrett+Day+LLC+v.+International+Paper+Company&hl=en&as_sdt=2006&as_vis=1

(Thierry Montoya)