Truck Components Inc. v. Beatrice Co.

• Decision Date: 21 May 1998
• Docket Number: No. 96-3018,96-3018
• Citation: 143 F.3d 1057
• Parties: , 28 Envtl. L. Rep. 21,268 TRUCK COMPONENTS INC., and Brillion Iron Works, Inc., Plaintiffs-Appellants, v. BEATRICE COMPANY, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1057

143 F.3d 1057

46 ERC 1513, 28 Envtl. L. Rep. 21,268

TRUCK COMPONENTS INC., and Brillion Iron Works, Inc. Plaintiffs-Appellants, v. BEATRICE COMPANY, et al., Defendants-Appellees.

No. 96-3018.

United States Court of Appeals Seventh Circuit.

Argued Oct. 24, 1997.

Decided May 7, 1998.

Rehearing and Suggestion for Rehearing Denied En Banc May 21, 1998.

Steven A. Smith (argued), Steven A. Smith, Chicago, IL, for Truck Components Inc. and Brillion Iron Works, Inc.

Andrew Grimes Neal, Chicago, IL, Daniel Jarlenski (argued), Thomas C. McGowan, John J. Schirger, McGrath, North, Mullin & Kratz, Omaha, NE, for Beatrice Co. and Hunt-Wesson, Inc.

Irene Savanis, Nancy MacKimm (argued), Gregory D. Isbell, Jones, Day, Reavis & Pogue, Chicago, IL, for Robins.

James K. Meguerian, Victoria Perette Hallock, D'Ancona & Pflaum, Chicago, IL, for First City Sec., Inc.

William H. Harbeck (argued), Amy M. Hindman, Quarles & Brady, Milwaukee, WI, for Gabler.

Before COFFEY, EASTERBROOK, and DIANE P. WOOD, Circuit Judges.

EASTERBROOK, Circuit Judge.

In 1983 Beatrice Company turned Brillion Iron Works, until then a division, into a wholly-owned subsidiary. In 1984 Beatrice spun off the subsidiary, selling the stock to a small group of investors, who in 1988 resold the stock to Truck Components Inc. (TCI). Brillion and TCI now demand that their predecessors in interest bear the costs of environmental cleanup at and near Brillion's works in Wisconsin. They invoke § 107 of CERCLA (the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. § 9607), § 7002 of RCRA (the Resource Conservation Recovery Act of 1976, 42 U.S.C. § 6972), and the common law of Wisconsin. Brillion has not incurred significant cleanup costs but sees them looming and wants someone else to foot the bill. The district court granted summary judgment for the defendants. To keep this opinion manageable, we omit the plenitudinous details that do not affect the analysis.

Brillion believes that Beatrice must reimburse it for the costs of cleaning up emissions that preceded Brillion's incorporation in January 1983, if not all that preceded the stock sale of December 31, 1984. Section 107(a)(2) of CERCLA, 42 U.S.C. § 9607(a)(2), imposes liability on "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". Beatrice fits that bill as the "owner" of the iron works until January 1983, and we shall assume without deciding that as a corporate parent it "operated" the facility until the end of 1984. (Whether the assumption is correct is the question before the Supreme Court in United States v. Bestfoods, No. 97-454, argued Mar. 24, 1998.) But Brillion is not a victim of Beatrice's pollution; Brillion is the polluter. How can it recover for its own emissions?

"Brillion" is just a name. The contracts that make up its business--and corporations are nothing but webs of contracts and related property rights--set the limits of its entitlements. When Beatrice incorporated Brillion in 1983, it contributed both the assets used to run a business and the accumulated liabilities of that business. The new corporation agreed to assume all of Beatrice's obligations. That is to say, at its birth Brillion promised to be satisfied with the assets Beatrice placed in corporate solution, and not to seek anything more from Beatrice later. Alternatively one can understand the transaction as an obligation to indemnify Beatrice for any outlay Beatrice is called on to make, so the money comes full circle and can stay in Beatrice's pocket rather than take a pointless journey. Nothing in CERCLA, RCRA, or Wisconsin law says that corporations may disavow such promises. A corporation has no right against its incorporators to be constituted differently than it was, and the liability of equity investors (which Beatrice became in 1983) is limited to what they promise to contribute to the venture. Only real people have rights: thus the investors who bought Brillion's stock from Beatrice may be able to show that the environmental liabilities were misrepresented, and strangers injured by emissions from Brillion's land may be able to claim compensation from prior owners such as Beatrice, to overcome the possibility that a firm will try to dump environmental liability into an undercapitalized offshoot. See In re CMC Heartland Partners, 966 F.2d 1143 (7th Cir.1992). A third party required to clean up Brillion's site may be able to recover from Beatrice, for § 107(e)(1) of CERCLA, 42 U.S.C. § 9607(e)(1), forbids any contractual attempt by an owner or operator to assign its liability. But it adds that "[n]othing in this subsection shall bar any agreement to insure, hold harmless, or indemnify a party to such agreement for any liability under this subsection." In other words, Beatrice and Brillion could not agree that Brillion alone would be liable to third parties, but they could agree that Brillion will bear the full cost as between them. See also § 107(e)(2) and § 113(f), 42 U.S.C. §§ 9607(e)(2), 9613(f). Brillion must accept the liabilities that came with its assets and, unlike Frankenstein's monster, may not turn on its creator. GNB Battery Technologies, Inc. v. Gould, Inc., 65 F.3d 615 (7th Cir.1995).

Likewise with the investors who bought the stock from Beatrice. Suppose Beatrice contributed to Brillion $75 million in assets, encumbered by $50 million in anticipated liabilities. The initial investors would have paid $25 million (the net value) for the stock. They could not turn around and sue Beatrice for $50 million to fund the cleanup; the price for the stock compensated them in advance for that obligation. If the law were clear that Beatrice had to pay, then perhaps it could have sold the stock for $75 million and written a check for $50 million to the investors later, but such a roundabout transaction would recreate the world in which the investors' up-front outlay was $25 million, and they paid for the cleanup when the time came. No law of which we are aware prevents people from reaching that result directly, by a combination of a lower price for the stock and a transfer of pollution liabilities to the newly created corporation.

Suppose the first generation of investors had a claim under the 1984 contract of sale. Claims related to a sale of stock ordinarily belong to the investors, not to the corporation, and therefore would have been passed on to TCI. But by one of those quirks that makes law interesting for some and a maze of paradoxes for others, Brillion turns out to own the claims of the first generation of investors. They organized a shell company to purchase the stock from Beatrice, and later merged Brillion (a Massachusetts corporation) into the shell (a Delaware corporation). The shell was the technical buyer of the stock from Beatrice; the investors owned the stock of the shell. Because the shell was the surviving corporation in the merger (the point of which was to change Brillion's state of incorporation), Brillion itself owns the claims of the first generation of investors. To promote clarity, however, we treat these claims as owned by the investors personally, and therefore today owned by TCI. We shall return to a claim that Brillion may have in its own right against Karl F. Gabler, one of its managers.

What rights, then, does the first group of investors have? They agreed with Beatrice that any claims arising out of the sale would be brought within one or two years (depending on the kind of claim). Contractual provisions of this kind are common and enforceable. See Taylor v. Western & Southern Life Insurance Co., 966 F.2d 1188, 1203-04 (7th Cir.1992); Cange v. Stotler & Co., 826 F.2d 581 (7th Cir.1987). This suit, which got under way in 1994, is eight (or nine) years too late. Courts sometimes refuse to enforce contractual periods so short that they would be equivalent to eliminating the right to sue for breach of contract, but Cange holds that a one-year period cannot be so classified. The statute of limitations applicable under the federal securities laws is one year (with a three-year statute of repose), see Lampf Pleva Lipkind Prupis & Petigrow v. Gilbertson, 501 U.S. 350, 111 S.Ct. 2773, 115 L.Ed.2d 321 (1991), so enforcement of a one-year contractual period is straightforward.

A sidelong glance at the merits shows that delay is only one of many obstacles to plaintiffs' success. The 1984 contract contains a promise by Beatrice to indemnify the new stockholders for any liability resulting from "loss of life, bodily injury or property damage which arise out of accidents or injury-causing incidents occurring prior to the Closing Date" ( § 11.1(b)(ii)). According to the investors, emissions during Brillion's entire history before the closing date come within this language as "property damage". Like the district court, we think it implausible to read this provision as overriding the 1983 contract by which Brillion agreed to assume all liabilities then existing, or the other portions of the 1984 contract in which the new investors...