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PORZIO, BRQMBERG & NEWMAN ______ A P R O F E S S I O N A L C O « P O I! A T I O N__________ Practice Limited to Litigation and Environmental Law COUNSELLORS AT LAW 163 MADISON AVENUE MORR.ISTOWN, N J 07962 -1997 TELEPHONE (201) 538-4006 FAX(201) 538-5146 655 THIRD AVENUE (SUITE 900) NEW YORK, NY 10017-5617 TELEPHONE (212) 986-0600 FAX (212) 986-6491 STEVEN P. BENENSON * ROBERT J. BRENNAN LISA MURTHA BROMBERC MYRON J. BROMBERC D. JEFFREY CAMPBELL THOMAS R. CHESSON ROY ALAN COHEN ALEXANDER J. DRACO LAUREN E. HANDLER EDWARD A. HOGAN ANITA HOTCHKISS KENNETH R.MEYER JOHN M. NEWMAN HOWARD J. SCHWARTZ RETIRED RALPH PORZIO COUNSEL STEWART A. CUNNINCHAM CHARLES E. ERWAY, IH THOMAS SP1ESMAN M1TCHELL I. WEITZ + ANNE F. BARETZ CRAIC B. BLEIFER CHRISTOPHER P. DEPH1LLIPS* GAR1NEH S. DOVLETIAN PETER A.DRUCKER ANDREW 5. EPSTEIN FRANK FAZIO BRIAN T. FLANACAN * JOHN M. IX VANESSA M. KELLY JONATHAN M. KORN WILLIAM A.KRAIS JONATHAN R. KUHLMAN CONNIE A.MATTEO JAY R. McDANIEL JUDITH A. McDONOUGH RAND1 N. POMERANTZ CYNTHIA D. RICHARDSON DAVID S. SAGER* DIANE M.SIANA CHARLES J. 5TOIA MORNA L.SWEENEY MICHAEL M.TINGOLI STEPHEN L. WILLI5 N. J. 8 N.Y. BARS *N. J. BAR ONLY + N.Y. BAR ONLY September 7, 1995 Caroline Kwan Project Manager United States Environmental Protection Agency NY/Caribbean Superfund Branch II 290 Broadway, 20th Floor New York, New York 10007-1866 Andrew Praschak, Esq. United States Environmental Protection Agency Caribbean Field Office Centre Europa Building 1492 Ponce DeLeon Avenue Suite 417 San Juan, Puerto Rico 00907-4127 Re: Tutu Wellfield Superfund Site Our File No. 05120.23876_____ Dear Ms. Kwan and Mr. Praschak: This firm represents the Laga Parties (i.e. . Laga Industries, Ltd. ("Laga"), The Duplan Corporation ("Duplan") , Panex Industries, Inc. ("Panex"), and Paul Lazare and Andreas Gal in their capacities as former directors and officers of those dissolved corporations). We write in response to the USEPA letters dated August 3, 1995, directed to Laga, Panex and Duplan. It is our understanding that similar letters were sent to Messrs. Gal and Lazare and may have also been (or will be) sent to the Panex PBNNJ-73715.3 oos >• j • "' *65053* 65053 Caroline Kwan /*-\ Andrew Praschak, Esq. September 7, 1995 PORZIO, BROMBERG & NEWMAN A P R O F E S S I O N A L C O R P O R A T I O N Industries, Inc. Stockholders' Liquidating Trust (the "Trust"), First Manhattan Co./Firmanco and Goldman Sacks.1 In response, this letter addresses two issues: (1) the absence of any basis for finding that the Laga Parties contributed to the contamination of the Tutu soils or aquifer; and (2) as a matter of law, it is incorrect to suggest that dissolved corporations and their liquidating Trust or former shareholders can be held liable as PRPs. Background The facts concerning the history and relationship among Laga, Duplan and Panex are well settled. Laga was incorporated by Paul Lazare and Andreas Gal in late 1968. In 1969, Laga built a state-of-the-art textile manufacturing plant in Anna's Retreat, St. Thomas. In 1970, Laga was acquired by Duplan as a wholly owned subsidiary. In 1976, Duplan filed for bankruptcy under Chapter XI, which was later converted to a Chapter X. From 1976 to 1978, Laga operated on a substantially reduced basis and continued to incur losses. All operations at Laga ceased in 1978-79. It is undisputed that during Laga's years of operation, Laga always used a closed-loop dry cleaning system with no possibility for leaking contaminants. (Further exculpatory facts are discussed infra.) 1 On April 15, 1995, Nancy D'Anna, Esq., counsel for L'Henri, Inc., and Timothy Knudson, Esq., counsel for Texaco, submitted a letter to the USEPA which advocated naming as additional Potentially Responsible Parties ("PRPs") Duplan, Panex, the Trust and the four shareholder groups composed of the Lazare family, the Gal family, First Manhattan Co./Firmanco and Goldman Sachs. We did not learn of the D'Anna/Knudson letter until it was mentioned at the EPA legal meeting held in New York City on June 12, nearly three months after it was sent. Moreover, Ms. D'Anna's claim that we were "copied" on the letter is certainly questionable since we never received the letter and nowhere on the letter does it indicate that a copy was sent to anyone. After exposure at the EPA meeting, Ms. D'Anna finally provided us with a copy of the letter on June 13, 1995. The inordinate delay in receipt of this letter explains the reason we did not have an opportunity to respond to the D'Anna/Knudson letter prior to the USEPA's issuance of their August 3 correspondence. PBNNJ-73715.3 Caroline Kwan f—s Andrew Praschak, Esq. September 7, 1995 PORZIO, BROMBERG & NEWMAN A C S O F E S S I O N A l C O R P O R A T I O N In 1979, during Duplan's bankruptcy, Laga's only significant asset, the Virgin Islands property, was sold to an entity named Panex Co.2 Laga was thereafter dissolved in June 1981, by Order of the Bankruptcy Court, and was again dissolved in November 1981, by the Lt. Governor of the Virgin Islands. In 1981, Duplan was dissolved and a new entity emerged from the bankruptcy, Panex, a Delaware corporation. Nearly all of the assets of Duplan had been sold during the bankruptcy, with the exception of Wundies, Inc. and Rochester Button, which became the only manufacturing operations conducted by Panex. Panex was a publicly traded company with over 300 stockholders. All of the stockholders of Panex paid valuable consideration for the acquisition of their shares. The original founders of Laga, Messrs. Gal and Lazare, together with members of their respective families, collectively acquired a total of about 27% of the stock of Panex (contrary to a misstatement at p. 3 of the D'Anna/Knudson letter that "each owned 27%"). In September 1984, following operating losses, the stockholders of Panex voted in favor of a Plan of Liquidation, which was adopted and carried out in accordance with all applicable SEC rules and regulations. Panex was obligated under the then provisions of §337 of the Internal Revenue Code to distribute within a year all of its assets to its over 300 stockholders. The assets were liquidated and distributed in three distributions completed by September 12, 1985. None of the assets liquidated or the funds distributed to the Panex shareholders were related to the Laga operations; the Laga assets had been sold years before, in the Duplan bankruptcy, prior to even the formation of Panex. Panex had no connection whatsoever with the Laga site. The Certificate of Dissolution for Panex was filed on April 15, 1985. Thus, the three-year period under the Delaware /**•"•. 2 Panex Co. (not to be confused with Panex) is a New York partnership composed of Paul Lazare and Andreas Gal, which owned the vacant Laga site during 1979-1981, then sold it to the Virgin Islands government. No operations of any kind were conducted on the site by Panex Co. Panex Co. is represented by separate counsel, Marc Z. Edell, Esq., and is responding on behalf of Panex Co. , and Messrs. Lazare and Gal as partners thereof, under separate cover. PBNNJ-73715.3 Caroline Kwan Andrew Praschak, Esq. September 7, 1995 PORZIO, BROMBERG & NEWMAN A P R O F E S S I O N A L C O R P O R A T I O N corporate dissolution non-claim statute (Delaware General Corporation Law §278) expired on April 15, 1988. The Plan of Liquidation of Panex, as approved by the stockholders, called for the creation of the Trust. The Trust was created by an agreement dated September 12, 1985, and funded with the sum of approximately $6,000,000. The Trust was principally established to cover possible tax liabilities which could arise relating to Panex's operating losses for fiscal years 1982-1984. It was the intent, as expressed in the Trust Agreement, that the Trust would last for three years (which paralleled the statute of limitations applicable to the potential tax liabilities for which the Trust was created and the Delaware non-claim statute). In July 1987, the statute of limitations expired on two of the Panex tax years in question, thereby relieving the Trust of a possible liability of approximately $5,000,000. Thereafter, the Trust made a distribution in a similar amount to the Trust Beneficiaries (prior stockholders of Panex) in accordance with the terms of the Trust Agreement. At the time of this Trust distribution, neither the Trustees nor any of the officers, directors or shareholders of Panex were aware of any potential liability or claim relating to the environmental problems in the Virgin Islands. In April 1988, at the time the statute of limitations on the last possible tax liability was to expire, the Trust was notified of potential environmental problems at a prior Panex facility located in Wellsville, New York (Rochester Button) and immediately suspended any further Trust distributions and delayed the termination of the Trust, originally scheduled for no later than September 12, 1988 (three years from the date of the Trust Agreement). At no time during the 1984-1985 liquidation of Panex did the officers, directors or shareholders have knowledge of any potential environmental liabilities relating to either the former Laga site or the Wellsville facility. In fact, the Trustees did not learn of the alleged environmental liabilities relating to the former Laga site until March 1992. when Laga, Duplan, Panex and Messrs. Gal and Lazare were joined in the litigation pending before Judge Brotman in the Virgin Islands. After extensive discovery in that litigation, the other parties are unable to point to one shred of evidence that suggests that any of the officers, directors or shareholders of Panex, or the Trustees of the Trust, acted wrongfully or had any knowledge of potential environmental liabilities relating to the Laga or Wellsville sites, at the time of the Panex liquidation or the Trust distributions. PBNNJ-73715.3 Caroline Kwan Andrew Praschak, Esq. September 7, 1995 PORZIO, BROMBERG & NEWMAN A P R O F E S S I O N A L C O R P O R A T I O N Issue No. l; The Laga Site In a letter to EPA Project Manager Ms. Caroline Kwan, dated May 3, 1995, this firm commented on the March 1995 draft feasibility study prepared by Geraghty & Miller, Inc., a consultant retained by TEIC (Texaco, Esso, et al.). The comments were accompanied by an environmental investigation report prepared by Arthur D. Little, Inc. ("ADL"). The following underscores several matters noted in our May 3, 1995 letter. With regard to the Laga site, it is important to distinguish between activities and potential releases while the facility was used by Laga for textile manufacturing and the subsequent activities and potential releases during the U.S.V.I. Department of Education's use of the site as the Curriculum Center. Environmental investigation results are not consistent with the allegations that PCE from a dry cleaning still and muck cooker sludge were disposed to an alleged pit (north of the building) via a piping system. ADL installed a deep bore hole in the vicinity of the alleged pit and did not find any sludge present. If such disposal did take place, sludges or their residues would be present even long after disposal. The available data has not demonstrated the presence of sludges or soils with elevated concentrations of chlorinated VOCs indicative of sludge disposal. The Geraghty & Miller Phase II RI states (at page 5-7), "PCE was detected in eight soil samples collected along the north side of the building in the vicinity of the former discharge pipe and the alleged former waste pit." The sample with the highest concentration of PCE (180 ug/kg at SS-9) was collected in the top six inches of soil. Had Laga discharged any VOCs — prior to 1978, when Laga ceased operations — contamination in the top six inches of soil largely would have volatized long ago, such that the highest concentration of PCE would not be found on top. The presence of PCE in shallow soil indicates a more recent source of contamination. In addition to the foregoing, the sworn testimony of disinterested and unbiased witnesses in the Virgin Islands litigation demonstrates that Laga operated an environmentally secure and safe knitting facility for approximately eight years (1970 to 1978). Riley Kirk, Vice President of Boggs, the company which designed and supplied Laga with the state-of-the-art closed loop dry cleaning system used at the facility, testified that the Laga system contained the most advanced PCE recycling mechanism. The PBNNJ-73715.3 Caroline Kwan Andrew Praschak, Esq. September 7, 1995 PQRZIO, BROMBERG & NEWMAN A P R O F E S S I O N A L C O R P O R A T I O N only effluent from the system was a semi-solid distillation residue, which contained no PCE and could not possibly pass through pipes (even though none existed) to the rear of the facility. Moreover, Mr. Kirk testified that it was technically impossible for such a pipe to exist on the system. In addition, the plant and production managers of the former Laga facility, Messrs. Hartley and Moscoso, respectively, testified that no discharge pipe or pit existed on the site. Representatives of Lockwood Green (Messrs. Rourk and Evans), the engineering firm responsible for the design and construction of the Laga facility, also testified that the plans did not call for, and facility as built did not contain, a discharge pipe from the dry cleaning system. After more than 200 depositions, the only testimony which suggests the alleged existence of an effluent pipe came from two former Laga employees, Winston Smith and Anthony Richards, who claimed they had "heard" (from whom, neither could recall) that there was an underground pipe running from the dry cleaning system to the rear of the facility through which PCE may have been discharged. Neither of these individuals had ever seen such a pipe inside the facility, nor had either ever seen a discharge pipe exiting the facility. Further, there is no evidence of any other contaminant spills or leaks. The current owner, the Virgin Islands government, has contradicted the statements of both Messrs. Smith and Richards through the testimony of its own employees, who have testified at length that no such effluent pipe or pipes existed at the time the property was acquired. Clement Hendricks (Director of Property Procurement for the Virgin Islands Department of Education), Adlah A. Donastorg (Director of Planning and Maintenance for the Virgin Islands Department of Education) and Pedrito Lanclos (Assistant Superintendent of Plant Operations and Maintenance for the Virgin Islands Department of Education), all testified that when the facility was acquired by the Virgin Islands government it was thoroughly inspected and no such alleged pipe was found. It is undisputed that in 1981, when the Virgin Islands Department of Education occupied the former Laga facility, the property was free of drums and waste products. All employees of Laga, including Messrs. Smith and Richards, have testified that Laga never stored drums of hazardous materials outside of the facility. However, comparatively recent inspections of the site by PBNNJ-73715.3 Caroline Kwan Andrew Praschak, Esq. September 7, 1995 PORZIO, BROMBERG & NEWMAN A P R O F E S S I O N A L C O R P O R A T I O N ADL and the EPA have revealed that containers of paint thinners and degreasers containing chlorinated solvents were present and that the outside grounds were littered with drums, pails, chemical scraps and scrap parts. It is undisputed that any such drums and other materials discovered at the site by EPA and others were the property and result of the operations conducted by the Virgin Islands Department of Education. We enclose for your review complete copies of the deposition transcripts of Messrs. Kirk, Hartley, Moscoso, Rourk, Evans, Hendricks, Donastorg and Lanclos, with key testimony highlighted. All of this undisputed evidence. none of which had apparently been considered by Geraghty & Miller, establishes that the operations of Laga were not a contributing source of contamination. If the Curriculum Center is a source, it is the result of the subsequent use and maintenance of the site by the Virgin Islands government. Issue No. 2; Neither Dissolved Corporations and Their Liquidating Trust or Former Shareholders Can Be Held Liable as PRPs. By its August 3 correspondence, the USEPA has expressed its intention of bringing enforcement actions imposing CERCLA liability on Laga, Duplan, Panex and the Trust, and in turn possibly compel the former shareholders of Panex to refund the liquidating distributions made to them long ago. Both of those suggestions are simply incorrect as a matter of law. PANEX AND THE TRUST CANNOT BE CONSIDERED POTENTIALLY RESPONSIBLE PARTIES Panex was dissolved over ten years ago. In Witco Corp. v. Beekhuis, 38 F.3d 682 (3rd Cir.1994), the Third Circuit held that for purposes of CERCLA liability, capacity to be sued is governed by state law. Under Delaware law the existence of a liquidating trust neither extends a dissolved corporation's capacity to be sued, nor is a liquidating trust automatically deemed a dissolved corporation's successor for all purposes. See City Investing Co. v. Continental Casualty Co.. 624 A.2d 1191 (Del. 1993). In City Investing, the Delaware Supreme Court affirmed a ruling that after the three year post-dissolution period had expired: (1) the dissolved corporation "no longer existed as a legal entity and was not subject to suit"; and (2) the former PBNNJ-73715.3 OO8 O599 Caroline Kwan Andrew Praschak, Esq. September 7, 1995 PORZIO, BROMBERG & NEWMAN A P R O F E S S I O N A L C O R P O R A T I O N corporation's liquidating trust was a separate entity whose potential liability "must be resolved through interpretation of the Trust Agreement." 624 A.2d at 1194 (emphasis added). 1. Capacity to be Sued The Witco decision directs us to disregard the so-called federal common law distinction between "dead" and "dead-and-buried" and instead to look to state law regarding capacity to be sued. Although Witco addressed a decedent's estate and a trust it had established, it is equally applicable to a dissolved corporation and the trust it had established. In Witco. the district court granted motions for summary judgment by the executrix of a decedent, Dr. Beekhuis, and by the trustee of a residuary trust, dismissing CERCLA contribution claims because they were not filed within the eight-month statutory period provided under Delaware law for asserting claims against the estate of a decedent. 822 F. Supp. 1084 (D. Del. 1993) . On appeal, plaintiff Witco argued that its claims were filed within the three- year CERCLA limitations period and, to the extent the eight-month statutory period under Delaware law conflicts, Witco argued that state law was preempted. Judge Cowen, writing for a unanimous Court of Appeals, rejected Witco's argument that CERCLA preempted the Delaware non- claim statute, concluding "state capacity statutes . . . are not preempted under CERCLA." 38 F.3d at 689-690. Other parties to the pending federal court action have finally conceded, in briefs filed as recently as a month ago with the Third Circuit, that Witco is controlling law on the issue of whether CERCLA preempts state capacity statutes. Witco held that CERCLA does not preempt state capacity statutes. Witco is equally applicable to the Delaware corporate dissolution nonclaim statute (Delaware General Corporation Law §278) , which requires that suits against dissolved corporations must be commenced within three years after the filing of a certificate of dissolution. It is undeniably clear that Laga, Duplan and Panex were dissolved over a decade ago. Accordingly, Panex is not subject to suit. 2. Interpretation of the Trust Agreement Under Delaware law, as held in City Investing, supra. whether and to what extent a dissolved corporation's liquidating trust has assumed liabilities, and, therefore, may be deemed the PBNNJ-73715.3 TUT GO8 O6OO Caroline Kwan Andrew Praschak, Esq. September 7, 1995 PORZIO, BROMBERG & NEWMAN A P R O F E S S I O N A L C O R P O R A T I O N corporation's successor, depends on "interpretation of the trust agreement." 624 A.2d at 1194. Interpretation of the Trust Agreement at issue here involves trust language that is different from that involved in City Investing. In that case, the liquidating trust was subject to a claim asserted beyond the three-year statutory period because the court held that the trust language had assumed all liabilities of the former corporation without restriction, and that an attempt "to present parol evidence to vary the clear language of the Trust Agreement" was impermissible. 624 A.2d at 1197-98. In contrast, here the trust language in Article VIII, § 8.1, at 5, expressly provides as follows: This Trust Agreement shall terminate three years from the date of this Trust Agreement ... provided further, however, that this Trust Agreement shall continue to exist for a reasonable period beyond three years . .. for the limited purpose of discharging any known liabilities of the Trust or of Panex or liabilities of the Trust or of Panex which the Trustees have reasonable grounds to believe may be asserted .... Accordingly, the Trust could exist beyond the three-year cut-off date solely for the limited purpose of discharging any "known liabilities" as of such time. This Trust provision parallels the three-year statutory nonclaim provision under Delaware law. Both that statute, and this Trust provision, provided a three-year deadline. The claims here were not made "known" to the Trustees until long after the three years had expired, and so the Trust Agreement did not assume liability on these late-asserted alleged claims. Witco. supra, similarly involved a trust that had received assets, but the trust language had not assumed liability for the claims at issue. Here, as in Witco, the Trust is not potentially liable. FORMER SHAREHOLDERS ARE MOT POTENTIALLY RESPONSIBLE PARTIES BECAUSE THE EQUITABLE LIEN OR TRUST FUND THEORY HAS NO APPLICATION HERE The USEPA states in its August 3 correspondence to Messrs. Gal and Lazare that they may be liable under CERCLA as shareholder distributees of Panex, contending that they may be potentially liable to the extent they received distributions during PBNNJ-73715.3 TUT Caroline Kwan Andrew Praschak, Esq. September 7, 1995 PORZIO, BROMBERG & NEWMAN A P R O F E S S I O N A L C O R P O R A T I O N the course of the Panex dissolution and from the Trust.3 It is difficult to see how former shareholders of Panex could be deemed "owners or operators" within the meaning of CERCLA, 42 U.S.C. § 9601(20); but in any event, the only possible theory of liability which could be asserted is based on the doctrine of an "equitable lien" or a resulting "constructive trust," which doctrines simply has no application here. Under the lien or trust doctrine, property distributed to shareholders by a dissolving corporation may pass subject to an equitable lien in favor of creditors of the corporation "of whom the corporation had reason to know" at the time. See, e.g. . In re Reao Co. . 623 A.2d 92, 95 (Del. Ch. 1992).4 Where that is the case, the distributees are deemed to hold the property in constructive trust, due to the equitable lien. However, here the potential claims were unknown at the time of the Panex dissolution and Trust distribution. Accordingly no equitable lien or trust attached at that time to Panex's assets, which in turn were distributed to the shareholders. The lien and trust cases rely on the existence of an obligation at the time of distribution to support a finding that a lien or trust could equitably be deemed imposed on the corporate property while it was corporate property, which could then follow that property into the hands of another. Any contrary rule — that a lien could suddenly arise upon the property of a third person merely because of the former ownership of that property — would be a complete anomaly, and essentially an impossibility, either in law or in equity. As explained in Coleman v. Golkin. 562 F.2d 166, 169 (2d Cir. 1977) , "If the property in the hands of the corporation is burdened with a trust, it remains burdened with the trust when distributed to the corporate stockholders." As noted in In re Rego. this doctrine originated in Justice Story's opinion in Wood v. Dummer. 3 Mason C.C. Rpts. 308, 30 Fed. Cas. 435 (U.S. Circuit Court 1824). That decision 3As previously stated, the D'Anna/Knudson letter also requested the USEPA to name as PRPs the other two Panex shareholder groups, First Manhattan Co./Firmanco and Goldman Sachs. 4 In re Rego addressed new Delaware statutes, enacted in 1987, designed to avoid any uncertainty in this area by providing a statutory means for judicial approval, at the time of dissolution, of the adequacy of the provision for payment of debts. PBNNJ-73715.3 Caroline Kwan Andrew Praschak, Esq. September 7, 1995 PORZIO, BROMBERG & NEWMAN A P R O F E S S I O N A L C O R P O R A T I O N explained the theory's logical underpinnings, which have remained unchanged through the present time. Wood deemed there to be such a resulting trust impressed on assets distributed to stockholders where an incorporated bank was chargeable with "a gross over issue of bank notes, and other violations of the charter, and of a fraudulent dividend by the stockholders with a knowledge of their insolvency." 30 Fed. Gas. at 436. Soon thereafter, similar principles were recognized in Mumma v. The Potomac Company. 33 U.S. 281, 283 (1834), where the defendant corporation dissolved to avoid paying a judgment, but the Supreme Court held the "lien of the judgment remained" on the corporate assets. Wrongdoing, although of a less deliberate sort, was also involved in Cans v. MDR Liquidating Corp.. 1991 WL 114514 (Del. Ch.), appeal refused. 599 A.2d 413 (Del. 1991). There defendant MDR purchased all of the stock of a corporation from plaintiffs, and, as part of the purchase, agreed to provide them with pensions until their death; two years later MDR dissolved without making any provision for plaintiffs7 pensions, and so the trust fund doctrine was applicable. See also Bovay v. H.M. Byllesby & Co. , 38 A.2d 808 (Del. 1944) (doctrine applied to money allegedly fraudulently diverted from an insolvent corporation); John Julian Construction Co. v. Monarch Builders. Inc.. 306 A.2d 29, 35 (Del. Super. 1973), aff'd. 324 A.2d 208 (Del. 1974) (dissolution allegedly was fraudulent as to the plaintiff). City of Philadelphia v. Stepan Chemical Co. , 713 F. Supp. 1491 (E.D. Pa. 1989), is also instructive here. In 1979 and 1980, the City of Philadelphia wrote letters to Eastern States, a corporation, and its sole shareholder and president, Neuman, noting they were potentially liable for hazardous wastes at a city site. In January 1981, shortly before his death, Neuman transferred all of the stock in Eastern States to a trust with his daughter as the sole beneficiary. In December 1981, the trustees liquidated the assets of Eastern States and distributed them to the trust. Two years later the City filed a CERCLA claim against Neuman's estate (which action was dismissed) and then filed an amended CERCLA complaint against the trustees. Judge Ditter granted defendants' motion for summary judgment, stating: The City attempts to portray itself as a corporate creditor of Eastern States; however, there was no debt due the City by Eastern States at the time of liquidation, nor was there any legal claim pending against it. The PBNNJ-73715.3 TUT Caroline Kwan Andrew Praschak, Esq. September 7, 1995 PQRZIO, BROMBERG & NEWMAN A P R O F E S S I O N A L C O R P O R A T I O N City did not turn itself into a creditor of Eastern States by requesting that the company contribute to the costs to clean up the Enterprise Avenue landfill. The City has pointed to no authority that charges a defendant corporation with notice of CERCLA liability absent service of a com- plaint. Since no CERCLA action had been filed against Eastern States or against the trustees of the Sarah Kate Neuman Trust at the time of liquidation, the City was not a 'creditor7 or a 'claimant' of Eastern States. The trustees had no duty to notify the City of its 'winding up' proceedings, 15 P.S. § 2104(B), and had no concurrent obligation to set aside funds on behalf of the City, id. at § 2104 (C). It follows that the transfer of corporate assets /*"*S to the trust could not have been in fraud of the City. 713 F. Supp. at 1493-1494. Stepan Chemical, which the Third Circuit cited with approval in Witco, supra. thus shows that there is no basis for contending that the Trustees of the Trust can recall the liquidating distributions made to the former Panex shareholders long ago, many years before any CERCLA claim.5 The constructive trust doctrine is substantially broader in its scope of potential application than just the corporate dissolution context, but wrongful conduct of some sort is a consistent requirement. As stated by the Supreme Court of Delaware in Hogq v. Walker. 622 A.2d 648, 652 (Del. 1993), "A constructive trust is [imposed] ... to redress a wrong." See, e.g.. Brophy v. Cities Service Co.. 70 A.2d 5, 7 (Del. Super. 1949) ("constructive trusts depend for their existence on the wrongful conduct of a defendant"); Greenly v. Greenly. 49 A.2d 126, 129 (Del. Ch. 1946) . (a constructive trust requires "wrongful conduct of the defendant") . See also Phar-Mor. Inc. v. Coopers & Lybrand. 22 F.3d 1228, 1239 n. 17 (3d Cir. 1994) (characterizing a proceeding "to 5The D'Anna/Knudson letter stresses that in 1984 a Panex proxy statement informed shareholders that a constructive trust could be imposed in an appropriate case; however, that mere observation regarding the law does not make this such a case. PBNNJ-73715.3 Caroline Kwan Andrew Praschak, Esq. September 7, 1995 PORZIO, BROMBERG & NEWMAN A P R O F E S S I O N A L C O R P O R A T I O N impose a constructive trust" as "a proceeding to determine, avoid, or recover fraudulent conveyances") . Here there was no alleged fraud or other wrongdoing resulting in unjust enrichment. Despite extensive discovery in the pending lawsuits (e.g.. several depositions of the two Trustees and the production of documents and boxes of records relating to the liquidation of Panex and the management of the Trust), no party is able to point to one piece of evidence to substantiate any claim of wrongdoing or knowledge of the subject claims at the time of corporate dissolution or at the time of any of the distributions. The lack of such evidence is fatal to the suggested PRP claims, since without such a factual basis, pleadings would be subject to dismissal for failure to state a claim against the former shareholder distributees. For example, in Witco. supra. the Third Circuit not only dismissed CERCLA claims asserted against the defendants at issue there, but also noted that plaintiff "Witco filed in the Court of Chancery in New Castle County, Delaware, a petition for a constructive trust on Dr. Beekhuis' e dismissed the action for failure to statue., a (emphasis added) . The same principles woii The Chancery Court Laim\." 38 F.3d at 685 apply here. Thank you for your considerati se matters. John M. Newman JMN/CEE/mlp Enclosures cc: Honorable Stanley S. Brotman (w/o encs.) All Counsel on Attached List (w/o encs.) PBNNJ-73715.3 /•"""V TUTU WATER WELLS CONTAMINATION LITIGATION COUNSEL LIST ROBERT L. TOFEL, ESQ. Tofel Berelson Saxl & Partners, P.C. 780 Third Avenue New York, New York 10017 KEVIN A. RAMES, ESQ. 2111 Company Street, Suite 3 P.O. Box 3030 Christiansted, St. Croix U.S. Virgin Islands 00822 PANEX COMPANY AND ANDREAS GAL AND PAUL LAZARE AS PARTNERS OF PAN EX COMPANY MARC Z. EDELL, ESQ. 1776 On the Green Morristown, New Jersey 07962-2355 RHODA J. HARTHMAN, EDGAR A. HARTHMAN, SAMMY E. HARTHMAN ,~^ CHARLOTTE A. LABARRE, ALBERT E. HARTHMAN, ARTHUR E. HARTHMAN AUSTIN E. HARTHMAN, P.I.P., INC., WATER SERVICES, LTD., and TUTO SERVICES, LTD. THOMAS H. HART, III, ESQ. Alkon, Rhea & Hart 2115 Queen Street Christiansted, St. Croix U.S. Virgin Islands 00820 FRITZ JEKEL, ESQ. Ness, Motley, Loadholt, Richardson & Poole 151 Meeting Street, Suite 600 P.O. Box 1137 Charleston, SC 29402 RICHARD R. KNOEPFEL, ESQ. Briggs, Knoepfel & Ronca 30 Dronningens Gade P.O. Box 6286 Charlotte Amalie, St. Thomas U.S. Virgin Islands 00804 FOUR WINDS PLAZA PARTNERSHIP /— JOHN K. DEMA, ESQ. Law Offices of John K. Dema, P.C. 1236 Strand Street, Suite 103 Christiansted, St. Croix U.S. Virgin Islands 00820-5008 OOS 06O& DARKEN DEFOE, ESQ. Knight Memorail Library Rout 35/37 P.O. Box 127 Waterford, ME 04088 ESSO STANDARD OIL, 8. A., LTD. - ES80 VIRGIN ISLANDS, INC. ESSO STANDARD OIL COMPANY (PUERTO RICO) DOUGLAS L. CAPDEVILLE, ESQ. 2191 Church Street, Suite 2 P.O. Box 4191 Christiansted, St. Croix U.S. Virgin Islands 00822-4191 ROBERT T. LEHMAN, ESQ. WILLIAM O'KANE, ESQ. Archer & Greiner, P.C. One Centennial Square P.O. Box 3000 Haddonfield, NJ 08033-0968 ROBERT N. DE LUG A, ESQ. Attorney for Esso Employees Saul, Ewing, Remick & Saul 3800 Centre Square West Philadelphia, PA 19102 TEXACO, INC. - TEXACO CARIBBEAN, INC. EDGAR CHRISTENS EN, ESQ. Law Offices of R. Eric Moore 54AB Company Street Christiansted, St. Croix U.S. Virgin Islands 00820 ADDISON J. MEYERS, ESQ. MARY HOERBER, ESQ. Law Offices of O' Connor, Meyers & Lemos 2801 Ponce DeLeon Boulevard, 9th Floor Coral Gables, FL 33114 RICKS FRAZIER, ESQ. ROSE ANNE MODEL, ESQ. 150 Alhambra Circle Coral Gables, FL 33134 STEVEN E. KIRKLAND, ESQ. 1111 Bagby Street Suite 2740 Houston, TX 77002 TIMOTHY KNUDSON, ESQ. 2000 Westchester Avenue White Plains, New York 10650 TUT OOS O60 VERNON MORGAN JOHN A. ZEBEDEE, ESQ. Law Offices of James L. Hymes 10 Norre Gade P.O. Box 990 Emancipation Garden Station Charlotte Amalie, St. Thomas U.S. Virgin Islands 00802 DANIEL BAYARD - BAYARD AUTOMOTIVE FRANCIS E. JACKSON, JR., ESQ. P.O. BOX 6591 Charlotte Amalie, St. Thomas U.S. Virgin Islands 00804 RAMSAY MOTORS. INC. CAROL ANN RICH, ESQ. Campbell, Arellano & Rich No. 4A and B Kongens Gade P. O. Box 11899 Charlotte Amalie, St. Thomas U.S. Virgin Islands 00801 L'HENRI, INC. PATRICIO MARTINEZ LORENZO, ESQ. Chase Manhattan Bank Building Suite 311 416 Ponce de Leon Avenue Hato Rey, Puerto Rico 00918 NANCY D'ANNA, ESQ. 18-38 Estate Enighed Cruz Bay, St. John U.S. Virgin Islands 00830 EXXON CORPORATION RICHARD DALEY, ESQ. Law Offices of Pattie & Daley 1104 Strand Street, Suite 204 Christiansted, St. Croix U.S. Virgin Islands 00820-5003 KELL M. DAMSGAARD, ESQ. TERRI JACOBSEN, ESQ. Morgan, Lewis & Bockius 2000 One Logan Square Philadelphia, PA 19103-6993 TUT OOS O6O8 WILLIAM J. STACK, ESQ. Exxon Company, U.S.A. 800 Bell Street, Room 2225 Houston, TX 77002 WESTERN AUTO SUPPLY COMPANY JOHN R. COON, ESQ. Law Offices of John R. Coon 6 Chandler's Wharf, Suite 202 P.O. Box 25918 Gallows Bay, St. Croix U.S. Virgin Islands 00824 V.I. HOUSING AUTHORITY RALDO V. SIMMONDS, ESQ. 402 Estate Anna's Retreat P.O. Box 7668 Charlotte Amalie, St. Thomas U.S. Virgin Islands 00802 GOVERNMENT OF THE VIRGIN ISLANDS MICHAEL LAW, ESQ. Assistant Attorney Generals Department of Justice 48B-50C Kronprindsens Gade Charlotte Amalie, St. Thomas U.S. Virgin Islands 00802 SIEGFRIED TORINUS AND WALTRAD TORINUS KATHERINE E. HARSCH, ESQ. TREGENZA ROACH, ESQ. Bornn, Bornn, Handy & Rashid 8 Norre Gade Charlotte Amalie, St. Thomas U.S. Virgin Islands 00804 TAG. INC. GEORGE MARSHALL MILLER, ESQ. 26A Norre Gade Charlotte Amalie, St. Thomas U.S. Virgin Islands 00801 TUT OO8 O6O9