United States v. Gen. Battery Corp. - 423 F.3d 294 (3d Cir. 2005)

Rule:

The second standard of the "de facto merger" exception requires continuity rather than identity of ownership, corresponds with the general purposes of the successor liability doctrine. The overriding goal of successor liability, and of the de facto merger inquiry, is to balance the interest in preventing tortfeasors from externalizing the costs of their misconduct with the interest in a fluid market in corporate assets. The continuity of shareholders element is designed to identify situations where the shareholders of a seller corporation retain some ownership interest in their assets after cleansing those assets of liability. Successor liability in this context accords a legal remedy to injured third-parties, preventing the externalization of the seller's costs of doing business, and deterring transactions designed to impose the costs of misconduct on third-parties.

Facts:

Environmental response costs were incurred by the United States at a lead-contaminated Superfund site. A now defunct corporation disposed of battery casings, and the Environmental Protection Agency (EPA) determined that the defunct corporation was responsible for lead contamination. The United States filed the action against the successor corporation, alleging that it was responsible for the defunct corporation's CERCLA liability as a successor in interest. The parties agreed that the successor company was the actual successor. The issue was whether the initial successor was a successor to the defunct company. The district court held that the transaction between the initial successor and the defunct company constituted a common law de facto merger. It determined that the present successor was a successor in interest under CERCLA.

Issue:

Was the initial successor a successor to the defunct company?

Answer:

Yes.

Conclusion:

The court addressed the four elements that were necessary to establish to determine a de facto merger had occurred. The court found that all elements had been established. The court held that the initial successor and the present successor were successors to the defunct company and that they were responsible for the CERCLA liability of their predecessor.