The Successor Agency to The Former Emeryville Redevelopment Agency and The City…

Background

The Successor Agency to the Former Emeryville Redevelopment Agency and the City of Emeryville, collectively called Emeryville, brought claims under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) concerning contamination at the former Marchant Whitney site in Emeryville, California. Marchant operated a calculator-manufacturing business at the site from 1917 until about 1958. The site is polluted with several chemicals, most prominently trichloroethylene.

Marchant merged with Smith-Corona Corporation in 1958, creating SCM, which sold the site in 1959. The opinion describes later corporate transactions involving SCM, HBML, and other entities. SCM’s businesses were distributed among multiple companies, while environmental liabilities were eventually associated with HSCM-20 and later entities. The parties did not dispute that HM Holdings succeeded to SCM’s Marchant liabilities, that HM Holdings later became Millennium Holdings, and that Emeryville could not collect a CERCLA judgment against Millennium for its violations. The parties also did not dispute that HBML did not know about the specific former Marchant Whitney site or the specific Marchant liabilities when SCM was acquired, and that the TCE contamination was not discovered until Emeryville began testing in the 1990s.

HBML moved for summary judgment on Emeryville’s CERCLA claims. Summary judgment is appropriate only when there is no genuine dispute about a fact that could affect the result and the moving party is entitled to judgment under the law. The court must leave credibility decisions and weighing competing evidence to the factfinder.

Alter-Ego Liability

An alter-ego theory asks whether a parent and subsidiary functioned so closely that the corporate separation should be disregarded. Under California law, Emeryville had to show both unity of interest and ownership and that respecting the corporation’s separate existence would sanction fraud or promote injustice. Both elements are required, and the determination is fact-specific.

The court held that California corporate law applied. It reasoned that California had the strongest interest because the contamination occurred there, the harm affected California residents, businesses, and governments, and cleanup efforts would take place there. The court concluded that applying either California or federal choice-of-law principles led to California substantive law.

HBML did not contest the unity-of-interest element for purposes of its motion, but argued that the evidence did not establish the required inequitable conduct. Emeryville presented evidence that HBML knew or was at least willfully blind to the risk that acquiring SCM would bring environmental liabilities; failed to investigate further despite available information about Marchant and potential superfund liabilities; controlled or funded the acquisition through subsidiaries; helped design the later corporate structure; transferred environmental liabilities through that structure; and profited from the acquisition and subsequent transactions.

The court found that this evidence could allow a factfinder to conclude that HBML used the corporate structure to circumvent CERCLA or accomplish a wrongful or inequitable purpose. The court also rejected HBML’s argument that the specific contamination was unknown and therefore could not have been circumvented. In the court’s view, the relevant evidence concerned HBML’s awareness of environmental liabilities generally and its alleged decision to avoid addressing liabilities it suspected or was willfully blind to.

The court therefore found sufficient evidence for a jury to decide whether the corporate veil should be pierced under the alter-ego doctrine. HBML’s motion for summary judgment on that theory was DENIED.

Successor Liability

The court explained that, under CERCLA and the applicable law, an asset purchaser may become a successor corporation if it expressly or impliedly agrees to assume the predecessor’s liability or if the transaction amounts to a de-facto consolidation or merger. A stock purchase alone does not establish successor liability, but successor liability may exist without a conventional asset-purchase agreement when the transaction effectively transfers the predecessor’s assets and liabilities.

The court concluded that the transactions involving SCM could be treated as an asset purchase for successor-liability purposes. Although the acquisition was structured through stock purchases and subsidiaries, Emeryville presented evidence that HBML controlled and funded the acquisition, controlled the distribution of SCM’s businesses and assets, and helped create the structure through which assets and liabilities were transferred. A factfinder could therefore determine that SCM’s assets were transferred to HBML rather than merely to separate subsidiaries.

Implied Assumption of Liability

The court held that language transferring “all liabilities” generally includes environmental liabilities, even when particular liabilities are unknown, unless the agreement clearly and specifically excludes them. The opinion states that all of SCM’s liabilities were transferred through the later corporate structure and that the Marchant environmental liabilities were included in that group.

Emeryville also presented evidence that HBML planned, executed, and funded SCM’s acquisition; characterized the acquisition as a merger between SCM and HBML; understood that SCM’s liabilities were being assumed; controlled major changes to SCM’s business structure; knew of potential environmental risks; and benefited from the subsequent transactions. The court found that a factfinder could conclude from all the circumstances that HBML, rather than only HM Holdings or another subsidiary, impliedly assumed SCM’s Marchant liability.

Because genuine disputes of material fact remained, HBML’s motion for summary judgment on implied assumption of successor liability was DENIED.

De-Facto Merger Theory

The court granted summary judgment concerning Emeryville’s de-facto-merger theory. Emeryville had raised that theory for the first time in opposition to the summary-judgment motion, and HBML had not received notice of it in the complaint despite opportunities to amend and litigate the pleadings.

The court acknowledged that the theory relied on some of the same facts as the other theories, but concluded that it required analysis of different facts and elements. Allowing Emeryville to proceed on that theory at that stage would be unfair to HBML. The court also noted that the claims survived under the implied-assumption theory. HBML’s motion was therefore GRANTED as to the de-facto-merger theory.

Other Motion

HBML moved in its reply to strike an Emeryville expert declaration concerning undercapitalization. The court did not rely on that declaration and concluded that Emeryville had not had an opportunity to respond to the request. The request to strike was DENIED without prejudice.

Disposition

Judge William H. Orrick ordered that HBML’s motion for summary judgment was GRANTED in part and DENIED in part. The motion was denied on the alter-ego and implied-assumption theories, granted on the de-facto-merger theory, and the request to strike the expert declaration was denied without prejudice.