Philadelphia Elec. Co. v. Hercules, Inc.

• Decision Date: 18 June 1985
• Docket Number: No. 84-1159,84-1159
• Citation: 762 F.2d 303
• Parties: , 15 Envtl. L. Rep. 20,554 PHILADELPHIA ELECTRIC COMPANY v. HERCULES, INC. and Gould, Inc. Appeal of HERCULES, INC.
• Court: U.S. Court of Appeals — Third Circuit

Page 303

762 F.2d 303

22 ERC 1865, 15 Envtl. L. Rep. 20,554

PHILADELPHIA ELECTRIC COMPANY v. HERCULES, INC. and Gould, Inc.

Appeal of HERCULES, INC.

No. 84-1159.

United States Court of Appeals Third Circuit.

Argued Dec. 14, 1984.

Decided May 28, 1985.

As Amended June 18, 1985.

John Gerald Gleeson (Argued), Wilmington, Del., Joseph G. Manta, John C. Sullivan, Frumkin & Manta, Philadelphia, Pa., for Hercules, Inc.

Joseph M. Donley (Argued), Robert Emmet Hernan, Kittredge, Kauffman & Donley, Philadelphia, Pa., for Philadelphia Elec. Co.

Kean K. McDonald, LaBrum & Doak, Philadelphia, Pa., for Gould, Inc.

Before GARTH and HIGGINBOTHAM, Circuit Judges, and McCUNE, District Judge. ^*

OPINION OF THE COURT

A. LEON HIGGINBOTHAM, Jr., Circuit Judge.

This is an appeal from a final judgment of the district court in favor of Philadelphia Electric Company ("PECO") and against Hercules, Inc. ("Hercules") in the amount of $394,910.14, and further ordering Hercules to take all appropriate action to eliminate pollution on a property owned by PECO in Chester, Pennsylvania. The case was tried to a jury on theories of public and private nuisance. For the reasons set forth in the opinion that follows, we will reverse the judgment against Hercules on PECO's claims, and vacate the injunction.

I.

Prior to October of 1971, the Pennsylvania Industrial Chemical Corporation ("PICCO") owned a tract of land abutting the Delaware River in Chester, Pennsylvania where it operated a hydrocarbon resin manufacturing plant. At the time PICCO acquired the property ("the Chester site") there was an inlet located at the southern end that opened into the Delaware River. Sometime later PICCO filled in the shoreline at the inlet and thereby created a lake ("the PICCO pond"). During the period it conducted operations on the Chester site, the evidence tended to show, PICCO deposited or buried various resins and their by-products in the PICCO pond and possibly other locations.

In 1971 PICCO ceased operations on the Chester site and sold the facility to Gould, Inc. ("Gould"). Gould did not conduct any operations on the Chester site, other than leasing certain tanks to ABM Disposal Services Company ("ABM"), which used them to store large quantities of various waste materials, though apparently not resins or resinous by-products.

In mid-1973, PECO--which operated a plant on an adjoining piece of land--obtained an option to purchase the Chester site from Gould. Prior to exercising its option, a PECO representative inspected the site on more than one occasion, including walking tours along the banks of the Delaware River and the banks of the PICCO pond. PECO learned that Gould's tenant, ABM, had caused a number of spills on the site, including oil spills in the pond area, and was informed that ABM was a "sloppy tenant". ABM was unable to clean up the Chester site in time to meet Gould's original deadline for vacating the premises, a condition of the PECO purchase agreement. PECO exercised its option and acquired In 1980 the Pennsylvania Department of Environmental Resources ("DER") discovered that resinous materials similar to those once produced by PICCO were seeping from the banks of the Delaware River at the Chester site, and that the PICCO pond was contaminated with the same material. On August 22, 1980 PECO received the following letter from a DER Water Quality Specialist:

the property in March of 1974. PECO has conducted no operations on the Chester site, but has leased a portion of the land to American Refining Group, Inc.

This is to confirm the results of an inspection conducted on July 15, 1980 ... which revealed that a resinous material was leaching from the bank of the Delaware River from PECO property located between Jeffrey and Ward Streets.

Such condition is in violation of Title 25, Chapter 101, Section 2 of the Rules and Regulations of the Department of Environmental Resources regarding Special Water Pollution Regulations. ¹

During our preliminary survey of the site you stated that the property was once owned by Pennsylvania Industrial Chemical Company which operated a resin disposal lagoon on site. You mentioned that core samples had been taken of this site, that the contents of the lagoon had been pumped to a storage tank and samples of this material were being analyzed. In order that we may evaluate the impact of this material on the Delaware River we request that a copy of the core sampling results and a copy of chemical analysis of the substance be submitted to the Department. If the core sampling does not provide sufficient data, additional monitoring may be required.

It was also noted that a remnant of the resin lagoon remains on site. During our inspection you indicated that this lagoon was going to be cleaned out and abandoned. Please indicate how and when this work will be accomplished.

In response, PECO developed a plan whereby the remaining pond resin would be removed to a landfill, and the PICCO pond area would be backfilled and regraded. DER approved this plan on November 21, 1980. PECO produced evidence indicating that it incurred expenses of $338,328.69 in implementing the clean-up, and an additional $7,578 in collecting and carting away resinous material that continued to leach to the surface at various places around the Chester site during the summers of 1981-1983. PECO also introduced evidence of $67,500 in lost rentals from American Refining due to the continuing leaching.

In a letter dated March 10, 1981, DER expressed satisfaction with the clean-up of the pond area, but reported that a February 27, 1981 inspection revealed resins still on the Delaware River bank and continued leaching of resins into the River. PECO was asked to "submit in writing ... Philadelphia Electric's position on the control or clean-up of the resin material remaining on the bank." After PECO expressed reluctance to spend any additional money on clean-up of the Chester site, DER wrote PECO again, on May 28, 1981:

Leachate analysis of the resin on the river bank indicates that there is a leaching problem from the resin. Such discharge constitutes an unpermitted discharge to the waters of the Commonwealth and is a violation of the Clean Streams Law, subject to the penalties provided therein. It is therefore required that the resin material on the river bank be removed.

The record does not reveal that DER or PECO has taken any further action regarding the resinous material on the river bank, and PECO's witness testified at trial that the condition still existed.

On February 16, 1982, PECO instituted suit against Gould and Hercules, which had acquired the remaining assets of PICCO in 1973, in exchange for Hercules stock. (PICCO was dissolved on January 9, 1976.) Hercules cross-claimed against Gould. On

                cross-motions for summary judgment the district court ruled that Hercules was liable as PICCO's corporate successor under the express terms of the Agreement and Plan of Reorganization ("the Agreement") it entered into with PICCO, and because the transaction was a de facto merger.  A jury trial was held in July of 1983.  PECO, stating that discovery had shown no wrongdoing on the part of Gould, offered no evidence against Gould. 2   At trial Hercules attempted to show that the pollution was not consistent with PICCO's operations on the Chester site, but was consistent with the operations of ABM and other industrial plants in the area.  At the close of evidence, the jury was instructed on principles of public and private nuisance.  The jury's verdict was rendered in the form of answers to special interrogatories
                

1. Do you find by a preponderance of the evidence that PICCO caused the contamination of the property now owned by Philadelphia Electric Company? YES.

2. Do you find by a preponderance of the evidence that the contamination on the property now owned by Philadelphia Electric Company continues to pollute the groundwater or the Delaware River? YES.

3. In what amount do you award damages? $345,906.69.

4. Do you find by a preponderance of the evidence that ABM's activities contributed to the contamination of the Philadelphia Electric Company property? YES.

5. Was Gould aware of ABM's activities and permitted them to continue? NO.

Based on these answers, the district court moulded a verdict and entered judgment for PECO against Hercules in the amount of $394,910.14, which included delay damages of $49,003.45 pursuant to Pennsylvania Rule of Civil Procedure 238, entered judgment for Gould on Hercules' cross-claim, and issued an injunction as follows:

IT IS FURTHER ORDERED and DECREED that Hercules, Inc. shall forthwith take all appropriate action to abate and eliminate the contamination on the property of the Philadelphia Electric Company located at the Chester site and abate the further pollution of the groundwater and the Delaware River adjacent to the property by collecting and removing all pollutants in accordance with all applicable rules and regulations of the Pennsylvania Department of Environmental Resources, the United States Environmental Protection Agency, and any other appropriate state or federal regulatory agency.

In this appeal Hercules contends, inter alia, that the district court erred in ruling that it was liable as PICCO's successor, and that PECO had no cause of action against it for public or private nuisance. The parties are agreed that the substantive law of Pennsylvania governs this diversity case.

II.

"As a general rule," under Pennsylvania common law, "when one company sells or transfers all its assets to another, the successor company does not embrace the liabilities of the predecessor simply because it succeeded to the predecessor's assets." McClinton v. Rockford Punch Press & Manufacturing Company, 549 F.Supp. 835, 837 (E.D.Pa.1982). Four exceptions to the general rule of nonliability are widely recognized, in Pennsylvania and elsewhere. Thus, where (1) the purchaser of assets expressly or...