SUPREME COURT
SED
Case Number 8183365 NOY 16 7910
Fredencs A. Onten Cle
rk
In the
SUPREME COURT OF CALIFORNIA
WALTER GREB and KAREN GREB
Plaintiffs andAppellants,
VS.
DIAMOND INTERNATIONAL CORPORATION,
Defendant and Respondent,
AFTER A DECISION BY THE COURT OF APPEAL,
FIRST APPELLATE DISTRICT, DIVISION ONE, APPEAL NO. A125472;
ON APPEAL FROM THE SUPERIOR COURT OF THE STATE OF CALIFORNIA,
FOR THE COUNTYOF SAN FRANCISCO, THE HONORABLEPETERJ. BUSCH,
JUDGE PRESIDING, CASE NO. CGC-08-274989
RESPONDENT'S REQUESTFOR JUDICIAL
NOTICE IN SUPPORT OF ANSWERBRIEF
ON THE MERITS
EdmundG.Farrell III (SBN 111042)
Scott L. Hengesbach (SBN 146731)
Maria A. Starn (SBN 235724)
.MURCHISON & CUMMING, LLP
801 South Grand Avenue, 9" Floor
Los Angeles, California 90017
Telephone: (213) 623-7400
Facsimile: (213) 623-7400
Attorneys for Defendant and Respondent,
DIAMOND INTERNATIONAL CORPORATION
Case Number 8183365
In the
SUPREME COURT OF CALIFORNIA
WALTER GREB and KAREN GREB
Plaintiffs and Appellants,
VS.
DIAMOND INTERNATIONAL CORPORATION,
Defendant and Respondent,
AFTER A DECISION BY THE COURT OF APPEAL,
FIRST APPELLATE DISTRICT, DIVISION ONE, APPEAL NO. A125472;
ON APPEAL FROM THE SUPERIOR COURT OF THE STATE OF CALIFORNIA,
FOR THE COUNTYOF SAN FRANCISCO, THE HONORABLEPETERJ. BUSCH,
JUDGE PRESIDING, CASE NO. CGC-08-274989
RESPONDENT'S REQUEST FOR JUDICIAL
NOTICE IN SUPPORT OF ANSWERBRIEF
ON THE MERITS
EdmundG.Farrell III (SBN 111042)
Scott L. Hengesbach (SBN 146731)
Maria A. Starn (SBN 235724)
MURCHISON & CUMMING, LLP
801 South Grand Avenue, 9" Floor
Los Angeles, California 90017
Telephone: (213) 623-7400
Facsimile: (213) 623-7400
Attorneys for Defendant and Respondent,
DIAMOND INTERNATIONAL CORPORATION
Pursuant to California Rule of Court 8.523(g) and Evidence
Code sections 452, 453, and 459, Respondent DIAMOND
INTERNATIONAL CORPORATIONrequests that this Court take
judicial notice of certain corporate records onfile with the California
Secretary of State and attached hereto as Exhibit A, and out-of-state
authorities cited in its Answer Brief on the Merits, attached hereto as
Exhibit B through Exhibit N. This request is being filed concurrently
with Respondent’s AnswerBrief on the Merits.
This request is made pursuant to the aboveauthorities, the
attached memorandum ofpoints and authorities, and all thefiles,
records and briefs in this case.
DATED: November15, 2010. Respectfully submitted,
MURCHISON & CUMMING, LLP
<3
COTT
MARIA A. STAR
Attorneys for Attorneys for Defendant
and Respondent, DIAMOND
INTERNATIONAL CORPORATION
MEMORANDUM OF POINTS AND AUTHORITIES
I.
JUDICIAL NOTICE SHOULD BE TAKEN OF RECORDS ON
FILE WITH THE CALIFORNIA SECRETARYOF STATE
In support ofits openingbrief, Plaintiffs filed a request for
judicial notice of documents issued bythe California Secretary of Sate
reflecting Diamond’spurported qualification to transactintrastate
business in California beginning in 1937 until approximately 1983.
(Plaintiffs’ Request for Judicial Notice, Exhibit A.) These documents
are not part of the lower court’s record andare introduced by Plaintiffs
for the first time in their appeal to this Court.
Morespecifically, Plaintiffs seek judicial notice ofthe
aforementioned corporate recordsin support of their argumentthat
because Diamondwasat one timequalified to do business in
California, Diamond was “organized under” under California’s General
Corporate Lawasthat phraseis used in California Corporations Code §
102. (POB at 19-20.)
However,Plaintiffs have mistakenly referred to the Diamond
International Corporation that wasoriginally incorporated as The
Diamond Match Company on December26, 1930. That Diamond
International Corporation was merged into Diamond (USA)Inc. on
September 28, 1983, and was not the DiamondInternational
Corporation that dissolved in Delaware on July 1, 2005. Diamond
(USA)Inc. changedits name to DiamondInternational Corporation at
the time of this merger.
Diamond (USA)Inc. was incorporated on April 2, 1982 and
qualified underthat namein California on July 21, 1983 — shortly
before the merger noted above. (Exhibit A at pp. 1-4.) Diamond
(USA) Inc. changed its name to DiamondInternational Corporation on
its California qualification documents on December28, 1983. (id., at
pp. 5-8.) This DiamondInternational Corporation terminatedits
qualification in California byfiling a Certificate of Surrender ofRight
to Transact Interstate Business in California on March 21, 1986. (id.,
at pp. 9-10.) This DiamondInternational Corporation dissolved in
Delaware on July 1, 2005. As evidenced bythe attached corporate
records on file with the California Secretary of State, Diamond
terminatedits qualification in California on March 21, 1986.
To accurately reflect Diamond’s corporate status in California,
Diamondasksthat this Court take judicial notice of the variousofficial
corporate records issued by the California Secretary of State and
attached hereto as Exhibit A pursuant to Evidence Codesections
452(d)(2) and(h). In particular, Evidence Code section 452(d)(2)
providesthat judicial notice may be taken of recordsofthisstate.
Evidence Codesection 452(h) further provides that judicial notice may
be taken of facts and propositions that are not reasonably subject to
dispute and are capable of immediate and accurate determination by
resort to resources of reasonably indisputable accuracy.
California courts routinely take judicial notice of corporate
records on file with the California Secretary of State. For example,
articles of incorporation filed with the Secretary of State are “records”
of the state of California and therefore subject to judicial notice under
Evidence Code section 452(d). See, Cody F.v. Falletti, 92 Cal. App.
4th 1232, 1237 (2001) (finding thatarticles of incorporation filed with
the Secretary of State were proper subject ofjudicial notice); Emmons
Williams, Mires & Leech v. State Bar, 6 Cal. App. 3d 565, 568, fn.1
(1970) (taking judicial notice of articles of incorporation of separate
nonprofit associationsfiled with the Secretary of State); Santa Barbara
County Coalition Against Automobile Subsidies v. Santa Barbara
County Assn. of Governments, 167 Cal. App. 4th 1229, 1234, fn.3
(2008)(taking judicial notice of articles of incorporation andfictitious
business namestatement).
Further, Evidence Code section 453 provides that a trial court
shall take judicial notice of any matters specified in section 452 as long
as a party requests it, gives each party sufficient notice of the request to
enable the adverse party to prepare to meet the request, and furnishes
the court with sufficient information to enableit to take judicial notice
of the matter.
Finally, California Rule of Court 8.252 and Evidence Code
section 459 grants appellate courts the sameright and powerto take
Judicial notice as the trial courts. As Diamonddid not previously
present this matterto the trial court, Diamondbrings the instant motion
for judicial notice as such materials are relevant to the new issues and
theories raised by Plaintiffs and discussed supra.
IL.
REQUEST FOR JUDICIAL NOTICE OF NON-CALIFORNIA
AUTHORITIES CITED IN ANSWER BRIEF
Respondentfurther requests that this Court take judicial notice of
the following out-of-state authorities cited in its Answer and attached
hereto as Exhibit B through Exhibit N:
Exhibit B
Exhibit C
Exhibit D
Exhibit E
Exhibit F
Exhibit G
Exhibit H
Exhibit I
Exhibit J
Exhibit K
8 Delaware Code § 170
8 Delaware Code § 241
8 Delaware Code § 242
8 Delaware Code § 258
8 Delaware Code §278
In re RegO Company(Del. Ch. 1992) 623
A.2d 92
Territory of the United States Virgin Islands
v. Goldman, Sachs & Co. (Del. Ch. 2007)
937 A.2d 760
In re Dow Chem.Int’! Inc., 2008 Del. Ch.
LEXIS 147
Marsh v. Rosenbloom (2d Cir. N.Y. 2007)
499 F.3d 165
Town of Oyster Bay v. Occidental Chemical
Corp. (E.D.N.Y. 1997) 987 F.Supp.182
Exhibit L In re Flashcom., Inc. Bkrptcy
(C.D.Cal. 2004) 38 B.R. 485
Exhibit M Akande v. Transamerica Airlines, Inc.
(In re Transamerica Airlines, Inc.),
2007 Del.Ch. LEXIS 68
Exhibit N Oklahoma Gas Co. v. Oklahoma,
273 U.S. 257, 259-60 (1927)
TI.
CONCLUSION
Forall of the foregoing reasons, Diamondrespectfully requests
that this Court take judicial notice of Exhibits A through N tothis
Request pursuant to California Rule of Court 8.252 and Evidence Code
sections 452, 453, and 459.
DATED: November15, 2010. MURCHISON & CUMMING, LLP
Attorneys for Defend t and
spondent, DIAMOND
RNATIONAL CORPORATION
OG NOT WRITE IN THIS SPACE
ae
Statement and Designation 1147096
. nat, JEEDby of the State ef Callfersia
JUL 21, 1983
Foreign Corporation wiuliile”
Deputy
DIAMOND (USA) Inc.
(Name of Corporation)
Delawarea corporation organized and existing under the laws of ores
ees
———;
makes:the followingstatements and designation:
1, Theaddress ofits principal executive office is_161 West Putnam Avenue
. Greenwich. Connecticut 06830
2. Tieadditésof its principal office in the State of California is 2475 Oxange Grove
Avenue, North Highlands 95660
comp fess. ora << not use OX)
DESIGNATION OF AGENT FOR SERVICE OF PROCESS WITHIN THE STATE OF CALIFORNIA
3. (Use this paragraph ifthe process agentis a natural person, }
a naturalperson residing in the State of Califomia, whose complete [ ] business { ] residence addressis
(Do aot use PorOllicaBox)
is designated as its agent upon whom process directed to the corporation may be served withinthe State of
California in the manner provided by law.
NOTE: Either the business address or the residence address must Le given. Indicate which by check mark
in proper box.
FORM TO RE COMPLETED ON REVERSE SIDE
SRQSTATE Form L.-4 (2/80) . (OVER)
oostyUse ifparagraph if the process agent is a corporation, See instructions} “ ¢
en -United States Corporation Company . a corporationek wed oF
“organizedand existing under the laws of California __
is designited 23 agent upon whom process directed to the undersigned corporation may be served within the
State ofCalifornia, in the mannerprovided by law.
NOTE:Béféreit may be designated by any foreign corporationas its agent for service of process, a corporateagent must'comply with Section 1505,-California Corporations Code. (See instruction 2.)
5S.. The undersigned corporation hereby irrevocably consents to service of process directed to it uponthe. agent designated above. and to service of process on the Secretary of State of the State of Californiaif
the agent so designated or the agent's successoris no longer authorized to act or cannot be found at theaddress given. —
DIAMOND (USA) INC.
(Name of Cocpormiion}
ignature of corporate officer)
Yped name of officer signing) ros
INSTRUCTIONS:
1. There must be annexed to this statement. a certificate by an authorized public official of the state orplace of incorporation of the corporation, to the effect that the corporation making the statementis anexisting corporation in good standing in that state or place. IF A NONPROFIT CORPORATIONISTOBEQUALIFIED,the certificate must also-indicate that the corporation is a nonstock, nonprofitcorporation. : .
-. No domestic corporation may be designated as agent for service of process unless it has filed with theSecretary of State the certificate provided for by Section 1505. Corporations Code, and no foreigncorporation may be designated unless it has qualified for the transaction of intrastate business inCalifornia and has filed with the Secretary of State of the State of Califomia the certificate provided forby Section 150S, California Corporations Code. A domestic or foreign corprzation must be currentlyauthorized to engage’in business in this State and be in good standing status on the records of theSecretary of State of the State of California, in order to file a certificate pursuant to this section.
NOTE: A CORPORATION CANNOT ACT FOR /TSELF AS AGENT FOR SERVICE OF PROCESS.
3. If a corporation is required to qualify under a D.B.A. (name other than the true corporatename) pursuant to Section 2106(b). Corporations Code, then in the first line of this -statement set -out the correct corporate name, followed by “which will do business in California as
. ; . ;” setting forth the D.B.A. in the space indicated. TheD.B.A. should not be set out in connection with the coiporate name anywhere else in the statement.
4. If the corporation changes its name or if there are any changes in the information contained in this ." Statement. then the corporation must file an Amended Statement and Designation. A form may beobtained from the Secretary of State.
DELAWARE
Ss
Office of SECRETARY OF STATE
I, Glenn C. Kenton, Secretary of State of the State of Delaware,
do-hereby certify that _DIAMOND (USA) INC.
is duly incorporated underthelaws of the State ofDelaware andis in
good standing and has a legal corporate existence so far as the
records of this office show, as of the date below shown.
a
Glenn C. Kenton, Secretary of State
BY: Vl Por
DATE: July 19, 1983
FORM 132
DiamondInternational Corporation 733 Third Avenue George Pascata
New York, New York 10017 ’ Vice President
212/697-1700 Secretary
July 19, 1983
The Secretary of State
of the State of California
Re: Application for Certificate of Authority
by Diamond {USA) Inc.
In connection with the application by Diamond
(USA) Inc., a Delaware corporation, for a certificate of
authority to transact business in the State of Califor-~
nia, the undersigned hereby consents to the use by the
above-mentioned corporation of ‘the name "Diamond (USA)
Inc." in the State of California.
DIAMOND INTERNATIONAL
CORPORATION
By hg
George ’Pascale
Vice-President and
Secretary
onal SRoc eau
Vice-President and
Treasurer
. aM CHG. TO: OLAMOND INTsRNATIONAL COnPORATION
[670% AZ75431
FILED
$0 the office of the Secrutury of
OF the State uf Colterna
-: OEC 86 1963
Amended
Statement and Designation by Foreign Corporation
DIAMOND INTERNATIONAL CORPORATION __ | a corporation
organized and existing under the laws of. Delaware
transaction of intrastate business in the State of California, makes the following statements and/or
designation:
1. That the name of the corporation has been changed to that hereinabove set forth and that the name
netpwree o
relinquished at the time of such change was DIAMOND (USA) INC._
2. That the location and address ofits principal executive office has been changed and the new location
and address of its principal executive office is 733 Third Avenue, New York,
New York 10017
(insert complete address of principal executive office wherever located—Do not use post office box}
3. That the location and address of its principal office in the State of California has been changed to
No change
” (Insert complete address of principal office in California—Do not use post office box)
4, The address of the individual agent designated for the service of process in the State of California has
been changed to_. N/A
{Do not use post offies box)
MALY CFFICE CHANGED BO NOT WRITE IN THIS SPACE
, and which is presently qualified for the .
1
5. (Usethis paragraph if the new process agent designated hereby is a natural person.)
N/A . anatural personresiding in
the State of Califonnia, whose complete C business ( residence address is
chloe
(Do not use post office box)
is hereby designated as its new agent upon whom Process directed to the corporation may be served within
the State of California, in the manner provided by law.
(Note: Either the business address or the residence address must be given. Indicate which by check mark In proper box.)
6. (Use this paragraph if the new process agent designated hereby is a corporation. See instructions.)
The name of its new agent upon whom process directed to the undersigned may beserved within the
State of California is No_ change
A certificate in compliance with Section 1505 of the California Corporations Code has beenfiled by said
corporate agent
DIAMONy INTERWATTONAL CORPORATION
AYA ofCorporatjon)
By
(Title)
Victor Stronski, Vice President
INSTRUCTIONS
I. This form is for use by a foreign corporation. Included in the definition “foreign corporation”is a“foreign association” which is defined as “a businessassociation organized as a trust under the laws ofaforeign jurisdiction.”
2. Use only whicheverof the foregoing paragraphsof this Amended Statement are applicable.
3. If this Amended Statement shows a change of corporate name, there must be attached to thisAmended Statement a certificate. of the public officer having custody of the original corporationdocuments in the state or place of incorporation to the effect that such change of name was made inaccordance with the laws of the state or place of incorporation. In the case of a change of name by aforeign association there must be attached to this amended statement an officers’ certificate stating thatsuch change of name was madein accordance with its declaration oftrust.
i
PAM.
we STATE OF DELAWARE
OFFICE OF SECRETARY OF STATE
I, GLENN C. KENTON, Secretary of State of the State of Delaware, do hereby
certify that the Certificate of Incorporation of the “Diamond (USA) Inc.", was
received and filed in this office the second day of April, A.D. 1982, at 9
o'clock A.B.
And I do herehy further certify that the said "Diamond (USA) Inc.", fited
a Certificate of Designation, on the twelfth day of April, A.D. 1982, at 9
O'clock A.M.
And I do hereby further certify that the said "Diamond (USA) Inc.", filed
a Certificate of Designation, on the twelfth day of April, A.D. 1982, at 9
O'clock A.M. .
And I do hereby further certify that the said "Diamond (USA} Inc.", filea
a Certificate of Ownership, on the tenth day of November, A.D. 1982, at 9
o'clock A.M,
And I do hereby further certify that the said "Diamond (USA) Inc.", Filed
a Certificate of Ownership, on the thirtieth day of December, A.D, 1982, at 9
o'clockA.H. .
And I do hereby further certify that the said "Diamond (USA) Inc.", filed
a Certificate of Merger, changing its corporate title to "DIAMOND INTERNATIONAL
CORPORATION", on the twenty-ninth day of September, A.D. 1983, at 3:55 o'clock
i
And I do hereby further certify that the said “DIAMOND INTERNATIONAL
CORPORATION", filed a Restated Certificate of Incorporation, on the twenty-ninth
day of September, A.D. 1983, at 3:55 o'clock P.M. . . :
And I do hereby further certify that the aforesaid Certificates are the
only Certificates on recutd of the aforesaid Corporation.
t
And I do hereby further certify that the aforesaid Corporation is duly
incorporated under the laws of the State of Delaware and is in good standing and
has a legal corporate existence not having been cancelled or dissolved so far as
the records of this office show and is duly authorized to transact business.
Am I do hereby further certify that the Annual Reports have been filed to
date.
IN TESTIMONY WHEREOF, I have hereunto set my hand’
and official seal at Dover this third
day of November. in the year of ‘our Lord one
thousand nine hundred and eighty—three.
C Ke.
Glenn C. Kenton, Secretary of State
sw
a
e
r
o
Office of SECRETARY OF STATE
J Glennc. Kenton Secrelany, of Sinle of bee Hite of Delamane,
da hereby, conlfy that the Certificate of Merger of the "DIAMOND INTERNATIONAL
CORPORATION", merging with and into the “DIAMOND (USA) INC.", under the name of
"DIAMOND INTERNATIONAL CORPORATION", was received and filed in this officethe
twenty-ninth day of September, A.D. 1983, at 3:55 o'clock P.M.
And I do hereby further certify that upon filing of the aforesaid Certificate
of Merger, the corporate existence of the "DIAMOND INTERNATIONAL CORPORATION, terminated.
In Testimony Whereof, % hase hereunta set my hand
and officialsealat Dower this third - day,
of November in thefour ofOUs Lond
ane lhousand nine hundsed and eighty-three.
Lh Ceh ;
Glenn C. Kenton, Secretary of State
HY FeGe
CERTIFICATE OF SURRENDER OF RIGHT TO TRANSACT
INTRASTATE BUSINESS
BO NOY WAITE IN THIS SPACE
D201849 {()
FILED
ln the office of the Secretory of State
of tho State of Colfilycnia
MAR 2 1 1986
Unsuch FounGe.
MARCH FONG EU, Secretéty of State j
On behalf and by »-thority —DIAMOND_INTERNATIONAL,CORPORATION
— , 2 corporation organized and
existing under the laws of_.___Delaware , the
undersigned Victor Stronski Vice President
, (Carporate Officer) (Title)
, of said corporation,
does hereby certify and declare:
1. Said corporation hereby surrendersits right and authority to transact intrastate business in
the State of California.
2. Said corporation hereby revokesits designation of agentfor the service of process in Califomia.
3. Said corporation consents that process againstit in any action upon any liability or obligation
incurred within the State of California prior to the filing of this Certificate of Surrender of Right
to Transact Intrastate Business may be served upon the Secretary of State of the State of California.
4. Thepostoffice address to which the Seerciary of State may mail copies of any process against
the corporation that is served upon him is___650 Fifth avenue
Suite; 2400
New fork, NY ydis
Dated:(2Bevae/
©
/7IS
Victor Stronski
(CALIF, - 935 - 1/1/77)
LL.21
TERN Cement meeeeeter men aney ee ome
OEdeenteens
“(Tide)”
Vice President
44cn0.662 4.98 20 CD car
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| MAR 12 1960
STATE OF CALIFORNIA TAX CLEARANCEFRANCHISE TAX BOARD
TELEPHONE(10)3604120, CERTIFICATE
1986
EXPIRATION DATE: June 13, 1986
DIAMOND INTERNATIGNAL CORPORATION
656 Fifth Avenue, Suite 2400
New York, N¥ 10019-6179
ISSUED TO: DIANOND INTERNATIONAL CORPORATION
Corporate Number 1147096
THIS IS TQ CERTIFY THAT all taxes imposed on the above corporation
undar the Bank and Corporation Tax Law have been paid or are sacured
by bond deposit or other security.
Rh copy of this Tax Clearance Certificate has heen sent to the Office
o£ the Secretary of State at Sacramento, California. The original of
this certificate may be retained £or the files of the corporation.
The required Secretary o£ State forms to dissolve, withdraw, or mazga
must he obtained from and filed with the Offica of tha Sacrataxry of
State at 1230 ¢.Streat, Sacramento, CA 95814 hy the EXPIRATION DATE
o£ this notice. ,
NOTE: KX£ the above process is NOT completed with
the Office o£ the Secretary o£ Stata prior to the
expiration date, the corporation remains subject
to the filing requirements of the Bank and
Corporation Tax Law.
FRANCHISE TAX BOARD
By J. Snyder
Tax Clearance Unit
Corporation Audit | on
Telephone (916) 369-4124 JSinh
FEB 2570-ATS CREV.:1~85)
SECRETARY OF STATE
{ herebycertify that the foregoing
roreyeepage(s) Zi
is a full, true and comect copy of the
ofiginal record in the cusiody of the
California Secretaryof State's office.
NOV 65 2010
DEBRABOWEN,Sacratary of State
Page 1
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4 of 8 DOCUMENTS
DELAWARE CODE ANNOTATED
Copyright 2010 by The State of Delaware
All rights reserved.
*** THIS DOCUMENT IS CURRENT THROUGH 77 DEL. LAWS, CH. 476 ***
*** ANNOTATIONS CURRENT THROUGH CASES POSTED AS OF SEPTEM-
BER3, 2010 ***
TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER V. STOCK AND DIVIDENDS
GO TO DELAWARE STATUTES ARCHIVE DIRECTORY
8 Del. C. § 170 (2010)
§ 170. Dividends; payment; wasting asset corporations
(a) The directors of every corporation, subject to any restrictions contained in its
certificate of incorporation, may declare and pay dividends uponthe sharesofits
capital stock either (1) out of its surplus, as defined in and computed in accordance
with §§ 154 and 244 ofthis title, or (2) in case there shall be no such surplus, out of
its net profits for the fiscal year in which the dividend is declared and/or the preced-
ing fiscal year. If the capital of the corporation, computed in accordance with §§ 154
and 244 ofthis title, shall have been diminished by depreciation in the valueofits
property, or by losses, or otherwise, to an amountless than the aggregate amountof
the capital represented by the issued and outstanding stock of all classes having a
preference uponthe distribution ofassets, the directors of such corporation shall not
declare and pay out of such net profits any dividends upon any shares of any classes
of its capital stock until the deficiency in the amountofcapital represented bytheis-
sued and outstanding stock ofall classes having a preference uponthe distribution of
assets shall have been repaired. Nothing in this subsection shall invalidate or other-
wise affect a note, debenture or other obligation of the corporation paid by it as a
dividend on shares ofits stock, or any payment madethereon,if at the time such note,
debenture or obligation was delivered by the corporation, the corporation had either
surplus or net profits as provided in clause (1) or (2) of this subsection from which
the dividend could lawfully have been paid.
(b) Subject to any restrictions containedinits certificate of incorporation,the di-
rectors of any corporation engaged in the exploitation of wasting assets (including but
not limited to a corporation engaged in the exploitation of natural resources or other
wasting assets, including patents, or engaged primarily in the liquidation of specific
assets) may determinethe net profits derived from the exploitation of such wasting
assets or the net proceeds derived from such liquidation without taking into consid-
eration the depletion of such assets resulting from lapse of time, consumption,liqui-
dation or exploitation of such assets.
HISTORY:8 Del. C. 1953, § 170; 56 Del. Laws, c. 50; 56 Del. Laws,c. 186, § 9; 59
Del. Laws, c. 106, § 5; 64 Del. Laws, c. 112, § 17; 67 Del. Laws,c. 376, § 5; 69 Del.
Laws, c. 61, § 3; 72 Del. Laws, c. 123, § 3; 77 Del. Laws, c. 253, § 18.
NOTES: CROSS REFERENCES.--Asto dividends on stock of cooperative agricul-
ture associations, see $ 8532 of Title 3. As to dividends of state banks and trust com-
panies, see § 748 of Title 5. As to dividends of building and loan associations, see §
1904 of Title 5.
REVISOR'S NOTE.--Section 13 of 72 Del. Laws, c. 123, provides: "This act shall
becomeeffective July 1, 1999." The act was signed by the Governor on July 2, 1999.
Section 71 of 77 Del. Laws, c. 253, provides: "Effective date. Sections 1 through
46, 51 through 60, and 63 through 70 shall be effective on August 1, 2010."
EFFECT OF AMENDMENTS.--77 Del. Laws, c. 253, deleted "or to its members if
the corporation is a nonstock corporation" preceding "either (1)" in the first sentence
of (a).
PAYMENT TO STOCKHOLDERSASRETURN UPON THEIR INVESTMENTIS, IN
GENERAL, TERMED A DIVIDEND. Penington v. Commonwealth Hotel Constr.
Corp., 17 Del. Ch. 394, 155 A. 514 (1931).
AND DIVIDEND IS SUM OFMONEY OR PORTION OFDIVISIBLE THING TO BE
DISTRIBUTED ACCORDING TO SOME FIXED SCHEME.Penington v. Common-
wealth Hotel Constr. Corp., 17 Del. Ch. 394, 155 A. 514 (1931).
Page 1
® * *
@LexisNexis’
1 of 1 DOCUMENT
DELAWARE CODE ANNOTATED
Copyright 2010 by The State of Delaware
All rights reserved.
*** THIS DOCUMENTIS CURRENT THROUGH77 DEL. LAWS,CH.476 ***
*** ANNOTATIONS CURRENT THROUGH CASES POSTED AS OF SEPTEM-
BER3, 2010 ***
TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER VIII. AMENDMENTOF CERTIFICATE OF INCORPORATION;
CHANGESIN CAPITAL AND CAPITAL STOCK
GO TO DELAWARESTATUTES ARCHIVE DIRECTORY
8 Del. C. § 241 (2010)
§ 241. Amendmentofcertificate of incorporation before receipt of paymentfor stock
(a) Before a corporation has received any paymentfor any ofits stock, it may
amendits certificate of incorporation at any time or times, in any and as manyre-
spects as may be desired, so longasits certificate of incorporation as amended would
contain only such provisionsas it would be lawful and properto insert in an original
certificate of incorporation filed at the time offiling the amendment.
(b) The amendmentofa certificate of incorporation authorized by this section
shall be adopted by a majority of the incorporators, if directors were not namedin the
original certificate of incorporation or have not yet been elected,or, if directors were
namedin the original certificate of incorporation or have been elected and have quali-
fied, by a majority of the directors. A certificate setting forth the amendmentandcer-
tifying that the corporation has not received any paymentfor any of its stock, or that
the corporation has no members, as applicable, and that the amendmenthas been duly
adopted in accordance with this section shall be executed, acknowledged andfiled in
accordance with § 103 ofthistitle. Upon suchfiling, the corporation's certificate of
incorporation shall be deemed to be amended accordingly as of the date on which the
original certificate of incorporation becameeffective, except as to those persons who
are substantially and adversely affected by the amendmentandasto those personsthe
amendmentshall be effective from the filing date.
(c) This section will apply to a nonstock corporation before such a corporation has
any members; provided, however,that all references to directors shall be deemed to
be references to membersofthe governing body of the corporation.
HISTORY:8 Del. C. 1953, § 241; 56 Del. Laws, c. 50; 64 Del. Laws, c. 112, § 23;
70 Del. Laws, c. 587, § 13; 77 Del. Laws, c. 253, §§ 31, 32.
NOTES: REVISOR'S NOTE.--Section 71 of 77 Del. Laws, c. 253, provides: "Effec-
tive date. Sections | through 46, 51 through 60, and 63 through 70 shall be effective
on August 1, 2010."
EFFECT OF AMENDMENTS.--77 Del. Laws,c. 253, inserted "or that the corpora-
tion has no members, as applicable" in the second sentence of(b); and added(c).
SHAREHOLDER APPROVAL NOT REQUIRED.--Normally, a proposed amend-
mentto the certificate of incorporation must be submitted to a vote of the corpora-
tion's stockholders entitled to vote thereon; there are two exceptions whichareperti-
nent: first, if a corporation has not yet received paymentfor its shares, the board of
directors may amendthecertificate by board action alone; second,if a corporation
has no capital stock, the governing body may approvea certificate amendment, on its
own. Farahpour v. DCX, Inc., 635 A.2d 894 (Del. 1994).
NOTES APPLICABLE TO ENTIRE TITLE
CROSS REFERENCES.--As to corporation law for cooperative agriculture associa-
tions, see Chapter 85 of Title 3. As to corporation law for state banks and trust com-
panies, see Chapter 7 of Title 5. As to building and loan associations generally, see
Chapter 19 of Title 5. As to violation of game and fish laws by corporation, see §
1305 of Title 7. As to Division of Corporations within DepartmentofState, see §
8704 of Title 29. As to transfer of all powers, duties and functions vested in Secretary
of State bythis title to Division of Corporations of DepartmentofState, see § 8704 of
Title 29.
NOTES APPLICABLE TO ENTIRE CHAPTER
CROSS REFERENCES.--Asto applicability of general corporation law to profes-
sional service corporations, see § 618 ofthis title. As to constitutional provisionsrela-
tive to corporations, see Del. Const., art. IX. As to insurance corporations generally,
see Title 18. As to inapplicability of general corporation lawsto foreign insurers, see
§ 523 ofTitle 18. As to organization, corporate powers and procedures of domestic
stock and mutualinsurers, see Chapter 49 ofTitle 18. As to registration by insurance
holding companies, see Chapter 50ofTitle 18. As to health service corporations gen-
erally, see Chapter 63 of Title 18. As to corporation incometax generally, see Chap-
ter 19 of Title 30.
NOTES APPLICABLE TO ENTIRE SUBCHAPTER
CROSS REFERENCES.--As to amendmentofcharter of state banks and trust com-
panies, see § 749 ofTitle 5. As to transfer of powers, duties and functions vested in
Secretary ofState by this title to Division of Corporations of Department of State, see
§ 8704 ofTitle 29.
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DELAWARE CODE ANNOTATED
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*** ANNOTATIONS CURRENT THROUGH CASES POSTED AS OF SEPTEM-
BER3, 2010 ***
TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER VII. AMENDMENTOF CERTIFICATE OF INCORPORATION;
CHANGESIN CAPITAL AND CAPITAL STOCK
GO TO DELAWARESTATUTES ARCHIVE DIRECTORY
8 Del. C. § 242 (2010)
§ 242. Amendmentofcertificate of incorporation after receipt of paymentfor stock;
nonstock corporations
(a) After a corporation has received paymentfor any ofits capital stock, or after a
nonstock corporation has members, it may amendits certificate of incorporation,
from time to time, in any and as manyrespects as may bedesired, so longasits cer-
tificate of incorporation as amended would contain only such provisionsas it would
be lawful and properto insert in an original certificate of incorporationfiled at the
time ofthe filing of the amendment; and,if a changein stock orthe rights of stock-
holders, or an exchange,reclassification, subdivision, combination or cancellation of
stockor rights of stockholders is to be made, such provisions as may be necessary to
effect such change, exchange,reclassification, subdivision, combination or cancella-
tion. In particular, and without limitation upon such general power of amendment, a
corporation may amendits certificate of incorporation, from timeto time,so as:
(1) To changeits corporate name; or
(2) To change, substitute, enlarge or diminish the nature ofits business orits
corporate powers and purposes; or
(3) To increase or decrease its authorizedcapital stock or to reclassify the same,
by changing the number,parvalue, designations, preferences,orrelative, participat-
ing, optional, or other special rights of the shares, or the qualifications, limitations or
restrictions of such rights, or by changing shares with par value into shares without
par value, or shares without par value into shares with par value either with or with-
out increasing or decreasing the numberof shares, or by subdividing or combining
the outstanding sharesofany class orseries of a class of sharesinto a greater or lesser
numberof outstanding shares; or
(4) To cancel or otherwise affect the right of the holders of the shares of any
class to receive dividends which have accrued but have not been declared; or
(5) To create new classes of stock having rights and preferenceseither prior and
superior or subordinate and inferior to the stock of any class then authorized, whether
issued or unissued; or
(6) To changethe period ofits duration.
Anyor all such changesoralterations may be effected by 1 certificate of amend-
ment.
(b) Every amendmentauthorized by subsection (a) of this section shall be made
and effected in the following manner:
(1) If the corporation has capital stock, its board of directors shall adopt a resolu-
tion setting forth the amendmentproposed, declaring its advisability, and either call-
ing a special meeting of the stockholders entitled to vote in respect thereoffor the
consideration of such amendmentor directing that the amendmentproposedbe con-
sidered at the next annual meeting of the stockholders. Such special or annual meet-
ing shall be called and held upon notice in accordance with § 222ofthis title. The no-
tice shall set forth such amendmentin full or a brief summary ofthe changesto be
effected thereby. At the meeting a vote of the stockholders entitled to vote thereon
shall be taken for and against the proposed amendment.If a majority of the out-
standing stock entitled to vote thereon, and a majority of the outstanding stock of
eachclass entitled to vote thereon as a class has been voted in favor of the amend-
ment, a certificate setting forth the amendmentandcertifying that such amendment
has been duly adopted in accordance with this section shall be executed, acknowl-
edged andfiled and shall becomeeffective in accordance with § 103 ofthistitle.
(2) The holders of the outstanding shares of a class shall be entitled to vote as a
class upon a proposed amendment, whetherornotentitled to vote thereon by the cer-
tificate of incorporation, if the amendment would increase or decrease the aggregate
numberof authorized sharesof suchclass, increase or decrease the par valueofthe
shares of suchclass, or alter or change the powers, preferences,or special rights of
the shares of such class soas to affect them adversely. If any proposed amendment
would alter or change the powers, preferences, or special rights of 1 or more series of
any class so as to affect them adversely, but shall not so affect the entire class, then
only the sharesofthe series so affected by the amendment shall be considereda sepa-
rate class for the purposesof this paragraph. The numberofauthorized shares of any
such class or classes of stock may be increased or decreased (but not below the num-
ber of shares thereof then outstanding) by the affirmative vote of the holders of a ma-
jority of the stock of the corporation entitled to vote irrespective of this subsection, if
so providedin theoriginal certificate of incorporation, in any amendmentthereto
which created suchclass or classes of stock or which was adopted prior to the issu-
ance of any shares of such classor classes of stock, or in any amendmentthereto
which wasauthorized bya resolution or resolutions adopted by the affirmative vote
of the holders of a majority of such class or classes of stock.
(3) If the corporation is a nonstock corporation, then the governing body thereof
shall adopta resolution setting forth the amendmentproposed and declaringits advis-
ability. Ifa majority ofall the members of the governing body shall vote in favor of
such amendment,a certificate thereof shall be executed, acknowledged andfiled and
shall becomeeffective in accordance with § 103 ofthis title. The certificate of incor-
poration of any nonstock corporation may contain a provision requiring any amend-
ment thereto to be approved by a specified numberor percentage of the members or
of any specified class of membersofsuch corporation in which event such proposed
amendmentshall be submitted to the membersorto any specified class of members
of such corporation in the same manner, so far as applicable, as is provided in this
section for an amendmentto the certificate of incorporation ofa stock corporation;
and in the event of the adoption thereof by such members,a certificate evidencing
such amendmentshall be executed, acknowledged andfiled and shall becomeeffec-
tive in accordancewith § 103 ofthistitle.
(4) Wheneverthecertificate of incorporation shall require for action by the
board of directors of a corporation other than a nonstock corporation or by the gov-
erning body of a nonstock corporation, by the holders of anyclass or series of shares
or by the members,or by the holders of any other securities having voting powerthe
vote of a greater numberor proportion than is required by any sectionofthistitle, the
provisionofthe certificate of incorporation requiring such greater vote shall not be
altered, amendedor repealed except by such greater vote.
(c) The resolution authorizing a proposed amendmentto the certificate of incorpo-
ration may provide that at any timeprior to the effectiveness ofthe filing of the
amendmentwith the Secretary of State, notwithstanding authorization of the pro-
posed amendmentbythe stockholders of the corporation or by the members of a non-
stock corporation, the board of directors or governing body may abandon suchpro-
posed amendment without further action by the stockholders or members.
HISTORY:8 Del. C. 1953, § 242; 56 Del. Laws, c. 50; 57 Del. Laws, c. 148, §§ 18-
21; 59 Del. Laws, c. 106, § 7; 63 Del. Laws, c. 25, § 12; 64 Del. Laws, c. 112, § 24;
67 Del. Laws, c. 376, § 10; 70 Del. Laws, c. 349, §§ 5-7; 70 Del. Laws, c. 587, § 14,
15; 72 Del. Laws, c. 123, § 5; 77 Del. Laws, c. 253, §§ 33-35; 77 Del. Laws, c. 290, §
7.
NOTES: REVISOR'S NOTE.--Section 13 of 72 Del. Laws, c. 123, provides: "This
act shall becomeeffective July 1, 1999." The act was signed by the Governoron July
2, 1999.
Section 71 of 77 Del. Laws, c. 253, provides: "Effective date. Sections 1 through
46, 51 through 60, and 63 through 70 shall be effective on August 1, 2010."
Section 36 of 77 Del. Laws, c. 290, providedin part: "Sections 1-15 and §§ 18-35
shall be effective on August 2, 2010."
EFFECT OF AMENDMENTS.--77 Del. Laws, c. 253, inserted "or after a nonstock
corporation has members"in the first sentenceof (a); in (b)(3), substituted "is a non-
stock corporation" for "has no capital stock" in the first sentence, in the third sentence
substituted "nonstock" for "such", deleted "withoutcapital stock" preceding "may
contain" and preceding "in the same"; and, in (b)(4), inserted "of a corporation other
than a nonstock corporation or by the governing body of a nonstock corporation" and
“members, or by the".
77 Del. Laws, c. 290, deleted "as the directors shall deem advisable" from the end
of the third sentence of (b)(1).
THIS SECTION WASDESIGNED PRIMARILYFOR CONVENIENCE OF CORPO-
RATION. State ex rel. RCA v. Benson, 32 Del. 576, 128 A. 107 (1924).
LEGISLATIVE INTENT OF SUBSECTIONS(B)(2) AND (B)(3). --The contrasting
provisions of subsections (b)(2) and (b)(3) regarding class approvalofdecisions
which might adversely affect the class reflect a legislative intent to provide fewervot-
ing rights, of pure statutory origin, to membersofnonstock corporationsin the adop-
tion of amendmentsto thecertificate of incorporation; in sum, such members have
neithera right to vote on an amendmentgenerally nora right to vote on an amend-
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DELAWARE CODE ANNOTATED
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All rights reserved.
*** THIS DOCUMENTIS CURRENT THROUGH 77 DEL. LAWS,CH.476 ***
*** ANNOTATIONS CURRENT THROUGH CASES POSTED AS OF SEPTEM-
BER 3, 2010 ***
TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER, CONSOLIDATION OR CONVERSION
GO TO DELAWARESTATUTES ARCHIVE DIRECTORY
8 Del. C. § 258 (2010)
§ 258. Mergeror consolidation of domestic and foreign stock and nonstock corpora-
tions
(a) Any 1 or more corporationsofthis State, whether stock or nonstock corpora-
tions and whether or not organized for profit, may merge or consolidate with 1 or
more other corporations of any other state or states of the United States or of the Dis-
trict of Columbia whether stock or nonstock corporations and whetheror not organ-
ized for profit, if the laws under whichthe other corporation or corporationsare
formedshall permit such a corporation of such jurisdiction to merge with a corpora-
tion of another jurisdiction. The constituent corporations may mergeinto a single
corporation, which may be any1 of the constituent corporations, or they may con-
solidate into a new corporation formed by the consolidation, which maybe a corpora-
tion of the place of incorporation of any 1 of the constituent corporations, pursuant to
an agreement of merger or consolidation, as the case may be, complying and ap-
proved in accordance withthis section. The surviving or new corporation maybeei-
ther a stock corporation or a nonstock corporation, as shall be specified in the agree-
ment of merger required by subsection (b) of this section.
(b) The method and procedureto be followed by the constituent corporations so
merging or consolidating shall be as prescribed in § 257 ofthis title in the case of
Delaware corporations. The agreement of merger or consolidation shall also set forth
such other matters or provisionsas shall then be required to be set forth in certificates
of incorporation by the laws of the state whichare stated in the agreementto be the
laws which shall govern the surviving or resulting corporation and that can be stated
in the case of a merger or consolidation. The agreement, in the case of foreign corpo-
rations, shall be adopted, approved,certified, executed and acknowledged by each of
the constituent foreign corporations in accordance with the laws under which eachis
formed.
(c) The requirements of § 252(d) ofthis title as to the appointmentofthe Secretary
of State to receive process and the mannerof serving the samein the eventthe surviv-
ing or new corporation is to be governed by the laws of any other state shall also ap-
ply to mergers or consolidations effected underthis section. Section 251(e)ofthisti-
tle shall apply to mergers effected under this section if the surviving corporationis a
corporation of this State; § 251(d)ofthis title shall apply to any constituent corpora-
tion participating in a merger or consolidation underthis section (provided, however,
that for purposes of a constituent nonstock corporation, references to the board ofdi-
rectors, to stockholders, and to shares shall be deemedto be references to the govern-
ing body of the corporation, to membersof the corporation, and to memberships or
membership interests of the corporation, as applicable, respectively); and § 251(f) of
this title shall apply to any constituent stock corporation participating in a merger un-
der this section.
(d) Nothing in this section shall be deemedto authorize the merger of a charitable
nonstock corporation into a stock corporation, if the charitable status of such non-
stock corporation would thereby be lost or impaired; but a stock corporation may be
merged into a charitable nonstock corporation which shall continue as the surviving
corporation.
HISTORY:8 Del. C. 1953, § 258; 56 Del. Laws, c. 50; 56 Del. Laws, c. 186, § 22;
57 Del. Laws, c. 148, § 26; 76 Del. Laws, c. 145, § 10; 77 Del. Laws, c. 253, §§ 45,
46.
NOTES: REVISOR'S NOTE.--Section 17 of 76 Del. Law, c. 145, provided: "Sec-
tions | through 10 shall be effective on August 1, 2007."
Section 71 of 77 Del. Laws, c. 253, provided: "Effective date. Sections 1 through
46, 51 through 60, and 63 through 70 shall be effective on August 1, 2010."
EFFECT OF AMENDMENTS.--76 Del. Laws, c. 145, inserted "certified" in the last
sentence in (b).
77 Del. Laws, c. 253, substituted "nonstock" for "membership"in the last sentence
of (a); in the last sentenceof (c), deleted "stock" followingthe first occurrence of
"any constituent" and inserted the parenthetical proviso.
LexisNexis 50 State Surveys, Legislation & Regulations
Mergers & Acquisitions
USER NOTE:For more generally applicable notes, see notes underthefirst section
of this heading, subchapter, chapter, part ortitle.
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DELAWARE CODE ANNOTATED
Copyright 2010 by The State of Delaware
All rights reserved.
*** THIS DOCUMENTIS CURRENT THROUGH 77 DEL. LAWS,CH.476 ***
*** ANNOTATIONS CURRENT THROUGH CASES POSTED AS OF SEPTEM-
BER 3, 2010 ***
TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER X. SALE OF ASSETS, DISSOLUTION AND WINDING UP
GO TO DELAWARE STATUTES ARCHIVE DIRECTORY
8 Del. C. § 278 (2010)
§ 278. Continuation of corporation after dissolution for purposes of suit and winding
up affairs
All corporations, whether they expire by their own limitation or are otherwise dis-
solved, 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 discre-
tion direct, bodies corporate for the purpose of prosecuting and defendingsuits,
whethercivil, criminal or administrative, by or against them, and of enabling them
gradually to settle and close their business, to dispose of and conveytheir property,to
dischargetheir liabilities and to distribute to their stockholders any remaining assets,
but not for the purpose of continuing the business for which the corporation wasor-
ganized. With respect to any action, suit or proceeding begun by oragainst the corpo-
ration either prior to or within 3 years after the date of its expiration or dissolution,
the action shall not abate by reason ofthe dissolution of the corporation; the corpora-
tion shall, solely for the purpose of such action, suit or proceeding, be continued as a
body corporate beyondthe 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.
Sections 279 through 282 ofthis title shall apply to any corporation that has expired
by its ownlimitation, and whenso applied, all references in those sections to a dis-
solved corporation ordissolution shall include a corporation that has expiredby its
own limitation and to such expiration, respectively.
HISTORY:8 Del. C. 1953, § 278; 56 Del. Laws, c. 50; 66 Del. Laws, c. 136, § 36;
77 Del. Laws, c. 290, § 26.
NOTES: REVISOR'S NOTE.--Section 36 of 77 Del. Laws, c. 290, provided in part:
"Sections 1-15 and §§ 18-35 shall be effective on August 2, 2010."
EFFECT OF AMENDMENTS.--77 Del. Laws, c. 290, added the last paragraph.
LexisNexis 50 State Surveys, Legislation & Regulations
Dissolution & Liquidation of General Business Forms
INTENT OF THIS SECTIONis merely to permit the Court of Chancery,in its dis-
cretion, andpriorto the expiration of 3 years from the date of dissolution, to continue
corporate existence for such an additional period of time beyond3 years as might be
required in order to permit a corporation to complete the windingupofits affairs. Jn
re Citadel Indus., Inc., 423 A.2d 500 (Del. Ch. 1980).
THIS SECTION CREATES NEW RIGHT OF SUBSTANCE,for at common law a
dissolved corporation could neither sue nor be sued. International Pulp Equip. Co.v.
St. Regis Kraft Co., 54 F. Supp. 745 (D. Del. 1944).
SECTION LIBERALLY CONSTRUED.--Whenconsideredtogether, this section,
authorizing suit within 3 years after dissolution, and § 321 ofthistitle, concerning
service of legal process on corporation, both remedialin nature, mustbe liberally
construed. [International Pulp Equip. Co. v. St. Regis Kraft Co., 54 F. Supp. 745 (D.
Del. 1944).
SECTION EXPANDS EQUITABLE DOCTRINE PRECLUDING ESCHEAT.--
This section is in effect a statutory expansion of the equitable doctrine that upon dis-
solution of a corporation its property, notwithstanding the technicalrulesofthe early
commonlaw,doesnot escheat to the sovereign or revert to the original grantor, and
will be administered in chancery for the purpose of winding upthe corporate affairs
pen . * ®LexisNexis
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LEXSEE 623 A.2D 92
IN RE REGO COMPANY
Civil Action No. 11651
COURT OF CHANCERY OF DELAWARE, NEW CAS-
TLE
623 A.2d 92; 1992 Del. Ch. LEXIS 205
August 26, 1992, Submitted
October 16, 1992, Decided
SUBSEQUENT HISTORY: As Re-
vised October 22, 1992. Released for
Publication April 15, 1993 in accordance
with Supreme Court Rule 93.
COUNSEL: [**1] A. Gilchrist Sparks,
Ill, Esquire and David G. Thunhorst,
Esquire, of MORRIS, NICHOLS,
ARSHT & TUNNELL, Wilmington,
Delaware; Attorneys for Petitioner.
Robert K. Payson, Esquire, Michael D.
Goldman, Esquire and Stephen C. Nor-
man, Esquire, of POTTER ANDERSON
& CORROON, Wilmington, Delaware;
OF COUNSEL: KATTEN, MUCHIN,
ZAVIS & WEITZMAN, Los Angeles,
California; Attorneys for Emerson Elec-
tric Company, Claimant.
Clark W. Furlow, Esquire and Michele
C. Gott, Esquire, of SMITH, KATZEN-
STEIN & FURLOW, Wilmington,
Delaware; Guardian Ad Litem.
Thomas J. Allingham, IJ, Esquire and
Robert A. Glen, Esquire, of SKADDEN,
ARPS, SLATE, MEAGHER & FLOM,
Wilmington, Delaware; OF COUNSEL:
LOCKE, PURNELL, RAIN &
HARRELL,Dallas, Texas; Attorneys for
Trinity Industries.
Elizabeth McGeever, Esquire of
PRICKETT, JONES, ELLIOTT, KRIS-
TOL & SCHNEE, Wilmington, Dela-
ware; OF COUNSEL: FOLEY &
LARDNER, Washington, D.C.; Attor-
neys for Matheson Gas Products,Inc.
James W. Semple, Esquire and Thad-
deus J. Weaver, Esquire of MORRIS,
JAMES, HITCHENS & WILLIAMS,
Wilmington, Delaware; Attorneys for
Empire Gas,Inc. of Jacksonville.
Allen M.Terrell, Jr., Esquire and David
L. Zicherman, Esquire, of RICHARDS,
[**2] LAYTON & FINGER, Wilming-
ton, Delaware; OF COUNSEL: AD-
AMS, KLEEMEIR, HAGAN, HAN-
NAH & FOUTS, Greensboro, North
Carolina; Attorneys for Engineered Con-
trols International, Inc.
JUDGES: ALLEN
OPINION BY: ALLEN
OPINION
[*94] OPINION
ALLEN,Chancellor
This is an action under recently en-
acted provisions of the Delaware Gen-
eral Corporation Law creating a proce-
dure by which a dissolved Delaware
corporation mayachieve,after a judicial
proceeding, court approval of a plan of
security for corporate claimants. The ef-
fects of such approval include (1) the
preclusion of liability on the part of the
directors of the dissolved corporation to
claimants of the dissolved corporation
for matters arising out of the making of
liquidation distributions, (2) the limita-
tion of potential liability of stockholders
to the lesser of a pro rata share of each
claim against the corporation, or the
amount distributed in dissolution, and
(3) the establishmentofa limitations pe-
riod for actions against stockholders on
claims against the corporation. See 8
Del. C. $$ 280-282 (1991).
These statutory provisions are inno-
vative. They provide a judicial mecha-
nism designed to afford fair treatment to
foreseeable future, yet unknown claim-
ants [**3] of a dissolved corporation,
while providing corporate directors with
a mechanism that will both permit dis-
tributions on corporate dissolution, and
avoid risk that a future corporate claim-
ant will, at some future time, be able to
establish that such distribution was in
violation of any duty owed to the corpo-
ration's creditors on dissolution.
This petition provides the first appli-
cation of these novel statutory enact-
ments. Cf Gans v. MDR Liquidating
Corporation, Del. Ch., C.A. 9630, Hart-
nett, V.C. (Jan. 10, 1990) (dicta). Appli-
cant, RegO Company, a Delaware cor-
poration,filed a certificate of dissolution
with the Delaware Secretary of State on
February 3, 1989. On February 28, 1991,
it filed its petition in this case seeking
judicial approval of the security aspects
of a plan of dissolution pursuant to
which RegO would transfer all of its as-
sets -- approximately $ 36,000,000 in
receivables and intangible assets (includ-
ing its tradename andrights under an in-
surance policy) -- to a trustee, to be held
and administered pursuant to a Claim-
ants Trust principally for the benefit of
its present and future creditors.
The case is before the court on ex-
ceptions to the February 14, 1992 [**4]
Final Report of Ann E. C. Stilson, Es-
quire, who was appointed Master in
Chancery pro hac vice. Speaking gener-
ally, the Master's Final Report recom-
mendsthe approval of the plan proposed
by the Company with several modifica-
tions, to which, for the most part, the
Company takes no exception. Contest-
ants at this stage include the Company;
Emerson Electric Company, who in
other jurisdictions is presently asserting
cross-claims and rights to contribution
or indemnification against the Company
in pending product liability suits; and
Clark W. Furlow, Esquire, who, pursu-
ant to Section 280(c)(2), was appointed
guardian ad litem in this proceeding to
representthe interests of future unknown
corporate claimants.'
1 A number of other claimants
participated in the proceeding be-
fore the Master but have not ac-
tively participated on this review.
For the reasons set forth below I am
unable to accept the Final Report inall
respects. I conclude that, as presently
constituted, the security aspects of the
Company's plan of final [**5] distribu-
tion are not sufficient to meet the statu-
tory requirements. In what follows, this
judgment is explained and particular-
ized, and acceptable alternatives are de-
scribed.
That explanation is involved, as the
legal questions raised by this application
are of some complexity. To address
them requires, as a predicate, an under-
standing of the problem that the new
statutory structure addresses (Part I-A,
below); and an understanding of the new
statutes’ structure (Part I-B). Next the
backgroundof the dissolution insofar as
it is necessary to understand the parties
positions is set forth (Parts II & III) and
the terms if the Claimants Trust are out-
lined (Part IV). The central issues are
identified (Part V). Thereafter the prin-
cipal exceptions of Emerson (Part VI
and of the guardian (Part VII) will be
considered. Lastly, I address a subordi-
nate issue, concerning termination [*95]
of the trust. In a supplemental opinion
issued today, I also address the question
of the identity of the trustee and a series
of administrative provisions of the pro-
posed trust.
I.
A. The Legal Problem With Which
the New Statutes Deal
The law concerning the existence and
scope of director and shareholder [**6]
liability for corporate obligations follow-
ing the dissolution of a corporation is an
evolving one of some complexity and
uncertainty. > At an early stage of our
law, that law was clear, if harsh. Disso-
lution of a corporation was its civil
death; not only could the corporation not
thereafter be sued, but pending suits
against it abated. » Corporate dissolution
thus stood as a substantial risk to corpo-
rate creditors, threatening to deprive
them of a party to sue on their claims.
The trust fund doctrine very early
evolved,in part, to offer some protection
to corporate creditors when dissolution
occurred. ‘ While in someofits aspects
the trust fund doctrine has had a varied
history, * its central concepts have been
widely acknowledged. Those core con-
cepts are that on dissolution corporate
directors have obligations to creditors
and that creditors, at least creditors of
whom the corporation had reason to
know, have an equitable right to follow
corporate assets and to impress a con-
structive trust upon them in the hands of
shareholders.«
UNKNOWN
2 See generally Harry Henn &
John R. Alexander, Effects of Cor-
porate Dissolution on Product Li-
ability Claims, 56 Cornell L. Rev.
865 (1971); Michael Green, Suc-
cessor Liability, 72 Cornell L. Rev.
17 (1986); Mark R. Sarlitto, Rec-
ognizing Product Liability Claims
at Dissolution, 87 Colum. L. Rev.
1048 (1987); Mark Roe, Mergers,
Acquisitions and Tort: A Comment
on the Problem of Successor Cor-
porate Liability, 70 Va. L. Rev.
1559, 1564 (1984).
[**7]
3 See In re Citadel Industries,
Inc., Del. Ch., 423 A.2d 500, 503
(1980); Johnson v. Helicopter &
Airplane Services Corp. 404
F.Supp. 726, 730 (D.Del. 1975);
Stone v. Gibson Refrigerator Sales
Corp., 366 F.Supp. 733, 734
(E.D.Pa. 1973) (in absence of con-
trary statutory provision, dissolu-
tion terminatesall rights against a
corporation); Crossman v. Vivienda
Water Co., Cal. Supr., 89 P. 335
(1907); Canadian Ace Brewing Co.
v. Anheuser-Busch, Inc., 448 F.
Supp. 769, 771 (N.D. Ill. 1978);
Oklahoma Natural Gas Co. v.
Oklahoma, 273 U.S. 257, 259
(1927).
4 The doctrine which is em-
ployed in insolvency settings as
well as in formal dissolution, traces
its roots to Justice Story's opinions
in Wood v. Drummer, 3 Mason
C.C. Rpts. 308, Fed. Cas. No.
17,944 (1824) and Mumma v. The
Pototmac Company, 33 US. (8
Pet.) 281 (1834).
5 Fogg v. Blair, 133 U.S. 534
(1890) (rejecting creditor's attempt
to use trust fund theory to defeat
priority of other creditors); Central
Hanover Bank & Trust Co. v.
United Traction Co., 95 F.2d 50,
55 (2d Cir. 1938) ("in no real sense
are the assets of an insolvent debtor
a trust fund for creditors"); Patek v.
California Cotton Mills, Cal. App.,
40 P.2d 927, 930 (1935). See gen-
erally 15A Fletcher's Cyc. Corp. §§
7384-85 (Perm Ed. 1990).
[**8]
6 E.g., Koch v. United States, 138
F.2d 850, 852 (10th Cir. 1943);
Trubowitch vy. Riverbank Canning
Co., Cal. Supr., 182 P.2d 182
(1947); Snyder v. Nathan, 353 F.2d
3 (7th Cir. 1965). Cf Bovay v.
H.M. Bullesby & Co., Del. Supr.,
38 A.2d 808, 813 (1944) (involving
an insolvent but not a dissolved
corporation); Geyer v. Ingerwoll
Publication Company, Del. Ch.,
C.A. 12406, Chandler, V.C. (June
18, 1992).
Modernly, the problem that the trust
fund doctrine addresses has been ame-
liorated 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 fol-
lowing dissolution. Now, by statute, we
have a formal winding-up period in
which claims can be asserted, settled or
adjudicated. See, e.g., 8 Del. C. § 278
(1991). Moreover, under modern stat-
utes, any suit against the corporation,
which was filed before dissolution or
during the three year statutory wind-up
period, does not abate, [**9] even on
the expiration of the wind-upperiod.7
7 Section 278 of the Delaware
General Corporation Law provides
in part:
With respect to any action, suit
or proceeding begun by or against
the corporation either prior to or
within 3 years after the date ofits
expiration or dissolution the action
shall not abate by reason ofthe dis-
solution of the corporation; the
corporation shall, solely for the
purpose of such action, suit or pro-
ceeding, be continued as a body
corporate beyond the 3-year period
and until any judgments, orders or
decrees therein shall be fully exe-
cuted, withoutthe necessity for any
special direction to that effect by
the Court of Chancery.
[*96] This modern schemestill
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. Such a
person might, for example, be a tort
claimant whois injured by an arguably
defective product some [**10] time af-
ter, perhaps years after, the corporation
has been dissolved,andits affairs finally
wound-up. It would seem apparent that
such a person could not sue the dis-
solved corporation itself. Section 278
continues the corporation's existence be-
yondthe statutory three year winding-up
period "solely" for the purpose of con-
cluding pendinglitigation. In re Citadel
Industries, Inc., Del. Ch., 423 A.2d 500
(1980). * But has such a person cogniza-
ble claim against others -- against direc-
tors or shareholders most notably?
8 In Citadel the court refused to
grant an application, madeafter the
three year winding-up period had
expired, to "continue" a dissolved
corporation's existence to permit
the institution of litigation against
it.
This I take to be an unclear and a
troubling question. A numberofcases in
other jurisdictions have held that direc-
tors or shareholders of a dissolved cor-
poration have no personalliability for a
corporate obligation that did not exist at
the termination [**11] of the corpora-
tion's winding-up period. In both
Blankenship v. Demmler Mfg. Co., Ill.
App., 411 N.E.2d 1153, 1155-56 (1980)
and Pacific Scene, Inc. v. Penasquitos,
Inc., Cal. Supr., 758 P.2d 1182 (1988)
courts rejected the contention that stock-
holders whoreceived corporate distribu-
tions on dissolution were liable in equity
for a claim that arose after the winding-
up period had expired. Accord Levin
Metals v. Parr Richmond Terminal Co.,
631 F. Supp. 303 (N.D. Cal. 1986).
On the other hand in Green v. Oil-
well, Okla. Supr. 767 P.2d 1348 (1989)
the Oklahoma Supreme Court, without
focusing finely upon whether or not the
winding-up period was completed, con-
cluded that a shareholder could be held
liable on an alleged tort claim that arose
after the dissolution of the firm. See also
Chadwick v. Air Reduction Co., 239
F.Supp. 247 (N.D. Ohio 1965) (accord);
Gonzalez v. Progressive Tool and Dye
Co., 455 F. Supp. 363 (E.D.N.Y. 1978)
(it is "an open question" under Massa-
chusetts law whether trust fund theory
[**12] is available to hold stockholders
liable on corporate claim that arose after
winding-up period had concluded).
In this state of affairs, the question of
a dissolving corporation's duty, if any, to
potential future claimants is problematic
in at least two ways. First, the problem
of compensation to persons injured by
defective products or by undiscovered
and actionable environmental injury,
caused by dissolved corporations, is of
obvious social concern.If, in the context
of a corporate dissolution, the corpora-
tion law does not treat these possible
contingencies responsibly, it can be ex-
pected that other legal doctrines, such as
successor liability doctrines, will be
stretched and shaped to address them. A
default in corporation law may mean
that the market for the sale of corporate
assets as part of a dissolution will be
chilled by the prospect of buyers being
forced involuntarily to assume unknown
future liabilities. ° This is a practical
problem that the law governing the crea-
tion and dissolution of corporate entities
might well address. Secondly, the few
adjudicated cases that hold that the trust
fund doctrine is inapplicable to claims
arising after the expiration of the wind-
up [**13] period, may seem to corpo-
rate directors to give insufficient com-
fort to permit them safely to makea final
distribution, if they have reason to know
that future claims are quite likely to
arise.
9 Cf United States v. Distler,
741 F. Supp. 637, 643 (W.D. Ky
1990) (successorliability on CER-
CLA claim against dissolved cor-
poration); Traverse Bay Area In-
termediate School Dist. v. Hitco,
Inc., 762 F. Supp. 1298, 1301 n.2
(W.D. Mich. 1991) See generally
Michael Green, Successors and
CERCLA: The Imperfect Analogy
to Products Liability and an Alter-
native Proposal, 86 Nw. U.L. Rev.
(forthcoming 1992).
The new Delaware procedure codi-
fied at Sections 280-282 of the Delaware
Corporate Law addresses both of these
concerns. It structures a mechanism (al-
ternative [*97] mechanismsactually)
which under certain circumstances, for
the first time recognizes rights in un-
known future corporate claimants and
provides a level of assurance to such
persons that, [**14] as part of the cor-
porate dissolution process, reasonable
provision will be made for their future
claims. Equally important, the new pro-
cedure offers to directors and sharehold-
ers (and perhaps transferees) assurance
that, if the Court of Chancery approves
security provisions for corporate claim-
ants, then they will be protected from
potential future claims arising from the
decision to distribute the corporation's
assets on dissolution.
The statutory mechanism that ac-
complishes this is not simple. I turn
next to a summarydescription ofit.
B. The Statutory Scheme For Volun-
tary Dissolution
One can best understand this statu-
tory scheme by focusing first upon Sec-
tion 281(b), which despite its location,is
the base-line provision. Section 281(b) is
a default provision that governs every
corporation in dissolution that does not
elect to pursue the elective procedure set
forth in Sections 280 and 281 (a).
Section 281(b) imposes upon the dis-
solved corporation the obligation:
to pay or make reasonable provision
to pay all claims and obligations includ-
ing all contingent, conditional or un-
matured contractual claims known to
the corporation . . . (emphasis added)
In going so far [**15] the statute ap-
pears merely to codify long settled law.
Section 281(b) however, goes on to re-
quire the corporationto:
make such provision as will be rea-
sonably likely to be sufficient to provide
compensation for claims that have not
been made known, or that have not
arisen, but that, based on facts known to
the corporation . . . are likely to arise or
to become known ... prior to the expira-
tion of an applicable statute of limita-
tion. (emphasis added)
The claims covered by this require-
ment, notably, are not limited to contrac-
tual claims but include all future claims
that "are likely to arise... etc."
Subsection 281(c) provides that di-
rectors of the corporation "shall not be
personally liable to the claimants of the
dissolved corporation" [presumably un-
der the common law trust fund doctrine]
if the corporation has "complied with
subsections (a) or (b) of this section."
But compliance with subsection (b)'s
standard, "reasonably likely to be suffi-
cient" will, in principle at least, always
be litigable. Thus, reliance upon the
mechanism of Section 281(b) may pre-
sent a risky situation for corporate direc-
tors regardless of their good faith and
duecare.
It is difficult [**16] to see the utility
in preserving this risk. In fact, the more
elaborate part of the new statutory
scheme is devoted to the creation of an
elective dissolution procedure, referred
to in subsection (a) of Section 281,
which, if successfully completed, can
eliminate this risk. That elective proce-
dure involves a current judicial proceed-
ing to determine "the amount and form
of security which will be reasonably
likely to be sufficient to provide com-
pensation for claims that have not been
made known. .. or that have notarisen.
..'. Section 280(c)(2). Following this
procedure allows corporate directors to
assure themselves that they have satis-
fied the corporation's obligations to fu-
ture claimants and that they will qualify
for the protections afforded by Section
281 (c).
This elective alternative is set forth in
Sections 280 and 281(a). In barest out-
line it calls for notice for the presenta-
tion of claims to the dissolved corpora-
tion; » the rejection of, or the offering of
security with respect to any claims pre-
sented; " and the furnishing of notice of
rights to petition for the appointment of
a receiver. * In its most innovative as-
pect, the new statute contemplates a de-
termination [**17] by the Court of
Chancery (1) of the amount and form of
security that "will be sufficient" with re-
spect to any contract claim that is [*98]
contingent, conditional or unmatured
(excepting claims on implied warran-
ties), * and (2) of the amount and type of
security "which will be reasonably likely
to be sufficient to provide compensa-
tion" for all other [i.e., non-contractual]
future claims "that have not arisen but
that based on facts known . . are likely
to arise... .".
10 Section 280(a)(1) and (b).
11 Section 280(a)(2) and (b)(2).
12 Section 280(a)(2).
13. Section 280(c)(1).
14 Section 280(c)(2).
Section 281(a) provides for the dis-
tribution of assets on dissolution where a
corporation has followed the elective
procedure:
(a) A dissolved corporation or suc-
cessor entity which has followed the
procedures described in § 280 ofthisti-
tle (i) shall pay the claims made and not
rejected in accordance with § 280(a) of
this title, (ii) shall post the security of-
fered and not rejected pursuant [**18]
to § 280(b)(2) ofthistitle, (iii) shall post
any security ordered by the Court of
Chancery in any proceeding under §
280(c) of this title, and (iv) shall pay or
make provision for all other claims that
are mature, known and uncontested or
that have been finally determined to be
owing by the corporation or such suc-
cessorentity.
This language is followed by a re-
quirementthat:
Such claims or obligations shall be
paid in full and any such provision for
paymentshall be madein full if there are
sufficient funds. If there are insufficient
funds, such claims and obligations shall
be paid or provided for according to
their priority, and, among claims of
equal priority, ratably to the extent of
funds legally available therefor.
Finally, Section 282 limits the future
obligation of any stockholder of a dis-
solved corporation, in the aggregate, to
amounts received in dissolution (subsec-
tion (c)) and, who the corporation has
complied with ¢ 28/(a) or (b), to a pro
rata share of corporate liability or the
amount distributed, whichever is less
(subsection (a)).
* OK OK
RegO elected to follow the new elec-
tive provisions of Sections 280 and
2&1 (a). 1 turn now to a brief description
of [**19] the factual background
against which that decision was made.
I.
The Factual Background of this Dis-
solution
RegO was incorporated in Delaware
in 1976, as an indirect wholly owned
subsidiary of the Marmon Corporation.
RegO engaged in the business of manu-
facturing and marketing valves and other
components for systems using liquified
petroleum, anhydrous ammonia and
other compressed gases.
Due to its explosive nature, systems
transporting or using L.P. gas are in-
volved from time to time in accidents
resulting in property damage and/orper-
sonal injury. Victims of these incidents,
of course, often bring suit against all
parties associated with the LP system
involved in the accident. As result,
RegO, as a component parts manufac-
turer, has often been required to appear
as a defendant in such product liability
actions.
Until 1987, RegO was insured
against loss due to productsliability un-
der an umbrella policy negotiated by
Marmon. The premiumsfor this cover-
age were based primarily upon the
claims experience of each Marmon
company in relation to the total claims
experience of the Marmon group.In the
mid-1980s RegO was subject to judg-
ments of millions of dollars and, as a re-
sult, [**20] its insurance expense in-
creased dramatically. Due in significant
part to these spiralling costs, RegO ter-
minated its participation in the Marmon
liability insurance policy and became
self-insured effective January 1987.
The Company continued to experi-
ence large judgments in productliability
suits, some of which involved products
that had been in service for 30 years.
This continuing liability pattern led to a
decision by Marmon in August or Sep-
tember of 1988 to reorganize RegO's
business in order to disassociate the
manufacturing capability that [*99] it
owned from the claims legacy associated
with it.
In connection with this decision,
Marmonretained Duff & Phelps Finan-
cial Consulting Co. ("Duff & Phelps") to
assess the value of RegO and retained
the Wyatt Company ("Wyatt") to render
an actuarial analysis for RegO's potential
liability risk for LP products then in the
market. On November 1, 1988, Wyatt
reported to Marmon an estimated pre-
sent value, as of January 1989, of pre-
dictable product liability claims against
the company. Based on the methodol-
ogy, including interest rate assumptions,
employed, Wyatt's final report opined
that the present value of product liability
claims on already [**21] manufactured
products, as of November 1988, would
fall between $ 102,697,000 million and
$ 115,919,000 million. (See Px 331 at
82083). This report anticipated claims
occurring until the year 2027. On Octo-
ber 24, 1988 Duff & Phelps reported its
valuation of the RegO business, if all
product liabilities were ignored, at $
53,000,000 to $ 60,000,000 and at $
24,000,000 to $ 27,000,000 if only
product liability for products manufac-
tured prior to the date of the Report were
ignored.
On January 31, 1989, pursuant to an
Asset Purchase Agreement, RegO sold
substantially all of its operating assets,
not including the RegO trademark, to
Engineered Controls International, Inc.,
("ECII"), a Delaware corporation. * ECII
paid to RegO approximately $
23,000,000, comprised of $ 18,405,000
in cash and the assumption by ECII of
approximately $ 4,658,000 of RegOli-
abilities to trade creditors. Simultane-
ously with the asset sale, RegO and ECII
entered into a Trademark License
Agreement ("License Agreement") un-
der which ECII is entitled to use the
RegO trademark in return for annual
royalty fees which in 1990 aggregated
approximately $ 1,200,000. Under nei-
ther the Asset Purchase Agreement nor
[**22] the License Agreement, did ECII
assume anyliabilities of RegO for prod-
ucts manufactured prior to the asset
transfer. Instead, RegO agreed to in-
demnify ECII for any losses it suffered
arising from RegO equipment manufac-
tured prior to the sale.
15 The Final Report states that
the "discovery process yielded the
following information. RegO,
which is wholly-owned by Mar-
mon, is ultimately controlled and
largely owned by the Pritzker fam-
ily who own 100% of Marmon.
ECI is owned and operated for the
benefit of the Pritzker grandchil-
dren through stock ownership in
twelve separate Pritzkertrusts." Fi-
nal Report at 5 n.5.
Three days after the asset sale, RegO
filed a Certificate of Dissolution with the
Delaware Secretary of State. It is as-
serted by certain of the respondents that
"concurrently with RegO's decision to
dissolve, it declared a $ 38,402,725.15
dividend by a post-dated corporate reso-
lution." (Exceptions of Emerson Electric
Companyat 9). «
16 The Master made nofinding
with respect to this asserted fact. In
light of the resolution reachedit is
unnecessary to do so in this pro-
ceeding.
[**23] RegO's directors elected to
make distributions on dissolution pursu-
ant to the elective procedure of Section
280(a). Consequently, immediately fol-
lowing its dissolution, RegO mailed no-
tice of this proceeding to all persons and
entities known to have a claim or poten-
tial action against the Company and pub-
lished notice of its dissolution in news-
papers of appropriate local and national
circulation.
As a result of its notice, RegO re-
ceived widespread response by potential
claimants who sought security from the
Company for their anticipated claims.
These claims fell into three categories.
The first category represented claims
from general creditors of RegO which,
with the exception of those trade liabili-
ties assumed by ECII according to the
Asset Purchase Agreement, have been
paid by the Company in the ordinary
course of winding-up its affairs. The two
remaining categories consist of notices
of pending suits against the Company
involving product liability claims and
future claims of the same type that might
be brought in the future against RegO.
The Company hasrejected all claims for
security included in the latter two cate-
gories.
[*100] Il.
RegO's Financial Ability to Provide
Security [**24] for Statutory Future
Claimants
Before turning to a description of the
security arrangement that RegO pro-
poses, it may be well to focus upon the
critical fact, as I see it, that RegO's pre-
sent assets will most probably be inade-
quate to compensate all of the present
and future claimants that it has reason to
expect will eventually arise. ” Actuarial
studies submitted by both RegO and the
guardian conclude that the present value
of probable future liabilities of the trust
arising from continued product liability
claims far exceed the present value of
the assets of the Company. RegO's actu-
arial expert, The Wyatt Company,esti-
mated in 1988 that, as of January 1,
1989, the outstanding and future claims
against RegO had, based on a number of
reasonable assumptions,a future liability
value of between $ 564,376,000 million
and $ 656,803,000 million. Discounted
to present value at reasonable discounts
as of 1988, these foreseeable future li-
abilities fall between a range of $
102,697,000 to $ 115,919,000 in present
value as of November 1988. (Wyatt Re-
port, Section II).
17 J put aside whateverlimitation
on future liability may be afforded
to RegO by statutory limitation
provisions incorporated into Sec-
tion 280, as it cannot now berea-
sonably estimated what, if any, re-
lief that might ultimately provide.
See note 27, infra.
[**25] The Guardian's expert,
Millman & Robertson, Inc. estimated in
1991 that as of February 1, 1992, (in a
rather different interest rate environ-
ment) unpaid present and future claims
against RegO had a present discounted
value of $ 57,633,000. (Millman Report
at 2). The Master's Report notesthat, as-
suming RegO's projections are correct, if
all claims were paid in full as they ma-
tured, the trust's assets would be ex-
hausted by 1996, while the adoption of a
$ 500,000 interim limit, described be-
low, would extend the life of the trust
until the year 2000 approximately. (Final
Report at 43 n.48). Claims are expected,
however, to continue to arise for another
20-30 years. (Millman Report Exh. 11);
Wyatt Report Exh. 11).
Once one focuses upon the fact that
RegO's present assets are unlikely to be
adequate to compensate all future claim-
ants that it can presently reasonably an-
ticipate over an indefinite time, * and
upon the fact that all of its present assets
are proposed to be dedicated to provid-
ing security to its claimants, the princi-
ple issues that are raised by this applica-
tion necessarily emerge. They will in-
volve the relative rights of various RegO
claimants, present and future. In [**26]
addition, in whatever way thoserelative
rights are seen, where the total fund ap-
pears inadequate to compensate all
qualifying future claims, the innovative
aspects of Sections 280-81 » require that
a mechanism be utilized to assure that
some part of the fund remains for the
more distant foreseeable claimants.
RegO proposes an interim payment
mechanism that would,initially at least,
cap certain payments at a pre-set
amount. Then upon termination of the
trust, when oneis in a position to know
whatall the claims come to, creditors
who have been limited by the cap will
qualify for further distributions.
18 See once more note 27,infra.
19 That is the consideration the
statutes accords to unknown future
claims including its definition of
"priority". 8 Del. C. § 28I1(e)
(1991).
This and other aspects of the pro-
posed Claimants Trust are described in
the next section of this opinion.
IV.
The Proposed Plan of Security For
Claims
RegO proposes a plan for the pay-
ment and the security of its [**27]
known and future unknowncreditors in-
cluding the establishment of a Claimants
Trust and the transfer to the trust ofall
of RegO'sassets.
The central fact of the Claimants
Trustis that it will holdall of the present
assets of RegO for distribution to claim-
ants pursuant to its terms, with RegO
shareholders receiving distributions only
if unexpended funds remain at the ter-
mination of the [*101] trust. The trust
will be under the control of a single trus-
tee who will conduct its affairs, which
will primarily involve the supervision of
the litigation and settlement of claims
brought against RegO orthe trust, as
well as the investment and preservation
of thetrust's assets. »
20 The assets of the trust will
primarily consist of cash and in-
vestment grade securities as well as
the RegO Trademark.
The Trust Agreement divides the
claims which may be paid bythetrust
into six categories of "obligations":
(1) Administrative Obligations; i.e.,
all the costs and expensesincurredin the
administration of the trust and in [**28]
the litigation of claims brought against,
or on the behalf of, the trust.
(2) Contractual Obligations; ie.
claims determined to be properly pay-
able pursuant to (a) the Asset Purchase
Agreement between RegO and ECII or
(b) the indemnification provisions of the
Trust Agreement. *
(3) Product Obligations; i.e., all valid
claims arising from settlements or judg-
ments establishing claims for personal
injury and property damage caused by
products manufactured by the Company,
including related claims for indemnifica-
tion or contribution.
(4) Pre-Existing Obligations; i.e., all
claims for amounts incurred prior to the
effective date of the trust in connection
with winding-up the affairs of the Com-
pany and Contractual, Product, and Non-
Compensatory Damage Obligations ex-
isting but unpaid as of the effective date
of the trust.
(5) Non-Product Obligations; ie.,
those obligations arising from claims
other than Product Claims, which were
asserted in lawsuits prior to the Effective
Date of the trust and not settled or re-
duced to judgment until after the settle-
mentdate.
(6) Non-Compensatory Damage Ob-
ligations; i.e., those obligations arising
from claims for punitive, [**29] exem-
plary or other non-compensatory dam-
ages, which are claimed in connection
with a product claim.
21 The indemnification provi-
sions provide that the Trust shall
indemnify the Trustee as well as
the officers and directors of the
Company for any claims brought
against them in connection with
their performance of their duties.
See pp. 38-39, infra.
The Trust Agreement provides for
the payment of these obligations in one
of three ways: (1) paymentin full upon
maturity; (2) paymentin full subject to a
$ 500,000 cap; or (3) paymentonly after
all other obligations have been paid in
full.
The Trust Agreement requires the
trustee to pay Administrative Obliga-
tions, » Pre-Existing Obligations and
Contractual Obligations (other than
those for indemnification,) in full, as
they mature. But the trustee is directed
to Pay Product Obligations, Non-
Product Obligations and Non-
Compensatory Damage Obligations that
are settled or reduced to judgmentafter
the effective date of the trust, in full, but
subject [**30] to an interim limit» of $
500,000 occurrence. * That is, payment
will be limited to $ 500,000 unless and
until the trust terminates with unpaid
funds, at which time amounts in excess
of the interim cap may be paid. These
Obligations will be paid for a proven oc-
currence in the order in which theyarise.
22 Administrative Obligations
are granted priority over all other
Obligations of the Trust.
23. ECII claims for indemnifica-
tion under the Asset Purchase
Agreement for Products and Non-
Compensatory Damages Claims
are subject to the $ 500,000 limit
per occurrence.
24 This Interim Limit may be
raised or lowered by the Court, at
the request of the Trustee.
25. Any Product Obligation cov-
ered by insurancewill be paid up to
the amount of the available cover-
age. If a Product Obligation is only
partially remitted by insurance, the
Trust will pay the difference, sub-
ject to the Interim Limit. The Trus-
tee may seek a modification to the
Interim Limit by the Court at any
time. The Trust Agreementalso re-
quires the Trustee to conduct a re-
view and make a recommendation
to the Court at the end offive years
of the Trust regarding the appropri-
ateness of the Interim Limit or
whether an adjustment should be
made.
[**31]
26 To the extent two or more Ob-
ligations relating to a single occur-
rence arise simultaneously and full
payment would exceed the Interim
Limit, payments will be maderata-
bly.
[*102] The Trust Agreement pro-
vides the following procedures with re-
spect to the termination of the trust. Af
ter five years of operation, the trustee is
to recommend to the Court whether a
deadline for the assertion of all Product
and Non-Compensatory Damage Claims
(the "Claims Assertion Date") should be
set. If the Court establishes a Claims As-
sertion Date, the trust will thereafter not
be authorized to pay any Product or
Non-Compensatory Damage claim as-
serted against the trust after that date.
The trust is to terminate automatically
on the date (the "Termination Date")
ninety days after the first to occur of the
following two events: (a) all Product,
Non-Compensatory Damage and Non-
Product Claims asserted against the
Company or trust have been settled or
reduced to final judgment and paid as
provided in the Trust Agreement and the
Claims Assertion Date has passed; or (b)
the trustee has consented to, and the
Court has approved, [**32] the termi-
nation of thetrust.
Upon the termination ofthetrust, any
remaining monies are to be distributed:
(1) ratably for remaining Administrative
Obligations; (2) to the extent funds re-
main, ratably to the holders of Contrac-
tual Obligations, Non-Product Obliga-
tions and Product Obligations who did
not previously receive payment in full;
(3) to the extent funds remain, ratably to
all holders of Non-Compensatory Dam-
age Obligations whodid not receive full
compensation; and (4) to the extent
funds remain, to the stockholder of the
Company as of the date of the estab-
lishmentofthe trust.
V.
The central issue presented by this
proceeding arises under Section 280(c).
It is whether the Claimants Trust pro-
vides security that will be sufficient for
the claims of present claimants, and will
be reasonably likely to be sufficient for
claims that have not made knownorthat
have not yet arisen, but that based on
facts known to RegO are likely to arise
or become known,priorto the expiration
of applicable statutes oflimitation. ”
27 Where as here the corporation
has reason to know that claims will
arise but cannot know the jurisdic-
tions in which such claims may
arise and thus cannot know what
statute of limitations will apply to
the claims or when, under applica-
ble law that statute may be tolled,
the limitation provision of Section
280(c), in effect, provides no limi-
tation for planning (Section 280(c))
purposes. See J.D. Lee & Barry A.
Lindahl, 2 Mod. Tort Law § 27.96
(rev. ed. 1989) ("The general rule
is that when [a products liability]
action is based on negligence or
strict liability in tort, the date of
accrual is the time of injury."); Ar-
rowood v. General Motors Corp.,
539 F.2d 1321, 1325 4th Cir.
(1976) (describing the rule fixing
the time of the accrual ofa tort ac-
tion for product defects by the date
of purchase, as "outdated and gen-
erally repudiated"); Annotation,
Statute of Limitations: When
Cause of Action Arises on Action
Against Manufacturer or Seller of
Product Causing Injury or Death. 4
A.L.R. 3rd 821 (1965 & Supp.
1992). Compare Model Business
Corporation Act § 14.07 (3rd Ed.
1984) (statute itself fixes a single,
five year limitation period).
[**33] In addressing this question
one must first ask the factual question
whether the assets held by RegO are
likely to offer security that will be ade-
quate to reasonably assure the payment
of all foreseeable future claims. As
noted above, I conclude that they are
not. See pp. 14-15. Next one must ask
whether that fact disables RegO from
proceeding to wind-upits affairs pursu-
ant to Sections 280 and 281(a). I con-
clude that in the situation in which a dis-
solved corporation is dedicating all ofits
assets to the security arrangement of-
fered under Section 280(c), that the in-
adequacy ofthose assets to offer full se-
curity ought not to deprive the directors
of the corporation from proceeding un-
der Section 280 and Section 281 (a). See
pp.28-31. That is sufficiency of the secu-
rity agreement may be achievedin spite
of the inability to assure or secure future
compensation in full to all foreseeable
future claimants. Where the dissolved
corporate assets are in total inadequate
to secure full compensation to all fore-
seeable future claimants, the sufficiency
of the security arrangement will ines-
capably involve questions of the fairness
of the proposed security among various
claimants or classes [**34] of claim-
ants. In making those judgments, the
Court may be guided bythe policies re-
flected in the statutes [*103] as a whole
and especially by the innovative aspects
of Section 281 (a) and (6).
Thus, the more difficult questions
presented by the Claimants Trust are
whetherits terms, especially the prefer-
ence that it accords to present claimants
over unknownorfuture claimants, is ap-
propriate. At pp. 28-32 below I con-
clude that, in light of the legislative in-
tent reflected in Section 281(b), and less
vividly but no less recognizably in Sec-
tion 281(a), this preference is not justi-
fied in this factual context. This conclu-
sion has implications for several impor-
tant aspects of the Claimants Trust.
VI.
The Principal Exceptions ofRespon-
dent Emerson Electric
Emerson is a co-defendant with
RegO in pending product liability suits
and reasonably expects to be a defendant
in future productliability suits involving
equipment that includes RegO manufac-
tured devices. It has made, and expects
in the future to make, additional claims
against RegO that if it suffers liability,
then RegO is liable over to it for contri-
bution or indemnification. Its primary
objection to the plan of dissolution, and
[**35] the adequacy of the security the
trust offers to it for its future claims, is
that the Claimants Trust is inadequately
funded.It asserts that the RegO dissolu-
tion and this proceeding are a transpar-
ent effort by those who control and own
RegO to deprive foreseeable future
creditors of the companyofthe ability to
hold RegO answerable for its [future]
liabilities.
This scheme, it says, entails wrongs;
specifically it entails the alleged fraudu-
lent conveyance by RegO of substantial
assets out of the corporation: RegO's al-
leged dividend of some $ 38 million
shortly before filing its certificate of dis-
solution, and the sale of the Company's
assets, allegedly for less than their true
value. It is contendedthat, in fact, all of
the corporations' assets at dissolution
cannot provide adequate security under
Section 280(c). Rather, to provide ade-
quate security it would be necessary for
RegO to recover amounts of which it
was wrongfully deprived, or for the re-
cipients of those payments or assets to
bind themselves to the trust to make
such payments. Since this cannot be co-
ercively accomplished in this proceed-
ing, Emerson asks that the court decline
to approve the proposed plan under Sec-
tion [**36] 280(c)(1) and (2).
The Master acknowledged the appar-
ently litigable nature of Emerson's posi-
tion in two ways. First, she recom-
mended that language suggested by
RegO in its proposed final order that
would have purported to preclude the
future appointment of a receiver for
RegO under Section 279 of the General
Corporation Law * he deleted from any
order fixing or approving adequate secu-
rity. With this recommendation, I con-
cur. Secondly, she proposed that the or-
der to be entered include the following
language:
nothing contained in this Orderis in-
tended to alter existing suitable rights of
legitimate claimants to pursue appropri-
ate relief against RegO, its directors,
stockholders or their transferees from
any claim for fraudulent or wrongful
transfer of RegO's assets. Report at 58-
59,
[*104] This recommendation is
made with knowledge of the fact that
Emerson hasinitiated suit against RegO
and others in the United States District
Court for the Northern District of IIli-
nois, alleging that the transactionsthat it
now points to were fraudulent convey-
ances.
28 Section 279. Trustees or re-
ceivers for dissolved corporations;
appointment powers; duties
When any corporation organ-
ized underthis chapter shall be dis-
solved in any manner whatever the
Court of Chancery, on application
of any creditor, stockholder or di-
rector of the corporation, or any
other person who shows good
cause therefore, at any time, may
either appoint one or more of the
directors of the corporation to be
trustees, or appoint one or more
persons to be receivers, of and for
the corporation, to take charge of
the corporation's property, and to
collect the debts and property due
and belonging to the corporation,
with power to prosecute and de-
fend, in the name of the corpora-
tion, or otherwise, all such suits as
may be necessary or proper for the
purposes aforesaid, and to appoint
an agent or agents under them, and
to do all other acts which might be
done by the corporation, if in be-
ing, that may be necessary for the
final settlement of the unfinished
business of the corporation. The
powersof the trustees or receivers
may be continued as long as the
Court of Chancery shall think nec-
essary for the purposes aforesaid.
[**37] The parties disagree about
the appropriateness of this particular
language, but they agree that this pro-
ceeding is not intended to interfere with
the adjudication of the fraudulent con-
veyance litigation. In my opinion, it
would not in any event do so. The vari-
ous limitations on stockholder liability
reflected in Section 282 are limitations
on liability that might arise under the
trust fund doctrine. Where they apply,
these provisions provide that sharehold-
ers will not have derivative liability for
"any claim against the corporation." In
my opinion a claim of fraudulent con-
veyance is not "a claim against the cor-
poration" within the meaning of Section
282. It entails a claim that the corporate
entity itself has been misused; that its
assets have been conveyedfor less than
fair value for no proper business pur-
pose. A claim to reverse such a convey-
ance is obviously not a claim against the
corporation in the same sense, for exam-
ple, that an action by a corporate creditor
against her debtor to collect the debt is a
"claim against the corporation." Thus, I
conclude that, Section 282 is not in-
tended to limit the ability of a court to
recover for the benefit of creditors or for
a receiver [**38] appointed under Sec-
tion 279 (or in this instance for the
Claimants Trust), funds fraudulently
conveyed to a corporation's stockholders
prior to dissolution, the transfer of which
left the corporation insolvent. ”
29 Ido agree with RegO thatit is
inappropriate to attempt in a final
order to preserve someright to sue
RegO itself that extends beyond the
scope of Section 278 as the Mas-
ter's suggested language would ap-
pear to do. Section 278, however,
should have impact on the ability
of a creditor or a receiver to main-
tain, or indeed to commence, a
fraudulent conveyance action
against the recipient of corporate
assets. Nor would it prevent the
appointment of a receiver to re-
cover them.
Thus, in approaching the issues pre-
sented by this application I put to one
side the economically important ques-
tion that these pre-dissolution payments
may raise, and assume, but do not de-
cide, that the assets held by RegOat the
time ofits dissolution, and subjectto the
proposed trust, comprise all of the prop-
erty of the corporation [**39] to which
its present and future claimants have an
entitlement to look for satisfaction of
their rights.
* OK OK
This assumptionstill leaves open the
question whether those assets are suffi-
cient to support the security arrangement
called for by Section 280(c). It is argu-
able that the benefits afforded by com-
pliance with the elective procedure of
Section 280 are only available where it
is possible to offer a certain level of se-
curity to both present known claimants
(i.e., security that which "will be suffi-
cient," § 280(c)(1)) and unknownorfu-
ture claimants future (i.e. that "which
will be reasonably likely to be suffi-
cient"). Arguably if the circumstances
do not permit that level of security, then
the corporation is required to dissolve
under the more risky default provisions
of Section 281(b). All exceptors urge
that the level of assurance mandated by
Section 280(c) cannot be supplied here.
The alternative approach, urged by
RegO, holds that where of the corpora-
tion's assets offered as security, the issue
of sufficiency of the security does not
arise, since the company's creditors will
be entirely as secure upon dissolution as
they were before dissolution. On this
[**40] alternative reading of Section
280(c), where all of the dissolving cor-
poration's assets will be dedicated to
providing security, issues of the struc-
ture of the security arrangement(i.e., the
relative treatment of different classes of
claimants) will, of course exist, but the
issue of sufficiency of the security will
not.
This latter view is the correct one in
my opinion. At least in the special case
in which all of the corporation's assets
are dedicated to affording security, the
sufficiency of the security must be
deemed established insofar as the avail-
ability of Section 281(a) procedure is
concerned. To conclude [*105] other-
wise would serve no valid interest of
claimants (since they, as a class, are to
be the beneficiaries of all of the corpora-
tion's assets in all events) and would de-
prive corporate directors of such benefits
as they may draw from judicial approval
of the plan of security. That benefit may
be real where, as here, some future
claimants may (under the plan) possibly
collect a smaller proportion of their
claim than others. Being forced to liqui-
date under Section 281(b) would leave
open for possible future litigation the
question whether the plan was "reasona-
bly likely [**41] to be sufficient" to
compensate future claims and the conse-
quences of any determination that it was
not. The 1987 and 1990 legislation that
enacted Sections 280-82 was designed,
at least in part, to provide a mechanism
with which such uncertainty could be
dissipated and fairness to future as well
as present corporate claimants could be
presently established through adjudica-
tion. No interest of the corporation's
claimants is advanced by denying to the
corporation the ability to have such ad-
judication now under Section 280(a).
Thus, although I do conclude that all
of RegO's assets are inadequate to be
reasonably likely to provide compensa-
tion for all of its future claims that are
likely to arise, I conclude as well that the
Court of Chancery is not prevented by
that fact from approving a security ar-
rangement under Section 280(c) if that
arrangementis funded byall of the dis-
solving corporation's assets andis fair to
all classes of present and future claim-
ants. I thus reject Emerson's exception.
VIL.
The Principal Objections of the
Guardian Ad Litem
The guardian makes several funda-
mental complaints about the proposed
plan of dissolution. They were rejected
in the Final Report. [**42] First, he
complains that the Claimants Trust gives
some claimants (i.e., those who claim
"Pre-Existing Obligations") (see p.17)
rights superior to those of future claim-
ants who "based on facts known to the
corporation . . . are likely to become
known to the corporation prior to the
expiration of an applicable statute of
limitation". In this case, such claimants
are statistically likely to become known
from time to time until, in the opinion of
the guardian's expert, at least the year
2028. They are the "long-tail" claimants
(representing the tail of the bell-shaped
curve of distribution of product-related
injuries). It is unfair, the guardian as-
serts, to favor present claimants over
unknown, yet statistically certain future
claimants. More pointedly the guardian
asserts a security plan that does so is so
inconsistent with the policy of Section
281 that it cannot be approved by the
Court as appropriate under Section
280(c). The policy that the guardian in-
fers arises from the fact that Section
281 (a) and (b) both provide that where
there are insufficient funds to pay or
make provisions for all claimants, in-
cluding foreseeable future claimants,
claims of equal priority shall be [**43]
paid or provided for ratably. »
30 Moreover, future and present
tort or contribution claimants share
the same priority, the guardian
says, because by reasonofits statu-
tory definition "the term 'priority'
does not refer . . . to the relative
times at which any claims mature
or are reduced to judgment." 8 Del.
C. § 281 (e).
This objection to a perceived prefer-
ence for present or near term claimants
over more distant foreseeable claimants
has a second aspect relating to the Airco
indemnity contract purchased by the di-
rectors following dissolution. This as-
pectis treated below at pp.33-35.
The secondprincipal exception of the
guardian is that the interim limit of $
500,000 is too high. The guardian asserts
that with such an interim limit the trust
is quite likely to be exhausted within 8
years, leaving future injured persons
with no recourse. Thus, this level of in-
terim limit is likely to advantage claim-
ants who sustain injury in earlier years
and are able to bring their claim to
judgment or settlement in the earlier
[**44] years. This again is claimed to
be unfair and inconsistent with the direc-
tion of Section 281 which requires,it is
said, [*106] equal treatment for all
claimants of the sameclass.
The guardian proposes a $ 300,000
interim limit, which based upon his ex-
pert's study, would likely be sufficient to
permit the trust to pay this amountto all
statistically foreseeable injured persons
no matter when their claims arise and
would, on this expert's view, so be suffi-
cient to fully compensate 95% of all
such persons. This issue is addressed at
pp.36-38 below.
A related issue concerning the appli-
cability of an interim limit to indemnifi-
cation payments is addressed at p.38 be-
low.
(a) The guardian's objection to the
payment in full of matured or uncon-
tested obligations during the winding-up
period.
I am forced to concur with the guard-
ian's reading of the statute insofar as it
relates to the sufficiency of the proposed
security under Section 280(c). Thus, for
the reasons set forth below, I conclude
that the differing treatment afforded by
the Claimants Trust of present claims
("Pre-Existing Obligations") and claims
that are unknownor that have not arisen
but that based on facts knownarelikely
[**45] to arise, is inconsistent with the
express policy of Section 28] and ren-
ders the trust, as written, an inappropri-
ate security arrangement under Section
280(c).
* Ok
It is contended that the enactment of
Section 281 changed the law governing
payment of claims on dissolution. Prior
to enactment of these new provisions, a
corporation in dissolution arguably had
no obligation to claimants whose claim
did not arise until after the termination
of the winding-up period. (See cases
cited at pp.4-6 supra). The compliment
of that statement is the statement that,
previously, the existence of facts making
such future claims very likely, did not,
create any ground to impinge upon the
ability of existing creditors to be paid in
full during the winding-upperiod. Credi-
tors had a right to be paid in full, if their
claim was valid, providing that the dis-
solved corporation wassolvent.
Sections 280 and 281 do incontesta-
bly create (or recognize) rights of a cer-
tain sort in future claimants. » They now
have a right under Sections 280 and
281(a) optional procedure for a judicial
determination of reasonable security and
the funding of that security. Under the
default procedure of Section 281(b)
[**46] future claimants have an enti-
tlement to such provisions as will be
reasonably likely to be sufficient to pro-
vide compensation for future claims.
31 Ihave not bothered to restate
on each occasion I use the terms
"future claimants" or "future claim"
the limitations set forth in Sections
280 and 28] (i.e. foreseeability
and arising while not barred by ap-
plicable statute of limitation), but
do mean to imply them in each in-
stance.
But the creation of these entitlements
may have consequences not just for
shareholders, but also for present credi-
tors. For example, where, under the Sec-
tion 281(b) procedure, the dissolved
corporation does not have sufficient
funds to pay all of its obligations and
make reasonable provision to pay all
contingent and all future claims then,
“such claims and such obligations shall
be paid or provided for according to
their priority and amongclaims of equal
priority, ratably to the extent of funds
legally available." Section 281(b). Since
“priority” is defined as "not" referring
[**47] to the relative times at which any
claims mature or are reduced to judg-
ment" (Section 281(e)), Section 281(b)
must mean that a corporation in dissolu-
tion which cannot both pay its present
creditors and make adequate provision
for contingent and future claims, and
which follows the Section 281(b) proce-
dure, is directed not to pay its current
creditors in full but to pay them ratably.
oF
32 While in this respect Section
281(b) is no doubta radical change
in the law, it is within the constitu-
tional power of the state of incor-
poration to so regulate the dissolu-
tion of a domestic corporation, in
my opinion. See, e.g., Riehle v.
Margolies, 279 U.S. 218, 228
(1929), (Brandeis, J.) ("where a
statutory proceeding for the wind-
ing-up of an insolvent corporation
is brought in the state of the incor-
poration . . . assets will be distrib-
uted only among those persons
who have been found to be credi-
tors either by that court or else-
where with its leave, and that a
judgment recovered in another
state without leave from it will not
entitle the plaintiff to share in the
assets."); In re International Rein-
surance Corp., Del. Ch., 48 A.2d
529, 536-542 (1946) (discussing
Margolies). The Full Faith and
Credit Clause requires Delaware
law to recognize the validity of
foreign judgments again a Dela-
ware corporation. Such judgment
conclusively establishes the fact
and the amount of liability, but,
analogously to the law of receiver-
ships, full faith and credit does not
require that such judgment be paid
other than in conformity with the
corporation dissolution law of the
state law substantively governing
corporate dissolution. Thus, while
in most instances I would agree
with the Master's conclusion that "a
corporation cannot prevent a credi-
tor during a post-dissolution wind-
ing-up period from executing a
valid judgment against corporate
assets" (Final Report p.30), I do not
believe it is correct that a valid
state law cannot, in effect, preclude
a valid judgment from being paid
by a dissolved corporation under
certain conditions. It is the law
governing corporate dissolution
that in this context would be enti-
tled to Full Faith and Credit in
those sister-state jurisdictions in
which execution of a judgment
against a dissolved corporation was
sought.
[**48] [*107] The optional proce-
dure of Sections 280 and 281 (a) does not
contain precisely parallel requirements.
With respect to future and contingent
claimants, a dissolved firm that follows
that procedure needs only to pay the se-
curity fixed by the court. The statutory
language that mandates ratable payments
to all claimants of the samepriority is
only triggered under Section 281(a)
when the corporation cannot pay its
various claimants and fund the court or-
dered security. Thus, the new protec-
tions created by Sections 280 and 281
for foreseeable future corporate claim-
ants appear to offer less of a threat to the
interests of existing corporate claimants
when the corporation pursues Sections
280 and 281 (a) procedure.
Let metry to relate all of this to this
case. The guardian claims that RegO
cannot create a security arrangementthat
one can concludeis likely to reasonably
compensate all future claims that are
reasonably foreseeable. It argues that
therefore, RegO cannot consistently with
the scheme of Section 281(a)(b) and (e),
pay its present claimants in full (as it has
done and the Claimants Trust would do).
It is claimed that rather those sections
require, in this factual circumstance,
[**49] that the security arrangement, to
be approved, should not prefer present
creditors over contingent or future credi-
tors.
RegO's answer(and that of the pre-
ferred creditors) is first that the provi-
sions of Section 281(b), which might
mandate ratable payment, are entirely
irrelevant to this proceeding. Secondly
it is said that the requirementof "ratable
payment" contained in Sections 280 and
281(a) that are relevant will not betrig-
gered here since RegO can and will pay
the security the court fixes under Section
280(c). Thus there will be noinability to
all of the payments that Section 281 (a)
identifies and therefore there is no occa-
sion for the court, in passing upon the
sufficiency of security, to consider the
"ratable payment" concept of Section
281.»
33 ‘In addition, RegO doubts the
constitutional power or effect of a
determination by this court, that
present creditors should only be
paid pro rata. The last point is
treated above at note 32.
This argumentis nicely technical, but
incorrect in my view. [**50] RegO
cannot claim both that all of its assets
must constitute "sufficient" security un-
der Section 280(c) regardless of the
probability that some foreseeable future
claimants will not be fully compensated
(see pp. 25-26 above), and claim that, in
passing on the appropriatenessofthe se-
curity proposed, the court should ignore
the policy contained in both subsections
(a) and (b) of Section 281. While our
corporate law statute is a technical stat-
ute, we are not authorized bythatfact to
apply it in ways that defeat the ex-
pressed intention of its drafters.
In my opinion, where it appears that
all of the assets of a dissolved corpora-
tion are likely to be inadequate to com-
pensate all foreseeable future claims, fi-
delity to the abundantly clear policy of
Section 281(a)(b) and (e) requires this
court, in passing upon the reasonable-
ness of a proposed security arrangement
under Section 280(c), to decline to ap-
prove discrimination amongclaimants of
the same class based upon "the relative
times at which any claims matureor are
reduced to judgment." Section 281(e).
[*108] The Claimants Trust doesre-
flect such discrimination and to that ex-
tent, J am forced to conclude that I can-
not approve [**51] it.
This conclusion does not mean that I
accept the guardian's suggestion that,
where directors who are following a Sec-
tion 280 procedure have reason to know
that the corporation is unlikely to have
sufficient assets to assure compensation
to all future claimants, they are pre-
cluded by Section 281(a) and (e) from
paying in full present corporate credi-
tors. While I suppose that the state of in-
corporation could constitutionally so re-
quire, Sections 280 and 28/(a), at least,
do not do so. They do require the court
to approve a security arrangement and in
that connection it is appropriate for the
court to consider the policy of Section
281(a)(b) and (e). But those provisions
do not direct directors of a dissolved
corporation to pay existing creditors
only ratably when they have reason to
know that the corporation will not be
able fully to secure the payment of com-
pensation to all foreseeable future
claimants. *
34 Texpress no view on the ques-
tion whether a corporation dissolv-
ing under Section 281(b) has such a
duty or on the question whether the
holding of Asmussen v. Quaker
City Corp., Del. Ch. 156 A. 180
(1931), which plainly has been
overruled with respect to Section
281(b) dissolutions has vitality
when a corporation followsthe al-
ternative elective procedure.
[**52] (b) The guardian's objec-
tions to the treatment ofRegOliabilities
qualifying for indemnification under the
Airco policy.
Following dissolution the directors of
RegO caused the Companyto purchase,
for $ 15,225,000, a ten year contract of
indemnity insurance from American In-
ternational Reinsurance Company Ltd.
("Airco"). The policy will pay RegO up
to $ 1,000,000 per occurrence and up to
$ 2,000,000 in total per year, as indem-
nity for sums RegO pays as damages.
The policy's term is ten years concluding
on December 31, 1998. At the conclu-
sion of the term of the arrangement, if
total payments underthe policy have not
aggregated $ 20,000,000 million, the un-
expended portion will paid to the Com-
panyorits successor.
Thus the indemnity policy carries
very little, if any, true insurance. It is
rather like a contractual arrangement in
which one holds fundsat interest subject
to a duty to disburse them in a predeter-
mined manner. In entering into this
agreement the directors assured that
some funds would be available each year
through 1998 to satisfy judgments ren-
dered against RegO, even if some judg-
ments that were large enough to other-
wise deplete the company's assets were
suffered [**53] in early years.
The Airco policy gives rise to several
issues. The most significant is the ques-
tion whether, after the Claimants Trust is
funded, payments made pursuantto that
policy should be limited to amounts
permitted by the interim limit. This
question involves issues of contract as
well as corporate law.
The Airco contract will determine to
whom and in what amountAircois obli-
gated to make payments. As that con-
tract is one of indemnity, Airco is pre-
sumably obligated to make payments to
RegO or its successor. Thus, the ques-
tion is whether RegO or its successor
will have liability that is not subject to
the interim limit, on judgments rendered
after the establishment of the Claimants
Trust. RegO itself will continue to be a
proper party to any lawsuit commenced
before dissolution or during the wind-
ing-up period. 8 Del. C. § 278. But, after
the establishment of the Claimants Trust,
RegO will no longer have assets to re-
spond to any future judgment. If the
Airco contract requires RegO to make a
payment to a claimant before Airco is
legally obligated to pay, then the estab-
lishment of the Claimants Trust will
have the effect of subjecting the funds
payable under the Airco policy [**54]
to the overall plan of security for present
and future claimants established by the
Claimants Trust, because the trust and
not RegO will hold title to RegO's prop-
erty. I assumethatthisis the case.
If this is so, then the question arises
whetherthe trust should be authorized to
pay post-winding-up judgments without
regard to the interim limit, where and to
the [*109] extent such payments will
qualify for indemnification by Airco un-
der its policy.
The guardian asserts that the trust
should not authorize treating future
claimants differently depending upon
whether or not their claim can qualify
for payment through the Airco policy.
Twoof the respondents appearing before
the Master and RegO itself assert the
contrary: that payments by the Claim-
ants Trust that qualify for indemnifica-
tion under the Airco policy should not
be subject to the interim limit. In support
of that position, RegO asserts that "cer-
tain claimants had relied upon"the exis-
tence of the Airco policy, but it does not
state in what way they did so, and
whether this reliance was reasonable or
was detrimental to them. Beyond this,
RegO suggests that purchasing the Airco
policy reflected a judgment ("was part of
a delicate balance [**55] ... between
rights of known persons whoseclaimsit
had rejected . . . and the rights of poten-
tial future claimants") that should bere-
spected. This argument misunderstands
the Court of Chancery's obligation under
Section 280(c). It is the court's duty "to
determine the amount and form ofsecu-
rity" that will be sufficient or reasonably
likely to be sufficient. The court is not
here passing upon potential liability of
directors where the policy of the busi-
ness judgment rule is implicated. Rather
it stands as the statutorily designated ar-
biter of the security arrangementthatis
appropriate. Due respect for the exper-
tise and authority of corporate directors
does not dictate deference to their judg-
ment on the question of what constitutes
adequate protections to various compet-
ing classes of claimants on dissolution.
I am forced to accept the guardian's
view of this matter. I cannot renderin-
formed opinion on the question whether
the Airco contract obligates Airco to
make payments to anyone other than the
trust after its establishment, but I am of
the view that, insofar as the trust is con-
cerned, the reasoning set forth above
(See Part VII(a)) requires that the
Claimants Trust [**56] not favor one
set of product liability claimants (those
whose claim is asserted and adjudicated
or settled while the term of the Airco
policy has not expired) over other future
claimants whose claims will be subject
to an interim limit.*
35 On arelated point, the Master
recommended against the Court
granting to the guardian power he
seeks to institute suit against the
RegO directors. The guardian
claims that the payment of certain
judgments by RegO and the pur-
chase of the Airco policy consti-
tuted violations of the equal prior-
ity rule among present and future
claimants that he finds in Section
281. I accept the Master's recom-
mendation as correct. See p.32 su-
pra. The decisions attacked were
plainly disinterested decisions
made in the good faith pursuit of
duty. When directors of a dissolved
Delaware corporation are, during
the course of winding-up corporate
affairs, required to make decisions
affecting various classes of interest
holders, they are protected from li-
ability in doing so, so long as they
act disinterestedly, with due care
and in good faith. Devereaux v.
Berger, Md. Ct. Apps., 284 A.2d
605 (1971); In re Xonics Systems,
99 BR. 870 (Bkrtcy. N.D. Til.
1989). Delaware law does not, in
my opinions, impose duties on di-
rectors of a dissolved corporation
of the kind reflected in N.Y. Credit
Men's Adjustment Bureau v. Weiss,
N.Y. Ct. Apps., 110 N.E.2d 397
(1953). Thus even assuming that
the guardian would have standing
to bring such a suit, I could not au-
thorize the waste of the estate's as-
sets that such a suit implies.
[**57] (c) The guardian's objection
to the level of the $ 500.000 interim
limit.
Having concluded that it would be
inappropriate, in the circumstances of
this case, to approve a security mecha-
nism that authorized the Claimants Trust
to prefer "Pre-Existing Claimants" to
"future claimants" pp.29-30), one must
inquire into what means are appropri-
ately available to implement that view.
Asthe directors of RegO and the court
must here deal with likely future events
over an undefined term (see n.27 supra )
mathematical certainty is not possible.
Certain of the interested parties recom-
mend a percentage of claim technique in
which each claimant is paid a stated per-
centage of his or her claim on an interim
basis, with a final calculation on termi-
nation of the trust. Various percentages
(from 65% to 80%) are suggested. The
Company does not embrace this view,
holding that it is impossible to determine
fairly what such a percentage should be
since it can be determined only after all
qualifying future claims are [*110]
known. As a consequenceofthat fact it
is impossible to fix a percentage andstill
have reasonable confidencethat the trust
corpus will not be rather quickly de-
pleted by a [**58] handful of very sub-
stantial judgments. I accept the Com-
pany's reasoning as consistent with the
policy of Sections 280(c) and 281 (a) and
(e).
The Company proposes instead that
an interim limit of $ 500,000 per claim
be tentatively established, and that the
appropriateness of that limitation be re-
visited in five years time in conjunction
with the possible establishment of a
claims Assertion Date and a trust Termi-
nation Date. » The guardian and certain
other respondents object to this level of
limitation as too high. They assert that
the best estimates available suggest that
use of the $ 500,000 interim limit will
lead to the exhaustion of the trust in
eight years, but that the best available
estimates suggest that future claims will
arise for substantially longer than that.
36 See pp.18-19, infra.
The Master recommendedacceptance
of the $ 500,000 interim limit. In doing
so she relied in part upon her conclusion
that Sections 280 and 281 (a) created no
rights in foreseeable future claimants
other than a [**59] right to be heard
(through a guardian to be appointed by
the court) and a right to such security as
the court may fix or approve under Sec-
tion 280(c). She rejected the assertion by
the guardian that all future claimants
have a right under Section 281] to equal
treatment in the structuring of the pro-
posed security. She accepted RegO's as-
sertion that a plan that could be expected
to pay 90-95% of all claims that oc-
curred over the next eight years wassuf-
ficient.
I am constrained to view the re-
quirements of Sections 280 and 281(a)
differently. Section 280(c) mandates that
security be provided "for claims. . . that
have not arisen but that based on facts
knownto the corporation . . . are likely
to arise . . . prior to the expiration of ap-
plicable statutes of limitation." This
statutory command does not afford to
the dissolving corporation, or the court
passing upon the proposedsecurity ar-
rangement, an election to fail to afford
security for foreseeable claimants who
will meet this test, simply because their
claims will arise some years hence. The
statute might have doneso by adopting a
limitation provision of the type included
in the Model Business Corporation Act
(see n.27 supra). [**60] But, in adopt-
ing the limitation provision contained in
Section 280(c), the General Assembly
left the determination of an appropriate
liability cutoff date to the substantive
law of the state in which the claim
arises. In light of this statutory ap-
proach, one cannot nowsay, in the con-
text of the facts concerning RegO's po-
tential liability situation, that the period
implied by the $ 500,000 interim limit
(approximately eight years) is an appro-
priate point to terminate all rights of fu-
ture claimants against the sole remaining
potential defendant -- the Claimants
Trust.
The guardian's suggested interim
limit of $ 300,000 per claim could be
expected (or at more likely all events is
certainly) to permit the trust to satisfy
claims (to that extent) for the entire pe-
riod in which it is reasonable to predict
that claims will arise. That this implies a
trust of long duration is not itself prob-
lematic whenthe interests of all foresee-
able future claimants are considered, as
Section 280(c) indicates they must be.
Since I find no basis in the statute at
this point to foreclose distant claimants
from protection from future injuries, I
must decline to approve this aspect of
the Claimants Trust, [**61] but will
approvea interim limit of $ 300,000.
(d) Should the interim limit apply to
indemnification claims that arise hereaf-
ter.
As I understand this aspect of the
matter, RegO has volunteered that in-
demnification payments arising out of
any litigation challenging the propriety
of the Asset Purchase Agreementbe lim-
ited by the interim limit. The parties
dispute then whether any indemnifica-
tion from the trust to RegO officers and
directors is appropriate, and if it is,
whetherthe interim limit should apply to
all such future payments,if any. I accept
the recommendation of the [*111]
Master (Final Report pp.49-52). Plainly
future indemnification claims are liabili-
ties that the trust can and should accept.
More importantly those claims legiti-
mately deserve a priority and thus ex-
ception from the interim limit for several
reasons. The express policy of Section
145 of the Delaware General Corpora-
tion Law provides one ground. More
fundamentally, the innovative dissolu-
tion procedures of Sections 180-82,
which confer benefits upon future
claimants, will be less utilized than oth-
erwise, if corporate directors who volun-
tarily employ those procedures can do so
only at the cost of giving [**62] up ex-
isting indemnification rights. Thus, re-
alization of the apparent objects of the
statute will be promoted by recognizing
the priority of such claims.
VUL.
Other Disputed Matters: A Claims
Assertion Date
The Claimants Trust includes a pro-
vision authorizing the trustee, after five
years, to recommend and apply to this
Court for the determination of a date af-
ter which the trust will not be authorized
to pay any claims not asserted by that
date.
Emerson Electric objects to the inclu-
sion of any such provision calling it un-
authorized by Sections 280 or 28]. In the
alternative, several Respondents urge
that in no event should less than ten
years of experience be had before any
such date is considered.
This provision appears to be an at-
tempt to deal with the massive uncer-
tainty created by the nature of the Com-
pany's productliability history and pros-
pects and the limitations provision of
Section 280(c). In my opinion, a provi-
sion of this type is permitted by Section
280(c) since its commandisto fix "secu-
rity which will be reasonably likely to be
sufficient." There may come a time in
the administration of the trust when it
can responsibly be concluded that no
further claims [**63] are likely to arise.
At that point termination ofthe trust will
be appropriate. A Claims Assertion Date
would present a helpful mechanism to
give notice to the world of termination
of the trust.
Given the claims history and pros-
pects of the Company however, in my
opinion, in no event could such a termi-
nation occur here in as little as five
years. See, e.g, "RegO Product Claims
(Occurrence Dates After 1/1/77) As of
September 20, 1991," Guardian's App.
Exh. E. When the directors purchased
the Airco indemnity policy they con-
tracted for indemnity through the year
1998. Indeed, the record suggests that
this Trust may haveto exist substantially
longer than ten years. RegO suggests
that nothing is lost by permitting the
trustee to petition to terminate the Trust
in as little as five years. But this is not
the case. An application to reconsider
the matter of trust termination will not
be without cost -- to the trust, to the
claimants and to the public that under-
writes the expense of these proceedings.
To incur those expenses in aslittle as
five years, on this record, seems waste-
ful. Given the experience that RegO has
had, one can conclude that only a statute
of the type reflected [**64] in the
Model Corporation Act would justify, on
these facts, termination in less than ten
years, if then, in my opinion.
A number of additional matters in-
volving details of trust administration
and the identity, powers and compensa-
tion of the trustee will be treated in a
separate ruling to be issued contempora-
neously with this already lengthy opin-
ion.
* KK
For the foregoing reasons the excep-
tions of the guardian ad litem to the Fi-
nal Report are accepted to the extent set
forth above. Therefore, I am required to
decline to approve the proposed security
arrangement but would approve, as suf-
ficient in the circumstances, a trust that
complied with the foregoing.
© . * ®
@ LexisNexis
Page |
LEXSEE937 A.2D 760
THE TERRITORY OF THE UNITED STATES VIRGIN
ISLANDS,individually andas assignee of the Successor
PanexIndustries, Inc. Stockholders Liquidating Trust,
Plaintiff, v. GOLDMAN, SACHS & CO., a New Yorklim-
ited partnership, Defendant.
C.A. No. 2505-VCS
COURT OF CHANCERY OF DELAWARE, NEW CAS-
TLE
937 A.2d 760; 2007 Del. Ch. LEXIS 186
September27, 2007, Submitted
December20, 2007, Decided
SUBSEQUENT HISTORY: Affirmed
by Terr. of the United States VI. v.
Goldman, Sachs & Co., 2008 Del.
LEXIS 344 (Del., July 29, 2008)
PRIOR HISTORY: Rosenbloom vy.
Esso V.L, Inc., 766 A.2d 451, 2000 Del.
LEXIS 534 (Del., 2000)
COUNSEL: [**1] Bruce E. Jameson,
Esquire, Melissa N. Donimirski, Es-
quire, PRICKETT, JONES & ELLI-
OTT, P.A., Wilmington, Delaware; John
K. Dema, Esquire, Scott E. Kauff, Es-
quire, LAW OFFICES OF JOHN K.
DEMA,P.C., Christiansted, St. Croix,
U.S. Virgin Islands, Attorneys for Plain-
tiff.
Andre G. Bouchard, Esquire, BOU-
CHARD MARGULES &_ FRIED-
LANDER,P.A., Wilmington, Delaware;
Melvin A. Brosterman, Esquire, Joseph
E. Strauss, Esquire, STROOCK &
STROOCK & LAVAN LLP, Attorneys
for Defendant.
JUDGES: STRINE, Vice Chancellor.
OPINION BY: STRINE
OPINION
[*763] STRINE, Vice Chancellor.
In this decision, I grant the motion of
defendant Goldman, Sachs & Co. to
dismiss a complaint against it by the
U.S. Virgin Islands. The Virgin Islands
seeks to recoup from Goldman Sachs
distributions made to it from a dissolved
corporation, Panex Industries, Inc., in
1984 and 1985, and in 1987 from a liq-
uidating trust established during Panex's
dissolution, the Liquidating Trust. The
Virgin Islands’ theory is that Goldman
Sachsis liable, to the extentof its receipt
of distributions [*764] from Panex and
the Liquidating Trust, for any liabilities
owed by Panex and the Liquidating
Trust, regardless of whether those li-
abilities were known at the time the dis-
tributions were [**2] made.In this case,
the first claims that certain operations of
Panex had caused environmental dam-
age to the Tutu aquifer on St. Thomas,
U.S. Virgin Islands were asserted in
1992, and the Virgin Islands itself did
not assert such claims until 1996, nine
years after the last distributions to
Goldman Sachs were made.In fact, as of
the time the distributions to Goldman
Sachs were made, the Virgin Islandsit-
self had owned andcontrolled for fifteen
years, the former Panex facility that it
later alleged was a source ofpollution.
More than a generation's worth of
corporate and judicial process precedes
this ruling and is summarized in the
pages that follow. That history is impor-
tant to the conclusions I reach, which are
as follows.
First, I conclude that $$ 278 and
325(b) of the Delaware General Corpo-
ration Law bar the Virgin Islands from
seeking to hold Goldman Sachs respon-
sible for distributions it received from
Panexitself. Because the Virgin Islands
never brought suit against Panex, it
could not secure a judgment against
Panex, a pre-requisite to claiming over
against Panex's former stockholders. The
reason that the Virgin Islands never
brought suit against Panex is that by the
time [**3] the Virgin Islands got around
to bringing a claim for environmental
damage, the Third Circuit had already
correctly determined that Panex lacked
the capacity to sue and be sued at that
time by operation of § 278 of the DGCL.
Alternatively, even if $§ 278 and 325(b)
do not preclude common law making,I
would, for reasons I detail, decline to
recognize a commonlaw causeofaction
for a later arising corporate claimant
against a stockholder who received a
prior distribution in good faith.
Second, because the Virgin Islands
did not file a claim against the Liquidat-
ing Trust until 1996, well after the Lig-
uidating Trust's original term expired,it
has no right to demand that Goldman
Sachs return the distributions it received
in 1987. After September 12, 1988, the
Liquidating Trust only continued in ex-
istence to deal with the discrete issue of
potential environmental liabilities re-
lated to a facility in New York, and not
to address unknown claims, such as
those later made by the Virgin Islands.
Finally, I conclude that the Virgin Is-
lands is barred in any case by the doc-
trine of laches. In practical effect, it
seeks to hold Goldman Sachsliable for
activity undertaken by Panex's predeces-
sors [**4] in the 1970s. The Virgin Is-
lands bought the facility in question in
1981 but first raised environmental
claims in 1996. In that 1996 suit, the
Virgin Islands sued Goldman Sachs,
raising essentially the same claims it
now raises, but dismissed that suit with-
out prejudice in 1998. Then, the Virgin
Islands waited another eight years to sue
Goldman Sachs.
The Virgin Islands has filed its
claims long after the analogousstatutes
of limitation require. As important, its
late filing puts Goldman Sachs, a pas-
sive stockholder of Panex who acquired
its shares as compensation for creditor
claims in a bankruptcy,in the unfair po-
sition of having to defend environmental
claims, when it was never an operator of
the facility in question, when many key
witnesses are dead or have faded memo-
ries, and when the Virgin Islands itself
has controlled the facility since 1981.
And if the Virgin Islands claims that it
can recover against Goldman Sachs
simply because it obtained a default
judgment in 2005 against the successor
trust of Panex, which had no funds to
[*765] defenditself, the inequity Gold-
man Sachsfacesas a result of the Virgin
Islands’ torpor is made evenplainer.
I. Facts
These facts are drawn from the [**5]
amended complaint, the documents ref-
erenced and incorporated therein, and
numerous judicial decisions since
Panex's dissolution. The facts relevant to
deciding this motion are complicated
because they involve numerous entities
and span several decades.
A. The Predecessor Corporations
Laga Industries, Ltd., a U.S. Virgin
Islands corporation, was organized in
1968 with Paul Lazare and Andreas Gal
as its initial stockholders and officers.
Laga built and operated a textile manu-
facturing facility in the Tutu region of
St. Thomas, U.S. Virgin Islands (the
"Laga Facility" or "Laga"). In 1970,
Lazare and Gal sold Laga to the Duplan
Corporation, a Delaware corporation,
and Duplan began dry-cleaning opera-
tions at the Laga Facility. Dry cleaning
wasthe final step in the manufacturing
process for certain Duplan textile prod-
ucts. ' In 1976, Duplan filed for bank-
ruptcy reorganization. Duplan ceasedall
operations at the Laga Facility in late
1978. 2 As part of the bankruptcy proc-
ess, Panex Co., a New York partnership
formed by Lazare and Gal, purchased
the Laga Facility from Duplan's bank-
ruptcy trustee in 1979. Panex Co. sold
_ the Laga Facility to the Virgin Islands
Department of Education in 1981. [**6]
That same year, Duplan emerged from
bankruptcy as Panex Industries, Inc.
("Panex"), a Delaware corporation.
1 Inre Tutu Wells Contamination
Litig., 994 F. Supp. 638, 642, 38
VI. 275 (D.V.I. 1998).
2 Rosenbloom v. Esso Virgin Is-
lands, Inc., 766 A.2d 451, 454
(Del. 2000).
B. The Post-Bankruptcy Owners Of
Panex
Panex arose from bankruptcy in 1981
with over 300 stockholders; > however,
most of Panex's stock was held by three
groups of stockholders. Lazare and Gal
owned approximately 27% of Panex's
common stock, Firmanco Associates ‘
owned 40%, and Goldman Sachs owned
13%. > Lazare and Gal, Firmanco, and
Goldman Sachs received shares of
Panex stock as part of the bankruptcy
process because they were creditors of
Duplan before its bankruptcy. * Fir-
manco,in building up to its 40% owner-
ship, also acquired shares of Panex on
the open market.7
3. In re Duplan Corp., 212 F.3d
144, 149 (2d Cir. 2000).
4 First Manhattan Co., itself a
limited partnership, was the general
partner of Firmanco Associates.
Daniel Rosenbloom was the gen-
eral partner of First Manhattan Co.
In re Tutu Wells Contamination
Litig., 885 F. Supp. 776, 779
(D.V.I. 1995). In this opinion,
"Firmanco" will refer to Firmanco
Associates, First Manhattan, [**7]
and Rosenbloom collectively.
5 Am. Compl. P 18.
6 Inre Duplan Corp., 212 F.3d at
148.
7 Id.
Ofthe three primary groups of Panex
stockholders, Goldman Sachs was the
only entirely passive stockholder.
Goldman Sachsdid notparticipate in the
management of Panex as either a direc-
tor or officer. Indeed, it appears that
Goldman Sachs was never even an eager
equity holder. Rather, it received its eq-
uity in Panex as compensation for its
creditor claims in the Duplan_bank-
ruptcy. By contrast, Lazare, Gal and
Firmanco actively participated in the
management of Panex. Lazare and Gal,
whoweretheinitial officers of Laga and
served as officers of [*766] Duplan,
were directors of Panex. * Firmancopar-
ticipated in Panex's managementthrough
Daniel Rosenbloom, who controlled
Firmanco, and served as Chairman of
Panex's board ofdirectors.°
8 In re Tutu Wells Contamination
Litig., 846 F. Supp. 1243, 1274
(D.V.I. 1993).
9 Tutu Wells, 885 F. Supp. at 779.
C. The Dissolution Of Panex
Panex soon returned to the ashes. In
August 1984, the Panex board of direc-
tors approved a Liquidation Plan for
Panex. The Liquidation Plan provided
for the disposition of Panex's assets and
the use of the proceeds to fund a series
of liquidating [**8] distributions to be
made to its stockholders within one year.
The Liquidation Plan also established
the Panex Liquidating Trust "to cover
contingent and otherliabilities of Panex
which m[ight] arise during or after the
Liquidation Period" and funded it with
approximately $ 6 million. » The Liqui-
dation Period is "the twelve-month pe-
riod beginning on the date on which the
Plan of Liquidation is adopted by the
Panex stockholders." "
10 Bouchard Aff. Ex. A ("Proxy
Statement") at 5.
11 7d. at 2.
On August 31, 1984, Panex issued a
proxy statement describing the Liquida-
tion Plan and asking its stockholders to
vote for the proposed Liquidation Plan
(the "Proxy Statement"). In describing
the Liquidating Trust, the Proxy State-
mentstated the following:
It is possible that the entire
amount which will be held in
the Liquidating Trust to cover
contingent and other liabili-
ties of Panex will be used to
discharge suchliabilities... .
Moreover, although the Board
of Directors believes that the
amount of approximately $ 6
million which will be depos-
ited in the Liquidating Trust
will be sufficient to cover any
liabilities which may arise
during or after the Liquidation
Period, there can be no assur-
ance [**9] that this will be
the case. If the amountheld in
the Liquidating Trust is insuf-
ficient to discharge fully all
liabilities whicharise, or if li-
abilities arise after the Liqui-
dating Trust is terminated,
each Panex stockholder may
be liable for any unpaid por-
tion of such liabilities to the
extent of the liquidating dis-
tributions paid tohim....”
The Proxy Statement focused its disclo-
sure of potential liabilities on potential
additional tax liabilities from years still
subject to audit by the IRS and made
mention of lease and other continuing
contractual obligations of Panex. » The
Proxy Statement did not mention possi-
ble environmental liabilities. The Panex
stockholders approved the Liquidation
Plan on September 24, 1984, and Panex
filed its Certificate of Dissolution on
April 15, 1985.
12 Id. 6.
13 Id. at5.
D. Sections 278 And 325 Of The Dela-
ware General Corporation Code
When Panex's board sought to dis-
solve the company, certain provisions of
the Delaware General Corporation Law
became relevant to its actions. Section
278 of the DGCL was of particular im-
portance to Panex. « As then written in
1985, § 278 continued the existence of a
corporation for a term of three years af-
ter its [**10] dissolution for several
purposes, including winding-up the
business of the corporation and prose-
cuting [*767] and defending suits. The
applicable portion of $ 278 stated:
All corporations . . . shall
nevertheless be continued, for
the term of three years from
such ... dissolution ..., bod-
ies corporate for the purpose
of prosecuting and defending
suits . . . , and of enabling
them gradually to settle and
close their business, to dis-
pose of and convey their
property, to discharge theirli-
abilities, and to distribute to
their stockholders any re-
maining assets, but not for the
purpose of continuing the
business for which the corpo-
ration was organized. "
Panex desired certain federal tax bene-
fits that flowed from distributing its as-
sets within one year. * Therefore, it used
a device that would allow it to satisfy the
federal tax code's requirement for a cor-
poration to distribute its assets within a
year, while honoring § 278's three-year
winding-up period requirement. That
device wasa liquidatingtrust. ”
14 8 Del. C. $ 278.
15 Td.
16 See Comment, The Use of Liq-
uidating Trusts to Obtain the Bene-
fits of Section 337 of the Internal
Revenue Code of 1954, 34 U. CHI.
L. REV. 563, 564 (1967) (Section
337 [**11] requires that a corpora-
tion completely distribute all of its
assets, ‘less assets retained to meet
claims,’ within a twelve month pe-
riod from the date it adopts a plan
of liquidation if it wishes to avoid a
corporate tax on the sale of appre-
ciated assets.").
17 See City Investing Co. Liqui-
dating Trust v. Cont'l Cas. Co., 624
A.2d 1191, 1196 (Del. 1993) ("The
acknowledged purpose for estab-
lishmentofa liquidating trust is tax
avoidance.").
Section 278 was also relevant to
Panex's consideration of the liabilities
that might arise after its dissolution.
Specifically, $ 278, as well as § 325(b)
of the DGCL, bore on a question less
than ideally certain under Delaware law
(and American corporate law more gen-
erally): what, if any, liability was owed
by corporate stockholders and directors
for activities of a dissolved corporation
that occurred before its dissolution but
where the claims regarding those activi-
ties arose onlyafter its dissolution?
On one view, $$ 278 and 325(b)
clarified this uncertainty. Under this
view, §§ 278 and 325(b) precluded any
suit against a dissolved corporation's
former stockholders and directors
brought after the winding-up period set
forth in § 278 -- three years [**12]
unless otherwise extended -- because the
corporation lacked the capacity to be
sued. The corporation's lack of the ca-
pacity to be sued after the winding-up
period is an interpretation of the follow-
ing portion of § 278, which at the time
stated:
With respect to any action,
suit or proceeding begun by
or against the corporation ei-
ther prior to or within three
years after the date of its...
dissolution, the corporation
shall, for the purpose of such
actions, suits or proceedings,
be continued as a body corpo-
rate beyondthe three-year pe-
riod and until any judgments,
orders, or decrees therein
shall be fully executed... .*
The rationale for such an interpretation
is that if a specific statutory provision
was required to continue the corpora-
tion's existence beyond the three-year
winding-up period for the resolution of
pending suits, the corporation must have
ceased to exist at the end of the three-
year period for all other purposes, in-
cluding prosecuting or defending new
lawsuits. Meanwhile, § 325(b) stated at
that time: "No suit shall be brought
against any officer, director, or stock-
holder for any debt of a corporation of
which heis an officer, director or stock-
holder, until judgment [**13] be ob-
tained therefor against the corporation
and execution [*768] thereon returned
unsatisfied." » Therefore, one view of
the combined effect of §§ 278 and
325(b) was that directors, officers, and
stockholders of a corporation could not
be held liable for the debts of a corpora-
tion after the § 278 winding-up period
had expired because no judgment could
be obtained against the dissolved corpo-
ration, a prerequisite for director, officer,
and stockholder liability for the debts of
a corporation under § 325(b). »
18 8 Del. C. § 278.
19 8 Del. C. $ 325(b).
20 See, e.g., infra note 72 and ac-
companyingtext.
But the comfort given by $$ 278 and
325(b) was lessened by the absence of
Delaware case law embracingthis inter-
pretation. This gap created doubt be-
cause of case law from other jurisdic-
tions applying the so-called trust fund
doctrine. * This doctrine is a notoriously
squishy one, ” but generally involves the
notion that funds distributed from a dis-
solved corporation to its stockholders
constitute a hypothetical trust fund,
against which creditors and tort claim-
ants with claims against the dissolved
corporation may make claims, by suing
the stockholders directly, but only to an
extent co-extensive [**14] with the de-
fendant-stockholder's receipt of distribu-
tions from the defunct corporation.
Thus, there existed the concern that $$
278 and 325(b) did not provide iron-clad
protection for directors, officers, and
stockholders of a dissolved corporation.
The rationale for this view wasthat the
trust fund doctrine might co-exist with
corporate dissolution statutes and pro-
vide a supplemental method to hold di-
rectors, officers, or stockholders liable
for debts of a dissolved corporation. *
Against this backdrop of legal uncer-
tainty, it is unsurprising that Panex made
a cautious disclosure of potential post-
dissolution stockholder liability in its
dissolution Proxy Statement by warning
Panex stockholders that they "may" face
liability for Panex liabilities to the extent
of the liquidating [*769] distributions
they received from Panex.*
21 See DONALD J. WOLFE,JR.
& MICHAEL A. PITTENGER,
CORPORATE AND COMMER-
CIAL PRACTICE IN’ THE
DELAWARE COURT OF
CHANCERY § 12-7[c] (2007)
("To date, no Delaware court has
had occasion to apply the trust fund
doctrine in a case by a creditor
seeking to recover assets that have
been distributed to the stockholders
of a dissolved or insolvent corpora-
tion....").
22 See [**15] 1SA WILLIAM
M. FLETCHER, CYCLOPEDIA
OF THE LAW OF CORPORA-
TIONS § 7369 (2006) ("Perhaps no
concept has created as much confu-
sion in the field of corporate law as
has the ‘trust fund doctrine.'); see
also Joseph Jude Norton, Relation-
ship of Stockholders to Corporate
Creditors upon Dissolution: Nature
and Implications of the "Trust
Fund" Doctrine of Corporate As-
sets, 30 BUS. LAW. 1061, 1072-77
(1975) (detailing several of the un-
certain features of the trust fund
doctrine).
23. 19 AM. JUR. 2D Corporations
§ 2419 (2007) ("Under the trust
fund doctrine, once a corporation is
dissolved, the property of a dis-
solved business corporation ulti-
mately passes to its stockholders as
the actual owners of such property,
subject, of course, to the payment
of the corporate debts. Thus, under
the trust fund theory, when the as-
sets of a dissolved corporation are
distributed to shareholders, credi-
tors may pursue the assets on the
theory that in equity the assets are
burdened with a lien in the credi-
tor's favor. Stated another way, the
assets of a dissolved corporation
become a trust fund against which
the corporation's creditors have a
claim."); see also 1SA WILLIAM
M. FLETCHER, CYCLOPEDIA
OF THE LAW OF CORPORA-
TIONS § 7369 [**16] (2006) (not-
ing that the trust fund doctrine has
also been applied to hold directors
of a dissolved or insolvent corpora-
tion liable for the debts of the cor-
poration when they breach theirfi-
duciary duty by improperly distrib-
uting the assets of the corporation).
24 See George I. Wallach, Prod-
ucts Liability: A Remedy in Search
of a Defendant--The Effect of a
Sale ofAssets and Subsequent Dis-
solution on Product Dissatisfaction
Claims, 41 MO. L. REV. 321, 328-
35 (1976) (discussing how and why
corporate dissolution statutes and
the trust fund doctrine might co-
exist).
25 This uncertainty is not merely
the result of my after-the-fact
analysis in 2007. The uncertainty
was well-known at the time of
Panex's dissolution. See Joseph
Jude Norton, Relationship of
Stockholders to Corporate Credi-
tors upon Dissolution: Nature and
Implications of the "Trust Fund"
Doctrine of Corporate Assets, 30
BUS. LAW. 1061, 1076 (1975)
("The question arises whether or
not the three year period does in
fact preclude a creditor's claim un-
der the 'trust fund' doctrine subse-
quent to the three year period. On
this point Delaware case lawis si-
lent.").
E. The Creation Of The Panex Liquidat-
ing Trust
After formulating the Liquidation
{**17] Plan, disclosing its details in the
Proxy Statement, obtaining stockholder
approval, andfiling its certificate of dis-
solution, the next step in Panex's liquida-
tion process was the execution of the
Liquidating Trust Agreement on Sep-
tember 12, 1985. The Liquidating Trust
Agreement named Rosenbloom and Gal
as the original trustees of the Liquidating
Trust. * Within a short period, Lazare
succeeded Gal as a trustee of the Liqui-
dating Trust. ~ The Liquidating Trust
Agreement created a trust that was
strictly limited in its purpose, the assets
it received, the distributions it could
make, and its duration. The Liquidating
Trust was
established for the sole pur-
pose of holding the Assets
transferred to it by Panex on
behalf of the Beneficiaries,
enforcing the rights of the
Beneficiaries thereto, collect-
ing income thereon,satisfying
any andall liabilities of Panex
which are not paid or other-
wise discharged, distributing
the Trust Property to the
Beneficiaries, and taking such
other action as is necessary to
conserve andprotect the Trust
Property and to provide for
the orderly liquidation of any
and all of the Assets. *
The only assets the Liquidating Trust re-
ceived from Panex were any [**18] as-
sets not readily distributable to the
stockholders in kind, assets held on be-
half of stockholders who could not be
located, and "$ 6 million as a reserve for
possible contingent or other liabilities
which may arise during or after con-
summation of the [Liquidation] Plan.” »
The trustees of the Liquidating Trust
were required to pay overto the benefi-
ciaries a distribution at least once annu-
ally "provided, however, that no distri-
bution shall be madeto the Beneficiaries
without first satisfying or adequately
providing for (i) a reserve for all known
or possible contingent or otherliabilities,
(ii) a reserve for reasonable expensesin-
curred or to be incurred by the Trustees,
and (iii) a reasonable reserve for pay-
ments to be paid to Missing Beneficiar-
ies." »
26 Jameson Aff. Ex. 1 ("Trust
Agreement") at 1.
27 Rosenbloom, 766 A.2d at 454;
see also Trust Agreement P 6.1
(designating Lazare as the succes-
sor trustee to Gal if Gal were un-
able to serve as trustee for any rea-
son).
28 Trust Agreement P 3.1 (em-
phasis added).
29 Id. at Ex. AP 3.
30 Trust Agreement P 3.2.
Byits express terms, the Liquidating
Trust was required to terminate within
three years after it was established ex-
cept in certain [**19] circumstances. ™
One of those circumstances required
“that this Trust Agreement shall con-
tinue to exist for a reasonable period be-
yond three years from the date of this
Trust Agreementfor the limited purpose
of discharging any knownliabilities of
the Trust or of Panex orliabilities of the
Trust or of Panex which the Trustees
have reasonable grounds to believe may
be asserted, but in no event [*770] be-
yond 12 years from the date hereof." »
31 Id. P8.1
32 Id. (emphasis added).
Panex made distributions of ap-
proximately $ 64 million to its stock-
holders between the time the Liquidation
Plan was approved in September 1984
and the Liquidating Trust was created
and funded with $ 6 million in Septem-
ber 1985. By July 1987, the statute of
limitations for an IRS audit of Panex's
1982 and 1983 tax returns had run. *
That development, when combined with
the absence of any other knownor sus-
pected Panex liabilities, prompted the
trustees of the Liquidating Trust to dis-
tribute approximately $ 4.5 million to
Panex's former stockholders in July
1987. *
33. Rosenbloom, 766 A.2d at 455.
34 Tutu Wells, 885 F. Supp. at
781; Rosenbloom, 766 A.2d at 455.
The Virgin Islands alleges that
Goldman Sachsreceived a total [**20]
of approximately $ 9 million in liquidat-
ing distributions from Panex and the
Liquidating Trust. » An opinion from the
U.S. District Court for the Virgin Islands
details the liquidating distributions.
That decision indicates that Goldman
Sachs received $ 9.3 million in liquidat-
ing distributions from Panex in 1984 and
1985. » In 1987, Goldman Sachs re-
ceived a $ 617,000 distribution from the
Liquidating Trust. *
35. Am. Compl. PP 30-31.
36 Tutu Wells, 885 F. Supp. at
781.
37 Id.
38 Id.
F. The Discovery Of Potential Environ-
mental Liabilities In New York And The
Extension Of The Liquidating Trust
In April 1988, approximately five
months before the three-year period for
the existence of the Liquidating Trust
expired, the trustees received notice that
Panex, as the former parent of Rochester
Button, was a potentially responsible
party for alleged environmental con-
tamination in New York. » As a result,
the Liquidating Trust remained in exis-
tence beyond its expected three-year du-
ration for the limited purpose of dis-
charging the potential liabilities related
to that environmental contamination.
Under the Trust Agreement, a specific
purpose extension was the only exten-
sion available to the trustees. [**21]
The mechanics and details of the exten-
sion of the Liquidating Trust, however,
remain a mystery as the court has notre-
ceived any documentation on the exten-
sion of the Liquidating Trust. «
39 See Rosenbloom, 766 A.2d at
455, see also New York v. Panex
Indus., Inc., 1997 U.S. Dist. LEXIS
15860, 1997 WL 627635 (W.D.N.Y.
1997) (one of several decisionsre-
sulting from and detailing the al-
leged environmental violations in
New York).
40 See supra notes 31 -32 and ac-
companyingtext.
41 Counsel for Goldman Sachs
acknowledged the lack of any
documentation on the extension of
the Liquidating Trust at oral argu-
ment -- "What I don't know is
whether there is a document ex-
tending the trust from three to 12..
. . -- I don't believe -- if it exists,
it's not in the papers that we've
supplied the Court." Tr. Of Oral
Arg. On Def's Mot. To Dismiss
(Sept. 27, 2007) at 32. Gaps such
as this illustrate the predicament
Goldman Sachsfaces as a result of
the Virgin Islands’ tardiness.
Goldman Sachs, which had no ac-
tive role in the administration of
the Liquidating Trust, is being
forced to recreate and defend ac-
tions taken by trustees over twenty
years ago.
G. Panex Is Sued In The Virgin Islands
And Learns Of The Contamination Of
The Tutu [**22] Aquifer
There is a large aquifer under St.
Thomasin the U.S. Virgin Islands. That
aquifer is the source of potable water for
most [*771] of that island. In July
1987, a private citizen detected the
aroma of gasoline in his well, which
drew from the Tutu aquifer. « That event
inspired the filing of a lawsuit in 1989
(the "VI Environmental Litigation"). «
Theplaintiffs in that first action were the
owners and operators of the wells that
the Department of Planning and Natural
Resources of the Territory of the Virgin
Islands ordered closed after the discov-
ery of the contamination. « Those plain-
tiffs sued several oil companies and
businesses operating on St. Thomas,in-
cluding Esso Standard Oil, S.A. and
Texaco,Inc. “
42 Tutu Wells, 846 F. Supp. at
1249,
43 Id. at 1250.
44 Td.
45 Id.
In 1992, four years after the Liquidat-
ing Trust had byits terms ceased to exist
for any purpose other than discharging
any potential liabilities in New York,the
trustees of the Liquidating Trust first
learned that the Laga Facility was being
accused of contributing to contamination
of the Tutu aquifer.
The source of the claim was itself
somewhatsurprising." By 1992, the Vir-
gin Islands had owned the Laga Facility
for [**23] eleven years, having bought
it from Panex Co., a partnership with
Lazare and Gal as its only partners, in
1981 for $ 1.3 million. « Yet, in the pe-
riod when the Facility was underits do-
minion and control, the Virgin Islands
never informed Panex (during its exis-
tence) or the Liquidating Trust (thereaf-
ter) that the Laga Facility was suspected
of having polluted the Tutu aquifer.
Indeed, the Virgin Islands did not even
make such a claim in 1992.
46 Am. Compl. PP 15-16; Bou-
chard Aff. Ex. J ("Virgin Islands
Brief to the Third Circuit") at 7.
47 Notifying Panex Co. would
have put both Panex and the Liqui-
dating Trust on notice because
Lazare and Gal were the only own-
ers of Panex Co. Lazare and Gal
were officers of Panex and one of
them served asa trustee of the Liq-
uidating Trust at all times during
its existence.
Rather, the Liquidating Trust learned
that the Laga Facility was being targeted
as a potential source of pollution of the
Tutu aquifer when the plaintiffs in the
VI Environmental Litigation amended
their complaint to allege that the Laga
Facility had also contributed to the pol-
lution of the Tutu aquifer. The plaintiffs
sued Panex, as the former owner of the
Laga Facility, and Lazare [**24] and
Gal, in their capacity as former directors
and officers of Panex, seeking to hold
them responsible under the Comprehen-
sive Environmental Response, Compen-
sation, and Liability Act ("CERCLA")
and under common law tort theories. “
The existing defendants also filed cross-
claims against Panex, Lazare, and Gal,
alleging they should bear their propor-
tionate share of liability for clean-up
costs. ”
48 Tutu Wells, 846 F. Supp. at
1250. In addition to the CERCLA
claims, there were claims under the
Resource Conservation and Recov-
ery Act ("RCRA"). I will refer to
the CERCLA and RCRA claims
collectively as the CERCLAclaims
becausethis 1s consistent with prior
decisions and the RCRA claims
were ultimately dismissed with
prejudice. See Tutu Wells, 994 F.
Supp. at 660.
49 Tutu Wells, 846 F. Supp, at
1251.
The emergence of the Virgin Islands
claimsalso put the trustees of the Liqui-
dating Trust in an awkwardposition. As
of 1992, the trustees were Lazare and
Rosenbloom.» Both of them were direc-
tors of Panex when it was an operating
entity. Lazare was an officer of Panex
[*772] and its predecessor companies
and wasalleged to have had control over
the operations at Laga. » As a result,
Lazare faced [**25] potential liability if
he was personally involved in directing
the polluting activities at Panex facili-
ties, a liability exposure that flowed out
of his official positions, but that ulti-
mately turned on his behavior in his of-
ficial corporate capacities, and not sim-
ply his status as a formerofficer and di-
rector.
50 Rosenbloom, 766 A.2d at 454.
S51. Tutu Wells, 994 F. Supp. at
666-75.
H. The Liquidating Trust Litigation
By 1994, there was environmental
litigation pending in New York regard-
ing Rochester Button (the "NY Envi-
ronmental Litigation"), and environ-
mental litigation pending in the Virgin
Islands regarding the Laga Facility. In
the NY Environmental Litigation, the
defendants related to Panex included
Panex; the Liquidating Trust; Rosen-
bloom and Lazare astrustees of the Liq-
uidating Trust; and Lazare, Gal, Fir-
manco, and Goldman Sachs as distrib-
utees of Panex's assets. * In the VI Envi-
ronmental Litigation, although the Liq-
uidating Trust would not be added as a
defendant until 1996, * it was paying
litigation defense costs for Panex,
Lazare, and Gal. *
52 New York v. Panex Indus.,
Inc., 1997 U.S. Dist. LEXIS 15860,
1997 WL 627635 (W.D.N.Y. 1997).
53 See Tutu Wells, 994 F. Supp.
at 646.
54. Tutu Wells, 885 F. Supp. at
782.
Of [**26] course, by the time even
the Rochester Button issue emerged in
1988, the Liquidating Trust had already
distributed most of the funds in its pos-
session, because the trustees were un-
aware that any liabilities existed that re-
quired retention of the funds. * The NY
Environmental Litigation started the
Liquidating Trust's funding problem and
the later emergence of the VI Environ-
mental Litigation compounded that
problem. The Liquidating Trust simply
did not have sufficient funds to mount
an effective defense to the environ-
mental claims. Furthermore, the Liqui-
dating Trust was only three years away
from the twelve-year deadline on its ex-
istence.
55 Id. at 781.
The funding issue cameto the surface
in 1994 when the Liquidating Trust filed
an action in this court to “obtain a de-
termination as to the proper distribution
of the trust assets under Delaware law."
* Specifically, the trustees were seeking
approval to pay $ 600,000 to cover
Panex, Lazare, and Gal's share of a set-
tlement reached with certain plaintiffs in
the VI Environmental Litigation. *
56 Id. at 783.
57 Tutu Wells, 885 F. Supp. at
782-83; see also In re Tutu Wells
Contamination Litig., 157 F.R.D.
367, 372 (D.V.I. 1994).
Various other [**27] parties to the
VI Environmental Litigation, including
the Virgin Islands Department of Educa-
tion, which owned the Laga Facility,
moved in that litigation to preliminarily
enjoin the Liquidating Trust from pro-
ceeding with its petition in the Court of
Chancery. * The moving parties were
concerned that the payment of the set-
tlement would exhaust the Liquidating
Trust's assets. » The U.S. District Court
for the Virgin Islands granted the re-
quested injunction, and the Court of
Chancery proceeding was suspended.
58 Id. at 372-73.
59 Id. at 373.
Those same parties later moved for a
permanent injunction prohibiting the
trustees of the Liquidating Trust from
proceeding in the Court of Chancery to
obtain [*773] instructions regarding the
disbursement of the Liquidating Trust's
assets. “ In April 1995, the U.S. District
Court for the Virgin Islands granted the
permanent stay and enjoined the Liqui-
dating Trust and its trustees from dis-
bursingits assets. *
60 See Tutu Wells, 885 F. Supp.
at 777-78.
61 Id. at 791-92,
By that time, the District Court had
dismissed all the common law claims
against Panex, Lazare, and Gal for rea-
sons that bear quotation:
In light of [Delaware Gen-
eral Corporation Law Section
278], [**28] this court must
conclude that under Delaware
law, the common law claims
against Duplan, re-
incorporated as Panex, Indus-
tries, Inc., may not be main-
tained and must be dismissed.
To the extent[] the com-
plaints state claims against
Lazare and Galin their capac-
ity as officers, directors, or
stockholders of Duplan and
Panex,Inc. [sic], these claims
must also be dismissed under
section 325(b) of the Dela-
ware General Corporation
Law. *
At that time, the U.S. District Court for
the Virgin Islands, however, refused to
dismiss the CERCLA claims becauseit
found that CERCLA preempted the
Delaware corporate dissolution and ca-
pacity statutes. *
62 Tutu Wells, 846 F. Supp. at
1280.
63 Id. at 1277, see also In re Tutu
Wells Contamination Litig., No.
95-7280, slip op. at 12-13 (3d Cir.
1995).
By 1995, however, the U.S. Court of
Appeals for the Third Circuit had issued
a decision in Witco Corp. v. Beekhuis
holding that CERCLA did not preempt
state capacity statutes like $ 325(b). «
Therefore, Panex, Lazare, and Gal re-
newed their request for dismissal of the
CERCLA claims, arguing that the Dis-
trict Court's own logic in dismissing the
common law claims now applied to the
CERCLAclaimsas well.
64 38 F.3d 682 (3d Cir. 1994).
The [**29] U.S. District Court for
the Virgin Islands acknowledgedthat it
could not rest its refusal to dismiss the
CERCLA claims on the ground that
CERCLApreempted §$ 278 and 325(b).
But, it refused to extendits reasoning for
dismissing the common law claims to
the CERCLA claims, relying upon its
interpretation of an intervening decision
of the Delaware Supreme Court in City
Investing Co. Liquidating Trust v. Con-
tinental Casualty Co. * The District
Court read City Investing as standing for
the broad proposition that the creation of
a Liquidating Trust for any purpose has
the effect of extending the winding-up
period of the dissolving corporation for
any potential liability that surfaces dur-
ing the Trust's existence. « Under its
reading, the District Court found that
“because of the existence and activities
of the Liquidating Trust, the predecessor
corporation [i.e., Panex], has the attrib-
utes of a corporation in dissolution, with
the capacity to sue and be sued." «
Therefore, because under this view
Panex wasstill in the winding-up period
and it still had the capacity to sue and be
sued, the District Court held that the
CERCLAclaims against Panex were not
barred by [*774] DGCL § 278. « Relat-
edly, [**30] because Panex could still
be sued, the District Court rejected
Lazare and Gal's argument that because
Panex's ability to be sued had expired,
no judgmentcould be had against Panex
and therefore claims against them for
Panex's liabilities were barred by §
325(b).
65 Tutu Wells, 885 F. Supp. at
784-85 (citing City Investing, 624
A.2d 119] (Del. 1993)). Although
City Investing was not intervening
in a purely temporal sense, it was
intervening in a practical sense be-
cause it was decided only a few
months before the District Court's
prior decision dismissing the com-
mon law claims against Panex,
Lazare and Gal and was not ad-
dressedin that decision.
66 Id. at 784.
67 Id.
68 Id.
Panex, Lazare, and Gal, in their ca-
pacity as former officers or directors of
Panex, appealed. The Virgin Islands,
which had still yet to sue over Laga,
leapt into the appeal as an amicus
against Panex, Lazare, and Gal. * It was
unsuccessful in seeking to have the
Third Circuit sustain the District Court's
ruling.
69 The Virgin Islands filed an
amicus brief supporting one of the
appellees in the Third Circuit ac-
tion because it was concerned that
if the injunction were overturned
and the Liquidating Trust was al-
lowed to terminate, [**31] the
Virgin Islands, as the current
owner of the Laga Facility, could
be held responsible for the con-
tamination at the Laga Facility.
Virgin Islands Brief to the Third
Circuit at 32.
In In re Tutu Wells Contamination
Litigation ("Tutu Wells"), » the U.S.
Court of Appeals for the Third Circuit
reversed the District Court's decision,
holding "that no judgment can be ob-
tained against the dissolved corporations
and therefore no claims can be main-
tained against their former officers or
directors." " The Third Circuit's reason
for dismissing the CERCLA claims was
the same as the District Court's reason
for dismissing the common law claims:
1) the dissolved corporations (Panex and
its predecessors) lacked the capacity to
be sued by operation of § 278 of the
DGCL; and 2) therefore, the claims
against the directors and officers of
those dissolved corporations must be
dismissed because § 325(b) requires a
judgmentagainst the corporation be ob-
tained before a suit may be brought
against any director or officer. ” In
reaching its conclusion, the Third Circuit
disagreed with the District Court's inter-
pretation of City Investing. The Third
Circuit found that although City Invest-
ing stood for the [**32] proposition that
a liquidating "trust could be sued so long
as it exists" -- meaning that suits against
the trust itself were not subject to the
limitations period of § 278 -- the corol-
lary to that proposition was that "the dis-
solved corporation cannot be sued
whether or not the trust continues” be-
causeit lost capacity to sue or be sued at
the end of the § 278 winding-up period.
70 No. 95-7280, slip op. (3d Cir.
1995).
71° Id. at 17.
72 Id. at 15.
73° Id. at 14-15.
Because one of the considerations
relevant to the issuance of an injunction
is the effect the injunction will have on
third parties, the Virgin Islands spent a
section of its amicus brief to the Third
Circuit arguing that the District Court's
injunction precluding procession of the
Chancerylitigation seeking instructions
as to the distribution of the Liquidating
Trust would not prejudice the former
stockholders of Panex. * That section of
the brief presupposed that the parties
seeking to hold Panex, Lazare, and Gal
liable would prevail on the merits, which
was necessary for the injunction below
to be sustained.
74 Virgin Islands Brief to the
Third Circuit at 21-25.
Based on that presupposition, the
Virgin Islands argued that there [**33]
was no prejudice to former Panex stock-
holders because the trust fund doctrine
supposedly rendered the former stock-
holders of Panex liable for debts of
Panex, but only to the extent that they
possessed assets that were "identifiable
[*775] and traceable" to a distribution
from Panex. * According to the Virgin
Islands, "the creditors of [Panex] may
retrieve th{o]se assets to satisfy the li-
abilities of Panex for environmental
harm caused by the corporation's activi-
ties prior to dissolution." * In other
words, because the stockholders would
be on the hook for the Virgin Islands'
environmental claims if the Liquidating
Trust could not satisfy them, the former
Panex stockholders were not prejudiced
by preserving the Trust's (already inade-
quate) assets for use for that purpose.
Likewise, because the Virgin Islands
viewed applicable law as imposing a fi-
duciary obligation on the trustees of the
Liquidating Trust toward "future contin-
gent creditors" of the dissolved Panex,it
argued that the injunction was not unfair
to them. ”
75 Id. at 24.
76 ld.
77 Id.
Hewingclosely to its task, the Third
Circuit eschewed addressing these ar-
guments. Having found that the injunc-
tion had to be vacated because the
claims [**34] against Panex, Lazare,
and Gal had to be dismissed on the mer-
its, the Third Circuit had no occasion to
address the part of the equitable calculus
relevant to the issuance of an injunction
addressing the interests of third parties.
Having lost on the merits, the Virgin Is-
lands lacked the essential foundation for
even calling upon the court's equitable
powers. Moreover, the injunction below
wasnot premised on any claim against a
party in its capacity as a former Panex
stockholder. Even as to Lazare and Gal,
who were former Panex stockholders,
the only claims on which the injunction
rested were against them in their capac-
ity as former directors and officers of
Panex, not against them in their capacity
as former stockholders. Thus, for these
two independent reasons, the Third Cir-
cuit had no need to and therefore did not
address the viability of any claims
against former stockholders of Panex for
liabilities of that dissolved corporation. *
78 Tutu Wells, No. 95-7280, slip
op. at 16-17.
I. The Fate Of The NY Environmental
Litigation
Meanwhile, the U.S. District Court
for the Western District of New York,
unlike the Third Circuit, did have occa-
sion to address the viability of trust fund
doctrine [**35] claims against the for-
mer stockholders of Panex in the NY
Environmental Litigation. The defen-
dants in the NY Environmental Litiga-
tion included Lazare, Gal, Firmanco, and
Goldman Sachs as former stockholder-
distributees. In an October 1997 deci-
sion, Judge Elfvin granted the stock-
holder-distributees' motion to dismiss
New York's trust fund doctrine claims
against them. ” In doing so, the District
Court's reasoning was: "that the trust
fund doctrine is inapplicable to a dis-
solved Delaware corporation subsequent
to the three-year period provided in sec-
tion 278 and that the State's action under
CERCLAagainst the Panex Distributees
is barred by section 325(b)." ©
79 New York v. Panex Indus.,
Inc., 1997 U.S. Dist. LEXIS 15860,
1997 WL 627635, at *3-4
(W.D.N.Y. 1997).
80 1997 U.S. Dist. LEXIS 15860,
[WL] at *3.
J. The Establishment Of The Successor
Trust
Under the Liquidating Trust Agree-
ment by which the Liquidating Trust
was formed, the Liquidating Trust had a
maximum life span of twelve years,
which would end on September 12,
1997. As that [*776] deadline ap-
proached, the VI and NY Environmental
Litigations were still pending. The trus-
tees of the Liquidating Trust were
named personally as defendants in each
of those suits. * The Trust itself had a
rapidly [**36] shrinking pot of cash to
use to defend claims and to seek out
coverage from the dwindling Panex in-
surance policies that had been trans-
ferredto it.
81 See Tutu Wells, 994 F. Supp.
at 646; New York v. Panex Indus.,
Inc., 1997 U.S. Dist. LEXIS 15860,
1997 WL 627635 (W.D.N.Y. 1997).
Facing the deadline for the termina-
tion of the Liquidating Trust, the trustees
petitioned the Court of Chancery in 1996
for an order authorizing them to termi-
nate the Liquidating Trust. * Several par-
ties, including the Virgin Islands, ob-
jected to the termination of the Liquidat-
ing Trust because they had unliquidated
claims against the Liquidating Trust.
The petition to terminate was warmly
contested and eventuated in twooral ar-
guments. The second of those oral ar-
guments was held August 27, 1997 --
only two weeks before the absolute ter-
mination of the Liquidating Trust. By
that time, the objecting parties’ key ob-
jective was to seek to have the court cre-
ate a successor trust to the Liquidating
Trust.
82 Tutu Wells, 994 F. Supp. at
648.
The looming deadline put the court in
a precarioussituation and the court acted
consistent with the flexibility and pru-
dence characteristic of a court of equity.
If the court terminated the Liquidating
Trust, [**37] it risked precluding the
objecting parties, such as the Virgin Is-
lands, from being able to present claims
against the Liquidating Trust based on
the argumentthat the Trust was Panex's
legal successor and liable for its debts.
Likewise, the objecting parties had for-
mulated the contention that the Liquidat-
ing Trust itself could assert claims for
recoupment against recipients of distri-
butions from it (and in a more strained
argument, Panex) in order for the Trust
to satisfy debts to claimants against it
(such as New York and the Virgin Is-
lands). If the Liquidating Trust waster-
minated, no judgment could be entered
against it, and therefore recovery theo-
ries dependent on the entry of a judg-
ment against it would be precluded. On
the other hand, the court also faced the
dangerof hastily affirming the objectors’
theories of recovery if it shaped an order
that appeared to validate their view of
the law. With its back against the wall as
a result of the impending deadline for
the termination of the Liquidating Trust,
and having norational time frame within
whichto address the competing views of
the Trustees and the objectors regarding
the extent to which distributees from the
Trust and [**38] Panex could be held
responsible at the late date of September
1997 for liabilities of the long-ago dis-
solved Panex, the court shaped an order
that preserved the status quo as to the
interested parties’ rights.
The court accomplished that goal by
establishing the Successor Panex Indus-
tries, Inc. Stockholders Liquidating
Trust first by bench ruling on August 27,
1997 and later by Order dated Septem-
ber 30, 1997, as amended October 10,
1997. » The "Successor Trust Order" is
very specific about what it did and did
not do. The Successor Trust Order stated
that "the Successor Panex Trust shall be
established as the successor entity to the
[Liquidating] Trust and Panex, Inc. and
will succeed to and acceptthe assets, li-
abilities, rights, interests, and standing of
the [Liquidating] Trust and Panex, Inc.
as of September 12, 1997." « Beyond ac-
cepting the assets, liabilities, [*777]
and standing of Panex and the Liquidat-
ing Trust as of that date, the Successor
Trust Order detailed several specific
purposes and capacities of the Successor
Trust, including two which are relevant
to this case: (1) "to serve as the succes-
sor entity to the [Liquidating] Trust and
Panex, Inc. in continuing to litigate, de-
fend [**39] against, have judgment en-
tered against it on, and/or settle claims
brought against it by Petitioning Claim-
ants in the [NY and VI] Environmental
Litigations" and (2) "to investigate,
evaluate and, if desirable, to institute,
assert and/orsettle litigation at the ex-
pense of and on behalf of the Successor
Panex Trust for recoupment of distribu-
tions made by Panex,Inc. to its share-
holders . . . and distributions made by
the [Liquidating] Trust to the former
stockholders of the then dissolved
Panex,Inc." *
83 See Rosenbloom, 766 A.2d at
452.
84 Jameson Aff. Ex. 3 ("Succes-
sor Trust Order") at 3-4 (emphasis
added).
85 Id. at 4-5.
Whatis critical about the Successor
Trust Orderis that it took absolutely no
position on whether viable claims ex-
isted as of September 12, 1997 against
the Liquidating Trust, or by the Trust or
any other party against distributees from
the Liquidating Trust or Panex. It only
vested in the Successor Trust whatever
rights and responsibilities the Liquidat-
ing Trust had as of September 12, 1997
as to the NY and VI Environmental Liti-
gations -- whatever they were, if any.
Similarly, the Successor Trust Order did
not determine that the Liquidating Trust
had viable recoupment [**40] claims
against distributees as of September 12,
1997, it simply vested in the Successor
Trust whatever rights the Liquidating
Trust had, if any, to pursue such claims.
86 Judge Elfvin of the U.S. Dis-
trict Court for the Western District
of New York recognized this. In
his 1997 decision rejecting New
York's argumentthat the Successor
Trust Order established the viabil-
ity of New York's trust fund claims
against the Panex stockholder-
distributees, he observed: "the Sep-
tember 30th Order makes no find-
ing with respect to the substance of
the plaintiffs’ claims against Panex,
the [Liquidating] Trust or the Suc-
cessor Trust." New York v. Panex
Indus., Inc., 1997 U.S. Dist. LEXIS
20774, 1997 WL 805419, at *1
(W.D.N.Y. 1997).
Because the existing trustees of the
Liquidating Trust were defendants in the
NY and VI Environmental Litigations
and recipients of a significant portion of
the liquidating distributions that might
be subject to recoupment, the Successor
Trust Order appointed an independent
trustee, Michael DeBaecke (the "Succes-
sor Trustee"), and gave him the authority
necessary to carry out the purposes of
the Successor Trust. » This put De-
Baecke in the difficult position of ad-
dressing the interests of two competing
{**41] constituencies, the former Panex
stockholders, who wished to putthatill-
fated company out of mind forever, and
the plaintiffs in the NY and VI Envi-
ronmental Litigations, who wished to
obtain judgments holding those former
stockholders, directors, and officers li-
able for Panex's activities at Rochester
Button and Laga.
87 Successor Trust Orderat 5, 12-
13.
The Successor Trust Order was ap-
pealed by the remaining living trustee of
the Liquidating Trust, Rosenbloom, as
well as by the estate of Lazare, who had
died in 1999, * The two issues on appeal
were "whether the Court of Chancery
acted within its authority in establishing
a successortrust to succeed a liquidating
trust which was about to expire on its
own terms" and "whether it was an
abuse of discretion to replace on the
grounds of conflict of interest, the trus-
tees of the liquidating trust upon creation
of a successor trust when the trustees,
who had received a substantial portion
of the [liquidating distributions], had pe-
titioned for instructions [*778] request-
ing termination of the trust which, if
granted, would have denied a remedy to
claimants, and avoided a possible re-
coupment action for the proceeds dis-
tributed." » The Delaware [**42] Su-
preme Court, sitting en banc, affirmed
the Court of Chancery on both issues.
The Supreme Court found that the
"Court of Chancery clearly had the au-
thority to extend the term of the trust in
order to complete its purpose of" » dis-
charging any "liabilities of the Trust or
of Panex which the Trustees have rea-
sonable grounds to believe may be as-
serted." * It went on to conclude that
then-Vice Chancellor (now Chief Jus-
tice) Steele's decision to create a succes-
sor trust that had the benefit of "closing
the door on other claimants" rather than
just extending the existence of the Liq-
uidating Trust was notin error becauseit
did not "in any way compromis[e] the
obligation of the successortrustee to de-
fend" the Successor Trust against the
claims by the existing claimants. » The
Supreme Court also found that the Court
of Chancery did not abuse its discretion
by replacing the interested trustees with
a disinterested trustee. In doing so, the
Supreme Court determined that the Suc-
cessor Trust Order did not establish the
propriety of pursuing the potential re-
coupmentclaims:
Contrary to the Appellants’
argument, the Vice Chancel-
lor specifically and carefully
refrained from deciding
whether [**43] or not a re-
coupmentorrestitution action
would be necessary or appro-
priate, leaving that for further
analysis by the Successor
Trustee. The fact that the
Successor Trustee has initi-
ated such an action does not
mean that his effort is im-
munefrom review. ®
Finally, finding that the issue was not
properly before the Court, the Supreme
Court rejected the former trustees’ at-
tempt to have it delve into the merits of
the potential recoupment claims by de-
termining whether § 325(b) of the DGCL
barred recoupment claims against the
former Panex stockholders.
88 Rosenbloom, 766 A.2d at 453.
89 Id. at 452.
90 Id. at 458.
91 Trust Agreement P 8.1.
92 Rosenbloom, 766 A.2d at 459.
93 Id. at 459-60. In dictum, the
Supreme Court stated that "[bly
deciding to create a successortrust,
the Vice Chancellor necessarily
had concluded that the claims then
pending must survive the termina-
tion of the Panex Trust." Jd. at 459.
This sentence is, as I interpret it,
consistent with my interpretation of
what the Successor Trust Order ac-
complished. That Order did not de-
termine that any pending claim was
viable, it only prevented any pend-
ing claim from being extinguished
by the end of the Liquidating Trust.
As described, [**44] the Succes-
sor Trust Order was an exigent
measure designed to address the
imminent expiration of the Liqui-
dating Trust's life and only gave
the Successor Trust whateverrights
and liabilities of Panex and the
Liquidating Trust as of September
12, 1997. The Successor Trust Or-
der makes no attempt to decide
what those rights and_ liabilities
were; in fact, it assigned the Suc-
cessor Trustee the job of investigat-
ing and acting upon his own an-
swers to those questions.
94 Id. at 462.
K. The 1996 Federal Recoupment
Claims And The 1998 NRDAction
In 1996, while the petition to termi-
nate the Liquidating Trust was pending
in the Court of Chancery, the CERCLA
claims were dismissed against Panex
and Lazare and Galin their capacities as
former directors and officers as required
by the Third Circuit's Tutu Wells deci-
sion. * Combined with the earlier dis-
missal of the common law claims
against these parties, [*779] that dis-
missal left no pending claims against
any of the parties related to Panex in the
VI Environmental Litigation. As a re-
sult, the District Court allowed the oil
companies to amend their third party
complaints to assert claims against the
remaining available parties related to
Panex, including [**45] the Liquidating
Trust, Lazare and Gal in their personal
capacities, and Panex's primary stock-
holders -- Lazare and Gal, Firmanco,
and Goldman Sachs. * The Virgin Is-
lands Department of Education joined in
that amended complaint. ” This was the
first time that the Virgin Islands brought
claims related to the contamination at
the Laga Facility.
95 Tutu Wells, 994 F. Supp. at
645.
96 Id. at 646.
97 Id.
The Virgin Islands' complaint, in
part, asserted "equitable disgorgement"
claims against Panex's former stock-
holders. * Although not explicitly de-
scribed as trust fund doctrine claims, the
equitable disgorgement claims mim-
icked the trust fund doctrine: the claims
asserted that Panex's former stockhold-
ers were liable as "distributees of the as-
sets of Panex and/or the [Liquidating]
Trust .. . up to the amountofthe distri-
butions they . . . received." »
98 Id. at 656-57.
99 Bouchard Aff. Ex. D ("1996
Complaint") PP 76-77.
Firmanco and Goldman Sachs con-
tended that the U.S. [*780] District
Court for the Virgin Islands did not have
jurisdiction over them. » The Virgin Is-
lands conceded that point and dismissed
the equitable disgorgement claims
against Firmanco and Goldman Sachs.
The claims against the Liquidating
[**46] Trust were dismissed because it
had been replaced by the Successor
Trust while the case was pending and
the District Court concluded that its ju-
risdiction over the Liquidating Trust did
not give it jurisdiction over the newly
created Successor Trust. ™
100 Tutu Wells, 994 F. Supp. at
- 651, 655.
101 Id. at 678.
Lazare and Gal did not fare as well.
The District Court found that factual is-
sues precluded summary judgment on
Lazare and Gal's personal liability under
CERCLA. ™ It also refused to dismiss
the claims against Lazare and Gal as
former Panex stockholders after finding
that the Panex stockholders assumed li-
ability for Panex's environmental liabili-
ties based on the liability warning lan-
guage in the Panex liquidation Proxy
Statement. " Lazare and Gal eventually
settled all claims brought against them
by the Virgin Islands. * But Lazare and
Gal were differently situated than
Goldman Sachs. As the principal man-
agers of Panex and its predecessors who
owned and managed the Laga Facility
from 1968 to 1981, Lazare and Gal
faced responsibility under CERCLA for
their personal involvementin the pollut-
ing activities that allegedly occurred at
the Laga Facility.
102 Id. at 657, 664-75.
103. Id. at 675-77. [**47] In so
holding, the District Court relied
on precedent analyzing a liquida-
tion agreement, but elided the fact
that the Proxy Statement was a dis-
closure documentrather than an ac-
tual liquidation agreement.
104 Tr. Of Oral Arg. On Def's
Mot. To Dismiss (Sept. 27, 2007)
at 82.
Once the 1996 recoupment claims
against the Liquidating Trust had been
dismissed, the Virgin Islands continued
in its quest to hold Panex liable for the
contamination at Laga. In September
1998, seven months after the dismissal
of the claims against the Liquidating
Trust, the Trustee for Natural Resources
of the Virgin Islands filed a complaint in
the U.S. District Court for the Virgin Is-
lands against the Successor Trust, Suc-
cessor Trustee, Lazare, Gal, and several
oil companies and businesses operating
on St. Thomas, including Esso and Tex-
aco (the "NRD Action" whichis also in-
cluded in the broadly defined "VI Envi-
ronmental Litigation"). That complaint
sought damagesfor injuries to the Virgin
Islands’ natural resources.
105 Am. Compl. P 43; Virgin Is-
lands Ans.Br.at 6.
L. The Successor Trustee Unsuccess-
fully Seeks Restitution From The Dis-
tributees Of The Liquidating Trust
In 1998, having investigated the re-
coupment [**48] claims as instructed in
the Successor Trust Order, the Successor
Trustee filed a petition in the Court of
Chancery requesting a declaratory
judgment that the Successor Trust was
entitled to restitution of the monies dis-
tributed from the Liquidating Trust to its
beneficiaries. * The petition did not al-
lege that the distributees were boundto
pay to the Trust the distributions they
received from Panexitself, only the dis-
tributions they received from the Liqui-
dating Trust after Panex dissolved. ” In
the alternative, the petition requested a
declaratory judgment that the former
trustees of the Liquidating Trust --
Rosenbloom and Lazare -- had breached
their fiduciary duties by failing to obtain
an express undertaking from the benefi-
ciaries that they would return distribu-
tions from the Liquidating Trust if re-
quested by the trustees to meet obliga-
tions of the Trust, and that therefore the
former trustees were liable for the
amount not returned by the distributees.
» This petition was obviously supported
by the Virgin Islands and New York,
whichassisted the Successor Trustee in
crafting it.
106 Bouchard Aff. Ex. E ("1998
Petition For Declaratory Judg-
ment") at 1.
107 Td. at 15.
108 Id. at 1.
In [**49] 2001, this court denied the
petition for a declaratory judgment on
restitution because the petition was pro-
cedurally defective and requested further
briefing before ruling on the fiduciary
duty claims. » A key procedural defect
cited by the court wasthe failure of the
Successor Trustee to join the distributees
-- that is, the former Panex stockholders
-- as parties, because the relief requested
so directly affected their interests.
109 Then-Vice Chancellor (now
Justice) Jacobs ruled that "the peti-
tion fails procedurally, and, there-
fore, will be dismissed, as far as the
claims against the distributees are
concemed." Tr. Of Oral Arg. On
Mot. To Dismiss, Pet. For Decl. J.,
Mot. To Strike, and Ruling Of The
Ct. (Aug. 14, 2001) at 131. He also
found that he was "notin a position
to rule" on "the claims against the
former trustees" and requested that
those claims be "repackaged into a
much more compactset of briefs."
Id. at 132. The record in this case is
unclear on whether those fiduciary
duty claims were ever pursued.
110 7d. at 131-132 (noting that the
petition for declaratory judgment
was procedurally defective because
it was not prosecuted in "the way a
normal in personam lawsuit
[**50] would proceed" and be-
cause it failed to join all the dis-
tributees).
M. The Successor Trust's Lack Of Funds
Causes It To Suffer A Default Judgment
In The VI Environmental Litigation
After receiving this adverse ruling,
the Successor Trustee did not attempt to
cure the defects identified by this court
by adding the former Panex stockholders
as parties. Instead, the Successor Trustee
soldiered on, trying to marshal resources
to defend the NY and VI Environmental
Litigations. The former Panex stock-
holders [*781] were not volunteering to
provide the Successor Trust with funds
for that purpose. And insurance adequate
to fund a defense of both actions was
unavailable.
Despite the dearth of fundsor insur-
ance to coverlitigation costs, the Virgin
Islands continued to press its environ-
mental claims against the Successor
Trust in the VI Environmental Litiga-
tion. Penniless and facing the expensive
task of defending claims based on con-
duct by Panex before 1981, the Succes-
sor Trustee had only one real option --
default. In April 2005, the U.S. District
Court for the Virgin Islands entered a
default judgment for $ 51.6 million
against the Successor Trust in the envi-
ronmentallitigation filed by the Virgin
(**51] Islands. ™
111 Jameson Aff. Ex. 5 at 2.
The Virgin Islands appears to have
been fortunate to obtain a default judg-
ment as opposedto having tolitigate the
merits of its claims. Otherwise, it would
have faced questions about how it had
owned the Laga facility since 1981 but
did not itself discover the alleged con-
tamination of its land and an important
aquifer. Moreover, the Virgin Islands
would have been forced to explain its
own activities at the Laga Facility be-
tween 1981 and the discovery of the
contamination in 1987. In his 1998 deci-
sion in the VI Environmental Litigation,
Judge Brotman raised substantial con-
cerns about the Virgin Islands’ role in
the contamination:
[T]here is still some ques-
tion as to whether the chemi-
cals used at the Lagasite dur-
ing the time the plant oper-
ated were the sole cause of
the contamination ascertained
there by the EPA. The Court
has already expressed concern
over the existence of many
55-gallon drums behind what
is now knownas [the Virgin
Islands Department of Educa-
tion's] Curriculum Center.
While there is no wayto state
for certain, the existence of
rotting drums of chemicals
may be a factor in, and help
explain, the contamination at
the site. No [**52] appraisal
report prepared in connection
with the sale of the property
mentions any drums, nor were
any chemical drumslisted on
the inventory of items to be
led [sic] on the site, suggest-
ing that the Government may
have placed them there after
they acquired the property.
There is also the allegation in
need of ascertainment that
[the Virgin Islands Depart-
ment of Education] and other
government agencies have
used the open area behind the
main building on the property
to store drums containing
paints, solvents, cleaners,
roofing compounds, insecti-
cides, floor wax, soap, strip-
pers and disinfectants. Ac-
cording to one witness, one
chemical drum had partially
obscured lettering on it read-
ing "V.I. Dept. Of Educ... ,"
and other drums had ontheir
exteriors names of companies
with which [the Virgin Is-
lands Department of Educa-
tion] did business. '”
Judge Brotman's concerns are supported
by the Virgin Islands' less than fervent
denial of its role in the contamination of
the Laga Facility in its own brief to the
Third Circuit:
If the [Liquidating] Trustis
allowed to liquidate, the Vir-
gin Islands Government may
be held liable for any con-
tamination of the aquifer
caused by Laga Industries,
Ltd. [**53] .. . Contrary to
those factual assertions made
or implied by Appellants,
there is evidence including
eyewitness testimony that the
improper disposal of wastes
from the manufacturing proc-
esses utilized by Laga may
have [*782] contaminated
the property prior to the sale
to the Virgin Islands Gov-
ernment. "
112 Tutu Wells, 994 F. Supp. at
672-73 (internal citations omitted).
113 Virgin Islands Brief to the
Third Circuit at 32 (emphasis
added).
N. Requiem For A Successor Trust
By early 2006, the untenable position
of the Successor Trustee was obvious.
He had no funds to defend claims
against the Successor Trust. Nor did he
have funds to pursue claims against the
distributees of the Liquidating Trust.
Even worse, he continued to be
caught between two conflicting sets of
interests. New York and the Virgin Is-
lands wanted the Successor Trust to ex-
ist as a vehicle against which they could
obtain a judgment, so that they could
then use that judgmentas a basis for go-
ing after Panex's former stockholders.
Meanwhile, the former Panex stock-
holders believed that the Successor
Trustee had a fiduciary duty to protect
them against those very claims, which
the former stockholders believed to be
stale and meritless.
In [**54] view of the reality that the
existence of the Successor Trust was
serving noneofits original purposes, the
court entered a stipulated order on Feb-
ruary 9, 2006 terminating its existence.
That order assigned to the Virgin Islands
and New York whatever right the Suc-
cessor Trust had to seek recoupmentof
the distributions made by Panex and the
Liquidating Trust to Panex's former
stockholders to the extent such claims
would satisfy the judgments in the VI
and NY Environmental Litigations. ™ In
all respects, the termination order was
clear that this court was not deciding
that the Successor Trust had rights in
any respect. Rather, the termination or-
der simply gave the appropriate con-
stituencies the chance to provethat, as to
any category of possible rights assigned
to them, that the Successor Trust pos-
sessed currently enforceable rights.
114 Jameson Aff. Ex. 4 ("Succes-
sor Trust Termination Order") P 1.
The recoupmentrights given to New
York would turn out not to be of any
use. In early 2007, the U.S. Court of
Appeals for the Second Circuit upheld
the earlier decisions in the U.S District
Court for the Western District of New
York dismissing New York's trust fund
claims against the stockholder-
distributees [**55] of Panex, agreeing
with the District Court that §§ 278 and
325/b) of the DGCL barredthose claims.
115 Marsh v. Rosenbloom, 499
F.3d 165, 184 (2d Cir. 2007).
O. After Further Delay, The Virgin Is-
lands Re-files Its Long-Shelved Claims
Against Goldman Sachs
As has been mentioned, the Virgin
Islands sued Goldman Sachs in the VI
Environmental Litigation in 1996. In
1998, the Virgin Islands dismissed its
claims against Goldman Sachs without
prejudice. For over eight years, the Vir-
gin Islands did not seek to reinstate its
claims against Goldman Sachs. Even
though the Virgin Islands was active in
the litigation that remained pending in
this court during the entire existence of
the Successor Trust, it never sought to
join Goldman Sachsas a defendant.
But eight months after the Successor
Trust was terminated, on October 30,
2006, the Virgin Islands broughtthis suit
against Goldman Sachs.In its complaint,
the Virgin Islands asserted that it was
bringing its suit in two capacities. The
first capacity was as a creditor of the
Successor Trust, seeking to collect on
the default judgment it had obtained
against the Successor Trust in the VI
Environmental [*783] Litigation. The
second capacity was as an [**56] as-
signee of the Successor Trust's right to
seek recoupment against distributees
from the Liquidating Trust and Panex.
The complaint is comprised of two
formal counts. The first count alleges
that Goldman Sachswill be unjustly en-
richedif it is permitted to keep the liqui-
dating distributions it received in 1984
and 1985 from Panex, and in 1987 from
the Liquidating Trust. This count is sub-
stantively identical to the theory the Vir-
gin Islands used in the VI Environmental
Litigation in 1996 when it first sued
Goldman Sachs. Whether styled as an
equitable disgorgementclaim (the words
used by the Virgin Islands in 1996) or an
"unjust enrichment/trust fund doctrine
claim" «° (the words the Virgin Islands
now prefers), the Virgin Islands’ argu-
ment is identical to what it has always
been. To wit, to the extent that Goldman
Sachs received distributions from Panex
or the Liquidating Trust, it is liable to
return those distributions if a later-
arising claimant obtained a judgment
against a successor to those entities, re-
gardless of when that judgment was ob-
tained or when the claim on which that
judgmentwasentered wasfirst asserted.
116 Virgin Islands Ans. Br. at 21.
The second count is based [**57] on
a related theory. It argues that Goldman
Sachs is estopped from denying its obli-
gation to return the funds it received
from Panex and the Liquidating Trust.
The basis for this estoppel is that the
Proxy Statement warned distributees that
they “may be liable for any unpaid por-
tion of {Panex's] liabilities to the extent
of the liquidating distributions paid to
[them]" if the funds left in the posses-
sion of the Liquidating Trust were insuf-
ficient to discharge all of Panex's liabili-
ties.”
117 Proxy Statementat 6.
II. Procedural Framework
Goldman Sachs has moved to dismiss
the complaint for failure to state a claim
upon whichrelief may be granted. When
addressing a motion to dismiss under
Court of Chancery Rule 12(b)(6), I must
assume the truthfulness of all well-pled
facts in the complaint and draw all rea-
sonable inferences in the light most fa-
vorable to the nonmovingparty, the Vir-
gin Islands. «* But conclusory allegations
that are unsupported by facts contained
in the amended complaint will not be
accepted as true. '° After evaluating the
amended complaint in this manner, I
must dismiss the complaint if the Virgin
Islands would not be entitled to recover
under any reasonable set [**58] of facts
properly supported by the complaint. ™
118 E.g., In re General Motors
(Hughes) S‘holder Litig., 897 A.2d
162, 168 (Del. 2006) (quoting Sa-
vor, Inc. v. FMR Corp., 812 A.2d
894, 896-97 (Del. 2002)).
119 E.g., Hughes, 897 A.2d at 168
(quoting In re Santa Fe Pac. Corp.
S‘holder Litig., 669 A.2d 59, 65-66
(Del. 1995)).
120 E.g., Hughes, 897 A.2d at 168
(quoting Savor, 812 A.2d at 896-
97).
Ii. Legal Analysis
Goldman Sachs' motion to dismiss
puts forth five primary arguments thatit
believes support dismissal of the Virgin
Islands' complaint. The first two argu-
ments are related, in the sense that both
turn on the assertion that $$ 278 and
325(b) of the DGCL bar the claims as-
serted by the Virgin Islands. Thefirst of
these arguments, however, contendsthat
I need not examine what effect those
statutory provisions have on the Virgin
Islands' claims because the Third Cir-
cuit's Tutu Wells decision has already
doneso. That is, Goldman Sachs [*784]
contends that the Third Circuit has al-
ready held, in a proceeding in whichthe
Virgin Islands had an opportunity to
contest the issue, that it cannot bring
claims against Panex, per $ 278, and that
therefore § 325(b) bars claims against
Goldman Sachs, as_ [**59] a former
stockholder of Panex.
Secondarily, Goldman Sachs argues
that even if the Third Circuit's decision
is not preclusive on this issue, its reason-
ing, and the similar reasoning adopted
by the U.S. District Court for the West-
em District of New York and the Second
Circuit in rejecting New York's analo-
gous claims, was sound and supports a
holding that the combined effect of $$
278 and 325(b) of the DGCL is to bar
the Virgin Islands’ claims. The third
category of argumentis similar and rests
on the notion that, just as $§ 278 and
325(b) bar the Virgin Islands’ claimsre-
garding the distributions Goldman Sachs
received from Panex, so too do the spe-
cific terms of the Liquidating Trust
Agreement bar the Virgin Islands’ claim
that Goldman Sachs must return the
funds it received from that Trust. The
fourth category addresses the Virgin Is-
lands' contention that Goldman Sachsis
estopped from denying the Successor
Trust's request for a return of the liqui-
dating distributions from Panex and the
Liquidating Trust. Finally, Goldman
Sachs argues that, irrespective of the
merits, the Virgin Islands’ torpidity in
pressing its claims constitutes laches.
The Virgin Islands’ response to the
arguments [**60] that its underlying
claims lack merit and are barred by la-
ches is predictable: it denies the force of
all of Goldman Sachs’ arguments. The
Virgin Islands' responseto the allegation
that $§ 278 and 325(b) of the DGCL bar
its claims, however, is complex and de-
pendent on its chameleon-like role in
this litigation. " The Virgin Islands, it
must be remembered, purports to bring
claims in two separate capacities. One
capacity is as a CERCLA claimant and
now,by virtue of the default judgment,
as a judgment-creditor. The other capac-
ity is as an assignee of whatever re-
coupment rights the Successor Trust
had.
121 At one pointin its brief, the
Virgin Islands says that § 278 does
not apply because the Successor
Trust is suing itself. Virgin Islands
Ans. Br. at 28.
In its capacity as a judgment-creditor,
the Virgin Islands asserts that its claims
are not barred by § 278 because I should
adopt a version of the trust fund doc-
trine, in a way that is unprecedented in
Delaware. The Virgin Islands claims that
the trust fund doctrine is unaffected by $
278 and § 325(b) and that it allows
creditors of a dissolved corporation,
even those who first bring their claims
after the statutory winding-up period
{**61] has ended, to recoupassets of the
dissolved corporation from its former
stockholders. Alternatively, the Virgin
Islands, also in its capacity as judgment-
creditor, alleges that an extension of the
reasoning in City Investing supports the
proposition that because the Liquidating
Trust was in existence as of the time the
Virgin Islands brought suit in 1996 --
albeit only for purposes entirely unre-
lated to the Virgin Islands' claim -- a
judgmententered against that Trust may
be used as a vehicle to demandthatdis-
tributees of the Liquidating Trust return
distributions they received from Panex
and the Trust, even though the Virgin
Islands did not assert a claim until after
the Liquidating Trust's existence as a
general successor to Panex for liability
purposes had ended.
In its distinct capacity as an assignee
of the rights of the Successor Trust, the
Virgin Islands argues that § 278 does not
bar its claims because § 278 only applies
to suits by or against the corporation and
§ 325(b) does not apply because it only
[*785] applies to suits by a creditor for
a debt of the dissolved corporation. The
Virgin Islands would have this court ig-
nore $§ 278 and 325(b) because Panex
no longer existed and [**62] the Virgin
Islands obtained a judgment against the
Successor Trust. But it would also, in a
self-serving example of inconsistency,
have me ignore that Goldman Sachsre-
ceived most of its distributions in its ca-
pacity as a Panex stockholder, a much
smaller sum as a beneficiary of the Liq-
uidating Trust, and no distributions from
the Successor Trust.
I cannot and do not ignore the impor-
tant issue of the capacity in which
Goldman Sachs received the distribu-
tions at issue. Goldman Sachsfaces po-
tential liability in two distinct capacities,
as a former stockholder distributee of
Panex and as a beneficiary distributee of
the Liquidating Trust. The legal basis for
determining whether Goldman Sachsis
liable is somewhat distinct for each ca-
pacity.
In an attempt to create some sem-
blance of order and clarity, I address the
issues as follows. First, I decide what
issues, if any, are precluded by the Third
Circuit's Tutu Wells decision. Second, I
address the issue of whether the Virgin
Islands has a claim against Goldman
Sachs irrespective of the creation of the
Liquidating and Successor Trusts. Third,
I decide whetherthe Virgin Islands has a
claim against Goldman Sachs because of
the existence of [**63] the Liquidating
and Successor Trusts. Fourth, I take up
the Virgin Islands' estoppel claims. Fi-
nally, I discuss the defense of laches in
reference to all the Virgin Islands’
claims.
A. Which,If Any, Of The Virgin Is-
lands' Arguments Are Precluded By The
Third Circuit's Tutu Wells Decision?
Issue preclusion, also known as col-
lateral estoppel, ” "precludes a party to a
second suit involving a different claim
or cause of action from thefirst from re-
litigating an issue necessarily decided in
a first action involving a party to thefirst
case." * The doctrine of issue preclusion
is commonly used by defendants seeking
to prevent plaintiffs from asserting
claims. * "[T]he preclusive effect of a
foreign judgment is measured by stan-
dards {used by] the rendering forum." »
Goldman Sachs groundsits argument for
issue preclusion on the Tutu Wells deci-
sion of the U.S. Court of Appeals for the
Third Circuit, and thus it must establish
that the following elements of issue pre-
clusion have been met: "(1) the identical
issue was previously adjudicated; (2) the
issue was actually litigated; (3) the pre-
vious determination was necessary to the
decision; and (4) the party being pre-
cluded from relitigating [**64] the issue
was fully represented in the prior ac-
tion." » The Third Circuit's issue preclu-
sion jurisprudence also requires consid-
eration of "whether the party being pre-
cluded had a full and fair opportunity to
litigate the issue in question in the prior
action and whether the issue was deter-
mined by a final and valid judgment." ™
122 E.g., Hendry v. Hendry, 2006
Del. Ch. LEXIS 99, 2006 WL
1565254, at *8 n.77 (Del. Ch.
2006).
123. One Virginia Ave. Condo.
Ass'n of Owners v. Reed, 2005 Del.
Ch. LEXIS 115, 2005 WL 1924195,
at *10 (Del. Ch. 2005).
124 E.g., Nicholson v. Redman,
620 A.2d 858, 1993 WL 22026, at
*] (Del. 1993) (TABLE).
125 Columbia Cos. Co. v. Playtex
FP, Inc., 584 A.2d 1214, 1217
(Del. 1991).
126 Jean Alexander Cosmetics,
Inc. v. L'Oreal USA, Inc., 458 F.3d
244, 249 (3d Cir. 2006) (internal
quotation and citation omitted).
127 Id. (internal quotation and ci-
tation omitted).
The Third Circuit in Tutu Wells held
that § 278 rendered Panex "without[the]
[*786] capacity to be sued well before
[the VI Environmental Litigation] was
commenced." ™ The court found that $
278 of the DGCL "provides that dis-
solved corporations may sue and be sued
for a period of three years from the date
of dissolution." ” Thus, "any suit
brought after that period [**65] must be
dismissed for lack of capacity." ™ After
finding that Panex dissolved in 1985 and
the VI Environmental Litigation was not
commenced until 1989, with Panex not
being joined as third-party defendants in
the litigation until 1992, the court held
that Panex lacked the capacity to be sued
and that the CERCLA claims against
Panex must be dismissed. * The Third
Circuit rejected the argument, based on
City Investing, that the existence of the
Liquidating Trust gave Panex itself the
capacity to be sued. The court concluded
that the City Investing decision only
suggested that the Liquidating Trust
could be sued directly in accordance
with the termscreating it, ™ not that the
existence of the Liquidating Trust ex-
tended the existence of Panex. ™
128 No. 95-7280,slip op. at 15.
129 Id. at 9, 15 (describing the
lower court's findings in Tutu
Wells, 846 F. Supp. 1243, which it
would adopt in makingits ruling).
130 Td.
131 Td.
132 The Third Circuit noted that
under City Investing, a “trust may
be sued so long asit exists" in or-
der to discharge the liabilities
vested in it under the "trust agree-
ment." Jd. at 14. In City Investing,
the Third Circuit realized, the trust
at issue was vested [**66] with all
liabilities of the predecessor corpo-
ration. Id. In this case, the Liqui-
dating Trust of Panex was vested
with all liabilities of Panex for a
period ending three years after the
date of the Trust Agreement-- Sep-
tember 12, 1988 -- and after that,
with only certain discrete liabili-
ties, not including the Virgin Is-
lands’ claimsat issue here.
133 Id. at 15 ("The City Investing
case stands, as well, for the propo-
sition that the dissolved corpora-
tion cannot be sued whether or not
the trust continues.").
The Third Circuit went on to find that
the "claims against Gal and Lazare in
their capacities as former officers and
directors of the dissolved corporations
must . . . be dismissed because no judg-
ment may be obtained against the former
corporations." ™ This conclusion was
based on § 325(b) of the DGCL, which
the court determined required the return
of an unsatisfied judgment against the
corporation before suit could be brought
against any officer or director for any
debt of the corporation.
134 Td.
135 Id. at 9-10, 15; see also Tutu
Wells, 846 F. Supp. at 1280.
The Third Circuit had no occasion to
address the question of whether this
same reasoning applied to protect former
stockholders [**67] of Panex. The rea-
son for that was that Lazare and Gal
were only before the Third Circuit "in
their capacities as former officers or di-
rectors of Laga, Duplan and Panex." ™
Thus, the Third Circuit's holding only
addressed Lazare and Gal's liability as
formerofficers or directors of Panex and
its predecessors: "We will reverse the
injunction and remand with instructions.
. . to dismiss Gal and Lazare, in their ca-
pacities as formerofficers and directors.
. .on the groundthat no judgmentcan be
obtained against the dissolved corpora-
tions and therefore no claims can be
maintained against their former officers
or directors."
136 Tutu Wells, No. 95-7280,slip
op. at 3.
137 Id. at 17.
[*787] As noted previously, ™ the
Third Circuit expressly avoided opining
on certain issues briefed by the Virgin
Islands, which touched on the extent to
which the former Panex stockholders
might be liable to return the distributions
they received if the Virgin Islands
proved that Panex's operations at Laga
caused environmental damage. » These
arguments related only to the question of
whether the injunction, if sustained by
an adequate merits showing, was unfair
to parties not before the court. Because
the [**68] Virgin Islands’ claims against
Lazare and Gal in their capacity as di-
rectors and officers were rejected on the
merits, the Third Circuit did not reach
the collateral arguments relating to
Panex's former stockholders.
138 See supra notes 74-78 and
accompanyingtext.
139 Tutu Wells, No. 95-7280,slip
op. at 16.
Andbecause the Third Circuit did not
issue a determination asto the effect of $
325(b) on claims against former Panex
stockholders, the Tutu Wells decision
cannot have any preclusive effect on that
precise issue. “ It does, however, have a
preclusive effect as to the narrower, and
less controversial, issue of whether a
judgment can be obtained against Panex.
As to that narrow issue, the Virgin Is-
lands hadits turn at bat and swung and
missed. The holding of the Third Circuit
that Panex's ability to be sued expired
three years after its dissolution, per the
clear and unambiguous words of $ 278,
is binding against the Virgin Islands.
140 Issue preclusion does not bar
the litigation of issues upon which
a prior court purposefully reserved
judgment. E.g., In re PCH Assocs.,
949 F.2d 585, 593 (2d Cir. 1991).
In holding that the Third Circuit's
Tutu Wells decision is not preclusive as
to {**69] the issue of the former Panex
stockholders’ liability to the Virgin Is-
lands, I reject Goldman Sachs’ novel "a
fortiori" theory of issue preclusion. Ad-
mitting of the reality that the Third Cir-
cuit only addressed the claims against
Lazare and Gal in their capacities as
former Panex officers and directors,
Goldman Sachs argues that Tutu Wells
nevertheless precludes the Virgin Is-
lands' claims against former Panex
stockholders. Goldman Sachs notes that
the "plain language of Section 325(b)
leaves no doubt that it applies equally to
officers, directors and stockholders" and
that "{ijf officers and directors -- those
who managed the enterprise -- are insu-
lated from personal suit by Delaware
law, then, a fortiori, so too are passive
stockholders like Goldman Sachs." “
This argument ignores the requirement
that issue preclusion only applies when
the issues are identical, “ and that there
is no doctrine of a fortiori issue preclu-
sion. Rather, this type of argument is
really one calling on a later court to rec-
ognize and give important precedential
effect to the reasoning of a prior court
because that reasoning is arguably both
sound and fully applicable to the differ-
ent, but analytically [**70] indistinct,
issue the later court faces.
141 Goldman SachsRep.Br. at5.
142 18 James WM. MOORE ET
AL., MOORE'S FEDERAL PRAC-
TICE § 132.02[2][a] (2006) ("The
doctrine of issue preclusion only
applies when the issues presented
in each matter are identical.").
This case actually illustrates why that
is so. The claims presented in Tutu Wells
against Lazare and Gal as former direc-
tors and officers are arguably different
as a policy matter than the claims pre-
sented here against a former stockholder.
The claims in Tutu Wells were based on
Lazare and Gal's status as directors and
officers. The claims presented in this
[*788] case are premised on the stock-
holders’ (allegedly inequitable) receipt of
distributions from Panex and the Liqui-
dating Trust. Although Goldman Sachs
says that it is clear that a former director
or officer should be more exposed to
post-dissolution liability than passive
stockholders, the grounds for holding
these corporate constituencies responsi-
ble or not are likely to be different. In
the case of former stockholders, the is-
sue is really one of underlying fairness:
should former stockholders be subject to
a restitutionary kind of remedy if they,
through no fault of their own, received
[**71] distributions and the fundsleft in
the corporate coffers turn out to be in-
adequate to cover a later-arising claim?
It may well be that $$ 278 and 325(b)
provide a uniform answer for claims
against directors, officers, and stock-
holders. But I must cometo that deter-
mination freshly, not by pretending that
the Third Circuit already made that de-
termination. “
143. Goldman Sachsalso asserts
that the doctrine of claim preclu-
sion bars the Virgin Islands’ claims.
I find this argument difficult to
fathom. As discussed above, the
Third Circuit did not address the
issue at the heart of this case --
whether a former stockholder of
Panex might be liable to return the
distributions it received if the Vir-
gin Islands proved that Panex's op-
erations at Laga caused environ-
mental damage. Moreover, a key
element of claim preclusion is that
the presently suing party had an
opportunity to bring its current
claims against its adversary in a
prior action and failed to do so,
rendering the judgmentin that prior
action conclusive as to all claims
that could have beenlitigated in the
prior action. E.g., Churchill v. Star
Enters., 183 F.3d 184, 194 (3d Cir.
1999) ("Claim preclusion gives
dispositive effect [**72] to a prior
judgment if a particular issue, al-
though not litigated, could have
been raised in the earlier proceed-
ing.") (internal quotation and cita-
tion omitted). Goldman Sachs was
not a party to the VI Environmental
Litigation at the time of the Third
Circuit decision. Although Gold-
man Sachs was later added as a
party, it was dismissed as a party
without prejudice after it asserted
that personal jurisdiction overit did
not exist in the U.S. District Court
for the Virgin Islands. Therefore,
Goldman Sachs cannot claim that
the final judgmentin the VI Envi-
ronmental Litigation, if there be
one, precludes the claims the Vir-
gin Islands is now bringing. E.g.,
Saudi v. Acomarit Mar. Servs.,
S.A., 114 Fed. App'x 449, 454 (3d
Cir. 2004) (finding that claim pre-
clusion did not apply to a dismissal
without prejudice for lack of per-
sonal jurisdiction because the dis-
missal was neither on the merits
nor a final judgment).
B. Does The Virgin Islands Have A
Claim Against Goldman Sachs Irrespec-
tive Of The Creation Of The Liquidating
And Successor Trusts?
For the sake of analytical clarity, it is
useful to begin the analysis of the merits
with a consideration of whether the Vir-
gin Islands has viable claims [**73]
against Goldman Sachs, irrespective of
the creation of the Liquidating and Suc-
cessor Trusts. In other words, would
Goldman Sachs be on the hook for the
distributions it received from Panex in
1984 and 1985 before Panex dissolved
even though the Virgin Islands did not
assert environmental claims related to
Panex's Laga operations until 1996,
many years after Panex's three-year
post-dissolution existence under § 278
expired? After answering this isolated
question, I will then address the implica-
tions of the Liquidating and Successor
Trusts.
In embarking upon answering this
initial question, I begin by noting one
obvious point, a point the Virgin Islands
is precluded from relitigating. By its
plain terms, § 278 of the DGCL made
clear that Panex's existence andabilityto
be sued or to bring suit as to claims that
were not yet in existence terminated on
April 15, 1988, three years from the date
of its dissolution. Tutu Wells so held,
and the statutory language admits of no
other reading.
The key question then becomes
whether §§ 278 and 325(b)'s terms pre-
clude [*789] the Virgin Island's claims
against Goldman Sachs. It is here that
the Virgin Islands resorts to its argument
that I should find, as [**74] a matter of
common law making, that a variant of
the ill-defined trust fund concept permits
suit against Goldman Sachs, despite the
plain language of $$ 278 and 325(b). A
court asked to make common law in an
area addressed bylegislative enactments
should proceed with great caution, and
the statutory language of $ 325(b) is it-
self a powerful reminder of that need.
Section 325(b) plainly states that "[nJo
suit shall be brought against any .. .
stockholder for any debt of a corporation
of which heis a[] . . . stockholder, until
judgment be obtained therefor against
the corporation and execution thereon be
returned unsatisfied.” “
144 8 Del. C. § 325(b).
Taking the General Assembly's
wordsliterally, as one should if they ex-
press, as they do here, a rational pur-
pose, § 325(b) clearly bars the Virgin
Islands from seeking to hold Goldman
Sachs, as a former Panex stockholder,
responsible for a debt, such asits liabil-
ity on claimsrelating to its allegedly en-
vironmentally irresponsible conduct at
Laga, unless the Virgin Islands first ob-
tained a judgment against Panex. Be-
cause Panex's ability to be sued and
therefore subjected to a judgment by the
Virgin Islands expired in 1988 per the
clear [**75] terms of § 278, before the
Virgin Islands asserted claims, § 325(b)
bars the Virgin Islands’ claims.
The Virgin Islands would have me
ignore the clear import of the statutory
regime, by reference to public policy
considerations that it contends justify
overriding §§ 278 and 325(b) through
judicial lawmaking. That judicial law-
making, in the Virgin Islands' hopes,
would involve the recognition of an
open-ended obligation on the part of
stockholders of dissolved corporations to
return distributions they had received
from the dissolved corporation whenever
a post-dissolution claimant can prove
that the corporation owed it funds based
on its pre-dissolution activities, As thus
conceived, this variant of the trust fund
doctrine would impose a trust on the
funds received by stockholders from a
dissolving corporation, for the benefit
not only of creditors that the directors of
the dissolving corporation knew about or
had reason to suspect existed during the
dissolution process, but also as to any
unsuspected future claimants.
Like many other courts who have ad-
dressed this issue, I conclude that the
legislature's enactments preclude the
room for judicial invention. The obvious
intent of § 278 [**76] as of the relevant
time wasto establish a three-year period
during which claims against a dissolved
corporation could be brought. After that
period expired, the only judgments that
could be entered against the dissolved
corporation were for claims that were
brought before that period expired. The
intention of the statute was therefore to
balance the competing public policy in-
terests of ensuring that claimants against
the corporation had a time period in
which to assert claims against the dis-
solved corporation and ensuring that di-
rectors, officers, and stockholders of a
dissolved corporation could have repose
from claims regarding the dissolved cor-
poration. The latter concern is nota triv-
ial one. If, as it seems obvious, Delaware
has an interest in fostering capital in-
vestments in its corporations, providing
former stockholders of dissolved corpo-
rations with a temporal limitation on
their exposure to claims against them
based on corporate debts is a clearly ra-
tional way to advance thatinterest. Sec-
tions 278 and 325(b), when read in con-
cert, achieve that objective in a meas-
ured way.
In determining that winding-up pro-
visions like § 278 preclude stockholder
liability [(*790] under a common law
[**77] trust fund theory, I join the ma-
jority of courts and commentators who
have addressed the question of whether
the adoption of corporate dissolution
statutes supplanted the trust fund doc-
trine. “ As to this point, I also agree
fully with Goldman Sachs that the Third
Circuit's Tutu Wells decision logically
supports the conclusion I now reach as
to the combined effect of §§ 278 and
325(b), because its reading of the words
of the statutes has as much application to
claims against stockholders, as against
officers and directors.
145 See, e.g., ISA WILLIAM M.
FLETCHER, CYCLOPEDIA OF
THE LAW OF CORPORATIONS
§ 7373 (2006) ("[T]he adoption of
corporate dissolution statutes has
supplanted the equitable trust the-
ory in most jurisdictions."); Mark
J. Roe, Mergers, Acquisitions and
Tort: A Comment on the Problem
of Successor Corporation Liability,
70 VA. L. REV. 1559, 1564 n.15
(1984) ("[T]he trust fund theory
has been largely displaced by cor-
porate law statutory provisions for
remedies subsequentto dissolution,
however, incomplete those statu-
tory remedies may be."). Numerous
state courts have addressed the in-
teraction of corporate dissolution
statutes and the trust fund doctrine
and concluded [**78] that the cor-
porate dissolution statutes super-
sede the trust fund doctrine. See,
e.g., Pacific Scene, Inc. v. Penas-
quitos Inc., 46 Cal. 3d 407, 250
Cal. Rptr. 651, 758 P.2d 1182,
1189 (Cal. 1985) ('[W]e conclude
that the Legislature has precluded
the assertion of postdissolution
claims against the former share-
holders of a dissolved corporation
under the equitable ‘trust fund’ the-
ory."); Hunter v. Fort Worth Capi-
tal Corp., 620 S.W.2d 547, 550
(Tex. 1981); ("The effect of these
{corporate dissolution] statutes was
to supplant the equitable trust fund
theory by declaring a statutory
equivalent."); Blankenship v.
Demmler Mfg. Co., 89 Ill. App. 3d
569, 411 N.E.2d 1153, 1156, 44 Ill.
Dec. 787 (Ill. App. Ct. 1980) ("We
agree with defendantthat extension
of the trust fund theory to cover
plaintiff's claim would mean that
the corporation could never com-
pletely dissolve but would live on
indefinitely through its sharehold-
ers. We do notbelieve that this re-
sult would be in accordance with
the spirit of the laws governing the
dissolution of corporations.").
My reading of § 278 is also consis-
tent with the well-reasoned decision of
the Second Circuit in rejecting New
York's trust fund claims against Panex's
former stockholders, including Goldman
Sachs. As a policy matter, [**79] New
York wasin a stronger position than the
Virgin Islands to have the court afford it
a trust fund remedy against Goldman
Sachs because New York had at least
sent Panex a notice of its claims before
the three-year extension period under §
278 expired although Panex did not re-
ceive that notice until shortly after the
period had expired. Even though New
York had attempted to raise its claims in
a timely way, the Second Circuit re-
jected New York's argumentthatits trust
fund claim against Panex's former
stockholders should be recognized as
consistent with §§ 278 and 325(b). The
Second Circuit held, as I now conclude,
that statutes such as §$ 278 set forth a pe-
riod during which post-dissolution
claims can be made and after which
stockholders should haverepose,stating:
"We are persuaded by the general con-
sensus that modern statutory remedies
have effectively replaced the trust fund
doctrine and that there are sound reasons
for abiding by the wind-up period estab-
lished by section 278." “
146 Marsh, 499 F.3d at 176. In
this regard, it is also notable that
the primary case that the Virgin Is-
lands cites as supporting the sur-
vival of the trust fund doctrine after
the enactment of statutory [**80]
corporate dissolution statutes in-
stead supports the conclusion that
§§ 278 and 325(b) bar the use of
the trust fund doctrine for claims
arising more than three years after
dissolution. In Green v. Oilwell,
the Supreme Court of Oklahoma
found that the Oklahoma legisla-
ture did not displace the trust fund
doctrine by enacting a corporate
dissolution statute that extended
the existence of a corporation for
the purposes of prosecuting and de-
fending actions by or against it
without providing for a winding-up
period during which post-
dissolution claims could be filed
against the dissolved corporation.
1989 OK 7, 767 P.2d 1348, 1351-
52 (Okla. 1989). The court distin-
guished the numerous cases from
other jurisdictions that held that
statutory corporate dissolution stat-
utes superseded the trust fund doc-
trine by observing that unlike the
other jurisdictions, Oklahoma's
statutory scheme "did not provide
creditors a direct statutory remedy.
. . regardless of when the claim ac-
crued" and that "a creditor's only
direct remedy against a former
shareholder of a dissolved corpora-
tion to recover assets received upon
dissolution is in equity under the
trust fund theory." Jd. at 1352. Al-
though the court focused its [**81]
analysis on the non-existence of a
direct statutory remedy for stock-
holders, a careful reading of the
case indicates that the court's true
concern was that the Oklahoma
statute did not provide any redress
for post-dissolution claims. Spe-
cifically, the court saw “no rational
reason to differentiate between pre-
dissolution and post-dissolution
claims" and found that denying a
product liability claim for an inci-
dent that occurred two weeks after
dissolution and upon whicha suit
was filed within two years, a "rea-
sonable time after . . . dissolution,"
would be "arbitrary and untenable."
Id. at 1354. The critical difference
between the statute at issue in
Green and § 278 of the DGCLis
that the Oklahoma legislature,
unlike the Delaware General As-
sembly, intended for its statute to
address only pre-dissolution
claims. In fact, during the time the
Green case was pending,the Okla-
homa legislature passed a new
General Corporation Act with sec-
tions almost identical to §$ 278 and
325(b). This prompted the court to
observe that the trust fund theory
would likely be limited to three
years under the new statutory
scheme:
Because under 18 O.S.
Supp. 1986 § 1124(B) of
the new General Corpo-
ration Act [**82] no
suit may be brought
against a shareholder for
a debt of the corporation
until judgment is ob-
tained against the corpo-
ration and under § 1099
of the new Act a suit
against a dissolved cor-
poration must be com-
menced within three
years after dissolution,it
would appear the equi-
table trust fund theory
against a former share-
holder would likewise
be subject to the three
year statute of limita-
tions underthe new Act.
Id. at 1353 n.9.
Even if I were to adopt a variant of
the trust fund doctrine as an exception to
§§ 278 [*791] and 325(b), I cannot
imagine that it would be of the sort nec-
essary to aid the Virgin Islands. The
complaint does not allege that the fidu-
ciaries charged with dissolving Panex
were on notice before 1992 of any po-
tential claims relating to the Laga Facil-
ity. As of the expiration of the three-year
period under $ 278, the Virgin Islands
had owned Laga for over seven years
and never alleged that Panex had been
environmentally irresponsible in its op-
erationsatthesite.
To the extent that there is a sound ba-
sis for the trust fund doctrine,it is to ad-
dress the potential for opportunism that
exists when a corporation is winding-up
its affairs or has become insolvent. In
those circumstances, [**83] the corpo-
ration is unlikely to be able to generate
future revenues to address creditor
claims. Therefore, if it distributes its re-
maining assets to its stockholders with-
out accounting for those claims, credi-
tors could be stiffed and the stockholders
could get a windfall, something akin to
an illegal dividend. Indeed, it is pre-
cisely for this reason that many trust
fund cases have the feel of fraudulent
conveyance about them, as they involve
situations when those winding-up the
corporation's affairs were seeking to
evade claims that were extant or feared.
“ In fact, the decision of Justice Story,
then sitting as a Circuit Justice, that is
commonly thoughtof as giving birth to
the trust fund doctrine, involved just
such a fact pattern. “
147 E.g., Snyder v. Nathan, 353
F.2d 3, 4 (7th Cir. 1965) (invoking
the trust fund doctrine when a dis-
solving corporation paid out sub-
stantially all of its assets to its
stockholders despite the knowledge
of a pending claim); Gaskins v.
Bonfils, 79 F.2d 352, 355 (10th
Cir. 1935) (same).
148 Justice Story is credited with
inventing the trust fund doctrine in
the 1824 case Wood v. Dummer. 30
F. Cas. 435, F. Cas. No. 17944
(C.C.D. Me. 1824) (No. 17,944). In
that case, Justice [**84] Story cre-
ated the doctrine to address the in-
equity created by stockholders of a
dissolving bank voting to distribute
a large portion of the bank's paid-in
capital to themselves without ade-
quately providing for known debts
of the bank. Id. at 436-37.
[*792] If the trust fund doctrine
were as uncabined as the Virgin Islands
would have it, stockholders of American
corporations would live in constant fear.
A multitude of formerly dividend-paying
corporations have dissolved or gone
bankrupt over the years. Many of these
corporations did so in part because their
profit-generating operations involved the
manufacture of products -- think asbes-
tos -- that gave rise to later liability,
claims. Underthe Virgin Islands' theory,
all of the stockholders who received
dividends as a result of the sales of as-
bestos and other claims-generating
products should be forever on the hook
to return those dividends. The same
would be true of stockholders who re-
ceived dividends and whose corpora-
tions were later unable to pay off con-
tract creditors whose rights preceded the
paymentofthe dividends.
If, as seems probable, the public in-
terest in promoting economic growth
would be impaired by exposing equity
investors [**85] to perpetual risk of this
kind, a container of some kind on the
trust fund doctrine would have to be
built. In sizing that container, judicial
recognition would have to be given to §
278 's tempering of the common law
doctrine of abatement, which held that
the dissolution of a corporation immedi-
ately ended its legal existence and ter-
minated its capacity to sue and be sued.
Statutes such as $ 278 mitigated that
harshness by continuing the legal exis-
tence of a dissolved corporation for a
wind-up period during which claims can
be asserted. These statutes also ensured
that "any suit against the corporation,
which wasfiled before the dissolution or
during the three-year statutory wind-up
period, does not abate, even on the expi-
ration of the wind-up period.”
149 In re RegO Co., 623 A.2d 92,
95 (Del. Ch. 1992); see also Ann
E. Conaway Stilson, Reexamining
The Fiduciary Paradigm at Corpo-
rate Insolvency and Dissolution:
Defining Directors' Duties to
Creditors, 20 DEL. J. CORP. L. 1,
67 (describing the enactment of
dissolution statutes in response to
the commonlaw of abatement).
150 RegO, 623 A.2d at 95.
Notonly is that tempering relevant to
my conclusion that no space exists for
judicial [**86] invention here, it would
also be relevant if I concluded that there
was room for a trust fund doctrine of
some kind. Because the General Assem-
bly would have already created a three-
year period during which stockholders
would beat risk -- a period that could be
extended for claims arising and still
pending as of the end of that period --
the protective necessity for any trust
fund doctrine would be narrowedbythat
important statutory effect. Indeed, be-
cause the three-year period must be read
as resting on a policy basis andthat pol-
icy basis is most obviously that that was
the General Assembly's belief as to a fair
period to give claimants during which to
either raise claims or lose them, the most
logical room for a trust fund doctrine to
operate would be to address some type
of interstitial abuse of the dissolution
process not captured by § 278's literal
terms. One could conceive, I suppose, of
a situation where those handling the
funds of a dissolved corporation assured
a creditor it would pay off her bill as the
§ 278 deadline approached and urged
her not to file a collection action. Then
they cause the corporation to makea dis-
tribution ofall its funds to its stockhold-
ers [*793] as [**87] the $ 278 deadline
is reached without paying off the credi-
tor.
The recognition of a trust fund claim
against the recipient stockholders in that
context would, however, have its roots
in the kind of inequity that gave rise to
the trust fund doctrine in the first in-
stance. “' That is, it would involve the
paymentto stockholders of a distribution
in the face of an unsatisfied creditor
claim. Even in that circumstance, one
can think of non-statutory arguments for
limiting the exposure of innocent stock-
holders to claims, and limiting the duped
creditor to bringing claims against the
crafty fiduciaries whotricked her.
151 I admit that certain commen-
tators have advocated a version of
the trust fund doctrine that bears
little or no resemblanceto the anti-
fraud rationale that motivated Jus-
tice Story's Wood v. Dummerdeci-
sion and its progeny. These com-
mentaries appearto reflect the view
that the commonlaw oughtto hold
stockholder-distributees strictly li-
able to restore distributions re-
ceived from corporations that have
committed torts, regardless of
whether the dissolution process
was conducted entirely in good
faith. See, e.g., James Boyd &
Daniel E. Ingberman, Fly by Night
or Face the [**88] Music? Prema-
ture Dissolution and the Desirabil-
ity of Extended Liability, 5 AM. L.
& ECON. REV. 189, 224 (2003)
("Extending liability to business
partners, making shareholderliabil-
ity unlimited, and allowingliability
to follow shareholders postdissolu-
tion are all ways to foster greater
cost internalization and the welfare
benefits that spring from it. They
are not without costs of their own,
however."); Michael D. Green,
Successors and CERCLA: The Im-
perfect Analogy to Products Liabil-
ity and an Alternative Proposal, 87
NW. U. L. REV. 897, 918-21
(1993) (suggesting a proposal that
would essentially "reestablish the
common-law trust fund doctrine of
shareholder liability for CERCLA
response costs of a dissolved cor-
poration"); see also United States
v. Thomas, 515 F.Supp. 1351, 1356
(W.D. Tex. 1981) ("Neither bad
faith nor fraud is a prerequisite for
recovery under [the trust fund] the-
ory."). In my view, arguments that
a broad-ended, reparations-based
cause of action against stockhold-
ers who received distributions in
good faith should be granted to
late-emerging corporate claimants
are properly addressed in our re-
public to those institutions called
legislatures.
WhatI find unfathomable [**89] is
the notion that this state would adopt, as
part of its commonlaw of equity, a trust
fund doctrine that puts stockholders re-
ceiving distributions from a dissolving
corporation at risk of liability when the
creditor-plaintiff made no demand of
any type on the dissolving corporation
and the dissolving corporation's directors
had no reason to believe such a demand
would be made before the expiration of
the extra three-year period established
by § 278. In that circumstance, not only
the recipient stockholders, but the direc-
tors authorizing the distribution could
not be said to have acted in subjective
bad faith toward anyone.
In concluding that it would be impru-
dent to recognize such a cause of action
against stockholder-recipients, I am not
unmindful of the externalities that are
often generated by profit-makingentities
or the opportunities the dissolution proc-
ess presents for abuse. '* But those con-
cerns [*794] are already addressed by a
host of other means. Those include not
only the three-year period established by
§ 278itself, but also by statutes that hold
individuals personally accountable for
their own tortious and criminal behavior
as business executives. Here, for ex-
ample, [**90] CERCLA presented the
Virgin Islands the opportunity to seek
relief from Lazare and Gal not for the
status crime of simply having been a
Panexofficer or director, but for having
personally been involved in polluting
activities at Laga. Likewise, to the ex-
tent the Uniform Fraudulent Transfer
Act might be used to hold stockholders
liable for dividendsor distributions from
a corporation, liability would be predi-
cated on the recipients' own state of
mind.
152 For example, Professors
Hansmann and Kraakmanpointout
this potential for abusein theirarti-
cle arguing for unlimited share-
holderliability for corporate torts:
The second factor that
can exacerbate ineffi-
cient incentives under
limited liability is the
shareholder's option to
liquidate the corporation
and distribute its assets
before tort liability at-
taches. Since products
and manufacturing proc-
esses often create long-
term hazards that be-
come visible only after
many years, firms can --
and often do -- liquidate
long before they can be
sued by their tort vic-
tims. State law generally
holds shareholders liable
for a corporation's debts,
including contingenttort
liability, for a fixed pe-
riod -- commonly three
to five years -- [**91]
after the dissolution of
the firm. But many haz-
ards may remain hidden
until long after the expi-
ration of this period.
Henry Hansmann & Reinier Kra-
akman, Toward Unlimited Share-
holder Liability for Corporate
Torts, 100 YALE LJ. 1879,
1884(1991).
153 E.g., 3A WILLIAM M.
FLETCHER, CYCLOPEDIA OF
THE LAW OF CORPORATIONS
§ 1137 (2006) ("Officers and direc-
tors may be held individually liable
for personal participation in tor-
tious acts even though performed
solely for the benefit of the corpo-
ration... .").
154 E.g., Tutu Wells, 994 F. Supp.
at 666-75 (finding that Lazare and
Gal were subject to liability under
CERCLA "separate and apart from
their corporate status" because
CERCLA provides for owner, op-
erator, and arrangerliability).
155 See 6 Del. C. § 1301, et. seq.
In my view, a stockholder who re-
ceives a dividend has already given
equivalent value for future divi-
dends as of the time she buys her
shares. Thus, the relevant question
under the Uniform Fraudulent
Transfer Act becomes whether the
stockholder received the dividend
in good faith, i.e., without knowl-
edge that the corporation was not
in a position to lawfully pay the
dividend. 6 Del. C. $ 1308(a) ("A
transfer or obligation is not void-
able [**92] under § 1304(a)(1) of
this title against a person who took
in good faith and for a reasonably
equivalent value... ."). The reason
that this is so, at least in this set of
circumstances,is that § 1304(a)(1)
would be the operative subsection
of the Uniform Fraudulent Transfer
Act. This defense would be un-
available under the strict liability
theory the Virgin Islands would
have me embrace.
Notably, even as to Panex, its
directors, the Liquidating Trust,
and its trustees, the Uniform
Fraudulent Transfer Act would re-
quire the Virgin Islands, as a credi-
tor who first asserted a claim after
the challenged transfers, 6 Del. C.
§ 1304 (section of Act dealing with
future creditors), to show that the
distributions were made with an ac-
tual fraudulent intent, that the re-
maining assets were unreasonably
small in relation to potential claims
against Panex, or that the directors
and trustees should have reasona-
bly expected Panex liabilities to
exceed the funds retained. 6 Del. C.
§ 1304(a). Given that the Virgin Is-
lands did not assert a claim until
1996 and owned the property in
question, given that the directors
and trustees accounted for all
claims that actually arose before
the extended three-year [**93] pe-
riod mandated by § 278 expired,
and given the absence of any pled
facts suggesting the directors and
trustees should have known that
Laga would give rise to later
claims, the Virgin Islands’ com-
plaint would not even state a claim
against the transferors.
Notably, § 174 of the DGCL ex-
pressly addresses the subject of liability
for the paymentof illegal dividends, in-
cluding those made bycorporations that
dissolve or become insolvent. The
statute provides for a cause of action
against the directors authorizing the
dividends, with specific proof require-
ments, and contains a six-year limita-
tions period. In the event that the corpo-
ration has become insolvent or has dis-
solved, creditors may make such a
claim. Most pertinently, the statute pro-
vides that any director who has to pay
such a claim is subrogated to the corpo-
ration's rights "against stockholders who
received the dividend on... their stock
with knowledge of facts indicating that
such dividend . . . was unlawful under
this chapter, in proportion to the
amounts received by the stockholders
respectively.” «
156 8 Del. C. § 174.
157 8 Del. C. § 174(c).
Section 174, like the fraudulent con-
veyance statute and § 278itself, is evi-
dence [**94] that the General Assembly
has addressed [*795] in several ways
the problem that inspired the trust fund
doctrine. ** Not only that, § /74's terms
suggest, like the fraudulent conveyance
statute, a legislative disinclination to
hold stockholders liable in situations
when they received a dividend or other
distribution in the good faith belief that
the corporation was making a lawful re-
turn to its equity holders.
158 Section 162, the DGCL pro-
vision creating stockholder or sub-
scriber liability for shares not paid
in full up to "the sum necessary to
complete the amount of the unpaid
balance of the consideration for
which such shares were issued or
are to be issued by the corpora-
tion," is also evidence that the
General Assembly has addressed
the problem that prompted the de-
velopment of the trust fund doc-
trine. 8 Del. C. $ 162(a); see, e.g.,
Sawyer v. Hoag, 84 U.S. 610, 620,
21 L. Ed. 731 (1873) ("[W]e think
it now well established that the
capital stock of a corporation, es-
pecially its unpaid subscriptions, is
a trust fund for the benefit of the
general creditors of the corpora-
tion."). Section 162(b) gives an in-
solvent corporation's creditors a di-
rect action against stockholders
who have not fully paid for their
[**95] shares provided that the
creditors follow the proceduresin $
325, namely first obtaining a
judgment against the corporation
and having that judgment returned
unsatisfied. 8 Del. C. $ 162(b).
Similar to § 174, § 162 does not
create unfettered liability. Section
162(c) protects innocent assignees
and transferees who take "in good
faith and without knowledgeor no-
tice that the full consideration
therefor has not been paid" from
personal liability. 8 Del. C. $
162(b). In addition, § 162(e) states
that "[nJo liability under this sec-
tion or under § 325 of this title
shall be asserted more than 6 years
after the issuance of the stock or
the date of the subscription upon
which the assessment is sought." 8
Del. C. § 162(e).
There is no perfectly just or efficient
answer as to how long or under what
conditions the recipients of corporate
funds should be accountable for later-
asserted claims. Our proudhistory as a
nation is tainted by racist, sexist, envi-
ronmentally irresponsible, and sweat
shop practices by businesses, practices
that regrettably were often sanctioned or
tolerated by the governments those em-
poweredto vote elected. Doubtless there
are those whose fortunes can be traced
to businesses [**96] conducted in a
manner that we would now deem repug-
nant. A doctrine like the one that the
Virgin Islands supports would, one sup-
poses, encourage pristine corporate be-
havior through the meansof putting eq-
uity holders at perpetual risk that their
distributions could be clawed back if
later arising claimants prove that the
corporation violated statutory or com-
mon law rights.
But one can acknowledge that there
is a lack of perfect equity in the distribu-
tion of societal wealth and that equity
holders often take profits that are in-
flated by externalities foisted by their
corporations on others without being
persuaded to adopt the trust fund doc-
trine. Any system of perpetual repara-
tions, and that is essentially what the
Virgin Islands seeks, comes with costs.
Just as capitalism's history has its nega-
tive effects, so too has it generated a
great deal of wealth for our society. That
wealth generation has resulted in no
small measure from the confidence that
equity investors have that there is lim-
ited recourse against them. If a broad
trust fund doctrine like the Virgin Is-
lands advocates were adopted, it could
affect the economy in important ways.
For starters, contrary to the evident pur-
pose [**97] of § 278 to establish a fair
but discrete period within which claim-
ants should come forward or lose their
claims, the Virgin Islands suggests that
our common law should countenance
claims against innocent stockholders
whenever later claims are made, which
seems to encourage potential claimants-
- such as buyers of land like the Virgin
Islandsitself -- to be less than diligent in
investigating whether they possess vi-
able [*796] claims. ”
159 Cf Bovay v. H. M. Byllesby
& Co., 27 Del. Ch. 33, 29 A.2d
801, 804 (Del. Ch. 1943) ("Statutes
of limitations are intended to pre-
vent the enforcement of stale de-
mands, and are based on reasons of
sound policy; they are statutes of
repose, intended to exact dili-
gence."); 51 AM. JUR. 2D Limita-
tion of Actions § 14 (2007) (The
primary purpose of a statute of
limitations is . . . to encourage
promptness and diligence in bring-
ing actions.").
Furthermore, stockholders receiving
distributions from dissolving corpora-
tions would hesitate to use those assets
or to reinvest the assets for fear that the
assets could be taken from them at any
future time. In turn, this could cause
rational investors to question the wis-
dom of making equity investments in
corporations in the first [**98] instance
and reduce the social benefits that flow
from such investments -- thingslike cre-
ating jobs and sparking innovation.
Here, I note that the Virgin Islands has
not pled that Goldman Sachs has held
the distributions it received from Panex
in some separate fund for over a genera-
tion. The Virgin Islands does not seek to
have me adopt the purest form of the
trust fund doctrine, which impresses a
trust on specific assets received from the
corporation or specific assets retained by
a successor entity of the corporation af-
ter dissolution. Rather, it seeks a doc-
trine that puts stockholders who have
changed position at perpetual risk, irre-
spective of the absence of scienter on
their part. « And, of course, there are
significant practical problems with try-
ing to effect the return of corporate dis-
tributions from stockholders, especially
after a great deal of time has passed be-
tween the payment of the distributions
and the attempted recovery.
160 Cf Developments in the Law
Statutes of Limitations, 63 HARV.
L. REV. 1177, 1185 (1950) ("[T]he
public policy of limitations lies in
avoiding the disrupting effect that
unsettled claims have on commer-
cial intercourse.").
161 The Virgin Islands [**99]
advocates the following doctrine:
[T]he USVTs right to
recovery does not de-
pend upon Goldman's
participation in or
knowledgeof the actions
which caused the envi-
ronmental damageorthe
subsequent assertion of
claims arising from that
damage. Rather, a right
of restitution resides in
the Successor Trustee
(and now the USVI)
based solely on the un-
fairness of Goldman re-
taining funds that were
expressly placed in the
Panex Trust and/or paid
out to Goldman subject
to recovery wherethe li-
abilities associated with
Panex's activities were
asserted during the life
of the Panex Trust and
reduced to judgment
during the life of its le-
gal successor.
Virgin Islands Ans. Br. at 17-18. In
arguing that its right to recovery
does not require bad faith by
Goldman Sachs, the Virgin Islands
cites unjust enrichment case law
suggesting that "[rJestitution is
permitted even when the defendant
retaining the benefit is not a
wrongdoer." Schock v. Nash, 732
A.2d 217, 232 (Del. 1999). The
Virgin Islands, however, fails to
mention that unjust enrichmentre-
quires an absence of justification
for the transfer that enriches one
party and impoverishes the other.
E.g., Palese v. Del. State Lottery
Office, 2006 Del. Ch. LEXIS 126,
2006 WL 1875915, at *5 (Del. Ch.
2006), [**100] aff'd, 913 A.2d 570
(Del. 2006). That requirement usu-
ally entails some type of wrongdo-
ing or mistake at the time of the
transfer. Correspondingly, unjust
enrichment is "often deployed
against persons who (although not
acting with scienter themselves)
are sufficiently aligned with a
wrongdoer that they ought to dis-
gorge an unearned benefit con-
ferred upon them by the wrongdoer
at the victim's expense." Teachers’
Ret. Sys. of La. v. Aidinoff, 900
A.2d 654, 673 n.25 (Del. Ch.
2006). In my view, a passive
stockholder who receives a divi-
dend in goodfaith has not been un-
justly enriched.
162 Then-Vice Chancellor Brown
pointed out this same problem in Jn
re Citadel Industries, Inc. 423 A.2d
500 (Del. Ch. 1980). Supporting
his decision not to construe Section
278's grant of powerto continue a
corporation beyond Section 278's
three-year period as allowing the
court to revive the existence of a
corporation after the three-year pe-
riod contemplated by the statute
had already passed, he observed:
And if the corporation
is so "continued" after
the passage of a period
of years so as to enable
others to sue it, what
happens if a large
money judgment is ob-
tained against it? Who
pays? How are former
liability [**101] insur-
ance contracts affected?
How can a vast number
of former shareholders
be compelled to return
any final distribution of
assets, etc.? In each such
case these factors, along
with a myriad of others,
would have to be con-
sidered by this Court if it
were to properly exer-
cise its discretion to con-
tinue the entity. In the
case of a large, publicly-
held corporation, the
task would be enormous
and the potential prob-
lems and considerations
would be boundless.
Id. at 506.
[*797] Perhaps most important of
all, the adoption of the trust fund doc-
trine the Virgin Islands advocates would
operate harshly against the corporate
constituency least likely to have been
involved in consciously tortious or ineq-
uitable corporate behavior; namely, the
stockholders. Even in today's world of
activist investors, corporate managers
and employees make most of the key
decisions and engage in most of the
conduct that affects society. As indi-
cated, a variety of statutory and common
law causes of action exist to hold corpo-
rate managers responsible for their own
behavior, and those causes of action give
claimants the opportunity to secure any
ill-gotten wealth received by the manag-
ers themselves. Given these realities,
[**102] the adoption of an unlimited
stockholder-focused trust fund doctrine
seems a very inefficient way to encour-
age corporate compliance with societal
obligations.
163 Under the breath of the Vir-
gin Islands’ arguments has consis-
tently been the heart-tugging no-
tion that it, a struggling Territory
grappling with an expensive envi-
ronmental problem, is simply ask-
ing one of the world's most suc-
cessful entities to give back what
is, to it, a trifle. This sort of conten-
tion is no basis for judicial adven-
turism. Indeed, it highlights some
practical problems with recogniz-
ing a broad-ended trust fund doc-
trine. The likely targets of such
claims will be big holders because,
for reasons well explained in Cita-
del, it will be difficult to collect
from disaggregated public stock-
holders who received distributions.
Admittedly, the ever-increasing
share of stock owned by institu-
tions, now above 70%, makescol-
lection efforts easier. But that phe-
nomenon raises another policy
point that has distributional and
fairness implications. Many of the
larger holders of corporations are
mutual funds and pension funds.
These holders are the fiduciaries
for ordinary investors, such as
Americans saving for college and
retirement. [**103] Recognizing
trust fund claims against holders
could result in a mutual fund,
whose stockholders are now quite
different, being subject to return a
distribution a generation later, in
the world as the Virgin Islands
would have it. In such a case, it
would be the end-user investor who
would suffer. Similarly, the trus-
tees of a pension fund could find
themselves facing an order to re-
turn a long-forgotten distribution at
a time when the fund wasstrug-
gling for other reasons to meetits
obligations to pensioners. Suffice it
to say, the reality that Goldman
Sachsis a wealthy entity is no basis
for the formulation of common law
affecting others, nor would it be
just for a court to enter a judgment
against a party simply because the
party could pay it without great
pain.
For all these reasons, even if $$ 278
and 325(b) left room for judicial com-
mon law making, I would not recognize
the Virgin Islands’ claim. The Virgin Is-
lands does not seek to hold Goldman
Sachs responsible for any wrongful con-
duct of its own. It simply seeks to hold
GoldmanSachsstrictly liable for activi-
ties of Panex to the amountof liquidat-
ing distributions it received in good
faith. Section 278 gave the Virgin Is-
lands [**104] a three-year period to
come forward with its claim. It did not
do so, despite having owned the Laga
Facility for seven years before the expi-
ration of the three-year extension man-
dated by § 278. If this court were to rec-
ognize, some variant of the trust fund
doctrine in these circumstances, thereby
extending the length of time that stock-
holders face exposure, statutes such as $
174 of the DGCL suggest that any such
judicial creation should incorporate a
scienter requirement, [*798] a require-
ment that even in a very weak form
would preclude the Virgin Islands from
proceeding against Goldman Sachs.
Before ending this discussion, I must
note the cognitive dissonance arguably
injected by the General Assembly's
adoption in 1987 of substantial amend-
ments to the DGCL's provisionsrelating
to dissolution ("1987 Amendments"). ™
Those amendments do not apply to the
Panex dissolution but arguably give
some sense of what a later General As-
sembly believed that the pre-existing
provisions of the DGCL meant.
164 See generally Stephen P.
Lamb and Robert A. Glen, The
1987 Delaware Law of Voluntary
Corporate Dissolution, 13 DEL. J.
CORP. L. 11 (1988). The primary
amendment to the DGCL's dissolu-
tion provisions [{**105] occurred
in 1987, with additional relevant
amendments occurring in 1990,
1991, and 1994. See RODMAN
WARD, JR., EDWARD P.
WELCH & ANDREW J.
TUREZYN, FOLK ON THE
DELAWARE GENERAL COR-
PORATION LAW §§ 280-82 (4th
ed.). I refer to those changescol-
lectively as the 1987 Amendments.
The 1987 Amendments created a de-
tailed process, which involves judicial
involvement, by which dissolving corpo-
rations can essentially smoke out claims,
pay off claims in accordance with statu-
tory priorities, and establish reserves for
contingent claims. By this more detailed
methodof dissolution, which is optional
and set forth in § 28/ (a), the dissolving
corporation's directors and stockholders
are rewarded with more certainty and
liability protection. “ The statute also
sets forth notice requirements that dis-
solving corporations wishing to use this
more rigorous process have to follow to
alert creditors of the dissolution.
165 8 Del. C. § 281 (a).
166 8 Del. C. § 280.
As one would expect, the Virgin Is-
lands latches on to one of the 1987
Amendments in particular. That
amendment created § 282(b) and pur-
ports to provide the following protection
only to stockholders of dissolving corpo-
rations that follow the more [**106]
rigorous dissolution process set forth in
§ 281 (a). That section states that a
"stockholder of a dissolved corporation
the assets of which were distributed pur-
suant to § 28] (a) of this title shall not
be liable for any claim against the corpo-
ration on which an action, suit or pro-
ceeding is not begun prior to the expira-
tion of the period described in § 278 of
this title." " Section 282(c) also states
more generally that the stockholders of a
dissolved corporation who received dis-
tributions made under either the more
rigorous process, § 28/ (a), or the less
exacting one, set forth in $ 281(b), "shall
not be liable for any claim against the
corporation in an amount in excess of
such stockholder's pro rata share of the
claim or the amount so distributed to
such stockholder, whicheveris less."
167 8 Del. C. § 282(b).
168 8 Del. C. § 282(a). The cur-
rent pro rata liability standard calls
attention to the Virgin Islands’ at-
tempt to hold Goldman Sachs, a
passive minority stockholder, liable
for all of its liquidating distribu-
tions. By contrast, the Virgin Is-
lands settled with Firmanco, an ac-
tive blockholder, for only $ 1.6
million, or less than five percent of
its liquidating distributions.
[**107] Am. Compl. P 51 (noting
that the Virgin Islands settled with
Firmanco for $ 1.6 million); Tutu
Wells, 885 F. Supp. at 781 (totaling
Firmanco's liquidating distributions
as $ 35.5 million). Under pro rata
liability, Goldman Sachs would
only be liable for 13% of the $ 51.6
million default judgment or ap-
proximately $ 6.7 million.
Using § 282(b), the Virgin Islands
makes a simple argument.If that section
must be construed as having some in-
tended effect, it must preclude a reading
of the preexisting $$ 278 and 325(b) as
barring claims against stockholders after
the [*799] three-year extension on the
corporation's existence under § 278 ex-
pired. Otherwise, there would be nore-
ward for following the more rigorous §
281 (a) process.
The problem for the Virgin Islandsis
that the 1987 Amendments do nothing to
address the truly pertinent question:
what causes of action, if any, does a
claimant against a dissolved corporation
whofirst asserted claims after the corpo-
ration’s extended existence under § 278
have against an innocent stockholder
who received distributions during the
dissolution process? Neither the 1987
Amendments themselves nor learned
commentary on those amendments an-
swers that question. [**108] The first
decision to address the 1987 Amend-
ments expressly noted that there was no
clarity on this question.
169 In In re RegO Co., Chancel-
lor Allen observed:
This modern scheme
still leaves open the
question, what, if any,
rights are afforded to
persons who have no
claim against a corpora-
tion at the time of its
dissolution, or during
the statutory wind-up
period, but who do
thereafter acquire such a
claim. Such a person
might, for example, be a
tort claimant who is in-
jured by an arguably de-
fective product some
time after, perhaps years
after, the corporation has
been dissolved, and its
affairs finally woundup.
It would seem, apparent
that such a person could
not sue the dissolved
corporation itself. Sec-
tion 278 continues the
corporation's existence
beyond the statutory
three year winding-up
period "solely" for the
purpose of concluding
pending litigation. But
has such a person a cog-
nizable claim against
others -- against direc-
tors or shareholders
most notably?
This I take to be an
unclear and a troubling
question.
623 A.2d at 96 (internal citation
omitted).
In fact, the 1987 Amendments were
in large measure driven by the lack of
certainty about issues of that kind.
Rather than attempt [**109] to state
what causes of action, if any, actually
existed in these circumstances, the
amendments instead simply created
greater insulation against these causes of
action -- if and whatever they were-- for
stockholders whose corporations used
the new § 28] (a) dissolution process.
Notably, commentary on the amend-
ments do not reference § 325(b) or its
implications.
170 See Marsh, 499 F.3d at 175
n.5 ("[S]ections 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 corpo-
rations follow the procedures out-
lined in section 281(a).").
In my view,I cannot responsibly read
amendments that were designed to ad-
dress uncertainty but whose authors
clearly recognized that continuing uncer-
tainty remained as somehow suggesting
that a trust fund doctrine claim of the
type the Virgin Islands now makes was
viable in Delaware before these amend-
ments. Nor do the 1987 Amendments
illuminate the appropriate contours for
trust fund doctrine claimsin this context.
That the 1987 Amendments injected
more rigor into the overall dissolution
process -- a rigor beneficial to creditors
of [**110] all kinds, including those
with contingent claims -- and used §
282(b) as an incentive, does not mean
that the General Assembly was implic-
itly creating or somehow recognizing the
existence of a cause of action holding
innocent stockholders strictly liable to
return distributions received in dissolu-
tion whenevera later-arising creditor ob-
tains a judgment based solely on the
harm caused by a corporation's pre-
dissolution activities.
If there is a gap in our lawtofill, the
General Assembly is the body with the
legitimacy and tools to best balance the
important policy considerations at stake.
And if common law were to be made,it
should be at the instance of a later aris-
ing claimant whocan at least prove that
the [*800] directors of the dissolving
corporation engaged in some act of in-
equity during the dissolution process, by
disregarding the corporation's likely ob-
ligations to some specific contingent
creditor or class of contingent creditors.
The Virgin Islands is not in that cate-
gory. Even if it were, I would not em-
brace, aS a matter of our common law,
the notion that a stockholder who re-
ceived a distribution without knowledge
of the directors’ inequitable conduct --
i.e., in good faith [**111] and without
scienter -- should be exposed to a suit
beyond the three-year extension period
set forth in § 278. Both fairness andeffi-
ciency at that temporal point seem to
weigh, for reasons previously articu-
lated, in favor of affording repose to the
innocentrecipient.
C. Does The Virgin Islands Have A
Claim Against Goldman Sachs Because
Of The Existence Of The Liquidating
AndSuccessor Trusts?
The Virgin Islands contends that the
existence of the Liquidating Trust after
the three-year statutory period allowsit
to maintain its claims against the former
stockholders of Panex. The Virgin Is-
lands asserts that, according to City In-
vesting, had Panex obtained court ap-
proval to continue its existence beyond
the three-year statutory period as op-
posed to creating the Liquidating Trust
there would be no question that the Vir-
gin Islands could have asserted its
claims directly against Panex during that
extended wind-up period. " Therefore,
becauseits "claims against Panex andits
legal successors survived beyond the
three year period, so too the [Virgin Is-
lands'] ability to seek recovery of the
liquidating distributions extended be-
yond that three year period." The Vir-
gin Islands cites no [**112] legal au-
thority for this conclusion. As Judge
Stapleton accurately wrote for the Third
Circuit in Tutu Wells, City Investing
stands only for the proposition that a
creditor of a dissolved corporation can
sue that corporation's liquidating trust if
it is in existence at the time ofsuit.
171 The Virgin Islands points to
the following discussion in City In-
vesting:
City Trust's efforts to
restrict its liability to
claims filed within three
years of City's dissolu-
tion does not accommo-
date the statutory
method for the assertion
of creditors’ claims nor
the purpose behind its
adoption. Bydistributing
its assets to a trust, City
wasable to achieve sub-
stantial tax savings but
at the same time it ex-
tended its winding-up
period by transferring its
operations to a separate
legal entity -- City Trust.
Had City elected to seek
court approval to con-
tinue its existence "for
such longer period” be-
yond the three year term
as necessary to wind up
its affairs instead of cre-
ating City Trust, there is
little question that its as-
sets would be reachable
by its creditor and sub-
ject to claims at the time
Continental filed its
claim in 1990.
624 A.2d at 1196.
172 Virgin Islands Ans. Br. at 32.
Although the Trust [**113] Agree-
ment stated that the Liquidating Trust
was established for the purpose of "satis-
fying any and all liabilities of Panex
which are not paid or otherwise dis-
charged,” ™ the Trust Agreementcontin-
ued the Liquidating Trust beyond three
years only for the "purpose of discharg-
ing any known liabilities of the Trust or
of Panex orliabilities of the Trust or of
Panex which the Trustees have reason-
able grounds to believe may be as-
serted." ~ As admitted by the Virgin Is-
lands, it did not provide notice of its
claims to the trustees of the Liquidating
Trust within three years. Nor has it pled
facts supporting a rational inference that
the trustees had reasonable groundsthat
claims might be raised regarding Panex's
operations [*801] at Laga. ™ Thatis, of
course, not surprising given that Panex
Co. had sold Laga to the Virgin Islands
itself in 1981, some seven years before
the expiration of Panex's winding-up pe-
riod, and had not had any complaints.
173 Trust AgreementP 3.1.
174 Id. P 8.1.
175 Whengiven the opportunity
at oral argument to point out any
pled facts suggesting that the trus-
tees of the Liquidating Trust knew
about or should have had reason to
expect the potential environmental
claims [**114] in the Virgin Is-
lands before the expiration of Liq-
uidating Trust's three-year period
of unlimited existence, counsel for
the Virgin Islands could not iden-
tify any:
THE COURT:There's
not one fact pled that
anyone gave notice to
the trustees or to any
former director or offi-
cer of Panex before that
three year period of
these potential claims;
correct?
MR. JAMESON:
Specifically of the pollu-
tion in the Virgin Islands
-- no --.
Tr. Of Oral Arg. On Def's Mot. To
Dismiss (Sept. 27, 2007) at 40-41.
The Virgin Islands did advance the
argument that the trustees should
have anticipated the potential envi-
ronmental liability in the Virgin Is-
lands once they became aware of
the potential environmental liabil-
ity in New York.Id. at 47-49. That
argument lacks logical force, espe-
cially since the Virgin Islandsitself
never raised a peep until fifteen
years after it owned Laga. The
source and type of contamination
in New York were completely dif-
ferent from the source and type of
contamination in the Virgin Is-
lands. Compare New York v. Panex
Indus., Inc., 1996 U.S. Dist. LEXIS
9418, 1996 WL 378172, at *2
(W.D.N.Y. 1996) (describing the al-
legations of pollution in New York
as resulting from a "button-
manufacturing facility . . . which
[**115] . . . arranged for the dis-
posal at the Landfill of hazardous
substances produced by the manu-
facturing facility including styrene,
TCE, methylene chloride, toluene,
and lead carbonate") with Tutu
Wells, 994 F. Supp. at 642 ("The
primary chemical discovered on
Laga's property was PCE, which
had been allegedly discharged via
underground pipes into the ground
as a result of Laga's on-site dry
cleaning operations-a final step in
the manufacturing process of
Laga's textile products.").
Thus, I interpret the Virgin Islands
assertions as arguing that the language in
City Investing regarding the general pur-
poses for liquidating trusts somehow
provides me with a basis for invalidating
the Liquidating Trust's language limiting
the purpose of its existence after three
years to known or noticed claims. I do
not read City Investing the same waythe
Virgin Islands does. City Investing sim-
ply acknowledges that one principled
way for dissolving a corporation that
wishes to obtain the federal tax benefits
that come with distributing its assets
within one year is to form a liquidating
trust to assume corporate liabilities. ”
Nothing in City Investing suggests that a
liquidating trust must exist perpetually
[**116] as a corporate successor, capa-
ble of being sued on all claims upon
which the corporation could have been
sued. Rather, it simply recognizes that a
dissolving corporation must responsibly
address its potential liabilities and that a
liquidating trust may be used for that
purpose.
176 624 A.2d at 1196; see also
Marsh, 499 F.3d at 175, n.6 (read-
ing City Investing and Rosenbloom
as being of no avail to New York
in arguing its trust fund claims
against Panex's former stockhold-
ers because those decisions did not
shed any light on whether the for-
mer stockholders of dissolved cor-
porations faced liability under the
trust fund doctrine).
Here, Panex established the Liquidat-
ing Trust for just that purpose. For an
initial period of three years from the
execution of the Trust Agreement-- that
is until September 12, 1988 or approxi-
mately five months later than the expira-
tion of the three-year winding-up period
after Panex's filing of its certificate of
dissolution required by § 278 -- the Liq-
uidating Trust was a general successor to
Panex and was responsible for discharg-
ing any liabilities of Panex. Beyond that
time, however, the Liquidating Trust
could only be continued to deal with
specific claims [**117] or liabilities that
were pending and unresolved, or poten-
tial claims the Trustees had reasonable
[*802] groundsto believe existed. That
is, after the expiration of the three years
from the execution of the Trust Agree-
ment, the Liquidating Trust was not a
general successor to Panexatall; it was
a specific trust designed to assumere-
sponsibility only for defined liabilities of
Panex. Laga-related claims were not
within that scope of responsibility.
City Investing actually supports the
proposition that the instrument creating
the Panex Liquidating Trust should be
enforced in accordance with its clear and
unambiguous terms. In City Investing,
the Supreme Court rejected a considera-
tion of extrinsic evidence regarding the
intent behind the creation of the liquidat-
ing trust at issue in that case, affirming
this court's holding that the trust lan-
guage was clear and unambiguous and
should be enforced in accordance with
its plain meaning. ”
177 Id. at 1197-98.
That the Supreme Court would en-
force a trust instrumentis hardly surpris-
ing. The beneficiaries of a liquidating
trust typically include, as they do in this
case, the stockholders of the dissolving
corporation. Those stockholdersare enti-
tled [**118] to have their contractual
expectations honored. Here, the Liqui-
dating Trust's terms provided for its end
as a general successor of Panex on Sep-
tember 12, 1988 and Goldman Sachsis
entitled to have that instrumentenforced.
Furthermore, the Panex Liquidating
Trust is clearly distinguishable from the
liquidating trust at issue in City Invest-
ing. In City Investing, the trustees ex-
tended the life of a liquidating trust past
its original three-year period because
they could not wind-up City's affairs
within that time period and had yet to
liquidate all of the trust's assets. ™ The
City Investing liquidating trust had as-
sumed all responsibilities for the dis-
solved corporation and there was no
contractual bar on extensions of the
trust. Therefore, the Supreme Court held
that the trustees were within their au-
thority to extend the trust's existence, an
extension that did not violate the trust
instrument. Because the trust's terms
made it a general successor to the dis-
solved corporation, it could be sued on
all claims that could have been brought
against the dissolved corporation.
178 Id. at 1193.
Thesituation here is starkly different.
By the plain terms of the Trust Agree-
ment, the Liquidating [**119] Trust ex-
pired as a general successor to Panex on
September 12, 1988, and could live be-
yond that date only for another nine
years as to specific purposes. That such
a structure is rational and fair finds sup-
port in the second sentence of § 278 it-
self, which extendsthelife of the corpo-
ration for any action pending at the end
of the three-year statutory wind-up pe-
riod solely for the purpose ofthat action.
Indeed, to override the Trust Agree-
ment and find that the Liquidating Trust
existed as a general successor to Panex
after September 12, 1988 would be at
odds with this court's holding in In
[*803] re Citadel Industries, Inc. © In
that case, then-Vice Chancellor Brown
refused to grant a petition to revive a
corporation after the expiration of §
278's three-year period for the purpose
of allowing a claim to be brought against
it, finding that $ 278 barred that result,
for the obvious reason that such a re-
vival would substitute the judiciary's ap-
propriate view of the period during
which a dissolving corporation should
remain at jeopardy of suit for the Gen-
eral Assembly's.
179 The fact that the word
"solely" did not exist in $ 278 at
the time of Panex's dissolution
does not undermine [**120] this
argument because $ 278 has always
been interpreted as if it contained
the word "solely." The General As-
sembly's commentary to the
amendment adding the word
"solely" supports this conclusion:
"Section 278 is amended to make
clear that . . . the continuation of a
corporation's legal existence be-
yond the period described in Sec-
tion 278 by reason of the pendency
of an action, suit or proceeding is
solely for the purpose of that ac-
tion, suit or proceeding.” ROD-
MAN WARD,JR., EDWARD P.
WELCH & #£ANDREW J.
TUREZYN, FOLK ON THE
DELAWARE GENERAL COR-
PORATION LAW 8§ 278.1 n.2
(4th ed.).
180 423 A.2d 500 (Del. Ch.
1980).
181 Citadel, 423 A.2d at 503-04.
Whenthe Liquidating Trust was con-
tinued in existence after September 12,
1988, the sole reason that the Liquidat-
ing Trust was continued was the envi-
ronmental claim in New York. As a re-
sult, the Virgin Islands cannot use a
judgment against the Liquidating Trust
as a basis to claim over against Goldman
Sachs. The Liquidating Trust ceased to
be a general successor of Panex on Sep-
tember 12, 1988, and the Virgin Islands
did not sue it until 1996, some eight
years after that point. As a result, the
Virgin Islands has no claim against
Goldman Sachs for [**121] the distri-
butions it received from Panex.
Likewise, because the Liquidating
Trust faced no liability to the Virgin Is-
lands for Laga-related claims, the Liqui-
dating Trust had no basis to seek re-
coupmentof distributions it made to its
beneficiaries in 1987. Therefore, to the
extent that the Virgin Islands bases its
right of recovery on the assignment it
received of the Successor Trust's re-
coupment rights, it has no claim. The
Successor Trust only inherited whatever
rights of recoupment the Liquidating
Trust had as of September 12, 1997. Be-
cause the Liquidating Trust was not sub-
ject to liability on Laga-related claims,it
had no right to seek recoupment from
GoldmanSachs.
182 Interestingly, City Investing
can be read as undercutting the
Virgin Islands' recoupment and
trust fund doctrine claims in an-
other respect. In the course of rul-
ing that the liquidating trust in that
case wasresponsible for addressing
a corporate liability, the Supreme
Court specifically noted that its
willingness to allow claims against
the liquidating trust would not
prejudice the dissolving corpora-
tion's stockholders because a "par-
tial, but substantial, distribution to
City's shareholders [had] already
been [**122] accomplished." City
Investing, 624 A.2d at 1196. This
suggests that the Supreme Court
did not believe that the stockhold-
ers needed to worry that they
would be asked to return previ-
ously-received distributions simply
because a later-arising claim was
made; rather, the claim would have
to be satisfied by whatever funds
were remainingin the trust. In that
respect, this court's Citadel deci-
sion also suggests that § 279 of the
DGCL, which deals with the ap-
pointment of receivers for dis-
solved corporations, only permits
receivers to address claims arising
after the three-year period in § 278
has expired using assets still in the
possession of the corporation. 423
A.2d at 506 ("Where there are no
undistributed assets against which
to effect a recovery, § 279 provides
little solace to one possessing an
after-discovered claim against a
dissolved corporation.").
Similarly, because the trustees of the
Liquidating Trust were only empowered
to administer that Trust's assets, they
never had any authority to seek recoup-
mentof distributions Panex stockholders
received from Panex itself, rather than
the Liquidating Trust. As the inheritor of
those trustees' rights, the Virgin Islands
therefore has [**123] no basis to seek
recoupment of the distributions Gold-
man Sachsreceived from Panex.
In holding that the Virgin Islands has
no viable claim against Goldman Sachs
as an assignee of the Successor Trust, I
must address the Virgin Islands’ argu-
ment that I have somehow undermined
the only possible utility served by the
Successor Trust's creation. As explained
previously, [*804] the Successor Trust
was created to ensure that no one was
prejudiced by the imminent expiration of
the Liquidating Trust. The fact that the
Successor Trust did not turn out to be
the elixir the Virgin Islands and New
York hopedis of no moment. The Virgin
Islands got what it bargained for, insofar
as the Successor Trust assumed all the
rights and obligations of the Liquidating
Trust as of September 12, 1997. The re-
ality is that those rights and obligations
did not, per the clear terms of the Liqui-
dating Trust Agreement, extend to Laga.
That it took until the end of 2007 to find
that out is due largely to the Virgin Is-
land's languid approach to pressing its
claims.
Furthermore, the Virgin Islands was
able to reach settlements with Lazare,
Gal, Firmanco, and Rosenbloom,a bene-
fit to it that was likely due in some
measure to [**124] the continued exis-
tence of the Successor Trust. And it ap-
pears probable that the Successor Trust
fulfilled some role in providing assis-
tance to the former Panex directors and
officers in defending claims against
them.
D. Does The Virgin Islands Have A
Promissory Or Equitable Estoppel Claim
Against Goldman Sachs?
The Virgin Islands, in both its own
capacity and as an assignee of the Suc-
cessor Trust, argues that it has promis-
sory and equitable estoppel claims
against Goldman Sachs. The Virgin Is-
lands contends that the former stock-
holders’ rights to the liquidating distribu-
tions from Panex were quasi-contractual
in nature and that disclosures to the
Panex stockholders in the Proxy State-
ment regarding their possible future li-
ability for distributions received estop
Goldman Sachs. The Virgin Islands
claims that it has a right to enforce its
promissory estoppel claims as assignee
of the rights of the Successor Trust be-
cause the Successor Trust had the right
to enforce these quasi-contractual rights
as a party to the quasi-contract.
The Virgin Islandsalso asserts that as
a creditor it has the right to enforce these
quasi-contractual rights as a third party
beneficiary of the quasi-contract.
[**125] The Virgin Islands' equitable
estoppel claims are almost exactly the
same as its promissory estoppel claims.
The only difference is that the Virgin Is-
lands' frames its equitable estoppel
claims in reference to Goldman Sachs'
vote in favor of the Liquidation Plan and
its acceptance of the conditional liqui-
dating distributions rather than the al-
leged promise of recovery in the Proxy
Statement.
Under Delaware law, a plaintiff as-
serting a claim for promissory estoppel
must show byclear and convincing evi-
dencethat: "(i) a promise was made;(ii)
it was the reasonable expectation of the
promisor to induce action or forbearance
on the part of the promisee; (iii) the
promisee reasonably relied on the prom-
ise and took action to his detriment; and
(iv) such promise is binding because in-
justice can be avoided only by enforce-
ment of the promise." ” The promise
must be a real promise -- mere expres-
sions of expectation, opinion, or as-
sumption are insufficient. * The promise
must also be reasonably definite and cer-
tain. “ Equitable estoppel is based on
similar principles. To make out a claim
of equitable estoppel, the Virgin Islands
must show that it was induced to rely
[*805] detrimentally on Goldman
[**126] Sachs' conduct. “
183. Chrysler Corp. v. Chaplake
Holdings, Ltd., 822 A.2d 1024,
1032 (Del. 2003).
184 E.g., Metro. Convoy Corp.v.
Chrysler Corp., 58 Del. 286, 208
A.2d 519, 521, § Storey 286 (Del.
1965).
185 E.g., Cont Ins. Co. v.
Rutledge & Co., 750 A.2d 1219,
1233 (Del. Ch. 2000).
186 E.g., VonFeldt v. Stifel Fin.
Corp., 714 A.2d 79, 87 (Del. 1998).
These estoppel arguments fail the
Straight face test. The Proxy Statement
disclosure that the Virgin Islands claims
created the contract or quasi-contract
with Goldman Sachs states: "If the
amount held in the Liquidating Trustis
insufficient to discharge fully all liabili-
ties whicharise, or if liabilities arise af-
ter the Liquidating Trust is terminated,
each Panex stockholder may beliable for
any unpaid portion of such liabilities to
the extent of the liquidating distributions
paid to him." ” Descriptive statements in
disclosure statements do not amountto a
promise. “ This disclosure did nothing
more than warn the Panex stockholders
of the jurisprudential reality that the
status of Delaware law, and American
law more generally, regarding the liabil-
ity of stockholders receiving distribu-
tions from a dissolving corporation was
uncertain. That is, the disclosure
[**127] by the Panex directors simply
alerted Panex stockholders to a risk they
faced. The idea that this sort of warning
about a possible future litigation risk
could give risk to a later estoppel claim
is not one the Virgin Islands buttresses
with citation to relevant authority, and
that omission is unsurprising.
187 Proxy Statement at 6 (empha-
sis added).
188 VonFeldt, 714 A.2d at 87.
Delaware law encouragesdirectors to
provide stockholders with material in-
formation relevant to their voting deci-
sions. ” Treating warnings regarding
possible future risks as a sufficiently
binding promise to support a later estop-
pel claim would discourage full disclo-
sure of risks.
189 E.g., Millenco L.P. v. meVC
Draper Fisher Jurvetson Fund I,
Inc., 824 A.2d 11, 15 (Del. Ch.
2002) ("(U]nder Delaware law, the
fiduciary duties of directors require
that they disclose fully and with
complete candor all material facts
when they solicit proxies from
stockholders. . . . [T]Jhat duty is
best discharged through a broad
rather than a restrictive approach to
disclosure . . . .") (internal quota-
tion omitted).
Even worse, it would inject uncer-
tainty into relationships that ought to
have clarity. To: wit, in this instance,
what [**128] Goldman Sachs and other
Panex stockholders were asked to ap-
prove was a Liquidation Plan and a Liq-
uidating Trust Agreement. ™ But the
Virgin Islands is unable to identify any
statements in the Liquidation Plan or the
Liquidating Trust Agreement providing
for the right of Panex or the Liquidating
Trust to seek recovery of the liquidating
distributions. ™ It is hardly unprece-
dented for trust agreements or other
governing documents such as limited
partnership agreements to provide a pro-
vision requiring beneficiaries to respond
to capital calls at the requestof the entity
when necessary to meet its needs. The
Liquidating Trust Agreement could have
been crafted to include just such a provi-
sion, which would have required [*806]
recipients to promise to return any dis-
tributions received if necessary for the
Trustee to satisfy a liability relating to
Panex's pre-dissolution activities. Simi-
larly, a contract of this kind could have
been the condition on which Panex made
its last distributions as a corporation. But
no such obligation was ever imposed on
the recipients and it would be unreason-
able to read the warning languagein the
Proxy Statement as implicitly forming
such a contract, especially [**129]
when that language does not in the
slightest suggest that the recipients of
distributions would face a demand for
recovery from the Liquidating Trust it-
self.
190 Proxy Statement Exs. A & B.
191 The Successor Trustee, the
party whose shoes the Virgin Is-
lands now stands in in one of its
capacities, essentially admitted that
the Liquidation Plan and Panex
Trust do not explicitly provide a
basis for recovery of the liquidating
distributions by alleging that the
original trustees of the Panex Trust
breached their fiduciary duties by
"failing -- before such distribution
occurred -- to obtain an express
undertaking from the beneficiaries"
that the liquidating distributions
from the Panex Trust would be re-
turned, "if necessary, to allow the
Liquidating Trust to satisfy its ob-
ligations." 1998 Petition For De-
claratory Judgment at 1. No such
express undertaking would have
been necessary if it existed in the
Liquidation Plan or Trust Agree-
ment.
To the extent that the Virgin Islands
claims that the disclosures in the Proxy
Statement formed some quasi-contract
between the Panex stockholders and
those claiming to be Panex creditors,
that claim is even less tenable, if that be
possible. To turn a warning [**130] to
stockholders that they may face liability
at the instance of a later-arising creditor
into a binding promise by the stockhold-
ers to give the dissolving corporation
back the funds they received from the
corporation (or its liquidating trust)
would convert the warning of possible
liability into a confession of judgment.
Byjudicial fiat -- a full generation later -
- may becomesa contractually binding
shall! This reading would also have the
effect of turning the warning disclosure
into an expansion of the liability faced
by Panex stockholders. As the Virgin
Islands would haveit, the warning dis-
closure estopped the Panex stockholders
from failing to return distributions they
received if the Liquidating Trust needed
them to satisfy a judgment against it,
even if that judgment was based on a
Panex liability that the Liquidating Trust
Agreement's own terms excluded the
Liquidating Trust from bearing. In the
case of the Virgin Islands’ claims related
to Laga, the Liquidating Trust Agree-
ment did just that. But the Virgin Islands
would have the warning disclosure act as
a de facto modification of that Agree-
ment, rendering sound principles of con-
tract ineffective and creating a precedent
[**131] that would generate commercial
uncertainty. And, of course, the idea that
such a warning was intended in any way
to benefit future creditors by giving
them enforceable rights is textually un-
supported and contextually absurd.
The Virgin Islands has also unsur-
prisingly failed to plead reasonablereli-
ance byitself or the trustees of the Liq-
uidating Trust on the warning disclosure.
For the preceding reasons,it is clear as a
matter of law that the warning disclosure
could not have been reasonably relied
upon byeither the trustees of the Liqui-
dating Trust or Panex creditors as a be-
havior-changing promise.
The Virgin Islands’ so-called estoppel
claims shall be dismissed.
E. Are The Virgin Islands' Claims Time-
Barred?
The Virgin Islands did not bring this
suit until October 30, 2006. This was a
full twenty-five years after the Virgin Is-
lands bought Laga from Panex Co. This
was twenty-one years after Panex dis-
solved. This was eighteen years after the
three-year period under § 278 expired
and after the Liquidating Trust's status as
a general successor to Panex for liability
purposes ended. This was fourteen years
after the VI Environmental Litigation
first raised the possibility that contami-
nation [**132] had occurred at Laga.
This was ten years after the claims
against Goldman Sachs by the Virgin
Islands in the VI Environmental Litiga-
tion were dismissed without prejudice.
This was five years after Vice Chancel-
lor Jacobs denied the petition of the
Successor Trustee for recoupment in
part because the Successor Trustee had
failed {*807] to join the former Panex
stockholders as interested parties.
Because of this record of torpidity,
Goldman Sachs argues that the Virgin
Islands' claims are barred by the doctrine
of laches. I agree with that argument.
The analogousstatute of limitations
for the Virgin Islands’ unjust enrich-
ment/trust fund and recoupment claims
is the three-year period contained in /0
Del. C. § 8106. * Goldman Sachs argued
that that was the case in its opening brief
and the Virgin Islands did not refute that
assertion. * Moreover, the Virgin Islands
seeks money damages which is usually
an action at law that would generally be
subject to the three-year limitation pe-
riod of 10 Del. C. $ 8106. ™ Finally, the
Virgin Islands' estoppel claims are
analogous to quasi-contractual claims
which would also be subject to 10 Del.
C. § 8106.
192 E.g., Wal-Mart Stores v. AIG
Life Ins. Co., 860 A.2d 312, 319
(Del. 2004) [**133] ('[T]he appli-
cable statute of limitations is 10
Del. C. § 8106, which imposes a
three year period of limitations on
Wal-Mart's tort, contract, and fidu-
ciary duty claims... ."). I note the
reality that I have found that $ 278
itself acts effectively as a time bar.
This section treats the laches ques-
tion as if $§ 278 was no barto the
Virgin Islands.
193 Goldman Sachs Op. Br. at
47-49; Virgin Islands Ans. Br. at
46-48.
194 Atlantis Plastics Corp., 558
A.2d at 1064 ("A claim brought in
this Court which seeks money
damages, whichis generally an ac-
tion at law, will therefore generally
be subject to the three year limita-
tions period of 10 Del. C. §
8106.").
In its complaint, the Virgin Islands
pleads no basis for equitable tolling of
the statute of limitations. Frankly, sound
arguments can beraised that the Virgin
Islands should have been barred by la-
ches from suing Panex after 1984 for
any conditions at the Laga Facility. Hav-
ing let three years expire without argu-
ing that Panex breached any contractual
obligation or any affirmative representa-
tion as to the condition of the Laga Fa-
cility or the earth and water underit, the
Virgin Islands was poorly positioned to
sue at a later date. That [**134] is espe-
cially so given that it was in possession
of Laga, had every incentive before and
after purchase to investigate whether the
site was a source of pollution, and that
its own conduct on the site could have
changed the condition of the land and
generated pollution.
195 The Virgin Islands -- a quar-
ter of a century after the sale --
now alleges that "Panex Co. sold
the Laga facility property to the
Government of the U.S. Virgin Is-
lands Department of Education for
use as an education complex for
children without revealing that the
facility had been used for disposal
of toxic chemicals." Am. Compl. P
16. Of course, if that be true, the
Virgin Islands had a powerful in-
centive to inspect the site closely
and to conduct environmentaltest-
ing.
But I need not base my ruling on
whether the Virgin Islands should have
sued during the Reagan Administration;
it is enough that they waited until the
second term of the second Bush Admini-
Stration to bring this case. By 1992, the
Virgin Islands clearly knew that parties
in the VI Environmental Litigation were
attributing pollution to Laga. By the
time it got in the game, the Virgin Is-
lands clearly knew that Panex waslong
dissolved. Under the theory [**135] it
now espouses, the Virgin Islands had a
right to bring a trust fund claim against
Goldman Sachsthen. ™
196 See Henry G. Henn & John
R. Alexander, Effect of Corporate
Dissolution on Products Liability
Claims, 56 CORNELL L. REV.
865, 894, 909 n.222 (1971) ("Un-
der the ‘trust fund theory,’ . .
{c]laimants, even with unliquidated
claims, ‘would have standing to
sue, absent laches or any applicable
statute of limitations").
Indeed, the Virgin Islands asserted
claims substantively identical to those it
[*808] now advances in the VI Envi-
ronmental Litigation in 1996. Those
claims, which were arguably time-barred
whenthey were brought in 1996 because
the latest liquidating distribution was
made in 1987, were dismissed without
prejudice and without a tolling of the
statute of limitations. Moreover, the
Successor Trust was aware of its poten-
tial claims at the inception of its exis-
tence in 1997 -- the Order creating the
Successor Trust clearly describes one of
the purposes of the Successor Trust as
investigating and pursuing, if desirable,
recoupment of the liquidating distribu-
tions. But the Successor Trustee never
sued Goldman Sachs, even after Vice
Chancellor Jacobs cited to the failure to
do so [**136] as a basis for dismissing
the Successor Trustee's recoupmentpeti-
tion. As an assignee of the Successor
Trust, the Virgin Islands is stuck with
that record of inaction.
As a result, having only filed this suit
in 2007, the Virgin Islands, whether in
its guise as a creditor or an assignee of
the Successor Trust, has clearly ex-
ceeded the analogous three-year statute
of limitations for bringing its claims
against Goldman Sachs. The Virgin Is-
lands fails to assert any unusual circum-
stances justifying its delay, ” and thusits
claimsare time-barred.
197 The Virgin Islands does con-
tend that it could not bring its
claims as assignee of the rights of
the Successor Trust until it was as-
signed these rights in 2006. Al-
though this statement is factually
accurate, it does not support the
Virgin Islands’ claim that laches
should not apply because it ignores
the fact that the Virgin Islands
stands in the shoes of the Successor
Trust, which did notbring its claim
in a timely manner and woulditself
be time-barred.
In this court, a party's failure to file
within the analogousstatute of limitation
is, absent a tolling of the limitations pe-
riod, typically conclusive evidence of
laches. * But the doctrine [**137] of
laches also permits this court to hold a
plaintiff to a shorter period if, in terms
of equity, the plaintiff should have acted
with greater alacrity, and when the
plaintiff's failure to seek equitable relief
with alacrity threatens prejudice to the
other party. ”
198 E.g., Albert v. Alex. Brown
Memt. Servs., 2005 Del. Ch. LEXIS
100, 2005 WL 1594085, at *12
(Del. Ch. 2005) ("In the absence of
unusual or mitigating circum-
stances, where the analogousstat-
ute of limitations at law period has
run, a plaintiff is barred from
bringing suit without the necessity
of the court engaging in a tradi-
tional laches analysis.").
199 E.g., CertainTeed Corp. v.
Celotex Corp., 2005 Del. Ch.
LEXIS 11, 2005 WL 217032, at *6
(Del. Ch. 2005) (noting that with
respect to equitable claims such as
an injunction or specific perform-
ance laches may apply earlier than
the end of the period of the analo-
gous statute of limitations "if a
plaintiff sits on its claim and does
not demand promptaction.").
It is difficult to imagine a clearer in-
stance of prejudicial delay. » Goldman
Sachs wasa passive stockholder with no
direct knowledge of or role in the Laga
operations. The Virgin Islands seeks to
base a recovery against Goldman Sachs
on a default judgment it obtained
[**138] against a penniless Successor
Trust. The District Court issuing that
judgment had previously acknowledged
that there were serious questions regard-
ing whether the Virgin Islands was the
party culpable for any polluting releases
from Laga.
200 See Fike v. Ruger, 752 A.2d
112, 113 (Del. 2000) ("The essen-
tial elements of laches are: (i)
plaintiff must have knowledge of
the claim and (ii) there must be
prejudice to the defendant arising
from an unreasonable delay by
plaintiff in bringing the claim.").
As a matter of due process and eq-
uity, I cannot conceive of how this court
would permit the Virgin Islands to use
that type ofjudgmentcollaterally against
Goldman [*809] Sachs without afford-
ing Goldman Sachs an attempt to ad-
dress the underlying merits. Of course,
the Virgin Islands would say that the
Successor Trust was penniless because
distributions were made by Panex back
in 1987 that should not have been. But
by 1987, the Virgin Islands had owned
Laga for six years and had had ample
timeto investigate conditions there.
In attempting to mount a merits-
based defense, Goldman Sachs would
have to reconstruct a chain of events go-
ing back to the 1970s to which it was not
a party. Not only would key [**139]
witnesses’ memories have faded, some
are no longer among theliving. Lazare,
a key director and officer of Panex and
one of the two trustees of the Liquidat-
ing Trust, died in 1999 and would be
unavailable to testify. * This sort of evi-
dentiary prejudice clearly supports a
finding of laches. Compounding the
reality that Goldman Sachs would be
compromised by the passage of time in
mounting a defenseis the reality that the
expense of doing so would likely not be
cost-effective. The Virgin Islands would
therefore benefit from its tardiness by
being able to extract funds from Gold-
man Sachs, not because of the merits,
but simply so Goldman Sachs could
avoid the burden of defending the ac-
tion. Just because Goldman Sachsis in
the plush does not mean that it should be
subjected to this type of pressure by an
extraordinarily slow movingplaintiff.
201 See Rosenbloom, 766 A.2d at
45] (showing Lazare represented
by the executors of his estate in
2000); see, e.g., Fike, 752 A.2d at
114 (finding prejudice where key
witnesses died while the plaintiff
sat on its claim).
202 Steele v. Ratledge, 2002 Del.
Ch. LEXIS 118, 2002 WL
31260990, at * 3 (Del. Ch. 2002).
203 As noted previously, the Vir-
gin Islands did reach settlements
[**140] with the Panex stockhold-
ers whoserved as directors and of-
ficers. Thus,it is not as if it did not
obtain some recompense from
those most directly involved in any
polluting activities by Panex at
Laga. And as a matter of propor-
tion, it is worth noting that the Vir-
gin Islands settled for a total of $
9.3 million from Esso and Texaco
in the VI Environmental Litigation,
even though those parties were
supposedly responsible for over
65% of the damage to the Tutu aq-
uifer. In re Tutu Water Wells
CERCLA Litig., 326 F.3d 201, 206
(3d Cir. 2003). However rich
GoldmanSachsis, it was a passive
investor who owned 13% of Panex,
which was allegedly responsible
for less than 20% of the damagein
St. Thomas. /d. Now the Virgin Is-
lands seeks to have Goldman Sachs
pay $ 9 million it received twenty
years ago in goodfaith.
Furthermore, the Virgin Islands itself
asserts that the conduct of Panex's direc-
tors might be relevant to a fair determi-
nation ofits claims, in the sense thatif a
trust fund doctrine claim was recog-
nized, a court might only allow plain-
tiff to prevail if it proved that the fiduci-
aries who madedistributions acted ineq-
uitably in failing to provide for certain
claims (or possible [**141] claims). To
that point, the Virgin Islands invites me
to examine the liquidation plan and liq-
uidating dividends of the mid-1980s, by
determining "whether retention of less
than 10% ofthe dissolving corporation's
assets was reasonable." ™ This re-
illustrates the problem. Lazare was one
of the final directors of Panex anda trus-
tee of the Liquidating Trust. Gal and
Rosenbloom are alive but doubtless their
memories about events twenty years ago
have faded.
204 Virgin Islands Ans. Br. at 21
(arguing that "[{sJuch factual in-
quiry is relevant in determining
who in equity, as between Gold-
man and the citizens of the Virgin
Islands, should bear the cost of the
environmental damage suffered on
St. Thomas.").
IV. Conclusion
For the foregoing reasons, Goldman
Sachs' motion to dismiss is granted. IT
IS [*810] SO ORDERED.Eachsideto
bear its own costs.
Ba” + * _®™® LexisNexis
Page |
LEXSEE 2008 DEL. CH. LEXIS 147
In the Matter of Dow Chem.Int'l Inc. of Delaware
Civil Action No. 3972-CC
COURT OF CHANCERY OF DELAWARE, SUSSEX
2008 Del. Ch. LEXIS 147
October 3, 2008, Submitted
October 14, 2008, Decided
SUBSEQUENT HISTORY: Reargu-
ment denied by, Motion denied by Jn re
Dow Chem. Int'l Inc., 2008 Del. Ch.
LEXIS 169 (Del. Ch., Nov. 18, 2008)
COUNSEL: [*1] David J. Ferry, Jr.,
Rick S. Miller, Ferry, Joseph & Pearce,
P.A., Wilmington, DE.
Donald E. Reid, Morris, Nichols, Arsht
& Tunnell LLP, Wilmington, DE.
JUDGES: William B. ChandlerIII.
OPINION BY:William B. ChandlerIII
OPINION
This case arises out of an application
by petitioner, Daniel Boone, requesting
that this Court appoint a receiver for re-
spondent Dow Chemical International
Inc. of Delaware ("Dow Chemical of
Delaware"), a dissolved Delaware cor-
poration. Dow Chemical of Delaware
was formed in December 1971, dis-
solved in December 1988, and has had
no assets since December 1988. ' Peti-
tioner is an attorney representing a group
of plaintiffs pursuing tort litigation in
California who will be unable to main-
tain a civil suit against respondent unless
a receiver is appointed. » Respondent has
been dissolved for almost twenty years
and now petitioner seeks "to call the
players back from the dressing room,get
them back into uniform, and require
them to play little longer." > In the case
of Dow Chemical of Delaware, how-
ever, the game is over. For the reasons
explained briefly below, the application
for a receiver is denied.
1 Aff. of Scott V. Scarpelli P 3.
2 Petitioner's clients, banana
farmers in Nicaragua, allege [*2]
that respondent intentionally dis-
tributed and exposed them to the
chemical 1,2-Dibromo-3-
Chloropropane, also known as
DBCP, after knowing the product
posed serious medicalrisks.
3 In re Citadel Indus., Inc., 423
A.2d 500, 506 (Del. Ch. 1980).
Under 8 Del. C. § 278 there is a
three-year window during which suits
can be brought against a dissolved cor-
poration. ‘ Once the three-year period
has expired, no new suits can be brought
against the corporation. * Although § 278
grants the Court of Chancery discretion
to continue the corporate existence for
more than three years after dissolution,
such discretion allows continuance of
the corporate existence only for the pur-
pose of resolving pending litigation or
disposing of remaining assets. « There
can be no continuance after the three-
year period has expired because there is
nothing to continue--the dissolved cor-
poration "is no more." 7 Thus, once the
three-year period has expired and there
is no pending litigation or assets to be
disposed of, the Court no longer has dis-
cretion to "continue" the corporate exis-
tence under ¢ 278. *
4 8 Del. C. $278.
5 US. Virgin Islands v. Goldman,
Sachs & Co., 937 A.2d 760, 789
(Del. Ch. 2007); In re RegO Co.,
623 A.2d 92, 96 (Del. Ch. 1992)
[*3] (noting that ¢ 278 continues
the corporate existence beyond the
three-year period "solely" for the
purpose of concluding pending liti-
gation and not to allow new tort
claims to be brought against the
company).
6 See Virgin Islands, 937 A.2d at
792.
7 Citadel, 423 A.2d at 504 ("[T]he
emphasis is on ‘continuing’ that
which is already in existence be-
fore the corporate entity, as a legal
fiction, departs the legal realm and
becomes only a recorded mem-
ory.").
8 Id. at 504-05.
Petitioner acknowledges that the
three-year period under § 278 has ex-
pired and, therefore, seeks the appoint-
ment of a receiver under 8 Del. C. § 279.
Section 279 allows the "Court of Chan-
cery, on application of any creditor,
stockholder or director of the corpora-
tion, or any other person who shows
good cause therefor," to appoint a re-
ceiver for a dissolved corporationto:
take charge of the corpora-
tion's property, and to collect
the debts and property due
and belonging to the corpora-
tion, with power to prosecute
and defend, in the name of the
corporation, or otherwise, all
such suits as may be neces-
sary or proper for the pur-
poses aforesaid . . . and to do
all other acts which might be
done by the corporation, if in
being, that [*4] may be nec-
essary for the final settlement
of the unfinished business of
the corporation.’
The power to appoint a receiver under §
279 is necessary because corporate offi-
cers have no powertoact after the § 278
three-year period has expired. » The pur-
pose of § 279 is to benefit shareholders
and creditors where there are undisposed
of assets remaining after dissolution by
allowing appointment of a receiver "to
safeguard the collection and administra-
tion of still existing property interests of
a dissolved corporation." " Thus, § 279
provides "little solace" for one possess-
ing an after discovered claim against a
dissolved corporation with no undistrib-
uted assets. ”
9 8Del. C. $279.
10 Citadel, 423 A.2d at 504-05.
11 Id. at 506.
12 Id. at 506-07 (noting that §
278 "has been compared to
a
stat-
ute of limitations").
At common law, the moment a cor-
poration was dissolved it ceased to exist
as a legal entity and lost the capacity to
sue and be sued. This harsh result was
tempered by the enactment of § 278
which allows a time in which suits can
be brought even after a corporation is
dissolved. The intention of § 278 is to
balance the public policy interest of en-
suring that claimants have adequate [*5]
time to bring claims against the corpora-
tion and the public policy interest of al-
lowing directors, officers, and stock-
holders to be free from claimsrelating to
the dissolved corporation after sufficient
time has passed. « The General Assem-
bly, in enacting § 278, balanced these
policy interests by establishing the three-
year window--a window that could be
extended to allow resolution of claims
pending at the end ofthat period. « I do
not read the power of the Court to ap-
point a receiver for a dissolved corpora-
tion under § 279 to change the balance
of the policy interests established by §
278. In short, petitioner cannot use § 279
to bypass the three-year limitation under
§ 278 when a dissolved corporation
holds noassets.
13 See RegO, 623 A.2d at 95.
14 Virgin Islands, 937 A.2d at
789.
15 See id. at 792.
City Investing Co. Liquidating Trust v.
Continental Casualty Co.
« does not change this result. In City
Investing the Delaware Supreme Court
held that a liquidating trust was not
shielded by § 278 from claims brought
more than three years after dissolution of
the predecessor corporation. The deci-
sion rested on the "significant factual
element"that the corporation established
a liquidating [*6] trust, a separate legal
entity, to conduct the winding up proc-
ess. " The Court reasonedthatif the cor-
poration in that case had sought to con-
tinue its existence beyond the § 278
three-year period, then it would still be
subject to claims beyond that period. «
The Court was preventing a corporation
from creating a separate legal entity to
avoid liability while still conducting the
process of winding up, a concern not
present in the case of Dow Chemical of
Delaware.
16 624 A.2d 1191 (Del. 1993).
17 Id. at 1196,
18 Id.
Petitioner seeks appointment ofa re-
ceiver for a corporation that has no as-
sets » and was dissolved almost twenty
years ago. As former-Chancellor Grover
C. Brown wrote, "all things must come
to an end at some point," » and for Dow
Chemical of Delaware the end hasal-
ready come. For the foregoing reasons,
the application for a receiveris denied.
19 As apractical matter, recovery
of any judgment against Dow
Chemical of Delaware is highly
unlikely because the company has
no remaining assets. The inability
to collect from Dow Chemical of
Delaware, however, does not leave
petitioner's clients without recourse
as they are suing a numberofother
companies in the California action,
[*7] including The Dow Chemical
Company, Dole Food Company,
Inc., and Standard Fruit Company.
20 Citadel, 423 A.2d at 507.
IT IS SO ORDERED.
| /s/ William B. ChandlerIII
William B. Chandler ITI
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Citation: 499 F.3d 165
499 F.3d 165, *; 2007 U.S. App. LEXIS 20555, **;
65 ERC (BNA) 1097; 37 ELR 20221
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.
05-0514-cv (Lead), -0702-cv (XAP), -0706-cv (XAP), -0708-cv (XAP)
UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT
499 F.3d 165; 2007 U.S. App. LEXIS 20555; 65 ERC (BNA) 1097; 37 ELR 20221
February 6, 2006, Argued
August 28, 2007, Decided
PRIOR HISTORY: [**1]
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.
CASE SUMMARY
PROCEDURAL POSTURE:In an action in which plaintiff, the State of New York, asserted
CERCLA cost recovery claims against defendant, a dissolved corporation, the State
appealed an orderof the United States District Court for the Western District of New York
dismissing the State's claims against defendant shareholders on the ground that they were
barred by Del. Code Ann. tit. 8, § 278. The shareholders appealed a summary judgment
entered against the corporation,
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Get a Document- by Citation - 499 F.3d 165 Page 2 of 21
OVERVIEW:Although the State's claims werefiled outside the three-year wind-up period
established by Del. Code Ann. tit. 8, § 278 and before the State obtained an unsatisfied
judgment against the corporation as required by Del. Code Ann. tit. 8, § 325(b), the State
arguedthatits claims were valid under the commonlaw equitable trust fund doctrine. On
appeal, the court held that the State's claims against the shareholders were barred by Del.
Code Ann. tit. 8, § 278 because § 278 superseded the trust fund doctrine insofar as § 278
provided a remedyfor the State's pre-dissolution claims against the shareholders. Because
§ 278 provided the only basis for liability, the State was required to comply with Del. Code
Ann.tit.8,§325(b) before pursuing claims against the shareholders. The court held that
the six-year CERCLA limitations period set forth in 42 U.S.C.S. § 9613(q)(2)(B) did not
preempt Del. Code Ann. tit. 8, § 278's three-year wind-up period because § 278's
limitation on a corporation's capacity to be sued did not significantly interfere with the
goals of CERCLA, which did not manifest an intent to trace infinitely funds that once
belonged to a party responsible for contamination.
OUTCOME:Thecourt affirmed the dismissal of the State's claims against the
shareholders. The court reversed the denial of the motion to dismiss the State's CERCLA
claims against the corporation and the summary judgment granted against the corporation
on thoseclaims.
CORE TERMS:trust fund, shareholder-distributees, shareholders, state law, federal
commonlaw, dissolution, dissolved, wind-up, site, preemption, preempt, contamination,
statutory remedy, equitable, successor, statute of limitations, post-dissolution,
environmental, corporate law, federal policy, expiration, commonlaw, pre-dissolution,
cross-appeal, displacement, uniformity, intent to preempt, liquidating, distributed,
preempted
LEXISNEXIS® HEADNOTES Gl Hide
Civil Procedure > Pleading & Practice > Defenses, Demurrers & Objections > Motions to Dismiss fu
Civil Procedure > Appeals > Standards of Review > De Novo Review Si
HN1%The court of appeals reviewsa district court's decision to grant a motion to
dismiss de novo. More Like This Headnote | Shepardize: Restrict By Headnote
Business & Corporate Law > Corporations > Dissolution&Receivership > Termination&WindingUp>
Limited Survival *au
HN2¥% Like other post-dissolution statutes, Del. Code Ann. tit. 8,.§ 278 provides that any
suit against a corporation, which wasfiled before dissolution or during the three
year statutory wind-up period, does not abate, even on the expiration of the wind-
up period. When the wind-up period expires, however, so does the corporation's
capacity to be sued. More Like This Headnote | Shepardize: Restrict By Headnote
Business & nes Law > Corporations > Dissolution & Receivership > Termination & Winding Up >
Limited Survival fi
HN3% See Del. Code Ann. tit. 8, § 278.
Business & Corporate Law > Corporations > Dissolution & Receivership > Termination & Winding Up >
Limited Survival cH
HN4% Del. Code Ann, tit. 8, § 278 covers all potential pre-dissolution claims, regardless
of which corporate constituent is named as the defendant. More Like This Headnote
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Business & Corporate Law > Corporations > Dissolution & Receivership > Termination & Winding Up >
aBusiness&Corporate Law > Corporations > Finance > Dividends & Reacquisition of Shares >
Right to Dividends er
HNS¥, Del. Code Ann. tit. 8, § 282(b) provides that if a corporation choosesto distribute
its assets in accordance with procedures described in Del. Code Ann. tit. 8, § 281
(a), then its shareholders shail 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 Del. Code Ann. tit. 8, § 278. Del. Code Ann. tit. 8, §§ 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 Del. Code Ann. tit. 8, §
281(a). More Like This Headnote | Shepardize;: Restrict By Headnote
Business & Corporate Law > Corporations > Dissolution & Receivership > Termination & Winding Up >
Distribution of Assets > Creditor Rights ‘au
Business & Corporate Law > Corporations > Dissolution & Receivership > Termination & Winding Up >
Limited Survival tal
HN6% Del. Code Ann. tit. 8, § 278 is a comprehensive statutory remedy available to
creditors for claims against all potential defendants, including a corporation,its
officers, and its shareholders. More Like This Headnote
Business & Corporate Law > Corporations > Shareholders > Shareholder Duties & Liabilities >
Personal viability
HN7%,For Del. Code Ann. tit. 8, § 325(b) to apply, defendants mustbeliable by the
provisions of the Delaware General Corporation Law. Del. Code Ann. tit. § 325
(a). More Like ThisHeadnote
Business & Corporate Law > Corporations > Shareholders > Shareholder Duties & Liabilities >
PersonalLiability €)
HN8% See Del. Code Ann. tit. 8, § 325(b).
Business & wees Law > Corporations > Dissolution & Receivership > Termination & Winding Up >
Limited Survival Su
Business & Corporate Law > Corporations > Shareholders > Shareholder Duties & Liabilities >
Personal Liability e
HN9% Del. Code Ann. tit. 8, § 278 applies to claims against shareholders that arise
before dissolution. MoreLikeThisHeadnote
Business & Corporate Law > Corporations > General Overview fu
Civil Procedure > Parties > Capacity of Parties > General Overview fa)
HN10%The Federal Rules of Civil Procedure provide that state law governs a
corporation's capacity to be sued, Fed. R. Civ. P. 17(b). More Like This Headnote
Business & Corporate Law > Corporations > Dissolution & Receivership > General Overview a)
HN11% How long and upon whattermsa state-created corporation maycontinue 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 forall
purposes. More Like This Headnote
Constitutional Law > Supremacy Clause > Federal Preemption fa
HN12% Preemption of areas that have beentraditionally occupied by the statesis
inappropriate absent clear and manifest congressional intent to supersede state
law. More Like This Headnote | Shepardize: Restrict By Headnote
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Constitutional Law > Supremacy Clause > Federal Preemption sl
HN13%The Supreme Court of the United States has identified three situations that show
congressional intent to preempt state jaw: (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. More Like This Headnote | Shepardize: Restrict By Headnote
Constitutional Law > Supremacy Clause > Federal Preemption bl
Environmental Law > Hazardous Wastes & Toxic Substances > CERCLA & Superfund > General Overview £0
HN144 CERCLA does not expressly state an intent to preemptstate law across the
board. While CERCLA doesstate that it applies notwithstanding any other
provision or rule of law, 42 U.S.C.S. § 9607(a), this clause refers only to
substantive liability and does not express congressional intent to preempt state
rules on howlitigation proceeds, including a party's amenability to suit. Nor is the
CERCLA regulatory scheme so comprehensive that the court reasonably can infer
an intent to preempt; in fact, state corporate law can supplement CERCLA in
several situations. More Like This Headnote | Shepardize: Restrict By Headnote
Constitutional Law > Supremacy Clause > Federal Preemption Tau
HN15%An actual conflict between state and federal! law exists when compliance with
both federal and state regulations is a physical impossibility or when state law is
an obstacle to the accomplishment and execution of the full purposes and
objectives of Congress. Absent clear congressional intent to the contrary, federal
preemption of state law is not favored, especially in areas of law traditionally
occupied by the states. Corporate law is one of these areas. More Like This Headnote
| Shepardize: Restrict By Headnote
Environmental Law > Hazardous Wastes & Toxic Substances > CERCLA & Superfund > Enforcement > Cost
Recovery Actions > General Overview "au
HN16%4% CERCLA does not automatically assign liability to every party with any connection
to a contaminatedfacility. CERCLA's cost-recovery objective, while strong, is not
absolute and mayyield to countervailing considerations. CERCLA recognizes 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. CERCLA must be construed broadly to achieve environmental
and cost-assignment goals, but CERCLA's reach is not
unlimited. More Like This Headnote | Shepardize: Restrict By Headnote
Constitutional Law > Supremacy Clause > Federal Preemption ‘a
Environmental Law > Hazardous Wastes & Toxic Substances > CERCLA & Superfund > Enforcement >
General Overview ‘atu
HN17% CERCLA does not preemptstate statutes that limit a party's capacity to be
sued. MoreLikeThisHeadnote
Business & Corporate Law > Corporations > Dissolution & Receivership > Termination & Winding Up >
Limited Survival er
Civil Procedure > Parties > Capacity of Parties > General Overview Al
Environmental Law > Hazardous Wastes & Toxic Substances > CERCLA & Superfund > Enforcement > Cost
Recovery Actions > General Overview “a
HN18% Del. Code Ann. tit. 8, § 278 limits capacity to be sued, not liability, and thus does
not conflict with CERCLA‘s statute of limitations, 42 U.S.C.S. § 9613, evenif in
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operation the state law precludes a CERCLA plaintiff from recovering in some
circumstances. More Like This Headnote | Shepardize: Restrict By Headnote
Business & Corporate Law > Corporations > Dissolution & Receivership > Termination & Winding Up >
Limited Survival e
Constitutional Law > Supremacy Clause > Federal Preemption *au
Recovery Actions > General Overview “au
HN19%There is no conflict between Del. Code Ann. tit. 8, § 278 and the congressional
policy manifested in CERCLA thatleads the court 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 becausea plaintiff's cause of action is based upon a federal
statute or because it would net the government more
money. More Like This Headnote | Shepardize: Restrict By Headnote
HN20%To justify creation of a rule of federal commonlaw, a party must show
specifically a significant conflict between some federal policy or interest and the
use of state law. Cases thatcall for the creation of federal common law are few
and restricted, andit is difficult to prove the need for a federal commonlawrule.
The existence of a complex federal statutory scheme does not automatically
show that Congress intended courtstofill its gaps with rules of federal common
law. Rather, where federal statutory regulation is comprehensive and detailed,
the court presumes that matters left unaddressed are left subject to the
disposition provided by state law. The court strongly presumesthat 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. More Like This Headnote | Shepardize: Restrict By Headnote
CivilProcedure > Federal&StateInterrelationships > FederalCommonLaw > InterstitialLaw Sq
Environmental Law > Hazardous Wastes & Toxic Substances > CERCLA & Superfund > General Overview td
HN21% Courts must refrain from creating CERCLA-specific federal common law rulesin
the face of applicable long-standing commonlaw principles. More Like This Headnote
| Shepardize: Restrict By Headnote
Civil Procedure > Federal & State Interrelationships > Federal Common Law > Interstitial Law fu
HN22%The absence of a conflict between state law and federal policy 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. More Like This Headnote | Shepardize: Restrict By Headnote
Civil Procedure > Federal & State Interrelationships > Federal Common Law > Interstitial Law fu
HN23%1n deciding whether to draw from state law or to create a rule of federal common
law in cases involving federal programs, the court considers: (1) the need for a
nationally uniform body of law; (2) whether application of state law would
frustrate specific objectives of the federal programs; and (3) the extent to which
application of a federal rule would disrupt commercial relationships predicated on
state law. More Like This Headnote | Shepardize: Restrict By Headnote
Civil Procedure > Federal & State Interrelationships > Federal Common Law > Interstitial Law fd -
Environmental Law > Hazardous Wastes & Toxic Substances > CERCLA & Superfund > General Overview a
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HN24%Although CERCLAis 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. To invoke the
concept of uniformity is not to prove its need. Moreover, variations in rules
amongstates do not prove a need for uniformity as long as the applicable
standard is applied evenhandedly to particular disputes. More Like This Headnote|
Shepardize: Restrict By Headnote
COUNSEL: RICHARDP. 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 ve, 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.
ROBERTL.TOFEL~@ and M RK_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 & [**2] Lavan LLP, for Defendant-Appellee-Cross-
Appellant Goldman Sachs & Company.
*« 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).
JUDGES:Before: JACOBS v, POOLER +, and JOHN R. GIBSON ¥,* Circuit Judges.
* The Honorable John R. Gibson, Circuit Judge, United States Court of Appeals for the Eighth
Circuit, sitting by designation.
OPINION BY: JOHN R. GIBSON w+
OPINION
[*169] 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
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 [**3] 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 underthe statute because it had
been dissolved for over three years by the time the State notified Panex of its claims and
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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
FOOTNOTES
1 In all the State paid or raised costs of $ 10 million in connection with cleanup of the
_site, and the remaining sum is whatis left after the State's settlements with other
parties.
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
had been the Rochester Button Company, a manufacturing [**4] plant. In the early 1970s,
Rochester Button used the Wellsville-Andover Landfill site to dispose of its industrial waste,
placing muchofit 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 [*170] 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
commencedinvestigation, 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). [**5] Panex's former shareholders had
received liquidating distributions totaling $ 64 million before the Trust was created. The Trust
received $ 6 million in funding 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 knownPanex< 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
unknownclaimants 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 [**6] thelife 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 claims under New York
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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 lawsuit ? 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 [*171] claimants [**7] against a
dissolved or insolvent corporation to follow the distributed assets of the corporation into the
United States, 138 F.2d 850, 852 (10th Cir. 1943).
FOOTNOTES
-2 Panex and the shareholder-distributees were involved in similar environmentallitigation
_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
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 outcomein that case, but we need not reach that
argumentto resolve the instant appeal and cross-appeal.
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 [**8] 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
argumentthat 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 successortrust 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
9607, [**9] 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:
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1. The district court erred in determining that section 278 bars the State's claim against the
shareholder-distributees, because the commonlaw 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) [**10] because it had notfirst 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 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 [*172]
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) barits 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 uponits
continued relevance. “"1¥Wereview thedistrict court's decision to grant the motion to
[**11] dismiss de novo. See Cooper v. Parsky, 140 F.3d 433, 440 (2d Cir. 1998).
Wefirst address the State's argumentthat the trust fund doctrine survives enactment of
Delaware General Corporation Law, Del. Code Ann. tit. 8, § 278, allowing its claims against
Panex and the shareholder-distributees to proceed even though suit was filed more than
three years after Panex's dissolution. Under the commonlaw,dissolution of a corporation
terminated its existence as a legal entity, thus abating all pending actions by and againstit
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 [**12] 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 abatementrule. 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
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)
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(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 [**13] equivalent."), But see Green v. Oilwell
Div. of U.S. Steel Corp., 1989 OK 7, 767 P.2d 1348, 1352 (Okla. 1989) (holding that state
jaw 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 provisionsin
the corporate codes of most orall 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, section278 of the Delaware General Corporation
[*173] Law 3, was enacted in order "to 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." CityInvestingCo..
Liquidating Trust v.. Continental Casualty Co., 624 A.2d 1191, 1194 (Del. 1993). "N?FLike
other post-dissolution statutes, section 278 provides that "any suit against the corporation,
which wasfiled before dissolution or during the three year statutory wind-up period,
A.2d at 95. When the wind-up period expires, however, so does the corporation's capacity to
be sued.
FOOTNOTES
3 4NSEDel. Code Ann. tit. 8, § 278 provides:
All corporations, whether they expire by their own 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, whethercivil, criminal or administrative, by or against
them, and of enabling them gradually to settle and close their business, to
dispose of and conveytheir 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 [**15] 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.
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
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by wind-up statutes, and thedistrict court cited three cases to support this proposition:
Pacific Scene, Inc. v. Penasquitos Inc., 46 Cal. 3d 407, 250 Cal. Rptr. 651, 758 P.2d 1182
(Cal. 1985); Hunter, 620 S.W.2d 547; and Blankenship v. Demmier Manufacturing Co., 89
Ill. App. 3d 569, 411 N.E.2d 1153, 44 Ill. Dec. 787 (Ill. App. Ct. 1980).
The [**16] 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 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; andin 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 wasfiled within [*174] the two year period, Blankenship,
411 N.E.2d at 1156.
These cases support the conclusion that section278applies to this case. First, in concluding
that statutory remedies supersede the commonlaw trust fund doctrine, all three cases
address as a policy matter the necessity of protecting shareholders, together with officers
and corporations, from [**17] 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. 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 [**18] whether to apply the trust fund doctrine in
orderto provide extra-statutory remedies, which explains the emphasis on statutory
construction and whether the statutes regulate corporateliability 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.").
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,
the State's pre-dissolution claim against Panex's former shareholders. + Contrary to the
State's assertions, several Delaware cases suggest that the Court of Chancery interprets
section278 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 problemsasthe trust fund doctrine, but it also recognized that the "modern scheme
still leaves open the question, what, if any, [*175] rights are afforded to persons who have
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no claim against a corporation at the time ofits 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
characterized the possibility that shareholders and directors may be liable as "an unclear and
troubling question." Id.
FOOTNOTES
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.
{**20] As the decisions cited by the district court indicate, the importantissue 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.
The crucial question for the court in analyzing statutory remedies was whethera 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.
FOOTNOTES
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 [**21] 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.
Similarly, in In re Citadel Industries, Inc. the court made no distinction between potential
defendants when it analyzed the 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 [**22] no longer a legal entity which
could be continued throughits 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, ... [hJ]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 remedyavailable to
creditors for claims against all potential! defendants, including the corporation,its officers,
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and its shareholders. &
FOOTNOTES
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 [**23] liquidating trust is
_the successor of the corporation whose assets it administers" and thus subject to
creditors’ claims despite the corporation's dissolution. 624A.2dat1197. 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.2dat_.459. Instead of making any reference to the trust fund doctrine, both cases
. delineate the role of trusts in Delaware's statutory framework. Indeed, the State has an
unchallenged judgment against Panex's liquidating trust; the difficulty is that its assets
are insufficient to satisfy the claim.
[*176] We are persuaded by the general consensus that modern statutory remedies have
effectively replaced the trust fund doctrine and that there are sound reasonsfor abiding by
correctly held that the State's claimsagainstthe 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 mustlikewise conclude that Delaware [**24] General Corporation Law §
325(b) 7 bars the State's claims against the shareholder-distributees. As the State points out,
Delaware law requires that 4"7#for section 325(b) to apply, the defendants mustbeliable
"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 becauseit is a suit arising in equity.
_ FOOTNOTES
7 HN®SDel. 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 personis an officer, director or
stockholder, until judgment be obtained therefor against the corporation and
execution thereon returned unsatisfied.
In light of our conclusion that section 278 provides the only basis for liability, the State's
argument mustfai]. 4“"9¥#Section278 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
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shareholder-distributees, we turn to the State's argument [**25] that those statutes should
not apply in the face of CERCLA. Thedistrict 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 anyliability of the
shareholder-distributees would arise from their amenability to suit under Delaware law, not
from CERCLAor 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
(B) preempts the three-year corporate wind-up period established by Delaware General
Corporation Law § 278. [**26] Alternatively, the State urges this Court to displace the
Delaware statutes and apply the 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, 111 S. Ct. 1711, 114L.
Ed. 2d 152 (1991). 4#N4°%he Federal Rules of Civil Procedure provide that [*177] state
Court has held “%12#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 forall
purposes." Chicago Title & Trust Co. v. Forty-One Thirty-Six Wilcox Bldg. Corp., 302 U.S.
120, 127-28, 58 S. Ct. 125, 82 L. Ed. 147 (1937); see also Melrose Distillers, Inc. v. United
States, 359 U.S. 271, 272, 79 S. Ct. 763, 3 L. Ed. 2d 800 (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
[**27] against displacementof state law in areas traditionally occupied by the states. See,
e.g., English v. Gen. Elec. Co., 496 U.S. 72, 79, 110 S. Ct. 2270, 110 L. Ed. 2d 65 (1990)
(warning that 4#*"22%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, 117 S. Ct. 666, 136 L. Ed. 2d 656 (1997) (stating
that Congress legislates against the backgroundof state law, so a "significant conflict"
between federal policy and state law must be specifically shown before the creation of federal
common lawis 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, 107 S. Ct. 683, 93 L.
Ed.2d613(1987). 4%434The Supreme Court hasidentified three situations that show
congressional intent to preempt state law: (1) where Congress expressly states its intent to
preempt; (2) where Congress's schemeof federal regulation is sufficiently comprehensive to
give rise to a reasonable inference that it leaves no room [**28] for the state to act; and
(3) where state law actually conflicts with federal law. Id.at280-81. 4%14#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 doesstate that it applies "[n]
only to substantive liability and does not express congressional intent to preempt state rules
on howlitigation proceeds, including a party's amenability to suit. See Citizens Elec. Corp. v.
Bituminous Fire & Marine Ins. Co., 68 F.3d 1016, 1019 (7th Cir. 1995). Nor is the CERCLA
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regulatory scheme so comprehensive that we reasonably can infer an intent to preempt; in
fact, state corporate law can supplement CERCLA in severalsituations. Bedford Affiliates, 156
Our inquiry therefore focuses on the third preemption scenario, whether Delaware law
actually conflicts with CERCLA. "%45An 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,
83 S. Ct. 1210, 10 L. Ed. 2d 248 (1963)), [**29] 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, 61S. Ct. 399, 85 L. Ed. 581
(1941)). Absent clear congressional intent to the contrary, federal preemption [*178] of
occupied by the states. As we observed above, corporate law is one of these areas. Kamen
500 U.S. at 99. For preemption to occurin this instance, then, the conflict between state law
and federal policy must be a "sharp" one. See Boyle v. United Techs. Corp., 487 U.S. 500,
507, 108 S. Ct. 2510, 101 L. Ed. 2d 442 (1988).
The “physical impossibility" form of conflict does not exist here, becauseit is certainly
possible to comply with the CERCLA limitations period and Delaware's limits on the
amenability to 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
[**30] 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 claimantto file within three-year CERCLAlimitations 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
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, 109 S. Ct. 2273, 105 L. Ed. 2d 1 (1989). To effectuate these goals,
CERCLA looks backward in time and imposes wide-rangingliability. It allows the government
to recover remediation costs directly from parties responsible for contamination, 42 U.S.C. §
9607(a)(4)(A); it allows private parties to seek indemnification [**31] and contribution for
clean-up costs from potentially responsible parties, 42 U.S.C. § 9607(a)(4)(B); and it
imposesstrict 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 schemeanticipates 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 4%16¥CERCLA automatically assign liability to every
party with any connection to a contaminatedfacility"). In other words, CERCLA's cost-
recovery objective, while strong, is not absolute and mayyield 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
displacementof state law. O'Melveny & Myers v. FDIC, 512 U.S. 79, 88, 114 S. Ct. 2048, 129
L. Ed. 2d 67 (1994) (discussing federal commonlaw in the context of the Financial
Institutions Reform, Recovery, and EnforcementAct).
We cannot conclude that Delaware law is an obstacle to the accomplishment of CERCLA's
objectives in this instance. The [**32] State's strongest argument on this point is that
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CERCLA aims to hold corporations financially responsible for the environmental damagetheir
activities cause, [*179] 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 belongedto
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 reachis "not unlimited"), aff'd, 909 F.2d 511 (8th Cir. 1990). That Delaware
law, in affording dissolved corporations and their shareholders a measureoffinality, 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 [**33] preemption.
The district court documented the disagreement among federal courts on this issue. § Many
of the cases that hold that CERCLA preemptsstate limits predate Supreme Court precedent
strongly admonishing courts against displacing state law lightly, see, e.g., O'Melveny, 512
U.S.at88. In light of that precedent and CERCLA's limits we join those Courts of Appeals
that have held that 4"47#CERCLA does not preemptstate 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.
Cir. 1994).
FOOTNOTES
_s Several district courts, like the court below, have held that CERCLA preemptsstate
_ limits on the capacity of dissolved corporations to be sued in light of congressional intent
_that CERCLA impose broad-rangingliability. 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 Capital, 915 F. Supp. 1290, 1303-04 (W.D.N.Y. 1996) [**34] (collecting cases).
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 knownto the corporation or that, based
on facts knownto the corporation, are likely to arise within a period after dissolution. Del.
Code Ann. tit. 8, §§ 280(c)(3), 281(b). See a/so 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 successorliability laws of most states "generally prevent
corporations from using sham transactions to escape CERCLA liability"). In addition,
[**35] 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 [*180] contamination site while preserving its ability to make a
claim against the dissolving corporation. Finally, we are not persuadedby 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
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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 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 [**36] an accrued
cause of action after a period of time." Burlington N. & Santa Fe Ry. Co. v. Poole Chem. Co.,
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 jd. 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 thesuit 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.” 42 U.S.C. § 9613(g)(2)(B). The Delaware statute
limiting capacity to be sued does not necessarily interfere with this goal, however, becauseit
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. 4%?8#Delaware's statute limits
capacity to be sued, notliability, and thus does not conflict with CERCLA's statute of
limitations--even [**37] if in operation the state law precludes the CERCLA plaintiff from
recovering in some 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 BedfordAffiliates, 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 byrestricting the availability
of contribution actions. The restitution and indemnification claims would have given the
plaintiffs an alternative to the contribution action withheld by CERCLA, whichflies 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, "*19%the State has not shownsucha conflict between Delaware law and the
congressional policy manifested in CERCLA as to lead us to conclude that Congress intended
to preempt [**38] 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 becausea plaintiff's
cause of action is based upon a federal statute," Burks v. [*181] Lasker, 441 U.S. 471,
478, 99 S. Ct. 1831, 60 L. Ed. 2d 404 (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. Thatis
not sufficient to justify preemption.
B. Federal Common Law
Having held that the CERCLAstatute of limitations does not preempt Delaware lawin 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
commonlaw. 4"29%T9 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
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law." [**39] Wallis v. Pan Am. Petroleum Corp., 384 U.S. 63, 68, 86 S. Ct. 1301, 16 L. Ed.
2d 369 (1966). Cases that call for the creation of federal commonlaw are "few and
restricted," see Atherton v. FDIC, 519 U.S. 213, 218, 117 S. Ct. 666, 136 L. Ed. 2d 656
(1997), and it is difficult to prove the need for a federal common faw rule, see Atchison, T. &
S.F. Ry. v. Brown & Bryant, 159 F.3d 358, 364 (9th Cir, 1998). The existence of a complex
federal statutory scheme does not automatically show that Congress intended courts tofill its
gaps with rules of federal commonlaw.Id. at 362 (citing O'Melveny). Rather, where federal
statutory regulation is "comprehensive and detailed," as CERCLA is, we presume that matters
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, 111 S. Ct. 1711, 114 L. Ed. 2d 152
(1991).
While recognizing that Congress intended CERCLA to provide a sweeping remedy that
requires responsible parties to bear [**40] 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, 118 S. Ct. 1876, 141 L. Ed. 2d 43
(1998). In Bestfoods, the Court refused to adopt a "relaxed, CERCLA-specific rule of
derivativeliability 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 Servs. Indus.,
352 F.3d 682, 685 (2d Cir. 2003) (holding that Bestfoods required 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
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 [**41] federal standard. United States v. Gen. Battery Corp., 423 F.3d
294, 300 (3d Cir. 2005), cert. denied, Exide _[*182] Techs. v. United States, 127 S. Ct. 41
(2006).
While Bestfoods stops short of expressly instructing courts to apply state law, ""?1¥it clearly
admonishes courts to refrain from creating CERCLA-specific rules in the face of applicable
long-standing commonlaw 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 U/timate Independenceof 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 onthe basis of the
mere involvement of CERCLA in the case, we proceedto the traditional analysis. As discussed
in Part III.A above, there is no significant conflict between state law and federal policy in this
instance. 422%The absence of such a conflict weighs heavily against creation of a rule of
federal commonlaw as a threshold matter, because a significant conflict is "normally a
‘precondition™ to [**42] 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-
29,99 S. Ct. 1448, 59 L. Ed. 2d 711 (1979), to analyze the State's invitation to apply the
trust fund doctrine as a matter of federal commonlaw,in place of the Delaware statutes, to
permit it to recover CERCLA cleanup costs from Panex's shareholder-distributees. In
Bestfoods, the Supreme Courtflatly rejected the creation of federal common law without
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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
considerations, and wetypically examine them 4*%23%in deciding whether to draw from state
law or to create a rule of federal commonlaw 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 the federal programs"; and (3) "the extent to [**43] 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. 4424
¥"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 commonlaw rule." Nat'l Serv. Indus., 460 F.3d at 208. "To invoke the conceptof
‘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. [**44] Gen. Battery, 423
F.3d at 303. Moreover, variations in rules among [*183] states do not prove a need for
uniformity "as long as the applicable standard is applied evenhandedly to particular
disputes." Wilson v. Omaha Indian Tribe, 442 U.S. 653, 673, 99 S. Ct. 2529, 61 L. Ed. 2d
153 (1979) (interna! 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 corporateliability 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 Oj! Corp.,
sufficient to justify adopting a rule of federal common law to expand the standard ofliability
for shareholder-distributees of a dissolved corporation whose predecessor owned a company
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 governmentis 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
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 theyinvest in
from buying into a perpetual threat ofliability by providing that, after a period of time after
their corporation dissolves, they no longerfaceliability on claims against the dissolved
corporation [**46] 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 unknownclaim arises at some point in the future, or
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else come up with funds to replace any received distributions that have been expended once
the claim and demand for disgorgementarise. 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 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 successorliability
principles complicate transfers and necessarily increase transaction costs."); Perry E.
Wallace, Jr., Liability of Corporations [**47] and Corporate Officers, Directors, and
Shareholders under Superfund: Should Corporate and Agency Law Concepts Apply?, 14 J.
Corp. L. 839, 842 (1989) [*184] (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 commonlaw 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 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 [**48] 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
judgmentofthe 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 ofliability 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 purposesof
the CERCLA claims against Panex is not without consequence. As a matterof 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
shareholder-distributees and Panex should be dismissed as both lack capacity to be sued
under Delaware law.
V.
Weaffirm the [**49] 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.
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LEXSEE 987 F.SUPP. 182
TOWN OF OYSTERBAY,Plaintiff, -against- OCCIDEN-
TAL CHEMICAL CORPORATION, THE MARMON
CORPORATION, COLUMBIA CORRUGATED CON-
TAINER CORPORATION, GREAT AMERICAN INDUS-
TRIES INC., a wholly-owned subsidiary of PLC ENTER-
PRISES, INC., G.A. CORRUGATED CORPORATION,
GREAT AMERICAN CORRUGATED CONTAINER
CORPORATION, LIN PAC, INC., LIN PAC CONTAIN-
ERS INTERNATIONAL, LTD., a wholly-owned subsidiary
of LIN PAC GROUP, LTD., LIN PAC CORRUGATED
CONTAINERS CORPORATION, LIN PAC CONTAIN-
ERS LIMITED, GRUMMAN CORPORATION, GRUM-
MAN AEROSPACE CORPORATION, JAKOBSON
SHIPYARD, INC., LONG ISLAND LIGHTING COM-
PANY, KONICA IMAGINGU.S.A., INC., KOLL-
MORGEN CORPORATIONand PHOTOCIRCUITS
CORPORATION,Defendants.
Case No. 94-CV-0694 (FB)
UNITED STATES DISTRICT COURT FOR THEEAST-
ERN DISTRICT OF NEW YORK
987 F. Supp. 182; 1997 U.S. Dist. LEXIS 18151; 45 ERC
(BNA) 2029; 28 ELR 20638
November14, 1997, Decided
SUBSEQUENT HISTORY: [**1] DISPOSITION: Town's motion for
As Amended December5, 1997. summary judgment granted in part and
denied in part; Defendants’ motion for
summary judgment granted in part and
denied in part; Great American defen-
dants' motion for summary judgment
granted to the extent that the fourth, fifth
and sixth claims for relief dismissed as
against G.A. Corrugated, and otherwise
denied; Lin Pac defendants’ motion for
summary judgment granted and the
complaint dismissed against these de-
fendants. Oo
COUNSEL: For Plaintiff: Peter R.
Paden, Esq., Philip E. Karmel, Esq,
ROBINSON SILVERMAN PEARCE
ARONSOHN & BERMAN LLP, New
York, New York.
For Occidental Chemical Corporation,
Defendant: John Hanna, Jr., Esq.,
WHITEMAN, OSTERMAN &
HANNA,Albany, New York.
For The Marmon Group, Defendant:
Richard F. Ricci, Esg., LOWENSTEIN,
SANDLER, KOHL, FISHER & BOY-
LAN,Roseland, New Jersey.
For Great American Industries, Inc.,
G.A. Corrugated Corporation, Great
American Corrugated Container Corpo-
ration, Defendants: Michael R. Wright,
Esq., LEVENE, GOULDIN &
THOMPSON,Vestal, New York.
For Lin Pac,Inc., Lin Pac Containers In-
ternational, Ltd., Lin Pac Corrugated
Containers Corp., Lin Pac Containers
Ltd., Defendants: [**2] Kevin C.
Logue, Esq., PAUL, HASTINGS,
JANOFSKY & WALKER, New York,
New York. Charles A. Patrizia, Esq.,
PAUL, HASTINGS, JANOFSKY &
WALKER,Washington,D.C.
For Grumman Corporation, Grumman
Aerospace Corporation, Defendants:
Irvin M. Freilich, Esq., HANNOCH
WEISMAN, P.C., Roseland, New Jer-
sey.
For Jakobson Shipyard, Inc., Defendant:
Paul Milmed, Esq., WHITE & CASE,
New York, New York.
For Long Island Lighting Company, De-
fendant: Michael B. Gerrard, Esq., AR-
NOLD & PORTER, New York, New
York.
For Konica Imaging, U.S.A., Inc., De-
fendant: DAVID R. CASE,Esq., Wash-
ington, D.C.
For Kollmorgen Corporation, Photocir-
cuits Corporation, Defendants: Robert C.
Davis, Jr., Esq.. CROWELL & MOR-
ING, Washington, D.C. Henry Korn,
Esq., KENSINGTON & RESSLER,
P.C., New York, New York.
JUDGES: FREDERIC BLOCK,United
States District Judge.
OPINION BY: FREDERIC BLOCK
OPINION
[*188] AMENDED MEMORAN-
DUM AND ORDER
TABLE OF CONTENTS
INTRODUCTION
BACKGROUND
I. The Landfill
II. The Groundwater Con-
tamination and the Town's
Response
It. The Complaint
IV. The Target Defendants
A. Occidental
B. Marmon
C. Grumman
D. GACCC
V. The Pending Motions
[**3] A. The
Town's Motion for
Summary Judg-
ment
B. The Great
American Defen-
dants' Motion for
Summary Judg-
ment
C. The Lin Pac
Defendants' Mo-
tion for Summary
Judgment
D. Defendants'
Motion for Partial
Summary Judg-
ment
DISCUSSION
1. The Standard on a Motion
for Summary Judgment
Il. The CERCLALiability
of the Target Defendants
A. General Prin-
ciples Regarding
CERCLA Liability
B. The CERCLA
Liability of Target
Defendants Occi-
dental, Marmon
and Grumman
1. Causation
2. The Interplay
between New York
State Regulatory
Requirements and
CERCLA
3. Conclusion
C. The CER-
CLA Liability of
the Great Ameri-
can Defendants
1. Did Colum-
bia Deposit Haz-
ardous Substances
at the Landfill?
2. Are GACCC
and G.A. Corru-
gated, as "dead
and buried" corpo-
rations, subject to
suit under CER-
CLA?
3. Can GAI be
held liable for Co-
lumbia's waste dis-
posal practices un-
der a veil-piercing
analysis ?
4. Conclusion
CONCLUSION
BLOCK,District Judge:
INTRODUCTION
In this action, which arises under the
Comprehensive Environmental Re-
sponse, Compensation, and Liability Act
of 1980, 42 US.C. § 9601 et seq.
("CERCLA" or "the Act"), and New
York common law, plaintiff Town of
Oyster Bay ("Town") seeks recovery of
costs for its response to the alleged re-
lease or threatened release of hazardous
substances at a landfill formerly oper-
ated by the Town in Syosset, New York.
The defendants are corporations that are
Il. The Successor Liabil- alleged either to have brought hazardous
ity of the Lin Pac Defendants materials to the landfill or to have suc-
IV. Joint and Several Li- ceededto the liabilities of such corpora-
ability v. Contribution tions.
V. The Town's State Law There are four motions currently be-
Claims fore the Court: (1) a motion by the Town
A. Statute of
Limitations.
B. The Liability
of GACCC and
G.A. Corrugated
[**4] under State
Law.
C. The Liability
of the Lin Pac De-
fendants under
State Law.
for partial summary judgmenton the is-
sue of CERCLA liability against defen-
dants Occidental Chemical Corporation
("Occidental"), The Marmon Corpora-
tion ("Marmon"), Great American Cor-
rugated Container Corporation
("GACCC"), Grumman Corporation and
Grumman Aerospace Corporation (col-
lectively "Grumman") pursuant to Rule
56 of the Federal Rules of Civil Proce-
dure '; (2) a motion [**5] for summary
judgment by defendants GACCC, G.A.
Corrugated Corporation ("G.A. Corru-
gated") and Great American Industries,
Inc. ("GAI") seeking dismissal of the
complaintas against them; ? (3) a motion
by defendants Lin Pac, Inc., Lin Pac
Containers International, Ltd., Lin Pac
Corrugated Containers Corporation
("LPCCC"), and Lin Pac Containers
Limited (collectively the "Lin Pac de-
fendants") for summary judgment dis-
missing the complaint as against them;
and (4) a motion by Occidental, Mar-
mon, the Great American defendants,
the Lin Pac defendants, Grumman, Ja-
kobson Shipyard, Inc. ("Jakobson"),
Long Island Lighting Company
("LILCO"), Konica Imaging, U.S.A.,
Inc. ("Konica"), Kollmorgen Corpora-
tion ("Kollmorgen"), and Photocircuits
Corporation ("Photocircuits") for partial
summary judgment dismissing the
Town's CERCLA claims to the extent
that they seek joint and several liability
against the defendants, and dismissing
the Town's State common law nuisance
and unjust enrichment claims on statute
of limitations grounds.
1 The four defendants that are the
object of the Town's summary
judgment motion will be referred to
as the "target defendants."
[**6]
2 GA. Corrugated, which was
purportedly dissolved in 1981, was
a wholly-ownedsubsidiary of GAI.
GACCC, which was purportedly
dissolved in 1982, was a wholly-
owned subsidiary of G.A. Corru-
gated. The Court will discuss the
Structure of these three corpora-
tions in greater detail infra. When-
ever practicable, the Court will re-
fer to GAI, G.A. Corrugated, and
GACCCcollectively as the "Great
American defendants."
BACKGROUND
The Court's discussion of the facts
giving rise to this action is drawn from
the complaint, the numerous statements
prepared by the parties pursuant to for-
mer Local Rule 3(g), now Local Rule
56.1, and the extensive record in this
case. Unless otherwise noted, the facts
are undisputed.
I. The Landfill
The approximately 35-acre former
landfill is owned by the Town andis lo-
cated just north of the Long Island Ex-
pressway in Syosset, within 1.25 miles
of more than one thousand residences
and less than 150 feet from a local ele-
mentary school. From 1936 until ap-
proximately 1975, the landfill, which
was unlined, accepted residential and
commercial waste, including [**7]
cesspool waste, as well as demolition,
agricultural and industrial waste. The
complaint alleges, inter alia, that: (1)
Occidental's predecessors-in-interest,
Rubber Corporation of America
("RUCO"), Hooker Chemical Corpora-
tion and Hooker Chemicals and Plastics
Corporation (collectively "Hooker") dis-
posed of thousands of tons of hazardous
wastes containing heavy metals, sol-
vents, organics, oils and sludges,plasti-
cizers and PCBseach year between 1946
through 1968; (2) Marmon's predeces-
sor-in-interest, Cerro Wire & Cable
Corp. ("Cerro"), disposed of thousands
of tons of industrial sludge containing
iron, chromium, zinc, copper, lead, cad-
mium, and nickel each year for a period
of 25 years; (3) Columbia Corrugated
Container Company ("Columbia"), the
alleged predecessor-in-interest [*189]
of the Great American defendants and
the Lin Pac defendants, disposed of
more than 100,000 gallons of dyes, inks,
and sludges containing iron, zinc, cop-
per, lead, cadmium, nickel, chromium,
titanium, manganese, magnesium and
phenols for a period of many years end-
ing in 1975; and (4) Grumman disposed
of industrial sludge containing hydrox-
ides of chromium, aluminum, iron,
paint, ammunition, machine shop waste,
[**8] and wastes from manufacturing
processes.
II. The Groundwater Contamination
and the Town's Response
On January 28, 1975, the Nassau
County Department of Health
("NCDOH") closed the landfill based on
concerns that it was polluting the
groundwater. In 1983, an environmental
report was prepared on behalf of
NCDOHthatindicated that the ground-
water underneath and surrounding the
landfill contained concentrations of ar-
senic, cadmium, chromium and lead at
levels in excess of New York State
drinking water standards. Also in 1983,
the United States Environmental Protec-
tion Agency ("EPA") placed the landfill
on the Superfund National Priorities
List, which sets forth those sites that
pose the highest degree of risk to human
health and the environment. The landfill
has also been placed on New York's
Registry of Inactive Hazardous Waste
Disposal Sites, and the New York State
Department of Environmental Conserva-
tion has determined that the landfill is a
significant threat to the public health and
environment, and that remedial action is
required.
In 1986, the EPA and the Town en-
tered into an Administrative Order on
Consent that obligated the Townto pre-
pare a Remedial Investigation and [**9]
Feasibility Study ("RI/FS") of the land-
fill. Because of the complexity of the
environmental problems at the landfill,
the EPA divided the evaluation and
cleanup of the landfill into two phases,
or "operable units" (hereinafter "OU-1
and OU-2"). The RI/FS for OU-1 inves-
tigated the nature and extent of contami-
nation at the landfill property and fo-
cused upon control of contamination at
its source, while the RI/FS for OU-2 ad-
dressed the migration of contaminants
from the landfill into the groundwater.
In 1990, based on the results of the
RI/FS report for OU-1, as well as an
evaluation of comments submitted dur-
ing the public commentperiod, the EPA
determined that the Town should im-
plement New York State closure re-
quirements specified in the Official
Compilation of Codes, Rules & Regula-
tions of the State of New Yorkattitle 6,
part 360. Specifically, the EPA directed
that a geosynthetic membrane cap be
constructed on the top surface of the
landfill. The EPA estimated the cost of
this remedy as $ 26 million. The EPA
requested that Occidental, Grumman,
Jakobson, Marmon, the Lin Pac defen-
dants, Kollmorgen and LILCO, inter
alia, voluntarily join the Town in per-
forming or financing the [**10] reme-
dial action selected by EPA; however,
each declined.:
3 In respect to OU-2, an EPA Re-
cord of Decision dated March 28,
1996 concluded that groundwater
contamination was limited and did
not pose a significant risk to human
health or the environment. Accord-
ingly, the EPA determined that no
further remedial action would be
required. The EPA specifically ob-
served that the principal threats at
the landfill were being addressed
through the installation of the land-
fill cap as part of the OU-1 reme-
diation.
HI. The Complaint
This action, filed on February 18,
1994, seeks to recover the response costs
that the Town has incurred in connection
with the landfill remediation, estimated
at approximately $ 10 million, and to ob-
tain a declaratory judgment that defen-
dants are liable for future response costs.
The complaint contains six claims for
relief: (1) a claim for joint and several
liability for past and future response
costs pursuant to 42 USC. §
9607(a)(4)(A); (2) a claim for joint and
several liability [**11] for past and fu-
ture response costs pursuant to 42 U.S.C.
§ 9607(a)(4)(B); (3) a claim for contri-
bution to the Town for past and future
response costs pursuant to 42 U.S.C. §
9613(f)U1); (4) a State common law
claim for creation and maintenance of a
public nuisance; (5) a State common law
claim for unjust enrichment based upon
defendants’ failure to abate the public
nuisance; and (6) a State common law
claim for contribution.
On February 13, 1995, Magistrate
Judge Arlene R. Lindsay signed a Case
Management Order that divided the ac-
tion into two [*190] separate phases.
During the first phase, the followingis-
sues are to belitigated: (1) whether each
current defendant is liable under 42
U.S.C. § 9607(a)(3) or § 9607(a)(4); (2)
whether the Townis liable pursuantto §
9607; (3) whether the Town's response
costs are recoverable pursuant to §
9607(a)(4); (4) the extent to which the
Town's response costs should be appor-
tioned between the Town and all liable
persons; and (5) claims among and be-
tween defendants regarding indemnifica-
tion or successor and predecessorliabil-
ity. The issues to be resolved during the
second phaseinclude the apportionment
of response costs among defendants
[**12] and third-party defendants on a
percentage basis and the amount of
plaintiff's response costs, including
whether costs were necessary and in-
curred in a manner consistent with the
National Contingency Plan. « Discovery,
though largely complete,is still ongoing.
4 Pursuant to 42 U.S.C. § 9605,
the National Contingency Plan
must contain "procedures and stan-
dards for responding to releases of
hazardous substances, pollutants,
and contaminants." These include
criteria for prioritizing among re-
leases and threatened releases
across the United States based
upon the "relative risk or danger to
public health or welfare or the en-
vironment... taking into accountto
the extent possible the population
at risk, the hazard potential of the
hazardous substancesat such facili-
ties, the potential for contamination
of drinking water supplies, the po-
tential for direct human contact, the
potential for destruction of sensi-
tive ecosystems, the damage to
natural resources which may affect
the human food chain and whichis
associated with any release or
threatened release, the contamina-
tion or potential contamination of
the ambient air which is associated
with the release or threatened re-
lease, State preparedness to assume
State costs and responsibilities, and
other appropriate factors." 42
U.S.C. § 9605(a)(8)(A). The statute
also requires that the president as-
semble andrevise a list of national
priorities among the known re-
leases and threatened releases in
the United States (hereinafter "Na-
tional Priorities List").
[**13] IV. The Target Defendants
In respect to the Town's motion for
summary judgment pursuant to Rule 56
of the Federal Rules of Civil Procedure
against the target defendants on the issue
of their CERCLA liability, the Court
summarizes the role that each of these
defendants allegedly played in the dis-
posal of hazardous waste at the landfill.
A. Occidental
Occidental is the successor-in-
interest to RUCO, which operated a
plant in Hicksville, New York from
1945 through 1965. In 1965, Hooker
Chemical Corporation purchased RUCO
and operated the Hicksville plant as its
RUCODivision. Hooker Chemical Cor-
poration changed its name to Hooker
Chemical & Plastics Corporation in
1974 and to Occidental in 1982. The
RUCO Division together with the
Hicksville plant were sold to employees
in 1982.
In its answer to the complaint, Occi-
dental admitted that it "disposed of or
arranged for disposal of hazardous sub-
stances or waste containing hazardous
substances at the Landfill." Answer, Af-
firmative Defenses and Counterclaims of
Defendant Occidental Chemical Corpo-
ration at P 48. More specifically, Occi-
dental has admitted that RUCO sent
waste from the Hicksville plant to the
landfill from [**14] 1946 through 1965
and that Hooker sent waste to the land-
fill from 1965 through 1968. Further, al-
though Occidental contends that RUCO
and Hooker did not send all of the haz-
ardous substances alleged in the com-
plaint to the landfill, Occidental does
admit in the Defendants’ collective re-
sponse to the Town's Rule 3(g) State-
ment ("Collective Response") that
Hooker deposited one ton of Aroclor
1248, a type of PCB, at the landfill be-
tween 1965 and 1967 and that, as a gen-
eral matter, waste material from the
RUCOplant contained N-butyl alcohol.
B. Marmon
Marmon is the successor-in-interest
to Cerro, which manufacturedsteel elec-
trical conduit, hot rolled copper rod, and
steel strip at a plant on Robbins Lanein
Syosset from 1952 through 1986. In the
Collective Response, Marmon admits to
having disposed of approximately
20,000 tons of metal hydroxide sludgeat
the landfill between 1952 and 1974. Fur-
ther, Marmon also admits that the metal
hydroxide sludge contained trace levels
of copper, zinc, lead, cadmium, chro-
mium, nickel, cyanides, arsenic, mer-
cury, selenium, silver, [*191] chloro-
form, hydrazine, manganese and phenol.
C. Grumman
Grumman operated a complex of
manufacturing [**15] buildings on ap-
proximately 500 acres in Bethpage, New
York. In its complaint, the Townalleges
that Grumman disposed of thousands of
tons of industrial sludge at the landfill.
Grumman has denied these allegations
both in its answer to the complaint and
in the Collective Response. However,
included in the record before the Court
is Grumman's answer to a 1986 EPA
questionnaire in which it indicated that
between 1949 and 1966, it deposited
sludge from its Industrial Waste Treat-
ment Plant at the landfill and that the
sludge contained hydroxides of chro-
mium, aluminum and iron. The record
also contains excerpts from the testi-
mony of John H. Ohlmann, a Grumman
consultant, who indicated that the
sludges sent to the landfill between 1952
and 1965 contained chromium.Finally,
in Grumman's response to the Town's
interrogatories, it stated that the sludge
may also have contained, inter alia,
toluene, zylene, methyl ethyl ketone,
tricholorethylene, chloroform, vinyl
chloride and dichloroethylene.
D. GACCC
GACCCis allegedly the successor-
in-interest of Columbia, which manufac-
tured corrugated containers at a plant ad-
jacent to the landfill. The Town alleges
that Columbia disposed [**16] of more
than 100,000 gallons of industrial sludge
at the landfill each year before the land-
fill was closed in 1975. On July 15,
1976, defendant G.A. Corrugated, a
Delaware corporation and wholly-owned
subsidiary of GAI, purchased all of the
issued and outstanding shares of Colum-
bia, which was thereafter operated as a
wholly-owned subsidiary of G.A. Cor-
rugated. In 1978, G.A. Corrugated pur-
chased the outstanding capital stock of
Midland Corporation,andlater that year,
Columbia was merged into Midland,
which then changed its name to
GACCC. GACCC was a wholly-owned
subsidiary of G.A. Corrugated. In 1980,
defendant LPCCC purchased substan-
tially all of the assets of GACCC. G.A.
Corrugated was dissolved pursuant to
Delaware law on December 21, 1981,
and GACCC wasdissolved pursuant to
New York law on February 26, 1982.
The Town doesnotallege that any of the
Great American defendants disposed of
waste at the landfill; rather, their liabil-
ity, if any, 1s premised upon the activi-
ties of Columbia. Although the Great
American defendants admit that Colum-
bia disposed of sludge at the landfill,
they dispute whether that sludge was in
fact hazardous.
V. The Pending Motions
The four pending [**17] motions
present a number of overlapping issues
regarding the scope and nature of CER-
CLA liability. Specifically, the Court is
called upon to determine whether the
Town, as a responsible person itself,
may seek joint and several liability
against the defendants or whether it is
limited to contribution from those de-
fendants ultimately found liable under
CERCLA. Additionally, the Court, ap-
plying still emerging principles of suc-
cessor liability, must determine the ex-
tent to which the Great American defen-
dants and the Lin Pac defendants must
shoulder the responsibility for Colum-
bia's waste disposal practices.
A. The Town's Motion for Summary
Judgment
In support of its motion for summary
judgment against the target defendants,
the Town argues that: (1) these defen-
dants are liable under the four-part test
set forth at 42 U.S.C. § 9607(a); (2) the
liability of these defendants is joint and
several; and (3) their affirmative de-
fenses are insufficient as a matter of law.
The target defendants havefiled a joint
response in which they argue: (1) the
Town is not entitled to hold the target
defendants jointly and severally liable
under CERCLA; rather, the Town's
CERCLAclaim, if any, [**18] is lim-
ited to contribution; (2) the affirmative
defenses asserted by the target defen-
dants are relevant to the Court's alloca-
tion of response costs between the Town
and the other defendants; and (3) the
Town should not be able to recover from
the target defendants if the Town's
remediation costs were in fact attribut-
able to landfill cleanup or closing re-
quirements imposedby State law.
[*192] Each ofthe target defendants
has also filed an individual response to
the Town's motion. In its response, Oc-
cidental argues that: (1) the motion is
premature because expert discovery is
not complete; and (2) the motion should
be denied because there are genuine is-
sues of material fact regarding whether
Occidental disposed of hazardous sub-
stances at the landfill and whether the
Town's response costs have been in-
curred to deal with harm that resulted
from Occidental's disposal of wastes at
the landfill, Marmon and Grumman
submit further papers on the issue of
joint and several liability; additionally,
Grumman argues that the response costs
incurred by the Townarenotattributable
to Grumman because the materials it
disposed of at the landfill did not pose
any danger to human health. GACCC
contends that [**19] material issues of
fact exist regarding the nature of the
waste that Columbia sent to the landfill,
which preclude an award of summary
judgment.:
5 GACCC's Memorandum of Law
is also offered in support of the
Great American defendants' motion
for summary judgmentand will be
discussed in greater detail infra.
B. The Great American Defendants'
Motionfor Summary Judgment
In support of their motion for sum-
mary judgment, the Great American de-
fendants argue that: (1) GACCC,byvir-
tue of its dissolution and its alleged lack
of corporate assets, is not a proper
CERCLA defendant; and (2) GAI and
G.A. Corrugated are not liable under
principles of "operator" liability for Co-
lumbia's disposal of waste at the landfill.
The Town contends that: (1) GACCC
has the capacity to be sued regardless of
its dissolution and is therefore a proper
party in this action; and (2) GAIis de-
rivatively liable for the CERCLAliabili-
ties of GACCC based on traditional
veil-piercing analysis. Defendants Occi-
dental, Marmon, [**20] Grumman, Ja-
kobson, LILCO, Konica, Kollmorgen
and Photocircuits also submit a brief in
opposition to the motion of the Great
American defendants in which they ar-
gue: (1) under New York and Delaware
law, which they contend apply in this
case, GACCC and G.A. Corrugated re-
main potentially liable under CERCLA;
(2) genuine issues of material fact pre-
clude a finding that GACCC and G.A.
Corrugated have completely dissolved
and are not proper CERCLA defendants;
and (3) CERCLA's broad remedial pur-
pose would be undermined if the Great
American defendants were able to avoid
liability.
C. The Lin Pac Defendants' Motion for
Summary Judgment
In support of their motion for sum-
mary judgment, the Lin Pac defendants
argue: (1) they are notliable for Colum-
bia's disposal of waste at the landfill un-
der principles of successor liability be-
cause LPCCC purchased the assets of
GACCC in an arm's length transaction
and did not substantially continue
GACCC's business; (2) LPCCC did not
expressly or impliedly agree to assume
any of GACCC's liabilities under CER-
CLA; and (3) New York law similarly
mandates dismissal of the state common
law claims against the Lin Pac defen-
dants. In opposition, the Town [**21]1]
contends: (1) CERCLAliability is broad
and expansive and should be found to
hold the Lin Pac defendants responsible
for the waste disposal practices of Co-
lumbia under the facts present here; (2)
LPCCC substantially continued the
business of GACCCand should be de-
termined to be GACCC's successor-in-
interest for purposes of CERCLAliabil-
ity; and (3) the corporate transaction be-
tween LPCCC and GACCC was a de
facto merger and the Lin Pac defendants
are therefore liable under general princi-
ples of successor liability. These identi-
cal arguments are also contained in a
Memorandum submitted by defendants
Occidental, Marmon, LILCO, Grum-
man, Jakobson, Konica, Kollmorgen,
and Photocircuits in opposition to the
Lin Pac defendants' motion for summary
judgment.
D. Defendants' Motion for Partial
Summary Judgment
All of the defendants movefor partial
summary judgment seeking dismissal of
the Town's claimsfor relief to the extent
that the Town seeks to impose joint and
several liability against them. They also
seek dismissal of the Town's fourth and
fifth claims, which arise under New
York commonlaw, as [*193] barred by
the three-year statute of limitations ap-
plicable to actions to recover [**22]
damages for an injury to property. The
Town again respondsthat joint and sev-
eral liability is appropriate, and further
argues that its common law claims are
not time-barred.
DISCUSSION
I. Standard on a Motion for Summary
Judgment
Aseach of the four motions pending
before the Court seeks summary judg-
ment pursuant to Rule 56 of the Federal
Rules of Civil Procedure, the Court re-
views, as a preliminary matter, the stan-
dard applicable to resolving summary
Judgment motions. The Court of Appeals
for the Second Circuit has held that in
CERCLAcases, summary judgment "'is
a ‘powerful legal tool{]' that ‘can avoid
lengthy and perhaps needlesslitigation.”
B.F. Goodrich Co. v. Betkoski, 99 F.3d
505, 514 (2d Cir. 1996), reh'g. denied,
112 F.3d 88 (1997) (quoting United
States v. Alcan Aluminum Corp., 990
F.2d 711, 720 (2d Cir. 1993) (Alcan II)).
However, the Second Circuit has also
stressed that the utility of the summary
judgment motion in CERCLA cases "is
not a license to use it when material
facts are genuinely disputed." Betkoski,
99 F.3d at 521.
The standard for granting summary
judgment in CERCLAcasesis no differ-
ent from other cases. Id. A motion
[**23] for summary judgment may not
be granted unless the court determines
that there is no genuine issue of material
fact to be tried and that the moving party
is entitled to judgment as a matter of
law. Fed. R. Civ. P. 56(c); see also Ce-
lotex Corp. v. Catrett, 477 U.S. 317,
322-323, 91 L. Ed. 2d 265, 106 S. Ct.
2548 (1986). The burden is upon the
moving party to identify those portions
of the pleadings, depositions, answers to
interrogatories, admissions on file, and
affidavits that it believes demonstrate
the absence of a genuine issue of mate-
rial fact. See Celotex Corp., supra, at
323. All ambiguities must be resolved,
and all inferences drawn, in favor of the
nonmoving party. See Whalen v. County
of Fulton, 126 F.3d 400, 1997 WL
606476, at *3 (2d Cir. 1997). Once the
moving party has carried its burden, the
Opposing party "must do more than sim-
ply showthat there is some metaphysical
doubt as to the material facts .... The
non-moving party must come forward
with ‘specific facts showing that there is
a genuine issue for trial.” Matsushita
Elec. Indus. Co. v. Zenith Radio Corp.,
475 U.S. 574, 586-587, 89 L. Ed. 2d
538, 106 S. Ct. 1348 (1986) (quoting
[**24] Fed. R. Civ. P. 56(e)) (other cita-
tions omitted) (emphasis in original).
The judge's role in reviewing a motion
for summary judgmentis not "to weigh
the evidence and determine the truth of
the matter but to determine whether
there is a genuineissue fortrial." Ander-
son v. Liberty Lobby, Inc., 477 U.S. 242,
249, 91 L. Ed. 2d 202, 106 S. Ct. 2505
(1986); see also Beatie v. City of New
York, 123 F.3d 707, 710-711 (2d Cir.
1997).
II. The CERCLALiability of the Tar-
get Defendants
A. General Principles Regarding CER-
CLA Liability
CERCLAis "a broad remedial statute
that was designed to enhance the author-
ity of the EPAto respondeffectively and
promptly to toxic pollutant spills that
threaten[] the environment and human
health." B.F. Goodrich Co. v. Murtha,
958 F.2d 1192, 1197 (2d Cir. 1992). As
a remedial statute, CERCLA should be
construed broadly in order to give effect
to its purposes. See Betkoski, 99 F.3d at
514. These purposesinclude "facilitating
efficient responses to environmental
harm, holding responsible parties liable
for the costs of the cleanup, and encour-
aging settlements that reduce the ineffi-
cient expenditure of public funds on
lengthy [**25] litigation." Jd.
CERCLAis strict liability statute
that imposes liability upon four catego-
ries of parties: (1) owners and operators
of facilities *; (2) any person who owned
or operated a facility at the time hazard-
ous materials were disposedat the facil-
ity; (3) any person who by contract,
agreement or otherwise, arranged
[*194] for disposal, treatment, or trans-
port of hazardous substances owned or
possessed by that person; and (4) any
person whoaccepts or accepted any haz-
ardous substances for transport to dis-
posal or treatmentfacilities from which
there is a release or threatened release of
hazardous substances that causes the in-
currence of response costs. 42 U.S.C. §
9607(a); see also Murtha, 958 F.2d at
1198; State of New York v. Shore Realty
Corp., 759 F.2d 1032, 1043 (2d Cir.
1985). Responsible parties are liable for
response costs incurred by any otherre-
sponsible party, the United States Gov-
ernment, a State, or an Indian tribe. 42
U.S.C. § 9607(a).
6 The term "facility" is defined in
part as "any site or area where a
hazardous substance has been de-
posited, stored, disposed of, or
placed, or otherwise cometo be lo-
cated." 42 U.S.C. § 9601(9).
[**26]
are met over a specified
period of time, ‘ was not triggered by
Debtor [**4] until January 1, 2001, af-
ter the Agreements and Transfer took
place. Accordingly, Movants contend
that they are entitled to partial judgment
on those claims in the Complaint that are
based on CCC § 2115.
2 The CCCsections listed under
CCC § 2115(b) include: § 316 (li-
ability of directors for unlawful
distributions), ¢ 317 (indemnifica-
tion of directors, officers, and oth-
ers), §§ 500 to 505 inclusive (limi-
tations on corporate distributions in
cash or property), and § 506(liabil-
ity of shareholder who receives
unlawful distribution). See Cal.
Corp. Code § 2115(b).
3 In general terms, the require-
ments measure the extent of a for-
eign corporation's activity in Cali-
fornia. This "three-factor formula"
includes a property factor, a payroll
factor, and a sales factor, as those
terms are defined in the California
Revenue and Taxation Code. See
Cal. Corp. Code § 2115(a).
4 Under CCC $ 2115(a), the
three-factor formula must be met
for a "full income year." Subdivi-
sion (d) then providesa trigger date
for the application of the CCC sec-
tions specified in subdivision (b).
See Cal. Corp. Code § 2115(a).
[**5] Additionally, Movants assert
that as a Delaware corporation, the doc-
trine of internal affairs requires the ap-
plication of Delaware law to issues of
Debtor's internal affairs, including the
Agreements and Transfers. Therefore,
Movants argue that CCC $$ 310 and
315 do not apply to Debtor and that
summary judgment on those claims is
appropriate. Andra Sachs joins the Mo-
tion.
In opposition, Trustee argues that the
trigger date for the application of CCC $
2115 to Debtor was January 1, 2000,
prior to the Stock Redemption. Trustee
also asserts that the internal affairs doc-
trine does not apply under these circum-
stances given Debtor's extensive activi-
ties in California. Accordingly, Trustee
argues that her claims based on Califor-
nia law should stand.
The following facts are undisputed:
1) Debtor wasfirst incorpo-
rated in Nevada on May 19,
1998;
2) Debtor was reincorpo-
rated in Delaware on January
20, 1999;
3) Debtor was operating as
a foreign corporation in Cali-
fornia at all relevant times;
4) Debtor's fiscal year is
set as the calendar year; and
5) Just for the Motion,
Debtor's activity in California
satisfied the three-factor for-
mula under 2//5(a) at all
relevant [**6] times.
IV. DISCUSSION
1. The Application ofCCC § 2115
CCC § 2115 provides in relevant
part:
[*488] (a) A foreign cor-
poration . . . is subject to the
requirements of subdivision
(b) commencing on the date
specified in subdivision (d)
and continuing until the date
specified in subdivision (e)if:
(1) the average of the
property factor, the payroll
factor, and the sales factor (as
defined in Sections 25129,
25132, and 25134 of the
Revenue and Taxation Code)
with respect to it is more than
50 percent during its latest
full income year and
(2) more than one-half of
its outstanding voting securi-
ties are held of record by per-
sons having addresses in this
state appearing on the books
of the corporation on the re-
cord date for the latest meet-
ing of shareholders held dur-
ing its latest full income year
or, if no meeting was held
during that year, on the last
day of the latest full income
year. The property factor,
payroll factor, and sales factor
shall be those used in comput-
ing the portion of its income
allocable to this state in its
franchise tax return or, with
respect to corporationsthe al-
location of whose income is
governed by special formulas
or that [**7] are not required
to file separate or any tax re-
turns, which would have been
so used if they were governed
by this three-factor formula.
(d) For purposes of subdi-
vision (a), the requirements of
subdivision (b) shall become
applicable to a foreign corpo-
ration only upon the first day
of the first income year of the
corporation (1) commencing
on or after the 135th day of
the income year immediately
following the latest income
year with respect to which the
tests referred to in subdivision
(a) have been met or (2)
commencing on or after the
entry of a final order by a
court of competent jurisdic-
tion declaring that those tests
have been met.
Cal. Corp. Code § 2115 (emphasis
added). Here, the only issue pertaining
to the application of CCC § 2115 is
when the trigger date under subsection
(d) occurred. The statute is clear that the
three-factor formula under subdivision
(a) must be metfor a "full income year"
before the trigger date can be determined
under subdivision (d).
Movants argue that the term "full in-
come year" meansa full calendaror fis-
cal year. Under this interpretation,
Debtor satisfied subdivision (a) in 1999,
‘ causing the 135-day [**8] count to be-
gin on January 1, 2000, thereby making
January 1, 2001 the trigger date under
subdivision (d).
5 Although Debtor began its op-
erations in May 1998, Debtor's fis-
cal year was set as the calendar
year, making the period from May
to December 1998 less than a full
calendar or fiscal year. Therefore,
Debtor's first full fiscal year was
1999.
Trustee argues that the term "income
year" under subdivision (d) does not re-
quire a full fiscal or calendar year.
Rather, Trustee asserts that the income
year requirement is met by the period
from May 19, 1998 to December 31,
1998, or by the period from May 19,
1998 to May 19, 1999. In either case, the
trigger date under subdivision (d) would
then be January 1, 2000, prior to the
Stock Redemption on February 23,
2000.
No reported cases discuss the mean-
ing of "full income year" as used in CCC
§ 2115. However, the three-factor for-
mula under subdivision (a) is based on
data "used in computing the portion of
[the foreign corporation's] incomealloc-
able to this state [**9] in its franchise
tax return ... ." Cal. Corp. Code
2115(a)(2).. Section 2115(a)(1) also
states that the three factors are defined in
the California Revenue and Taxation
Code. For the purposes of calculating
franchise taxes, the term "income year"
is defined as "the calendar year or
[*489] the fiscal year upon the basis of
whichthe net income is computed." Cal.
Rev. & Tax. Code $ 23042.
Indeed, the only workable definition
of "full income year" as used in CCC $
2115 is a full calendar or fiscal year. « A
foreign corporation must apply the
three-factor formula to its activities in
California using data from its franchise
tax return. Franchise taxes are payable
for every "taxable year," which is also
defined as a calendar yearorfiscal year.
Id. § 23041. Therefore, a foreign corpo-
ration cannot determine whetherits ac-
tivity in California satisfies the three-
factor formula for a full income year
without data from a full fiscal or calen-
dar year.
6 The limited secondary authority
interpreting CCC $ 2115 has also
found that the term "income year"
refers to the calendar yearorfiscal
year upon which a foreign corpora-
tion computes its net income and
franchise taxes. See 2 Marsh,
Marsh's California Corporation
Law, § 26.04[c], 26-86 (4th ed.
2000); see also Ballantine & Ster-
ling, California Corporation Laws,
§ 393.04 (2003).
[**10] The California Court of Ap-
peal has explained:
In construing statutory lan-
guage, our fundamental task
is to ascertain the intent of the
lawmakers so as to effectuate
the purposeof the statute. We
begin by examiningthestatu-
tory language, giving the
words their usual and ordi-
nary meaning. If there is no
ambiguity, then we presume
the lawmakers meant what
they said, and the plain mean-
ing of the language governs.
People v. Connor, 115 Cal. App. 4th
669, 678, 9 Cal. Rptr. 3d 521 (2004); see
also Great Lakes Props., Inc. v. City of
El Segundo, 19 Cal. 3d 152, 155, 137
Cal. Rptr. 154, 561 P.2d 244 (1977)
(stating that unless a term is specifically
defined by statute, or it is clearly shown
that a different meaning was intended,
the plain meaning governs). Here, "cal-
endar year" is not defined under the
CCC or the California Revenue and
Taxation Code. However, "the literal
meaning of the term 'calendar year'is the
period of twelve months between Janu-
ary 1 and December 31." Jensen v.
Johnson County Youth Baseball League,
838 F. Supp. 1437, 1441 (D. Kan. 1993)
(citing Bonray Oil Co. v. Dep't of En-
ergy, 472 F. Supp. 899, 902 (D. Okla.
1978)). [**11] Accordingly, the term
"full income year" as used in CCC §
2115 means a full fiscal year or twelve-
month period from January 1 to Decem-
ber 31.
Here, Debtor's fiscal year was set as
the calendar year. Therefore, Debtor's
first full fiscal year, or first "full income
year," was 1999. For purposes of the
Motion, the parties agree that Debtor's
activity in California in 1999 satisfied
the three-factor formula. Under subdivi-
sion (d), the 135-day period began to run
on January 1, 2000 and expired on May
13, 2000, making January 1, 2001 "the
first day of the first income year . .
commencing on or after the 135th day . .
. ." Therefore, January 1, 2001 was the
trigger date for the application of CCC $
2115 to Debtor.
The Agreements and Transfers took
place no later than February 2000.
Therefore, Debtor was not subject to the
provisions of the CCC listed under CCC
§ 2115(b) at the time the Agreements
and Transfers occurred. Accordingly,
Movants are entitled to judgment on the
Seventh, Tenth, Eleventh, and Twelfth
Claims, to the extent brought under CCC
§ 2115.
2. The Internal Affairs Doctrine
A California court describes the in-
ternal affairs doctrine as:
[A] conflict [**12] of laws
principle which recognizes
that only one State should
have the authority to regulate
a corporation's [*490] inter-
nal affairs-matters peculiar to
the relationships amongor be-
tween the corporation and its
current officers, directors, and
shareholders-because other-
wise a corporation could be
faced with conflicting de-
mands. States normally look
to the State of a business’ in-
corporation for the law that
provides the relevant corpo-
rate governance general stan-
dard of care.
State Farm Mut. Auto. Ins. Co. v. Supe-
rior Court, 114 Cal. App. 4th 434, 442,
8 Cal. Rptr. 3d 56 (2003) (quoting Ed-
gar v. MITE Corp., 457 U.S. 624, 645,
73 L. Ed. 2d 269, 102 S. Ct. 2629 (1982)
and Atherton v. FDIC, 519 U.S. 213,
224, 136 L. Ed. 2d 656, 117 S. Ct. 666
(1997)). "In general, courts in California
follow this rule and apply the law ofthe
state of incorporation in considering
claims relating to internal corporate af-
fairs." In re Sagent Tech., Inc., 278 F.
Supp 2d 1079, 1087 (N.D. Cal. 2003).
Indeed, the internal affairs doctrine, as
applied to director liability, has been
codified in California. See Cal. Corp.
Code § 2116.
This does not mean that California
[**13] has no role in governing the
conduct of foreign corporations. Clearly,
California law applies to conduct unre-
lated to the internal affairs of a foreign
corporation. See Valtz v. Penta Inv.
Corp., 139 Cal. App. 3d 803, 807, 188
Cal. Rptr. 922 (1983) (applying Califor-
nia law to a shareholder's demandto in-
spect a foreign corporation's records and
noting that such activity is not an inter-
nal corporate affair); Western Air Lines,
Inc. v. Sobieski, 191 Cal. App. 2d 399,
409-10, 12 Cal. Rptr. 719 (1961) (hold-
ing that a foreign corporation must com-
ply with California securities laws when
entering into stock transactions with
California residents and noting that such
activity is not an internal affair). Addi-
tionally, California law may apply to the
internal affairs of a foreign corporation
under a specific statute. See Havlicek v.
Coast-to-Coast Analytical Servs., Inc.,
39 Cal. App. 4th 1844, 46 Cal. Rptr. 2d
696 (1995) (applying California law to a
director's right to inspect a foreign cor-
poration's records under CCC $ 1602);
Wilson v. Louisiana-Pacific Res., Inc.,
138 Cal. App. 3d 216, 187 Cal. Rptr.
852 (1982) (rejecting a constitutional
challenge [**14] to CCC § 2115 as ap-
plied to a foreign corporation).
Here, Debtor is a foreign corporation
incorporated in Delaware. Trustee does
not dispute that the Agreements and
Transfers involve the internal affairs of
Debtor. Additionally, as discussed
above, the trigger date under CCC $§
2115(d) occurred after the Agreements
and Transfers took place. Finally, Trus-
tee has not identified any other specific
statute in the Complaint applying the
CCC to the conduct of a foreign corpo-
ration. Therefore, Delaware law governs
the Agreements and Transfers, and
Movants are entitled to judgment on the
Fifth, Seventh, Tenth, Eleventh, and
Twelfth Claim, to the extent brought un-
der the CCC.
V. CONCLUSION
The plain language andpractical ap-
plication of CCC § 2115 show that the
term "full income year" as used in sub-
division (a) means a full fiscal year or
twelve-month period from January | to
December 31. Debtor's first full fiscal
year was 1999, making January 1, 2001
the trigger date under subdivision (d).
With several statutory exceptions, in-
cluding CCC $ 2115, the law ofthestate
of incorporation governs the internal af-
fairs of a corporation. Here, Debtor was
incorporated in Delaware and operated
[**15] as a foreign corporation in Cali-
fornia. Additionally, CCC § 2115 and
the provisions listed therein did not ap-
ply to Debtor until after the Agreements
and Transfers took place. Therefore,
Delaware law governs the internal af-
fairs of Debtor during the [*491] rele-
vant period, and partial summary judg-
ment on the Fifth, Seventh, Tenth, Elev-
enth, and Twelfth Claims, to the extent
brought under the CCC,is appropriate.
This memorandum opinion shall con-
stitute my findings of fact and conclu-
sions of law.
Dated: April 16, 2004
JOHN E. RYAN
United States Bankruptcy Judge
® » e
@ LexisNexis’
Page 1
LEXSEE 2007 DEL.CH. LEXIS 68
IN THE MATTER OF TRANSAMERICA AIRLINES,
INC.; HARRY A. AKANDE,Petitioner/Plaintiff, v.
TRANSAMERICA AIRLINES, INC., a Delaware corpora-
tion, f/k/a, TRANS-INTERNATIONAL AIRLINES,INC., a
Delaware corporation, BURTON E. BROOME, SHIRLEY
H. BUCCIERI, EDGAR H. GRUBB, and TRANS-
AMERICA CORPORATION,a Delaware Corporation.,
Respondents/Defendants.
Civil Action No. 1039-VCP
COURT OF CHANCERY OF DELAWARE, NEW CAS-
TLE
2007 Del. Ch. LEXIS 68
February 2, 2007, Submitted
May25, 2007, Decided
NOTICE:
THIS OPINION HAS NOT BEEN
RELEASED FOR PUBLICATION.
UNTIL RELEASED, IT IS SUBJECT
TO REVISION OR WITHDRAWAL.
SUBSEQUENT HISTORY: Motion
denied by, Motion to strike denied by
Akande v. Transamerica Airlines, Inc.
(In re TransamericaAirlines, Inc.), 2008
Del. Ch. LEXIS 27 (Del. Ch., Feb. 25,
2008)
Affirmed by Transamerica Airlines, Inc.
v. Akande, 2010 Del. LEXIS 96 (Del.,
Mar. 5, 2010)
PRIOR HISTORY: Akande v. Trans-
america Airlines, Inc. (In re Trans-
america Airlines, Inc.), 2006 Del. Ch.
LEXIS 47 (Del. Ch., Feb. 28, 2006)
COUNSEL: [*1] James S. Green, Es-
quire, George H. Seitz, III, Patricia P.
McGonigle, Esquire, SEITZ, VAN OG-
TROP & GREEN, P.A., Wilmington,
Delaware, Attorneys for Peti-
tioner/Plaintiff.
John G. Harris, Esquire, RILEY RIPER
HOLLIN & COLAGRECO, Wilming-
ton, Delaware; Bernard P. Simons, Es-
quire, REED SMITH LLP,Los Angeles,
California, Attorneys for Defendants.
OPINION
MEMORANDUM OPINION
PARSONS, Vice Chancellor.
Plaintiff, Harry A. Akande, has peti-
tioned this Court to recognize and en-
force a money judgmentrenderedin Ni-
geria in 1999. The judgment is a final
judgment rendered on a suit for breach
of contract brought by Akande in 1976.
One of the defendants in the Nigerian
action and this action is TIA. Through-
out the Nigerian proceedings until TIA's
dissolution in 1998, TIA was a wholly
owned subsidiary of another defendant
in this action, Transamerica Corporation
("Transamerica").
After nearly 23 years of litigation,
which included numerous delays, post-
ponements and two complete trials on
the merits, Akande received a final
money judgmentthat, with pre and post-
judgmentinterest, he claims nowtotals
approximately $ 17 million. Defendants
in this action vigorously have opposed
Akande's attempt to have the judgment
{*2] recognized.
The parties have cross-moved for
summary judgment and, pursuant to
Court of Chancery Rule 56(h), the case
is ripe for decision on the merits on the
record submitted in connection with
those motions. This opinion contains the
Court's findings of facts and conclusions
law. For the reasons set forth herein, I
find that Delaware law providesfor rec-
ognition of Akande's judgment for
breach of a commission agreement for
1976 andthat the various defensesraised
by Defendants do not bar the judgments
recognition in this state.
I. BACKGROUND AND FACTS
A. The Parties
Plaintiff, Harry A. Akande,is a citi-
zen of the Federal Republic of Nigeria.
He wasat all relevant times a principal
and 50% shareholder of the New Africa
Technical and Electrical Company,Ltd.
("NAFTECH"), a Nigerian companyin-
corporated on May 5, 1973.
1 Opening Br. in Supp. of PL.'s
Mot. for Summ. J. ("POB") App.
Al, A110.
Defendant Transamerica Airlines,
Inc., formerly known as_ Trans-
International Airlines, Inc. (referred to
throughout this opinion as "TIA"), was
incorporated in Delaware on November
13, 1967 and dissolved on December14,
1998. > TIA wasat all times relevant to
these proceedings a wholly owned sub-
sidiary [*3] of Defendant Transamerica
Corporation, a Delaware corporation.
Transamerica is the successor in interest
to TIA.
2 Third Am. Compl. ("Compl.") P
29; POB App. A331-37.
3 Compl. P 6; Defs.' Answer and
Aff. Defenses ("Answer") P 6.
Defendants Burton E. Broome,
Shirley H. Buccieri and Edgar H. Grubb
were, at all times relevant to these pro-
ceedings, directors and officers of TIA
(collectively, the "Individual Defen-
dants"). «
4 Compl. PP 3-5; Answer PP 3-5;
Opening Br. in Supp. of Defs."
Suppl. Mot. for Summ. J. ("DOB")
at 7.
B. Facts
1. The Nigerian proceedings
Most of the facts pertinent to this
case are recounted in this Section B. The
Court discusses some disputed details,
however, in later sections where their
relevance to the parties’ arguments is
more immediate.
In 1975, the Nigerian Pilgrims Board,
a governmental agency, awarded a con-
tract to TIA to transport pilgrims be-
tween Kano, Nigeria and Jeddah, Saudi
Arabia for the Hadji Movement (the
"Charter Agreement"). * During the pe-
riod that TIA conducted these opera-
tions, it housed its employees at the Ba-
gauda Lake and Daula Hotels in the state
of Kano, Nigeria. * During 1975 and
1976, TIA retained NAFTECH as its
agent for securing pilgrims ([*4] for
transport, and in 1975 TIA paid
NAFTECH a 5% commission for the
services it rendered (the "Commission
Agreement”). 7 In 1976, NAFTECH's
other 50% shareholder, Michael A.
Omisade,falsely represented to TIA that
NAFTECH was being dissolved. *
Omisade then contracted to have his
newly formed company, New Africa
Development Company ("NADCO"),
perform the services NAFTECH had
been performing for TIA.°
5 POB App. A372.
6 Id. at A316. Affidavit of Walter
J. McCauley P 7. Pursuant to Ct.
Ch. R. 56(e), Defendants moved to
strike several paragraphs in the
McCauley affidavit, as well as
paragraphsin the affidavits of Ma-
lam MohammedIsyaku and Malam
Nisidi Abubakar, on the grounds
that the challenged averments are
not based on the personal knowl-
edge of the affiants and are there-
fore inadmissible. Because the
Court has not relied upon any of
the contested paragraphs of the
McCauley and Isyaku affidavits,
Defendants’ motionsto strike those
affidavits are denied as moot. As to
the Abubakaraffidavit, Defendants
object to paragraphs 7 and 8. The
Court agrees that paragraph 7 and
the opening phrase of paragraph 8,
"{t]hat upon this service on the As-
sistant Manager," are inadmissible
hearsay. Thus, [{*5] I hereby strike
those portions of the Abubakar af-
fidavit, but otherwise deny Defen-
dants' motion.
7 POB App. A372.
8 Id. at A367-69.
9 Id.
When confronted with Akande's alle-
gations of deception by Omisade, TIA
responded by informing Akande that
they would continue to use and pay
commissions to Omisade and NADCO
and that Akande and Omisade would
have to settle the dispute between them-
selves. ° On October 13, 1976, Akande
filed suit in the High Court of Lagos
State against Omisade, NADCO, TIA
and NAFTECH (as a nominal defen-
dant) for breach of contract, among
other claims. " On January 18, 1977, the
Honorable L.J. Dosunmu issued a deci-
sion denying Akande's claims against
Omisade and NADCO, but granting
them with regard to TIA. * Judge Do-
sunmu awarded Akande 10,000 Naira
(the Nigerian currency) in damages.
Akande then appealed to the Federal
Court of Appeal the lower court's find-
ing in favor of Omisade and NADCO.
On March 28, 1978, TIA cross-appealed
on the following grounds:
1. That the learned Trial
Judge erred in Law and on the
facts in entering judgment
against the 3 Defendant
[TIA] for the sum of 10,000
or at all when there was no
Contract between Plaintiff
and the 3 Defendant.
2. [*6] That the learned
Trial Judge erred in the Law
by not dismissing Plaintiff's
claims insofar as the claim
was onefor the benefit of the
Incorporated Company and
Plaintiff would not and had
not been authorized to sue on
behalf of the Company.
3. That the learned Trial
Judge misdirected himself in
Law and the facts as to the
ground for entering judgment
against the 3 Defendant.
10 Id. at A369.
11 Compl. P 24; Answer P 24.
12 POB App. A1-8.
13. Id. at A13; Compl. P 32; An-
swer P 32.
On May4, 1983, the Federal Court of
Appeal affirmed the lower court's judg-
ment that Akande properly brought suit
on behalf of NAFTECH and reversed
the dismissal of Akande's claims against
Omisade and NADCO. « The Federal
Court of Appeal also found that TIA had
failed to pursue, and hence abandoned,
its cross-appeal. °
14 POB App. A15-30.
15 Id. at Al8.
On June 3, 1983, Omisade and
NADCOappealed to the Supreme Court
of Nigeria. * On April 10, 1987, the Su-
preme Court held that the original action
should have been brought in the Federal
High Court of Lagos, rather than the
High Court of Lagos State, and ordered
the action remanded to the Federal High
Court Holden at Lagosfortrial de novo.
16 Id. at A31-32.
The Nigerian [*7] litigation then ex-
perienced numerous delays and ad-
journments for a variety of reasons and
ultimately lasted 12 more years. Finally,
on October 20, 1999, 23 years after
Akande first filed suit, he obtained a
judgmentagainst all of the defendants,
including TIA (the "Judgment" or the
"Nigerian Judgment"). ”
17 Id. at A110-23.
a. The Riley Affidavit
At all times relevant to the Nigerian
proceedings, John F. Riley, Jr. was TIA's
Vice President and General Counsel. *
On April 10, 1984, Riley executed an
affidavit in support of NADCO and
Omisade's appeal to the Supreme Court
of Nigeria (the "Riley Affidavit"). » A
draft of the Riley Affidavit was first
prepared by Omisade's attorney and sent
to Riley via Omisade. After editing
paragraphs 13 and 14, Riley executed
the document and sent it back to
Omisade on February 9, 1984. » Accord-
ing to the Affidavit, Riley had the au-
thority of the 3rd Defendant, TIA, to
execute the document. Both sides in
this case rely on various portions of the
Riley Affidavit as evidence that TIA did,
or did not, submit to the personal juris-
diction of the Nigerian courts.
18 Defs.’ Answering Br. In Opp'n
to Pl.'s Mot. for Summ. J. ("DAB")
Ex. 1.D (Aff. of John F. [*8] Riley
(cited as "Riley Aff.P ")).
19 DAB Ex.1.D.
20 Id. Ex. LC.
21 Riley Aff. P 2.
The following are among the aver-
ments most relevant to this case that Ri-
ley made in his Affidavit to the Supreme
Court of Nigeria:
That I verily believe that if
the writ of Summons and the
Statement of Claim were
served on [TIA] we would
have vigorously contested the
jurisdiction of any Nigerian
Court of Law over [TIA] and,
if required, and without ac-
cepting, conceding or admit-
ting such jurisdiction, would
have filed a valid defense to
the action;
That [TIA is] willing and
ready to contest the jurisdic-
tion of any Nigerian Court of
Law over [TIA] and, if re-
quired, to defend the action.
* KK *K
That it would be in the in-
terest of justice if [TIA were]
given the opportunity of being
heard by ordering that the
case should be sent back to
the Lower Court for a rehear-
ing wherein [TIA] will have
the opportunity of stating our
case ....”
The Riley Affidavit is discussed more
fully in Section II.C which addresses
Defendants’ arguments that they did not
receive timely notice of the Nigerian
proceedings.
22 Id. PP 13, 14, 16.
2. Akande's efforts to enforce the Ni-
gerian Judgment
After finally obtaining the Judgment
in 1999, [*9] Akande first tried to col-
lect against the defendants remaining in
Nigeria. = That group did not include
TIA. Unsuccessful in Nigeria, Akande,
through his attorney, contacted TIA in
March 2002 and demanded payment of
the Judgment. « Thereafter, Akande and
Transamerica's counsel exchanged sev-
eral letters regarding the Judgment, with
Transamerica repeatedly asking for more
information, including a certified copy
of the Judgment, copies of the Commis-
sion Agreement, proofs of service, etc. »
After these collection efforts failed,
Akande hired a Michigan lawyer who
filed suit in New York in October 2003
to enforce the Judgment. In the Spring of
2004, however, Akande voluntarily dis-
missed that suit because his new attor-
ney could not practice in New York. *
23 POB App. A134-35.
24 Id. at A195.
25 Id. at A195-200.
26 Id. at A155.
C. Procedural History of this Action
On January 21, 2005, Akande filed
this Delaware action to have the Nige-
rian Judgment recognized and enforced.
On February 17, 2005, he filed an
Amended Petition and Complaint. In ad-
dition, before any defendantfiled a re-
sponsive pleading, Akande filed a Sec-
ond AmendedPetition and Complaint on
April 21, 2005.
On June 15, 2005, Defendants [*10]
moved to dismiss the Second Amended
Complaint. In response, Akande sought
leave to file a further amendment. De-
fendants opposed that request. On Feb-
ruary 28, 2006, the Court issued an opin-
ion granting in part the motion to dis-
miss, but allowing Akande to amendhis
complaint. Among other things, the
Court permitted Akande to take discov-
ery on his claims for recognition and en-
forcement of the Judgment under Dela-
ware's Uniform Foreign Money-
Judgments Recognition Act ("UFMJRA"
or the "Act"). ” Akande filed his Third
Amended Complaint on April 17, 2006
(the "Complaint"). Defendants filed their
Answer and Affirmative Defenses on
May12, 2006 ("Answer").
27 10 Del. C. $$ 4801-4808.
Several months later, the parties
cross-moved for summary judgment. Af-
ter extensive briefing, the Court heard
argument on those motions on January
17, 2007. On February 2, 2007, the par-
ties submitted limited supplemental
briefing letters addressing certain con-
cerns raised at argument. *
28 Letter to the Court from
George H. Seitz, Esq., dated Feb-
ruary 2, 2007; Defendants’ Sup-
plemental Letter Brief dated Feb-
ruary 2, 2007. Akande objected
that Defendants’ letter exceeded the
scope of the Court's authorization
of supplemental [*11] briefing and
urged the Court to strike the Third,
Fourth and Fifth numbered items in
it. Defendants' Third numbered
item discusses issues that were
within the scope of my instructions
or of questions I raised at argu-
ment, so I deny the requestto strike
that item. Similarly, I find that the
first paragraph of Defendants’
Fourth item, standing alone, is a
fair comment on questions the
Court raised at argument, but my
ruling on the merits is not inconsis-
tent with Defendants’ position in
that paragraph. Otherwise, how-
ever, I agree that Defendants’
Fourth and Fifth numbered items
go beyondthe limited scope of the
leave given at argument, and there-
fore strike those items.
Moreover, in the
Fourth and Fifth items,
Defendants attempt to
bolster their arguments
by relying on the Re-
vised Uniform Foreign-
Country Money Judg-
ments Recognition Act.
Although the National
Conference of Commis-
sioners on Uniform State
Laws ("NCCUSL") ap-
proved this Revised Uni-
form Act in July 2005,
and Defendants did not
file their pending motion
for summary judgment
until more than a year
later, they never men-
tioned this Revised Act
even once in the exten-
sive briefing on the par-
ties' cross motions or at
argument. Moreover,
[*12] it does not appear
that Delaware has
adopted the Revised
Act. For these reasons, I
hold that Defendants
have waived any argu-
ment they might have
made based on_ that
document.
Regrettably, the combined litigation
in this dispute, from Lagos, Nigeria in
1976 to Delaware in 2007 has spanned
an entire generation. As the Nigerian
court that rendered the Judgment stated
early in its 1999 ruling, "[i]t is perhaps
appropriate at this stage to make a few
comments about the tortuous history of
this case whichstarted in the High Court
of Lagos State since [sic] 1976." » When
analyzing the parties’ disputes, it is help-
ful to segmentthis tortured history into
smaller intervals. Temporally, the first
phase of the Nigerian proceedings began
with the filing of the suit in the High
Court of Lagos State in 1976 and ended
with the judgment of the Supreme Court
of Nigeria in 1987 ordering a trial de
novo (the "State Proceedings"). The
other major phase of the Nigerian pro-
ceedings extended from the filing of the
second petition in the Federal High
Court at Lagos in 1987 to the rendering
of the Judgment in 1999 (the "Federal
Proceedings"). In addition, for conven-
ience, I refer to the period from the date
[*13] of the 1999 Judgmentto the com-
mencement of these Delaware proceed-
ings in 2005 as the "Interim Period.”
29 POB App.A113.
II. ANALYSIS
A. Standard
Court of Chancery Rule 56(h) pro-
videsthat:
Wherethe parties have filed
cross motions for summary
judgment and have not pre-
sented argument to the Court
that there is an issue of fact
material to the disposition of
either motion, the Court shall
deem the motions to be the
equivalent of a stipulation for
decision on the merits based
on the record submitted with
the motions.
The usual standard of drawing rea-
sonable inferences in favor of the non-
moving party does not apply when de-
ciding a case under Rule 56(h). » The
parties in this case essentially agreed
that their cross-motions for summary
judgmentshould be treated as a stipula-
tion for decision on the record submit-
ted. * In any event, they failed to present
argument that there is an issue of fact
material to the disposition of either mo-
tion, which supports adopting that ap-
proach. *
30 Am. Legacy Found V. Loril-
lard Tobacco Co., 886 A.2d 1, 18
(Del. Ch. 2005).
31 Transcript of Argumentheld
on January 17, 2007 ("Tr.") at 23-
24, 69-70; see Letter to Court from
John G. Harris dated Feb. 2, 2007,
at [*14] 1.
32 See Ct. Ch. R. 56(h).
The UFMJRA provides for the rec-
ognition of "foreign judgments,” mean-
ing judgments granting or denying re-
covery of a sum of money rendered in a
Jurisdiction outside the United States
and its territories. * The Act has been
adopted in over 30 states. As adopted
in Delaware, the Act "applies to any for-
eign judgment that is final and conclu-
sive and enforceable where rendered
even though an appeal therefrom is
pendingorit is subject to appeal.” * Sec-
tion 4803 of the Act providesthat:
Except as provided in §
4804 of this title, a foreign
judgment meeting the re-
quirements of § 4802 of this
title is conclusive between the
parties to the extent that it
grants or denies recovery of a
sum of money. The foreign
judgmentis enforceable in the
same manner as the judgment
of a sister state which is enti-
tled to fullfaith and credit. *
33 10 Del. C. § 4801. The
UFMJRA is a_ codification of
common laws of comity. See Jay
M. Zitter, Construction and Appli-
cation of Uniform Foreign Money-
Judgments Recognition Act, 88
A.L.R. 5th 545, at *2 (2001); En-
ron (Thrace) Explor. & Prod. BVv.
Clapp, 378 N.J. Super. 8, 874 A.2d
561, 564 (N.J. Super. Ct. App. Div.
2005).
34 Website of Uniform Law
Commissioners, [*15]
http://www.nccusl.org/nccusl/unifo
rmact_factsheets/uniformacts-fs-
ufmjra.asp (last visited May 25,
2007).
35 10 Del. C. $ 4802.
36 10 Del. C. § 4803 (emphasis
added).
A properly authenticated judgmentof
another state is entitled to full faith and
credit in Delaware to the same extentit
would receive in the state in which it
was entered. ” Apart from Defendants’
argument that the Nigerian proceedings
are null and void due to a defect related
to the original writ of summons, none of
the parties in this action disputes that the
Nigerian Judgmentis final and grants a
recovery of a sum of money,at least for
the commissions that were due under the
Commission Agreementfor 1976. *
37 U.S. Const. art. 4, $ 1;
Guayaquil & Quito Ry. Co. v. Suy-
dam Holding Corp., 50 Del. 424,
Il Terry 424, 132 A.2d 60, 66
(Del. 1957).
38 Defendants argue that Akande
is not entitled to the relief, includ-
ing damages, he seeks for post-
1976 commissions because the Ni-
gerian courts did not fully deter-
mine the amount of damages to
which Akande would be entitled
for that period. This argumentis
addressed in Section II.G,infra.
Section 4804(a) of the UFMJRA pro-
vides that a foreign judgmentis not con-
clusive if:
(1) The judgment was ren-
dered under [*16] a system
which does not provide im-
partial tribunals or procedures
compatible with the require-
ments of due processof law;
(2) The foreign court did
not have personal jurisdiction
ments even if the foreign court techni-
cally may have lacked personal jurisdic-
tion over the defendant according to its
own law. Certainly, under the laws of
Delaware, the existence of the circum-
stances identified in Section 4805 of the
over the defendant: or Act would support the exercise of per-
sonal jurisdiction over a defendant.
(3) The foreign court did [*17] Specifically, Section 4805 pro-
not have jurisdiction over the vides:
subject matter.
(a) The foreign judgment
shall not be refused recogni-
In addition, Section 4804(b) sets forth tion for lack of personal juris-
discretionary reasons why a court may dictionif:
refuse to recognize a judgment. These (1) The defendant was
include: served personally in the for-
eign state;
1) The defendant in th( ) The defendant in the (2) The defendant volun-proceedings in the foreign
court did not receive notice of
the proceedings in sufficient
time to enable the defendant
to defend; [or]
* OK OK OK
(5) The proceeding in the
foreign court was contrary to
an agreement between the
parties under which the dis-
pute in question wasto beset-
tled otherwise than by pro-
ceedingsin that court...
tarily appeared in the pro-
ceedings other than for the
purpose of protecting prop-
erty seized or threatened with
seizure in the proceedings or
of contesting the jurisdiction
of the court over the defen-
dant;
* OK K
(5) The defendant had a
business office in the foreign
state and the proceedings in
the foreign court involved a
cause of action arising out of
business done by the defen-
In certain circumstances that plainly
would satisfy a minimum contacts juris-
dictional requirement, » the UFMJRA
authorizes recognition of foreign judg-
dant through that office in the
foreign state; or
(6) The defendant operated
a motor vehicle or airplane in
the foreign state and the pro-
ceedings involved a cause of
action arising out of such op-
eration.
"The purpose of the UFMJRA is to
make it more likely that judgments ren-
dered in a state that adopted the Act will
be recognized abroad, since in a large
numberof civil-law countries, the grant-
ing of conclusive effect to money judg-
ments from foreign courts is made de-
pendent on reciprocity." “
39 See Kam-Tech Sys. Ltd v.
Yardeni, 340 N.J. Super. 414, 774
A.2d 644, 652 (N.J. Super. Ct. App.
Div. 2001).
40 Zitter, supra note 33, at *2.
B. [*18] The Parties' Contentions
CountI of Plaintiff's Complaint seeks
recognition of the Nigerian Judgment.
Count IJ asks the Court to enforce the
Judgment. The enforcement of judg-
ments is addressed only obliquely by the
Act. For example, the official comment
to Section 3 of the model UFMJRA, 10
Del. C. § 4803 as enacted in Delaware,
says that "[t]he method of enforcement
will be that of the Uniform Enforcement
of Foreign Judgments Act of 1948
("UEFJA") in a state having enacted that
Act." Delaware has adopted the UEFJA
to govern the enforcement of foreign
judgments that are entitled to full faith
and credit in this State. « The UEFJA
provides that a judgment of a court of
the United States or of a court entitled to
full faith and credit may be filed with
any prothonotary and should be treated
the same as a judgmentrendered by the
Superior Court of this State. « Upon the
filing of a qualifying foreign judgment,
the UEFJA provides for notice to the
judgment debtor and provides the judg-
ment creditor with various means for
collecting on the judgment, including the
execution of a lien on real or personal
property. Moreover, Section 4786 of the
UEFJA makesclear that the act does not
impair [*19] a judgmentcreditor's right
to bring an action to enforce a judgment.
41 10 Del. C. §§ 4781-4787.
42 10 Del. C. § 4782.
43 Enron (Thrace) Explor. &
Prod. BV v. Clapp, 378 N.J. Super.
8, 874 A.2d 561, 565-66 (N.J. Su-
per. Ct. App. Div. 2005).
Thus, although Akande's Complaint
includes a distinct claim for enforce-
ment, for purposes of this action, the
critical questions relate to whether the
Nigerian Judgmentis "final and conclu-
sive and enforceable where rendered"
and whether the Judgment should be
recognized in Delaware. « If the Court
answers these questions in the affirma-
tive, the Judgment will be enforceable
under the UEFJA in the same manneras
a judgmentof the Superior Court.
44 Delaware's version of the
UFMJRAdoesnotcontain specific
procedures for registering and rec-
ognizing judgments pursuant to the
Act.
Defendants advance several argu-
ments for why this Court should notrec-
ognize the Judgment. They argue that
Akande's petition for recognition and en-
forcement is time-barred by the applica-
ble statute of limitations, or, alterna-
tively, the equitable doctrine of laches.
Defendants also contend that even if
Akande's claims are not time-barred, the
Judgment should not be recognized be-
cause it fails to [*20] meet the require-
ments of the UFMJRA. Pursuantto this
line of defense, Defendants argue that
TIA did not receive notice of, was not
represented at and did not participate in,
the Nigerian proceedings and_ that
Akandefailed to give TIA timely notice
of the Judgment. Defendants also assert
several other arguments for nonrecogni-
tion, including lack of personal jurisdic-
tion and lack of subject matter jurisdic-
tion. These defenses are addressed in the
sections that follow. I begin with Defen-
dants' arguments that the Judgment
should not be recognized because TIA
did not have notice of the Nigerian pro-
ceedings and the Nigerian courts lacked
personal jurisdiction over TIA.
C. Notice and Personal Jurisdiction
Defendants argue that they did not
receive timely or sufficient notice of the
Nigerian proceedings or copies of the
complaint. They contend that the defects
of process and service of process in the
Nigerian proceedings render the Judg-
ment unrecognizable because the pro-
ceedings failed to afford TIA due proc-
ess of law. Similarly, Defendants urge
this Court to decline to recognize the
Judgment pursuant to Section 4804(b)(1)
of the Act because TIA did not receive
notice of the foreign claim in [*21] time
to adequately defenditself. Additionally,
Defendants argue that because Akande
never properly effected service on TIA,
the Nigerian courts lacked personal ju-
risdiction over TIA.
This Court knows of only one Dela-
ware case interpreting the UFMJRA,
Abd Alwakhad v. Awad Amin, a casethat
dealt, in part, with issues of notice. © In
Awad Amin, the plaintiff sought to have
the court recognize an Israeli judgment
entered by default by a Jerusalem court
against a co-defendant wife on a promis-
sory note executed by the wife's co-
_ defendant husband. There was no evi-
dence that the wife signed or knew of
the $ 130,000 promissory note. « The
"service" that the wife received was an
unofficial English translation of a He-
brew document, translated by the hus-
band's domestic relations attorney and
supposedly delivered by the couple's
minor son. The document did not say
that the wife was required to respond to
the complaint or face a default judgment
in the underlying action. “ Moreover, the
plaintiff in the Delaware action did not
present any evidence of Israeli law on
the issues of what constitutes appropri-
ate service on a nonresident of Israel or
whether a husband could obligate a wife
in such [*22] circumstances. « The
Delaware court declined to recognize the
judgment because the "notice" the wife
received did not comport with the re-
quirements of due process or provide a
sufficient basis for the Jerusalem court
to exercise personaljurisdiction over the
wife.
45 2005 Del. Super. LEXIS 320
(Sept. 14, 2005).
46 Id. at *7.
AT Id. at *6-7.
48 Id. at *8.
The court in Awad Amin also ex-
pressed concern that the Israeli judgment
may have been obtained by fraud.
Among many problems with the pur-
ported judgment, the court observed that
the note was not signed by the wife and
that the only evidence arguably connect-
ing the wife to the note was a number on
the loan documents which, according to
the husband, was he and his wife's mar-
riage identification number. “ The court
also expressed skepticism aboutthe for-
eign court's apparent entry of judgment
on the note at issue before it was fully
due by its own terms. Moreover, the
court found the husband "wholly unbe-
lievable" when he testified that unbe-
knownst to customsofficials, airport se-
curity, and even his own wife, he had
carried $ 130,000 to the United States in
cash in a bag that he carried onto the
plane. *
49 Id. at *1-2.
50 Id. at *9-10.
This case [*23] is distinguishable
from Awad Amin in several respects. De-
fendants in this case have made no spe-
cific allegations of fraud. Nor have De-
fendants disputed the existence of the
contract underlying the action for breach
that led to the Nigerian Judgment. Fur-
thermore, the putative service of proc-
ess, although Defendants contest its ade-
quacy, was made on TIA in Nigeria and
in English. « And importantly, as dis-
cussed below and unlike the judgment
debtor (wife) in Awad Amin, TIA had
notice of the Nigerian proceedings.
51 POB App. A321-25.
1. Did TIA receive timely and suffi-
cient notice of the Nigerian proceed-
ings?
I first note that Defendants’ due proc-
ess argument mostly pertains to issues of
service of process and notice; i.e., they
urge this Court to refuse to recognize the
Judgment pursuant to § 4804(b)(1). »
Defendants have not argued or briefed
any challenge to recognition based on $
4804(a)(1) which involves the broader
proposition that the Judgment "was ren-
dered under a system which does not
provide impartial tribunals or procedures
compatible with the requirements of due
process of law." * Thus, I take as undis-
puted that the Nigerian system does pro-
vide impartial tribunals and due process
[*24] sufficient to meet the prescription
of § 4804(a)(1). This conclusion is bol-
stered by the facts that Nigeria has an
English common law system with re-
ported precedent and that the State and
Federal Proceedings against TIA in Ni-
geria, although long and exasperating,
generally followed an orderly, logical,
and reasonably well documented pro-
gression.“
52 Defendants' arguments that the
Judgment should not be recognized
pursuant to §§ 4804(a)(2) and
(a)(3) are addressed in Sections
IL.C andI.E, respectively.
53 10 Del. C. § 4804(a)(1) (em-
phasis added); Society of Lloyd's v.
Ashenden, 233 F.3d 473, 477-78
(7th Cir. 2000) (applying Illinois
law) (Posner, J.) (discussing the
distinction between arguing that a
system of law does not afford due
process and arguing that particular
proceedings within a system of law
did not afford due process).
54 Hilton v. Guyot, 159 U.S. 113,
205-06, 16 S. Ct. 139, 40 L. Ed. 95
(1895); Canadian Imperial Bank of
Commerce v. Saxony Carpet Co.,
899 F. Supp. 1248, 1252 (S.D.N.Y.
1995) ("New York case law dic-
tates that the exceptions involving
jurisdictional defects or procedural
unfairness be construed especially
narrowly when the alien jurisdic-
tion is, like Canada, a sister com-
mon law jurisdiction [*25] with
procedures akin to our own." (quo-
tations omitted)) There is some
lack of uniformity in case law from
other jurisdictions regarding who
has the burden of proof on the fac-
tors specified in § 4804(a)(1). This
issue theoretically could be impor-
tant in that the grounds for nonrec-
ognition listed in § 4804(a) are
mandatory, while those listed in $
4804(b) are discretionary. In S.C.
Chimexim S.A. v. Velco Enter. Ltd.,
36 F. Supp. 2d 206 (S.D.N.Y.
1999), the Court held that the
plaintiff judgment creditor bore the
burden of proving each of $§
4804(a)(1)-(a)(3). Most courts,
however, treat § 4804(a)(1) as a
defense for which defendants bear
the burden of proof. I consider the
latter view more persuasive. In
Kingsland Holdings Inc. v. Bracco,
1996 Del. Ch. LEXIS 28, at *13-14
(Mar. 6, 1996), the fact that a
judgment was rendered in a system
of justice based upon the English
common law system bolstered the
court's presumption of validity for
purposes of sequestering stock.
Nevertheless, for purposes of this
opinion, I need not decide this is-
sue because, even if Akande did
bear the burden of proof as to the
applicability of $ 4804(a)(1), I am
convinced that he has metit in the
circumstances [*26] of this case.
In contrast, Defendants do contend
that the Nigerian Judgment is not con-
clusive under § 4804(a)(2) because the
Nigerian court did not have personal ju-
risdiction over TIA. In a related vein,
Defendants also argue that the Judgment
need not be recognized under $
4804(b)(1). The question that must be
asked under § 4804(b)(1) of the
UFMJRA is whether TIA had notice of
the Nigerian proceedings in sufficient
time to allow it to defend itself. I find
that it did.
The parties rely uponthe affidavits of
Nigerian lawyers to support their respec-
tive positions on Nigerian law. Plaintiff
submitted the affidavits of retired Justice
E.O. Sanyaolu. * Defendants submitted
the affidavit of Uzoma Azikiwe, a law-
yer and Senior Advocate of Nigeria, a
title indicating his senior position within
the Nigerian legal community. * Pursu-
ant to Court of Chancery Rule 44.1, this
Court "in determining foreign law, may
consider any relevant material or source,
including testimony, whether or not
submitted by a party or admissible under
Rule 43. The court's determination shall
be treated as a ruling on a question of
law."
55 POB App. A231-311 (Affida-
vit of The Honorable Justice E.O.
Sanyaolu (RTD) dated [*27] Mar.
27, 2006 (cited as "Sanyaolu Aff.
3/27/06 P "), and Further Affida-
vit of the Honorable Justice E.O.
Sanyaolu (RTD) dated Sept. 22,
2006 (cited as "“Sanyaolu Aff.
9/22/06 P ")).
56 DOB Ex. 3 (Affidavit of
Uzoma Azikiwe dated Aug. 22,
2006 (cited as “Azikiwe Aff.
8/22/06 P ")); DAB Ex.3 (Affi-
davit of Uzoma Azikiwe dated
Sept. 25, 2006 (cited as "Azikiwe
Aff. 9/25/06 P_ ")), and Reply Af-
fidavit of Uzoma Azikiwe dated
Oct. 27, 2006 ("cited as Azikiwe
Aff. 10/27/06 P ").
Defendants’ expert, Azikiwe, opines
that the deficiencies of service in this
case have rendered all 23 years of the
Nigerian proceedings a nullity. Sanyaolu
disagrees with Azikiwe on most substan-
tive points. For present purposes, how-
ever, the key issue 1s whether the Judg-
ment is enforceable whererendered,i.e.,
in Nigeria. Both Azikiwe and Sanyaolu
seem to agree that the Judgmentis en-
forceable in Nigeria, at least until it is
re-opened and reargued there. » Beyond
that, Azikiwe's affidavits consist almost
entirely of an extended argument that if
the question were presented to a Nige-
rian court now,that court would invali-
date the Nigerian Judgment because of
various proceduralirregularities.
57 Sanyaolu [*28] Aff. 9/22/06 P
3; Azikiwe Aff. 8/22/06 P 5.
Azikiwe suggests that the Judg-
ment could be nullified in further
proceedings in Nigeria based on
certain technical deficiencies that
render the original writ of sum-
mons voidin his view.
In his affidavit, Azikiwe reasons that
the Judgmentis unenforceable in Nige-
ria because the entire action was void ab
initio because Akande did not obtain
leave of the court before serving the
original writ of summonsoutofjurisdic-
tion. * Sanyaolu, on the other hand,
avers that the defects in the writ of
summonsrender the Judgment voidable
rather than void. » I find Sanyaolu's posi-
tion more persuasive.
58 Akande filed his first com-
plaint in the High Court of Lagos
State. The writ of summons was
served on TIA in another state of
the Nigerian Federation, Kano.
59 Sanyaolu Aff. 9/22/06 PP 13-
4S.
Azikiwe bases his opinion on a num-
ber of Nigerian cases he cites in, and
provides as exhibits to, his affidavit. The
Court concludes that those cases do not
support Azikiwe's position. For example,
to support his assertion that under Nige-
rian law a defect in a writ of summons
renders the entire action void, Azikiwe
relies upon Jadcom Ltd. v. Oguns Elec-
tricals, decided [*29] in the Court of
Appeal (Abuja Division) on May 15,
2003. * In that case, the court says that
failure to obtain the leave of a court or
judge before serving process out of ju-
risdiction effects the jurisdiction of the
court and that in some older decisions
such failure rendered the entire action
null and void. Nevertheless, the court
qualifies its statement by adding:
This is only applicable in a
situation where the defendant
has timeously [sic] raised a
protest against the manner of
the issuance and orservice of
the writ of summons out of
jurisdiction. But where, in
spite of such glaring irregu-
larities, the Defendant de-
cided to waive his right of
protest by taking steps in the
proceedings after service,
then he cannot be heard to
complain of noncompliance.«
60 Azikiwe Aff. 9/25/06 Ex.
UHA6.
61 Jd. at 112.
The court distinguished the older
opinions which had held that such ir-
regularities in service could render an
action null and void, by noting that,
unlike the situation in Jadcom, those
older cases did not involve a waiver.
Wherethere is a waiver, according to the
court in Jadcom, such defects in the writ
or service merely renderthe action void-
able, not void. * The other cases pro-
vided [*30] by Azikiwe do not contra-
dict the court's ruling in Jadcom. *
62 Id. at 173.
63 See id. Exs. VHA 5 and UHA
7. Azikiwe's predilection to draw
questionable inferences in favor of
Defendants is also evident in
Azikiwe's statement that TIA was
never at the Bagauda Hotel, Kano.
He infers this because service
could not be made on TIA atthat
hotel in 1988. Azikiwe Aff.
8/22/06 P 12, Exs. UHA 11 and
UHA 12. The fact that TIA could
not be served at the Bagauda Hotel
in 1988, however, does not support
Azikiwe's claim that TIA was
neverat the hotel.
Furthermore, the evidence showsthat
TIA had notice of the State Proceedings
at least as early as March 28, 1978,
when TIA appealed the judgment of the
High Court of Lagos to the Federal
Court of Appeal. « This showsactual no-
tice of the Nigerian proceedings more
than 21 years before the Judgment was
rendered. TIA also had notice as of April
10, 1984, when its Vice President, John
F. Riley, made out an affidavit on TIA's
behalf for submission to the Supreme
Court of Nigeria in the State Proceed-
ings. Defendants admitted this during
argument. * I also conclude that TIA,
having appealed from the High Court of
Lagos State in 1978 and participated in
later [*31] proceedings via the Riley
Affidavit, more likely than not had no-
tice of the subsequent and resultant Fed-
eral Proceedings. Riley averred that TIA
wanted a fair chance to be heard in a
new trial. © On April 10, 1987, the Su-
preme Court granted Defendants, includ-
ing TIA, a trial de novo. Based on my
review of the evidence, I find that it is
reasonable to infer, and I do infer, that
TIA, whose agent Riley executed an af-
fidavit in April, 1984 in support of a re-
quest for a newtrial, was aware that the
court had granted this request. TIA ad-
mits that its co-defendant Omisade kept
them informed of the Nigerian proceed-
ings, and I infer that TIA knew aboutthe
Federal Proceedings that began in Sep-
tember 1988.
64 Defendants admit TIA's Presi-
dent may have received a courtesy
copy of the Summons and State-
ment of Claim in or around the end
of 1976. See Compl. P 25; Answer
P 25.
65 Tr. at 37, 53-54.
66 Riley Aff. P 16.
67 POB App. A113, A432.
Defendants’ primary arguments re-
garding notice focus more onthe suffi-
ciency of process and service of process
than on denying that TIA had notice of
the Nigerian proceedings. I find that
Akande's difficulties in serving process
on TIA were due in part to TIA's own
[*32] actions. TIA did not inform
Akande or the Nigerian courts that it
was going to be dissolved by its parent,
Transamerica, or that Transamerica
would assume TIA's liabilities, nor did
TIA give any of the parties involved in
the Nigerian action notice that it was go-
ing to wind upits affairs or information
on how to contact TIA. Thus, TIA did
not inform Akande or the Nigerian
courts that it no longer had a corporate
address at the Oakland Airport, where
Akandedirected service to TIA via cou-
rier. * Having had notice of the proceed-
ings, TIA appears to havestrategically
avoided service of process. In these cir-
cumstances, I find that TIA did receive
notice of the Nigerian proceedings in
sufficient time to enable it to defend it-
self. Thus, Defendants have not shown
the requirements for discretionary non-
recognition of the Judgment under §
4804(b)(1). Nor do the facts of this case
provide any other groundsfor this Court,
in the exercise of its discretion, to deny
recognition of the Nigerian Judgment.
68 POB App. A87-92; Sanyaolu
Aff. 3/27/06 P 24, Exs. G1-GS.
This conclusion comports with de-
veloping case law on the UFMJRA in
other states. For example, in Farrow
Mortgage Services Proprietary [*33]
Ltd. v. Singh, © the plaintiff petitioned a
Massachusetts court to recognize an
Australian judgment. The defendant ar-
gued that the judgment should not be
recognized because defects in the plain-
tiff's service of process deprived the de-
fendant of sufficient notice to defendit-
self. The court held that "[t]he issue of
whetherservice of process was defective
is Immaterial where defendanthad suffi-
cient notice to present a defense and did,
in fact, do so." * The Farrow court found
it important that, as in the present case,
the defendant had sworn to an affidavit
that clearly indicated that he was a de-
fendant in the Australian action. ”
69 1995 Mass. Super. LEXIS 495
(Mar. 30, 1995), affd, 42 Mass.
App. Ct. 1103, 675 N.E.2d 445
(1997).
70 Id. at *6-7.
71° Id. at *7.
The defendant in Farrow answered
the plaintiffs complaint and appeared
through counsel on several more occa-
sions. Defendants in this action have ar-
gued repeatedly that they did not attend
or otherwise participate in the Federal
Proceedings. The question is what to
make of their absence. A complete lack
of participation could indicate that a de-
fendant was unaware of a suit in a for-
eign jurisdiction. As the record shows,
however, that was not the case [*34]
with TIA. Rather, TIA had notice of
both the State and Federal Proceedings.
Under these circumstances, Defendants
may not nowusetheir choice not to ap-
pear in those proceedings as evidence
that they were unaware of them. The fact
that TIA chose not to participate in the
Nigerian proceedings reflects a strategic
decision, not ignorance of the action.
2. Did the Nigerian court have per-
sonal jurisdiction over TIA?
Defendants argue that the Nigerian
Judgmentis not conclusive because the
Nigerian courts did not have personal
jurisdiction over TIA. Section 4805 of
the Act sets forth statutorily determined
conditions that limit a Court's inquiry
into issues of personal jurisdiction such
that, if one of the six enumerated condi-
tions is met, "[t]he foreign judgment
shall not be refused recognition for lack
of personal jurisdiction." Because I have
found that TIA was personally served at
the Daula Hotel in Kano, Nigeria in
1976, the first such condition exists here.
Thus, under /0 Del. C. § 4805(a)(1), the
Court cannot now refuse to recognize
the Judgment for lack of personal juris-
diction. ”
72 Defendants argue that the
Court should not credit the 30-year
old affidavit of service executed by
{[*35] Rabo Yabuku. Someof these
objections go to the merits of the
affidavit under Nigerian law. As to
those objections, I rely upon Plain-
tiffs expert, Sanyaolu, who avers
that the affidavit conforms to Nige-
rian law. Sanyaolu Aff. 9/22/06 PP
46-48. I consider the Defendants’
other arguments against the affida-
vit of service without merit, and I
credit it as showing that TIA was
personally served in Nigeria.
Section 4805(a)(2) provides that an-
other such condition exists if: "[t]he de-
fendant voluntarily appeared in the pro-
ceedings other than for the purpose of
protecting property seized or threatened
with seizure in the proceedings or of
contesting the jurisdiction of the court
over the defendant." I find that TIA vol-
untarily appeared in the Nigerian pro-
ceedings for purposes other than to con-
test personal jurisdiction or protect
seized property (or property threatened
to be seized).
TIA participated in the first appeal in
the State Proceedings, from the High
Court of Lagos to the Federal Court of
Appeal. Among the asserted groundsfor
TIA's appeal was that the trial court
erred as a matter of fact and law in
awarding damages because there was no
contract between Akande and TIA. 2
TIA also [*36] argued that the trial
court erred in not dismissing the suit be-
cause Akande was not authorized to sue
on behalf of NAFTECH. *« These
grounds for appeal go to the merits of
Akande's suit and his standing to sue.
Thus, under Section 4805(a)(2), this
Court may not refuse to recognize the
Judgment for lack of personal jurisdic-
tion, which I understand to include chal-
lenges to the sufficiency of process and
to service of process. Instead, the
UFMIJRAcreates a conclusive presump-
tion that the Nigerian courts validly ex-
ercised personal jurisdiction over TIA.
73 POB App. Al3.
74 Id.
Section 4805(a)(5) provides another
basis for this Court to refuse to entertain
a challenge to the Nigerian courts’ per-
sonal jurisdiction over TIA. That section
applies whenever, "[t]he defendant had a
business office in the foreign state and
the proceedings in the foreign court in-
volved a cause of action arising out of
business done by the defendant through
that office in the foreign state." Al-
though Defendants contend otherwise, I
find that the evidence shows that TIA
had a businessoffice in the Daula Hotel
in Kano, Nigeria in 1976 and for some
time thereafter, perhaps into the early
1980's. During at least parts of [*37]
this period, TIA housed a number of
employees at the Daula Hotel. Defen-
dants have emphasized, in their briefs
and papers, that they never had a perma-
nent business office in Nigeria. In so do-
ing, Defendants seem to interpret §
4805(a)(5) as requiring that TIA have
had a permanentbusinessoffice in Nige-
ria in order to come within that provi-
sion or for the Nigerian courts to exer-
cise personal jurisdiction over it. This
misconstrues the Act. Although thestat-
ute does not define the term "business
office," there is nothing in Section
4805(a)(5) that suggests that the defen-
dant must have had a permanentplace of
business in the foreign state. The statute
only requires that the defendant have
had a business office in the country and
that the cause of action have arisen out
of business done by the defendant
through that office.
Other courts have reached a similar
conclusion. In Canadian Imperial Bank
of Commerce v. Saxony Carpet Co., *
the defendant received notice of a Mont-
real complaint in New York. Saxony's
counsel replied with a letter asserting
that the defendant was not subject to
personal or subject matter jurisdiction in
the Canadian action, but Saxony took no
further action in the [{*38] Canadian
proceedings. Saxony did not have an of-
fice in, or regularly go to, Canada. After
obtaining a default judgment, the Cana-
dian judgmentcreditor sought to enforce
its judgment against the defendants in
New York. The court applied common
law principles of comity akin to those
expressed in Section 4805(a)(5) of the
UFMJRA and recognized the judgment.
It held that the cause of action in the Ca-
nadian litigation, collection on an ac-
count receivable, arose from a contract
for the delivery of carpet manufactured
in Canada and shipped to New York.
The court concluded that the contract be-
tween Canadian and New York busi-
nesses, involving significant perform-
ance in Canadain the form ofthe carpet
manufacturing, along with the defen-
dants' occasional visits to Quebec, were
sufficient for the Canadian court to exer-
cise personaljurisdiction over Saxony.
75 899 F. Supp. 1248 (S.D.N.Y
1995), affd, 104 F.3d 352 (2d Cir.
1996) (applying New York law);
see also Farrow, 1995 Mass. Su-
per. LEXIS 495, at *5-6; Kam-Tech
Sys. Ltd. v. Yardeni, 340 N.J. Su-
per. 414, 774 A.2d 644, 652-53
(N.J. Super. Ct. App. Div. 2001).
In the present case, TIA conducted
air charter operations in Nigeria in 1976.
It housed employees at the Daula [*39]
Hotel in Kano and used that hotel as a
base of operations. The Commission
Agreement was executed and at least
partly performed in Nigeria and con-
cerned the business operation of trans-
porting pilgrims between Kano, Nigeria
and Jeddah, Saudi Arabia. TIA purpose-
fully availed itself of business opportu-
nities in Nigeria, executed a contract in
Nigeria, and had what I find constituted
a business office at the Daula Hotel.
Therefore, under § 4805(a)(5), TIA can-
not avoid recognition of the Judgment
by challenging the personal jurisdiction
of the Nigerian courts.
Many of these issues involving no-
tice, appeals, foreign offices, and per-
sonal jurisdiction are similar to those in
5.C. Chimexim S.A. v. Velco Enterprises
Ltd. » In Velco, the plaintiff foreign
companypetitioned a New York Federal
District Court to recognize a Romanian
judgment stemming from a suit for
breach of contract. The defendant,
Velco, had conducted limited operations
in Romania through a "representative
office," similar to a small branch office.
The plaintiff served Velco at its repre-
sentative office by posting a summonsto
the office door. Velco denied that it had
been properly served or that it had re-
ceived the summons [*40] and did not
appear before the tribunal. ” The Roma-
nian court entered judgment against
Velco, and Velco appealed. Velco lost
its first appeal, and while the second ap-
peal was pending in Romania's Superior
Court, the plaintiff filed suit in the
Southern District of New York to have
the Romanian judgment recognized.
Applying New York law, the district
court recognized the Romanian judg-
ment, despite the pending appeal.
76 36 F. Supp. 2d 206 (S.D.N.Y.
1999).
77 Id. at 210.
The court held that under New York's
version of Section 4805(a)(2) of the
UFMIJRA,the court could not refuse to
recognize the judgmenton the ground of
lack of personal jurisdiction. * Similar to
TIA in this case, Velco voluntarily ap-
peared in the Romanian proceedings by
appealing the judgment, and in its appeal
raised arguments going to the merits of
the underlying dispute. This was suffi-
cient to preclude nonrecognition for lack
of personaljurisdiction. ”
78 Id. at 215,
79 Id.
In another parallel to this case, the
Velco court held that personal jurisdic-
tion was proper because Velco had an
office in Romania and the cause of ac-
tion, breach of a chemical supply con-
tract, arose from business done by Velco
through that office. [*41] Thus, under
New York's version of Section
4805(a)(5), the court held the Romanian
judgment could not be challenged for
lack of personaljurisdiction.
80. Id. at 215-16.
Additionally, the district court found
unpersuasive Velco's arguments that it
did not receive notice of the Romanian
action in time to allow it to defend itself.
The court held that even if Velco did not
receive the initial summons, it had
mounted a vigorous defense on appeal
and had lost that appeal on the merits.
This satisfied the district court that
Velco had sufficient notice of the Ro-
manian proceedings.*
81 Id. at 216.
In summary, in Velco as in this case,
a foreign court found the defendant
judgment debtor liable for breach of a
contract stemming from business con-
ducted through an office located in the
foreign country. The defendant partici-
pated in the foreign proceedings by ar-
guing the merits of the case on appeal
but, as in this case, protested that it had
received inadequate notice of the pro-
ceedings. For reasons similar to those
determinative in this case, the Velco
court rejected the defendant's arguments
relating to lack of notice and of personal
jurisdiction and recognized the Roma-
nian judgment.
D. Statute [*42] of Limitations and
Laches Defenses
Defendants argue that the Nigerian
Judgmentis time-barred by the applica-
ble statute of limitations and the equita-
ble doctrine of laches. The UFMJRA
does not contain a section providing a
limitations period, and no Delaware case
has addressed the issue of what limita-
tions period, if any, applies to actions for
recognition of a foreign judgment pursu-
ant to the Act. Defendants urge applica-
tion of the 3-year period set forth in 10
Del. C. § 8106. Akande argues that the
applicable period for actions for recogni-
tion of a foreign judgment depends on
the law of the country where the judg-
ment was rendered. Once the judgment
is recognized, Plaintiff argues, either
there is no statute of limitations, or the
10-year limitations period set forth in 10
Del. C. § 4711 governs enforcement of
the judgment.
1. The statute of limitations and
UFMJRA
Courts in other jurisdictions have
held that the statute of limitations appli-
cable to actions for recognition under the
Actis that specified underthe law of the
country where the judgment was ren-
dered. * This conclusion follows from
the fact that the Act, by its own terms,
applies to "any foreign judgmentthat is
final and [*43] conclusive and enforce-
able where rendered." ® In contrast, the
statute of limitations applicable to en-
forcement of the foreign judgmentis the
law of the forum that recognizes it. * In
Delaware, there is no statute of limita-
tions as to judgments or actions on
judgments. There is only a rebuttable,
common law presumption of payment
after 20 years. *
82 Nadd v. Le Credit Lyonnais,
S.A., 804 So. 2d 1226, 1231 (Fla.
2001); Pinilla v. Harza Eng'g Co.,
324 Ill. App. 3d 803, 755 N.E.2d
23, 27-28, 257 Ill. Dec. 921 (Ill.
App. Ct. 2001).
83 10 Del. C. § 4802 (emphasis
added).
84 Guayaquil & Quito Ry. Co. v.
Suydam Holding Corp., 50 Del.
424, 11 Terry 424, 132 A.2d 60, 66
(Del. 1957), Nadd, 804 So. 2d at
1231-33, cf. RESTATEMENT
(SECOND) OF CONFLICT OF
LAWS § 118(2) (1971) ("A valid
judgmentrendered in a State of the
United States may be denied en-
forcementin a sister State if suit on
the judgmentis barred bythesister
State's statute of limitations appli-
cable to judgments").
85 Guayaquil, 132 A.2d at 66.
In other words, courts that have ad-
dressed the issue of the limitations pe-
riod applicable to foreign judgments
recognized under UFMJRA have looked
first to the law of the country where the
judgment was rendered. If the judgment
is not time-barred by that country's
[*44] limitations period, the forum ap-
plies its limitations period for enforce-
ment of judgments,if it has one. «
86 Nadd, 804 So. 2d at 1231 (Fla.
2001); Pinilla v. Harza Eng'g Co.,
755 N.E.2d 23, 27-28 (Ill. App. Ct.
2001); see Zitter, supra note 33, at
*206.
In Nadd, the Florida Supreme Court
held that the trial court should have rec-
ognized a French judgment. The court
concluded that the judgment wasfinal,
conclusive, and enforceable where ren-
dered and was not time-barred by the
French 30-year statute of limitations for
enforcement of judgments. » Once the
judgment was recognized by the Florida
court in accordance with Florida's ver-
sion of the UFMJRA,efforts to enforce
that judgment were governed by Flor-
ida's 20-year statute of limitations for
enforcementofjudgments. *
87 Nadd, 804 So. 2d at 1231.
88 Id. at 1232.
Defendants attempt to distinguish
Nadd on the basis that the Nadd court
held that Florida's 5-year statute of limi-
tations did not apply to the acts of filing
and registering a foreign judgment pur-
suant to Florida's version of the
UFMJRA. Defendants argue that be-
cause Delaware's version of the Act con-
tains no such recordation procedures,
Naddis inapposite. I disagree.
The filing [*45] and registration re-
quirements in Florida's version of the
UFMIJRA closely parallel Delaware's
requirements for filing and recording a
judgment under Delaware's UEFJA.
Thus, Florida's statue makes explicit
what this Court has inferred, namely,
that the procedures set forth in the UE-
FJA govern the enforcement of foreign
judgments. These details as to how Flor-
ida and Delaware implement the two
statutes, the UFMJRA and UEFJA,are
not central to the holding in Naddorits
application to this case. The court in
Naddappropriately focused on the limi-
tations period applicable to recognition
of foreign money judgments. In holding
that the only limitation applicable to the
recognition of a foreign money judg-
mentis that the judgment be enforceable
whererendered, the Naddcourt stated:
This interpretation gives full
effect to the legislative intent
to ensure reciprocal favorable
treatment of Florida judg-
ments in foreign countries.
We do not believe the Legis-
lature wished to subject for-
eign judgments under the
UFMIRAto the enforcement
limitations set forth in section
95.11(2)(a) [arguably appli-
cable under the UEFJA],
since to do so would severely
impede similar recognition of.
Florida judgments. [*46] ©
This Court's holdings as to Akande's
claims give effect to the same presumed
legislative intent.
89 Nadd, 804 So.2d at 1233.
Similarly, in Panilla the court held
that no Illinois statute of limitations ap-
plies to recognition of foreign judgments
underIllinois' version of the UFMJRA. »
After recognition, [linois' 7-year limita-
tions period for enforcement of judg-
ments applies. *
90 Panilla, 755 N.E.2d at 28-29.
91 Id. at 28-30.
Defendants argue that this Court
should apply the 3-year limitation period
specified in 10 Del. C. § 8106 because
Akande's action seeks to recover money
based on a statute, namely, the Act. Yet,
the 3-year limitation period set forth in
Section 8106 is shorter, in some cases
muchshorter, than statutes of limitations
commonly applicable to judgments. » I
consider it highly unlikely that the
Delaware Legislature would adopt the
UFMSJRA,with its strong language that
judgments recognized under the Act are
enforceable as judgments entitled to full
faith and credit, while silently intending
to subject threshold efforts to obtain rec-
ognition of such judgments to the rela-
tively short 3-year limitations period of
§ 8106. Having such a short period of
limitations is inconsistent [*47] with the
language of the Act, e.g., "enforceable
where rendered,” and would undermine
the general purpose of the UFMJRA to
foster reciprocity, for most jurisdictions
have longer limitations periods.
92 For example, Florida's statute
of limitations period for its own
judgments and judgments recog-
nized pursuant to UFMJRAis 20
years. Nadd, 804 So, 2d at 1229-
34. The Illinois limitations period
for judgments is seven years with
procedures for revival. Panilla, 755
N.E.2d at 27. The period for judg-
ments in New York and Alabama
is 20 years, while it is only ten
years in California and North Caro-
lina. See N.Y. CPLR. § 211
(2007); ALA. CODE § 6-2-32
(LexisNexis 2007); Cal. Code Civ.
Proc. § 337.5.2 (Deering 2007);
N.C. GEN. STAT. § 1-47(1) (2006).
Further, I would not characterize this
action as being “based on statute" as
that phrase is used in § 8106. Akande's
claims are based on a judgment.
Whether the Judgmentis recognizable in
Delaware and therefore entitled to full
faith and credit depends ona statute, but
unlike the multiple causes of action
listed in § 8106, the UFMJRA does not
provide a basis for a claim independent
of the Judgment. Rather, it is a codifica-
tion of common laws [*48] of comity
and provides for the recognition of a
foreign judgment that has been rendered
on some underlying causeof action.
Although Plaintiff argues that the 10-
year period provided for in /0 Del. C. §
4711 might be applicable to the recogni-
tion of foreign judgments, I do not find
that argument persuasive. Section 4711
specifies the limitations period during
which a judgment lien may continue
upon real property. It does not appear to
be a general limitations period for judg-
ments nor has Akandecited any author-
ity suggesting that it is. As previously
discussed, Delaware has no general stat-
ute of limitations applicable to judg-
ments, and this Court will not graft one
onto the Act. If the Nigerian Judgmentis
enforceable where rendered, e.g., not
time-barred in Nigeria, and recognized
in Delaware, there is a rebuttable, com-
mon law presumption of paymentafter
20 years. * Thus, the important question
is whether the Judgment is time-barred
in Nigeria.
93 The parties have not briefed,
and I express no opinion on,the is-
sue of when the limitations period
would begin to run, e.g., when the
judgmentis rendered in the foreign
jurisdiction or when the foreign
judgment is recognized in the fo-
rum [*49] state. Although this is-
sue may be important in some con-
texts, it will not make a substantive
difference in the resolution of this
case.
Based on the submissionsof the par-
ties, I find that the Judgmentis not time-
barred by any Nigerian statute of limita-
tions. As evidence of Nigerian law on
the limitations period applicable to
judgments, Akande relies on the San-
yaolu affidavits. Sanyaolu asserts that
the Judgmentis valid and binding until
set aside by the court that rendered the
judgment, or by a higher court, and that,
in his opinion, the Judgment would not
be set aside. * He further opines that the
Judgmentis governed by a 6-yearlimita-
tions period. * Hence, Akande's expert
concludes, the present action for recog-
nition is not time-barred because the
Judgment was rendered on October 20,
1999, and this suit was filed January 21,
2005, less than six yearslater.
94 Sanyaolu Aff. 9/22/06 P 3 et
Seq.
95 Id. PP 55-60. Azikiwe dis-
agrees with Sanyaolu's assertion
because it seems that Sanyaolu
based his opinion on the limitations
period that governs the recognition
of foreign judgments in Nigeria.
Azikiwe Aff. 10/27/06 P 17(d). In
other words, Sanyaolu seems to
apply the limitations period [*50]
contained in Nigeria's counterpart
to the UFMJRA. Under that law,
Nigerian courts will recognize a
foreign judgment for up to six
years after it is rendered. In my
opinion, a more appropriate period
to consider is the limitations pe-
riod, if there is one, applicable to
Akande's judgment in Nigeria.
Noneof the parties, however, pre-
sented evidence directly addressing
that issue. Nonetheless, I find San-
yaolu's answer relevant. Although
Azikiwe notes the same perceived
flaw in Sanyaolu's answer as the
Court has, Azikiwe does not argue
that Nigeria's statute of limitations
for judgments is shorter than six
years. I think it highly unlikely that
Nigeria would extend recognition
to foreign judgments for up to six
years, yet apply a shorter limita-
tions period for judgments ren-
dered by its own courts. Given the
absence of evidence to the con-
trary, I therefore infer that Nigeria's
limitations period for Nigerian
judgments is at least six years.
Defendants’ affiant on Nigerian law,
Azikiwe, did not express an opinion on
whether the Nigerian Judgmentis time-
barred in Nigeria. Azikiwe did agree,
however, that in Nigeria the Judgmentis
presumed valid until set aside by the
court that rendered it [*51] or a higher
court. * Based on the evidence of record,
I find that the Judgment is not time-
barred by any Nigerian statute of limita-
tions, and that in terms of the timeliness
of Akande's Complaint in Delaware, the
Judgment was "enforceable where ren-
dered" when the Complaint wasfiled.
96 ~=Azikiwe Aff. 8/22/06 P S.
Azikiwe avers that, for other rea-
sons, the Judgment ultimately
would be unenforceable in Nigeria.
2. Laches
Defendants argue that even if the
statute of limitations does not bar recog-
nition of the Nigerian Judgment, this
Court should apply the equitable doc-
trine of laches to bar such recognition.
Laches may apply if a defendant has
knowledge of a claim and prejudices the
defendant by unreasonably delaying in
bringing the claim. ” I conclude that the
circumstances of this case do not war-
rant the application of laches to preclude
Akande's claims.
97 Hudak v. Procek, 806 A.2d
140, 153 (Del. 2002) (citing Fike v.
Ruger, 752 A.2d 112, 114 (Del.
2000)).
The State Proceedings in Nigeria
lasted 11 years, but this period of time,
although very long, is not unheard of in
the United States. Furthermore, Defen-
dants have not shown that Akande was
primarily responsible for the delay the
case [*52] experienced during this pe-
riod. Akandereceivedhis first judgment
against TIA for 10,000 Naira in January
1978, less than two years after he filed
suit. Because he did not prevail against
all of the defendants in that action,
Akande appealed part of the 1978 judg-
ment, and TIA cross-appealed. TIA
eventually abandoned its cross appeal,
and the proceedings dragged along until
the Supreme Court ordered the trial de
novo. Defendants, however, have not
shownthat Akande wasespecially torpid
in the pursuit of his claims or otherwise
caused any unreasonable delay during
the State Proceedings.
As to the Federal Proceedings, the
opposing parties appear to have been
equally responsible for the delays.
Akande contributed, in part, to the
length of the Federal Proceedings. As
the Federal High Court putit, "the case
could not proceed normally as it was
struck out on one or two occasions for
want of diligent prosecution. It subse-
quently turned out that the plaintiff was
ill and he did not fully recover until
about April 3, 1996." * Defendants have
not shown, however, that any delays by
Akande during the Federal Proceedings
due to being sick were unreasonable. To
the contrary, the Nigerian court [*53]
appears to have found the delays excus-
able on that basis.
98 POB App. A113.
TIA likewise contributed, in part, to
the delays in the Federal Proceedings.It
had notice of the trial de novo in the
Federal High Court of Lagos, yet based
on the evidence appears to have chosen
not to participate in that action. The case
was adjourned, more than once, because
the defendants, including TIA, were not
represented by counsel and apparently
refused to participate. » As the Federal
High Court putit, "[aJll the 2nd, 3rd and
4th defendants gave no evidence at all
even though they are fully aware of the
present proceedings. In fact as can be
observed from the tone of Exhibit G, the
attitude of the 4th defendant [TIA] is
one ofutter indifference." ™
99 POB App. A116-17, A122-23.
100 Id. at A122-23. The court's
reference to Exhibit G is to a letter
dated Sept. 3, 1976 between
Akande and TIA's then-president,
H.P. Huff. Huff informed Akande,
on behalf of TIA, that TIA would
continue to use Omisade's com-
pany, NADCO,to help with Char-
ter operations in Nigeria, and that
Akande and Omisade would have
to work out their differences be-
tween themselves. See POB App.
A369 for a copyof theletter.
The most important [*54] questions
on the issue of laches are whether Plain-
tiff unreasonably delayed in bringing
these Delaware proceedings and whether
any such delay prejudiced Defendants.
On that point, Defendants argue
Akande's five-year delay during the In-
term Period from entry of the Judgment
to the filing of this action severely
prejudiced their ability to defend them-
selves.
Under the circumstances, I do not
find Akande's delay during the Interim
Period to be unreasonable. Although eq-
uity looks at the facts and circumstances
when evaluating the possibility of la-
ches, analogous statutes of limitations
provide a presumption of what is rea-
sonable. ™ If the Judgment had been a
Delaware judgment, Akande would have
at least 20 years to collect on it. This
factor counsels against imposing a much
shorter time period of only a few years
for purposes of laches analysis. Akande
needed to wait for the Federal High
Court to issue a certified copy of the
Judgment, which takes several monthsin
Nigeria. * After receiving the certified
copy, Akande understandably sought to
enforce the Judgmentagainst his former
Nigerian business partner, Omisade.
Whenthis approach failed, he hired an
American lawyerto help him [*55] col-
lect against TIA. Beginning in March,
2002, Akande exchangedseveralletters
with TIA, through counsel, and virtually
every time Defendants asked for addi-
tional documentation. Akande supplied
at least some of that documentation.
These efforts, however, took time. When
Akande's attempts to collect on the
Judgment without litigation failed, he
hired a second lawyer who filed suit in
New York, a jurisdiction in which the
lawyer was not admitted. Akande ulti-
mately withdrew that action. Consider-
ing these difficulties and the fact that
TIA and Transamerica had notice of
Akande's collection efforts since at least
March 2002, I am not convinced that
Akande's taking five years to file these
proceedings constituted unreasonable
delay.
101 Franklin Balance Sheet Inv.
Fund vy. Crowley, 2006 Del. Ch.
LEXIS 188, at *22-23 (Oct. 19,
2006); United States Cellular Inv.
Co. v. Bell Atl. Mobile Sys., Inc.,
677 A.2d 497, 502 (Del. 1996);
Wright v. Scotton, 13 Del. Ch. 402,
121 A. 69, 73 (Del. Ch. 1923).
102 POB App. A165-70.
Moreover,I find that Transamerica is
partly responsible for Akande's delay in
bringing these Delaware proceedings.
TIA was dissolved in December 1998.
Transamerica knew that and entered into
an agreement [*56] with TIA dated De-
cember 14, 1998, under which it as-
sumed TIA's liabilities (the "Assumption
Agreement”). * In a letter dated July 12,
2002, Transamerica told Akande that
TIA "was legally dissolved on Decem-
ber 23, 1998 as a Delaware Corporation,
under the laws of Delaware. Under
Delaware law, [TIA] is not subject to
any lawsuit, since it no longer exists." ™
Indeed, one of the last statements Trans-
america made to Akande during this ex-
change of letters is, "there is no entity
for your client to pursue on any October
20, 1999 Judgment." ™ Transamerica did
not, however, tell Akande about the As-
sumption Agreement or otherwise in-
form him that Transamerica had as-
sumed TIA's liabilities. Indeed, Defen-
dants did not produce the Assumption
Agreement to Akande until almost the
end of discoveryin this action. If Trans-
america had informed Akandeof the As-
sumption Agreement in 2002 and other-
wise been more forthcoming, Akande
probably could have commenced these
proceedings earlier and prosecuted them
more expeditiously. Thus, some of
Akande's delay in bringing this action is
attributable to Transamerica's delay in
informing Akande of the Assumption
Agreement. For these reasons,I find that
[*57] Akande did not unreasonably de-
lay in bringing this action.
103 POB App. A329-30.
104 DOB Ex. J.
105 Id. Ex. L.
Nor do I find that TIA or Trans-
America has been substantially preju-
diced by Akande's delay in bringing
these Delaware proceedings. Defendants
argue that the "seal of death has closed
the lips" of vital defense witnesses
Omisade, Yakubu and Riley, but I am
not persuaded that the absence of these
witnessesis especially prejudicial to De-
fendants.
Defendants assert that Omisade is
"believed to have passed away" during
the Interim Period. ~ Assuming that is
true, Defendants have not convinced me
that his live testimony materially would
have helped their case. Defendants argue
that Omisade's absence is important be-
cause "[h]e played a prominentrole in
the Nigerian Action and was TIA's pri-
mary -- if not only -- point of contact
with regard to those proceedings." ”
This is credible. Omisade's attorney pre-
pared the initial draft of the Riley Affi-
davit, and Omisade kept TIA informed
of some of the proceedings taking place
in Nigeria. To my mind, however, this
evidence simply confirms that TIA had
notice of the Nigerian proceedings. TIA
could have defended in Nigeria, includ-
ing pressing [*58] its challenges to per-
sonal and subject matter jurisdiction
there, and perhaps prevented some ofthe
tortured history of this case. Omisade
may well have had information particu-
larly relevant to Akande's underlying
cause of action for breach of contract,
but that is not the issue before this
Court. Thus, Defendants have not shown
that Omisade's unavailability will sub-
stantially prejudice their ability to de-
fend against Akande's claims in this
Court for recognition and enforcement
of the Judgment.
106 DOB at 38. The record does
not provide a precise date of death
for Omisade. He apparently died
before or shortly after the time the
Judgment was entered. See DOB
Ex. C at 18. The Court does not
consider Akande's failure to bring
suit within such a short period of
time to be unreasonable.
107 Reply Br. in Further Supp. of
Defs.' Mot. for Summ. J. ("DRB")
at 20.
Rabo Yakubu (deceased) was the
bailiff who served TIA in Kanoin 1976.
s As with Omisade, Defendants merely
suspect (perhaps hope) that Yakubu died
during the Interim Period. Again, how-
ever, Defendants have failed to show
why this Court should expect that Ya-
kubu's live testimony would have been
substantially different from what he said
[*59] in the affidavit of service he exe-
cuted as part of his duties as a bailiff al-
most 30 years before the commencement
of this action. » Defendants adduced no
evidence to suggest that Yakubu would
have recanted or otherwise substantially
altered his affirmations that he in fact
served process on TIA in Kano in 1976.
Moreover, for the reasons discussed in
Section IIL.C, supra, the materiality of
any additional testimony of Yakubu is
questionable because, in the circum-
stances of this case, the UFMJRA pre-
cludes this Court from denying recogni-
tion of the Judgmentfor lack of personal
jurisdiction.
108 POB App. A324-25.
109 Id. at A321-25.
Unlike the situation with Omisade
and Yakubu,the evidence clearly shows
that Riley died during the Interim Period
on November 11, 2001. Moreover, the
Riley Affidavit is unquestionably impor-
tant in this litigation, for the parties all
have cited to various portions of it as
supporting their respective arguments.
Based on the evidence, however, I find
that it is highly unlikely that Riley
would have denied having notice of, at
least, the Supreme Court proceedings
and the Federal Proceedings. Thus, al-
though the facts of this case might be
clearer if Riley were [*60] present and
able to testify, I am not convinced that
his absence is materially prejudicial to
Defendants.
Defendants have not shown. that
Akande's delay in bringing this case
prejudiced them in any other way. © I
therefore conclude that Akande's claims
are not barred by laches.
110 Based on the Court's rulings
as to Counts III-V of the Complaint
(see Section II.F, infra), I reject as
unfounded Defendants’ allegations
that they are seriously prejudiced
by the loss of their attorneys’
documents covering TIA's dissolu-
tion and winding-up.
E. Subject Matter Jurisdiction
1. Defendants’ arbitration defense
Defendants make a strained argument
that the Nigerian courts lacked subject
matter jurisdiction over Akande's claims.
If those courts did lack subject matter
jurisdiction, then according to Section
4804(a)(3) of the UFMJRA, the Judg-
ment would not be conclusive and could
not be recognized pursuant to the Act.
The Charter Agreement between the Ni-
gerian Pilgrims Board and TIA included
an arbitration provision specifying that
disputes arising from that agreement
were to be arbitrated by the International
Chamber of Commerce in Paris. " De-
fendants assert that the Commission
Agreement, i.e., the [*61] agreement
between Akande and TIA, waspart of,
and subject to, the Charter Agreement
because the commissions due to Akande
stemmed from the Charter Agreement.
But the Commission Agreement itself
makes no reference to the Charter
Agreement and contains no indication
that it was meant to be subject to the
terms of that agreement. All of Defen-
dants' citations to the obligation to arbi-
trate refer to the Charter Agreement, yet
nothing in that agreementindicates that
Akande and NAFTECHsubmittedto its
terms. Thus, the Court finds unpersua-
sive Defendants’ contention that the Ni-
gerian courts lacked subject matter ju-
risdiction due to the Commission
Agreement, on which Akande basedhis
claims, being subject to the Charter
Agreement.
111 DOB Ex. EP 22.
2. Is the Judgment void because TIA
was dissolved?
Defendants argue that the Nigerian
Judgment is void because TIA wasdis-
solved before the Judgment was ren-
dered, and supposedly, Nigerian law
does not recognize the validity of a
judgmentrendered against a nonexisting
legal entity. In support of their position,
Defendants rely upon Azikiwe's affida-
vits. "= Azikiwe asserts that "when a
company against which a proceeding in
Court is pending loses [*62] its legal
personality by dissolution, the action
against it would automatically abate."
According to Akande's expert, Sanyaolu,
"on the dissolution of a Company the
liquidator is joined as a party to a pend-
ing action. '* He also avers that the cases
cited by Azikiwe are factually distin-
guishable from this case. "
112 Azikiwe Aff. 8/22/06 PP 15-
16.
113 Id. P15.
114 Sanyaolu Aff. 9/22/06 PP 52-
54.
115 Id.
I find Sanyaolu's position more per-
suasive and agree that the two cases
cited by Azikiwe are inapposite. The
first involved a writ of summons issued
in 1973 against a person who died in
1949. «* The deceasedpersonin that case
did not die during the proceedings, so
the purported analogy to the dissolution
of TIA is strained, at best. The other
case cited by Azikiwe involved the pas-
sage of a statute whoseretroactive effect
voided the existence of a trade union,
and bythat fact alone voided a judgment
in favor of that trade union. *" Again, the
current case is distinguishable because
TIA's dissolution did not represent the
act of a government exercising its ple-
nary powers, but rather the voluntary act
of the judgmentdebtoritself. Moreover,
if Nigerian law were as Azikiwe posits,
[*63] a judgment-creditor corporation
being sued in Nigeria could avoid an ad-
verse judgment merely by dissolving.
This runs counter to the corporation law
of most jurisdictions, including Dela-
ware. Indeed, as a legal matter, this re-
sult seems spurious. I therefore adopt
Sanyaolu's position on this issue as be-
ing more credible and comporting better
with commonly accepted legal princi-
ples.
116 Azikiwe Aff. 8/22/06 Ex.
UHA16.
117 Id. Ex. VHA 17.
Most importantly, the existence or
nonexistence of a Delaware corporation
is governed by Delaware law. According
to Section 278 of the Delaware General
Corporation Law, a dissolved Delaware
corporation continues its existence for
three years after the date of dissolution
to allow the company, among other
things, gradually to wind uplitigation.
Furthermore, "an implicit corporate exis-
tence, of indefinite duration, is imparted
by the statutory directive that no action
for or against the corporation shall abate
by reason of the dissolution of the cor-
poration, the corporation's existence be-
ing extended until the execution of all
judgments or decrees affecting the cor-
poration." Thus, under Delawarelaw,
TIA continued in existence for at least
three [*64] years after its dissolution, or
until December 14, 2001. Consequently,
the Judgment, rendered on October 20,
1999, was not rendered against a non-
existent entity. For these reasons, I con-
clude that TIA's corporate dissolution
did not deprive the Nigerian courts of
subject matter jurisdiction or otherwise
render the Nigerian Judgmentvoid.
118 8 Del. C. § 278.
119 Rosenbloom v. Esso V.I, Inc.,
766 A.2d 451, 458 (Del. 2000);
City Invest. Co. Liquidating Trust
v. Continental Cas. Co., 624 A.2d
119], 1195 (Del. 1993).
F. The Assumption Agreement and
Breach of Fiduciary Duty Claim
Count HI of Plaintiff's Complaint al-
leges that the Individual Defendants are
liable to Akande for breach of fiduciary
duty. Akande contends that when the In-
dividual Defendants dissolved TIA, they
owedfiduciary duties to TIA's creditors,
including him, and that they breached
those duties by not adequately providing
for the satisfaction of creditors’ valid
claims. Akande also alleges in Count V
that Transamerica is liable on the Nige-
rian Judgment because, when TIA was
dissolved, Transamerica assumed TIA's
liabilities pursuant to the Assumption
Agreement. At argument, Akande
agreed that if the Assumption Agree-
ment adequately [*65] provides for
TIA's liabilities under Delaware law,his
claims for breach of fiduciary duty
(Count IIT) and for a constructive trust
(Count IV) are unnecessary. ™
120 Tr. at 4, 15-16.
Under the plain language of the As-
sumption Agreement, Transamerica did
assume responsibility for TIA's valid li-
abilities, including the claims of judg-
ment creditors. Defendants presented no
evidence or argument supporting a dif-
ferent conclusion. As Defendants them-
selves putit: "the record establishes, and
Plaintiff does not dispute, that Trans-
america assumed all of TIA's known li-
abilities at the time of its dissolution.
And there is no evidence to suggest --
nor does Plaintiff even claim -- that
Transamerica would not be able to sat-
isfy the Judgment if required." ™ In op-
posing Count V of the Complaint, seek-
ing to hold Transamerica liable on the
Judgment, Defendants rely entirely on
Transamerica's various arguments that
the judgment is unenforceable and
should not be recognized. As previously
discussed, this Court has rejected those
arguments. Thus, to the extent the Court
recognizes the Judgmentagainst TIA,it
will constitute a liability of Trans-
america as well.
121 DOBat 47-48.
In terms of the claims [*66] Akande
has asserted, therefore, the Assumption
Agreement adequately provides for sat-
isfaction of valid claims of creditors of
TIA. There being no evidence that the
Individual Defendants otherwise
breached any fiduciary duties they may
have owed to Akande, the Court will
grant Defendants' motion for summary
judgment on Count III. In addition,
Count IV for a constructive trust is dis-
missed without prejudice as moot.
122 Having ruled in Defendants
favor on the merits of CountIII and
dismissed Count IV, the Court has
no need to address Defendants’ fur-
ther argumentthat those claims are
time-barred. See DRB at 12-15.
G. Akande's Request for Additional
Damages
The Judgment awards Akande eight
million Naira for TIA's breach of the
Commission Agreement for 1976. The
Judgment also awards Akande unspeci-
fied damages for TIA's breach of the
Commission Agreement for 1977 and
subsequent years. As part of his request
for recognition and enforcement of the
Judgment, Akande has urged this Court
to find that he is entitled to take addi-
tional discovery to allow him to deter-
mine the amount of damages for the
post-1976 breaches of the Commission
Agreement. Defendants oppose this re-
quest on several grounds, [*67] includ-
ing that Akande failed to raise this re-
quest for relief in his Complaint. » But
the request is clearly raised in subpara-
graph (f) of the Complaint's request for
relief, where Akande asks for an Order
requiring Transamerica “to produce the
information required by the Judgment to
calculate full and complete damages for
1976, 1977 and 1978, and thereafter."
The question remains, however, whether
the Court can recognize a foreign judg-
ment for damagesor other costs that are
not reduced to a specific sum of money.
123, DABat 39-40.
A judgment is conclusive under the
UFMIJRA "to the extent that it grants or
denies recovery of a sum of money." ™
In other words, the uniform act concerns
the recognition of foreign money-
judgments. The Act does not apply to a
judgment to the extent that it grants un-
determined costs or damages. ™ The
Judgmentstates that Akande is entitled
to relief for any breach of the Commis-
sion Agreementfor "1977 and at various
dates thereafter." ~ It does not, however,
reduce any such amounts to a specific
sum. Hence, that portion of the Judg-
ment is not conclusive or recognizable
under the UFMJRA. Akande's request
for authorization from this Court to pur-
sue discovery [*68] on those parts of
the Judgmentthat do not award money,
or only award unspecified sums, is
therefore denied.
124 10 Del. C. $ 4803.
125. Nicor Int'l Corp. v. El Paso
Corp., 292 F. Supp. 2d 1357, 1365
(S.D. Fla. 2003) (refusing to rec-
ognize a Dominican Republic sen-
tence that did not award specific
amount of money); Bianchi v. Sav-
ino Del Bene Int'l Freight For-
ward., Inc., 329 Ill. App. 3d 908,
924-25, 770 N.E.2d 684, 264 Ill.
Dec. 379 (Ill. App. Ct. 2002) (re-
fusing to recognize Italian judg-
ment awarding unspecified dam-
ages for breach of employment
contract); Farrow Mortgage Serv.
Pty. Ltd. v. Singh, 1995 Mass. Su-
per. LEXIS 495, at *12 (Mar. 30,
1995), affd, 42 Mass. App. Ct.
1103, 675 N.E.2d 445 (1997) (re-
fusing to recognize Australian
judgment to the extent it awarded
undetermined costs stemming from
the Australian litigation); cf RE-
STATEMENT (SECOND) OF
CONFLICT OF LAWS § 108
(1971) ("A judgment for the pay-
ment of money will not be en-
forced in other states unless the
amount to be paid has been finally
determined under the local law of
the state of rendition").
126 POB App. A113.
Akande further argues that this por-
tion of the Judgmentis not specific be-
cause TIA refused to participate in the
Nigerian proceedings, and the resultant
lack of production [*69] made calcula-
tion of the damages impossible when the
Judgment was rendered. Akande has not
explained, however, why he could not
have obtained a default judgmentfor an
estimated amountof the requested dam-
ages or some other appropriate sanction
in Nigeria, nor why he did not pursue
discovery on these damage claims in
post-Judgment proceedings in Nigeria or
in this Court. At this late stage of the
proceedings with their long and tortured
history, Akande would, at a minimum,
need to conduct further discovery on
when TIA terminated operations under
the Charter Agreement, the extent of any
such operations between 1976 and that
date, and the amount of damages
NAFTECHsuffered as a result of TIA's
breach. Long ago and far away were the
time and place to determine thoseissues.
I will not re-open this Judgmentto re-
litigate these long stale matters.
Akande asserts that the sum due un-
der the Judgmentfor TJA's breach ofthe
Commission Agreement for 1976 was $
16,727,072.30 as of July 22, 2006. ” In
connection with the pending cross-
motions for summary judgment, Defen-
dants have not questioned whetherthis
number accurately reflects the specific
sum of damages awarded in the Judg-
ment. Whatever [*70] the correct num-
ber is at this time, the only award of
damages under the Nigerian Judgment
that this Court recognizes is the amount
for the breach of the Commission
Agreementfor 1976.
127 POB at 12 n.7.
Il. CONCLUSION
For the reasons stated, the Court
grants Akande's motion for summary
judgmentas to Count I (seeking recogni-
tion of the Judgment) and CountII (for
enforcement) to the extent those Counts
relate to the portion of the Judgmentper-
taining to the breach of the Commission
Agreement for 1976, and denies the mo-
tion as to Counts I andII in all otherre-
spects. In furtherance of this conclusion,
the Court also grants summary judgment
in Akande's favor on his claim in Count
V that Transamerica assumed TIA's li-
abilities. The Court grants Defendants’
motion for summary judgment on Count
il of the Complaint for breach of fidu-
ciary duties, and dismisses Count IV
(seeking a constructive trust) as moot.
Plaintiff shall prepare and promptly
file an appropriate form of final judg-
ment, after notice and consultation with
opposing counselas to its form.
LexisNexis”
Page 1
LEXSEE273 U.S. 257
OKLAHOMA NATURAL GAS COMPANYv. OKLA-
HOMA; SAMEv. SAMEET AL.
Nos. 154, 187
SUPREME COURT OF THE UNITED STATES
273 U.S. 257; 47S. Ct. 391; 71 L. Ed. 634; 1927 U.S. LEXIS
695
January 3, 10, 1927, Argued
February 21, 1927, Decided
PRIOR HISTORY: ERROR TO
THE SUPREME COURT OF THE
STATE OF OKLAHOMA.
MOTIONS to substitute the Okla-
homa Natural Gas Corporation for the
plaintiff in error, the Oklahoma Natural
Gas Company.
DISPOSITION: Motions denied.
LAWYERS'
NOTES:
EDITION HEAD-
Abatement-- dissolution of corporate
party. --
Headnote:
The dissolution of a corporation can-
not be distinguished from the death of a
natural person in its effect upon litiga-
tion to which the corporation was a
party, and will therefore, in the absence
of statute to the contrary, abate all litiga-
tion in which the corporation appeared
either as plaintiff or defendant.
Parties -- substitution -- when denied.
Headnote:
A motionto substitute a successor for
a dissolved corporation, pending litiga-
tion to determine a liability which has
been assumed by the successor, will be
denied, although it is sought by all par-
ties in interest, where the statute pro-
vides for winding up the affairs of the
old corporation by trustees, and there is
nothing to show why the corporation
wasdissolved.
SYLLABUS
1. At commonlaw, and bythe rule in
the federal courts, dissolution of a cor-
poration abates a litigation in whichit is
a necessary party. P. 259.
2. A motion to substitute one corpo-
ration for another on the ground that the
latter has been dissolved and that its as-
sets and obligations have devolved upon
the other, should not be allowed, though
consented to by the opposite party to the
suit, in the absence of a full showing of
the facts relating to the dissolution, its
purpose and effect. P. 261.
3. Liquidating trustees, if appointed
underthe state statute governing the dis-
solution of the corporation, should ap-
pear on the motion for substitution in
this court. P. 261.
COUNSEL: Mr. Lawrence H. Cake, in
behalf of Mr. David A. Richardson, for
the plaintiff in error, in support of the
motion.
Messrs. George F. Short, Attorney Gen-
eral, and J. Berry King, Assistant Attor-
ney General, for the State of Oklahoma.
Mr. E. S. Ratliff for the Corporation
Commission of Oklahoma.
JUDGES: Taft, Holmes, Van Devanter,
McReynolds, Brandeis, Sutherland, But-
ler, Sanford, Stone
OPINION BY: TAFT
OPINION
[*258] [**392] [***635] MR.
CHIEF JUSTICE TAFT delivered the
opinion of the Court.
These are motions for substitution of
a new party appellant in each cause.
The motions are joined in by the counsel
of record for the defendants in error and
by the plaintiff in error. They show that
the Oklahoma Natural Gas Company
was a corporation of the State of Okla-
homa organized in the Indian Territory
in October, 1906, to have existence for
twenty years, and that its charter would
have expired by legal limitation in Octo-
ber, 1926; that about September 15,
1926, after the writs of error in these
cases were allowed, the Oklahoma Natu-
ral Gas Company was reorganized, the
resulting corporation being named the
Oklahoma Natural Gas Corporation, or-
ganized and existing under the laws of
the State of Delaware; that the reorgan-
ized corporation took overall the con-
tracts, franchises, property and assets of
the Oklahoma Natural Gas Company
and assumedall the debts, liabilities and
obligations of that company, including
the liability and obligation to make the
refund to the patrons of the Oklahoma
Natural Gas Company involved in this
action if it should finally be held that the
Oklahoma Natural Gas Company itself
had been obligated to make such re-
funds; that the Oklahoma Natural Gas
Corporation assumed the performance of
the public service theretofore performed
by the Oklahoma Natural Gas Company;
that the new corporation becameandis
the successor in law and in fact of the
Oklahoma Natural Gas Company; that
the latter company was by decree of the
District Court of Tulsa County, Okla-
homa, duly and legally dissolved as a
corporation, and that, even if the decree
had not been rendered, it would have
been dissolved by expiration of the time
limit in its charter in October, 1926. It is
said that the reorganized corporation
both by its assumption [*259] thereof
and by law is liable for the refunds or
discounts involved herein, if the order
requiring them is valid, and that the
State of Oklahoma looks to and will
look to the reorganized corporation for
the payment of the same if the order is
finally affirmed. The counsel for the old
company, the Attorney General of Okla-
homa and the counsel for the Corpora-
tion Commission of Oklahoma,all sign
the motion.
There is no specific provision in our
rules for the substitution as a party liti-
gant of a successor to a dissolved corpo-
ration. It is well settled that at common
law andin the federal jurisdiction a cor-
poration which has been dissolved is as
if it did not exist, and the result of the
dissolution can not be distinguished
from the death of a natural person in its
effect. Mumma v. Potomac Company, 8
Pet. 281; National Bank v. Colby, 21
Wall. 609; Pendleton v. Russell, 144
U.S. 640; Bank of United States v.
McLaughlin, Fed. Case No. 928;
Greeley v. Smith, Fed. Cases 5748; Wal-
ters v. Western & Atlantic Railroad Co.,
69 Fed. 679; Marion Phosphate Com-
pany v. Perry, 74 Fed. 425; Board of
Councilmen of the City of Frankfort v.
Deposit Bank of Frankfort, 120 Fed.
165; United States v. Spokane Mill
Company, 206 Fed. 999. See also Edi-
son Co. v. Westinghouse, 34 Fed. 232
and Edison Co. v. United States Lighting
Co., 52 Fed. 300. It follows therefore
that, as the death of the natural person
abates all pending litigation to which
such a person is a party, dissolution of a
corporation at common law, abates all
litigation in which the corporation is ap-
pearing either as plaintiff or defendant.
To allow actions to continue would be to
continue the existence of the corporation
pro hac vice. But corporations exist for
specific purposes, and only bylegisla-
tive act, so that if the life of the corpora-
tion is to continue even only forlitigat-
ing purposes [***636] it is necessary
that there should be somestatutory au-
thority for the prolongation. The matter
is [*260] really not procedural or con-
trolled by the rules of the court in which
the litigation pends. It concerns the fun-
damental law of the corporation enacted
by the State which brought the corpora-
tion into being.
This corporation is said to have been
created before Oklahoma becamea state
by the law of Indian Territory, so we
may presumethat the corporation law of
the State of Oklahoma since enacted,
Oklahoma Statutes, 1921, c. 34, Article
V, sec. 5361, has full application.
Shulthis v. McDougal, 225 U.S. 561,
571-572. It provides:
"Unless other persons are appointed
by the court, the directors or managers
of the affairs of such corporation at the
time of its dissolution are trustees of the
creditors and stockholders or members
of the corporation dissolved, and have
full powerto settle the affairs of the cor-
poration, and to collect and pay debts
and divide among the stockholders the
property which remains after the pay-
ment of debts and necessary expenses;
and for such purposes may maintain or
defend actions in their own namesby the
style of the trustees of such corporation
dissolved, naming it; and no action
whereto any such corporation is a party
shall abate by reason of such dissolu-
tion."
We have found no Oklahoma case
that construes this provision with refer-
ence to the question now before the
Court. The language of the section
would seem to indicate that as [**393]
there is to be no abatement the Okla-
homa Natural Gas Company forlitigat-
ing purposesis still in being and contin-
ues to be a party before this Court.
The showing made for the motion is
that the Oklahoma Natural Gas Com-
pany wasby a decreeofthe district court
of Tulsa County, Oklahoma, duly and
legally dissolved as a_ corporation.
There is nothing to indicate why the
company was dissolved. We may as-
sume but we do not know that it was in
anticipation of its dissolution by force of
law and that the proceeding was under-
taken in order to transfer its assets, its
obligations and its liabilities to another
corporation whichis averred to be a cor-
poration [*261] of another State, to wit,
of Delaware, although the seal which is
attached to the consent of the Oklahoma
Natural Gas Corporation by its president
and secretary and accompanies the mo-
tion, shows that it was incorporated not
in Delaware but in Maryland.
The motion is signed by counsel for
the plaintiff in error, the Oklahoma
Natural Gas Company. Hedoes not ex-
plain how he continues to represent
plaintiff in error, if in fact it has ceased
to be, as he represents to this Court.
In the absenceof a fuller showing as
to just what the proceeding wasin the
district court of Tulsa County in respect
to the dissolution of the old company,
and in view of the provisions of the
Oklahomastatute, we think it unwise to
grant the motion for substitution, even
though with the consent of the defen-
dants in error. It may be that with the
disclosure of all the facts and circum-
stances we may find that what was done
with the consentofall the parties to this
suit is in fact a novation which we can
make effective. United States v. City
Bank, 19 How. 385; Ex parte Railroad,
95 US. 221, 222.
Weare not advised as to whether, at
the time of the dissolution of the corpo-
ration by time, liquidating trustees of the
old company were appointed under the
statute. If they were, then they should
appear in this proceeding. The motions
to substitute are denied, without preju-
dice to a renewal on a fuller showing.
Motions denied.
PROOF OF SERVICE VIA OVERNITE EXPRESS MAIL
STATE OF CALIFORNIA, COUNTY OF LOS ANGELES
At the time of service, I was over 18 years of age and not a party to this
action. I am employed in the County of Los Angeles, State of California. My
business address is 801 South Grand Avenue, Ninth Floor, Los Angeles,
California 90017-4613.
On November 15, 2010, I served a true copy of the following document
described as RESPONDENT'S REQUEST FOR JUDICIAL NOTICE IN
SUPPORT OF ANSWERBRIEF ON THE MERITSontheinterestedparties
in this action as follows:
Jack K. Clapper, Esq.
Steven J. Patti, Esq.
Christine A. Renken, Esq.
CLAPPER, PATTI, SCHWEIZER & MASON
2330 Marinship Way, Suite 140
Sausalito, CA 94965
Telephone: (415) 332-4262
Facsimile: (415) 331-5387
Ted W.Pelletier, Esq.
LAW OFFICE OF TED W. PELLETIER
22 Skyline Road
San Anselmo, CA 94960
Telephone: (415) 454-8783
Email: tedpelletierlaw@comcast.net
Email: steve@clapperlaw.com
Christine@clapperlaw.com
Office of the Clerk Office of the Clerk
First Appellate District, Division Two San Francisco Superior Court
350 McAllister Street 400 McAllister Street
San Francisco, CA 94102-3600 San Francisco, CA 94102
BY OVERNIGHT DELIVERY:I enclosed said documentin an
envelope or package provided by the overnight service carrier and addressed to
pac
the persons at the addresseslisted in the Service List. I placed the envelope or
age for collection and overnightdelivery at an office or a regularly utilized
drop box of the overnight service carrier or delivered such documentto a courier
or driver authorized by the overnight service carrier to receive documents.
I declare under penalty of perjury under the laws of the State of California
that the foregoing is true and correct.
Executed on November15, 2010, at Los Angeles, California.
MARJORIE K. DE/JOHNETTE
SLH\29180
