Corporate Successor Liability for Environmental and Toxic Tort Claims-part Ii
| Publication year | 1990 |
| Pages | 1085 |
| Citation | Vol. 19 No. 6 Pg. 1085 |
1990, June, Pg. 1085. Corporate Successor Liability for Environmental and Toxic Tort Claims-Part II
Because of the increase in the number of cases concerning liability for corporate successors in environmental torts, as well as the potentially high cost of such liability, attorneys in this area should be aware of the law regarding successor liability. Part I of this article [published at 19 The Colorado Lawyer 867 (May 1990)] discussed the traditional principles of corporate successor liability and two exceptions to those principles, the express assumption exception and the merger exception (including the de facto merger doctrine). The article concludes with this Part II, which explains the two additional exceptions---the continuation and fraud exceptions---as well as the issue of strict liability.
Successor liability using the "mere continuation" theory is based on the premise that, despite the change in name or form, the successor corporation has virtually the same identity as the predecessor. The central theme supporting the mere continuation theory is the emphasis on the continuation of the corporate entity, rather than the continuation of business operations.(fn1)
In applying the traditional mere continuation exception, critical factors include continuity of shareholders, directors, officers and business operations.(fn2) To reach a finding that a successor is a mere continuation of a predecessor, a court may consider whether (1) all or a large portion of the assets of the predecessor were purchased by the successor or (2) the predecessor went out of business at the time of the sale of its assets or shortly thereafter.
"Spin-off" corporations were found to be mere continuations of the selling corporation in a ruling from the U.S. District Court for the Western District of Michigan in the 1988 case of Michigan v. Thomas Solvent Co.(fn3) The Thomas Solvent plant was purported to be a source of contamination of the Vernona Well Field, which supplies drinking water to the Battle Creek, Michigan, area. The company spun off four corporations, which were conveyed the assets of the original Thomas Solvent Company. The court ruled that the spin-off corporations merely continued the business of the original corporation and imposed liability on the corporations as successors.(fn4)
The continuity of enterprise theory emphasizes the continuation of the entire business operation, rather than the mere continuity of the corporate entity represented by its officers, directors and shareholders.(fn5) Continuity of enterprise is indicative of the courts' attempt to address the competing issues between corporate and tort law. Where the successor corporation acquires all or essentially all of the assets of the predecessor corporation for cash and continues essentially the same operation as the predecessor corporation, the successor incurs liability for the damages resulting from any discharges of hazardous substances from its predecessors.(fn6)
In Cyr v. B. Offen & Co.,(fn7) a case dealing with products liability, the guidelines were set initially for presenting continuity of enterprise issues as a means to...
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