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Government Plausibly Pleads Corporate Successorship in CERCLA Lawsuit, New Jersey District Court Holds

On May 7, 2024, the United States District Court for the District of New Jersey denied Defendant ISP Environmental Service Inc.’s (“IES”) motion to dismiss the United States’ (“the Government”) complaint seeking relief under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (“CERCLA”). United States v. ISP Envt’l Servs. Inc., 2024 WL 2013949 (D.N.J. 2024).  IES had argued in support of its motion to dismiss that it was neither an owner or operator of the site at issue, and therefore, was not a potentially responsible party under CERCLA.   The district court nevertheless held that IES was potentially liable under CERCLA as the corporate successor of another entity that had owned and operated the site, GAF Chemicals, because the Government plausibly alleged that IES assumed the liabilities for the site pursuant to a contract with GAF Chemicals.   

The Government alleged in its complaint that IES is a “potentially responsible party” liable under CERCLA for the “release” of “hazardous substances” from the LCP Chemicals, Inc. Superfund Site in Linden, New Jersey (“the Linden Site”). The Linden Site was owned and operated by GAF Corporation from 1972 until the mid-1980’s. Through a series of corporate transactions and agreements, GAF Corporation became GAF Chemicals. In 1991, GAF Chemicals entered into a reorganization agreement that created IES, the defendant at issue in the court’s decision. That same year, IES executed an “Assumption of Liabilities and Continuing Obligations” agreement, wherein IES agreed to assume from GAF Chemicals “all liabilities and obligations relating to the manufacture and sale of specialty chemicals” at the Linden Site. GAF Chemicals, meanwhile, has continued to exist. 

In 2022, the Government filed suit against IES after IES purportedly failed to complete the remedial design of the selected remedy at the Linden Site as ordered by EPA.  The Government asserted in its complaint three counts against IES:  the first to recover response costs associated with remediating the Site, and the second and third to recover civil and punitive damages associated with IES’s “failure without cause” to comply with EPA’s order. On July 8, 2022, IES filed a motion to dismiss, pursuant to FRCP 12(b)(6).

In evaluating the 12(b)(6) motion, the district court assumed as true the factual allegations in the complaint and analyzed whether the Government pleaded a “plausible” claim to recover response costs pursuant to CERCLA Section 107(a).  Here, the Government alleged that IES was a former owner and operator of the Linden Site as the successor to GAF Chemicals because IES expressly assumed GAF’s liabilities as stated in the “Assumption of Liabilities and Continuing Obligations” agreement.  The court held that these allegations were sufficient to render the Government’s claim “plausible.” The court explained that CERCLA successor liability is a matter of uniform federal law, derived from the general doctrine of successor liability in operation in most states.  Thus, where as here, a plaintiff alleges sufficient successorship allegations, courts typically deny motions to dismiss because the information needed to substantiate successorship is “likely in the possession of the defendant.”

Next, IES argued that the Government’s Section 107(a) claim was barred by another provision in CERCLA, Section 107(e).  Section 107(e) prevents “divesting liability” by providing that a liable person cannot transfer their liability to another person by way of an indemnification or other similar agreement. IES argued that Section 107(e) operates to bar the Government’s claim because GAF Chemicals presently exists in some form. The court rejected this argument, with reference to caselaw that held that Section 107(e) is meant to expand, rather than restrict, the group of potentially responsible parties.  Moreover, the court held that IES wrongly conflated divesting liability with successor liability; the latter of which is not barred by Section 107(e). Thus, Section 107(e) does not bar the Government from seeking recovery from still-existing predecessors as well as the entities that are successors in liability.

Finally, the court held that Counts Two and Three pleaded plausible claims for monetary damages under Section 106 of CERCLA.  The court, having addressed the plausibility of the claim alleging IES’s CERCLA responsibility with respect to Count One, held that Counts Two and Three survive for the same reasons.

The litigation will proceed, giving the Government the opportunity to prove its well-pleaded factual allegations, including the assertion that IES is the successor in liability to GAF Chemicals. IES therefore remains a party to the Government’s cost recovery lawsuit for the time being.