In Precision Brand Products v Downers Grove Sanitary District (N.D. Ill. August 2011), the Court dismissed an action against Corning, Inc, that alleged that Corning was liable for the environmental liabilities of H.W Holding, a corporation that Corning is alleged to indirectly own. H.W. Holding had liability as former owner of the contaminated site. Thus Corning was alleged to be liable as former owner of the site because it is the current owner of the former owner of the site. The court noted that a corporation may acquire environmental liabilities as corporate successor to a liable party, but a purchaser of assets does not acquire environmental liabilities unless: (1) the asset purchase agreement expressly includes assumption of liabilities, (2) the transaction is a de facto merger or consolidation, (3) purchaser is “mere continuation” of the seller, or (4) the transaction is a fraudulent attempt to escape liability. The Court dismissed the complaint because the complaint did not allege any of these bases for liability.
Significance of the Decision: The decision may have more significance for the drafting of pleadings in environmental litigation than for the drafting of corporate documents. The corporate law conclusions, that liabilities are generally not transferred with assets and that state law regarding piercing the corporate veil applies to environmental liabilities just like other liabilities are not particularly novel. However, from the pleadings perspective, the Court was very concerned about the lack of specificity. Plaintiff stated that “upon information and belief, Corning is now as a result of various corporate transactions and merger agreements beginning in approximately 1999 the indirect 100% owner of H.W. Holding . . . and is now legally responsible for H.W Holding’s liability for environmental conditions.” None of the transactions was described and no attempt was made to explain the substance of any of the transactions. The Court noted that in a related case arising out of environmental liabilities at the same site, Corning’s motion for summary judgment on the corporate successor liability theory was denied because of the existence of issues of fact. See, Muniz v. Rexnord Corp. (N.D, Ill. 2006), 2006 WL 3210463. In that case, the entire sequence of agreements was analyzed. It is possible that if plaintiff amends its complaint to describe the sequence of events and the substance of the transactions, its pleadings would defeat a motion dismiss. The court noted that Precision may request leave to amend its complaint.