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G.P. Publications Inc. v. Quebecor Printing3/4/1997
revent a deterrent effect on the exercise of rights guaranteed employees by the Act. Id. at 185, 38 L. Ed. 2d at 403. The Court noted that the purchaser's knowledge of pending unremedied wrongs made broadening the net of liability fair:
Since the successor must have notice before liability can be imposed, "his potential liability for remedying the unfair labor practices is a matter which can be reflected in the price he pays for the business, or he may secure an indemnity clause in the sale contract which will indemnify him for liability arising from the seller's unfair labor practices."
Id. (citation omitted).
Likewise, in the context of environmental cleanup costs under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), successor liability has been imposed under the "substantial continuation" theory. In Carolina Transformer Co., 978 F.2d 832:
The children of the owner of the selling corporation owned the purchasing corporation. The father also controlled the purchasing corporation, and could write checks on the purchaser's corporate account. There was no colorable question of the purchaser's knowledge of and benefit from the seller's conduct for which CERCLA liability attached, or of the seller's and purchaser's practical identity.
Mexico Feed, 980 F.2d at 489. Under the traditional approach, there would have been no successor liability because there was no overlap of stock ownership between the seller and the buyer corporations. However, the court adopted the "substantial continuity" approach and held the buyer corporation liable noting that were it to hold to the contrary, "an otherwise responsible corporation could all but completely wash its hands of its environmental liability." Carolina Transformer Co., 978 F.2d at 840. "Such a result," the court noted, "would not serve the remedial purpose of CERCLA, nor would it further the Congressional intent that those responsible for disposal of hazardous wastes, rather than the public, should bear the cost of remedying the pollution." Id.
"Even in cases of good faith, a bona-fide successor reaps the economic benefits of its predecessor's use of hazardous disposal methods, and, as the recipient of the benefits, is also responsible for the costs of those benefits." Mexico Feed, 980 F.2d at 487. In Mexico Feed, the successor corporation retained the same employees, delivered the same service to the same clients, and kept the name of its predecessor for several years. However, the Eighth Circuit refused to impose successor liability under the "substantial continuity" test because of the lack of notice of potential liability or ties between the successor and predecessor corporations. Id. at 489-90.
In the instant case, we find that the trial court erred by applying the "substantial continuity" test rather than the more restrictive traditional test to determine whether a successor corporation is a mere continuation of its predecessor. In the context of a commercially reasonable sale under UCC ยง 9-504, allowing successor liability based on factors other than inadequate consideration and identity of ownership might have a chilling effect on potential purchasers who would have to be concerned that by acquiring a foreclosed business, they would also acquire liabilities they never intended to assume. While a strong public policy supports the discharge of subordinate claims after a UCC foreclosure sale, the law must not encourage the elevation of form over substance.
Quebecor cites a number of "mere continuation" cases which apply the "substantial continuity" test. See e.g. Luxliner P.L. Export, Co. v. RDI/Luxliner, Inc., 13 F.3d 69, 73 (3d C
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