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ANALYTICAL MEASUREMENTS, INC. v. KEUFFEL & ESSER C

October 28, 1993

ANALYTICAL MEASUREMENTS, INC.; (a NJ corporation held in trust by ELLA MAY PAULLY and THERESA SCARINZI), and ELLA MAY PAULLY (individually), Plaintiffs,
v.
THE KEUFFEL & ESSER COMPANY; and THE AZON CORPORATION, Defendants.



The opinion of the court was delivered by: DICKINSON R. DEVEBOISE

 DEVEBOISE, District Judge

 Defendants, Azon Corporation ("Azon") and Keuffel & Esser Company ("K&E"), move for summary judgment pursuant to Fed. R. Civ. P. 56 on Counts One through Six in plaintiffs Analytical Measurements, Inc.'s and the Estate of Ella May Paully's Second Amended Complaint. Plaintiffs cross-move for partial summary judgment.

 Because plaintiffs are no longer proceeding against defendants regarding their statutory claims under the Environmental Cleanup Responsibility Act ("ECRA"), N.J. STAT. ANN. § 13:1k-6, the Resource Conservation and Recovery Act ("RECRA"), 42 U.S.C. § 6901, the Toxic Substances Control Act ("TSCA"), 15 U.S.C. § 2601, The Clean Water Act, 33 U.S.C. § 1251, and the Water Pollution Control Act, N.J. STAT. ANN. § 58:10A-1; defendants' motion regarding these claims is granted and they are dismissed.

 For the following reasons, defendants' motion is granted on the breach of covenant against encumbrances claim and plaintiffs' motion is granted as to liability on the Spill Act claim, subject to a determination whether Azon is liable by virtue of its purchase of K&E. The remaining claims contain factual issues which preclude their being decided on this motion.

 SUMMARY OF FACTS AND PROCEDURAL HISTORY

 A. Background

 Plaintiff the Estate of Ella May Paully *fn1" is the owner of property located at 31 Willow Street in Chatham, New Jersey (the "Property"). Since 1967, plaintiff Analytical Measurements, Inc. ("Analytical") has rented the Property. Analytical is a New Jersey corporation with its principal place of business in New Jersey. Analytical is owned and operated by a trust with the Estate of Ella May Paully and Theresa Scarinzi serving as trustees.

 Ella May Paully's husband, Frank Paully, *fn2" purchased the Property from K&E in 1967. K&E is a California corporation with its principal place of business in New Jersey. Between approximately 1947 and 1967, K&E owned the Property and operated a photosensitive paper coating factory which was commonly known as the "Redon" plant (hereinafter referred to as "Redon Plant" or "Chatham Facility"). Among other things, diazo dye was used by K&E to coat rolls of paper at the Property during this period. Such coated paper was commonly used as blueprint paper by architects, engineers and other draftsmen.

 K&E used many different formulations of diazo dye over the years. Various chemicals, including zinc and zinc chloride were constituents of some of those formulas. Prior to 1951, the liquid chemical wastes from the factory flowed from the floor drains, through underground pipes, to a ditch located off site on adjacent property owned by a railroad. In approximately 1951, some of the chemical waste reached the Passaic River and complaints were registered by the Passaic County Water Commission. As a result, K&E revised its system of chemical waste disposal whereby the floor drains emptied, through underground piping, into a "lagoon" at the rear of the property. The lagoon was constructed with a bulldozer in approximately 1952. Sometime within the next few years, the first lagoon became clogged due to precipitate from the waste and a second lagoon was constructed. From that time until the Redon Facility moved to Rockaway, New Jersey in approximately 1966, both lagoons were used alternately for the disposal of chemical waste. The extent of Frank Paully's knowledge concerning the lagoons is disputed.

 In 1982, K&E was taken over in a tender offer transaction by a company known as Kratos Corporation which eventually went into bankruptcy. In 1986, Azon purchased the former K&E.

 This suit arose from Ella Paully's thwarted attempt to sell the Property which Analytical now leases. On March 24, 1988 Paully entered into a contract to sell the Property to the G.J.L. Corporation ("G.J.L.") for between $ 2,100,000 and $ 3,400,000. Under a New Jersey State law enacted in 1983, before selling an industrial site, certification that the land is not contaminated must be obtained from the State. See Environmental Cleanup Responsibility Act ("ECRA") N.J. STAT. ANN. § 13:1K-6 et seq. The State found that the Property and adjoining property were contaminated by hazardous substances and wastes such as asbestos, petroleum hydrocarbons and diazo dye waste, the chemical used by K&E for coating its paper products. The State held both Paully and Analytical jointly and severally strictly liable for the cost of cleaning the Property. Analytical was subject to ECRA by reason of its manufacture of ph meters on the property. Because of the contamination G.J.L. filed a lawsuit in 1990 to rescind the contract. The contract subsequently expired automatically in November 1992, after neither party could perform on the last date set for closing.

 B. Cleanup

 Prior to K&E providing initial funding and assistance in May of 1990, plaintiffs spent $ 264,324.76 to begin the initial soil and groundwater investigation, analyze the problems and alternatives, excavate the soil, and remove the first 600 tons of soil to Ohio. They subsequently spent $ 22,397.25 for the design of a groundwater investigation plan. It is these $ 286,722.01 in past expenses that plaintiffs still seek from K&E. *fn3" Thereafter, plaintiff expended another $ 2,967.47 for groundwater well sealing and closure. Plaintiffs total unreimbursed expenses for investigation, analysis and cleanup total $ 289,689.48.

 In 1991, NJDEPE approved the cleanup and issued ECRA clearance for the property.

 C. Procedural History

 Plaintiffs instituted this action to obtain contribution from defendants for clean-up of the site. Plaintiffs filed the original Complaint on or about May 16, 1989 in the Superior Court of New Jersey, Law Division, Morris County. Defendants filed a Notice of Removal to this Court on or about June 5, 1989. After a Consent Order Extending Time to Answer was filed, K&E and Azon answered the Complaint on or about August 4, 1989. A motion to remand the case to Superior Court was denied by Order entered on or about January 9, 1990.

 Plaintiffs filed a First Amended Complaint on or about February 27, 1990. Defendants answered the First Amended Complaint on or about April 26, 1990. Two substantive motions have previously been decided in this case. First, on August 24, 1992 I denied K&E's motion to enforce a settlement agreement. Second, on February 9, 1993, I granted in part and denied in party Alfred Busch's motion for summary judgment. Thereafter, the individual defendants (William Keller, Robert Keller and Alfred Busch) settled with plaintiffs. The only remaining parties in this case are K&E and Azon.

 Subsequently, plaintiffs filed a Second Amended Complaint against K&E and Azon on or about February 1, 1993, which defendants answered on or about March 16, 1993. The present motions concern the Second Amended Complaint which contains the following claims: (Count I) Nuisance; (Count II) Breach of Covenants and Deeds; (Count III) Strict Liability; (Count IV) Statutory Violations under state and federal law; (Count V) Indemnification; and (Count VI) Contribution.

 There has been full discovery in this case. Numerous depositions have been taken, and interrogatories and documents have been exchanged.

 STANDARD OF REVIEW

 Summary judgment is appropriate where the moving party establishes that "there is no genuine issue of material fact and that [it] is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c) The moving party must show that if the evidentiary material of record were reduced to admissible evidence in court, it would be insufficient to permit the non-moving party to carry its burden of proof. Celotex. Corp. v. Catrett, 477 U.S. 317, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986).

 Once the moving party has carried its burden under Rule 56, "its opponent must do more than simply show that there is some metaphysical doubt as to the material facts in question. Matsushita Electric Industrial Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 89 L. Ed. 2d 538, 106 S. Ct. 1348 (1986), rev'g, 723 F.2d 238 (3d Cir. 1983). The opposing party must set forth specific facts showing a genuine issue for trial and may not rest upon the mere allegations or denials of its pleadings. Sound Ship Building Co. v. Bethlehem Steel Co., 533 F.2d 96, 99 (3d Cir. 1976), cert. denied, 429 U.S. 860, 50 L. Ed. 2d 137, 97 S. Ct. 161 (1976).

 The Supreme Court has explained that in evaluating the evidence presented, "where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no 'genuine issue for trial.'" Wahl v. Rexnord, 624 F.2d 1169, 1181 (3d Cir. 1980). When ruling on a motion for summary judgment the court must also consider the relevant burdens of proof at trial. Celotex Corp. Catrett, 477 U.S. 317, 322-24, 91 L. Ed. 2d 265, 106 S. Ct. 2548. See also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986).

 DISCUSSION

 I. Azon's Liability

 Plaintiff argues that Azon is liable under the Spill Act, N.J. STAT. ANN. § 58:10-23.11 et seq., as a parent and successor corporation.

 The New Jersey Supreme Court has recognized two ways that a parent corporation can be held liable for actions of its subsidiary under the Spill Act. The first is if a court finds that the corporate veil can be pierced because the subsidiary is "'a mere instrumentality of the parent corporation.'" State Department of Environ. Protection v. Ventron Corp., 94 N.J. 473, 500-01, 468 A.2d 150 (1983) (quoting Mueller v. Seabord Commercial Corp., 4 N.J. 28, 34-35 (1950)). The plaintiff must prove that the parent so dominated the subsidiary that it had no separate existence but was merely a conduit for the parent. Ventron, 94 N.J. at 501. "Even in the presence of corporate dominance, liability generally is imposed only when the parent has abused the privilege of incorporation by using the subsidiary to perpetrate a fraud or injustice, or otherwise to circumvent the law." Id. There is no competent evidence being asserted to show that Azon purchased the assets of the former K&E to perpetrate a fraud or injustice such that piercing the corporate veil would be proper on that ground.

 The second method, as noted by the Ventron court, to hold a parent corporation liable under the Spill Act is to find that it was "in any way responsible for the discharge." Id. at 502. (quoting N.J. STAT. ANN. § 58:10-23.11g(c)). According to the Ventron court, if it can be shown that the parent corporation had ownership or control over the property at the time of the discharge, the parent corporation may be held liable. Ventron, 94 N.J. at 502. In Ventron, the court held the parent corporation liable because the court found that the parent permitted the subsidiary to use the property as a mercury dump, that the parent corporation was the sole shareholder and that all the members on the subsidiary's board were employees of the parent corporation. Id. at 502. Viewing these facts together, the court concluded that the parent corporation was "responsible" within the meaning of the Spill Act. Id. Azon cannot be held liable under the Spill Act under the "in any way responsible" standard discussed in Ventron because Azon did not own K&E until approximately 20 years after the discharging had ceased.

 Lastly, plaintiffs assert that Azon should be held liable as a successor corporation. In New Jersey, the traditional corporate law rules provide that where one company sells or otherwise transfers all of its assets to another company the latter is not liable for the liabilities of the transferor, including those arising out of the latter's tortious conduct. Ramirez v. Amsted Indus., Inc., 86 N.J. 332, 431 A.2d 811 (1981). However, there are five recognized exceptions to this general rule where the purchasing corporation will be held responsible: (1) the purchaser expressly or impliedly agrees to assume such debts and liabilities; (2) the transaction amounts to a consolidation or merger of the seller and purchaser, (3) the purchasing corporation is merely a continuation of the selling corporation; (4) the transaction is entered into ...


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