Successor liability under cercla: It's time to fully embrace state law

University of Pennsylvania Law Review

Volumn 156, Issue 3, 2008, Pages 767-816

  Carter, Michael ^a  

^a UNIVERSITY OF PENNSYLVANIA   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 41249096423     PISSN: 00419907     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Note

References (389)

1. 42 U.S.C. §§ 9601-9675 (2000).
2. See 42 U.S.C. § 9611 (2000) (authorizing use of funds from the Superfund created under 26 U.S.C. § 9507 (2000)).
3. See 42 U.S.C. § 9607 (2000) (imposing private CERCLA liability on specified parties).
4. U.S. EPA, Superfund's 25th Anniversary: Capturing the Past, Charting the Future, http://www.epa.gov/superfund/25anniversary (last visited Jan. 20, 2008).
5. JONATHAN L. RAMSEUR & MARK REISCH, LIBRARY OF CONG., SUPERFUND: OVER-VIEW AND SELECTED ISSUES 11 (2006).
6. See, e.g., United States v. Gen. Battery Corp., 423 F.3d 294, 298 n.3 (3d Cir. 2005).
7. The federal courts may not create general federal common law. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938).
8. However, as a practical matter, the federal courts create common law rules in a variety of circumstances. Generally, modern federal common law refers "to federal rules of decision whose content cannot be traced by traditional methods of interpretation to federal statutory or constitutional commands." RICHARD H. FALLON, JR. ET AL., HART AND WECHSLER'S THE FEDERAL COURTS AND THE FEDERAL SYSTEM 685 (5th ed. 2003). When creating rules of decision through a common law process, the federal courts may either (1) adopt state law as the federal rule or (2) judicially create a federal rule.
9. See generally FALLON ET AL., supra note 7, at 693-704 (describing the circumstances under which federal common law-making may be appropriate). In the context of successor liability under CERCLA, the creation of rules of decision by a common law-like process in the federal courts may be justified as "the normal judicial filling of statutory interstices."
10. Id. at 693
11. (quoting Henry J. Friendly, In Praise of Erie - and of the New Federal Common Law, 39 N.Y.U. L. REV. 383, 421 (1964)).
12. See Gen. Battery Corp., 423 F.3d at 305 ("The general rule of corporate successorship ... is nonliability for acquiring corporations ...."). Note that a corporation that engages in a statutory merger or consolidation with a responsible party generally assumes successor CERCLA liability.
13. See Lawrence P. Schnapf, CERCLA and the Substantial Continuity Test: A Unifying Proposal for Imposing CERCLA Liability on Asset Purchasers, 4 ENVTL. LAW. 435, 443-48 (1998) (describing these "traditional" exceptions to asset purchaser nonliability).
14. Id. at 448-54.
15. Compare Gen. Battery Corp., 423 F.3d at 305 (creating a federal rule to determine CERCLA successor liability)
16. United States v. Carolina Transformer Co., 978 F.2d 832, 837-38 (4th Cir. 1992) (same)
17. and United States v. Mex. Feed & Seed Co., 980 F.2d 478, 487 n.9 (8th Cir. 1992) (same)
18. with United States v. Davis, 261 F.3d 1, 54 (1st Cir. 2001) (holding that state law provides the rules of decision for the federal common law of CERCLA successor liability)
19. Redwing Carriers, Inc. v. Saraland Apartments, 94 F.3d 1489, 1501 (11th Cir. 1996) (same)
20. City Mgmt. Corp. v. U.S. Chem. Co., 43 F.3d 244, 250 (6th Cir. 1994) (same)
21. and Anspec Co. v. Johnson Controls, Inc., 922 F.2d 1240, 1245 (6th Cir. 1991) (same).
22. See generally New York v. Nat'l Serv. Indus. (Natl Seru. Indus. II), 460 F.3d 201, 207-09 (2d Cir. 2006) (hypothesizing that state law should apply but noting that no conflict existed for the case at hand);
23. Atchison, Topeka & Santa Fe Ry. Co. v. Brown & Bryant, Inc., 159 F.3d 358, 363-64 (9th Cir. 1998) (deciding that recent Supreme Court cases favor the application of state law, but not deciding the issue)
24. N. Shore Gas Co. v. Salomon Inc., 152 F.3d 642, 650-51 (7th Cir. 1998) (noting a circuit split but reserving the issue).
25. Recently, the Eighth Circuit has questioned its creation of a federal "substantial continuity" rule in Mexico Feed & Seed Co.
26. See K.C.1986 Ltd. P'ship v. Reade Mfg., 472 F.3d 1009, 1021-22 (8th Cir. 2007)
27. (noting that the Supreme Court decision in United States v. Bestfoods, 524 U.S. 51 (1998), may have undermined Mexico Feed & Seed Co., but declining to overrule it).
28. 440 U.S. 715, 727 (1979) (internal quotation marks omitted)
29. (quoting Clear-field Trust Co. v. United States, 318 U.S. 363, 367 (1943)).
30. Even if the Kimbell Foods analysis suggests that a federal court should adopt state law as the rule of decision, the issue remains one of federal law.
31. See id. at 729 (holding that "when there is little need for a nationally uniform body of law, state law may be incorporated as the federal rule of decision" (emphasis added));
32. see also FALLON ET AL., supra note 7, at 701 (noting that Kimbell Foods employs a "two-step formulation,"- "federal law governs, but it incorporates state law").
33. Kimbell Foods, 440 U.S. at 728-29 (internal quotation marks omitted) (quoting, in part, United States v. Yazell, 382 U.S. 341, 354 (1966) ).
34. See Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90, 108 (1991) ("[F]ederal courts should incorporate state law into federal common law unless the particular state law in question is inconsistent with the policies underlying the federal statute." (emphasis omitted) ).
35. For example, a Pennsylvania corporation may be responsible for a release of hazardous wastes in Michigan. See generally Chrysler Corp. v. Ford Motor Co., 972 F. Supp. 1097, 1103 (E.D. Mich. 1997).
36. Compare City Mgmt. Corp., 43 F.3d at 250 (applying the law of the state of incorporation)
37. Anspec Co., 922 F.2d at 1248 (same)
38. and United States v. Distler, 865 F. Supp. 398, 401 (W.D. Ky. 1991) (same)
39. with Chrysler Corp., 972 F. Supp. at 1103 (applying the law of the state of the hazardous release, rather than the law of the state of incorporation of the successor)
40. and United States v. Vt. Am. Corp., 871 F. Supp. 318, 320 (W.D. Mich. 1994) (same).
41. See, e.g., David E. Dopf, Casenote, Federal Common Law or State Law?: The Ninth Circuit Takes on Successor Liability Under CERCLA in Atchison, Topeka 8c Santa Fe Railway Co. v. Brown & Bryant, Inc., 10 VILL. ENVTL. L.J. 171, 190-96 (1999) (arguing that CERCLA should incorporate state successor liability law but failing to consider the choice of law question that arises if the state of incorporation and the state of release differ).
42. See Atherton v. FDIC, 519 U.S. 213, 218 (1997);
43. O'Melveny & Myers v. FDIC, 512 U.S. 79, 87 (1994).
44. O'Melveny & Myers, 512 U.S. at 87 (citation omitted)
45. (quoting Wheeldin v. Wheeler, 373 U.S. 647, 651 (1963)
46. and Wallis v. Pan Am. Petroleum Corp., 384 U.S. 63, 68 (1966)).
47. See COUNCIL ON ENVTL. QUALITY, ENVIRONMENTAL QUALITY 1981, at 99-101 (1981) (describing basic policy elements of CERCLA, including a preference for private party cleanup).
48. Schnapf, supra note 10, at 442-43 (footnotes omitted).
49. 42 U.S.C. § 9607(a) (2000).
50. RAMSEUR & REISCH, supra note 5, at 8.
51. CERCLA itself provides statutory exemptions from liability See, e.g., 42 U.S.C. § 9601(20)(D) (2000) (providing an exception to liability where a state or local government acquires title to a contaminated facility involuntarily through, for example, tax delinquency);
52. U.S.C. § 9607(r) (Supp. IV 2004) (creating an exemption for bona fide prospective purchasers). Additionally, the courts have limited the reach of private liability under certain circumstances.
53. See, e.g., Robertshaw Controls Co. v. Watts Regulator Co., 807 F. Supp. 144, 150 (D. Me. 1992) (limiting ownership liability where a party held title only briefly to facilitate a multiple step transaction).
54. Ronald H. Rosenberg, The Ultimate Independence of the Federal Courts: Defying the Supreme Court in the Exercise of Federal Common Law Powers, 36 CONN. L. REV. 425, 457 (2004).
55. Christine Todd Whitman, Op-Ed, Keep the Momentum for Superfund Cleanups, N.Y. TIMES, July 18, 2002, at A21.
56. 42 U.S.C. § 9611 (2000).
57. See ROGER W. FINDLEY ET AL., CASES AND MATERIALS ON ENVIRONMENTAL LAW 739 (6th ed. 2003) (describing how the Superfund trust, as well as special excise taxes on industry, pays for cleanup). Note, however, that the current Bush administration refused to reinstate special industry taxes to replenish the Superfund.
58. See infra text accompanying notes 37-45.
59. RAMSEUR & REISCH, supra note 5, at 12.
60. See U.S. EPA, supra note 4.
61. See 42 U.S.C. § 9611(a) (2000) (providing for over $13 billion in funding to the Superfund);
62. FINDLEY ET AL., supra note 29, at 739 (noting that special industry taxes raised about $4 million per day for the Superfund until December 1995, when they expired).
63. N. Shore Gas Co. v. Salomon Inc., 152 F.3d 642, 649 (7th Cir. 1998).
64. Rosenberg, supra note 26, at 457. Rosenberg notes that many courts have understood CERCLA's broad remedial goals to provide support for an "extremely broad interpretation of its liability provisions."
65. Id. However, as argued above, CERCLA's strict liability scheme must be balanced against the fact that Congress provided for public funding of cleanup where responsible parties were not present.
66. RAMSEUR & REISCH, supra note 5, at 13 n.46.
67. See id. at 17 (noting that non-mega sites average about $22 million in cleanup costs in the mining industry and about half as much in other industries).
68. See id. at 11.
69. See id. The termination of the special Superfund taxes may signal a shift in congressional policy. That is, by essentially killing the Superfund, Congress may have intended to shift the cost of cleanup from the industry generally to PRPs. If so, it may be appropriate for federal courts to interpret and apply CERCLA even more broadly to allow the government to collect from any party that is arguably a PRP, including successor corporations.
70. See FALLON ET AL., supra note 7, at 707 (describing the theory of "dynamic statutory interpretation," which seeks to "adjust statutes to changed circumstances, to the views of the current legislature, or more generally to evolving social understandings").
71. See RAMSEUR & REISCH, supra note 5, at 13 fig.3. Ramseur and Reisch estimate the shortfall to range between almost $600 million in the 2003 fiscal year and $450 million in the 2006 fiscal year.
72. See id.
73. Id. at 14.
74. The National Priorities List (NPL) constitutes the official list of the worst sites. Listing on NPL is a necessary precondition for use of federal Superfund trust dollars for remedial cleanup at a site. 40 C.F.R. § 300.425(b) (I) (2004).
75. See RAMSEUR & REISCH, supra note 5, at 4 (noting that "Superfund budgetary issues" affect EPA decisions regarding NPL listing).
76. The Bush administration has justified its refusal to ask Congress to reinstate the special Superfund taxes by arguing that the "polluter pays" principle suggests that responsible parties should be identified and made to pay for hazardous waste cleanup. Id. at 12.
77. Moreover, the EPA can recover attorneys' fees from private responsible parties, which suggests that the EPA may have incentives to try to litigate issues of private liability. See FINDLEYET AL., supra note 29, at 739-40 (collecting cases interpreting the "response costs" audiorized by 42 U.S.C. § 9607(a) (2000) to include attorneys' fees).
78. See U.S. GEN. ACCOUNTING OFFICE, SUPERFUND: LEGAL EXPENSES FOR CLEANUP- RELATED ACTIVITIES OF MAJOR U.S. C ORPORATIONS 6 tbl.1 (1994).
79. This remains true even though this I ultimately argue that CERCLA successor liability should be governed by application of state law rather than uniform federal common law, and even though I stress that these state rules are equitable doctrines that should be applied as fairness requires in specific cases. Resolving the split as advocated herein at least frames the issue with more certainty than presently available. Moreover, a significant body of state court decisions exists to help corporate planners understand the contours of successor liability when structuring specific transactions.
80. See supra note 23 and accompanying text (describing the four classes of PRPs).
81. See United States v. Gen. Battery Corp., 423 F.3d 294, 298 n.3 (3d Cir. 2005) (collecting cases).
82. See generally FRANKLIN A. GEVURTZ, BUSINESS PLANNING 1002-05 (3d ed. 2001) (describing the extent to which a purchaser assumes the liabilities of a seller depending on the form of corporate transaction at issue).
83. See, e.g., DEL. CODE ANN. tit. 8, § 259(a) (2001) ("[A]ll debts, liabilities and duties of the respective constituent corporations shall thenceforth attach to said surviving or resulting corporation, and may be enforced against it to the same extent as if said debts, liabilities and duties had been incurred or contracted by it.").
84. GEVURTZ, supra note 48, at 1005.
85. Because asset sales are the primary subject of this Comment, a concrete example may be helpful. The following facts are drawn from the transaction at issue in City Management Corp. v. United States Chemical Co., 43 F.3d 244, 246-50 (6th Cir. 1994). Corporation A has two shareholders and is engaged in the business of chemical solvent recycling and disposal. A disposed of the chemicals at a nearby landfill. A also had a permit to store chemicals on-site. Corporation B is engaged in a similar business but does not have the permits needed to store wastes at its facility. A's shareholders decide to sell their business to B. B paid over $700,000 for "all right, title and interest to all of the tangible and intangible assets which comprise [A's] business" with some named exceptions. B also expressly assumed all environmental liabilities at A's facility but expressly disclaimed assumption of other risks. A informed its customers that B would continue the business, and B in fact continued to serve A's former customers. B also hired all but one of A's nonmanagement employees. But, none of A's officers or shareholders continued with B. A did not dissolve after the sale, but maintained no assets other than the proceeds of the sale. Finally, prior to the sale A was informed that it was potentially liable under CERCLA for its disposal of wastes at the offsite landfill. A did not inform B of that potential liability.
86. GEVURTZ, supra note 48, at 1003.
87. See George L. Lenard, Note, Products Liability of Successor Corporations: A Policy Analysis, 58 IND. L.J. 677, 683 (1983) (describing justifications for the rule of nonliability) . Lenard also notes that contract principles also support nonliability; the purchaser should not be bound by an agreement to which it was not a party.
88. Id. at 683-84. Moreover, asset purchaser nonliability also promotes the alienability and transferability of corporate assets; Lenard argues that it may thus be analogous to the bona fide purchaser doctrine in real property law.
89. Id. at 684-85.
90. Importandy, even these "traditional" exceptions are not uniformly accepted by all states. For example, unlike most states, Delaware has refused to put the substance of a transaction over its form by rejecting the de facto merger doctrine. See Hariton v. Arco Elecs., Inc., 188 A.2d 123, 125 (Del. 1963) (rejecting the de facto merger exception to asset purchaser nonliability).
91. MELVIN ARON EISENBERG, CORPORATIONS AND OTHER BUSINESS ORGANIZATIONS 1075 (9th ed. 2005).
92. 15 WILLIAM MEADE FLETCHER ET AL., FLETCHER CYCLOPEDIA OF THE LAW OF PRIVATE CORPORATIONS § 7122, at 247-48 (perm, ed., rev. vol. 1999).
93. Schnapf, supra note 10, at 444.
94. See N. Shore Gas Co. v. Salomon Inc., 152 F.3d 642, 657 (7th Cir. 1998).
95. See Schnapf, supra note 10, at 444-45 (noting the existence of divergent state standards for the traditional exceptions, especially the de facto merger and mere continuation exceptions).
96. FLETCHER ET AL., supra note 56, § 7124, at 295-96.
97. Id. at 293-95.
98. Under the facts of the example introduced supra in note 51, corporation B would not be liable as A's successor for the CERCLA liability at the landfill under an express or implied assumption of liability theory. B assumed only A's environmental liabilities at A's facility and expressly disclaimed any others. Moreover, there is no evidence to suggest that B impliedly intended to assume liability for A's disposal of wastes at the landfill. Cf. City Mgmt. Corp. v. U.S. Chem. Co., 43 F.3d 244, 256 (6th Cir. 1994).
99. See Christopher J. Neumann, Successor Liability and CERCLA: The Runaway Doctrine of Continuity of Enterprise, 27 ENVTL. L. 1373, 1383-84 (1997) (arguing that the exception seeks to force firms to internalize the costs of their business activities through negotiation over price and assumption of liabilities).
100. Importantly, Delaware does not recognize the de facto merger exception. See infra Part II.A.4.
101. FLETCHER ET AL., supra note 56, § 7124.20. Under the facts of the example introduced supra in note 51, the de facto merger would not strictly apply to make B liable as A's successor. On the one hand, there is some continuation of enterprise (same assets and employees) and B did assume some of A's obligations (e.g., continued to serve A's customers). However, there is no continuity of ownership following the cash sale and A did not dissolve following the sale.
102. FLETCHER ET AL., supra note 56, § 7124.20. Application of the de facto merger exception notwithstanding the absence of a finding of one of the preceding elements should not be surprising, given that the doctrine is rooted in equity. That is, provided that the court applies these elements and finds that fairness requires an imposition of liability on the purchaser, the absence of a specific element should not be fatal.
103. See, e.g., N. Shore Gas Co. v. Salomon Inc., 152 F.3d 642, 657 (7th Cir. 1998) (applying the de facto merger and mere continuation exceptions and arguing that "the equities of this case . . . [are] the crucial and decisive element of our analysis").
104. FLETCHER ET AL., supra note 56, §7124.10.
105. Id.
106. Id. Under the facts of the example introduced supra in note 51, the mere continuation exception would not apply to make B a successor to A's CERCLA liabilities. Most importantly, this exception does not apply because there is no continuation of shareholders (no common ownership) and A did not dissolve (both corporations remained after the sale).
107. Cf. City Mgmt. Corp. v. U.S. Chem. Co., 43 F.3d 244, 252-53 (6th Cir. 1994).
108. See FLETCHER ET AL., supra note 56, § 7124.10;
109. see also Schnapf, supra note 10, at 448 ("[B]ecause shareholders benefit from the good fortunes of a corporation, they should not enjoy the profits of an enterprise that has avoided its pretransaction liabilities through corporate formalities.").
110. FLETCHER ET AL., supra note 56, § 7125.
111. Id. Again, under the facts of the example introduced supra in note 51, the fraud exception would not apply to B. There is no evidence that B failed to pay adequate consideration for A's assets. Cf. City Mgmt. Corp., 43 F.3d at 253-55.
112. See George W. Kuney, Jerry Phillips'Product Line Continuity and Successor Corporation Liability: Where Are We Twenty Years Later?, 72 TENN. L. REV. 777, 778 (2005) (arguing that the traditional exceptions demonstrate a judicial view of "corporate-supremacy-over-tort- policy") .
113. FLETCHER ET AL., supra note 56, § 7123.20;
114. see also Turner v. Bituminous Cas. Co., 244 N.W.2d 873, 883-84 (Mich. 1976) (applying the substantial continuity exception in the strict products liability context). In a later Michigan case, the fourth element was held to be unessential to a finding of substantial continuity between the pur-chaser and seller.
115. See Foster v. Cone-Blanchard Mach. Co., 597 N.W.2d 506, 510 n.6 (Mich. 1999) ("[A] truer reading of Turner suggests that the first three guidelines were intended to complete the continuity [of] enterprise inquiry where there is a sale of corporate assets."). Under the facts of the example introduced supra in note 51, B may be liable as A's successor for A's CERCLA liability. There is continuity of assets and personnel between A and B. B assumed A's obligations to A's employees and customers, B held itself out as a continuation of A. On the other hand, A did not dissolve following the sale, so the court would have to decide whether all elements must be present to fairly apply the exception to these facts.
116. Cf. City Mgmt. Corp., 43 F.3d at 250-51 (noting that the district court applied a modified version of the substantial continuity test and found no successor liability (for B) because there was no nexus between the purchaser and the conduct giving rise to CERCLA liability).
117. See Turner, 244 N.W.2d at 880 ("The presence of stock as consideration should be one factor to use to determine whether there exists a sufficient nexus between the successor and predecessor corporations to establish successor liability. However, the absence of an exchange of stock should not not be conclusive.");
118. see also Turner v. Wean United, Inc., 531 So. 2d 827, 832 (Ala. 1988) ("Although a finding of control by the same shareholders in both the acquiring company and the selling company is relevant for purposes of. . . finding a de facto merger, it is not relevant to the question of continuity of enterprise.");
119. Kuney, supra note 72, at 780-82 (noting that Turner v. Bituminous Casualty Co. explicitly analyzed the substantial continuity exception as a loosening of the de facto merger exception by requiring only three of the four de facto criteria to assert liability under the substantial continuity category).
120. Schnapf, supra note 10, at 453.
121. See, e.g., Golden State Bottling Co. v. NLRB, 414 U.S. 168, 182 n.5 (1973) (arguing that "[t]he perimeters of the labor-law doctrine of successorship ... have not been ... narrowly confined" to the traditional exceptions to asset purchaser nonliability).
122. See, e.g., Turner v. Bituminous Cas. Co., 244 N.W.2d at 877-80 (analyzing the problem of successor liability as one of strict products liability principles and arguing that products liability requires broader exceptions to asset purchaser nonliability);
123. see also Cyr v. B. Offen & Co., 501 F.2d 1145, 1154 (1st Cir. 1974) (holding that, under New Hampshire state products liability law, an asset purchaser may be held liable for the torts of its predecessor).
124. For federal labor law, see Golden State Bottling Co., 414 U.S. at 183 n.5 ("The refusal to adopt a mode of analysis requiring the Board to distinguish among mergers ... and purchases of assets is attributable to the fact that, so long as there is a continuity in the 'employing industry,' the public policies underlying the doctrine will be served by its broad application."). For state products liability law
125. see Kuney, supra note 72, at 777-78 (arguing that the criteria underlying the traditional exceptions "are irrelevant to . . . products liability law," and that "successors [should be] liable for the product defects of their predecessors when they have purchased a seller's business" because fairness in this context requires the "successor [to take] the bad with the good").
126. See generally Lenard, supra note 53, at 677 ("For corporate planners, the ability to structure a corporate acquisition as an asset acquisition, thus avoiding liability, is an obvious benefit of this traditional rule. For products liability plaintiffs, however, the traditional rule is an undesirable obstacle to the recovery of compensation for their injuries.").
127. FLETCHER ET AL., supra note 56, § 7123.30;
128. see also Ray v. Alad Corp., 560 P.2d 3, 11 (Cal. 1977) (creating a products line exception and holding that "a party which acquires a manufacturing business and continues the output of its line of products . . . assumes strict tort liability for defects in units of the same product line previously manufactured and distributed by [the seller]");
129. Ramirez v. Amsted Indus., 431 A.2d 811, 825 (N.J. 1981) ("[W]here one corporation acquires all or substantially all the manufacturing assets of another corporation .. . and undertakes essentially the same manufacturing operation as the selling corporation, the purchasing corporation is strictiy liable for injuries caused by defects in units of the same product line ....").
130. See Ray, 560 P.2d at 8-9. Under the facts of the example introduced supra in note 51, B would be liable as A's successor for the latter's CERCLA liabilities. B purchased all of A's assets. B benefited from A's goodwill; it continued to serve A's customers as a continuation of A. B held itself out as a continuation of A by offering the same services. A remained only as a corporate shell following the sale.
131. See, e.g., Ramirez, 431 A.2d at 825 ("The social policies underlying strict products liability. . . are best served by extending strict liability to a successor corporation that acquires . . . and continues . . . the same line of products as its predecessor, particularly where the successor . . . benefits from [the predecessor's] name[,] good will, business reputation and established customers.").
132. Lenard, supra note 53, at 679.
133. Ray, 560 P.2d at 9.
134. Id.
135. See supra note 53 and accompanying text (discussing corporate law principles underlying the general rule of asset purchaser nonliability).
136. Schnapf, supra note 10, at 449.
137. But cf. Kuney, supra note 72, at 785 (arguing that the products line and substantial continuity exceptions are basically identical because they look to similar elements).
138. See Kuney, supra note 72, at 794 n.129 (collecting cases).
139. Kuney's list appears overinclusive. For example, he counts Massachusetts as a substantial continuity state on the basis of Cargill, Inc. v. Beaver Coal & Oil Co., 676 N.E.2d 815 (Mass. 1997). However, that case explicitly refused to adopt the substantial continuity exception.
140. Id. at 819 n.8.
141. Moreover, other estimates are lower. See, e.g., Alfred R. Light, "Product Line" and "Continuity of Enterprise" Theories of Corporate Successor Liability Under CERCLA, 11 MISS. C. L. REV. 63, 68-69 (1990) (finding only four states to have adopted the products line exception). Nonetheless, several important industrial states, such as California, Michigan, and New Jersey, clearly recognize the broader exceptions to asset purchaser nonliability.
142. See Kuney, supra note 72, at 795 n.129.
143. See Kuney, supra note 72, at 790 (noting that California courts have limited Ray to strict products liability);
144. Schnapf, supra note 10, at 450 n.72 (noting that several states have limited application of these exceptions to strict products liability cases in which the asset sale destroyed the plaintiff's remedy against the original manufacturer).
145. See State of Delaware: Division of Corporations, About Agency, http://www.state.de.us/corp/aboutagency.shtml (last visited Jan. 20, 2008) (noting that over 50% of all publicly traded U.S. companies and 60% of Fortune 500 companies are incorporated under Delaware law).
146. EISENBERG, supranote 55, at 107.
147. Under traditional choice of law doctrine, "a corporation's internal affairs are governed by the law of its state of incorporation-even if the corporation has no business contacts witii that state." Id.
148. But see infra Part III (arguing that under choice of law principles the law of the state of hazardous release, and not the law of the state of incorporation, should generally govern questions of CERCLA successor liability because that state generally has the most significant relationship to the legal occurrence at issue).
149. See Elmer v. Tenneco Resins, Inc., 698 F. Supp. 535, 540 (D. Del. 1988) (finding that Delaware law recognizes, at most, only the traditional exceptions).
150. See Hariton v. Arco Elecs., Inc., 188 A.2d 123, 125 (Del. 1963) (rejecting the de facto merger doctrine).
151. But cf. Sheppard v. A.C. & S. Co., 484 A.2d 521, 524-25 (Del. Super. Ct. 1984) (noting that the "question of successor liability for torts apparently has not been directly considered in Delaware" and favorably discussing-but not adopting - the de facto merger exception).
152. See Elmer, 698 F. Supp. at 542 ("Delaware courts have narrowly construed the continuation theory. In order to recover under this theory in Delaware, it must appear that the former corporation is the same legal entity as the latter; that is, 'it must be the same legal person, having a continued existence under a new name.'" (citations omitted)
153. (quoting Fountain v. Colonial Chevrolet Co., No. 86G-JA-117, 1988 WL 40019, at *9
154. (Del. Super. Ct. Apr. 13, 1988))). Delaware law apparently does recognize the express or implied assumption of liability and fraud exceptions to asset purchaser nonliability.
155. See id. at 540-42.
156. See 42 U.S.C § 9607(a) (2000) (imposing CERCLA liability on the enumerated parties, which do not explicitly include successor firms);
157. see also, e.g., United States v. Gen. Battery Corp., 423 F.3d 294, 298 (3d Cir. 2005) (noting that CERCLA fails to explicitly address successor liability).
158. See supra notes 22-23 and accompanying text.
159. That is, under this fact pattern, the seller is liable as the generator of the hazardous waste. But, the purchaser is not the current operator of the facility at which the release occurred, did not generate the waste, and did not transport the waste. Thus, the purchaser may only face CERCLA liability under a theory of successor liability. The question of CERCLA successor liability became even more important after Congress amended CERCLA to include the prospective purchaser defense. See 42 U.S.C. § 9607(r) (Supp. IV 2004) ("[A] bona fide prospective purchaser whose potential liability... is based solely on the purchaser's being considered to be an owner or operator. . . shall not be liable as long as [it] does not impede the performance of a response action."). That is, current owners or operators of a facility are not directly liable under CERCLA for contamination caused by past owners if the current owners meet the requirements of § 9607(r). Nonetheless, the current owner may still be held liable indirectly as the successor of the past owner.
160. See supra note 6.
161. See, e.g., Gen. Battery Corp., 423 F.3d at 298;
162. Anspec Co. v. Johnson Controls, Inc., 922 F.2d 1240, 1246-47 (6th Cir. 1991).
163. 42 U.S.C. § 9607(a) (2)-(4) (2000).
164. Id. 9601 (21).
165. 1 U.S.C. § 5 (2000).
166. Gen. Battery Corp., 423 F.3d at 303-04.
167. United States v. Carolina Transformer Co., 978 F.2d 832, 837-38 (4th Cir. 1992).
168. United States v. Mex. Feed & Seed Co., 980 F.2d 478, 487 n.9 (8th Cir. 1992).
169. United States v. Davis, 261 F.3d 1, 54 (1st Cir. 2001).
170. New York v. Nat'l Serv. Indus., 460 F.3d 201, 207-09 (2d Cir. 2006).
171. City Mgmt. Corp. v. U.S. Chem. Co., 43 F.3d 244, 250 (6th Cir. 1994).
172. Redwing Carriers, Inc. v. Saraland Apartments, 94F.3d 1489, 1501-02 (11th Cir. 1996).
173. The Ninth Circuit earlier used federal common law to govern successor liability under CERCLA. See Louisiana-Pac. Corp. v. Asarco, Inc., 909 F.2d 1260, 1263 (9th Cir. 1990). More recently, the Ninth Circuit questioned that approach but did not explicitly overrule Louisiana-Pacific.
174. See Atchinson, Topeka & Santa Fe Ry. Co. v. Brown & Bryant, Inc., 159 F.3d 358, 364 (9th Cir. 1998) (refusing to overrule Louisiana-Pacific because the state and federal common law were identical as applied to the facts at issue).
175. 440 U.S. 715 (1979).
176. While Erie Railroad Co. v. Tompkins held that "[t]here is no federal general common law," 304 U.S. 64, 78 (1938), the federal courts may nonetheless create federal common law "to fill the interstices of federal legislation according to their own standards,"
177. Kimbell Foods, 440 U.S. at 727 (quoting Clearfield Trust Co. v. United States, 318 U.S. 363, 367 (1943)).
178. The Kimbell Foods framework explains which factors the federal courts should consider when deciding whether such gap-filling should be conducted through creation of federal rules of decision or by incorporation of state law. 440 U.S. at 728-29.
179. Kimbell Foods applies where a federal statute is completely silent as to a particular issue. This situation is analytically distinct from one in which the court engages in statutory interpretation of an ambiguous provision.
180. See United States v. Gen. Battery Corp., 423 F.3d 294, 311 n.14 (3d Cir. 2005) (Rendell, J., concurring in part and dissenting in part) (noting that the court was neither "construing a word or phrase in the statute" nor interpreting "the meaning of a term contained in CERCLA" to determine the appropriate rules for CERCLA successor liability).
181. Note, however, that most of the earlier decisions from courts of appeals regarding CERCLA successor liability did not explicitly apply the Kimbell Foods framework.
182. See Rosenberg, supra note 26, at 468-500 (reviewing the federal appellate courts' failure to apply Kimbell Foods to CERCLA successor liability). The more recent cases, on the other hand, have applied Kimbell Foods and its progeny.
183. See, e.g., New York v. Nat'l Serv. Indus. (Nat'l Serv. Indus. II), 460 F.3d 201, 207-09 (2d Cir. 2006) (applying Kimbell Foods and finding that state law governs);
184. Gen. Battery Corp., 423 F.3d at 303-04 (applying Kimbell Foods and finding that federal common law governs).
185. Kimbell Foods, 440 U.S. at 727 (explaining that the "statutes authorizing these federal lending programs do not specify the appropriate rule of decision" and that "[f]ederal law therefore controls the Government's priority rights").
186. Id. at 718.
187. Id. Several commentators note that the decision whether to judicially create a federal rule involves a two-step analysis. First, does the court have the authority or competence to create a federal rule in the particular context? Second, if the court does have that authority, should it, as a matter of discretion, exercise that authority?
188. FALLON ET AL., supra note 7, at 700.
189. Kimbell Foods answered the first question affirmatively because the Supreme Court clearly indicated that federal law governed the liens, but answered the second question in the negative: based on its three-part analysis of the competing federal and state interests, the Court held that, as a matter of discretion, the creation of a federal rule was not appropriate. Id. at 701.
190. Kimbell Foods, 440 U.S. at 728 (quoting United States v. Yazell, 382 U.S. 341, 354 (1966)).
191. Id.
192. Id.
193. Id. at 729.
194. Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90, 108 (1991). For example, in the CERCLA successor liability context, the analysis should not be whether the rule of the majority of states is consistent with the federal policies underlying CERCLA. Instead, the question is whether the law of the particular state with the most significant relationship to the hazardous waste release is consistent with CERCLA policy. The Third Circuit failed to recognize this distinction in United States v. General Battery Corp.;
195. the court considered general corporate law principles rather than the law of the particular state at issue. 423 F.3d 294, 300 (3d Cir. 2005);
196. see also FALLON ET AL., supra note 7, at 704 (noting that federal court adopting state law may be required to analyze "the choice of which state's law governs").
197. 512 U.S. 79, 87 (1994) (citation omitted)
198. (quoting Wheeldin v. Wheeler, 373 U.S. 647, 651 (1963)
199. and Wallis v. Pan Am. Petroleum Corp., 384 U.S. 63, 68 (1966)).
200. Atherton v. FDIC, 519 U.S. 213, 218 (1997)
201. (quoting O'Melveny & Myers, 512 U.S. at 87).
202. Several cases decided before Kimbell Foods held that a federal rule was appropriate.
203. See United States v. Little Lake Misere Land Co., 412 U.S. 580, 594-97 (1972) (rejecting use of state law as applied to federal government contracts because state law was "hostile to the interests of the United States");
204. United States v. 93.970 Acres of Land, 360 U.S. 328, 332 (1959) (creating a federal rule of decision where the application of state election of remedies law would have imposed a "Hobson's choice" on the federal government);
205. Clearfield Trust Co. v. United States, 318 U.S. 363, 366 (1943) ("The rights and duties of the United States on commercial paper which it issues are governed by federal rather than local law."). More recently, the Supreme Court upheld the creation of a federal rule in Boyle v. United Technologies Corp., 487 U.S. 500, 504 (1988).
206. Boyle, 487 U.S. at 512.
207. Id. at 505-06. Note that the majority suggested that a lesser conflict may justify the judicial creation of a federal rule where such unique federal interests are present.
208. See id. at 507-08 ("[T] he fact that the area in question is one of unique federal concern changes what would otherwise be a conflict that cannot produce pre-emption into one that can." (emphasis omitted)). The federal government does not have such a unique interest in human health and land use issues, and thus this lesser conflict standard does not appear applicable to CERCLA.
209. Id. at 507.
210. O'Melveny & Myers, 512 U.S. at 88.
211. See Atherton v. FDIC, 519 U.S. 213, 219-21 (1997) (arguing that divergent state law standards of corporate governance do not, in themselves, imply that nationally uniform standards are necessary under a federal banking statute).
212. See FALLON ET AL., supra note 7, at 701 (noting that Kimbell Foods and later cases suggest "a preference for incorporation of state law").
213. See infra Parts II.B.3 and II.B.4. Another example of lower court difficulties following Bestfoods can be seen in the response of the Second Circuit to that decision. In B.F. Goodrich v. Betkoski (Betkoski I), the Second Circuit created a set of federal rules for CERCLA successor liability that included the substantial continuity exception. 99 F.3d 505, 519 (2d Cir. 1996);
214. see also B.F. Goodrich v. Betkoski (Betkoski II), 112 F.3d 88, 91 (1997)
215. (clarifying that the Kimbell Foods factors supported creation of a federal rule). After Bestfoods, in New York v. National Services Industries (National Services Industries I), the Second Circuit overruled Betkoski I, holding that "the substantial continuity doctrine is not a part of general federal common law and, following Bestfoo ds, should not be used to determine whether a corporation takes on CERCLA liability." 352 F.3d 682, 687 (2d Cir. 2003) (emphasis added). Thus National Services Industries I read Bestfoods as requiring use of an almost pre-Erie general common law. Further, while National Services Industries I did not reconsider Betkoski II's analysis of Kimbell Foods, the court did argue that Bestfoods potentially supported reversal of Betkoski II. See Nat'l Servs. Indus. I, 352 F.3d at 686 n.1 ("Because we find that. . . the substantial continuity doctrine cannot be applied, the analysis prescribed by [KimbellFoods] . . . would likely come out differently now.... In fact, if the state had adopted the substantial continuity test ... then the state common law might actually facilitate CERCLA's objectives." (citation omitted)). Finally, in New York v. National Service Industries (National Service Industries II), 460 F.3d 201, 207-09 (2d Cir. 2006), the court strongly suggested that Kimbell Foods required incorporation of state law for CERCLA successor liability, but reserved the question as unnecessary to resolution of the case.
216. See Bestfoods, 524 U.S. at 56-58.
217. See United States v. Cordova Chem. Co., 113 F.3d 572, 580 (6th Cir. 1997) ("Whether the circumstances in this case warrant piercing of the corporate veil will be determined by state law." (citing Anspec Co. v. Johnson Controls, Inc., 922 F.2d 1240, 1248 (6th Cir. 1991))).
218. The Sixth Circuit rejected the district court's view that CERCLA created a new, relaxed standard of parent corporation liability. Cordova Chem. Co., 113 F.3d at 579.
219. Id. at 581.
220. In a footnote, the Court noted a circuit split "over whether, in enforcing CERCLA's indirect liability, courts should borrow state law, or instead apply a federal common law of veil piercing." Bestfoods, 524 U.S. at 63 n.9. The Court refused to decide the issue because no party challenged the lower court holding that neither parent was indirectly liable. Id. Nonetheless, other language in the opinion suggests that state law may govern the issue.
221. See id. at 63 ("CERCLA is thus like many another congressional enactment giving no indication that 'the entire corpus of state corporation law is to be replaced simply because a plaintiff's cause of action is based upon a federal statute . . . .'" (emphasis added) (quoting Burks v. Lasker, 441 U.S. 471, 478 (1979)));
222. id. at 65 ("If any such act of operating a corporate subsidiary's facility is done on behalf of a parent corporation, the existence of the parent-subsidiary relationship under state corporate law is simply irrelevant to the issue of direct liability." (emphasis added)
223. (citing Riverside Mkt. Dev. Corp. v. Int'l Bldg. Products Inc., 931 F.2d 327, 330 (5th Cir. 1991))).
224. But see id. at 61-62 (discussing "hornbook" principles and the "venerable common law backdrop" of corporate law).
225. See id. at 65 ("The fact that a corporate subsidiary happens to own a polluting facility operated by its parent does nothing, then, to displace the rule that the parent 'corporation is [itself] responsible for the wrongs committed by its agents in the course of its business ....'" (alteration in original) (quoting United Mine Workers of Am. v. Coronado Coal Co., 259 U.S. 344, 395 (1922))).
226. Id. at 72.
227. Id. at 72-73. 141
228. See id. at 63 n.9.
229. See supra note 135.
230. See Bestfoods, 524 U.S. at 71.
231. See id. at 71-72.
232. Indeed, the tenor of the opinion is that CERCLA does not displace any legal rules unless Congress explicitly provided for such a result. See id. at 63-64 ("[T] he failure of [CERCLA] to speak to a matter as fundamental as the liability implications of corporate ownership demands application of the rules that '[i]n order to abrogate a common-law principle, the statute must speak directly to the question addressed by the common law.'" (second alteration in original) (quoting United States v. Texas, 507 U.S. 529, 539 (1993))).
233. See supra note 145.
234. See supra notes 104-106 (collectingcases).
235. See Rosenberg, supra note 26, at 470 (noting that the "federal courts failed to apply the Kimbell Foods three-part test" to questions of CERCLA successor liability).
236. See 978 F.2d 832, 837-38 (4th Cir. 1992) ("In adopting a rule of successor liability... we must consider traditional and evolving principles of federal common law, ''which Congress has left to the courts to supply interstitially.'"
237. (quoting United States v. Monsanto Co., 858 F.2d 160, 171 (4th Cir. 1988))).
238. 980 F.2d 478, 487 n.9 (8th Cir. 1992).
239. See Mex. Feed & Seed Co., 980 F.2d at 488 ("[I]n the CERCLA context, the imposition of successor liability under the 'substantial continuation' test is justified by a showing that in substance . . . the successor is a responsible party. The cases . . . have correcdy focused on preventing those responsible for the wastes from evading liability through the structure of subsequent transactions.");
240. Carolina Transformer, 978 F.2d at 840-41 (holding that, in light of CERCLA's broad remedial goals, the district court appropriately applied the substantial continuity exception to hold defendant liable as a successor corporation).
241. See supra Part II.B.l (discussing Kimbell Foods and its progeny). Note, however, that even after these Supreme Court decisions, the courts of appeals did not consistendy analyze CERCLA successor liability under the Kimbell Foods framework.
242. See, e.g., B.F. Goodrich v. Betkoski (Betkoski I), 99 F.3d 505, 514 (2d Cir. 1996) (holding, without applying Kimbell Foods and its progeny, that federal law governed CERCLA successor liability and included the substantial continuity exception),
243. abrogated by New York v. Nat'l Serv. Indus. (Nat'l Serv. Indus. II), 460 F.3d 201, 207 (2d Cir. 2006).
244. United States v. Gen. Battery Corp., 423 F.3d 294, 298-99 (3d Cir. 2005).
245. See Smith Land & Improvement Corp. v. Celotex Corp., 851 F.2d 86, 92 (3d Cir. 1988) (applying "[t]he general doctrine of successor liability in operation in most states" through federal common law rulemaking).
246. Gen. Battery Corp., 423 F.3d at 303-04.
247. Id. at 304.
248. Id. at 299-300.
249. 524 U.S. 51 (1998). While the Third Circuit's characterization of Bestfoods is accurate, that case is an outlier in the Supreme Court's federal common law jurisprudence. See supra Part II.B.2 (arguing that Bestfoods is inconsistent with Kimbell Foods).
250. See K.C. 1986 Ltd. P'ship v. Reade Mfg., 472 F.3d 1009, 1021-22 ("We acknowledge that the continuing viability of the substantial continuity theory... as a creation of federal common law has been seriously questioned following the Supreme Court's pronouncement in Bestfoods that nothing in CERCLA purports to rewrite the settled rules of state corporation law...."). Of course, Bestfoods did not "pronounce" any such rule at all.
251. See supra Part II.B.2 (noting that Bestfoods is ambiguous as to whether CERCLA incorporates state law or mandates adoption of federal common law rules).
252. Bestfoods, 524 U.S. at 63 n.9.
253. Gen. Battery Corp., 423 F.3d at 300.
254. Id.
255. See id. at 304 (stating that "CERCLA's goal of minimizing litigation and transaction costs is ill-served by a case-by-case approach" that looks to the law of a particular state).
256. Id. at 302.
257. Id. In support of this argument, the panel cited 42 U.S.C. § 9622(a) (2000), which encourages settlements "in order to expedite effective remedial actions."
258. The panel also cited 42 U.S.C. § 9607(r) (Supp. IV 2004), a part of the "Brownfield Amendments" to CERCLA that encourages redevelopment of potentially contaminated property, i.e. brownfields.
259. See Small Business Liability Relief and Brownfields Revitalization Act, Pub. L. No. 107-118, 115 Stat. 2356 (2002) (codified as amended in scattered sections of 42 U.S.C. §§ 9601-9622 (2000 & Supp. IV 2004)).
260. Gen. Battery Corp., 423 F.3d at 303 (citations omitted).
261. See infra Parts III.B.1, rV.B (arguing that the modern exceptions are not in conflict with CERCLA policies).
262. See Gen. Battery Corp., 423 F.3d at 305 ("CERCLA incorporates, but does not expand upon, 'fundamental' common law principles of indirect corporate liability.").
263. As a matter of authority, the Third Circuit probably did have the competence to judicially create a federal rule of decision to govern the federal common law of CERCLA successor liability. Just as the rights and obligations of the federal government in Kimbell Foods arose because of federal law, so too are the rights and obligations of CERCLA PRPs created by federal law. However, as a matter of discretion, the Kimbell Foods analysis suggests that the Third Circuit should not have displaced state successor liability rules.
264. See Gen. Battery Corp., 423 F.3d at 312 (Rendell, J., dissenting) ("[W]e are not to evaluate the jurisprudential landscape of all fifty states; rather, 'federal courts should incorporate state law . . . unless the particular state law in question is inconsistent with the policies underlying the federal statute.'"
265. (quoting Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90, 108 (1991))).
266. More generally, Bestfoods cannot bear the analytic weight thrust upon it by the General Battery majority. As noted in previously, Bestfoods was an aberrant case in the Supreme Court's federal common law jurisprudence. See supra Part II.B.2. To read that case as requiring (1) creation of federal common law rules that (2) contain only " traditional" or "fundamental" corporate law doctrines is therefore unwarranted - especially since Bestfoods may have contemplated incorporation of state corporate law.
267. See supra note 137.
268. Gen. Battery Corp., 423 F.3d at 302.
269. See supra notes 107-110.
270. See supra note 111.
271. See Rosenberg, supra note 26, at 483-91.
272. 922 F.2d 1240, 1246-48 (6th Cir. 1991).
273. This result was affirmed without elaboration by a subsequent Sixth Circuit case. See City Mgmt. Corp. v. U.S. Chem. Co., 43 F.3d 244, 250 (6th Cir. 1994) ("In Anspec, we held that a state's law on corporations, including that state's law on mergers and successor liability, applied in determining whether a successor corporation would be liable under CERCLA for cleanup costs.").
274. See Rosenberg, supra note 26, at 491-99.
275. See New York v. Nat'l Serv. Indus. (Nat'l Serv. Indus. II), 460 F.3d 201, 208 (2d Cir. 2006) (noting that the parties pointed "to no conflict between the application of state law and the federal interests at issue in CERCLA, and we fail to see one");
276. United States v. Davis, 261 F.3d 1, 54 (1st Cir. 2001) ("We see no evidence that application of state law to the facts of this case would frustrate any federal objective.");
277. Atchison, Topeka & Santa Fe Ry. Co. v. Brown & Bryant, Inc., 159 F.3d 358, 364 (9th Cir. 1998) ("There is no evidence that the application of state corporation law will frustrate [CERCLA's] objective [of holding responsible parties liable].");
278. Redwing Carriers, Inc. v. Saraland Apartments, 94 F.3d 1489, 1502 (11th Cir. 1996) ("[S]tate rules permit plaintiffs to hold limited partners accountable for a partnership's CERCLA liability under certain circumstances," and there is no evidence that states will "enact[] more protective statutes . . . to defeat CERCLA's goal of having the polluter pay.").
279. Nat'l Seru. Indus. II, 460 F.3d at 208
280. (quoting B.F. Goodrich v. Betkoski (Betkoski II), 112 F.3d 88, 91 (2d Cir. 1997));
281. see also Redwing Carriers, 94 F.3d at 1501 ("Adopting a uniform rule would, perhaps, expedite enforcement of CERCLA by decreasing uncertainty in assessing liability. . . . But this argument could be made for adopting a uniform rule in the context of just about any federal statute.").
282. See 43 F.3d at 246-47.
283. Id. at 251-53.
284. See id. at 251
285. (citing Turner v. Bituminous Cas. Co., 244 N.W.2d 873, 892 (Mich. 1976));
286. see also infra Part III.B. 1 (arguing that the modern exceptions should be extended from the products liability context to CERCLA cases).
287. City Mgmt. Corp. v. U.S. Chem. Co., 43 F.3d 244, 252 (6th Cir. 1994).
288. See supra Part II.B.1.
289. Indeed, many of the cases do not even specify whether the state of incorporation differs from the state in which the hazardous release occurred. In part, this may be because the states of incorporation and release (or at least their laws) were identical. But, given that a majority of large public corporations are incorporated under Delaware law but conduct business in other states, see supra Part II.A.3, the state of incorporation and release often differ. Additionally, the courts may have failed to address this issue because most have assumed that successor liability law is largely uniform.
290. See, e.g., Anspec Co. v. Johnson Controls, Inc., 922 F.2d 1240, 1249 (6th Cir. 1991) ("[T]he law in the fifty states on corporate dissolution and successor liability is largely uniform."). However, as Part II.A.2 demonstrates, a substantial minority of states has adopted nontraditional rules, including several important states (e.g., California, Delaware, Michigan, New Jersey) that have expanded or contracted the traditional exceptions to asset purchaser nonliability. So, for example, it may not be uncommon for a corporation to be incorporated under Delaware law - with its narrow exceptions-while operating in California-with its expanded, modern exceptions.
291. See supra note 17.
292. See Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90, 108-09 (1991) ("[F]ederal courts should incorporate state law into federal common law unless the particular state law in question is inconsistent with the policies underlying the federal statute." (second emphasis added)).
293. See infra Part IV.
294. See FALLON ET AL., supra note 7, at 704 (presenting the alternative approaches available to federal courts facing questions about which state's law to apply). 190 313 U.S. 487 (1941).
295. FALLON ET AL., supra note 7, at 704 n.10. Klaxon did not involve federal common law rulemaking, but rather held that a federal court sitting in diversity should apply the conflict of laws principles of the forum state.
296. See Klaxon Co., 313 U.S. at 496 ("It is not for the federal courts to thwart. . . local policies by enforcing an independent 'general law' of conflict of laws.").
297. FALLON ET AL., supra note 7, at 704 n.10
298. (citing Richards v. United States, 369 U.S. 1 (1962) as an example in which the choice of law rules from the state of injury governed).
299. See LEA BRILMAYER & JACK GOLDSMITH, CONFLICT OF LAWS: CASES AND MATERIALS 1 (5th ed. 2002) (noting that about ten states use the traditional conflict of laws rules).
300. See id. at 278 (noting that twenty-two states have adopted the most significant relationship approach to conflict of laws);
301. see also DAVID D. SIEGEL, CONFLICTS IN A NUTSHELL § 79, at 246 (2d. ed. 1994) (arguing that the Second Restatement and interest analysis approaches "involve the same ingredients, and . . . ought to reach the same results").
302. See RESTATEMENT OF CONFLICT OF LAWS § 378 (1934).
303. See, e.g, United States v. Hercules, Inc., 247 F.3d 706, 717 (8th Cir. 2001).
304. See SIEGEL, supra note 194, at 246 (arguing that the Second Restatement and interest analysis approaches "involve the same ingredients, and . . . ought to reach the same results").
305. See EISENBERG, supra note 55, at 107 ("Under traditional choice-of-law rules, . . . a corporation's internal affairs are governed by the law of its state of incoroporation . . . .").
306. See RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 302 (1971).
307. See Chrysler Corp. v. Ford Motor Co., 972 F. Supp. 1097, 1102 (E.D. Mich. 1997) ("[I]t could also be argued that [theories of] successor liability . . . are theories of liability peculiar to corporations, in which case § 302 applies.").
308. As the court noted in Chrysler, A single CERCLA lawsuit may adjudicate the claims of a large number of actors . . . . [The parties that] seek to recover from [the alleged successor] did not organize their relationship under the umbrella of the incorporating state's law, as would be the case in an internal dispute . . . . The interests here go far beyond corporate governance [and] affect a wide range of interests outside the corporation.
309. Id. at 1103.
310. See id at 1102 ("A non-corporate entity may accrue CERCLA liability, and on that basis § 301 would appear to apply here, leading to the application of normal contract or tort choice of law rules.").
311. RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 302(2) (1971).
312. See id. § 301 ("The rights and liabilities of a corporation with respect to a third person that arise from a corporate act of a sort that can likewise be done by an individual are determined by the same choice-of-law principles as are applicable to non-corporate parties.").
313. See, e.g., United States v. Monsanto Co., 858 F.2d 160, 171-72 (4th Cir. 1988) (analogizing CERCLA liability in cases involving multiple responsible parties to "indivisible harms" resulting from common law torts to support imposition of joint and several liability on such responsible parties).
314. However, a case involving the expressed or implied assumption of liability theory of successorship may involve contract law issues. See, e.g., Chrysler, 972 F. Supp. at 1104 ("[T]heories based on contractual or quasi-contractual assumption of liability would seem to invoke the provisions of [Restatement (Second) of Conflict of laws] § 188, which specifies factors to be considered in contract actions in the absence of effective choice of law by the parties.").
315. Cf. Federated Rural Elec. Ins. Exch. v. RD. Moody & Assoes., Inc., 468 F.3d 1322, 1325-26 (11th Cir. 2006) (characterizing a subrogation claim as a tort action, rather than a contract action, for choice of law purposes because the claim did not seek to recover for breach of contract or to dispute the "validity, nature, construction, or interpretation" of any contract).
316. See, e.g., Page v. Gulf Oil Co., 812 F.2d 249, 250 (5th Cir. 1987) (holding that a clause in an asset purchase agreement requiring use of California law for contract disputes between asset purchaser and seller did not extend to incorporate California successor liability law in products liability actions);
317. Travis v. Harris Corp., 565 F.2d 443, 446 (7th Cir. 1977) (arguing for tort conflict of laws principles in a products liability case against a successor corporation - even though the asset purchase agreement stipulated use of Ohio law-because products liability raises issue outside the contract);
318. Hoover v. Recreation Equip. Corp., 792 F. Supp. 1484, 1490-91 (N.D. Ohio 1991) (applying tort conflict of laws principles to a products liability case against a successor corporation).
319. These approaches are supplemented by several others, including, most prominently, the "better rule of law" test under which courts, in their view, apply the law of the state offering the most appropriate substantive legal principles. See, e.g., Milkovich v. Saari, 203 N.W.2d 408, 417 (Minn. 1973) (applying Minnesota law after concluding that "we are firmly convinced of the superiority of the [Minnesota] common-law rule of liability to that of the Ontario guest statute").
320. See BRILMAYER & GOLDSMITH, supra note 193, at 278 ("The Second Restatement is by far the most popular choice-of-law methodology. . . .").
321. RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 6(2) (1971). 212
322. BRILMAYER & GOLDSMITH, supra note 193, at 263.
323. RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 145 (1971).
324. See SIEGEL, supra note 194, at 239. Thus, a court may apply the law of one state to legal issue X, but the law of another state to legal issue Y, depending on the relationships of the two states to each issue within the case.
325. See BRILMAYER & GOLDSMITH, supra note 193, at 264 ("Because of the Second Restatements eclecticism, courts have done many different things under its banner. Sometimes they count contacts[;] . . . sometimes they perform interest analysis; often they mix several different approaches.").
326. See Bernhard v. Harrah's Club, 546 P.2d 719, 723 (Cal. 1976) ("Once . . . a true conflict of the governmental interests involved as applied to the parties under the particular circumstances of the case [has been identified], the 'comparative impairment' approach . . . seeks to determine which state's interest would be more impaired if its policy were subordinated to . . . the other state.").
327. SIEGEL, supra note 194, at 254. In these situations, the court may resolve an otherwise apparent conflict by reexamining the policy of the states to "determine if a more restrained interpretation" that avoids the conflict "is more appropriate."
328. Bernhard, 546 P.2d at 723.
329. Bernhard, 546 P.2d at 723.
330. Id. (internal quotation marks omitted)
331. (quoting Harold W. Horowitz, The Law of Choice of Law in California - A Restatement, 21 UCLA L. REV. 719, 753 (1974)).
332. Id. at 724 (alteration in original omitted) (internal quotation marks omitted)
333. (quoting Horowitz, supra note 219, at 753).
334. This would include the following situations: (1) the state of incorporation recognizes traditional exceptions but the state of release recognizes modern exceptions, (2) the state of incorporation is Delaware and the state of release recognizes traditional exceptions, and (3) the state of incorporation is Delaware and the state of release recognizes modern exceptions.
335. This would include the following situations: (1) the state of incorporation recognizes traditional exceptions and the state of release is Delaware, (2) the state of incorporation recognizes modern exceptions and the state of release is Delaware, and (3) the state of incorporation recognizes modern exceptions but the state of release recognizes only traditional exceptions.
336. See supra Part II.A.2 (recognizing that the products liability exception prioritizes the policy aims of strict products liability over traditional corporate law concerns).
337. The Sixth Circuit has implicitly accepted this argument. See City Mgmt. Corp. v. U.S. Chem. Co., 43 F.3d 244, 252-53 (6th Cir. 1994) (rejecting application of Michigan's substantial continuity exception to CERCLA successor liability).
338. See Kenneth K. Kilbert, Successor Liability Under CERCLA: Whither Substantial Continuity?, 14 PENN. ST. ENVTL. L. REV. 1, 9-10, 20-21 (2005) (arguing that the substantial continuity exception may be applied under CERCLA);
339. Daniel H. Squire, William P. Ingram & Don J. Frost, Jr., Corporate Successor Liability Under CERCLA: Who's Next?, 43 SW. L.J. 887, 906 (1990) (noting that the Department of Justice argued that the use of modern exceptions is appropriate under CERCLA based on cost-shifting arguments similar to risk-spreading in the products liability context).
340. But see Schnapf, supra note 10, at 457 (noting that the existence of the Superfund may mean that "the policy justifications outlined in the product line cases do not apply under CERCLA").
341. See supra notes 82-85 and accompanying text (identifying three justifications for the products line exception).
342. See W. Page Keeton, Products Liability-Inadequacy of Information, 48 TEX. L. REV. 398, 408 (1970) (arguing that risks created by the manufacturer "should be a cost of doing business").
343. Some commentators argue that products liability may be distinguished from hazardous contamination cases because an asset purchaser cannot generally obtain insurance against CERCLA liability. Schnapf, supra note 10, at 457-58 (noting that the insurance policies that serve to limit environmental liability may not be accessible to successor corporations). However, insurance may be obtained "to minimize the environmental liability associated with a transaction and to cover the risks of cost overruns during site cleanups."
344. Id. at 458 n.124.
345. Indeed, some courts have gone so far as to conclude that, based on the statutory definition of responsible parties, CERCLA does not even require a showing of causation. See Ad. Richfield Co. v. Blosenski, 847 F. Supp. 1261, 1285 (E.D. Pa. 1994) ("[C]oncern with traditional tort principles of causation is not evident in CERCLA.").
346. A party seeking recovery under CERCLA may be able to collect against a dissolved corporation, but such an action is riddled with difficulties. See Schnapf, supra note 10, at 458 & nn. 126-27. On the other hand, the Superfund may provide financing at sites for which the responsible party cannot be held liable.
347. See supra note 79 (highlighting the divergent interests of corporate planners and products liability plaintiffs with regards to successor liability).
348. As described below, this holds true regardless of whether the state of hazardous release recognizes broader or narrower exceptions to successor liability than the state of incorporation.
349. See RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 145(2) (1971).
350. Chrysler Corp. v. Ford Motor Co., 972 F. Supp. 1097, 1103 (E.D. Mich. 1997).
351. See RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 6(2) (d) (listing "the protection of justified expections" as a factor "relevant to the choice of the applicable rule of law"). The internal affairs doctrine, which requires application of the law of the state of incorporation, is limited to matters of internal corporate governance.
352. See supra note 198.
353. See RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 6(2) (g) (listing "ease in the determination and application of the law to be applied" as another relevant factor in choice of law).
354. See id. § 6(2) (f) (listing "certainty, predictability and uniformity of result" as a relevant choice of law factor).
355. Moreover, if the parties to a transaction dislike these rules, they may generally bargain for a choice of law provision with the asset sale contract. See id. § 187.
356. See id. § 6(2) (e) (listing "the basic policies underlying the particular field of law" as a relevant factor).
357. Note that the Supreme Court bears a large measure of responsibility for this confusion in light of its unexplained failure to apply the Kimbell Foods framework in United States v. Bestfoods, 524 U.S. 51 (1998).
358. See supra Part II.B.2.
359. United States v. Kimbell Foods, Inc., 440 U.S. 715, 728 (1979) (internal quotation marks omitted)
360. (quoting United States v. Yazell, 382 U.S. 341, 354 (1966)).
361. Id.
362. Id. at 729.
363. For a full discussion of Kimbell Foods and its progeny, see supra Part II.B. 1.
364. 440 U.S. at 730.
365. Id.
366. Id. at 732.
367. See Schnapf, supra note 10, at 454 ("In 1984, however, the U.S. Environmental Protection Agency . . . announced that it would seek to impose liability on successor corporations."). The Department of Justice has not only adopted the EPA's position, but has also argued that the agency's position is entitled to Chevron deference.
368. Id. at 454-55.
369. See U.S. ENVTL. PROT. AGENCY, PRP SEARCH MANUAL 186-87 (2003) (describing the substantial continuity exception as applicable to CERCLA successor liability).
370. See, e.g., United States v. Gen. Battery Corp., 423 F.3d 294, 301-02 (3d Cir. 2005) (noting the complexity of state successor liability law and arguing that this fact counsels against incorporation of state law).
371. Anspec Co. v. Johnson Controls, Inc., 922 F.2d 1240, 1250 (6th Cir. 1991) (Kennedy, J., concurring). Moreover, if states do engage in a race to the bottom, nothing prevents the courts from reevaluating, in light of these changed circumstances, their decision to incorporate state law rather than create federal common law.
372. 440 U.S. at 739.
373. See supra Part III.C.2.
374. Anspec Co., 922 F.2d at 1250 (Kennedy, J., concurring).
375. O'Melveny & Myers v. FDIC, 512 U.S. 79, 87 (1994)
376. (quoting Wallis v. Pan Am. Petroleum Corp., 384 U.S. 63, 68 (1966)).
377. Atherton v. FDIC, 519 U.S. 213, 218 (1997)
378. (quoting O'Melveny & Myers, 512 U.S. at 87).
379. See supra Part II.A.
380. See Schnapf, supra note 10, at 455 (noting that the Department of Justice supports expanded liability for asset purchasers because (1) CERCLA seeks to shift costs of hazardous waste releases from public to industry and (2) expansive liability would create incentives for asset purchasers to conduct comprehensive due diligence).
381. See Part I.A.
382. See supra note 25.
383. Cf. Atchison, Topeka & Santa Fe Ry. Co. v. Brown & Bryant, Inc., 159 F.3d 358, 364 (9th Cir. 1998) (arguing that there is no evidence that application of state law will frustrate CERCLA's objective of holding "responsible" parties liable for hazardous waste releases).
384. See 42 U.S.C. § 9607 (r) (Supp. IV 2004) (providing that purchasers of contaminated property will not be liable under CERCLA as current owners or operators if such purchasers satisfy specified conditions).
385. North Shore Gas Co. v. Salomon Inc., 152 F.3d 642, 657 (7th Cir. 1998) ("[S]uccessor liability is an equitable doctrine that should not apply 'unless justified by the facts.'"
386. (quoting United States v. Carolina Transformer Co., 978 F.2d 832, 837 (4th Cir. 1992))).
387. See supra note 65 and accompanying text (arguing that absence of specific elements of a de facto merger should not be fatal).
388. Most importantly, CERCLA contains a strict liability scheme that imposes liability on private responsible parties but also recognizes that a responsible party cannot always be identified - and therefore provides for public financing for cleanups of such sites.
389. See supra notes 58-59 and accompanying text.