ENVIRONMENTAL TIP #26 -Taking Stock-The Availability of Superfund Defenses

06/03/2002

Facts

Will N. Byer (“Byer”) contracts with the shareholders of Wine Cellar, Inc. (“Cellar”) to purchase Cellar, which owns four wine bottle manufacturing facilities. To take advantage of the new prospective purchaser defense under Superfund, Byer retains an environmental consulting firm to perform Phase I ASTM assessments to meet the act’s “all appropriate inquiry” requirement.  The firm performs the assessments and finds contamination at two of the facilities.  Byer purchases the company, and merges it into Byer.  After the purchase, EPA issues an order to Byer to clean up the two contaminated properties.  Byer asserts the prospective purchaser defense.

Consequences

The court rejects Byer’s defense because Byer bought the company rather than the assets.

Lesson

The purchaser of a company is not purchasing assets.  As a matter of law, the stock is transferred; the assets are not.  The assets remain the property of the company.  As a result, although it is still prudent to conduct environmental assessments, Superfund defenses applicable to the purchaser of assets, such as those based on “all appropriate inquiry” (e.g., innocent purchaser or bona fide prospective purchaser), are not available to the purchaser of stock.

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