United States of America et al v. NCR Corporation et al

Filing 279

ORDER signed by Judge William C Griesbach on 12-19-11 denying 194 Motion for Summary Judgment. (cc: all counsel) (Griesbach, William)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN
UNITED STATES OF AMERICA,
Plaintiff,
v.

Case No. 10-C-910

NCR CORP. and APPLETON PAPERS INC.,
Defendant.

DECISION AND ORDER

On July 5, 2011, this Court denied the government’s motion for a preliminary injunction
against Defendants NCR and Appleton Papers Inc. In doing so, I found that although the
government had set forth grounds for relief against NCR, it had not done so against Appleton Papers
because it was unlikely that Appleton Papers had successor liability under CERCLA. Appleton
Papers (“API”) has now moved for summary judgment on the issue of liability. For the reasons
given below, I will deny the motion.
I. Successor Liability when the Seller Survives the Transaction
The issue of successor liability has already received significant treatment in this Court’s
denial of preliminary relief to the government. In sum, I have concluded that although API may
have agreed to indemnify NCR as a part of its purchase of some of NCR’s assets (more on this
below), that agreement did not constitute a “successorship” to liability because (among other
reasons) NCR continued to remain in business. Without an actual “succession,” I concluded there
could be no successor liability. In addition, I noted that CERCLA § 107(e)(1) precluded parties’

efforts to shift liability to other entities. That statutory bar on the transfer of liability supported my
conclusion that there was no succession here. Finally, I found that the equitable purposes of the
successor liability doctrine were directed toward preventing the kind of fraud or injustice that would
result if a liable entity were allowed to shirk its liability through a liability-shifting transaction.
Because that did not occur here (given that NCR continued to remain liable), I found the
successorship doctrine inapplicable. Having already effectively ruled in favor of API, I will focus
my attention on the government’s arguments that my preliminary conclusion was incorrect.
To recall, in the common law there are four established ways in which a purchaser of assets
can be deemed a successor: “(1) Where there is an express or implied agreement of assumption;
(2) where the transaction amounts to a consolidation or merger of the purchaser or seller
corporation; (3) where the purchaser is merely a continuation of the seller; or (4) where the
transaction is for the fraudulent purpose of escaping liability for the seller's obligation.” Moriarty
v. Svec, 164 F.3d 323, 327, 164 F.3d 323 7th Cir. 1998) (quoting Vernon v. Schuster, 688 N.E.2d
1172, 1175 (Ill. 1997). Here, we are dealing only with the first of these, the express agreement of
assumption. The principal focus of the government’s present effort is its argument that NCR’s
continued existence as a viable company is irrelevant to the successorship analysis. It concedes that
the seller’s continued existence might preclude some ways of establishing successor liability, such
as in the application of the “mere continuation” doctrine or a de facto merger. For example, if
Company A sold some assets to Company B, it would be difficult to conclude that the transaction
was actually a consolidation or merger of the two businesses if Company A remained a viable going
concern. In that case, we would not view Company B as a successor.
But the government claims that the seller’s continued existence is not relevant when
successor liability is premised on an explicit agreement of liability assumption. If the buyer has

signed an agreement explicitly stating that it is assuming the liabilities of the seller, then the
concerns about continuity, fraud and de facto merger go by the wayside because the parties have
saved us the trouble by negotiating successor liability as a matter of contract, a contract to which
the public is a third-party beneficiary.
This argument faces at least two hurdles. First, as has been noted already, “the purpose of
corporate successor liability is to prevent corporations from evading their liabilities through changes
of ownership.” United States v. Mexico Feed & Seed Co., 980 F.2d 478, 487 (8th Cir.1992). Here,
because NCR remains viable, there has been no effort to “evade” liability. No one has disputed that
NCR is a solvent corporation that has the ability to pay any judgment here, and neither has anyone
suggested that the purpose of the asset sale to API was to shirk liability. Thus, the case, on its face,
does not cry out for application of the successorship doctrine.
A second, and possibly related, problem is that there is almost no precedent for finding
successor liability when the seller has remained a viable entity. For example, in United States v.
Iron Mountain Mines, Inc., which the United States cites, the court found successor liability based
on two assumption agreements. 987 F. Supp.2d 1233 (E. D. Cal. 1997). But there, the predecessor
companies had been dissolved. In fact, the court concluded that the requirements for a de facto
merger were likely met, although it did not reach that issue given the existence of the express
assumption agreement. Id. at 1242 n.19. Except for an unpublished case decided more than two
decades ago, it does not appear that successor liability has been found under the circumstances we
have here. See United States v. Chrysler Corp., 1990 WL 127160, *4-7 (D. Del. 1990) (finding
assumption of liability through agreement even though selling company remained in-tact).
Despite these hurdles, I am satisfied that API may be deemed a successor to the liability of
NCR even though NCR itself remains liable to the government. First, all of the CERCLA cases

addressing successor liability recognize that a company may become liable as a successor by
expressly agreeing to become liable. Moriarty v. Svec, 164 F.3d at 327. These cases do not
condition liability-by-agreement on the non-existence of the selling corporation. Perhaps the
problem is that assumption of CERCLA liability through an agreement is not actually a
“succession,” because in common parlance a succession implies that the successor has assumed
liability in lieu of the transferor. Instead of talking about succession, it might be clearer to state that
a party may assume direct CERCLA liability by agreement even though it may not “succeed” to it
in the traditional understanding of the term. In any event, CERCLA case law is clear that parties
may assume liability through agreement (though they may not transfer it away), and none of the
cases requires that an assumption is only valid if the seller ceases to exist. Accordingly, the fact that
NCR continues to be liable should not be an obstacle to finding API liable.
A second consideration motivating my denial of preliminary relief was the fact that
CERCLA explicitly prevents parties from shifting liability to other entities. 42 U.S.C. § 9607(e)(1).
“Although the law of corporate succession contemplates that corporate parties may allocate
liabilities in an asset sale, CERCLA § 107(e)(1) nullifies any attempted transfer of CERCLA
liability.” A.C. Reorganization v. Dupont, 1997 WL 381962, *7 (E.D. Wis. 1997). If CERCLA
invalidates such attempts to transfer, API argued, then how could the direct liability of NCR be
assumed by API (even if that were the parties’ intent)? Section 107(e)(1)’s prohibition on liability
transfer appeared to bolster my conclusion that API was not a successor.
The government now persuasively argues that although § 107(e)(1) would preclude a party
from eliminating liability through a liability transfer agreement, it does not preclude parties from
creating additional liability, in effect, on the part of the buyer or anyone else. The court in A.C.
Reorganization cited Harley–Davidson, Inc. v. Minstar, Inc. for the principle that CERCLA

precludes efforts to divest liability. 41 F.3d 341, 342 (7th Cir. 1994). But that is not the same as
saying that CERCLA prohibits a non-liable party from entering an agreement to take on direct
liability in addition to that of the already-liable party: the only condition CERCLA imposes is that
the directly liable party must remain liable. It might be argued that such an agreement would have
no purpose: if the seller cannot escape direct liability, then what is the point of “transferring”
liability to the buyer if the seller still remains on the hook for that liability? It is true that the
primary value in such an arrangement might manifest itself in the indemnification provision that
makes the buyer compensate the seller for any liability, rather than the assumption of direct liability
itself. But by making the buyer itself directly liable, the seller has obtained something of value: an
additional defendant to help share the burden of defense. Where there was one defendant there are
now two. Although this might not be the overarching purpose of such an arrangement, neither is
it a trifle.1 The point is that not only is an assumption agreement allowed by CERCLA (subject to
the conditions noted above), such an agreement also makes commercial sense. Thus, CERCLA’s
bar on the transfer of liability does not preclude a finding that API could be liable in addition to
NCR.
With those considerations favoring the imposition of successor liability, the only remaining
problem is that the purpose underlying the successor liability doctrine does not appear to apply here.
To recall, the cases tell us that the successor liability doctrine is intended to prevent corporations
from dying “paper deaths” only to reemerge having eliminated their environmental liability. United
States v. Mexico Feed and Seed Co., Inc., 980 F.2d 478, 487 (8th Cir. 1992). Obviously such a
concern is absent here. But just as the continued existence of the seller does not matter in an
1

And of course indemnification agreements are not self-executing. Having an
indemnitor on the line for direct liability saves the indemnitee the trouble of collecting on his
indemnification agreement.

assumption-by-agreement case, the concerns underlying the successor liability doctrine fall by the
wayside as well. As noted above, the problem may be one of nomenclature: the “succession”
doctrine applies when a buyer has actually succeeded (exclusively) to the liabilities of the seller,
who has either been dissolved or merged in some fashion. In these circumstances, courts rightly
view the doctrine as a means of preventing the injustice that would occur if a liable entity were
allowed to simply paper away that liability through private agreements. But when a buyer expressly
agrees to assume the environmental liabilities of the seller, we need not worry about such concerns
because shirking environmental liability—something CERCLA prohibits— was never the intent of
the agreement in the first place. In a case like this, it is not so much that a “doctrine” of successor
liability is being applied as it is simply a matter of enforcing an explicit contract that created
additional liability. Viewed in that light, the fact that the concerns underlying the succession
doctrine are absent in an assumption-by-agreement case is not all that surprising.
In sum, I do not believe the hurdles identified above suffice to preclude enforcement of an
explicit agreement to assume CERCLA liability. Nothing in federal common law requires that the
seller cease to exist before another entity may assume its CERCLA liability. And the concerns
underlying the other “successor” liability doctrines, such as de facto merger or mere continuation,
are not relevant when two companies have explicitly agreed that the buyer will become liable along
with the seller. Finally, nothing within CERCLA itself invalidates an attempt to create additional
CERCLA liability, so long as the agreement does not purport to transfer that liability. Thus, the
next question is whether the agreement signed by NCR and API actually does operate to create
direct liability on the part of API.
II. The 1978 Agreement
In 1978 NCR sold its Appleton Papers Division to API’s predecessor, a company called

Lentheric, Inc., hereinafter referred to simply as API. As part of the asset purchase agreement
memorializing that transaction, API agreed to assume several liabilities and to indemnify NCR as
follows:
Purchaser agrees that it shall assume, pay, perform, defend and discharge, if
and when due, to the extent not paid, performed, defended or discharged prior to the
Closing Date, all of the following:
...
1.4.4 all of Seller’s obligations and liabilities of any kind, character or
description relating to the period subsequent to the Closing Date which arise out of
or in respect of any state of facts, matter, event or disclosure set forth on an
attachment to the agreement that was designated as Schedule A; and
1.4.5 all of Seller’s obligations and liabilities of any kind, character or
description relating to the period subsequent to the Closing Date which arise out of
or in respect of any . . . action, claim, investigation by a government body, or legal
. . . proceeding set forth on Schedules A and M, and
...
1.4.9 all of Seller’s liabilities . . . whether accrued, absolute, contingent, or
otherwise . . . whether asserted or not and whether arising from transactions, events
or conditions occurring prior to or after the Closing Date, with respect to compliance
of the Property . . . with all applicable federal, state and local and other
governmental environmental and pollution control laws, ordinances, regulations,
rules and standards
(Dkt. 139, Ex. 3 at 19-21.)
Two of these assumption of liability clauses refer to Schedule A of the asset purchase
agreement. As relevant here, Schedule A contains the following clause:
Seller has reason to believe that the facilities of Appleton Papers Division
located in Pennsylvania and Wisconsin may be operating; in violation of applicable
federal, state, local and other governmental environmental and pollution control
laws, ordinances, regulations, rules and standards.
APD receives and has received notices from time to time from various
federal, state, local and other governmental authorities claiming violation of
environmental and pollution control laws, ordinances, regulations, rules and
standards (collectively “laws”). These claims may result, and have resulted in fines

and corrective action.
(Dkt. # 195, Ex. 3 at 4.)
The United States argues that each of these clauses shows that API’s predecessor explicitly
assumed liability for the cost of environmental cleanup at issue in this action. The question is
whether the language in the asset purchase agreement is broad enough to encompass the liability
at issue here even though neither CERCLA nor the extent of the PCB problem had been in the
minds of the parties at the time the contract was signed.
“A party may indemnify another party for liability arising out of a law not in existence at the
time of contracting.” Kerr-McGee Chemical Corp. v. Lefton Iron & Metal Co.,14 F.3d 321, 327
(7th Cir. 1994). But when that happens the parties cannot be said to have a meeting of the minds
as to the specific liability at issue. Instead, if the parties have expressed a meeting of the minds,
their agreement goes to the division of liability when some unforseen liability emerges; in other
words, the parties may contract to shift the risk of the unknown. In Kerr-McGee, for example, the
court found a pre-CERCLA agreement broad enough to encompass CERCLA liability when the
indemnitor had agreed to pay for “the maintenance of any action, claim or order concerning
pollution or nuisance.” 14 F.3d 321, 327 (7th Cir. 1994). Given the breadth of this language (“any
action . . . concerning pollution”) the court had no trouble concluding that the indemnitor had indeed
agreed to pay for the CERCLA liability in question even though such liability was not specifically
envisioned by the parties when the contract was signed.
Similarly, in Olin Corp. v. Consolidated Aluminum Corp., the Second Circuit noted that
indemnification agreements are interpreted strictly under New York law (which applies here at the
agreement of the parties). Even so, and despite the fact that CERCLA had not been enacted at the
time of the agreement in question, the court found in the parties’ agreement an intent to indemnify

for CERCLA liability:
The Purchase Agreement requires Conalco to indemnify Olin against “all liabilities,
obligations and indebtedness of Olin related to [its aluminum business] ... as they
exist on the Closing Date or arise thereafter.” (emphasis added). In the Assumption
Agreement executed at the closing, Conalco agreed to “indemnify Olin against, all
liabilities ( absolute or contingent ), obligations and indebtedness of Olin related to
[the aluminum business] ... as they exist on the Effective Time or arise thereafter
with respect to actions or failures to act occurring prior to the Effective Time.”
5 F.3d 10, 15 (2d Cir. 1993).
Both of these cases reflect the scenario in which although the parties did not—could not—
know about CERCLA liability, they made a business decision to shift the risk of the unknown (both
“known unknowns” and “unknown unknowns,” of which CERCLA was likely the latter) from party
A to party B.
Although two of the assumption clauses in this case are similar, § 1.4.4 appears to be
broader than § 1.4.5 because it includes “any state of facts” or “matters,” whereas the latter section
merely applies to governmental investigations or claims. Either way, the question is whether the
CERCLA liability at issue here arises out of any “matters,” etc., or governmental actions disclosed
in Schedule A. (Schedule M is not relevant here.) As noted earlier, the relevant portion of Schedule
A reads as follows:
Seller has reason to believe that the facilities of Appleton Papers Division
located in Pennsylvania and Wisconsin may be operating; in violation of applicable
federal, state, local and other governmental environmental and pollution control
laws, ordinances, regulations, rules and standards.
APD receives and has received notices from time to time from various
federal, state, local and other governmental authorities claiming violation of
environmental and pollution control laws, ordinances, regulations, rules and
standards (collectively “laws”). These claims may result, and have resulted in fines
and corrective action.
(Dkt. # 195, Ex. 3 at 4.)
The second paragraph just quoted indicates not only that APD had received notices from

governmental authorities in the past, but that it continued to do so at the time of the asset purchase.
These notices not only had resulted in fines and corrective action but “may result” in fines and
corrective action in the future. That is a “matter” disclosed in Schedule A. When API received
notices from the EPA that it was a PRP for the Fox River PCB problem, that was a notice from a
federal authority claiming violation of environmental laws. Although the PCB problem was not the
subject of any notices APD had received as of 1978, the clause is broad enough to indicate that the
division generally received such notices and would continue to do so in the future. Such notices
“may result” (as they did here) in corrective action. By disclosing the division’s proclivity for
receiving corrective notices from the government, the seller was alerting the buyer that this was an
issue for which it was accepting responsibility, both for problems already disclosed and for those
that had not yet arisen. It would therefore not be difficult to conclude that liability for the PCB
problem arose out of a matter disclosed on Schedule A.
Although I may be able to reach that conclusion from the asset purchase agreement alone,
the parties recognize that the purchase agreement may no longer be read in a vacuum. In 1995 NCR
sued API in the Southern District of New York to resolve liability for the PCB cleanup. The parties
ultimately reached a two-part settlement of that issue. First, they agreed to split the first $75 million
of any liability between them. Second, they agreed to submit the question to binding arbitration
with respect to any amounts in excess of $75 million.
The arbitration panel concluded that API was liable for 60% and NCR 40% of any expenses
in excess of $75 million. The panel found that the contractual language “is not sufficiently clear
and unambiguous with respect to the issue of responsibility for the environmental costs at issue to
permit an award based solely on the contract language.” (Dkt. # 208, Ex. 1 at 4.) Based on
testimony and documents produced to the panel, however, the panel decided to impose a larger

share of liability upon API.
Although the panel did not make its decision solely on the basis of the contract, the parties
had agreed that the arbitrators would settle the question of liability for cleanup expenses once and
for all. By agreeing to have the matter resolved by arbitration, the arbitration, in effect, altered the
terms of the original purchase agreement. The entirety of the agreement is thus the product of the
arbitration, which imposed liability upon API. In fact, given the agreed structure and mission of the
arbitration, which guaranteed that API would be found liable for some part of the expenses, API had
essentially already conceded liability just by virtue of entering into the arbitration.
API protests that in entering into the settlement agreement that led to arbitration, API and
NCR had explicitly agreed that neither party was admitting liability of any kind. (Dkt. # 124, Ex.
1.) Although that may be true, that was simply an agreement between those private parties that
neither of them were conceding liability. That does not mean, however, that one of the signatories
could not assume the liability that another party was actually found to have, regardless of the lack
of any concessions or admissions. If NCR were ultimately found to be liable under CERCLA, as
it has been, API could have agreed to assume that liability. In other words, the fact that neither one
was conceding it was liable in 1978 has no impact on whether or not one party assumed the liability
that the other actually was later found to have (irrespective of any concessions). For these reasons,
I am satisfied that the purchase agreement, as interpreted and applied by the arbitration panel, could
impose liability upon API. Accordingly, API’s motion for summary judgment will be denied.
III. Conclusion
For the reasons given above, I conclude that the government is correct that the continued
existence and liability of NCR does not preclude a finding that API assumed CERCLA liability.
Moreover, I further conclude that the terms of the 1978 assumption agreement, as applied in the

parties’ arbitration, are broad enough that they could encompass that liability. Accordingly, API’s
motion for summary judgment is DENIED.
SO ORDERED this 19th day of December, 2011.

/s William C. Griesbach
William C. Griesbach
United States District Judge