Enforcement of Superfund Liabilities Expands Beyond Environmental Avenues

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A recent Superfund-related case in New Jersey highlights how US authorities, both Federal and State, will not take kindly to companies that seek to circumvent their environmental responsibilities.

Companies, and their subsidiaries, that are landowners or waste generators, who are responsible for contaminating a Superfund site should ensure they are in compliance with requirements to clean up the site, reimburse the government, or reimburse other parties for cleanup activities. The New Jersey House of Assembly and Senate recently passed parallel resolutions urging relevant federal and State authorities, such as the United States Securities and Exchange Commission and the New Jersey State Commission, to investigate actions taken by a foreign state oil company to discharge Superfund obligations through bankruptcy proceedings. If any of the listed authorities finds that the company intended to circumvent its environmental obligations, the company and its subsidiaries may be forced to pay all applicable penalties.

On 25 May 2017, the New Jersey Senate passed a Resolution (SR107) urging all relevant federal and State authorities to investigate actions taken by a foreign state oil company to discharge its environmental obligations, specifically through bankruptcy proceedings. An earlier resolution had been passed in the House of Assembly on 22 May 2017. Both Resolutions urge the New Jersey State Commission of Investigation, the New Jersey Department of Environmental Protection (NJDEP), the United States Congress (Congress), the United States Securities and Exchange Commission (SEC), the United States Attorney General and the New Jersey Attorney General, to examine actions taken by a company and its subsidiaries to use United States bankruptcy proceedings in an apparent attempt to avoid responsibility for environmental liabilities related to the cleanup of a Superfund site, the Passiac River, and all other Superfund sites in New Jersey.

Background

Beginning in the 1940's, a company owned and operated a facility that manufactured agricultural chemicals in New Jersey. In 1983, the United States Environmental Protection Agency (EPA) and the NJDEP found high levels of dioxin, an extremely toxic byproduct of agricultural manufacturing processes, on the site. The EPA placed the site on the Comprehensive Environmental Response, Compensation, and Liability Act' (CERLA) 'Superfund' Sites List. Studies showed the site contains a large number of other hazardous substances including semi-volatile and volatile compounds, herbicides, pesticides, polychlorinated biphenyls (PCBs), and metals, which affected and continue to affect the soil, groundwater, air, surface water, and building structures at the site. This contamination has affected large portions of the Passaic River.

In 1995, a foreign state-owned oil company (parent company) acquired the company responsible for the contamination (subsidiary). In March 2016, the EPA announced a that remediation would cost $1.38 billion. In July 2016, the oil company placed the company it had acquired into bankruptcy. The parent company then stripped billions of dollars in assets out of the subsidiary, leaving the subsidiary unable to perform its Superfund obligations. Then the company issued bonds and raised $1.75 billion from investors in August 2016.

Resolution

The Resolutions urge:

  • The New Jersey State Commission of Investigation to examine actions taken by the company and its subsidiary to use United States bankruptcy proceedings in an apparent attempt to avoid responsibility for environmental liabilities
  • The NJDEP to prepare a report to be submitted to the Legislature including:
  • A list and description of all Superfund sites where the company is a potentially responsible party
  • An assessment of the potential impacts a bankruptcy declaration may have on the pace of the remediation at those sites
  • The added burden this declaration would place on other potentially responsible parties and taxpayers
  • An examination of the precedent that parent company's actions would set for other companies facing Superfund obligations
  • Congress is to request a report from the United States Government Accountability Office to examine current Superfund obligations tied to foreign, state-owned corporations and any actions those corporations may be taking to avoid paying their environmental liabilities in the United States including, but not limited to, the use of bankruptcy proceedings
  • Congress is to make appropriate changes to the federal CERCLA and federal bankruptcy laws to prevent foreign corporations from avoiding their Superfund liabilities
  • The SEC to initiate a review of public statements and disclosures made by the parent company regarding the environmental liabilities of its subsidiary to determine if inaccurate information was provided to shareholders and prospective investors on its overall financial condition
  • The United States Attorney General and the New Jersey Attorney General to investigate any potential violations of federal or State law including, but not limited to, any violations of the federal or State racketeer influenced and corrupt organizations (RICO) acts, and pursue all appropriate legal remedies.

While the Resolutions do not directly impact industry, they show that the Legislature has indicated its willingness to recover environmental costs from all parties involved, including subsidiaries, using not only environmental laws.

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