Court: District Court, W.D. Virginia; June 9, 2017; Federal District Court
Dixon Lumber Company (Dixon) and Austinville Limestone Company (ALC) own adjacent properties in Wythe County, Virginia, with Dixon's being known as 'Austin Meadows' and ALC's as 'the Austinville site.' Both companies purchased their land from Gulf Western Industries (G.W.), which previously operated a zinc and lead mine at the Austinville site through its division, New Jersey Zinc Company (NJZ). Before the acquisition, NJZ disposed of limestone tailings, a mining byproduct, on Austin Meadows. Dixon seeks to hold ALC liable for environmental issues related to these tailings under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA).
Currently, the court is considering cross-motions for partial summary judgment regarding whether ALC is a corporate successor to G.W. After reviewing the motions, the court concludes that ALC is not G.W.'s corporate successor. Historically, NJZ operated the mine from 1902 until 1981, extracting dolomitic limestone containing zinc and lead ore. The mining process involved drilling, blasting, and transporting the rock to a jaw crusher for processing. The output included two types of limestone: 'deads,' which were sold, and zinc and lead-containing rock that underwent further processing to separate the metals, resulting in waste tailings. NJZ disposed of these tailings, including on Austin Meadows, which is now the subject of the environmental liability claims. NJZ held specific environmental obligations, including an NPDES permit for monitoring discharges and a no-discharge certificate for Austin Meadows, which required remediation actions.
In fall 1981, G.W. announced the closure of NJZ’s underground mining operations at the Austinville site, terminating most of NJZ's employees and ceasing zinc and lead production. NJZ continued to sell agricultural limestone from existing stockpiles, retaining one employee for scale operations and using a contractor for heavy machinery. James River Limestone Company (JRLC) expressed interest in purchasing the property, leading to an offer for G.W.'s assets associated with NJZ’s operations after meetings and a site visit. On October 25, 1982, G.W. and JRLC executed a Purchase Agreement, which JRLC assigned to its subsidiary ALC. ALC agreed to purchase the Austinville property and tangible assets for $600,000, excluding certain items designated for other mines and including stockpiles of agricultural limestone. The agreement also included the transfer of environmental and reclamation licenses to ALC. A joint letter from NJZ and ALC to the State Water Control Board confirmed the property transfer and ALC’s assumption of compliance with NPDES Permit No. VA 0000272, noting the elimination of some discharges due to the mine's shutdown. ALC received a new permit (No. VA 0058424) after the purchase. Following the acquisition, ALC sold agricultural limestone from stockpiles and began preparations for its own mining operations, including dismantling NJZ's equipment to install new machinery and systems for its operations.
ALC transitioned to a 'dry' mining process after installing new equipment, ceasing operations at the underground NJZ mine and instead extracting dolomitic limestone from an open-faced quarry, initially managed by an independent contractor before ALC took over. The limestone was processed through newly installed Bradley presses and later, ALC added a bagging operation for agricultural limestone. In November 1984, Dixon purchased 2,071 acres from G.W., including Austin Meadows, for $800,000, unaware of an existing tailings pile and without assuming any environmental compliance obligations. In 1992, Dixon was notified by the State Water Control Board regarding environmental issues linked to the tailings pile and entered a consent agreement with the Department of Environmental Quality (DEQ) to remove it and reclaim the site by 1999. This agreement allowed Dixon to contract with ALC for tailings removal, which was extended through amended orders until 2015. Subsequent agreements between Dixon and ALC outlined responsibilities and royalties related to tailings processing. After a significant pollution event in June 2013, a letter agreement was established requiring both parties to develop a final reclamation plan, leading to a dispute over responsibility for reclamation costs. Dixon filed a lawsuit asserting ALC's liability as the corporate successor to NJZ for some reclamation costs.
The document also outlines the standard for summary judgment, indicating that it is appropriate when there is no genuine dispute of material fact and the movant is entitled to judgment as a matter of law, while emphasizing that evidence must be considered in favor of the non-movant. It notes that cross-motions for summary judgment should be assessed separately on their own merits.
Dixon raised three procedural challenges against ALC's motion for summary judgment: (1) ALC's motion lacked a separately-captioned statement of facts as required by Local Civil Rule 56(b); (2) certain arguments regarding NJZ’s and ALC’s histories were improper as they contradicted ALC’s corporate designee’s testimony; and (3) deposition testimony from three fact witnesses should be excluded due to ALC’s failure to disclose them under Federal Rule of Civil Procedure 26.
Regarding the first challenge, the court noted that ALC's initial brief did not include a separate statement of facts but contained cited factual claims. After Dixon highlighted this issue, ALC sought permission to file a supplemental statement of facts, which the court granted, allowing Dixon to respond. Despite Dixon's objections to ALC's supplemental statement, the court chose to overlook ALC's initial violation of Local Rule 56(b), citing its discretion in rule interpretation. The court emphasized that the purpose of the rule is to provide notice regarding undisputed material facts, and ALC's original brief had sufficiently communicated its factual contentions for Dixon to respond. Consequently, the court rejected Dixon’s argument regarding ALC's procedural non-compliance, as it did not significantly hinder Dixon's ability to address ALC’s motion.
Dixon argues that ALC's motion for summary judgment should be denied as it contradicts the deposition testimony of Kevin Mann, ALC’s President and corporate designee. Dixon highlights Mann's claimed ignorance regarding the corporate histories and operations of NJZ and G.W. at the Austinville site, the corporate history of ALC from 1910 to 1996, and the equipment transferred from NJZ to JRLC. ALC's motion attempts to assert knowledge of these operations post-1982 purchase agreement, which Dixon argues is inconsistent with Mann's deposition denials.
Under Rule 30(b)(6), a corporate designee must testify about information known or reasonably available to the corporation, intended to prevent 'bandying' where multiple representatives disclaim knowledge of known facts. Courts typically disregard subsequent affidavits contradicting a designee's testimony or claiming knowledge on subjects where ignorance was previously asserted. However, not all contradictions warrant exclusion; courts allow for different individuals within a corporation to have varying knowledge based on their roles, provided there is no intent to mislead or ambush the discovery process.
In summary, Dixon's claim rests on the principle that a corporation is bound by the testimony of its designated representative, and ALC's assertions in its motion may be legally precluded due to prior denials of knowledge by its designee.
The court concludes that there is no basis for excluding ALC’s evidence under Rule 30. Mann's denial of personal knowledge regarding ALC I’s operations does not breach Rule 30(b)(6) since he can testify based on documents or discussions, as supported by Weinstein. Despite Dixon's claims of inadequate preparation, Mann reviewed discovery documents and observed depositions of relevant former employees, indicating sufficient preparation. The court finds no evidence of ALC manipulating the discovery process or engaging in 'bandying' as prohibited by Rule 30(b)(6). Dixon’s assertion that ALC cannot present evidence from other sources contradicts the rule, which allows companies to draw on evidence from other sources even if they deny personal knowledge. The court emphasizes that the testimonies of former NJZ employees, which ALC relies on, were available before Mann’s deposition and do not violate the rule.
Regarding Dixon’s argument about ALC's failure to disclose witnesses, the court notes that ALC identified Roger Parnell, Robert Reynolds, and Douglas Akers in its interrogatory responses and deposition notices, which may have been sufficient under Rule 26. Even if it wasn’t, the failure to formally supplement disclosures was harmless, as Dixon had already identified Akers as a knowledgeable witness in its own disclosures. Therefore, the court rejects Dixon’s arguments on both fronts.
Dixon deposed three witnesses and extensively used their testimony to support its summary judgment motion, which ALC also relied on, preventing any surprise or prejudice to Dixon. The court finds no reason to exclude these witnesses in considering ALC's summary judgment motion.
The substantive issue at hand is whether ALC is a successor to G.W. regarding CERCLA liability. The Fourth Circuit allows for corporate successor liability under CERCLA, and since the law does not specify successor liability, common law principles are applied. A corporation does not inherit liabilities from a predecessor unless there is an express or implied agreement to assume them, the transaction qualifies as a de facto merger, the successor is a mere continuation of the predecessor, or the transaction is fraudulent.
Dixon does not argue that ALC's purchase constitutes a de facto merger or is fraudulent, focusing instead on explicit and implied assumption theories. The court will evaluate three sub-issues: 1) whether ALC explicitly assumed NJZ’s environmental liabilities in the Purchase Agreement; 2) whether such liabilities were impliedly assumed in a letter to G.W. representatives and communications with the State Water Control Board; and 3) if ALC is merely a continuation of G.W.'s operations at the Austinville site.
Regarding explicit assumption, the court will interpret the Purchase Agreement under Virginia contract law to ascertain whether environmental responsibilities were allocated to ALC. The court aims to determine the parties' intent based on the contract's language and will construe it according to its plain meaning if the terms are clear and unambiguous.
Contract language should be interpreted using its usual and ordinary meaning, ensuring a holistic view of all provisions. Courts maintain that no word or clause is deemed meaningless if it can be reasonably interpreted, and there is an assumption that parties use language purposefully. In cases of vagueness or ambiguity, extrinsic evidence may be considered, but disagreement over interpretation does not inherently indicate ambiguity. Ambiguity arises only when a term can have multiple reasonable meanings; unreasonable interpretations do not prevent summary judgment.
In this case, the court must clarify the environmental liabilities transferred to ALC as outlined in the Purchase Agreement, particularly regarding responsibility for Austin Meadows. Relevant provisions include:
- Paragraph 5: Seller transfers all relevant permits and licenses effective from October 25, 1982, and both parties will cooperate in this transfer. The Buyer must comply with applicable regulations from that date.
- Paragraph 9: The Buyer agrees to maintain the premises and ensure compliance to prevent violations affecting Seller's adjacent land, specifically regarding the No-Discharge Certificate related to Austin Meadows.
Additionally, a letter amendment from November 15, 1982, stipulates that all Seller's records on the premises remain their property, with provisions for access and copying by the Buyer.
Dixon contends that the Purchase Agreement transfers all environmental liabilities of NJZ to ALC, specifically including obligations related to No-Discharge Certificate No. IW-ND-1026, which requires monitoring discharges and regrading at Austin Meadows. In contrast, ALC argues that its assumption of liabilities is limited to those affecting the Austinville site and commencing from the transfer date of October 25, 1982. The court aligns with ALC's interpretation, noting that paragraph five of the agreement clearly restricts ALC's responsibilities to environmental obligations linked to the Austinville site. This includes obligations stemming from NPDES Permit No. VA 0000272 but excludes the No-Discharge Certificate, which pertains solely to Austin Meadows.
Paragraph nine further supports this interpretation by stipulating that ALC must operate the Austinville site without causing NJZ to violate adjacent land obligations, indicating that ALC did not assume responsibilities under the No-Discharge Certificate. The court asserts that if ALC had taken on these obligations, the provisions of paragraph nine would be rendered meaningless. Dixon's argument, which relies on a broad reading of the first sentence of paragraph five to include all environmental permits, is rejected as it contradicts the context provided by the rest of the agreement. Additionally, Dixon's reference to paragraph three of a letter amendment regarding access to environmental records does not substantiate a broader assumption of liabilities by ALC. Ultimately, the court concludes that the Purchase Agreement clearly limits ALC's environmental obligations to those related to the Austinville site, excluding the No-Discharge Certificate liabilities.
ALC's potential assumption of liabilities related to Austin Meadows is negated by the specifics of the records referenced in the amendment, which only pertain to waste-discharge and hazardous-waste studies related to the Austinville site. The term "said premises" explicitly refers to the site being conveyed to the Buyer, not to Austin Meadows. Therefore, even if ALC had assumed responsibility for environmental liabilities tied to those records, it would not extend to Austin Meadows.
Dixon's claim that ALC implicitly assumed NJZ’s environmental liabilities is also rejected. He argues that the absence of an explicit disclaimer of successor liability in the Purchase Agreement signifies ALC's intent to assume such liabilities. However, the court upholds the principle that a corporation acquiring another's assets typically does not inherit its liabilities, as established in PCS Nitrogen. Consequently, the lack of a disclaimer does not support an inference of ALC assuming NJZ’s CERCLA liabilities.
Dixon's reliance on two documents to support his claim of implied assumption of liability fails, as neither indicates ALC's intention to assume responsibility for Austin Meadows. The first document, a letter from JRLC to G.W., raises concerns about environmental liabilities associated with waste piles but does not imply liability assumption by ALC. Thus, the court concludes that the Purchase Agreement does not transfer NJZ's liabilities under the No-Discharge Certificate to ALC, nor does it support an implicit assumption of those liabilities.
An additional payment of twenty-five cents per ton will be made for each ton sold from the "Bunker Hill" stockpile. Dixon claims that the "40-acre mass" referenced must be Austin Meadows, the only tailings pile described by acreage and adjacent to a dam, implying that ALC assumed liability for it. The court disagrees, noting that Austin Meadows is only 28.5 acres, whereas Bunker Hill is larger. Testimony from a former NJZ employee indicated that fines were not moved from Bunker Hill due to concerns about a dam failure. The court clarifies that Wells was discussing Bunker Hill throughout the letter, not Austin Meadows, as evidenced by the absence of any mention of Austin Meadows and the context of price negotiation for Bunker Hill. Additionally, the Purchase Agreement specifies that NJZ retained responsibility for the No-Discharge Certificate concerning Austin Meadows, undermining Dixon's argument.
Dixon further contends that a joint letter from ALC and NJZ to the State Water Control Board implies ALC assumed liability for Austin Meadows. However, the letter, which details the transfer of permit responsibilities, clarifies that NJZ retained responsibility for one discharge and that ALC assumed responsibility for other discharges related to the Austinville site. Consequently, the court concludes that the letter does not suggest ALC intended to assume liabilities associated with Austin Meadows.
Lastly, the court examines whether ALC is a "mere continuation" of G. W/NJZ under common law successor liability principles. The "mere continuation" theory applies if, after asset transfer, only one corporation remains with an identity of stock, stockholders, and directors. Various factors are considered, with identity of ownership being the most significant.
Key points include the comparison of the nature and scope of two businesses, the evaluation of asset transfers for inadequate consideration, the existence of two separate entities post-transaction, and whether the new company retains the same operational characteristics as the old company, such as physical location and contact details. The legal principles from case law emphasize that the mere continuation doctrine requires a common-sense analysis rather than a strict multi-factor test, with identity of ownership being the most critical factor. Courts have consistently ruled that without any overlap in stock ownership, a new company cannot be deemed a mere continuation of its predecessor. In this instance, the court concluded that ALC is not a mere continuation of G. W/NJZ due to the absence of any shared ownership. Additionally, even when considering other relevant factors, they do not support a finding of mere continuation of operations from G. W/NJZ to ALC.
Similarities exist between NJZ and ALC, such as both operating mining activities at the Austinville site and producing agricultural limestone, with ALC selling limestone stockpiled by NJZ. However, the fundamental corporate structures differ significantly; NJZ primarily engaged in zinc and lead mining, while ALC solely focused on agricultural limestone, employing distinct production processes. ALC did not reopen NJZ’s underground mine and removed NJZ's mining equipment. Thus, the similarities do not support ALC being a successor to NJZ.
Under the traditional test, ALC cannot be considered a continuation of NJZ. The Fourth Circuit has adopted a broader "continuity of enterprise" test for successor liability under CERCLA, which includes an eight-part assessment: retention of employees, supervisory personnel, production facilities, product, name, continuity of assets, general business operations, and whether the successor presents itself as a continuation of the previous enterprise. Notably, ALC and NJZ's lack of common ownership is not decisive under this alternative theory.
However, the applicability of this substantial continuity test has been questioned following the U.S. Supreme Court's decision in United States v. Bestfoods. The Bestfoods case clarified that CERCLA does not address subsidiary liability and emphasized that, to override common law, a statute must explicitly address the issue. The Court ruled that a parent company could only be liable for a subsidiary's actions if the corporate veil is pierced. Subsequent interpretations of Bestfoods, such as in New York v. Nat’l Servs. Indus., suggest that the substantial continuity test may no longer be valid for determining successor liability under CERCLA, advocating for adherence to common law principles rather than creating specific CERCLA rules.
Numerous courts have interpreted the Bestfoods decision to question the validity of the substantial continuity test in successor liability cases. Although the Fourth Circuit has not specifically addressed Bestfoods's impact on this test in the context of CERCLA, other recent rulings suggest it aligns with the Second Circuit's views in National Services Industries. Notably, the Fourth Circuit rejected the substantial continuity test in a False Claims Act case, emphasizing that the statute does not address successor liability and thus does not alter traditional common law principles governing it. Consequently, the substantial continuity theory, which diverges from the common law mere continuation rule, is deemed unviable. The court concludes that the Fourth Circuit would not apply the substantial continuity test for determining CERCLA successors, necessitating reliance on common law rules instead. Since ALC does not qualify as G. W.'s successor under the mere continuation test, ALC is not liable under CERCLA.
In the conclusion, ALC's motion for partial summary judgment is granted while Dixon's motion is denied. Dixon's claim that NJZ merged with G. W. lacks citation and is unsupported by clear evidence regarding the timeline of tailings disposal at Austin Meadows. Testimonies from former NJZ employees provide conflicting information about the timing of the tailings disposal. Additionally, a preliminary engineering report indicates Austin Meadows has been inactive since the early 1970s. It is acknowledged that the current ALC is a successor to the original ALC, as it was purchased by JRLC employees in 1996, and the court will refer to both entities interchangeably as ALC for clarity.
The court distinguishes between two companies by labeling the JRLC subsidiary as ALC I and the current entity as ALC II. Mann denied any knowledge of NJZ and G. W's operations and corporate history regarding the Austinville site. ALC II could not reasonably access 70 years of corporate history from another company that ceased most operations at that site nearly a year before JRLC's acquisition and over fourteen years prior to ALC II's operations. The parties did not address whether state or federal common law applies; however, Virginia law limits successor liability to circumstances outlined in PCS Nitrogen, referencing Harris v. T.I. Inc. The court does not need to resolve whether federal or Virginia state law’s “mere continuation test” applies, as both tests are functionally identical. Additionally, since the Supreme Court of Virginia has dismissed the substantial continuity test, the court is not required to determine the governing law on this matter.
