EDWARD J. LODGE, District Judge.
Pending before the Court is the resolution of the bench trial on this matter. The parties requested additional time to have the transcript prepared before filing closing briefs. The briefs as well as supplemental authorities have now been filed and the Court is prepared to issue its finding of facts and conclusions of law.
This case concerns Defendants' liability under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") for mining related pollution within the Bunker Hill Mining and Metallurgical Complex Superfund Site ("Bunker Hill Superfund Site") in northern Idaho.
In 1927, Golconda Lead Mines, Inc. founded the Golconda Mine and Mill near Lake Coeur d'Alene. The operation of the mine resulted in the release of hazardous substances into the Coeur d'Alene Basin watershed. Through a series of mergers and name changes, Golconda Lead Mines, Inc. became Group R. Co., Inc. ("Group R"). In 1985, Defendant Marmon Wire & Cable, Inc. ("Marmon Wire") became the sole shareholder of Group R. Subsequently, between 1986 and 1988 Group R transferred its assets to Marmon Wire, leaving Group R insolvent. Marmon Wire then transferred the stock of Group R to its parent corporation, Defendant Marmon Holdings, Inc. ("Marmon"), in 1991. Group R, a Delaware corporation, filed a certificate of dissolution with that state in 2003. Marmon, as the sole shareholder, signed a Plan of Liquidation with Group R. The Plan of Liquidation included a "Plan of Distribution to Creditors." As part of the Plan of Liquidation, Group R assigned its residuary interest in the RegO Claimants Trust Agreement to Marmon.
Meanwhile, in 1983 the Environmental Protection Agency ("EPA") designated the Bunker Hill Superfund Site on its CERCLA National Priorities List and noticed the listing in the Federal Register. The EPA divided the Site into three operable units. The EPA issued a Record of Decision for Operable Unit 1 in 1991 and Operable Unit 2 in 1992. EPA issued an interim Record of Decision for Operable Unit 3 in 2002. (Id. ¶ 30.) Unit 3 includes the former Golconda Mine and Mill operation. The remaining claim to be resolved by this Court is the United States' claim against Marmon, seeking recovery of costs incurred in the clean-up of Unit 3 under 42 U.S.C. § 9607(a) as successor in interest to Group R.
The parties stipulated to the following facts which the Court adopts:
There are several legal questions that must be answered in order to determine if the United States recover against Marmon as a "successor in interest" to Group R. To begin with, the Court must determine if Group R is a successor in interest such that it is potentially liable under CERCLA. If yes, then the Court must determine if Marmon is a successor in interest to Group R and whether under Delaware law the United States can seek recovery directly from Marmon.
Marmon argues that Marmon cannot be liable as a shareholder of Group R for any CERCLA liability as Harry Magnuson already settled with the United States for clean up costs associated with the Golconda Property. The Court rejects the argument that any settlement by Mr. Magnuson resolves all CERCLA claims against any other prior owners or operators of the Golconda Property.
It is stipulated to by the parties that Golconda Lead Mines, Inc. was an owner and operator within the meaning of CERCLA. Golconda Lead Mines, Inc. became Golconda Mining Corporation in 1962 after the milling operations at the Golconda Property had concluded. Golconda Mining Corporation then became Golconda Corporation. Golconda Corporation merged with Astro Controls, Inc. into Golconda Mining Corporation. In 1970, Golconda Mining Corporation changed its name to Golconda Corporation. Later in 1970, Golconda Mining Corporation ("Golconda Mining Corporation 1970") was created as a subsidiary of the Golconda Corporation.
Golconda Corporation as the parent company of Golconda Mining Corporation 1970, sold all of its stock and its mining assets in Golconda Mining Corporation 1970, including the Golconda Property, to Harry Magnuson in 1976.
In 1977, Golconda Corporation merged with RegO Company. RegO was the surviving company and under Delaware law RegO was vested with all assets and liabilities of Golcondo Corporation. RegO later changed its name to Group R.
Based on the undisputed corporate history, Group R was a successor in interest to the owners and operators of the Golconda Property. The Court finds as a matter of law that the Golconda Corporation was a successor in interest to Golconda Lead Mines, Inc. and even though Golconda Corporation later sold the Golconda Property, there was a period of time in which the Golconda Corporation was an owner or operator of the Golconda Property. The selling of the Golconda Property in 1976 does not eliminate CERCLA liability for a past owners or operators of the Golconda Property. It merely results in another owner or operator being added to the list of potential responsible parties under CERCLA. See Louisiana-Pacific Corp. v. ASARC, Inc., 909 F.2d 1260, 1262 (9th Cir. 1990) (Congress intended successor liability under CERCLA). CERCLA reaches preenactment releases of hazardous substances. United States v. General Battery, 423 F.3d 294, 308-09 (3
The fact that Harry Magnuson settled with the United States regarding the Golconda Property in an "ability to pay" settlement does not prevent the United States from seeking damages from other past owners or operators in the corporate history of the Golconda Lead Mines, Inc. "CERCLA imposes `strict liability for environmental contamination upon four classes of potentially responsible parties." California Dept. of Toxic Substances Control v. Hearthside Residential Corp., 613 F.3d 910, 912 (9th Cir. 2010); United States v. Bestfoods, 524 U.S. 51 (1998).
Mergers, sales of assets and changing corporate names does not remove potential CERCLA liability. Alley v. Miramon, 614 F.2d 1372, 1384 (5th Cir. 1980); Bankers Life & Cas. Co. v. Kirtley, 338 F.2d 1006, 1013 (8th Cir. 1964). CERCLA allows for past owners who never operated the site at a time when hazardous substances were released to be liable merely because they owned the site at issue at some point after the releases. Therefore, Group R is a successor in interest to the Golconda Corporation which at one time owned the Golconda Property and Group R can be liable for the response costs incurred in connection with the Operable Unit 3 of the Bunker Hill Site under § 107(a)(2) of CERCLA regardless of the fact that Harry Magnuson already settled with the United States for clean up costs associated with the Golconda Property.
The Court previously determined that the Plan of Liquidation was ambiguous and that the Court would consider extrinsic evidence to determine if Marmon was a "successor in interest" and had assumed the liabilities of Group R. The United States argues, regardless of Mr. Webb's and Ms. Mandel's testimony, the only way to construe the Plan of Liquidation to comport with Delaware law is to interpret the document as an implied assumption of the liabilities of Group R by Marmon. Marmon contends the Court must find the Plan of Liquidation was a corporate dissolution of Group R, not a merger of Group R into Marmon.
The Ninth Circuit has not resolved whether state law or federal common law governs successor liability under CERCLA. See Atchison, Topeka & Santa Fe Ry. Co. v. Brown & Bryant, Inc., 159 F.3d 358, 364 (9th Cir. 1998). However, there have been some developments in the law since the Atchison case was decided and it seems most courts are leaning to applying state law to determine successor liability in CERCLA actions. See United States v. General Battery Corporation, Inc., 423 F.3d 294, 315 (3
The disagreement between the parties turns on interpretation of the Plan of Liquidation signed by Group R and Marmon Holdings. The Plan of Liquidation includes a section titled "Plan of Distribution to Creditors," which restates in entirety the language of § 281(b) of Delaware's General Corporation Law. This statutory language is followed by one sentence of unique language, which provides that claims against Group R "may be made by obtaining an undertaking from the sole stockholder [Marmon Holdings] to return such part, or all, of any distribution(s) . . . as is necessary in order to pay or provide compensation for such claims and obligations." The Government contends that this amounts to a direct assumption of liability by Marmon Holdings. Defendants counter that this language, particularly when read in the context of state law requirements concerning shareholder liability, only commits Marmon Holdings to return disbursements in the event of a judgment against Group R itself.
Because the Plan was drafted by the parties under Delaware law, the Court applies principles of contract interpretation from that state. "If a contract is unambiguous, extrinsic evidence may not be used to interpret the intent of the parties." Eagle Indus., Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228, 1222 (Del. 1997). A contract is ambiguous if it is "reasonably or fairly susceptible of different interpretations or may have two or more different meanings." Phillips Home Builders, Inc. v. Travelers Ins. Co., 700 A.2d 127, 129 (Del. 1997) (quotations omitted). When there is ambiguity, the reviewing court may consider extrinsic evidence of the parties' intent. Eagle Indus., Inc., 702 A.2d at 1232.
Whether the language of a contract is ambiguous is a question of law. In re U.S. Financial Securities Litigation, 729 F.2d 628, 632 (9th Cir. 1984). The parties' intent, determined through extrinsic evidence, is a question of fact. Id. The Court previously determined that the Plan of Liquidation was ambiguous and that the Court would consider extrinsic evidence to determine if Marmon was a "successor in interest" and had assumed the liabilities of Group R.
After considering the testimony and exhibits, the Court finds the Plan of Liquidation was not intended to be a merger of the two corporations wherein Marmon assumed the liabilities of Group R as well as accepting the assets of Group R. "[A]sset purchasers do not ordinarily incur successor liability." See Atchison, Topeka & Santa Fe R.R. Co. v. Brown & Byrant, Inc., 159 F.ed 358, 361 (9th Cir. 1998). This same general rule would apply to asset distributions to shareholders, liquidating distributions to shareholders do not normally result in successor in interest liability.
The Plan of Liquidation was a plan to dissolve Group R and Group R's General Counsel, Mr. Webb (who also served as Marmon's General Counsel) did not recall that any liabilities that existed at the time Group R was dissolved. While the Government finds this testimony unrealistic due to potential CERCLA claims Mr. Webb should have been aware of, Mr. Webb's testimony is an accurate statement when considering Group R's financial statements which gave a book value to the residual interest RegO Claimants Trust of $0 and there is no evidence of any other liabilities as all RegO's assets were used to fund the trust. Moreover, outside counsel, Ms. Mandel, testified she prepared the Plan of Liquidation to dissolve Group R, not as a document to merge it into Marmon and there is no evidence before the Court of any other intent on the part of Group R or Marmon.
The Court finds Group R and Marmon were sophisticated entities with experienced officers, general counsel and outside counsel. Based on the history of Group R and its predecessor companies, it was clear the officers of Group R knew how to merge corporations as they had done so in the past, but that was not what was done on July 31, 2003. Group R was a holding company (after RegO Claimants Trust was court approved) and was inactive until its dissolution in 2003. The Plan of Liquidation does not expressly state that Marmon was assuming any liabilities (even though the Plan of Liquidation was required under Delaware law to account for future liabilities and claims). As Ms. Mandel testified, Marmon did not intend or expressly obligate itself to litigate claims against Group R in the Plan of Liquidation and such is not required under Delaware law for a Plan of Liquidation.
Further, the Court concludes the unique language in the Plan of Distributions to Creditors section of the Plan of Liquidation does not create an "implied assumption" of all liabilities. The language that claims against Group R may seek to have [Marmon Holdings] "return such part, or all, of any distribution(s) . . . as is necessary in order to pay or provide compensation for such claims and obligations" only means that if there is a valid claim or judgment against Group R, Group R can seek to recover assets distributed to shareholders it does not imply Marmon has assumed all potential liabilities and the duty to litigate all claims against Group R.
For these reasons, the Court finds the Plan of Liquidation, was just that, a plan to dissolve Group R and distribute its remaining asset to its sole shareholder, Marmon. Marmon was not an express or implied "successor in interest" to Group R, but was a shareholder who received a distribution from a dissolved corporation.
The answer to this question is complex. Clearly, CERCLA recognizes broad corporate liability for releases of hazardous substances. However, this Court must look to Delaware law to determine if the United States can sue a shareholder (who is not a successor in interest) and if so, what steps it must take to do so. The parties have made arguments in their briefs regarding how Delaware law should be interpreted. Fortunately, the Delaware Supreme Court issued an opinion after the trial in this matter which interprets and answers many questions presented in this case: In the Matter of Kraft-Murphy Company, Inc., 82 A.3d 696 (Del. 2013).
It is interesting that the other Delaware court case applicable in this case is Court of Chancery of Delaware opinion In re RegO Company, 623 A.2d 92 (Del Ch. 1992). It is the RegO case wherein the dissolving corporation filed a petition for approval of a plan of security for corporate claimants related to faulty valves that RegO produced. This is the same RegO that Golconda Corporation merged with in 1977 and that eventually changed its name to Group R Co., Inc. in December of 1992 and dissolved in July 31, 2003. It is the
In RegO, the Court held that under Delaware General Corporation Law that a dissolved Delaware corporation may achieve, after a judicial proceeding, court approval of a plan of security for corporate claimants that precludes liability on the part of the directors and shareholders and establishes a limitations period for such actions against shareholders on claims against the corporation. The Court determined RegO's assets were most probably inadequate to compensate all of the present and future claimants and that the present and future claims had a present discounted value of over $57 million. Id. at 1096. Since the plan to fund claimants was funded by all of the dissolving corporation's assets and is fair to all classes of present and future claimants, the Court approved the RegO Claimants Trust even though the Court anticipated that the RegO Claimants Trust may have to exist for more than 10 years. It is RegO's (or Group R's) reversionary interest in the RegO Claimants Trust that was transferred to Marmon as the sole shareholder of Group R when it dissolved. At the time it was assigned to Marmon in 2003, it had been in existence for 20 years and it was likely that reversionary interest may have significant value based on the value of the trust corpus in 2002.
The Court has determined based on the expert testimony at trial that the reversionary interest in the RegO Claimants Trust had a value of $44 million when it was sold by Marmon in 2008. The fact that Group R and Marmon recorded the value of the reversionary interest at $0 on their financial records is without relevance as the accounting experts testified that accounting for financial statements is a completely different purpose than determining a value of a reversionary interest. After the RegO Claimants Trust had paid claims for 20 years, it has a trust corpus of $43,046,190 in December of 2002. The officers of Group R and Marmon both knew or should have known there was significant value to the reversionary interest asset Group R held — why else would Group R have distributed an asset worth $0?
Now that the existence of the court approved RegO Claimants Trust has been discussed, the Court can address the statutory issues surrounding dissolved corporations. It is undisputed there are monies that arguably could be recovered from Marmon under the terms of the Plan of Liquidation, if the CERCLA damages are proven and Delaware corporate law allows. While this Court has found for purposes of this case, that the United States has proven by a preponderance of the evidence that CERCLA liability appears to exists for Group R, it makes no findings regarding the damages associated with the liability for releases of hazardous substances discussed earlier in the factual findings.
Having found that Marmon is not a successor in interest to Group R, it is undisputed that under Delaware law "[n]o suit shall be brought against any officer, director or stockholder for any debt of a corporation of which such person is an officer, director or stockholder, until judgment be obtained therefor against the corporation and execution thereon return unsatisfied." 8 Del. C. § 325(b). Here, there is no pre-existing CERCLA judgment against Group R as Group R is a dissolved corporation and has not been sued by the United States. Marmon claims since it is not a successor in interest to Group R, the United States cannot circumvent § 325(b) and sue Marmon directly for Group R's CERCLA's liability. The Court agrees, however, this does not end the inquiry.
The Kraft-Murphy decision clarifies what was most likely a misinterpretation on the part of the United States, that it could not seek to sue a dissolved corporation after more than three years and a better course of action was to argue its "successor in interest" theory and that the claim against Marmon was brought within ten years of Group R's dissolution. This argument is not consistent with current Delaware law. Kraft-Murphy makes clear that there is no time limit on when a party can request a receiver be appointed to represent a dissolved corporation and there is no ten (10) year statute of limitations on bringing a suit against a dissolved corporation. There may be other statutes of limitations on certain types of claims, but the corporate statutes do not time bar all claims against a dissolved corporation after ten years. So the United States cannot claim its filing of a lawsuit against Marmon within ten years of Group R's dissolution justifies circumventing § 325(b).
There are two ways to dissolve a corporation in Delaware. The first is under § § 280-281(a) to seek a court supervised process in which notice is given, security is set aside for pending and contingent claims, and provides for the distribution of remaining assets to shareholders. This method was not used by Group R. Instead, Group R chose the second way under § 281(b) which provides a "safe harbor" dissolution for corporations following an unsupervised default procedure which requires the corporation to adopt a plan of distribution within three (3) years of dissolution that "reasonably provides" for: "(i) all claims known to the corporation, (ii) any suits pending against the corporation, and (iii) claims that are likely to arise or become known to the corporation or successor entity within 10 years after the date of dissolution." 8 Del. C. § 281(b). "Compliance with either § § 280-281(a) or § 281(b) shields directors and shareholders of the dissolved corporation from post-dissolution liability to third party claimants." Kraft-Murphy at 705. The court went on to explain that the safe harbor provisions do time bar certain claims against a dissolved corporation, but not all claims. Id. It is undisputed that Group R did not give notice to the United States of its dissolution nor did it reject a claim made by the United States, so §§ 280(a)(2) and (a)(4) do not apply to prevent an action against Group R.
Kraft-Murphy holds that the ten year claim periods in § § 280 and 281(b) do not extinguish a dissolved corporation's liability even though the liability of directors and shareholders may be limited if the safe harbor terms have been complied with. Id. 706-07. In order to sue a dissolved corporation after the three year winding up period, a receiver must be appointed for the dissolved corporation to participate in litigation. Id. at 709. That is because after the three year winding up period under § 278, the "body corporate" ceases to exist. Id. "As a pure matter of statutory law, the Corporation lacks any authority to continue managing the winding-up of its business, which includes defending lawsuits brought against it. Only if a receiver is appointed can the Corporation lawfully obtain that authority." Id.
Section 279 supports that a motion to appoint a receiver for a dissolved corporation can be made "at any time." "When any corporation organized under the is chapter shall be dissolved in any manner whatever, the Court of Chancery, on application of any creditor, stockholder or director of the corporation, or any other person who shows good cause therefor, at any time, may either appoint 1 or more of the directors of the corporation to be trustees, or appoint 1 or more persons to be receivers, of and for the corporation, . . . to prosecute and defend, in the name of the corporation, or otherwise, all such suites as may be necessary or proper for the purposes aforesaid, . . . that may be necessary for final settlement of the unfinished business of the corporation." 8 Del. C. § 279.
Here, to the Court's knowledge, the United States has not attempted to have a receiver appointed to defend against a CERCLA action and/or to recover assets distributed to Marmon to cover the amount of any CERCLA damages awarded. To the extent the United States argues the Plan of Liquidation is defective in that it failed to address and provide for potential CERCLA liabilities, the Court will leave that argument to be addressed by a Delaware Court as Group R is not a party to the action at bar. Any alleged defect in the Plan of Liquidation may be a factor in determining whether a receiver should be appointed, but it is not an issue for this Court to resolve since there is no outstanding judgment against Group R at this time to allow the United States to seek recovery from Marmon directly. It is also for a Delaware court to determine if the Plan of Liquidation by Group R was defective in not providing for known or likely potential CERCLA claims, does Marmon still retain the shield from liability for shareholders under the non-court supervised dissolution procedures of § 281(b).
The fact that there is no judgment against Group R, prevents the United States from proceeding with this action against Marmon at this time.
Plaintiff is without legal authority at this time to seek recovery under CERCLA from Marmon Holdings, Inc. as Marmon Holdings Inc. is not a successor in interest to Group R. Plaintiff's CERCLA claim against Marmon Holdings, Inc. is
