05-0514-cv, 05-0702-cv, 05-0706-cv, 05-0708-cv
Marsh, et al. v. New York, et al.
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
August Term, 2005
(Argued: February 6, 2006 Decided: August 28, 2007)
05-0514-cv (Lead),-0702-cv (XAP),-0706-cv (XAP),-0708-cv (XAP)
----------------------------------------
Langdon Marsh, as Acting Commissioner of the New York
State Department of Environmental Conservation and
Trustee of the Natural Resources and Michael D. Zagata,
as Commissioner of the New York State Department of
Environmental Conservation,
Plaintiffs,
State of New York and Denise M. Sheehan, as Acting
Commissioner of the New York State Department of
Environmental Conservation and Trustee of the Natural
Resources,
Plaintiffs-Appellants-Cross-Appellees,
- v. -
Daniel Rosenbloom, Firmanco Associates, First Manhattan
Company, as distributees of the assets of Panex
Industries, Inc., Andreas Gal, Norman Halper and Oliver
Lazare, in their capacities as co-executors of the
Estate of Paul Lazare and Goldman Sachs & Company, as
distributees of the assets of Panex Industries, Inc.,
Defendants-Cross-Defendants-Appellees-
Cross-Appellants,
Panex Industries, Inc., Panex Industries, Inc.
Liquidating Trust, Alpine Group, Inc., and Rochester
Button Company, Inc.,
Defendant-Cross-Defendant,
Dresser Industries Inc.,
Intervenor-Plaintiff-Movant,
Turbodyne Electric Power Corporation, McGraw-Edison
Company, Inc., Dresser-Rand Company, ABB Air Preheater,
Inc., and Village of Wellsville,
Defendants-Cross-Claimants-Cross-Defendants,
Successor Panex Industries, Inc. Stockholders
Liquidating Trust, Michael D. Debaecke, Esq., as
Trustee of Successor Panex Industries, Inc.
Stockholders Liquidating Trust,
Defendants,
Cooper Industries, Inc.,
Intervenor-Third Party-Defendant.
------------------------------------------
B e f o r e: JACOBS, POOLER, and JOHN R. GIBSON,* Circuit
Judges.
Appeal from a judgment of the United States District Court
for the Western District of New York (Elfvin, J., District Judge)
following orders dismissing the State of New York's claims
against the dissolved corporation Panex's shareholder-
distributees and denying the Panex trustees' motion to dismiss
the State's CERCLA claims against Panex. We affirm the dismissal
of the State's claims against the shareholder-distributees and
reverse the judgment granted to the State on its CERCLA claims
against Panex.
*
The Honorable John R. Gibson, Circuit Judge, United States
Court of Appeals for the Eighth Circuit, sitting by designation.
2
RICHARD P. DEARING, Assistant Solicitor
General of the State of New York, and
EUGENE J. LEFF, Assistant Attorney
General of the State of New York, for
Plaintiff-Appellant-Cross-Appellee State
of New York and Alexander Grannis**.
GITA F. ROTHSCHILD, law firm of McCarter
& English, LLP, and MARK F. ROSENBERG,
law firm of Sullivan & Cromwell LLP, for
Defendants-Cross-Defendants-Appellees,
Cross-Appellants Daniel Rosenbloom,
Firmanco Associates, and First Manhattan
Company.
ROBERT L. TOFEL and MARK A. LOPEMAN,
Tofel & Partners, LLP, for Defendants-
Cross-Defendants-Appellees, Cross-
Appellants Andreas Gal, Estate of Paul
Lazare, Norman Halper, Oliver Lazare.
BRIAN M. COGAN, Stroock & Stroock &
Lavan LLP, for Defendant-Appellee-Cross-
Appellant Goldman Sachs & Company.
JOHN R. GIBSON, Circuit Judge.
The State of New York appeals from orders of the United
States District Court for the Western District of New York
(Elfvin, J., District Judge) dismissing its claims against
shareholder-distributees of Panex Industries, Inc., a dissolved
Delaware corporation. The State asserted these claims several
years after Panex had been dissolved, outside the corporate wind-
up period established by Delaware General Corporation Law § 278
**
Alexander Grannis succeeded Erin M. Crotty to the office of
Commissioner of the New York State Department of Environmental
Conservation and is named here pursuant to Federal Rule of
Appellate Procedure 43(c)(2).
3
and before obtaining a judgment against Panex as required by
Delaware General Corporation Law § 325(b), but the State argues
that its claims are valid under the common law equitable trust
fund doctrine. The shareholder-distributees cross-appeal from
the district court's denial of a motion to dismiss the State's
CERCLA claims against Panex and the summary judgment granted to
the State on those claims. They argue that Delaware General
Corporation Law § 278 governs and that Panex lacked capacity to
be sued under the statute because it had been dissolved for over
three years by the time the State notified Panex of its claims
and filed suit. The district court found that CERCLA preempted
section 278 in this instance.
I.
The issues raised in this appeal are one chapter in a
complex tale involving numerous parties. At the heart of the
suit is the State's effort to recover $4.5 million in
unreimbursed environmental response costs that it has paid to
investigate and clean up the Wellsville-Andover Landfill site in
Allegany County, New York.1
Panex Industries, Inc., was formed in 1981 under Delaware
law as part of the reorganization plan of its predecessor
company, Duplan Corporation. One of Duplan's operating divisions
1
In all the State paid or raised costs of $10 million in
connection with cleanup of the site, and the remaining sum is
what is left after the State's settlements with other parties.
4
had been the Rochester Button Company, a manufacturing plant. In
the early 1970s, Rochester Button used the Wellsville-Andover
Landfill site to dispose of its industrial waste, placing much of
it in a special disposal pit designated for Rochester Button’s
exclusive use. There was abundant evidence that Rochester Button
made substantial deposits of hazardous waste at the landfill
during the course of its operations. The New York State
Department of Environmental Conservation ultimately determined
that the site presented a significant threat to the public health
and environment, and the State began incurring response costs in
connection with its investigation of contamination at the site in
April 1984.
Meanwhile, unaware of the contamination at the landfill site
or of the State's recently commenced investigation, Panex’s
shareholders voted to dissolve the corporation on September 24,
1984. Panex filed its Certification of Dissolution effecting its
formal dissolution under Delaware law on April 15, 1985. To
facilitate the corporate wind-up, Panex's liquidation plan
created a Stockholder’s Liquidating Trust, which was intended in
part to reduce tax liability arising after dissolution, see City
Investing Co. Liquidating Trust v. Continental Casualty Co., 624
A.2d 1191, 1196 (Del. 1993). Panex's former shareholders had
received liquidating distributions totaling $64 million before
the Trust was created. The Trust received $6 million in funding
5
at its inception, and it distributed about $4.5 million to former
shareholders in July 1987 when the statute of limitations had run
on its 1982 and 1983 tax years and there were no other known
Panex liabilities. In all, the shareholder-distributees received
over $68 million in distributions. The defendant-appellees in
this action were among those distributees.
Delaware General Corporation Law § 278 generally establishes
a three-year continuation period, beginning at dissolution, for
dissolved corporations to wind up their affairs and for unknown
claimants to assert claims against the corporation. After this
period, the corporation ceases to exist and lacks capacity to be
sued. The State sent Panex formal notice of its claim for
response costs at the landfill site in March 1988, but Panex did
not receive the notice until April 25, 1988--just over three
years after its dissolution (which occurred on April 15, 1985),
thus just after the wind-up period expired. Upon receipt of this
notice, the trustees of the Panex Trust extended the life of the
Trust and postponed further distributions. For the next several
years, the State conducted investigations at the site and, in
1994, formulated a remediation plan.
After adopting the remediation plan, the State filed this
action in the Western District of New York against Panex, the
Panex Trust, and the purchasers of the Rochester Button assets,
among others, asserting federal claims under CERCLA and nuisance
6
claims under New York law. On behalf of Panex, its trustees
moved to dismiss, arguing that Delaware General Corporation Law §
278 barred all claims against Panex because the suit was filed
more than three years after its dissolution. The district court
dismissed the state-law nuisance claims but denied the motion to
dismiss the CERCLA claims, holding that CERCLA preempted
Delaware's statutory limit on the dissolved corporation's
capacity to be sued.
In March 1997, the costs of defending this and another
CERCLA lawsuit2 had depleted the Panex Trust further, and the
district court granted the State leave to join Panex's
shareholder-distributees as defendants in this action. The State
asserts claims under the common law equitable trust fund
doctrine, which allows claimants against a dissolved or insolvent
corporation to follow the distributed assets of the corporation
into the hands of its shareholders in order to satisfy the
corporation’s liability. See, e.g., Koch v. United States, 138
F.2d 850, 852 (10th Cir. 1943).
2
Panex and the shareholder-distributees were involved in
similar environmental litigation in the Virgin Islands, and the
Third Circuit concluded that Panex lacked capacity to be sued
under Delaware General Corporation Law § 278 and that Delaware
General Corporation Law § 325(b) barred suit against the former
shareholders. In re Tutu Wells Contamination Litig., No. 95-
7280, slip op. at 9 (3d Cir. Dec. 21, 1995) (noted in table at 74
F.3d 1228). The shareholder-distributees have argued that the
State participated in that litigation and is bound by the outcome
in that case, but we need not reach that argument to resolve the
instant appeal and cross-appeal.
7
Panex's shareholder-distributees moved to dismiss the claims
against them under Federal Rules of Civil Procedure 12(b)(1) and
12(b)(6). The district court granted the motion on October 2,
1997, ruling that the trust fund doctrine did not survive
Delaware's enactment of section 278, which barred the State’s
claims because they were not brought within three years of
Panex’s dissolution. The district court also concluded that the
State’s claim against the shareholder-distributees was premature
on the ground that Delaware General Corporation Law § 325(b)
required the State to obtain a judgment against Panex and the
Panex Trust, and have that judgment returned unsatisfied, before
pursuing recovery from the shareholder-distributees, which the
State had not done. The court rejected the State's argument that
it should adopt the trust fund doctrine as a matter of federal
common law under CERCLA, which would in turn preempt the Delaware
statutes. As a result of this ruling, the shareholder-
distributees were dismissed as defendants.
Seven years later, the district court granted summary
judgment to the State on its CERCLA claims against Panex and the
successor trust that had succeeded the Panex Trust, concluding
that CERCLA preempts the Delaware statutory limits that otherwise
would bar suit against the dissolved corporation. The district
court's judgment held Panex and the successor trust jointly and
severally liable to the State for $4,558,034.83 under CERCLA §
8
107, 42 U.S.C. § 9607, and declared that those entities were
jointly and severally liable for all future response costs
incurred by the State in cleaning up the site under CERCLA §§
113(g)(2). Neither Panex nor the successor trust has any assets
to pay the judgment, so, if the State is going to recover from
anyone, it must be the shareholder-distributees. Thus, the State
appeals the district court's 1997 order dismissing its claims
against the shareholder-distributees. The shareholder-
distributees cross-appeal the 2004 grant of summary judgment
against Panex and the denial of an earlier motion to dismiss the
claims against Panex in light of the State's failure to file suit
within the three-year wind-up period established by Delaware
General Corporation Law § 278.
The State advances four arguments in its appeal:
1. The district court erred in determining that section 278
bars the State’s claim against the shareholder-distributees,
because the common law trust fund doctrine survives enactment of
the statute;
2. The district court erred in holding that the State’s
claims against the shareholder-distributees were premature under
section 325(b) because it had not first obtained an unsatisfied
judgment against Panex;
3. The district court correctly held that CERCLA preempts
any time limits that Delaware General Corporation Law § 278 would
9
place on the State’s claims against Panex, and the court should
have allowed its claims against the shareholder-distributees to
proceed on the same grounds; and
4. The district court erred in refusing to recognize that
the trust fund doctrine applies in any timely-filed CERCLA suit
as a matter of federal common law.
On cross-appeal, the shareholder-distributees argue that the
district court erred in finding that CERCLA preempts Delaware
law's limitation on the dissolved corporation Panex's capacity to
be sued after the expiration of the wind-up period.
II.
The State argues that the district court erred in holding
that Delaware General Corporation Law §§ 278 and 325(b) bar its
claims against the Panex shareholder-distributees. According to
the State, the trust fund doctrine permits claims against
dissolved corporations to go forward with no special time limit,
and sections 278 and 325(b) have no effect upon its continued
relevance. We review the district court's decision to grant the
motion to dismiss de novo. See Cooper v. Parsky, 140 F.3d 433,
440 (2d Cir. 1998).
A. Section 278
We first address the State's argument that the trust fund
doctrine survives enactment of Delaware General Corporation Law,
Del. Code Ann. tit. 8, § 278, allowing its claims against Panex
10
and the shareholder-distributees to proceed even though suit was
filed more than three years after Panex’s dissolution. Under the
common law, dissolution of a corporation terminated its existence
as a legal entity, thus abating all pending actions by and
against it and terminating its capacity to sue or be sued. In re
Citadel Indus., Inc., 423 A.2d 500, 503 (Del. Ch. 1980). The
trust fund doctrine first arose, in part, to compensate for this
rather harsh rule, giving creditors some protection in the event
of a corporate dissolution. In re RegO Co., 623 A.2d 92, 95
(Del. Ch. 1992). Essentially, the trust fund doctrine gave
creditors an equitable right to follow corporate assets after
dissolution, such that the assets are held like a trust in which
the creditors have a claim superior to that of the shareholders.
Id.; see also Koch v. United States, 138 F.2d 850, 852 (10th Cir.
1943); Snyder v. Nathan, 353 F.2d 3, 4 (7th Cir. 1965).
Several states have enacted statutes that continue the
existence of corporations for a definite period of time following
dissolution, thereby providing a statutory remedy for the
difficulties associated with the common law abatement rule.
Considering that the equitable remedy arose in order to supply
relief where none existed, it may be argued that adequate
statutory remedies deprive courts of equitable jurisdiction. See
George I. Wallach, Products Liability: A Remedy in Search of a
Defendant-The Effect of a Sale of Assets and Subsequent
11
Dissolution on Product Dissatisfaction Claims, 41 Mo. L. Rev.
321, 332 (1976). Indeed, several courts construing such statutes
have concluded that the statutory remedies available to creditors
obviate reliance upon equitable remedies, thereby precluding
their use by the courts. See, e.g., Reconstruction Fin. Corp. v.
Teter, 117 F.2d 716, 727 (7th Cir. 1941) (holding that Illinois
statutes "completely regulate and control both the substantive
and procedural rights" of a corporation's creditors); Hunter v.
Fort Worth Capital Corp., 620 S.W.2d 547, 550 (Tex. 1981)("The
effect of these statutes was to supplant the equitable trust fund
theory by declaring a statutory equivalent."). But see Green v.
Oilwell, Div. of U.S. Steel Corp., 767 P.2d 1348, 1352 (Okla.
1989) (holding that state law did not provide a direct remedy for
creditors and therefore did not displace the trust fund
doctrine). The Delaware Court of Chancery has addressed this
issue briefly, explaining that "the problem that the trust fund
doctrine addresses has been ameliorated by provisions in the
corporate codes of most or all jurisdictions that continue the
existence of the corporation as a jural entity for limited
purposes following dissolution." In re RegO Co., 623 A.2d at 95.
Delaware's post-dissolution statute, section 278 of the
Delaware General Corporation Law3, was enacted in order "to
3
Del. Code Ann. tit. 8, § 278 provides:
All corporations, whether they expire by their own
12
formalize the continued existence of corporate assets and to
provide a mechanism for the assertion of claims as part of the
'winding up' process . . . [continuing] the corporation's
existence by operation of law." City Investing Co. Liquidating
Trust v. Continental Casualty Co., 624 A.2d 1191, 1194 (Del.
1993). Like other post-dissolution statutes, section 278
provides that "any suit against the corporation, which was filed
before dissolution or during the three year statutory wind-up
period, does not abate, even on the expiration of the wind-up
period." In re RegO Co., 623 A.2d at 95. When the wind-up
period expires, however, so does the corporation’s capacity to be
limitation or are otherwise dissolved, shall
nevertheless be continued, for the term of 3 years from
such expiration or dissolution or for such longer
period as the Court of Chancery shall in its discretion
direct, bodies corporate for the purpose of prosecuting
and defending suits, whether civil, criminal or
administrative, by or against them, and of enabling
them gradually to settle and close their business, to
dispose of and convey their property, to discharge
their liabilities and to distribute to their
stockholders any remaining assets, but not for the
purpose of continuing the business for which the
corporation was organized. With respect to any action,
suit or proceeding begun by or against the corporation
either prior to or within 3 years after the date of its
expiration or dissolution, the action shall not abate
by reason of the dissolution of the corporation; the
corporation shall, solely for the purpose of such
action, suit or proceeding, be continued as a body
corporate beyond the 3-year period and until any
judgments, orders or decrees therein shall be fully
executed, without the necessity for any special
direction to that effect by the Court of Chancery.
13
sued.
The initial question before this court is whether section
278 supersedes the trust fund doctrine, preventing the State's
claims against Panex’s shareholder-distributees from going
forward because the State filed suit after the expiration of the
three-year wind-up period. The State argues that because section
278 does not explicitly address the remedies available to
creditors against shareholder-distributees, section 278 does not
supersede the trust fund doctrine as to these defendants. The
district court noted, however, that the trust fund doctrine has
never been used by a Delaware law court to circumvent section 278
in any situation. Other courts also have recognized that the
trust fund doctrine has been superseded by wind-up statutes, and
the district court cited three cases to support this proposition:
Pacific Scene, Inc. v. Penasquitos Inc., 758 P.2d 1182 (Cal.
1985); Hunter, 620 S.W.2d 547; and Blankenship v. Demmler
Manufacturing Co., 411 N.E.2d 1153 (Ill. App. Ct. 1980).
The State argues that the district court's reliance upon
these cases is misplaced because they involve statutes that
provide specific statutory remedies against shareholder-
distributees, unlike section 278, thereby limiting their
applicability. Thus, California Corporations Code § 2009
"restored to creditors a direct remedy against the former
shareholders of dissolved corporations," Pacific Scene, 758 P.2d
14
at 1184; in Texas, Article 7.12 of the Texas Business Corporation
Act "applies to officers, directors, and shareholders of a
dissolved corporation," Hunter, 620 S.W.2d at 550; and in
Illinois, the two-year survival statute provided that corporate
dissolution "shall not take away or impair any remedy available
to or against such corporation, its directors, or shareholders"
for claims accruing before dissolution as long as suit was filed
within the two year period, Blankenship, 411 N.E.2d at 1156.
These cases support the conclusion that section 278 applies
to this case. First, in concluding that statutory remedies
supersede the common law trust fund doctrine, all three cases
address as a policy matter the necessity of protecting
shareholders, together with officers and corporations, from
uncertain liability; this reduces the significance of differences
in statutory language. See, e.g., Pacific Scene, 758 P.2d at
1187 (stating that "shareholders nonetheless possess an important
statutory interest in the final and certain termination of their
involvement with the affairs of a dissolving corporation");
Hunter, 620 S.W.2d at 551 (stating that "Article 7.12 expresses a
legislative policy to restrict the use of the trust fund theory
to pre-dissolution claims, and to protect shareholders, officers
and directors of a dissolved corporation from prolonged and
uncertain liability"). We recognize that shareholders, officers,
and corporations all have an interest in certainty and finality.
15
See 15A William M. Fletcher, Cyclopedia of the Law of
Corporations § 7373 (2006)("The trust fund doctrine is fuzzy;
statutes by contrast are sharp. Accordingly, the adoption of
corporate dissolution statutes has supplanted the equitable trust
theory in most jurisdictions.").
Second, all three cases deal with post-dissolution claims,
so the courts were addressing the availability of the trust fund
doctrine despite statutory schemes that limit remedies to pre-
dissolution claims. The cases question whether to apply the
trust fund doctrine in order to provide extra-statutory remedies,
which explains the emphasis on statutory construction and whether
the statutes regulate corporate liability to the point of
superceding the trust fund doctrine. See, e.g., Hunter, 620
S.W.2d at 551 (stating that "no real purpose would be served by .
. . permitting suits against officers, directors, and
shareholders of a dissolved corporation, unless the legislature
intended for the statute to bar resort to the trust fund theory
apart from the statute in order to enforce post-dissolution
claims. To hold otherwise would violate the rule of statutory
construction that the legislature is never presumed to do a
useless act"); Pacific Scene, 758 P.2d at 1186 ("Courts and
commenters . . . have been troubled by [the] implication that
legislators uselessly created a redundant statutory remedy for a
subclass of claims concurrently remediable in equity.").
16
In contrast, the instant case involves a claim accruing
before Panex’s dissolution. Therefore the key question is not
whether section 278 completely supersedes the trust fund
doctrine, but is instead the narrower question of whether section
278 provides a remedy for the State’s pre-dissolution claim
against Panex’s former shareholders.4 Contrary to the State's
assertions, several Delaware cases suggest that the Court of
Chancery interprets section 278 as applying to claims against
both corporations and shareholders that arise before dissolution.
The court in In re RegO Co. briefly discussed the relationship
between the trust fund doctrine and statutory remedies. It
acknowledged that section 278 addresses the same problems as the
trust fund doctrine, but it also recognized that the "modern
scheme still leaves open the question, what, if any, rights are
afforded to persons who have no claim against a corporation at
the time of its dissolution, or during the statutory wind-up
period, but who do thereafter acquire such a claim." In re RegO
Co., 623 A.2d at 96. The court concluded that a corporation
could not be liable for a post-dissolution claim, but
4
Even if section 278 does not encompass such a remedy, the
differences in statutory language between section 278 and other
state statutes are not necessarily dispositive. As the decisions
cited by the district court indicate, the important issue is
whether the State of Delaware would have enacted section 278
while preserving a subclass of claims, those against
shareholders, remediable in equity. We believe it would not.
17
characterized the possibility that shareholders and directors may
be liable as "an unclear and troubling question." Id.
The crucial question for the court in analyzing statutory
remedies was whether a claim arose before or after the statutory
wind-up period, not whether the defendant was the corporation,
the directors, or the shareholders.5 By addressing the fact that
shareholders and directors may be liable in the modern scheme,
but only in the context of post-dissolution claims, the court was
implicitly recognizing that section 278 covers all potential pre-
dissolution claims, regardless of which corporate constituent is
named as the defendant.
Similarly, in In re Citadel Industries, Inc. the court made
no distinction between potential defendants when it analyzed the
5
The distinction between pre-dissolution and post-
dissolution claims articulated in In Re RegO Co. also allows us
to address another of the State's arguments. Section 282(b) of
the Delaware General Corporation Law provides that if a
corporation chooses to distribute its assets in accordance with
procedures described in section 281(a), then its shareholders
"shall not be liable for any claim against the corporation on
which an action, suit or proceeding is not begun prior to the
expiration of the period described in § 278 of this title." The
State argues that this demonstrates the continued vitality of the
trust fund doctrine in Delaware law. As the Court of Chancery
explained, however, sections 280-282 were passed in order to
address the uncertainty associated with dissolving a corporation
that faces potential future claimants. See In re RegO Co., 623
A.2d at 96. In other words, sections 280-282 do not recognize
the continued vitality of the trust fund doctrine, but rather
foreclose the use of the trust fund doctrine for post-dissolution
claims, provided dissolved corporations follow the procedures
outlined in section 281(a). This is of no consequence for
determining whether section 278 has an effect on the trust fund
doctrine's applicability in pre-dissolution claims.
18
expiration of the three-year statutory wind-up period. The court
concluded that the corporation "no longer existed as a body
corporate. It no longer had legal existence as a corporation. .
. . [T]here was no longer a legal entity which could be continued
through its officers, directors and shareholders." In re Citadel
Industries, Inc., 423 A.2d at 507. The court also expressed
concern that "[o]nce a corporation is dissolved, the following
three-year period run, all known debts paid, [and] all remaining
assets distributed to shareholders, . . . [h]ow can a vast number
of former shareholders be compelled to return any final
distribution of assets, etc.?" Id. at 506. Although section 278
does not set forth specific remedies against shareholders, there
is evidence that the Court of Chancery considers section 278 to
be a comprehensive statutory remedy available to creditors for
claims against all potential defendants, including the
corporation, its officers, and its shareholders.6
6
The Court of Chancery's decisions in City Investing Co.
Liquidating Trust 624 A.2d 1191, and Rosenbloom v. Esso Virgin
Islands, Inc., 766 A.2d 451 (Del. 2000), are of no avail to the
State in this case. Neither case makes any reference to the
availability of the trust fund doctrine for pursuing claims
against dissolved corporations and their former shareholders.
City Investing Co. Liquidating Trust held that "a liquidating
trust is the successor of the corporation whose assets it
administers" and thus subject to creditors' claims despite the
corporation's dissolution. 624 A.2d at 1197. Similarly, in
Rosenbloom, the Court of Chancery recognized that the creation of
a successor trust was necessary to preserve the claimants' rights
and "complete the winding up process." 766 A.2d at 459. Instead
of making any reference to the trust fund doctrine, both cases
delineate the role of trusts in Delaware's statutory framework.
19
We are persuaded by the general consensus that modern
statutory remedies have effectively replaced the trust fund
doctrine and that there are sound reasons for abiding by the
wind-up period established by section 278. We therefore conclude
that the district court correctly held that the State's claims
against the shareholder-distributees are barred by section 278.
B. Section 325(b)
Having concluded that section 278 applies to the State's
claims against Panex and its former shareholders, we must
likewise conclude that Delaware General Corporation Law § 325(b)7
bars the State's claims against the shareholder-distributees. As
the State points out, Delaware law requires that for section
325(b) to apply, the defendants must be liable "by the provisions
of this chapter." Del. Code Ann. tit. § 325(a). The State
argues that this precludes application of section 325(b) in this
case because it is a suit arising in equity.
In light of our conclusion that section 278 provides the
only basis for liability, the State's argument must fail.
Indeed, the State has an unchallenged judgment against Panex’s
liquidating trust; the difficulty is that its assets are
insufficient to satisfy the claim.
7
Del. Code Ann. tit. 8, § 325(b) provides:
No suit shall be brought against any officer, director
or stockholder for any debt of a corporation of which
such person is an officer, director or stockholder,
until judgment be obtained therefor against the
corporation and execution thereon returned unsatisfied.
20
Section 278 applies to claims against shareholders that arise
before dissolution, so therefore section 325(b) also applies and
the State must obtain judgment against Panex before pursuing its
claim against the shareholder-distributees.
III.
As we have concluded that the Delaware statutes bar the
State's claims against Panex and its shareholder-distributees, we
turn to the State's argument that those statutes should not apply
in the face of CERCLA. The district court accepted this argument
as to Panex, holding that CERCLA preempted Delaware General
Corporation Law § 278's three-year limitation on Panex's capacity
to be sued. It rejected the argument as to the shareholder-
distributees, however, reasoning that Delaware law controls
because any liability of the shareholder-distributees would arise
from their amenability to suit under Delaware law, not from
CERCLA or federal common law. We hold that CERCLA does not
require displacement of Delaware law in this case, and the suits
against both the shareholder-distributees and Panex are barred.
The State first contends that Delaware law conflicts with
the federal policy expressed in CERCLA, such that the six-year
CERCLA limitations period set forth at 42 U.S.C. § 9613(g)(2)(B)
preempts the three-year corporate wind-up period established by
Delaware General Corporation Law § 278. Alternatively, the State
urges this Court to displace the Delaware statutes and apply the
21
trust fund doctrine as a matter of federal common law in CERCLA
cases, allowing it to pursue Panex assets that have been
distributed to Panex's former shareholders.
We begin with the observation that corporate law is
overwhelmingly the province of the states. See Kamen v. Kemper
Fin. Servs., Inc., 500 U.S. 90, 98-99 (1991). The Federal Rules
of Civil Procedure provide that state law governs a corporation's
capacity to be sued, Fed. R. Civ. P. 17(b), and the Supreme Court
has held that "[h]ow long and upon what terms a state-created
corporation may continue to exist is a matter exclusively of
state power," with the federal government "powerless to resurrect
a corporation which the state has put out of existence for all
purposes." Chicago Title & Trust Co. v. Forty-One Thirty-Six
Wilcox Bldg. Corp., 302 U.S. 120, 127-28 (1937); see also Melrose
Distillers, Inc. v. United States, 359 U.S. 271, 272 (1959)
(state law determines the question of corporate existence).
Whether framed in terms of conflict preemption or in terms of the
creation of federal common law, the Supreme Court expressly has
cautioned against displacement of state law in areas
traditionally occupied by the states. See, e.g., English v. Gen.
Elec. Co., 496 U.S. 72, 79 (1990) (warning that preemption of
"areas that have been traditionally occupied by the States" is
inappropriate absent "clear and manifest" congressional intent to
supersede state law); Atherton v. FDIC, 519 U.S. 213, 218 (1997)
22
(stating that Congress legislates against the background of state
law, so a "significant conflict" between federal policy and state
law must be specifically shown before the creation of federal
common law is justified). Keeping these principles in mind, we
address in turn each of the State's arguments for displacement of
Delaware corporate law.
A. Conflict Preemption
To determine whether CERCLA preempts the Delaware statutes,
we must ascertain the intent of Congress. Cal. Fed. Sav. & Loan
Ass'n v. Guerra, 479 U.S. 272, 280 (1987). The Supreme Court has
identified three situations that show congressional intent to
preempt state law: (1) where Congress expressly states its intent
to preempt; (2) where Congress's scheme of federal regulation is
sufficiently comprehensive to give rise to a reasonable inference
that it leaves no room for the state to act; and (3) where state
law actually conflicts with federal law. Id. at 280-81. CERCLA
does not expressly state an intent to preempt state law across
the board. See Bedford Affiliates v. Sills, 156 F.3d 416, 426
(2d Cir. 1998). While CERCLA does state that it applies
"[n]otwithstanding any other provision or rule of law," 42 U.S.C.
§ 9607(a), this clause refers only to substantive liability and
does not express congressional intent to preempt state rules on
how litigation proceeds, including a party's amenability to suit.
See Citizens Elec. Corp. v. Bituminous Fire & Marine Ins. Co., 68
23
F.3d 1016, 1019 (7th Cir. 1995). Nor is the CERCLA regulatory
scheme so comprehensive that we reasonably can infer an intent to
preempt; in fact, state corporate law can supplement CERCLA in
several situations. Bedford Affiliates, 156 F.3d at 426-27.
Our inquiry therefore focuses on the third preemption
scenario, whether Delaware law actually conflicts with CERCLA.
An actual conflict between state and federal law exists when
"compliance with both federal and state regulations is a physical
impossibility," Guerra, 479 U.S. at 281 (quoting Fla. Lime &
Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142-43 (1963)), or
when state law is "an obstacle to the accomplishment and
execution of the full purposes and objectives of Congress,"
Guerra, 479 U.S. at 281 (quoting Hines v. Davidowitz, 312 U.S.
52, 67 (1941)). Absent clear congressional intent to the
contrary, federal preemption of state law is not favored,
see English, 496 U.S. at 79, especially in areas of law
traditionally occupied by the states. As we observed above,
corporate law is one of these areas. Kamen, 500 U.S. at 99. For
preemption to occur in this instance, then, the conflict between
state law and federal policy must be a "sharp" one. See Boyle v.
United Tech. Corp., 487 U.S. 500, 507 (1988).
The "physical impossibility" form of conflict does not exist
here, because it is certainly possible to comply with the CERCLA
limitations period and Delaware's limits on the amenability to
24
suit of dissolved corporations and their shareholder-
distributees. As long as a CERCLA plaintiff files its claim
within three years of the corporation's dissolution as required
by Delaware General Corporation Law § 278, or seeks extension of
the wind-up period from the Court of Chancery within that time as
section 278 allows, it also meets CERCLA's six-year limitations
period, 42 U.S.C. § 9613(g)(2). See Witco Corp. v. Beekhuis, 38
F.3d 682, 688 (3d Cir. 1994) (finding no actual conflict where it
was physically possible for CERCLA claimant to file within three-
year CERCLA limitations period and eight-month period established
by Delaware nonclaim statute, which also contained a mechanism to
preserve contingent CERCLA contribution claims). That a CERCLA
plaintiff, like the State here, might find it impossible to
comply with both statutes in some circumstances is not enough to
establish an actual conflict between the two in this case. See
id. at 688. The question of preemption thus turns on whether
Delaware law presents an obstacle to the accomplishment of
CERCLA's objectives.
CERCLA manifests Congress's intent that hazardous waste
sites should be cleaned up and that those responsible for the
contamination should bear the costs. Pennsylvania v. Union Gas
Co., 491 U.S. 1, 7 (1989). To effectuate these goals, CERCLA
looks backward in time and imposes wide-ranging liability. It
allows the government to recover remediation costs directly from
25
parties responsible for contamination, 42 U.S.C. § 9607(a)(4)(A);
it allows private parties to seek indemnification and
contribution for clean-up costs from potentially responsible
parties, 42 U.S.C. § 9607(a)(4)(B); and it imposes strict
liability on owners and operators of contamination sites, 42
U.S.C. § 9607(a)(1). See B.F. Goodrich Co. v. Murtha, 958 F.2d
1192, 1198 (2d Cir. 1992). Even so, CERCLA's statutory scheme
anticipates that, in some situations, it will be impossible to
recover from responsible parties. See Commander Oil Corp. v.
Barlo Equip. Corp., 215 F.3d 321, 327 (2d Cir. 2000) ("neither
does CERCLA automatically assign liability to every party with
any connection to a contaminated facility"). In other words,
CERCLA's cost-recovery objective, while strong, is not absolute
and may yield to countervailing considerations. As the Supreme
Court has stated, "there is no federal policy that the fund
should always win," and "'more money' arguments" alone are
insufficient to justify displacement of state law. O'Melveny &
Myers v. FDIC, 512 U.S. 79, 88 (1994) (discussing federal common
law in the context of the Financial Institutions Reform,
Recovery, and Enforcement Act).
We cannot conclude that Delaware law is an obstacle to the
accomplishment of CERCLA's objectives in this instance. The
State's strongest argument on this point is that CERCLA aims to
hold corporations financially responsible for the environmental
26
damage their activities cause, and dismissal of its claims under
Delaware law will require taxpayers to pay for the Rochester
Button cleanup, even though millions of dollars in Panex assets
are traceable to the shareholder-distributees. CERCLA
recognizes, however, that recovery will not always be possible
and manifests no intent that funds that once belonged to a party
responsible for contamination should be frozen indefinitely or
traced infinitely. See Onan Corp. v. Indus. Steel Corp., 770 F.
Supp. 490, 494 (D. Minn. 1989) (recognizing need to construe
CERCLA broadly to achieve environmental and cost-assignment goals
but stating that CERCLA's reach is "not unlimited"), aff'd, 909
F.2d 511 (8th Cir. 1990). That Delaware law, in affording
dissolved corporations and their shareholders a measure of
finality, operates to leave the State with no source of recovery
in this case amounts to the type of "more money" argument the
Supreme Court rejected in O'Melveny, 512 U.S. at 88. It is not
the sort of sharp conflict between state law and federal policy
that justifies preemption.
The district court documented the disagreement among federal
courts on this issue.8 Many of the cases that hold that CERCLA
8
Several district courts, like the court below, have held
that CERCLA preempts state limits on the capacity of dissolved
corporations to be sued in light of congressional intent that
CERCLA impose broad-ranging liability. See, e.g., United States
v. Sharon Steel Corp., 681 F. Supp. 1492, 1495-96 (D. Utah 1987);
BASF Corp. v. Cent. Transp., Inc., 830 F. Supp. 1011, 1013 (E.D.
Mich. 1993) (collecting cases); Idylwoods Assocs. v. Mader
27
preempts state limits predate Supreme Court precedent strongly
admonishing courts against displacing state law lightly, see,
e.g., O'Melveny, 512 U.S. at 88. In light of that precedent and
CERCLA's limits we join those Courts of Appeals that have held
that CERCLA does not preempt state statutes that limit a party's
capacity to be sued. See Levin Metals Corp. v. Parr-Richmond
Terminal Co., 817 F.2d 1448, 1451 (9th Cir. 1987); Onan Corp. v.
Indus. Steel Corp., 770 F. Supp. 490, 494 (D. Minn. 1989), aff'd,
909 F.2d 511 (8th Cir. 1990); Witco Corp. v. Beekhuis, 38 F.3d
682, 690 (3d Cir. 1994).
A conflict could exist if the Delaware statutes would thwart
CERCLA's goals by encouraging corporations responsible for
contamination to dissolve and distribute assets to avoid CERCLA
liability, but this simply is not the case. States have
incentives not to enact laws that would inspire such a "race to
the bottom." Anspec Co. v. Johnson Controls, Inc., 922 F.2d
1240, 1250 (6th Cir. 1991) (Kennedy, J., concurring) ("States
have a substantial interest in protecting their citizens and
state resources."). Delaware law protects against this result,
requiring dissolving corporations to provide security that will
be "reasonably likely to be sufficient" to cover claims that have
not been made known to the corporation or that, based on facts
Capital, 915 F. Supp. 1290, 1303-04 (W.D.N.Y. 1996) (collecting
cases).
28
known to the corporation, are likely to arise within a period
after dissolution. Del. Code Ann. tit. 8, §§ 280(c)(3), 281(b).
See also Bradford C. Mank, Should State Corporate Law Define
Successor Liability?: The Demise of CERCLA's Federal Common Law,
68 U. Cin. L. Rev. 1157, 1160 (2000) (corporate successor
liability laws of most states "generally prevent corporations
from using sham transactions to escape CERCLA liability"). In
addition, section 278 provides for extension of the wind-up
period beyond three years "as the Court of Chancery shall in its
discretion direct," which could give a potential CERCLA plaintiff
time to investigate the contamination site while preserving its
ability to make a claim against the dissolving corporation.
Finally, we are not persuaded by the district court's rationale
that it is "unlikely that Congress intended that CERCLA treat
differently and inconsistently corporations in identical
positions based upon the state of their incorporation";
preemption is not favored absent clear congressional intent to
the contrary, see English, 496 U.S. at 79, and Congress's
probable desire for uniformity is not enough to justify
displacement of state law where that state law does not actually
conflict with the "clear and manifest purpose of Congress,"
Witco, 38 F.3d at 687. See also New York v. Nat'l Serv. Indus.,
Inc., 460 F.3d 201, 208 (2d Cir. 2006).
On a fundamental level, the CERCLA statute of limitations
29
and Delaware's corporate wind-up period serve different purposes,
reinforcing our conclusion that they do not actually conflict.
CERCLA's statute of limitations "extinguishes the right to
prosecute an accrued cause of action after a period of time."
Burlington N. & Santa Fe Ry. Co. v. Poole Chem. Co., 419 F.3d
355, 362-63 (5th Cir. 2005). In contrast, Delaware's section 278
defines a dissolved corporation's capacity to be sued, creating a
right for dissolved corporations and their former shareholders to
be free from suit after a period of time. See id. As the State
points out, an important goal of CERCLA's statute of limitations
is to allow time for parties to gauge response costs before the
suit is filed, H.R. Rep. No. 99-253, pt. 3, at 20 (1985),
reprinted in 1986 U.S.C.C.A.N. 3038, 3043; thus, the applicable
CERCLA statute of limitations in this case did not begin to run
until "6 years after initiation of physical on-site construction
of the remedial action." 41 U.S.C. § 9613(g)(2)(B). The
Delaware statute limiting capacity to be sued does not
necessarily interfere with this goal, however, because it
provides for potentially indefinite extension of the three-year
wind-up period in the discretion of the Court of Chancery. Del.
Code Ann. tit. 8, § 278. Delaware's statute limits capacity to
be sued, not liability, and thus does not conflict with CERCLA's
statute of limitations--even if in operation the state law
precludes the CERCLA plaintiff from recovering in some
30
circumstances. See Witco, 38 F.3d at 690; Louisiana-Pac. Corp.
v. ASARCO, Inc., 5 F.3d 431, 433-34 (9th Cir. 1993); Onan, 770 F.
Supp. at 494-95; Levin Metals Corp. v. Parr-Richmond Terminal
Co., 817 F.2d 1448, 1451 (9th Cir. 1987).
The State analogizes this case to Bedford Affiliates, where
we held that CERCLA preempted state-law claims for restitution
and indemnification. 156 F.3d at 427. In that case, however,
the plaintiffs' state-law claims for restitution and
indemnification stood in the way of CERCLA's objective of
encouraging settlement, which it achieves by restricting the
availability of contribution actions. The restitution and
indemnification claims would have given the plaintiffs an
alternative to the contribution action withheld by CERCLA,which
flies in the face of the federal goal of encouraging settlements.
CERCLA's statute of limitations and Delaware's corporate wind-up
period present no such direct conflict.
In sum, the State has not shown such a conflict between
Delaware law and the congressional policy manifested in CERCLA as
to lead us to conclude that Congress intended to preempt
Delaware's corporate wind-up period, which protects dissolved
corporations' and their former shareholders' interests in
finality. CERCLA does not suggest that "the entire corpus of
state corporation law is to be replaced simply because a
plaintiff's cause of action is based upon a federal statute,"
31
Burks v. Lasker, 441 U.S. 471, 478 (1979), or because it would
net the government more money, O'Melveny, 512 U.S. at 88, which
is essentially all the State has shown here. That is not
sufficient to justify preemption.
B. Federal Common Law
Having held that the CERCLA statute of limitations does not
preempt Delaware law in this instance, we address the State's
argument that we should create a rule of federal common law based
on the equitable trust fund doctrine for CERCLA cases. The
State's proposed rule would displace Delaware law and allow the
State to pursue the assets Panex distributed to its former
shareholders.
The Supreme Court has sharply curtailed the federal courts'
ability to create rules of federal common law. To justify
creation of a rule of federal common law, the State must show
specifically a "significant conflict between some federal policy
or interest and the use of state law." Wallis v. Pan Am.
Petroleum Corp., 384 U.S. 63, 68 (1966). Cases that call for the
creation of federal common law are "few and restricted," see
Atherton v. FDIC, 519 U.S. 213, 218 (1997), and it is difficult
to prove the need for a federal common law rule, see Atchison,
Topeka & Santa Fe Ry. Co. v. Brown & Bryant, Inc., 159 F.3d 358,
364 (9th Cir. 1998). The existence of a complex federal
statutory scheme does not automatically show that Congress
32
intended courts to fill its gaps with rules of federal common
law. Id. at 362 (citing O’Melveny). Rather, where federal
statutory regulation is "comprehensive and detailed," as CERCLA
is, we presume that matters left unaddressed are "left subject to
the disposition provided by state law." O'Melveny, 512 U.S. at
85. We strongly presume that state law should be determinative
where "private parties have entered legal relationships with the
expectation that their rights and obligations would be governed
by state-law standards," as is the case with most corporate
matters. Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90, 98
(1991).
While recognizing that Congress intended CERCLA to provide a
sweeping remedy that requires responsible parties to bear the
costs of cleaning up environmental contamination they cause, the
Supreme Court has advised courts not to create CERCLA-specific
rules to displace well-settled state corporate law just because a
case involves CERCLA. United States v. Bestfoods, 524 U.S. 51,
63 (1998). In Bestfoods, the Court refused to adopt a "relaxed,
CERCLA-specific rule of derivative liability that would banish
traditional standards and expectations from the law of CERCLA
liability." Id. at 70. This Circuit has thus interpreted
Bestfoods as a clear warning against creating CERCLA-specific
federal common law rules. New York v. Nat'l Serv. Indus., Inc.,
352 F.3d 682, 685 (2d Cir. 2003) (holding that Bestfoods required
33
us to overrule B.F. Goodrich v. Betkoski, 99 F.3d 505 (2d Cir.
1996), which had applied a federal common law rule of substantial
continuity for purposes of determining corporate successor
liability under CERCLA). The First Circuit likewise has
interpreted Bestfoods as leaving "little room for the creation of
a federal rule of [corporate] liability" under CERCLA. United
States v. Davis, 261 F.3d 1, 54 (1st Cir. 2001). A split
decision of the Third Circuit, in contrast, read Bestfoods to
favor a uniform federal standard. United States v. Gen. Battery
Corp., 423 F.3d 294, 300 (3d Cir. 2005), cert. denied, Exide
Tech. v. United States, 127 S. Ct. 41 (2006).
While Bestfoods stops short of expressly instructing courts
to apply state law, it clearly admonishes courts to refrain from
creating CERCLA-specific rules in the face of applicable long-
standing common law principles. Compare, Gen. Battery Corp., 423
F.3d at 305, with id. at 312 (Rendell, J., concurring and
dissenting). As a practical matter, those principles typically
come from state law. See Ronald H. Rosenberg, The Ultimate
Independence of the Federal Courts: Defying the Supreme Court in
the Exercise of Federal Common Law Powers, 36 Conn. L. Rev. 425,
455 (2004).
Having concluded that we cannot create a rule of federal
common law on the basis of the mere involvement of CERCLA in the
case, we proceed to the traditional analysis. As discussed in
34
Part III.A above, there is no significant conflict between state
law and federal policy in this instance. The absence of such a
conflict weighs heavily against creation of a rule of federal
common law as a threshold matter, because a significant conflict
is "normally a 'precondition'" to the creation of federal common
law. Atherton, 519 U.S. at 218 (citing O'Melveny, 512 U.S. at
87).
In light of these principles, it is questionable whether we
even need to entertain the additional considerations set forth in
United States v. Kimbell Foods, Inc., 440 U.S. 715, 728-29
(1979), to analyze the State's invitation to apply the trust fund
doctrine as a matter of federal common law, in place of the
Delaware statutes, to permit it to recover CERCLA cleanup costs
from Panex's shareholder-distributees. In Bestfoods, the Supreme
Court flatly rejected the creation of federal common law without
even citing the Kimbell Foods test. See Gen. Battery, 423 F.3d
at 318 n.19 (Rendell, J., concurring and dissenting).
Nonetheless, the parties have addressed the Kimbell Foods
considerations, and we typically examine them in deciding whether
to draw from state law or to create a rule of federal common law
in cases involving federal programs. See Nat'l Serv. Indus.,
Inc., 460 F.3d at 207. Under Kimbell Foods, we consider: (1) the
"need for a nationally uniform body of law"; (2) "whether
application of state law would frustrate specific objectives of
35
the federal programs"; and (3) "the extent to which application
of a federal rule would disrupt commercial relationships
predicated on state law." 440 U.S. at 728-29.
First, the State argues that there is a strong need for a
uniform body of federal law, because diverse state rules will
frustrate CERCLA's goals of cleaning up environmental
contamination and making sure that responsible parties, rather
than taxpayers, bear the costs. "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.'" Nat'l Serv. Indus., 460
F.3d at 208. "To invoke the concept of 'uniformity' . . . is not
to prove its need." Atherton, 519 U.S. at 220. The need for
uniformity is weak in this case. No state provides a safe
"haven" for polluters. Atchison, 159 F.3d at 364. The State
expresses concern that states' different corporate wind-up
periods could prove troublesome, but the fifty states' laws on
corporate dissolution are "largely uniform" already. Anspec, 922
F.2d at 1249 (Kennedy, J., concurring). Cf. Gen. Battery, 423
F.3d at 303. Moreover, variations in rules among states do not
prove a need for uniformity "as long as the applicable standard
is applied evenhandedly to particular disputes." Wilson v. Omaha
36
Indian Tribe, 442 U.S. 653, 673 (1979) (internal punctuation
omitted).
Next, we inquire whether application of state law will
frustrate federal objectives. Our preemption analysis in Part
III.A faced the same question and concluded that Delaware law
does not significantly frustrate the objectives manifested in
CERCLA. We acknowledge that "corporate law's preference for
limited corporate liability is theoretically at odds with
CERCLA's broad remedial goals." Mank, supra, 68 U. Cin. L. Rev.
at 1160. Nonetheless, CERCLA recognizes that recovery will not
always be possible and does not mandate recovery from every
person with any connection to a contaminated site. See Commander
Oil Corp., 215 F.3d at 327. That the fund would win under the
State's proposed standard is not sufficient to justify adopting a
rule of federal common law to expand the standard of liability
for shareholder-distributees of a dissolved corporation whose
predecessor owned a company that was responsible for
environmental contamination. See O'Melveny, 512 U.S. at 88; see
also Mank, supra, 68 U. Cin. L. Rev. at 1159 (stating that in
O'Melveny the Supreme Court "rejected the view that the
government is entitled to an expansive federal common law
standard just because the government would win more often").
Finally, we inquire whether adoption of the rule the State
proposes as a matter of federal common law would disrupt
37
commercial relationships predicated on state law. Kimbell Foods,
440 U.S. at 729. We easily conclude that it would. The
presumption that state law should be determinative "is
particularly strong in areas in which private parties have
entered legal relationships with the expectation that their
rights and obligations would be governed by state-law standards."
Kamen, 500 U.S. at 98; see also Kimbell Foods, 440 U.S. at 729.
Shareholders have the expectation of limited liability under
state law when they invest in corporations. Delaware General
Corporation Law §§ 278 and 325(b) protect shareholders from
buying into a perpetual threat of liability by providing that,
after a period of time after their corporation dissolves, they no
longer face liability on claims against the dissolved corporation
and are free to conduct their financial affairs. The alternative
would be unworkable. Dissolved corporations might delay
distributions indefinitely, diminishing shareholders' incentive
to invest. If distributions were made, shareholder-distributees
would have to hold onto them, just in case an unknown claim
arises at some point in the future, or else come up with funds to
replace any received distributions that have been expended once
the claim and demand for disgorgement arise. See City of
Philadelphia v. Stepan Chem. Co., 713 F. Supp. 1491, 1494 (E.D.
Pa. 1989); In re Citadel Indus., Inc., 423 A.2d at 506. Hanging
a cloud of perpetual uncertainty over the former shareholders of
38
dissolved business entities in the name of CERCLA would impair
the finality that allows parties to proceed with confidence into
new transactions. "Major economic decisions, critical to
society, are best made in a climate of relative certainty and
reasonable predictability." Polius v. Clark Equip. Co., 802 F.2d
75, 83 (3d Cir. 1986) ("Unforeseeable alterations in successor
liability principles complicate transfers and necessarily
increase transaction costs."); Perry E. Wallace, Jr., Liability
of Corporations and Corporate Officers, Directors, and
Shareholders under Superfund: Should Corporate and Agency Law
Concepts Apply?, 14 J. Corp. L. 839, 842 (1989) (An unchecked
interpretation of CERCLA liability engenders "uncertainties and
fears" that "unnecessarily diminish the affected industries'
contributions to certain basic economic and business functions in
society.").
The absence of a significant conflict between Delaware law
and CERCLA's goals directs our conclusion that we must not create
a federal common law version of the trust fund doctrine in this
case, a conclusion that is reinforced by the weak need for
uniformity and the strong need to protect existing commercial
relationships based on state law. We affirm the district court's
holding that Delaware General Corporation Law §§ 278 and 325(b)
must govern the shareholder-distributees' amenability to the
State's CERCLA claims, and, accordingly, we hold that those
39
claims were properly dismissed.
IV.
Finally, we consider the implications of our holding for the
cross-appeal of the shareholder-distributees, acting as Panex
trustees, of the district court's entry of summary judgment
against Panex on the State's CERCLA claims. In refusing to
dismiss those claims, the district court concluded that CERCLA
preempted Delaware's limits on Panex's capacity to be sued. As
discussed in Part III.A, we reject that finding of preemption and
reverse the judgment of the district court on the CERCLA claims
against Panex.
The shareholder-distributees had suggested that we need not
reach their cross-appeal if we were to uphold the dismissal of
the State's trust fund doctrine claims against them, because as a
practical matter this holding absolves them of liability whether
or not the State has a viable claim against the defunct and
penniless Panex. Nonetheless, the district court's conclusion
that CERCLA preempts Delaware General Corporation Law § 278 for
purposes of the CERCLA claims against Panex is not without
consequence. As a matter of principle, displacement of state law
is not favored under recent Supreme Court precedent, and, as a
matter of practicality, refusal to apply state law in this
instance would have unsettling implications for commercial
relationships as discussed above. The claims against both the
40
shareholder-distributees and Panex should be dismissed as both
lack capacity to be sued under Delaware law.
V.
We affirm the portion of the district court's order
dismissing the State's claims against the shareholder-
distributees. We reverse the denial of the motion to dismiss the
State's CERCLA claims against Panex, as well as the summary
judgment granted against Panex on those claims.
41