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GOULD, INC. v. A & M BATTERY & TIRE SERV.

January 15, 1997

GOULD, INC., Plaintiffs,
v.
A & M BATTERY AND TIRE SERVICE, et. al., Defendants.



The opinion of the court was delivered by: CONABOY

 Presently before the Court is Defendant Climax Manufacturing Corp.'s (hereinafter "Climax Manufacturing") Motion for Partial Summary Judgment. (Doc. 1267). Climax Manufacturing claims that it is entitled to partial summary judgment on the issue that "neither [it] nor its wholly-owned subsidiary is a successor of Spevak's Waste Materials Corporation", ( Doc. 1267, p. 2 P 2), and therefore is not liable under the doctrines of corporate successor liability or de facto merger for clean up costs apportioned to Spevak Waste Material's alleged contribution of waste and/or batteries to the site prior to March 5, 1979. (Doc. 1268, p. 3). For the reasons as set forth infra, we shall deny Climax Manufacturing's Motion for Partial Summary Judgment. *fn1"

 FACTUAL AND PROCEDURAL BACKGROUND

 The facts surrounding this litigation are well known to all parties involved. However, for the purposes of addressing the present motion, a brief recitation of the facts are necessary and are as follows.

 The relationship between Spevak's Waste Materials Co., Inc. and the estate of Manuel Spevak is fundamental to the understanding of this Memorandum, the factual circumstances underlying the asset purchase by Climax Manufacturing, through its wholly owned subsidiary Spevak's Waste Materials Co., Inc. of the estate of Manuel Spevak follow.

 Climax Manufacturing is a New York corporation which was incorporated in 1911. Climax Manufacturing is engaged in the business of "manufacturing paperboard and paperboard boxes for the retail sale industry." (Doc. 1269, p. 2, P 3). Spevak's Waste Materials Company, Inc. was incorporated on February 23, 1979. The sole shareholder of Spevak's Waste Materials, Co. Inc. is Climax Manufacturing. Spevak's Waste Materials Company, Inc. is a subsidiary corporation of Climax Manufacturing. Spevak's Waste Materials Co., Inc. was incorporated for the purpose of, inter alia, "to buy, sell and generally deal in waste papers, rags, cloth, and old iron, copper, brass, and every other kind of metal." (Doc. 1269, App. C, P 2(a)).

 On February 1, 1979, Climax Manufacturing entered into a purchase agreement with the estate of Manuel Spevak to purchase specific assets of Spevak's and the estate's related entities. Such entities of the estate included Spevak's Waste Paper Co., Spevak's Waste Materials Corp. and Spevaks's Leasing Corp. (referred hereinafter collectively as "Spevak's"). The main corporate entity Climax Manufacturing claims to have been interested in was Spevak's Waste Paper Co., (Doc. 1269, p. 3, PP 6, 7), as it was in search of a supply of recyclable paper. (Doc. 1269, pp. 2-3, PP 5-6). However, in order to acquire Spevak's Waste Paper Company, Climax Manufacturing had to collectively purchase all of the above mentioned entities as sort of a package deal.

 Part of Spevak's business included selling junk batteries (Doc. 1325, p. 2), as the ledgers of the Marjol Battery Company reveal that Spevak's (which includes the entity named Spevak's Waste Materials Corp.) sold in excess of 1.8 million pounds of batteries to Marjol from 1969 to 1979. (Doc. 1325, p. 2). Spevak's Waste Materials Company, Inc. (the corporation formed by Climax Manufacturing) knew that Spevak's Waste Materials Corp. *fn2" sold batteries (Doc. 1325, Exh. A, p. 30), even though Spevak's Waste Materials Corp. did not inform it so at the time of closing. (Doc. 1325, Exh. A, p. 31). Furthermore, Spevak's Waste Material Company, Inc. had a general awareness that the Marjol Battery plant was a customer of Spevak's Waste Materials Corp. "at some point in time." (Doc. 1325, Exh. A, p. 40).

 On March 1, 1979, Spevak's Waste Materials Company, Inc. accepted an assignment of the purchase agreement entered into by Climax Manufacturing and Spevak's. (Doc. 1269, p. 5, P 13). This assignment took place prior to the closing of the deal between Climax Manufacturing and Spevak's. The purchase agreement was closed on March 5, 1979 between Spevak's and Spevak's Waste Materials, Co. Inc.. Climax Manufacturing claims that "at the date of the closing, neither [it] nor [Spevak's Waste Materials] had ever been involved in the secondary metal recycling industry and that neither were apprised of the likelihood of such a liability by the seller." (Doc. 1268, p. 2). Climax Manufacturing also points to the fact that CERCLA was not enacted until two (2) years after the transaction.

 After Spevak's Waste Materials Co., Inc. closed on the deal and purchased Spevak's, most of the personnel at Spevak's became employees of Spevak's Waste Materials Co. Inc. (Doc. 1325, Exh. A pp. 22-3). There was no interruption in Spevak's business after Spevak's Waste Materials Co., Inc. bought Spevak's. (Doc. 1325, Exh. A p 24). It appears that the name of Spevak's was retained as well once the business continued. At the time of the closing of the sale, Spevak's Waste Materials, Co. Inc. knew that Spevak's was in the business of selling batteries. *fn3" (Doc. 1325, Exh. A p. 30). Accounts receivable of Spevak's were turned over to Spevak's Waste Materials Co., Inc. at the time of closing. (Doc. 1325, Exh. A p. 31).

 DISCUSSION

 Standard of Review

 Pursuant to Fed. R. Civ. P. 56(c), a motion for summary judgment will only be granted if there is no genuine issue of material fact and if the moving party is entitled to relief as a matter of law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-8, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1985). A fact is "material" if proof of its existence or nonexistence would effect the outcome of the lawsuit under the applicable law in the case. Anderson, 477 U.S. at 248. An issue of material fact is "genuine" if the evidence is such that a reasonable jury might return a verdict for the non-moving party. Hankins v. Temple University, 829 F.2d 437, 440 (3d Cir. 1987).

 In determining whether an issue of material fact exists, the court must consider all evidence in the light most favorable to the nonmoving party. White v. Westinghouse Electric Company, 862 F.2d 56, 59 (3d Cir. 1988). A moving party is entitled to a judgment as a matter of law if the nonmoving party does not make a sufficient showing on an essential element of his case with respect to which he has the burden of proof. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1985).

 Once the moving party has satisfied its burden of identifying evidence which demonstrates an absence of a genuine issue of material fact, Childers v. Joseph, 842 F.2d 689, 694 (3d Cir. 1988), the nonmoving party is required by Fed. R. Civ. P. 56(e) to go beyond the pleadings by way of affidavits, depositions or answers to interrogatories in order to demonstrate specific material facts which give rise to a genuine issue. Celotex, 477 U.S. at 324. When Rule 56(e) shifts the burden of proof to the nonmoving party, that party must proffer evidence to show the existence of every element essential to its case which it bears the burden of proving at trial. Equimark v. Commercial Finance Co. v. CIT Financial Services Corp., 812 F.2d 141, 144 (3d Cir. 1987).

 When reviewing a motion for summary judgment, the court must decide whether or not there is a genuine issue of material fact which must be resolved at trial or whether the evidence is so one-sided that one party will prevail over the other. Groff v. Continental Insurance Co., 741 F. Supp. 541 (E.D. Pa. 1990). "Where factual controversies exist, disputes over material facts that might affect the outcome of the suit under the governing law will probably preclude the entry of summary judgment." Metro Transportation Co. v. North Star Reinsurance Co., 912 F.2d 672, 678 (3d. Cir. 1990).

 The Issue of Corporate Successor Liability

 The basic tenets of corporate law dictate that in an asset purchase scenario, the asset purchaser is not considered to be a corporate successor to its predecessor unless : (1) the purchasing corporation expressly or impliedly agrees to assume the liabilities of the other corporation; (2) the transaction amounts to a "de facto" merger; (3) the purchasing corporation is merely continuing the other corporation's business; or (4) the transaction is a fraudulent transaction structured to evade liability. United States v. Mexico Feed and Seed Co., Inc, 980 F.2d 478, 487 (8th Cir. 1992); United States v. Distler, 741 F. Supp. 637, 640 (W.D. Ky. 1990). All the parties agree as to this basic tenet. The disagreement occurs when scenario number three (3) is at issue: when the purchasing corporation is merely continuing the other corporation's business. This scenario has spawned the "mere continuation" doctrine.

 "The traditional rule with regard to the 'mere continuation' exception is that a corporation is not to be considered the continuation of a predecessor unless, after the transfer of assets, only one corporation remains, and there is an identity of stock, stockholders, and directors between the two corporations." United States v. Carolina Transformer Co., 978 F.2d 832, 838 (4th Cir. 1992)(citation omitted). In the present case, Climax Manufacturing would not be a successor corporation under the mere continuation doctrine, as there was no continuation of stockholders between Spevak's Waste Materials Co., Inc. and Spevak's, nor was there any overlap of stock ownership among the corporations.

 Climax Manufacturing, anticipating Gould's argument, argues that in addition to the fact that it is not liable under the mere continuation doctrine, it also is not liable under the expanded test of the mere continuation doctrine, that being the ...


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