Phone: (610) 265-1510  Fax: (610) 265-0687
email: RTENV@AOL.COM  

ASSET PURCHASERS BEWARE; NEW YORK DISTRICT COURT APPLIES "SUBSTANTIAL CONTINUITY" TEST IN CERCLA CASE DESPITE CONCERNS RAISED BY U.S. SUPREME COURT, SUBJECTING ASSET PURCHASER TO SUCCESSOR LIABILITY

On February 16, 2001, the United States District Court for the Eastern District of New York concluded that the federal common law "substantial continuity" test for evaluating asset purchaser successor liability under CERCLA is alive and well.

According to the "substantial continuity" test, whether an asset purchaser is a "substantial continuation" of the seller and should thus be held liable under CERCLA as its legal successor depends upon the courtís evaluation of eight factors: (1) retention of the sellerís employees by the asset purchaser; (2) retention of the same supervisory personnel; (3) retention of the same production facilities and location; (4) production of the same product; (5) retention of the same name; (6) continuity of assets between the seller and purchaser; (7) continuity of general business operations; and (8) representations by the asset purchaser holding itself out to the public as continuation of the sellerís enterprise. The broad sweep of this test, developed under federal common law, tends to subject asset purchasers to successor liability where traditional principles of state corporate law would not.

Serv-All operated an industrial garment rental service in Bayshore, New York from 1962 through 1988. As part of its service, Ser-All dry-cleaned uniforms using the solvent perchlorethylene or PCE.

Ten years later, Serv-All sold substantially all of its assets to a company known as Initial Service Investments ("ISI") for approximately $2.23 million, including its customer contracts, customer lists, trucks, garage equipment, inventory, accounts receivable, office supplies, uniforms, and rights to the "Serv-All" trade name. Following the sale, Serv-All was liquidated and dissolved, and ISI hired all of Serv-Allís truck drivers and used the Serv-All trucks to provide the industrial garment rental services to Serv-Allís former customers. ISI did not, however, acquire or operate out of Serv-Allís facility, and did not dry-clean uniforms as part of the services it provided. In 1992, 100% of the stock of ISI was acquired by NSI. Upon review of these facts, the District Court concluded that "NSIís operations were a substantial continuation of Serv-Allís business, and thus, NSI is subject to successor liability for Ser-Allís environmental infractions".

(Saul Ewing, April 2001)

 

HOME PAGE * THE RT MISSION STATEMENT * AREAS OF EXPERTISE * REMEDIAL TECHNOLOGY FOCUS * SEMINARS * PROJECT PROFILES * SERVICES DIRECTORY * COMPANY DIRECTORY * THE RT REVIEW  FREE SUBSCRIPTION