OPINION BY. SYLVIA H. RAMBO
OPINION: MEMORANDUM
Memorandum Regarding Waste Management's Successor Liability to KeystoneSanitation Company
1. Introduction
Before the court are Waste Management's, the OriginalGenerator Defendants' and Third-Party Defendants' cross-motions for summaryjudgment on the issue of Waste Management's successor liability to KeystoneSanitation Company, Inc. The motions have been briefed and are ripe for disposition. ...
This case arises out of the Keystone Landfill ('the Landfill ") located in Adams County,Pennsylvania. On September 27, 1993, the United States commenced the present action.... Waste (WMX) is a responsible person under the Pennsylvania Hazardous SitesCleanup Act, and, therefore responsible for the release or threatened release of hazardoussubstances at the Landfill within the meaning of Pa. Stat. Ann. tit. 35, 6020.701(a). TheThird-Party Complaint also avers that Waste is strictly liable for response costs pursuantto 702(a) of HSCA. ...
From approximately 1968 until 1990, Keystone operated as a family-run commercial,residential and municipal waste collection, hauling, and disposal business. Since itsincorporation, Kenneth and Anna Noel have been Keystone's sole shareholders, as wellas its sole officers and directors.
Waste originally indicated interest in acquiring Keystone and the Landfill in or about June of 1986. The Environmental Protection Agency ("the EPA") had been investigating the Landfill for po ssible inclusion on the National Priorities List ("NPL") since 1984 . Wastewas aware that the Landfill was under consideration by the EPA for NPL placement. Waste decided against purchasing either the Landfill or Keystone at that time. In July of1997, the EPA added the Landfill to the NPL. The EPA has since estimated the final costof cleaning up the Landfill to be approximately $ 11.9 million.
On or about March 14, 1990, Eric Sentz, Waste's controller for its York divisionrecontacted the Noels about purchasing Keystone. Discussions about the pro-posed transaction took place over the course of the nextyear. In April of 1990, Keystone ceased operating the Landfill. Keystone's solerevenues subsequent to theclosing of the Landfill derived from the collection and transportation of waste.
On June 18, 1991, Waste and Keystone entered into an "Agreement for the Exchange ofStock of WasteManagement, Inc. For Certain of the Assets of KeystoneSanitation Company, Inc. ("the Agreement"). Waste purchased Keystone's assets withWaste Management stock value at $ 3.1 million. Specifically excluded from theacquisition were Keystone's Landfill related assets
A. De Facto Merger and Substantial Continuation Doctrines
Courts have employed the de factor merger doctrine in the CERCLA context to imposeliability on corporations when the parties have obtained all the results of a mergerwithout complying with the statutory requirements for a de jure merger. AcushnetRiver, 712 F Supp. at 1015. The following four factors are considered in assessingwhether a sale of assets amounts to a de facto merger.
(1) There is a continuation of the enterprise of the sellercorporation, so that there is a continuity of management, personnel, physical location,assets, and general business operations.
(2) There is a continuity of stockholders which results from the purchasingcorporation paying for the acquiredassets with shares of its own stock, this stock ultimately coming to be held by theshareholders of the seller corporation so that they become a constituent part of the purchasing corporation.
(3) The sellercorporation ceases its ordinary business operations, liquidates,and dissolves as soon as legally practically possible.
(4) The purchasingcorporations assumes those obligations of the seller ordinarily necessary for theuninterrupted continuation of normal business operations of the seller corporation. ...
3. Keystone's Cessation of Ordinary Business Operations
The de facto merger doctrine requires that the seller cease its ordinary businessoperations, liquidate and dissolve as soon as legally and practically possible. The courtfinds that in essence, this aspect of the de facto merger test is met in the present case. Itis undisputedthat at the time of the sale, Keystone's sole business waswaste collection and hauling. Keystone sold all of its operating assets to Waste and nolonger possessed the equipment to run a waste collection and hauling business. After theacquisition, Keystone ceased its business operation. ...
4. Assumption of Keystone's Ordinary Business Obligations
Waste assumed the obligations necessary for the uninterrupted continuation of Keystone'snormal business operations. The Agreement provided that Waste agreed to "assume anddischarge when lawfully due those liabilities, contracts, commitments and otherobligations" of Keystone. In fact, as the court has already found, Waste successfullyprovided uninterrupted service to Keystone's customers after the sale.
5. Representations to the Public
Prior to the date of the acquisition, neither Waste nor Keystone notified Keystone'scustomers of the impend-ing sale. After the purchase, Waste sent three letters to former Keystone customerswhich represented either that, Keystone's Waste collection and hauling business hadmerged with Waste's or been purchased by Waste.
Although the court has found that pursuant to the de facto merger and substantialcontinuity test, the undisputed facts before the court merit the conclusion that Waste isKeystone's successor, there are facts not conform easily to either doctrine. For instance,it is clear from the evidence before the court that prior to the sale, both Waste and theNoels were aware of the likelihood of impending CERCLA litigation relating to theLandfill. At deposition, several of Waste's officers and directors conceded that Waste attempted tostructure the acquisition in order to minimize its liability. ...
(from deposition of KennethNoel)
: Was the reason you did not sell the landfill itself because Waste Management didn'twant to assume any liability for the site?
A: (by Kenneth Noel) Yes, Sir.
The court finds that no genuine issue of material fact exists which warrants a trial onthe issue of Waste Management's liability as a successor to Keystone Sanitation, Inc. Accordingly, the court will grant the Original Generator Defendants' and Third-PartyDefendants' motions for summary judgment on the issue of Waste's successor liability. Waste's motion for summary judgment will be denied. However, because the de factomerger and substantial continuity doctrines are equitable in nature, Acushnet River, 712F Supp. at 1015, the court will require Keystone's assets to be looked to first to satisfyits portion of CERCLA liability.
An appropriate order will be entered by the court.
SYLVIA H. RAMBO, Chief Judge Middle District of Pennsylvania
Dated: August 22, 1996.
Order Regarding Waste Management's Successor
Liability to Keystone Sanitation Company
ORDER
In accordance with the foregoing memorandum of law, IT IS HEREBY ORDEREDTHAT:
(1) Waste Management of Pennsylvania's motion for summary judgment on allclaims asserted, or deemed asserted, against it in this action on theories of successorliability to Keystone Sanitation Company, Inc. for the Keystone Landfill is denied;
(2) The Original Generator Defendants' motion for summary judgment that WasteManagement is the successor to Keystone Sanitation, Inc.'s CERCLA liability isGRANTED.
(3) The Third-Party Defendants' motion for summary judgment that WasteManagement is the successor to Keystone Sanitation, Inc.'s CERCLA liability isGRANTED.
(4) The Clerk of Court shall defer the entry of the judgments granted above until theconclusion of this case.
SYLVIA H. RAMBO, Chief Judge
Middle District of Pennsylvania
Dated: August 22, 1996.