66 CBJ 397. The Liability of Dissolved Corporations Under Cercla the Importance of Being 'Dead and Buried'.

AuthorBy ROBERT D. SNOOK

Connecticut Bar Journal

Volume 66.

66 CBJ 397.

The Liability of Dissolved Corporations Under Cercla the Importance of Being "Dead and Buried"

397The Liability of Dissolved Corporations Under Cercla the Importance of Being "Dead and Buried"By ROBERT D. SNOOK(fn*) Each year large numbers of Connecticut corporations file notices of dissolution pursuant to Connecticut General Statutes 33-375 to 388.(fn1) Some of these corporations have either actively participated in the transport or disposal of hazardous substances or have owned property contaminated, inadvertently or otherwise, by hazardous waste. For an attorney advising a corporate client seeking to dissolve, or counseling shareholders receiving a distribution of the assets of a dissolved corporation, the question presents itself whether a corporation dissolved pursuant to Connecticut law, or its shareholder-distributees, may be liable for the costs of cleaning up hazardous waste discovered years after dissolution and windup. While federal statutory law does not directly address this issue, and the existing decisional law is at best ambiguous, several courts addressing this question have held that liability for the cost of cleanup does attach to dissolved corporations and/or their shareholder distributees. Unfortunately, the available decisions have not been entirely consistent, either in result or in the theory under which liability was imposed. The result of this inconsistency is that the extent of liability for a dissolved corporation is difficult to predict and practitioners and businesses seeking to comply with federal law are left substantially without guidance in making critical decisions.

This article will be divided into three parts. The first examines briefly the extent of statutory liability under the Comprehensive Environmental Response Compensation and Liability Act ("CERCLA") and the general principles of law regarding the capacity of dissolved corporations to be sued. The second part analyzes those cases that have interpreted the

398liability provisions of CERCLA in the context of dissolved corporations and demonstrates that these decisions can be broken down into two broad categories. The first category finds that state dissolution law controls the capacity of a corporation to be sued. Generally, this results in a finding that a defunct corporation cannot be sued under CERCLA. The second group concludes that state dissolution laws, to the extent they limit CERCLA liability, conflict with Congress's intent with respect to the federal statute and are therefore impliedly preempted by federal law. The third section of this article discusses several points a practitioner may wish to consider in advising clients involved in a corporate dissolution. These points include: encouraging a client to comply rigorously with state dissolution procedures, obtaining insurance to the extent possible and establishing a trust fund consisting of a portion of the corporation's residual assets to guard against contingent environmental liability. In addition, this article advances several arguments a practitioner may wish to employ if matters proceed to litigation. These include arguing that state law does not conflict with CERCLA or that CERCLA itself does not impose liability upon corporations that have ceased to exist.

  1. GENERAL PRINCIPLES

    1. Liability Under CERCLA

      Liability under federal law for the costs of hazardous waste cleanup is controlled primarily by the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA" or "Superfund").(fn2) CERCLA permits the government to act immediately to clean up hazardous waste spills and then bill the responsible parties or, in the alternative, to compel the owners or operators to clean up the released wastes themselves.(fn3)

      Liability under CERCLA is controlled by § 107.(fn4) The key elements of § 107 are defined broadly.(fn5) "Facility" is defined as any place where hazardous substances come to be located."(fn6) The term "release" includes "spilling, leaking, pumping, pouring,

      399emitting, emptying, discharging, injecting, escaping, leaching, dumping, or disposing" toxic waste into the air, water or soil.(fn7)

      Section 107 imposes liability on "(1) the owner and operator of a ... facility, (2) any person who at the time of disposal of any hazardous substance owned or operated any facility . . . . (3) any person who by contract, agreement, or otherwise arranged for the disposal or treatment, or arranged with a transporter for transport for disposal or treatment of hazardous wastes, . . . and (4) any person who accepts ... any hazardous substances for transport...."(fn8) Liability under CERCLA is imposed to the extent of "(A) all costs of ... remedial action incurred by the United States Government or a State ... (13) any other necessary costs of response incurred by any other person consistent with the national contingency plan . . . . "(fn9) Thus the text of the statute, by its terms, creates a comprehensive liability scheme involving parties both past and present and associated by contract, ownership or business activity with the disposal of hazardous substances.

      After examining the extent of the statutory liability scheme and the available legislative history, courts have concluded that Congress intended CERCLA to have two basic goals. "First, Congress intended to provide the federal government with the tools immediately necessary for a swift and effective response to hazardous waste sites. Second, Congress intended that those responsible for disposal of chemical poisons bear the cost and responsibility for remedying the harmful conditions they created."(fn10) Consistent with this understanding of Congress's purpose, courts have refused to "interpret section 9607(a) in any way that apparently frustrates the statute's goals .... Moreover, the remedial nature of CERCLA's scheme requires the courts to interpret its provisions broadly to avoid frustrating the legislative purposes."(fn11) As a result, courts, when called upon to interpret statutory terms, have been willing to expand the already generous classes of potentially responsible parties.

      For example, the term owners" has been expanded judicially to include not just title owners but those possessing

      400lesser interests in land. Furthermore, in defining "owners" the courts have focused not only on those with formal title ownership, but have examined the degree of control over the site or operation exercised by the defendant.(fn12) If the defendants exercised sufficient authority over disposal decisions, or simply had the capacity to do so, courts have been willing to find them within the terms of the Act.(fn13) Consequently, courts have found landlords, tenants, sublessors and lending institutions holding security interests to be "owners" as defined by CERCLA.(fn14)

      The consequences of falling within one of CERCLA's categories of responsible parties are serious. Liability under the Act is strict,(fn15) joint and several,(fn16) and retroactive.(fn17) In addition, liability may be imposed upon individuals as well as corporations.(fn18) Thus "[fln a Section 107 case the plaintiff need only prove a nexus between the defendant and the site to establish liability. The effect of a joint and several liability is to eliminate the need to prove causation."(fn19)

      Because liability is joint and several and imposed without regard to fault,(fn20) the Environmental Protection Agency ("EPA") has great discretion in choosing the parties it wishes to pursue. As one author has said of this liability scheme: "This means the government can go for the 'deep pocket' or the easiest target in pursuing a recovery under CERCLA. Such an approach gives maximum flexibility to the government while shifting to the defendant the burden and expense of tracking down other potential parties for indemnification or contribution."(fn21) This, of course, is of great importance to the shareholders of dissolved corporations because, even though there may be private parties more directly responsible, the EPA can choose to go after a single defunct corporation as a perceived "deep pocket" rather than

      401pursue a large number of the individual defendants who actually caused the release.

      Defendants are afforded only the most limited of protections under CERCLA. Section 107 lists three defenses. A potentially liable party may be exculpated only if be can demonstrate that the release resulted solely from an act of God, an act of war or an act of a third party not in a contractual relationship with the defendant.(fn22) In addition, CERCLA excludes from the definition of "owner" a party holding an interest in land solely as a security interest. These affirmative defenses have been described as "extremely limited."(fn23)

      An important further concern for any potential defendant is CERCLA's textual ambiguity and the inherent uncertainty this creates in fixing the limits of liability under the

      402Act. CERCLA was created as a compromise bill in the last hours of a lame duck session of Congress and several courts have commented on the resulting lapses in its drafting. The statute has been described as "a hastily conceived and briefly debated piece of legislation '114 ... [that] failed to address many important issues .... "(fn24) The section of the Act dealing with liability has specifically been described as "not a model of statutory clarity."(fn25)

      The textual obscurity of CERCLA's liability provisions creates...

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