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COOPER DEV. v. FIRST NAT. BANK OF BOSTON

April 25, 1991

COOPER DEVELOPMENT COMPANY, INC., PLAINTIFF,
v.
FIRST NATIONAL BANK OF BOSTON, AS TRUSTEE OF THE COOPER LABORATORIES, INC., STOCKHOLDERS LIQUIDATING TRUST, DEFENDANT.



The opinion of the court was delivered by: Wolin, District Judge.

OPINION

In this case, the Court must decide the scope of application of the New Jersey Environmental Cleanup and Responsibility Act ("ECRA") to a corporate transaction involving a parent corporation and its subsidiary. Before the Court are defendant's motion to dismiss this suit pursuant to Federal Rule 12(b)(6) and plaintiff's cross-motion for partial summary judgment pursuant to Federal Rule 56. For the reasons expressed below, the Court will deny defendant's motion to dismiss. Because the Court finds that defendant is liable for a share of plaintiff's cleanup costs, it will grant, in part, plaintiff's motion for partial summary judgment.

I. BACKGROUND

In September 1982, Cooper Laboratories ("Laboratories"), for which the defendant First National Bank of Boston ("First National") is acting as trustee, incorporated Cooper Development ("Cooper") as its wholly-owned subsidiary.*fn1 On November 1, 1983, Laboratories acquired the Freehold Facility,*fn2 a manufacturing facility which produces biomedical products, and transferred it to Cooper on the same day. Laboratories provided administrative and managerial services to Cooper, including tax, treasury, legal, risk management, investor relations, corporate development, financial reporting and data processing. Cooper began publicly trading its stock in 1983, although Laboratories remained an 85 percent shareholder.

On June 17, 1985, in accordance with a liquidation plan, Laboratories transferred its controlling interest in Cooper, about 85 percent of the shares of Cooper, to Laboratories shareholders. Laboratories simultaneously filed a Certificate of Dissolution with the state of Delaware. Pursuant to its Plan of Liquidation, Laboratories entered into the Cooper Laboratories, Inc. Stockholders' Liquidating Trust Agreement dated June 21, 1985 with defendant First National. In the Trust Agreement, Laboratories transferred to First National, as trustee, all of its liabilities and obligations, as well as certain assets*fn3 which had not been distributed to its stockholders or disbursed to creditors. Neither Laboratories nor Cooper complied with ECRA's notice and reporting requirements in executing this transaction.

In 1986, Cooper sought to sell the Freehold Facility. As required by ECRA, Cooper filed a notice with the New Jersey Department of Environmental Protection (NJDEP) in connection with the proposed transfer of the facility. NJDEP required that Cooper investigate the contamination at the Freehold Facility, propose a cleanup plan that was subject to state approval and undertake cleanup in accordance with the approved plan. In its investigation, Cooper found that production processes had caused groundwater and other contamination at the Freehold Facility. The costs of the cleanup have already exceeded one million dollars and Cooper estimates that on-going cleanup activities will cost several million dollars.

On July 5, 1990, NJDEP sent Laboratories a letter informing the company that its dissolution in 1985 was conducted in violation of ECRA and requesting that the company submit portions of ECRA Initial Notice forms. Barbara Murray, Chief of NJDEP's Bureau of ECRA Applicability and Compliance, confirmed in an affidavit that the July 5 letter accurately reflects NJDEP's position. Counsel for First National, as Laboratories' trustee, responded to NJDEP's letter in December 1990 and claimed that Cooper was solely responsible for the non-compliance. To date, NJDEP has taken no further action on this matter.

II. DISCUSSION

This case presents issues of first impression. Few courts have interpreted ECRA and it has meager legislative history.*fn4 The primary issues implicated in these motions are: (1) ECRA's application to Laboratories' dissolution and stock distribution in 1985, (2) Laboratories' or Cooper's responsibility for complying with ECRA, and (3) Cooper's ability to recover damages from Laboratories in a private cause of action under ECRA.

A. Procedural Standards

(1) Motion to Dismiss

In determining whether a complaint should be dismissed for failure to state a claim pursuant to 12(b)(6), the Court must limit its consideration to the facts alleged in the complaint. Biesenbach v. Guenther, 588 F.2d 400, 402 (3d Cir. 1978). Moreover, in its examination of the complaint, the Court is required to accept all of the allegations contained therein and all inferences arising therefrom as true. Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2232, 81 L.Ed.2d 59 (1984). Unless plaintiff can prove no set of facts in support of its claim that would entitle it to relief, its complaint should not be dismissed. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957); D.P. Enterprises v. Bucks County Community College, 725 F.2d 943, 944 (3d Cir. 1984).

(2) Standard for Summary Judgment

Summary judgment is appropriate where there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56. The party moving for summary judgment has the burden of showing that there is no genuine issue of material fact, and once the moving party has sustained this burden, the opposing party must introduce specific evidence showing that there is a genuine issue for trial. Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Williams v. Borough of West Chester, 891 F.2d 458, 464 (3d Cir. 1989).

A genuine issue is not established unless the evidence, viewed in a light most favorable to the nonmoving party, would allow a reasonable jury to return a verdict for that party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49, 106 S.Ct. 2505, 2510-11, 91 L.Ed.2d 202 (1986); Radich v. Goode, 886 F.2d 1391, 1395 (3d Cir. 1989). If the evidence is merely colorable or is not significantly probative, summary judgment may be granted. Anderson, 477 U.S. at 249-50, 106 S.Ct. at 2510-11; Radich, 886 F.2d at 1395. Whether a fact is material is determined by substantive law. Anderson, 477 U.S. at 248, 106 S.Ct. at 2510; United States v. 225 Cartons, 871 F.2d 409, 419 (3d Cir. 1989).

B. Description of ECRA

Enacted in 1983,*fn5 ECRA represented the New Jersey Legislature's response to the problem of abandoned hazardous waste sites. New Jersey Department of Environmental Protection v. Ventron, 94 N.J. 473, 468 A.2d 150 (1983), a suit brought by NJDEP against the current owners of a decaying chemical plant and their predecessors in interest, illustrated the difficulties that governmental agencies experienced in cleaning up abandoned facilities. NJDEP was compelled to engage in expensive and time-consuming litigation to remedy the environmental damage at the plant. In similar situations, state and federal agencies were forced to initiate comprehensive cleanup efforts and legal actions against previous owners. ECRA's sponsor, State Senator Raymond Lesniak, explained that contaminated property "leav[es] a blight on our State and health hazards and economic burdens to our residents." See Lesniak, ECRA is Coming, 104 N.J.Law. 41 (1983). ECRA was passed in response to Ventron-type problems at hazardous industrial facilities.

ECRA's primary purpose is to impose liability for cleanup costs on property owners without protracted litigation. As courts have recognized, "[t]he essential goal of ECRA is to secure the cleanup of contaminated industrial sites at the earliest possible date." Dixon Venture v. J. Dixon Crucible, 235 N.J. Super. 105, 111, 561 A.2d 663 (App. Div. 1989), aff'd as modified, 122 N.J. 228, 584 A.2d 797 (1991). This motive is expressed in the legislature's finding that

N.J.Stat.Ann. § 13:1K-7. As the court observed in Superior Air Products v. NL Indus., 216 N.J. Super. 46, 522 A.2d 1025 (App. Div. 1987), ECRA imposes "a self-executing duty to remediate without the necessity and delay" of a determination of liability through litigation. Id. at 63, 522 A.2d 1025.

ECRA requires all "industrial establishments"*fn6 to obtain prior NJDEP approval of either a negative declaration that the site is free from possible contamination or a cleanup plan as a precondition to the sale, closure or transfer of business operations. N.J.Stat.Ann. § 13:1K-9. Any "owner or operator" of an industrial establishment planning to sell or close operations must notify NJDEP within five days after public release of its decision to close or within five days of the execution of any agreement of sale or option to buy, as applicable. N.J.Stat.Ann. § 13:1K-9. The NJDEP regulations describe the type of information to be submitted, including inventories of hazardous substances, description of current operations, copies of all soil, groundwater and surface water sampling results and details of the impending transaction. N.J. Admin.Code § 7:1-3.7(d).

After conducting a preliminary site inspection of all industrial establishments which have notified the Department, NJDEP issues a preliminary report describing site conditions and providing guidance for ECRA compliance. The Department supplements all initial notice submissions with its own review of available records of relevant federal, state, county and municipal agencies. Following approval and implementation of an appropriate sampling plan, the owner or operator of the establishment must submit either a cleanup plan or a negative declaration. All cleanup plans must be accompanied by financial security, guaranteeing the performance of the cleanup plan, in an amount equal to the cost estimate approved by NJDEP for the plan's implementation. N.J.Stat.Ann. § 13:1K-9(a)(2) and (b)(3).

ECRA provides stringent penalties for failure to comply with the Act or regulations. Failure to comply allows NJDEP or the transferee to void the sale or transfer of the industrial establishment or real property. N.J.Stat.Ann. § 13:1K-13(a) and (b). The transferee is also entitled to recover damages due to the voiding of the transaction and the transferor is held to be strictly liable for all cleanup and removal costs. § 13:1K-13(a). In addition, NJDEP may seek penalties of a maximum of $25,000 per day from any person giving false information or otherwise failing to comply with ECRA. § 13:1K-13(c). Any corporate officer who knowingly directs or authorizes violations of the Act will be personally liable for ECRA penalties. § 13:1K-13(c).

ECRA serves as a major incentive for businesses to plan and conduct environmentally safe industrial operations. In its six years of existence, ECRA has been responsible for more than two hundred million dollars in privately funded cleanups.*fn7

ECRA is the first state law which imposes wide-ranging liability on owners and operators of commercial and industrial real estate prior to transfer or closing of business operations. As the New Jersey Supreme Court has noted,

  ECRA is quite unlike other environmental regimes
  in that it uses market forces to bring about the
  reversal of environmental pollution. It recognizes
  that some environmental conditions not posing an
  imminent hazard to air or water resources of the
  state may safely attend economic activities.

Dixon Venture v. Joseph Dixon Crucible Co., 122 N.J. 228, 236-37, 584 A.2d 797 (1991) (per curiam). Inspired by ECRA, Connecticut, Iowa, Missouri and Illinois have passed similar statutes. State legislatures in New York, Pennsylvania and Massachusetts have considered ECRA-type legislation.*fn8

C. Applicability of ECRA to Laboratories' Stock Distribution

Section 13:1K-9 of ECRA states that the "owner or operator of an industrial establishment" planning to "close . . . sell or transfer operations" must notify NJDEP and submit a negative declaration or cleanup plan subject to NJDEP approval. ...


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