Reducing Toxic Waste Liability Risks in Asset Acquisitions

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By Peter Hayes

March 2 — On the heels of a record year for mergers and acquisitions, environmental attorneys tell Bloomberg BNA companies acquiring the assets of another should take steps to reduce the chances they will face big dollar Superfund liability as a successor for hazardous waste contamination.

In 2015, buyers spent $3.8 trillion on mergers and acquisitions—the highest amount ever, according to data compiled by Bloomberg.

It's unusual for acquiring companies to contend with Superfund successor liability. But they are well-advised to be aware of the issue because they could be facing claims for millions of dollars in a regime of strict joint and several liability under the federal hazardous waste law.

“Most transactions are straight-forward, but there are a small minority of cases where it becomes an issue,” attorney Hamilton Hackney with Greenberg Traurig LLP in Boston told Bloomberg BNA recently.

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MA Spending by Quarter

A complicated legal landscape can impact whether a company will be held liable as a successor for contamination under the Superfund law. So companies should pay attention to the structure of the transition from old to new business, attorney Eric Klein with Beveridge & Diamond in Washington, D.C., told Bloomberg BNA March 1.

“If you buy the assets of a company and the new business goes on as before with the same officers, managers and board, but with a different name, then it's likely you will have assumed the environmental liability of the company whose assets you purchased,” Klein said.

Key Markers

“To avoid liability, they should change some of the key markers, including officers, supervisors and location,” he said.

“It also helps if the old company doesn't disappear, and if the transaction involves more than just name and branding changes.”

Unlike mergers and stock-for-asset deals, acquisitions follow standard successor liability, attorney David Mandelbaum with Greenberg Traurig in Philadelphia told Bloomberg BNA in an e-mail March 2.

“In an acquisition, CERCLA seems not to vary too far from ordinary rules: (a) in a merger, liability passes; (b) in a cash-for-assets deal, liability does not pass; and (c) in a stock-for-assets deal, there is risk of liability passing. That’s pretty much the same as the rule for any liability,” he said.

While liability generally won't attach with the sale or transfer of assets, Mandelbaum said, four exceptions exist to that rule: fraud, express or implied assumption, de facto merger in a stock for assets transaction, and mere continuation, which requires a showing of factors such as a continuity of stockholders.

Although federal courts have jurisdiction over Superfund actions, they look to state common law in assessing successor liability.

A minority of states employ an additional “substantial continuation” exception, which focuses on the continuity of the business, rather than ownership. This test doesn't require continuity of corporate officers or shareholders.

While most states don't apply this exception, an asset purchaser incorporated in a state that doesn't recognize it could end up in federal district court located in a state that does. And this can impact whether a company will be found liable as a corporate successor.

“Generally we look at the state law based on the state of incorporation of the entity,” Hackney said.

But defendants can find themselves in another jurisdiction if the liability is tied to something other than a real estate asset, such as off-site disposal of hazardous substances in another state, he said.

Professor Alfred Light at St. Thomas University School of Law in Miami Gardens, Fla., agreed that which state law will control is a complicating factor.

Choice of Law

“The application of successor liability seems to turn on the interpretation of state law,” Light told Bloomberg BNA.

“But which state’s law is a court discussing, and why?” Light said. “Is it the law of the jurisdiction where the company is incorporated, the law of the jurisdiction where the Superfund site is located, the law of the forum, or some other jurisdiction?”

Mandelbaum agrees that courts are all over the place about which law applies. But he sees a method to the madness.

“It ought to depend on what the theory is on which liability is being imposed,” he said.

“Is the court ignoring state law in order to impose liability on an equitable basis in order to effectuate CERCLA’s remedial purpose?”

“In that case, the law ought to be some sort of federal law or perhaps the law of the forum,” Mandelbaum said.

“But if the court is actually implementing state law of successor liability in determining who the current successor of the predecessor is, should the court not apply the law of the predecessor’s state?,” he queried.

“So, I would say that the law is all over the place, but perhaps not as haphazardly as it might appear,” Mandelbaum said.

When environmental contamination might be an issue, any company considering acquiring the assets of another must conduct due diligence, Grant Nichols, of counsel with Greenberg Traurig in Philadelphia told Bloomberg BNA March 2.

Nichols' practice is focused on managing environmental liabilities associated with large real estate and corporate transactions.

“The first thing we do is to hire an environmental consultant and conduct a Phase I assessment [to investigate contamination]. We then go through the databases to determine whether there are any increased actionable levels. Then we get an environmental insurance policy in place in the event of a pollution release, or recommend further investigation.”

While such steps will reduce risk, even a proactive buyer can face liability.

“Things can break down in terms of how much you can protect yourself,” Hackney said.

For example, he said, while insurance can address some liability, most policies are time-limited to ten years.

In the end, the most direct approach—a thorough cleanup of hazardous waste or other contamination— is the best way to avoid the courtroom.

“The first-best way to deal with environmental liability is to deal with the underlying environmental problem,” Mandelbaum said.

To contact the reporter on this story: Peter Hayes at

To contact the editor responsible for this story: Steven Patrick at

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