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Corporate Successor Liability Depends on State Law

On Friday, the Second Circuit admitted that one of the Supreme Court's decisions overruled the reasoning in one of its cases, and tucked tail.

In New York v. National Service Industries, the Second Circuit admitted that it can no longer use the "substantial continuity" test to determine whether successor corporations are liable for CERCLA cleanups. The Second Circuit had earlier used this test when one corporation bought the assets of another corporation, and held that the successor corporation could be liable.

But no more. Once the Supremes decided U.S. v. Bestfoods, the Second Circuit learned that it couldn't apply federal common law to decide what is essentially a state common law issue, even though the decision would create liability under a solely federal law.

Huh?

Yeah, it sounds confusing to me, too. CERCLA is the federal law that, among other things, determines liability for toxic contamination. But, the question of whether a corporation that bought out another corporation is liable for the first corporation's wrongdoings is a question of state law, not federal law. It's easy to get mixed up. You would think that federal law should apply to a federal statute. But, it's all in the call of the question (scroll down and read Rule No. 1).

So, did the Second Circuit decide the ultimate issue? Nope. They sent the case back to the minors for a decision.

Kind of like dodging the bullet on both ends.

Printer friendly page Permalink Email to a friend Posted by J. Craig Williams on Sunday, December 21, 2003 at 13:48 Comments Closed (0) |
 
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