Commonwealth of Penn. Dept. v. Concept Sciences

232 F.Supp.2d 454

COMMONWEALTH OF PENNSYLVANIA DEPARTMENT OF ENVIRONMENTAL PROTECTION, Plaintiff, v. CONCEPT SCIENCES, INC.; PPT Research, Inc.; Irl E. Ward, Jr.; Brian D. Heath; Lehigh Valley Realty, III; James H. Readington; John Adams; Estate of Jacob Quick c/o Judith Quick, Defendants.

Civil Action No. 02-2888.

United States District Court, E.D. Pennsylvania.

December 2, 2002.

Paul R. Brierre, Michael T. Ferrence, Wilkes-Barre, PA, William C. MacMillan, Haddonfield, NJ, for Plaintiff.

James B. Burns, Deasey, Mahoney & Bender, Ltd., Philadelphia, PA, for Lehigh Valley Realty, III, James H. Readington, John Adams, Estate of Jacob Quick, defendants.

Thomas C. Delorenzo Marshall, Dennehey, Warner, Coleman & Goggi, Philadelphia, PA, Ronda K. O'Donnell, Marshall, Dennehey, Warner, et al., Philadelphia, PA, for Concept Sciences, Inc., PPT Research, Inc., Irl E. Ward, Jr., Brian D. Heath, Defendants.

MEMORANDUM

BAYLSON, District Judge.

The issue presented concerns the adequacy of allegations of corporate successor liability for environmental cleanup costs. This case, which seeks reimbursement for environmental cleanup costs, was commenced by Plaintiff, the Commonwealth of Pennsylvania Department of Environmental Protection ("Plaintiff") against the following defendants: Concept Sciences, Inc. ("CSI"); PPT Research, Inc. ("PPT"); Irl E. Ward, Jr. ("Ward"); Bryan D. Heath ("Heath"); Lehigh Valley Realty, III; James H. Readington; John Adams; and Estate of Jacob Quick c/o Judith Quick. The Complaint contains three counts brought under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. § 9601 et seq.; the Pennsylvania Hazardous Sites Cleanup Act ("HSCA"), 35 Pa Stat. Ann. § 6020.101 et. seq.; and the Pennsylvania Declaratory Judgments Act, 42 Pa. Cons.Stat. Ann. § 7531 et seq.

Plaintiff seeks reimbursement of its costs allegedly incurred in response to the release and threat of release of hazardous substances at the CSI Site in Hanover Township, Lehigh County, Pennsylvania (the "Site"), and a declaratory judgment on liability for response costs that will be binding on any subsequent actions by Plaintiff to recover future response costs incurred in connection with the Site. (Pl.'s Compl. ¶ 1). Presently before this Court is Defendant PPT's Motion to Dismiss. All other Defendants have answered the Complaint. For the reasons stated below, the Motion will be denied.

I. Background

Plaintiff alleges that an explosion on February 19, 1999, at a facility owned by CSI and located on the Site resulted in the release and threat of release of hazardous substances and contaminants, and that Plaintiff incurred costs to implement, operate, and maintain a containment system to ensure no further release of hazardous substances or contaminants. (Pl.'s Compl. ¶¶ 18, 28-29). Plaintiff further alleges that, due to the threat to human health and the environment, it was required to demolish CSI's facility and dispose of hazardous substances and contaminants from the facility. Id. at ¶¶ 32, 39.

With respect to Defendant PPT, Plaintiff alleges that PPT is a successor corporation to CSI under the substantial continuity theory and makes the following assertions in support of its claim:

82. PPT is a successor corporation to CSI under the substantial continuity theory as applied by this Court. Atlantic Richfield Co. v. Blosenski, 847 F.Supp. 1261 (E.D.Pa.1994); United States v. Atlas Minerals & Chems., Inc., 824 F.Supp. 46 (E.D.Pa.1993).

83. By letter to CSI's counsel dated March 31, 1999, CSI was informed that it may be a responsible person pursuant to section 701(a)(1) of HSCA, and that it could be responsible for the cost of any environmental investigations or cleanup actions at the Site.

84. PPT purchased the assets of CSI almost one year after CSI was informed in writing that it could be responsible for the cost of any environmental investigations or cleanup actions at the Site.

85. At the time PPT purchased the assets of CSI, PPT had knowledge or should have had knowledge of CSI's liability to the Department pursuant to CERCLA and HSCA.

86. As a successor corporation to CSI, PPT is subject to the liability of an "operator" at the Site within the meaning of section 101(20) of CERCLA, 42 U.S.C. § 9601(20).

* * *

107. As a successor corporation to CSI, PPT is subject to the liability of an "operator" at the Site within the meaning of sections 103 and 701(a)(1) of HSCA, 35 P.S. §§ 6020.103 and 6020.701(a)(1).

(Pl.'s Compl. ¶¶ 82-86, 107).

II. Legal Standard and Jurisdiction

When deciding a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), the Court may look only to the facts alleged in the complaint and its attachments. Jordan v. Fox, Rothschild, O'Brien & Frankel, 20 F.3d 1250, 1261 (3d Cir.1994). The Court must accept as true all well-pleaded allegations in the complaint and view them in the light most favorable to the plaintiff. Angelastro v. Prudential-Bache Sec., Inc., 764 F.2d 939, 944 (3d Cir.1985). A Rule 12(b)(6) motion will be granted only when it is certain that no relief could be granted under any set of facts that could be proved by the plaintiff. Ransom v. Marrazzo, 848 F.2d 398, 401 (3d Cir.1988).

This Court has subject matter jurisdiction over the claims asserted in Count I pursuant to 28 U.S.C. § 1331, and supplemental jurisdiction over the claims asserted in Counts II and III pursuant to 28 U.S.C. § 1367. Venue is appropriate under 28 U.S.C. §§ 1391(b), (c).

III. Analysis

A. Federal Claim

1. Plaintiff Has Stated a Claim that PPT is a Successor Corporation to CSI and Liable Under CERCLA

This Court has recognized the applicability of the "substantial continuity" or "continuity of enterprise"¹ test in CERCLA proceedings to determine if corporate successors are liable for their predecessor's environmental liabilities. United States v. Exide Corporation, C.A. No. 00-3057, 2002 WL 319940, 2002 U.S. Dist. LEXIS 3303 (E.D.Pa. Feb. 27, 2002); Elf Atochem North America v. United States and Witco Corp., 908 F.Supp. 275 (E.D.Pa. 1995); Atlantic Richfield Co. v. Blosenski, 847 F.Supp. 1261 (E.D.Pa.1994) (Giles, J.); United States v. Atlas Minerals and Chems., Inc., 824 F.Supp. 46 (E.D.Pa.1993) ("Atlas I") (Cahn, J.). These decisions are consistent with the Third Circuit's holding that successor companies may be held liable for CERCLA liabilities by their predecessors. Aluminum Company of America v. Beazer East, Inc., 124 F.3d 551, 565 (3d Cir.1997) (citing Smith Land & Improvement Corp. v. Celotex Corp., 851 F.2d 86, 91-92 (3d Cir.1988), cert. denied, 488 U.S. 1029, 109 S.Ct. 837, 102 L.Ed.2d 969 (1989)). Although it has specifically upheld the concept of successor liability in CERCLA, the Third Circuit has not reviewed the district courts' use of the substantial continuity test to determine whether a corporation is subject to such liability. Therefore, in the absence of a Third Circuit decision to the contrary, several decisions of this Court, which reject Defendant PPT's contention that the substantial continuity test is not an accepted theory of corporate successor liability, (Def.'s Mot. to Dismiss 3-4), are persuasive and will be followed.

The application of the substantial continuity test in CERCLA cases has been recognized by this Court for some time. Atlas I, 824 F.Supp. at 50. However, acceptance of the test sometimes has been limited because of concerns that its application is inconsistent with traditional tort principles, such as causation. Id. at 51. In Atlas I, Judge Cahn expressed agreement with a Third Circuit opinion rejecting the substantial continuity test in a products liability case as "an ill-considered extension of liability to an entity having no causal relationship with the harm." Id. (quoting Polius v. Clark Equipment Co., 802 F.2d 75, 82 (3d Cir.1986)). Judge Cahn applied this reasoning to CERCLA cases and suggested that "the theory ought to be applied only when there is a causal link between the CERCLA defendant and the environmental harm." Id.

To address the causation concerns raised in Polius, Judge Cahn adopted a requirement that the purchasing corporation and the selling corporation must have "substantial ties" before the test can be applied. Id. "Substantial ties" include situations where owners of a purchasing corporation are related to the owners of the selling corporation and where the selling corporation's top-level employees form a new corporation, and the latter subsequently buys out the former's assets. Id. In addition, the "critical inquiry" is whether the purchasing corporation and the selling corporation have "shared knowledge of CERCLA liability." Id. at 52. In Atlas I, Judge Cahn did not find substantial ties and thus declined to apply the substantial continuity test.

In Blosenski, Judge Giles declined to adopt the conditions set forth in Atlas I because they were inconsistent with CERCLA. 847 F.Supp. at 1287. He found that the concern with causation in Polius did not apply to CERCLA because "CERCLA liability may exist even in the absence of such a `causal link' between the defendant and the environmental harm." Id. He then applied the eight-factor test described by the Fourth Circuit in United States v. Carolina Transformer Co., 978 F.2d 832 (4th Cir.1992) to determine if an asset purchaser acquires the liabilities of its predecessor:

1. Retention of the same employees;

2. Retention of the same supervisory personnel;

3. Retention of the same production facilities and location;

4. Production of the same products;

5. Retention of the same name;

6. Continuity of assets;

7. Continuity of general business operations;

8. Whether the successor holds itself out as continuation of previous enterprise.

Id. at 838.

Finding all of these factors satisfied, Judge Giles concluded that "CERCLA's broad remedial goals will be served by the application of the substantial continuity test to determine...