Second Circuit Discusses Split Re Choice of Law in CERCLA/Successor Liability Context

Per New York v. National Service Industries, Inc., 2006 WL 2171526 (2nd Cir. Aug. 3, 2006):

The choice-of-law question is a complicated one that has led our sister circuits to reach different answers. See, e.g., N. Shore Gas Co. v. Salomon, Inc., 152 F.3d 642, 650 (7th Cir.1998) (noting the circuit split).

On one hand, in United States v. Davis, 261 F.3d 1 (1st Cir.2001), for example, the First Circuit found "no evidence that application of state law to the facts of this case would frustrate any federal objective," and held that federal common law therefore would absorb state law to determine the scope of successor liability under CERCLA. Id. at 54. … see also Redwing Carriers, Inc. v. Saraland Apartments, 94 F.3d 1489, 1501 (11th Cir.1996) (finding that "[a]bsent a showing that state partnership law is inadequate to achieve the goals of CERCLA, we discern no imperative need to develop a general body of federal common law to decide cases such as this" (internal quotation marks omitted)); City Mgmt. Corp. v. U.S. Chem. Co., 43 F.3d 244, 253 (6th Cir.1994) (explaining that state law governs the question of corporate successor liability under CERCLA); Atchison, Topeka & Santa Fe Ry. Co. v. Brown & Bryant, Inc., 159 F.3d 358, 363 (9th Cir.1998) (noting that "[a]lthough often invoked in this context, there has been no real explanation of the need for uniformity in this particular area of successor liability--especially since state law will in many other instances determine whom the EPA may or may not look to for compensation"); Anspec Co., Inc. v. Johnson Controls, Inc., 922 F.2d 1240, 1248 (6th Cir.1991) (Kennedy, J. concurring) (arguing that corporations are creatures of state law and therefore state law should determine their liability absent a conflict with federal law).

On the other hand, in a split decision, the Third Circuit recently reaffirmed its pre-Bestfoods precedent that successor liability for purposes of CERCLA should be determined by a uniform, national rule. See United States v. Gen. Battery, 423 F.3d 294 (3d Cir.2005)….[It] concluded that the Supreme Court's approach in Bestfoods supported the use of a national rule based on traditional common law. Id. at 300. In Bestfoods, the Third Circuit found, the Supreme Court had applied "fundamental" and "hornbook" principles of corporate liability, not the law of any particular state. Id. As the Third Circuit explained, "the Supreme Court declined to apply Michigan law and instead looked to the general 'hornbook' rule of veil-piercing." Id. Moreover, the General Battery court rejected the reasoning of the First and Ninth Circuits, which, as noted, found no conflict between CERCLA's purposes and the use of state law. Id. at 301-02, 303. By contrast, the Third Circuit concluded that "[a] more uniform and predictable federal liability standard corresponds with specific CERCLA objectives by encouraging settlements and facilitating a more liquid market in corporate and 'brownfield' assets." Id. at 302. Similarly, the Fourth Circuit concluded that a national rule is required by "[t]he national interest in the uniform enforcement of CERCLA and the same interest in preventing evasion by a responsible party." United States v. Carolina Transformer Co., 978 F.2d 832, 837 (4th Cir.1992).

As we observed in NSI II, the Kimbell Foods factors appear to favor the absorption (non-displacement) of state law. See NSI II, 352 F.3d at 687 n. 1. Although CERCLA is a federal statute for which there is presumably an interest in uniform application, where there is no conflict between federal policy and the application of state law, "a mere federal interest in uniformity is insufficient to justify displacing state law in favor of a federal common law rule." Betkoski II, 112 F.3d at 91 (citation omitted).…Nevertheless, because the State's claim fails under either New York law or traditional common-law principles, we need not, and thus do not, decide whether CERCLA requires the displacement of state law in this instance.


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