Corporate Successor Liability for Environmental and Toxic Tort Claims-part I
| Publication year | 1990 |
| Pages | 867 |
| Citation | Vol. 19 No. 5 Pg. 867 |
1990, May, Pg. 867. Corporate Successor Liability for Environmental and Toxic Tort Claims-Part I
Liability for corporate successors has become more prevalent as an issue before the courts, specifically regarding environmental torts. The precedent set forth in products liability cases has been relied on to encompass environmental tort cases. Under traditional principles of corporate law, the structure of the acquisition is the premise for successor liability. However, the structure of the acquisition has lost its impact on the imposition of corporate successor liability for environmental torts. Corporate acquisitions involving assets transfers are particularly vulnerable to the exceptions of the traditional rule of corporate successor liability.
Takeovers or purchases by acquiring companies can occur as the result of mergers or consolidations, asset purchases or stock purchases.(fn1) These corporate acquisitions may be structured to mitigate the potential incurrence of successor liability. Part I of this article discusses the traditional corporate law principles that guide successor liability in mergers and consolidations and the traditional nonliability for corporations purchasing assets. It also examines two of the four well-established exceptions to the general rule of nonliability for the purchasing corporation. Part II, to be published in the June 1990 issue of The Colorado Lawyer, will continue the examination of these exceptions and will touch on the issue of strict liability in environmental torts.
Traditional corporate law principles hold that the successor corporation is liable for the debts, contracts and torts of its predecessor in a merger or consolidation. The well-established rules on mergers provide that liability will be imposed on the surviving corporation which assumes the debts and liabilities of the absorbed (non-surviving) corporation. In a consolidation, the new corporation assumes the debts and liabilities of its constituent corporations. Generally, state law regarding mergers and consolidations is provided by statute.(fn2)
In Smith Land & Improvement Corp. v. Celotex Corp.,(fn3) the defendants were purportedly successors to the Philip Carey Co., which held asbestos-contaminated property that became a "Superfund" site. As a successor corporation, the defendants became potentially responsible parties for the costs incurred to remediate the site. The Third Circuit Court of Appeals found that a statutory merger or consolidation had occurred. The court summarized that the imposition of successor liability on corporations which either merged or consolidated was applicable in Superfund actions.(fn4)
The traditional rule of corporate law for successor liability sets forth that a corporation acquiring all or part of the assets of another corporation does not assume the liabilities and debts of the predecessor. If one corporation sells all of its assets to another corporation, the purchasing corporation generally is exempt from the selling corporation's debts and liabilities.(fn5)
The general rule of nonliability for the purchasing corporation in an asset transfer is subject to four well-established exceptions. In an asset transfer, liability may attach (1) when there is an express or implied assumption of liabilities; (2) when the transaction amounts to a consolidation or merger; (3) when the successor is a mere continuation of the predecessor; or (4) when the transaction is fraudulent, not made in good
These exceptions were premised on traditional corporate...
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