Court Finds No Successor or Parent Liability For “Indirect” (Grandparent) Corporation

In Precision Brand Products. v. Downers Grove Sanitary District, 2011 U.S. Dist. LEXIS 88009 (N.D. 8/811), the Illinois Environmental Protection Agency (“IEPA”) detected TCE in private wells  serving a residential community adjacent to the Ellsworth Industrial Park (EIP) in Downers Grove, Ill in 2001. The federal EPA conducted an investigation and issued PRP notices. A number of PRPs entered into an Administrative Settlement Agreement and Order to implement a remedial investigation and feasibility study (RI/FS). In 2004, residents filed a class action lawsuit alleging contamination from the EIP had impacted their drinking water. The plaintiffs sought damages for loss of property value and exposure due to drinking or using contaminated water as well as vapor intrusion or off-gassing from hot water used in bathing and cooking. Eventually, the class action was settled in 2006 for approximately $16MM .

Precision Brand Products (Precision) subsequently filed a contribution action against various parties associated with the EIP for past and future remedial responses costs, including the costs of the government RI/FS and expenses to connect 600 residences to the municipal water supply.  One of the named defendants defendant was Corning, Inc.

Precision alleged that Coming was a responsible party as a corporate successor.  According to the complaint, Harper-Wyman Company (“Harper”) owned and operated a manufacturing facility in the EIP from the mid-1960s to the early 1970s where it used a degreasing operation that used solvents. In 1971, Harper discontinued its operations at EIP and sold the property to Lovejoy who did not use the contaminants of concern, TCE or PCE.

In 1999,Corning became an indirect owner of Harper as a third-tier parent  through two other wholly owned subsidiaries. At the time of acquisition, Harper was a wholly-owned subsidiary of OakGrisby which, in turn, was 100% owned by Oak Industries, Inc (Oak Industries).Corning formed a wholly-owned subsidiary, Reisling Acquisition Corporation (Reisling), which was merged with Oak Industries who became the surviving corporation. Each share of common stock of Oak Industries was cancelled and converted into the right to receive 0.83 shares of common stock of Corning. In 2002, substantially all of Harper assets were sold to Appliance Controls Group. The agreement provided that the selling “Oak Parties” retained the existing environmental liabilities associated with Harper’s business.

On its alter ego (veil piercing) claim, Precision argued that Corning had assumed control over Harper’s environmental matters from 2000 through 2005. However, the court said the problem with Precision’s alter-ego theory was that a company cannot be liable for the acts of an alleged wrongdoer under an alter-ego theory for actions that occurred before the company controlled the alleged wrongdoer. Since the operations that could have contributed to contamination occurred 28 years before Corning acquired Harper, the court said Precision could not plausibly suggest that Corning controlled Harper at the time it discharged solvents at the EIP.

On the successor liability claim, Precision asserted that Corning had assumed the environmental liabilities through the merger agreement. Precision relied on a prior decision in a related case where Lovejoy had sought contribution from Corning. In that case, Muniz v. Rexnord Corp., 2006 U.S. Dist. LEXIS 81267 (N.D. Ill. Nov. 2, 2006), the court denied Coming’s motion for summary judgment. However, the court its denial of Coming’s motion for summary judgment was because there were multiple genuine issues of material fact exist on if Corning impliedly agreed to assume Harper’s liabilities, if the transaction resulted in a de facto merger, and if the purchaser was a mere continuation of Harper.

In the motion to dismiss, the issue before the court was the sufficiency of the pleadings. The court said that Precision did not allege any facts that would support a reasonable inference that any of four exceptions to the general rule that a purchaser of corporate assets does not acquire the liabilities of the seller. The court said that Precision simply alleged that Corning became the indirect 100% owner of Harper  through various transactions and that as a result of these transactions and agreements and its subsequent actions,Corning had succeeded to and was legally responsible for Harper’s operations at EIP. The court ruled that such threadbare recitals and conclusory statements were insufficient to state a plausible claim for relief.

Precision did request leave to amend its complaint to incorporate the facts from the Muniz action if the court grantedCorning’s motion. The court dismissed the claims against without prejudice and said Precision could request the right to amend its complaint. Subsequent to this decision, a confidential settlement was reached.

Scroll to Top