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.