Asarco LLC v. Goodwin, 756 F.3d 191 (2nd Cir. 2014) –

A reorganized company (Asarco) sought contribution for payment of environmental claims from beneficiaries of trusts created under John D. Rockefeller’s will. The district court dismissed the claims, and Asarco appealed to the 2d Circuit.

During Asarco’s bankruptcy, federal, state and local governments filed proofs of claim for environmental remediation and future response costs and natural resource damages. The claims related to two sites – mining facilities located in the Monte Cristo Mining Area (MCMA) and a former smelter plant located 40 miles away in Everett (Everett Smelter). The bankruptcy court approved settlement of the Everett Smelter claims in April 2008 and the MCMA claims in June 2009, resulting in unsecured claims of $38 million and just over $12.2 million respectively. Asarco’s plan of reorganization was approved in November 2009 and became effective in December 2009. The claims were paid on the effective date.

After emerging from bankruptcy, the reorganized Asarco sought to obtain reimbursement of the environmental remediation costs from other potentially responsible parties under CERCLA. In particular, Asarco’s predecessors had operated MCMA from 1903 to 1905 and the Everett Smelter from 1903 to 1912. Prior to 1903 the Everett Smelter was owned by a company (PSRC) that Asarco alleged was “operated by [John D.] Rockefeller directly and through his personal agents acting at his direction and under his control.” Rockefeller also had interests in companies that owned or operated some of the MCMA mines. Relevant activities included ownership and operation of the sites resulting in discharge of various hazardous waste between 1892 and 1903.

To accomplish the goal of timely cleanup of hazardous waste sites, with the costs borne by those who are responsible, “CERCLA looks backward in time and imposes wide-ranging liability.” The parties agreed that if Rockefeller was alive today he would be liable under CERCLA. They also agreed that Asarco had settled its CERCLA liability pursuant to a judicially approved settlement. So, the question for the court was whether there was a right of contribution against the beneficiaries of a potentially responsible party’s estate.

When Rockefeller died in 1937 his will established a residuary trust for the lifetime benefit of his granddaughter, which was divided into separate trusts for the benefit of her children (Rockefeller’s great grandchildren) upon her death. Each trust still contained substantial assets. Asarco argued that there should be a federal common law rule that a decedent’s liability is transferred to those who benefit from his estate – which it referred to as the “trust fund doctrine.”

However, under 2d Circuit precedent, the issue is decided under state law. The question was whether a state probate code provision that made beneficiaries liable for the “debts… of a decedent” could include liability under legislation enacted after death that was applied retroactively. The court was not certain how it should rule on this question, but concluded it did not need to reach the issue.

Under CERCLA there is a three year statute of limitations for contribution claims that begins to run with “entry of a judicially approved settlement with respect to such costs or damages.” Although Asarco tried to argue that the period should not begin to run until its plan of reorganization was approved or became effective, the court found that the statute was clear: The relevant date was entry of a settlement judgment.

The Everett Smelter claims were clearly untimely since the settlement judgment for those claims was entered more than three years before the complaint was filed. That left the MCMA claims. The MCMA settlement judgment was entered less than three years before the complaint was filed. However, Asarco first asserted claims relating to MCMA in an amended complaint that was filed more than three years after entry, and the court concluded that the amendment did not relate back to the date of the original complaint.

To avoid this road block Asarco, the reorganized debtor, argued that it was asserting its contribution claims as a subrogee to Asarco, the debtor in possession. If successful, this would have meant that the statute of limitations began to run when the claims were actually paid – which was within three years of both the complaint and the amended complaint. However, the court rejected the idea that Asarco as debtor in possession and Asarco as a reorganized entity were separate legal entities. As summarized by the court: “Asarco is still wearing its own shoes; it agreed to pay and paid its own debts.”

Consequently the 2d Circuit affirmed the district court decision on the basis that the claims were barred by the applicable statute of limitations.

It is not clear that Asarco would have been allowed to pursue its claims if they had not been barred by the statute of limitations. However, neither the district court nor the 2d Circuit rejected out of hand the idea that actions of an individual between 1892 and 1903 could subject his great grandchildren to liability as the beneficiaries of trusts set up in his will. That is a sobering thought.