Marsh v. Rosenbloom
| Citation | 499 F.3d 165 |
| Decision Date | 28 August 2007 |
| Docket Number | Docket No. 05-0706-cv (XAP).,Docket No. 05-0702-cv (XAP).,Docket Nos. 05-0514-cv (Lead).,Docket No. 05-0708-cv (XAP). |
| Parties | Langdon MARSH, as Acting Commissioner of the New York State Department of Environmental Conservation and Trustee of the Natural Resources and Michael D. Zagata, as Commissioner of the New York State Department of Environmental Conservation, Plaintiffs, State of New York and Denise M. Sheehan, as Acting Commissioner of the New York State Department of Environmental Conservation and Trustee of the Natural Resources, Plaintiffs-Appellants-Cross-Appellees, v. Daniel ROSENBLOOM, Firmanco Associates, First Manhattan Company, as distributees of the assets of Panex Industries, Inc., Andreas Gal, Norman Halper and Oliver Lazare, in their capacities as co-executors of the Estate of Paul Lazare and Goldman Sachs & Company, as distributees of the assets of Panex Industries, Inc., Defendants-Cross-Defendants-Appellees-Cross-Appellants, Panex Industries, Inc., Panex Industries, Inc. Liquidating Trust, Alpine Group, Inc., and Rochester Button Company, Inc., Defendant-Cross-Defendant, Dresser Industries Inc., Intervenor-Plaintiff-Movant, Turbodyne Electric Power Corporation, McGraw-Edison Company, Inc., Dresser-Rand Company, ABB Air Preheater, Inc., and Village of Wellsville, Defendants-Cross-Claimants-Cross-Defendants, Successor Panex Industries, Inc. Stockholders Liquidating Trust, Michael D. Debaecke, Esq., as Trustee of Successor Panex Industries, Inc. Stockholders Liquidating Trust, Defendants, Cooper Industries, Inc., Intervenor-Third Party-Defendant. |
| Court | United States Courts of Appeals. United States Court of Appeals (2nd Circuit) |
Gita F. Rothschild, law firm of McCarter & English, LLP, and Mark F. Rosenberg, law firm of Sullivan & Cromwell LLP, for Defendants-Cross-Defendants-Appellees, Cross-Appellants Daniel Rosenbloom, Firmanco Associates, and First Manhattan Company.
Robert L. Tofel and Mark A. Lopeman, Tofel & Partners, LLP, for Defendants-Cross-Defendants-Appellees, Cross-Appellants Andreas Gal, Estate of Paul Lazare, Norman Halper, Oliver Lazare.
Brian M. Cogan, Stroock & Stroock & Lavan LLP, for Defendant-Appellee-Cross-Appellant Goldman Sachs & Company.
Before: JACOBS, POOLER, and JOHN R. GIBSON,** Circuit Judges.
The State of New York appeals from orders of the United States District Court for the Western District of New York (Elfvin, J., District Judge) dismissing its claims against shareholder-distributees of Panex Industries, Inc., a dissolved Delaware corporation. The State asserted these claims several years after Panex had been dissolved, outside the corporate wind-up period established by Delaware General Corporation Law § 278 and before obtaining a judgment against Panex as required by Delaware General Corporation Law § 325(b), but the State argues that its claims are valid under the common law equitable trust fund doctrine. The shareholder-distributees cross-appeal from the district court's denial of a motion to dismiss the State's CERCLA claims against Panex and the summary judgment granted to the State on those claims. They argue that Delaware General Corporation Law § 278 governs and that Panex lacked capacity to be sued under the statute because it had been dissolved for over three years by the time the State notified Panex of its claims and filed suit. The district court found that CERCLA preempted section 278 in this instance.
The issues raised in this appeal are one chapter in a complex tale involving numerous parties. At the heart of the suit is the State's effort to recover $4.5 million in unreimbursed environmental response costs that it has paid to investigate and clean up the Wellsville-Andover Landfill site in Allegany County, New York.1
Panex Industries, Inc., was formed in 1981 under Delaware law as part of the reorganization plan of its predecessor company, Duplan Corporation. One of Duplan's operating divisions had been the Rochester Button Company, a manufacturing plant. In the early 1970s, Rochester Button used the Wellsville-Andover Landfill site to dispose of its industrial waste, placing much of it in a special disposal pit designated for Rochester Button's exclusive use. There was abundant evidence that Rochester Button made substantial deposits of hazardous waste at the landfill during the course of its operations. The New York State Department of Environmental Conservation ultimately determined that the site presented a significant threat to the public health and environment, and the State began incurring response costs in connection with its investigation of contamination at the site in April 1984.
Meanwhile, unaware of the contamination at the landfill site or of the State's recently commenced investigation, Panex's shareholders voted to dissolve the corporation on September 24, 1984. Panex filed its Certification of Dissolution effecting its formal dissolution under Delaware law on April 15, 1985. To facilitate the corporate wind-up, Panex's liquidation plan created a Stockholder's Liquidating Trust, which was intended in part to reduce tax liability arising after dissolution, see City Investing Co. Liquidating Trust v. Continental Casualty Co., 624 A.2d 1191, 1196 (Del.1993). Panex's former shareholders had received liquidating distributions totaling $64 million before the Trust was created. The Trust received $6 million in funding at its inception, and it distributed about $4.5 million to former shareholders in July 1987 when the statute of limitations had run on its 1982 and 1983 tax years and there were no other known Panex liabilities. In all, the shareholder-distributees received over $68 million in distributions. The defendant-appellees in this action were among those distributees.
Delaware General Corporation Law § 278 generally establishes a three-year continuation period, beginning at dissolution, for dissolved corporations to wind up their affairs and for unknown claimants to assert claims against the corporation. After this period, the corporation ceases to exist and lacks capacity to be sued. The State sent Panex formal notice of its claim for response costs at the landfill site in March 1988, but Panex did not receive the notice until April 25, 1988—just over three years after its dissolution (which occurred on April 15, 1985), thus just after the wind-up period expired. Upon receipt of this notice, the trustees of the Panex Trust extended the life of the Trust and postponed further distributions. For the next several years, the State conducted investigations at the site and, in 1994, formulated a remediation plan.
After adopting the remediation plan, the State filed this action in the Western District of New York against Panex, the Panex Trust, and the purchasers of the Rochester Button assets, among others, asserting federal claims under CERCLA and nuisance claims under New York law. On behalf of Panex, its trustees moved to dismiss, arguing that Delaware General Corporation Law § 278 barred all claims against Panex because the suit was filed more than three years after its dissolution. The district court dismissed the state-law nuisance claims but denied the motion to dismiss the CERCLA claims, holding that CERCLA preempted Delaware's statutory limit on the dissolved corporation's capacity to be sued.
In March 1997, the costs of defending this and another CERCLA lawsuit2 had depleted the Panex Trust further, and the district court granted the State leave to join Panex's shareholder-distributees as defendants in this action. The State asserts claims under the common law equitable trust fund doctrine, which allows claimants against a dissolved or insolvent corporation to follow the distributed assets of the corporation into the hands of its shareholders in order to satisfy the corporation's liability. See, e.g., Koch v. United States, 138 F.2d 850, 852 (10th Cir.1943).
Panex's shareholder-distributees moved to dismiss the claims against them under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). The district court granted the motion on October 2, 1997, ruling that the trust fund doctrine did not survive Delaware's enactment of section 278, which barred the State's claims because they were not brought within three years of Panex's dissolution. The district court also concluded that the State's claim against the shareholder-distributees was premature on the ground that Delaware General Corporation Law § 325(b) required the State to obtain a judgment against Panex and the Panex Trust, and have that judgment returned unsatisfied, before pursuing recovery from the shareholder-distributees, which the State had not done. The court rejected the State's argument that it should adopt the trust fund doctrine as a matter of federal common law under CERCLA, which would in turn preempt the Delaware statutes. As a result of this ruling, the shareholder-distributees were dismissed as defendants.
Seven years later, the district court granted summary judgment to the State on its CERCLA claims against Panex and the successor trust that had succeeded the Panex Trust, concluding that CERCLA preempts the Delaware statutory limits that otherwise would bar suit against the dissolved corporation. The district court's judgment held Panex and the successor trust jointly and severally liable to the State for $4,558,034.83 under CERCLA § 107, 42 U.S.C. § 9607, and declared that those entities were jointly and severally liable for all future response costs incurred by the State in cleaning up the site under CERCLA §§ 113(g)(2). Neither Panex nor the successor trust has any assets to pay the judgment, so, if the State is going to recover from anyone, it...
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