[The following is excerpted from “Environmental Liability: Managing Environmental Risks in Corporate, Real Estate and Brownfield Transactions” written by Larry Schnapf and published by Lexis Law Publishing]

CERCLA Liability of Dissolved Corporations

Under the common law, a corporation that dissolved could no longer be sued. This often produced harsh results because creditors and other legitimate claimants were precluded from bringing actions against the dissolved corporations. As a result, states have enacted corporate dissolution statutes, also known as survival statutes, which allow corporations to wind up their affairs in an orderly manner and prevent corporations from using dissolution to escape creditors.

The survival statutes vary from state to state. Some states allow corporations to sue and be sued anytime after dissolution so long as the claim arises from corporate acts or omissions that occurred prior to dissolution. Other states allow corporations to be sued anytime after dissolution. However, most corporate dissolution statutes state that a corporation may only be sued for a set number of years following the corporate dissolution. In these states, a claim must be filed within the period specified by the dissolution statute regardless of the underlying statute of limitations for that particular cause of action.

Rule 17(1)) of the Federal Rules of Civil Procedure provides that the ability of corporations to sue or be sued is determined by state corporate dissolution laws. The federal government and many private plaintiffs filing claims for recovery of clean-up costs have argued that the state dissolution statutes limiting the time for suing corporations directly conflict with the retroactive liability provisions of CERCLA and, therefore, should be preempted by CERCLA. They also point to the introductory language appearing in section 9607(a), which provides that CERCLA liability will attach to the four classes of PRPs notwithstanding any other provision or rule of law.

Initially, the federal courts seemed reluctant to block the operation of these survival statutes. For example, the Court of Appeals for the Ninth Circuit held, in Levin Metals Corp. V. Parr-Richmond Co., that Rule 17(1) does apply and that CERCLA does not preempt state dissolution laws. However, most courts have criticized this decision on the grounds that CERCLA's broad remedial purposes require that uniform national rule be applied. As a result, the clear trend has been that CERCLA preempts state dissolution laws.

Once that threshold is passed, though, courts then must determine if the corporation is in existence. If a corporation still controls assets, these cases hold that the corporation is simply "dead" and still capable of being sued. However, if the assets have been distributed, the decisions are in agreement that the dissolved corporation is "dead and buried" and is no longer in existence so that it is no longer a "person”, who is subject to CERCLA. At least one case has permitted a PRP to bring an action against distributees of corporate assets. In Soo Line Rail-road Company V. B.J. Carney & Co., a federal district court allowed the plaintiff to maintain a contribution action against a limited partnership which was a share-holder distributee of a dissolved corporation. In that case, the defendant received a demand letter from the plaintiff after the defendant had dissolved during the two-year winding-up period provided under the Nevada survival statute. The defendant did not inform the plaintiff of the dissolution but, instead, advised the plaintiff that it was reviewing its records. The plaintiff relied on this representation and waited for a response. When the plaintiff finally filed its contribution action, the two year survival period had expired. The defendant filed a motion for summary judgment, but the court ruled that the defendant's concealment of its dissolution estopped it from denying its existence. Furthermore, because the defendant had failed to notify the plaintiff of its dissolution before the expiration of the statutory survival period, the plaintiff was allowed to bring an action against the distributees.

(c) Copyright 1999 Lawrence Schnapf