Maytag Corp. v. Navistar Int'l Transp. Corp.

• Decision Date: 27 June 2000
• Docket Number: No. 99-4328,99-4328
• Parties: (7th Cir. 2000) Maytag Corporation, Applicant-Appellee, v. Navistar International Transportation Corp., et al., Respondents-Appellants
• Court: U.S. Court of Appeals — Seventh Circuit

Page 587

219 F.3d 587 (7th Cir. 2000)

Maytag Corporation, Applicant-Appellee, v. Navistar International Transportation Corp., et al., Respondents-Appellants.

No. 99-4328

In the United States Court of Appeals For the Seventh Circuit

Argued June 5, 2000

Decided June 27, 2000

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 75 B 2697--Charles P. Kocoras, Judge.

Before Easterbrook, Diane P. Wood, and Evans, Circuit Judges.

Easterbrook, Circuit Judge.

Twenty years ago the storied Rock Island Line, losing about $40 million annually, abandoned its railroad operations as part of a bankruptcy under sec.77 of the Bankruptcy Act of 1898. See Chicago, Rock Island & Pacific R.R., 363 I.C.C. 150 (1980). Free of its cash sinkhole, the Rock Island retired its debts and emerged from bankruptcy in 1984 as the Chicago Pacific Corporation, a holding company with more than $350 million in liquid assets, substantial operating loss carryovers, and a portfolio of miscellaneous business ventures. In January 1989 Chicago Pacific merged into Maytag Corporation, manufacturer of refrigerators, ranges, and other appliances.

One of Chicago Pacific's assets when the bankruptcy wrapped up was the Iowa Transfer Railway, which owned a railyard in Rock Island, Illinois, near the Sylvan Slough, a tributary of the Mississippi River. Four months out of bankruptcy, Chicago Pacific sold the Iowa Transfer to Heartland Rail Corporation, which leased the yard and other operating assets to Iowa Interstate Railroad. Iowa Interstate has operated that business ever since. In 1993 the Coast Guard concluded that petroleum is leaking from the railyard into the Sylvan Slough. Heartland and Iowa Interstate are cleaning up the premises and adjacent land, an expensive endeavor. Two of their neighbors, Navistar International Transportation Corp. and the Burlington Northern & Santa Fe Railway, blame Heartland and Iowa Interstate for pollution. They have sued under the Oil Pollution Act of 1990, 33 U.S.C. sec.sec. 2701-52, in the Central District of Illinois, demanding that Heartland and Iowa Interstate contribute toward their own cleanup costs. Heartland, Iowa Interstate, Navistar, and Burlington Northern all believe that much of the oil seeped into the land while the Rock Island Line was operating the yard. All four have added Maytag (as Chicago Pacific's successor) as a third-party defendant in the Central District action, seeking contribution under Illinois law, 740 ILCS 100/2, and perhaps federal law as well (though both the complaint and the parties' briefs in this court are silent on the legal theory underlying the demand for contribution from Maytag).

Maytag asked the Northern District of Illinois, where the Rock Island bankruptcy had been administered, to enjoin prosecution of the claim for contribution. It offered two theories: first that a request for recovery on account of pollutants deposited before 1984 is a claim in bankruptcy barred by the injunction issued when the bankruptcy was closed, and second that because the Rock Island was "liquidated" rather than "reorganized" Maytag did not inherit any of the Rock Island's debts. See In re Erie Lackawanna Ry., 803 F.2d 881 (6th Cir. 1986). The second point concerns the general law of corporate obligations. Debts do not pass to those who buy assets (unless contracts provide for this transfer), though shareholders may be liable up to the amount of a net distribution when a corporation dissolves, see Model Business Corporation Act sec.14.07(d)(2), and federal law does not displace the norm that corporate liability ends with the corporation's existence. Section 113(a)(1) of the Comprehensive Environmental Response, Compensation, and Liability Act (cercla), 42 U.S.C. sec.9613(a)(1), permits a person who has paid for a cleanup to obtain contribution "from any other person who is liable or potentially liable under section 107(a)"; sec.107(a)(2) in turn allows recovery from "any person who at the time of disposal of any hazardous substance owned or operated any facility at which such hazardous substances were disposed of" (emphasis added).^* A buyer or distributee of a polluter's assets does not qualify under this language. Citizens Electric Corp. v. Bituminous Fire & Marine Insurance Co., 68 F.3d 1016, 1021- 22 (7th Cir. 1995). Cf. United States v. Bestfoods, 524 U.S. 51 (1998) (corporate form must be respected in litigation under cercla). Even when state law makes the buyer of assets that constitute an ongoing business liable as a successor, it does not impose liability on firms that purchase assets unrelated to those that created the deferred liability. But this point has nothing to do with bankruptcy law in general or the Rock Island reorganization in particular. If as Maytag insists it is a stranger to Rock Island's corporate obligations and therefore is not a "person who at the time of disposal of any hazardous substance owned or operated any facility at which such hazardous substances were disposed of", it is equally a stranger to Rock Island's bankruptcy and is not entitled to relief from the Northern District. If, on the other hand, Maytag is the Rock Island's successor, and therefore entitled to take advantage of the terminating injunction, it is properly in the Northern District, but cannot prevail on its second line of argument.

Disregarding our conclusion in In re Chicago, Rock Island & Pacific R.R., 794 F.2d 1182 (7th Cir. 1986), an earlier episode in this case, that bankruptcy courts do not have perpetual authority to grant protection to persons who acquire a debtor's assets, see also Zerand-Bernal Group, Inc. v. Cox, 23 F.3d 159 (7th Cir. 1994); Pettibone Corp. v. Easley, 935 F.2d 120 (7th Cir. 1991), the Northern District addressed the second of Maytag's arguments, concluded that the Rock Island Line had been liquidated rather than reorganized, and enjoined prosecution of the Central District action against Maytag. 1999 U.S. Dist. Lexis 19455 (N.D. Ill. Dec. 2, 1999). (The Northern District's subject-matter jurisdiction is not in question, given Maytag's invocation of the injunction, and as the parties do not contest the court's apparent resort to the supplemental jurisdiction to consider Maytag's second theory, we do not pursue the question whether this would have been better left to the Central Distict. See Myers v. County of Lake, 30 F.3d 847 (7th Cir. 1994).) According to the Northern District,

the Rock Island abandoned and liquidated its rail business more than three years prior to the consummation order. The only assets it retained were non-rail related, and which were used to create [Chicago Pacific] in an effort to maximize the ability to satisfy the claims of the Rock Island's creditors. ... Therefore, we ... [hold] that the Rock Island was liquidated, eliminating any entity which might be sued, regardless of when the claim arose.

The underpinning of this passage, and of the district court's conclusion, is that abandonment of the rail business is the same thing as corporate liquidation. But that is untenable. Corporations change lines of business frequently without liquidating. If Maytag tomorrow were to abjure the washing-machine business to concentrate on refrigerators and microwave ovens, it would not have "liquidated" and would remain liable for debts (including deferred environmental liabilities) associated with its whole line of appliances.

Just so with the Rock Island. During bankruptcy the Rock Island quit the railroad business but retained substantial assets. The corporate entity was renamed "Chicago Pacific Corporation" at the close of the bankruptcy, and Chicago Pacific avowedly was a continuation of the original firm, rather than (say) the buyer or distributee of the Rock Island's assets. How else could...