Chrysler Corp. v. Ford Motor Co.

• Decision Date: 21 August 1997
• Docket Number: Civil Action No. 95-72112.
• Parties: CHRYSLER CORPORATION, Plaintiff, v. FORD MOTOR COMPANY, General Motors Corporation, County of Wayne, Michigan, The Charter Township of Ypsilanti, Ypsilanti Community Utilities Authority, and the Regents of the University of Michigan, Defendants, and FORD MOTOR COMPANY, General Motors Corporation, County of Wayne, Michigan, The Charter Township of Ypsilanti, Ypsilanti Community Utilities Authority, and the Regents of the University of Michigan, Third-Party Plaintiffs, v. CHRYSLER PENTASTAR AVIATION, INC., Third-Party Defendant.
• Court: U.S. District Court — Eastern District of Michigan

972 F.Supp. 1097

CHRYSLER CORPORATION, Plaintiff, v. FORD MOTOR COMPANY, General Motors Corporation, County of Wayne, Michigan, The Charter Township of Ypsilanti, Ypsilanti Community Utilities Authority, and the Regents of the University of Michigan, Defendants, and FORD MOTOR COMPANY, General Motors Corporation, County of Wayne, Michigan, The Charter Township of Ypsilanti, Ypsilanti Community Utilities Authority, and the Regents of the University of Michigan, Third-Party Plaintiffs, v. CHRYSLER PENTASTAR AVIATION, INC., Third-Party Defendant.

Civil Action No. 95-72112.

United States District Court, E.D. Michigan, Southern Division.

August 21, 1997.

COPYRIGHT MATERIAL OMITTED

Steven C. Kohl, Howard & Howard, Bloomfield Hills, MI, for plaintiffs.

Eugene Driker and John Libby, Barris, Sott, Denn & Driker, Detroit, MI, for defendants.

OPINION AND ORDER

FEIKENS, District Judge.

This dispute centers on response costs for the cleanup of pollution at the Willow Run Creek Site ("Willow Run") in Wayne and Washtenaw Counties. Willow Run is well known in Michigan as the site where Ford Motor Company produced bomber airplanes during World War II. Defendants are the previous and current owners and operators of Willow Run Airport, a nearby waste water treatment facility, and nearby industrial plants: Ford Motor Company ("Ford"), General Motors Corporation ("GM"), Wayne County, Ypsilanti Township, the Ypsilanti Utilities Authority, and the University of Michigan Regents. These parties negotiated a consent decree with the Michigan Department of Natural Resources ("MDNR", now Michigan Department of Environmental Quality, "MDEQ"), acting as an agent for the United States Environmental Protection Agency ("EPA"), to implement a remedial action plan for Willow Run pursuant to the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. § 9601 et seq. The consent decree was entered in March 1995.

Plaintiff Chrysler Corporation ("Chrysler") was not a party to the 1995 consent decree, though in July 1993 it had received notice that it was a potentially liable party under CERCLA § 107(a), 42 U.S.C. § 9607(a). Chrysler filed this lawsuit seeking a declaratory judgment that it is not liable for response costs under CERCLA or the Michigan Environmental Response Act ("MERA", now the Natural Resources and Environmental Protection Act, "NREPA"), M.C.L. § 324.20101 et seq. Chrysler's complaint seeks a declaration that it is not liable for CERCLA or MERA response costs because of its 1987 purchase of a company formerly know as Kaiser Manufacturing Corporation ("KMC"), which had been a subsidiary of the Kaiser-Frazer Corporation ("KFC"). Chrysler denies that it is a successor in interest to KFC by virtue of its purchase of KMC. While Chrysler admits that it is the successor to KMC, it seeks a declaration that KMC did not "own," "operate," or "arrange" for disposal of hazardous substances at Willow Run as defined by CERCLA or MERA.

Defendants filed a counterclaim in which they asserted that Chrysler is not only liable as the successor to KFC and KMC, but also that Chrysler and third-party defendant Chrysler Pentastar Aviation, Inc. ("Pentastar") are directly liable by virtue of their own activities at Hangar One of the Willow Run Airport. In addition to CERCLA and MERA liability, defendants assert theories of public nuisance and undue enrichment.

A November 7, 1995 stipulated case management order separated liability issues ("Phase I") from allocation questions ("Phase II"). After I denied motions for summary judgment from both sides, a bench trial was begun on July 15, 1997 on Phase I issues. The issues at trial were limited to Chrysler's successor in interest liability.

For the reasons stated below, I find that Chrysler is not the successor in interest to KFC and therefore is not liable under CERCLA, MERA or the common law for releases of hazardous wastes by KFC. I do not now rule whether Chrysler's acknowledged predecessor in interest, KMC, was an "operator" or "arranger" under CERCLA and MERA. Neither do I decide the amount of Chrysler and Pentastar's liability for activities in Hangar One; since Chrysler and Pentastar admit liability for Hangar One as a threshold matter, the only remaining issue is cost allocation, which has not yet been subject to discovery or argument.

I. Jurisdiction

This court has exclusive jurisdiction over the CERCLA claims pursuant to 28 U.S.C. § 1331 and 42 U.S.C. § 9613(b). I exercise supplemental jurisdiction over state law claims pursuant to 28 U.S.C. § 1367. Authority to issue a declaratory judgment and other necessary relief is provided by 28 U.S.C. §§ 2201 and 2202. Venue is proper pursuant to 28 U.S.C. §§ 1391(b) and (c) and 42 U.S.C. § 9613(b).

II. Background

Key to this case is the relationship between a parent and subsidiary corporation controlled by the Kaiser family. The parent, Kaiser-Frazer Corporation, produced motor vehicles at the Willow Run Manufacturing Plant from 1946 to 1953. By the time KFC's manufacturing and assembly operations at Willow Run ended, it was known as Kaiser Motors Corporation. Subsequently, a 1956 reorganization turned the corporation into a holding company for various Kaiser interests, at which point it was known as Kaiser Industries.

The subsidiary, Kaiser Manufacturing Corporation, was created when a formerly inactive KFC subsidiary, Phoenix Iron Works Corporation, was activated in 1951. As will be discussed in greater detail, this was done in order to secure contracts for military aircraft which were also produced at Willow Run in the following years. In 1953, KMC changed its name to Willys Motors Corporation when it bought the assets of Willys-Overland of Toledo, Ohio. It was later renamed Kaiser-Jeep until its stock was purchased by American Motors Corporation ("AMC") in 1970. Chrysler in turn purchased AMC and its wholly-owned Jeep subsidiary in 1987.

For the sake of simplicity, throughout this opinion I refer to the parent corporation as "KFC" and the subsidiary as "KMC" (i.e., Kaiser Manufacturing Corporation, as distinct from the parent Kaiser Motors Corporation). I refer to the Chrysler Corporation in the singular as "Chrysler" or "plaintiff," although Chrysler Pentastar Aviation, Inc., was named as a third-party defendant for its activities at the Willow Run Airport.

Chrysler acknowledges that its purchase of AMC makes it a successor in interest to the liabilities of KMC, but maintains that KMC had no activities at Willow Run which could give rise to liability. Chrysler denies the defendants' claim that KMC was the successor to KFC, and thus denies that its purchase of AMC carried with it liability for KFC's activities at the site.

Defendants' claim of successor liability is based on several theories. They assert that when KMC purchased KFC's assets in 1956, KMC contractually assumed all of KFC's liabilities, including CERCLA liability. In the alternative, if there was not a contractual assumption of liability, they maintain that the sale created a de facto merger of the two corporations. Finally, they argue that from the time of KMC's activation in 1951 it was in effect the "alter-ego" of KFC and thus should be held liable for KFC's waste. In other words, defendants seek to "pierce the corporate veil" and thereby ignore the formal separation of the two companies.

With this opinion, I resolve only Chrysler's successor in interest liability for KFC's pollution. I do not decide the extent to which KMC's activities may have generated direct liability under CERCLA (as an operator or arranger), or common law theories of public nuisance or unjust enrichment. Neither do I decide any issues related to the allocation of response costs, including costs resulting from Chrysler's operations of Hangar One at the Willow Run Airport, for which Chrysler has acknowledged threshold CERCLA liability.

III. Choice of law

CERCLA does not limit or define successor in interest liability. The U.S. Court of Appeals for the Sixth Circuit ("Sixth Circuit") has held that this question is answered by the application of state corporation law principles rather than federal common law. Anspec Co., Inc. v. Johnson Controls, Inc., 922 F.2d 1240, 1246 and 1248 (6th Cir.1991). State law applies to a determination of successor liability under an alter-ego theory, United States v. Cordova Chemical Company of Michigan, 113 F.3d 572, 580 (6th Cir. 1997), and under a theory based on the purchase of assets, City Management Corp. v. U.S. Chemical Company Inc., 43 F.3d 244, 251 (6th Cir.1994).

The threshold question is, which state's law shall govern?¹ Defendants argue that the law of the state of incorporation should govern; since the purported successor liabilities of KMC are at issue, the law of the state of KMC's incorporation, Pennsylvania, would presumably control.² Plaintiff argues that Michigan law should apply because Michigan has the greatest interest in, and connection to, the events in question.

Previous cases involving CERCLA liability of alleged successor or alter-ego corporations have not directly confronted whether the law of the state of incorporation or the state with the greatest interest in the lawsuit should govern. A plurality concurrence in Anspec references the state of incorporation, without discussion; but from that opinion it appears that the state of incorporation was also the pollution site, so the choice faced in this case did not arise. Id. at 1248. Similarly, a later decision by the Sixth Circuit applied Michigan law where both predecessor and successor corporation were incorporated in Michigan. City Management at 250 (citing Anspec, supra). But in that case, as well, Michigan was the site of pollution and other material events. This is an issue of first impression.

In matters of internal corporate governance, the law of the state of incorporation will ordinarily govern; while in matters external to the corporation,...