United States Court of Appeals

FOR THE EIGHTH CIRCUIT

____________________ *

*

Nos. 05-2064 & 06-1944 *

____________________ *

*

K.C. 1986 Limited Partnership, *

*

Plaintiff-Appellant, *

*

v. *

*

Reade Manufacturing, A Division of * Appeals from the United States

Reactive Metals & Alloys Corp.; * District Court for the

Reactive Metals & Alloys Corp., * Western District of Missouri.

*

Defendants, *

* [PUBLISHED]

U.S. Borax, Inc., *

*

Defendant-Appellee, *

*

Hardee’s Food Systems, Inc.; *

Terracon Environmental, Inc., *

*

Defendants. *

*

---------------------- *

*

Nancy Reade Forster, As the Personal *

Representative of the Estate of *

Charles F. Reade, *

*

Third-Party Plaintiff, *

*

U.S. Borax, Inc., *
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*

Third-Party Plaintiff- *

Appellee, *

*

v. *

*

DeAngelo Brothers, Inc., DEH *

Merrywood Company; Habco *

International, Inc., *

*

Third-Party Defendants, *

*

Victor Horne, *

*

Third-Party Defendant- *

Appellant, *

*

Habco, Inc., *

*

Third-Party Defendant, *

*

Donald E. Horne, *

*

Third-Party Defendant- *

Appellant, *

*

Donald E. Boatright, *

*

Third-Party Defendant. *

__________ *

*

No. 05-2068 *

__________ *

*

K.C. 1986 Limited Partnership, *

*
-3-

Plaintiff, *

*

v. *

*

Reade Manufacturing, A Division of *

Reactive Metals & Alloys Corp.; *

Reactive Metals & Alloys Corp., *

*

Defendants, *

*

U.S. Borax, Inc., *

*

Defendant-Appellee, *

*

Hardee’s Food Systems, Inc.; *

Terracon Environmental, Inc., *

*

Defendants. *

*

------------------------ *

*

Nancy Reade Forster, As the Personal *

Representative of the Estate of *

Charles F. Reade, *

*

Third-Party Plaintiff, *

*

U.S. Borax, Inc., *

*

Third-Party Plaintiff- *

Appellee, *

*

v. *

*

DeAngelo Brothers, Inc., *

*

Third-Party Defendant - *

Appellant, *
-4-

*

DEH Merrywood Company; Habco *

International, Inc.; Victor Horne; *

HABCO, Inc.; Donald E. Horne; *

Donald E. Boatright, *

*

Third-Party Defendants. *

_________________

Submitted: January 11, 2006

 Filed: January 4, 2007

________________

Before MURPHY, HANSEN, and SMITH, Circuit Judges. 

________________

HANSEN, Circuit Judge.

These consolidated appeals arise out of a contribution action brought pursuant

to the Comprehensive Environmental Response, Compensation, and Liability Act

(CERCLA), 42 U.S.C. §§ 9601-9675. The final judgment requires Donald E. Horne,

Victor Horne, K.C. 1986 Limited Partnership (K.C. 1986) (collectively the Horne

Appellants), and DeAngelo Brothers, Inc. (DeAngelo) to pay U.S. Borax, Inc. (Borax)

90% of the past response costs incurred by Borax and to be responsible for 90%

collectively of the future response costs to clean up a superfund site in North Kansas

City, Missouri, known as the Armour Road Superfund Site (the Site). We affirm in

part and reverse and remand in part. 

I. 

The Armour Road Superfund Site has two owners. A portion of the Site has

been owned or leased at all relevant times by the Burlington Northern and Santa Fe

Railway Company (BNSF) or its predecessor railroads, most notably the Chicago,
-5-

Burlington & Quincy (CB&Q). The remainder of the Site, the property at 2251

Armour Road in North Kansas City, Missouri, has been owned or leased by a series

of companies that manufactured, formulated, and blended herbicides on the property

for more than 55 years. The leasehold and ownership list for this property can be

divided into the Reade Era (1929-1963), the Borax Era (1963-1968), the Habco Era

(1968-1986), and the K.C. 1986 Era (1986-present). 

As early as 1929, the Reade Manufacturing Company (Reade) conducted

herbicide blending and packaging operations at 2251 Armour Road using substantial

amounts of arsenic, among other hazardous chemicals, and offering herbicide spraying

services to railroad companies across the country, including the BNSF and its

predecessors. The Site was significantly contaminated by arsenic during the Reade

Era. 

From 1963 to 1968, Borax leased the property from Reade. Borax continued

to operate a herbicide blending facility there, and additional arsenic contamination

occurred at the Site. 

In 1968, Habco, Inc. (Habco) purchased the property. Habco was first jointly

owned by Donald Boatright and Donald Horne until 1976 and then owned principally

by Donald Horne thereafter. Habco's plant manager was Donald Horne's brother,

Victor. Victor was responsible for implementing Donald's decisions but was not

authorized to make decisions involving substantial amounts of money absent Donald's

approval. Like Reade and Borax, Habco mixed and repackaged herbicides at the

property, using large volumes of hazardous substances including arsenic, and provided

spraying services to railroad companies until 1986. Spills of both granular and liquid

chemicals that periodically occurred were not properly collected or disposed. Habco

used in-ground mixing vats to blend chemicals and above-ground storage tanks to

store chemicals. Over the years, with Donald Horne's approval, Habco removed all

but one of the above-ground storage tanks. Donald also authorized an in-ground vat
-6-

to be drained and backfilled rather than removed because filling it in was cheaper, and

he was fearful of what lay beneath it if it were removed. Victor oversaw the project.

In 1973, the company settled a lawsuit brought by a neighboring green house alleging

that its plants were damaged by herbicide contamination caused by Habco. When

Habco transferred the real estate in 1986, only one above-ground tank and two of the

three in-ground mixing vats remained. 

In 1986, Habco, after deciding to dissolve, sold all of its operating assets

(except for the Armour Road real property) to a new company named Habco-Loram,

Inc., for approximately $2.6 million. Donald Horne was not a stockholder or a

director of Habco-Loram. Habco-Loram paid the purchase price partly in cash

($500,000) and partly by giving Habco its promissory notes secured by the granting

of a security interest in certain of its assets to Habco. When Habco dissolved as a

corporation, it distributed the notes (and the accompanying security interest) among

Habco's shareholders. Donald Horne was the principal stockholder in Habco with

approximately 93% of its stock, and he later acquired the other stockholders' (by then

noteholders') interests as well. Donald Horne signed a three-year employment

agreement with Habco-Loram and served as its president for one year. HabcoLoram's operations, employees, customers, and contracts were essentially identical to

what Habco's had been, but it moved its business to a different location. In 1988, two

years after its origin, Habco-Loram, apparently unable to meet its obligations, agreed

to convey all of the pledged assets to Donald Horne as part of a voluntary foreclosure

and in satisfaction of its notes. Donald Horne then formed Habco International, Inc.,

of which he was the sole stockholder, officer, and director, and using the assets

conveyed to him and to his new corporation from Habco-Loram, continued the

business operations that Habco-Loram had conducted, which were substantially the

same operations conducted by the original Habco, except that Habco International,

like Habco-Loram before it, did not own, lease, or use the Site for its herbicide

formulation and spraying business.
-7-

On March 19, 1997, Neal and Paul DeAngelo, as individuals, purchased the

stock of Habco International. Habco International continued its same operations. In

October 1998, Habco International merged into DeAngelo Brothers, Inc. (DeAngelo),

in accordance with Pennsylvania's corporate merger statute by which DeAngelo took

all of Habco International's assets and liabilities. By that time, the district court had

determined that Habco International was a successor corporation to Habco for the

purposes of this litigation. The district court later concluded that DeAngelo was a

successor corporation to Habco International and to Habco. 

At the same time that it was selling its operating assets to Habco-Loram, the

Board of Directors of Habco agreed to transfer the Armour Road real estate to K.C.

1986 Limited Partnership, a holding company formed by Donald Horne for the

express purpose of taking title to the property as its only asset. K.C. 1986 is still the

current owner of the real estate. When Habco dissolved, its 99% interest as the

limited partner in K.C. 1986 was distributed among Habco's shareholders. Eventually,

Donald Horne as an individual acquired all of the 99% limited partner interest in K.C.

1986, and he still holds that interest. The remaining 1% interest is owned by DEH

Merrywood Corporation, formed by Donald Horne solely to act as the general partner

of K.C. 1986. He is the sole shareholder, officer, and director of DEH Merrywood,

and as such, he retains full and exclusive decision-making authority over the

management and control of the property. Donald Horne was aware that leftover

herbicides remained on the property, but the property has not been actively used for

herbicide manufacturing or blending since 1986.

K.C. 1986 immediately sought potential buyers and lessees for the property.

Hardees, a prospective lessee, hired Terracon Consultants to perform environmental

testing at 2251 Armour Road. Terracon observed an above-ground storage tank at the

site that still contained a liquid material, but when it returned for continued

assessment, the tank was gone and a large spill had occurred from the removed tank.

Donald Horne had authorized the tank's removal. Testing of the spill area revealed
-8-

heavy concentrations of hazardous substances including arsenic. Terracon notified

K.C. 1986 in the fall of 1989 that test results indicated the property was contaminated,

but Donald Horne did not report the contamination to the Missouri Department of

Natural Resources (MDNR).

In 1991, the State of Missouri learned from Terracon that the soil and

groundwater at the Site were heavily contaminated with hazardous substances,

including arsenic. The EPA became involved and declared it a superfund site. The

dispute involving the cleanup of the Site was first brought to federal district court in

1993 by K.C. 1986. That case was dismissed by a stipulation without prejudice in

1998 pending an administrative determination of how best to remedy the

contamination.

K.C. 1986 filed the current CERCLA litigation in 2002, seeking a determination

of liability for the cleanup costs between and among the various parties. Borax

admitted CERCLA liability but filed cross-claims and counterclaims for contribution

pursuant to CERCLA, 42 U.S.C. § 9613(f), seeking reimbursement for the cleanup

costs it had already incurred as well as future costs. It was undisputed that substantial

additional future response costs will be incurred to clean up the site.

The district court issued an order on May 7, 2004, granting and denying various

summary judgment motions related to liability. Following a bench trial, the district

court entered an Allocation Order on January 7, 2005. The court considered several

equitable factors in determining how best to allocate the response costs,

acknowledging the difficulty of determining exactly how each party either increased

or decreased the actual contamination at the Site. The district court found that "[t]he

Site was so contaminated during the Reade Era that the remediation plan approved by

the EPA would have been required even if Habco, Borax, K.C. 1986, and the Hornes

had never set foot on the property. On the other hand, each of these parties

substantially contributed to the contamination of the Site by their own independent
1

Due to an error in Borax's calculation of costs incurred, the Allocation Order

lists a slightly different amount of $1,164,597.62. There is no dispute that this amount

was due to a mistaken calculation by Borax and that the correct response cost total as

of March 1, 2004, is $1,160,673.17. The district court corrected its Allocation Order

to reflect this in an amended judgment filed on March 31, 2006. Because the appeal

of the corrected judgment (No. 06-1944) involves issues identical to those identified

in the appeals of the Allocation Order (Nos. 05-2068 and 05-2064), we consolidated

all three in this appeal. 

-9-

actions." (Horne Appellants' Add. at A-87.) The district court allocated responsibility

for the $1,160,673.171

 of response costs incurred by Borax as of March 1, 2004, as

well as any future response costs, in the following proportions: Donald Horne–40%;

K.C. 1986–20%; Victor Horne–15%; DeAngelo–15%; and Borax–10%. The district

court also awarded prejudgment interest to Borax, but Borax had not yet submitted the

documentation necessary to calculate the interest. The Allocation Order stated that

it was not the final judgment in the case and that final judgment would be entered

when the prejudgment interest calculation was complete.

 Prior to the entry of the final judgment, Donald and Victor Horne, K.C. 1986,

and DeAngelo requested the district court to amend the Allocation Order by applying

pretrial settlements as credits to offset the judgment and preclude any prejudgment

interest award, because the $1,160,673.17 total of Borax's response costs did not

reflect the fact that Borax had obtained pretrial settlements from other parties in

amounts that had been either paid or promised to Borax. The district court denied the

motion to amend in a final order dated April 4, 2005, concluding that the parties had

failed to bring the settlement credits to the court's attention in a timely fashion.

Additionally, the district court awarded Borax $98,664.36 in prejudgment interest. 

The Horne Appellants assert on appeal that the district court erred by (1)

refusing to apply the settlement credits to the final judgment, (2) awarding

prejudgment interest to Borax, (3) finding that Donald Horne had knowledge of

contamination prior to 1986, and (4) entering summary judgment against Donald
-10-

Horne on the issue of operator liability during the Habco Era. DeAngelo appeals,

arguing that the district court erred in neglecting to specify that no recovery from

DeAngelo would be permitted until all other sources were exhausted and in finding

that Habco International is liable as Habco's successor in interest. 

II.

A. The Horne Appellants' Arguments

 1. Settlement Credits

We first consider whether the district court abused its discretion in refusing to

amend the Allocation Order before final judgment was entered to credit the pretrial

settlements obtained by Borax from the EPA and private entities against the judgment.

The district court refused even to consider the issue, concluding that it was untimely

raised in a motion for reconsideration after entry of the Allocation Order. We agree

that the issue should have been presented to the district court in a more timely matter.

Nevertheless, we conclude that the district court abused its discretion by refusing to

consider the settlement credits issue because CERCLA requires such consideration,

and final judgment had not yet been entered. 

There is no question that a Federal Rule of Civil Procedure 59(e) motion to alter

or amend the judgment may not be used to raise for the first time arguments or issues

that could and should have been made to the district court prior to the entry of final

judgment. Bannister v. Armontrout, 4 F.3d 1434, 1440 (8th Cir. 1993), cert. denied,

513 U.S. 960 (1994). The district court expressly provided in the Allocation Order,

however, that "this Order does not constitute final judgment in this case; final

judgment will be made once the Court has awarded Borax the prejudgment interest to

which it is entitled." (Horne Appellants' Add. at A-98.) The district court left the

record open to receive additional evidence regarding prejudgment interest. See Dieser

v. Cont'l Cas. Co., 440 F.3d 920, 924 (8th Cir. 2006) (noting that an order which

expressly left unresolved the amount of prejudgment interest and called for further
-11-

submissions from the parties to determine the method of calculation and the amount

of prejudgment interest could not reasonably be believed to be a final order).

 

Instead, the Horne Appellants' motion to amend purported to be brought

pursuant to Rule 54(b), which provides that when fewer than all claims are resolved,

the district "court may direct the entry of a final judgment as to one or more" claims

or parties, but in the absence of such a direction, any other form of decision "which

adjudicates fewer than all the claims . . . is subject to revision at any time before the

entry of [final] judgment." "The district court has the inherent power to reconsider

and modify an interlocutory order any time prior to the entry of judgment." Murr

Plumbing, Inc. v. Scherer Bros. Fin. Servs. Co., 48 F.3d 1066, 1070 (8th Cir. 1995).

Construing the motion to amend the Allocation Order in light of Rule 54(b) and

the district court's inherent power, we review for an abuse of discretion the district

court's refusal to consider the Horne Appellants' arguments regarding the settlement

credits. See Official Comm. of Unsecured Creditors of Color Tile, Inc. v. Coopers &

Lybrand, LLP, 322 F.3d 147, 167 (2d Cir. 2003) (reviewing for abuse of discretion

the district court's denial of a Rule 54(b) motion to reconsider an interlocutory order).

The abuse of discretion standard dictates that we consider whether the district court

(1) failed to consider "a relevant factor that should have been given significant

weight;" (2) considered and gave significant weight to "an irrelevant or improper

factor;" or (3) considered "all proper factors, and no improper ones," but in weighing

those factors, committed a "clear error of judgment." Kern v. TXO Prod. Corp., 738

F.2d 968, 970 (8th Cir. 1984). By failing to consider the effect of the settlements as

required by CERCLA, the district court failed to consider a relevant factor that should

have been given significant weight. CERCLA provides that a judicially approved

government settlement, such as Borax's settlement with the EPA, "does not discharge

any of the other potentially liable persons unless its terms so provide, but it reduces

the potential liability of the others by the amount of the settlement." 42 U.S.C.

§ 9613(f)(2). The district court was aware of and had approved the government
-12-

settlement prior to March 1, 2004, and therefore abused its discretion by refusing to

take the government settlement into consideration in the allocation determination to

reduce the potential liability of the other responsible parties.

The private party settlements, including Borax's settlement with the BNSF,

were also relevant to the allocation determination. Although § 9613(f)(2) governs

only the effect of settlements with the government, not private parties, general

equitable principles remain in play. In resolving contribution claims in general,

CERCLA directs the court to "allocate response costs among liable parties using such

equitable factors as the court determines are appropriate." Id. § 9613(f)(1). In

determining which equitable factors are appropriate, the policies articulated in

CERCLA cannot be ignored. Importantly, CERCLA articulates a policy against

double recovery. See 42 U.S.C. § 9614(b) (prohibiting duplicate recovery for the

same removal costs). Crediting the amount of the settlements reached with private

parties is necessary to avoid double recovery by one party. The district court was

aware that pretrial settlements had occurred as it granted dismissals of the settling

parties based on those settlements. Additionally, crediting the settlements reached

prior to trial against the judgment for response costs incurred prior to March 1, 2004,

would not require the revision of any findings or conclusions made in the Allocation

Order, only a recalculation of the amount of the judgment. Accord Azko Nobel

Coatings, Inc. v. Aigner Corp., 197 F.3d 302, 308 (7th Cir. 1999) (requiring district

court on remand to determine how much was collected in settlements and adjust the

judgment accordingly). CERCLA plainly requires that the district court take these

settlements into its equitable consideration in the allocation process. The district court

neither credited the settlements against the judgment nor articulated an equitable

reason for not doing so other than the timeliness of the request. We conclude that the

request was not so untimely in this case so as to override CERCLA's policy against

permitting a double recovery. While the appellants would have been well advised to

raise such issues in the most expedient manner, the district court could not have been

surprised by the existence of settlements in this case. Because the settlement credits
2

We grant Borax's motion to strike portions of the Horne Appellants' Reply

Brief wherein they assert a new argument that Borax's past response costs are not

recoverable in light of Cooper Indus. v. Aviall Servs., Inc., 543 U.S. 157 (2004). "It

is well settled that we do not consider arguments raised for the first time in a reply

brief." Navarijo-Barrios v. Ashcroft, 322 F.3d 561, 564 n.1 (8th Cir. 2003).

Additionally, we deny Borax's motion to supplement the record. 

-13-

present a significant allocation factor under CERCLA and the issue was raised prior

to the entry of a final judgment, the district court should have exercised its discretion

to consider them when calculating the amount of the judgment. We vacate the

monetary judgment and remand the case for the district court to consider in the first

instance the issue of offsetting the judgment with settlement credits.2

 

2. Prejudgment Interest

The Horne Appellants also challenge the district court's award of prejudgment

interest. Our decision to remand for consideration of settlement credits may result in

the district court's need to reconsider and to recalculate the prejudgment interest

award. However, while the interest amount may necessarily be recalculated in the

light of any settlement credits the district court determines appropriate, we conclude

that the district court did not abuse its discretion in determining that any prejudgment

interest awarded will accrue from the dates of the demands made in Borax's Rule 26

disclosures and third-party complaints. 

"An award of prejudgment interest – whether in a joint and several liability

action under § 107 or a contribution action under § 113 of CERCLA – is mandatory

. . . ." GenCorp Inc. v. Olin Corp., 390 F.3d 433, 450 (6th Cir. 2004), cert. denied,

126 S. Ct. 420 (2005); 42 U.S.C. § 9607(a)(4) (stating that "[t]he amounts recoverable

in an action under this section shall include interest on the amounts recoverable")

(emphasis added); see also Bancamerica Comm. Corp. v. Mosher Steel of Kansas

City, 100 F.3d 792, 801 (10th Cir.), as amended, 103 F.3d 80 (1996). Prejudgment
-14-

interest "shall accrue from the later of (i) the date payment of a specified amount is

demanded in writing, or (ii) the date of the expenditure concerned." 42 U.S.C.

§ 9607(A)(4). We review the district court's decision on prejudgment interest for an

abuse of discretion. See Bancamerica Comm., 100 F.3d at 801 (holding district court

abused its discretion in concluding that the third amended complaint did not meet the

demand requirements where it asserted response costs in excess of $1 million against

two defendants). 

We respectfully reject the Horne Appellants' assertion that neither Borax's thirdparty complaints nor its Rule 26 disclosures were specific enough to meet the statutory

requirement for the accrual of prejudgment interest. Relying on United States v.

Consolidation Coal Co., they assert that the written demands were insufficient because

Borax did not demand specific amounts from each defendant. 345 F.3d 409, 416 (6th

Cir. 2003) (rejecting a third-party complaint as not a sufficiently specific written

demand where it alleged damages of "over $47 million" against 59 third-party

defendants, as well as various unidentified parties, and did not specify the amount

demanded from each defendant). We conclude that their reliance on Consolidation

Coal Co. is misplaced. The case before us involves only a handful of third-party

defendants, most of which are related in some way to each other. The district court

noted that Borax named specific amounts in the third-party complaints and the Rule

26 disclosures. (See Appellants' App. at 256-57.) While these demands did not

separate out the specific amounts sought from each third-party defendant, the district

court stated that there is no question that "the parties in this case had full knowledge

of their contaminating activities which gave rise to the response costs." (Id. at 257.)

The degree of specificity the Horne Appellants would require can only be achieved

in this case after liability has been proven and an allocation order entered. See

Bancamerica Comm. Corp., 100 F.3d at 802 (noting that "it may be impossible for

parties to provide accurate calculations prior to the court's allocation of response cost

liability" and that "[t]he district court has considerable discretion in apportioning

equitable shares of response costs") (internal marks omitted). On this record, we
-15-

conclude that the district court did not abuse its discretion in concluding that these

demands were sufficiently specific to put the parties on notice of the amounts at issue

and the accrual of prejudgment interest. 

We therefore remand the prejudgment interest issue for potential recalculation

by the district court, but we find no abuse of discretion in the district court's

determination of the prejudgment interest accrual dates. 

3. Donald Horne's Knowledge

The Horne Appellants argue that the district court clearly erred in finding that

"Donald Horne was well-aware that the Site was contaminated long before he formed

K.C. 1986 to purchase the Site." (Horne Appellants' Add. at A-62.) We review the

district court's fact-findings for clear error. United States v. Gurley, 43 F.3d 1188,

1194 (8th Cir. 1994) (citing Fed. R. Civ. P. 52(a)), cert. denied, 516 U.S. 817 (1995).

We see no clear error. While there is no direct evidence of Donald Horne's

knowledge, the district court as fact finder was free to rely upon circumstantial

evidence to establish knowledge. See Coleman v. Parkman, 349 F.3d 534, 538 (8th

Cir. 2003) ("But, like always, a plaintiff can prove knowledge through circumstantial

evidence."). The finding that Donald Horne was aware of contamination at the Site

prior to 1986 was a reasonable inference drawn from all of the evidence, and the

district court supported this finding with eight specific facts from the record. (See

Horne Appellants' Add. at A-62-64.) Further, the district court's allocation decision

did not turn on the sole question of whether Donald Horne had actual knowledge of

contamination prior to 1986. Rather, his share of the response costs also reflected

equitable factors such as his exercise of control over the hazardous substances and his

subsequent reluctance to cooperate with the cleanup effort. We see no clear error in

the fact-findings regarding Donald Horne's knowledge. 
-16-

4. Donald Horne's Operator Liability

The Horne Appellants argue that the district court erred in its summary

judgment ruling that Donald Horne was liable as an operator during the Habco Era,

from 1968 to 1986. We review de novo a district court's grant of summary judgment,

viewing the record in the light most favorable to the nonmoving party. McClure v.

Career Sys. Dev. Corp., 447 F.3d 1133, 1135 (8th Cir. 2006). Summary judgment is

proper only if the evidence shows "that there is no genuine issue as to any material

fact and that the moving party is entitled to a judgment as a matter of law." Fed. R.

Civ. P. 56(c). 

"Liability for the release of hazardous substances may be imposed on 'any

person who at the time of disposal of any hazardous substance owned or operated any

facility at which such hazardous substances were disposed of.'" Gurley, 43 F.3d at

1192 (quoting 42 U.S.C. § 9607(a)(2)). When considering an individual's liability as

an operator, "'[i]t is the authority to control the handling and disposal of hazardous

substances that is critical under the statutory scheme.'" Id. (quoting United States v.

Ne. Pharm. & Chem. Co., 810 F.2d 726, 743 (8th Cir. 1986)). We have held that an

individual may be liable as an operator if he "(1) had authority to determine whether

hazardous wastes would be disposed of and to determine the method of disposal and

(2) actually exercised that authority, either by personally performing the tasks

necessary to dispose of the hazardous wastes or by directing others to perform those

tasks." Id. at 1193. "[U]nder CERCLA, an operator is simply someone who directs

the workings of, manages, or conducts the affairs of a facility," as long as this

management includes "operations specifically related to pollution, that is, operations

having to do with the leakage or disposal of hazardous waste, or decisions about

compliance with environmental regulations." United States v. Bestfoods, 524 U.S. 51,

66-67 (1998). 
-17-

The district court stated that the defendants had conceded that Donald Horne

was "directly responsible for devising the procedures for the use and disposal of

hazardous waste, as well as for directing Victor Horne to carry out those procedures."

(Horne Appellants' Add. at A-36.) The summary judgment record indicated that

Donald Horne did not dispute that his approval was necessary for any decisions

involving large expenditures, that he had approved procedures such as rinsing out

truck tanks containing herbicides, and that he was responsible for making decisions

regarding compliance with environmental laws. The undisputed facts support the

district court's conclusion that Donald Horne is liable as an operator of the facility,

including those operations having to do with the leakage or disposal of hazardous

waste and decisions about complying with environmental regulations. See Bestfoods,

524 U.S. at 66-67. 

B. DeAngelo's Arguments

1. Habco International's Successor Liability 

DeAngelo challenges the district court's conclusion that it is liable under

CERCLA as a successor corporation to Habco. The district court's September 10,

1997, summary judgment ruling from the bench concluded that Habco International

was liable as a successor corporation to Habco, despite Habco-Loram's intervening

purchase and ownership of the operating assets of Habco. Subsequent to that ruling

holding Habco International liable, DeAngelo merged with Habco International,

assuming all of its liabilities, and Borax sought summary judgment in the current

proceedings against DeAngelo, as a successor to Habco International. In the district

court's May 7, 2004, summary judgment ruling on DeAngelo's liability, the district

court refused to reconsider its 1997 ruling on Habco International's liability because

DeAngelo had raised no new arguments. On the basis of that prior ruling, the district

court then held DeAngelo liable as a successor corporation to Habco because it had

merged with Habco International. 
-18-

We review the district court's summary judgment ruling de novo, applying the

same standard as the district court. Dico, Inc. v. Amoco Oil Co., 340 F.3d 525, 528-

29 (8th Cir. 2003). Summary judgment is appropriate if there is no genuine issue as

to any material fact and the moving party is entitled to judgment as a matter of law.

Id. at 529; Fed. R. Civ. P. 56(c). The traditional common law rule of corporate

successor liability applicable in most states provides that where one corporation

purchases the assets of another, the purchasing or successor corporation takes free of

the liabilities of the first corporation unless one of four limited exceptions applies: (1)

the successor expressly or impliedly agrees to assume the liabilities; (2) a de facto

merger or consolidation occurs; (3) the successor is a mere continuation of the

predecessor; or (4) the transfer to the successor corporation is a fraudulent attempt to

escape liability. United States v. Mex. Feed and Seed Co., 980 F.2d 478, 487 (8th Cir.

1992); see also New York v. Nat'l Servs. Indus., 352 F.3d 682, 685 (2d Cir. 2003).

The district court did not discuss the evidence in light of these traditional exceptions

but instead appears to have found Habco International, and in turn DeAngelo, liable

as corporate successors to Habco under the broader doctrine of "substantial

continuity" articulated in Mexico Feed and Seed. 

DeAngelo argues that the district court erred as a matter of law, asserting that

the substantial continuity test is now invalid in light of the subsequently decided

United States Supreme Court case of Bestfoods, 524 U.S. at 63 (discussing the

CERCLA liability of a parent corporation for the activities of its subsidiary, and

clarifying that CERCLA does not purport to rewrite well-settled rules of corporation

law). While the Court in Bestfoods does not specifically address corporate successor

liability under CERCLA, DeAngelo argues that Bestfoods clearly indicates that

CERCLA does not authorize the federal courts to replace traditional principles of state

corporation law with the federally created substantial continuity test of successor

liability as stated in Mexico Feed and Seed Co. 
-19-

In Mexico Feed and Seed, this court considered the applicability of the

substantial continuity test in the CERCLA context, noting that the substantial

continuity approach to successor liability was originally created by federal courts

(including the Supreme Court) to further public policy in the context of labor law.

980 F.2d at 487-88. We concluded that, similarly, the policy objectives of CERCLA

would justify imposing successor liability in appropriate cases under this broader

standard by extending liability to a successor corporation which, although a bona fide

purchaser, had acquired assets "with knowledge that the wrong remains unremedied."

Id. In the CERCLA context, this test could be applied to prevent responsible parties

from evading CERCLA liability through subsequent transactions. Id. at 488. We

ultimately concluded, however, that the circumstances present in Mexico Feed and

Seed did not meet the substantial continuity test because the purchaser did not know

of the dirty assets "and thus could not have known that its asset purchase might affect

the government's ability to have the responsible parties pay the clean-up costs." Id.

at 490. Thus, the purchasing corporation in Mexico Feed and Seed escaped CERCLA

liability because it met neither the traditional common law exceptions to the

nonliability of a purchasing successor corporation nor the broader substantial

continuity test. 

We acknowledge that the continuing viability of the substantial continuity

theory of corporate successor liability as a creation of federal common law has been

seriously questioned following the Supreme Court's pronouncement in Bestfoods that

nothing in CERCLA purports to rewrite the settled rules of state corporation law

simply because the cause of action is based upon a federal statute. 524 U.S. at 63.

See United States v. Gen. Battery Corp., 423 F.3d 294, 309 (3d Cir. 2005) (holding

"'substantial continuity' is untenable as a basis for successor liability under

CERCLA"), cert. denied, 127 S. Ct. 41 (2006); Nat'l Servs. Indus., 352 F.3d at 687

(concluding that the substantial continuity doctrine is not part of traditional

corporation common law and thus should not be used to determine CERCLA liability

following Bestfoods); United States v. Davis, 261 F.3d 1, 54 (1st Cir. 2001) (noting
-20-

that "to justify the creation of a federal rule, there must be a specific, concrete federal

policy or interest that is compromised by the application of state law") (internal marks

omitted). While we may disregard the decision of another panel of this court on the

basis of an intervening Supreme Court precedent that undermines or casts doubt on

the earlier panel decision, see Patterson v. Tenet Healthcare, Inc., 113 F.3d 832, 838

(8th Cir. 1997) (noting a Supreme Court decision had "effectively overruled" our prior

holding), we conclude it is not necessary to do so at this time. Bestfoods does not

directly address corporate successor liability, and consequently, there may yet be

contexts in which the substantial continuity test could survive. See Nat'l Servs. Indus.,

352 F.3d at 687-88 (Leval, J., concurring). We need not decide that question today

because, even assuming the test survives Bestfoods in appropriate circumstances, the

facts in this record do not satisfy the substantial continuity test. 

Proper application of the substantial continuity test (which is itself an offshoot

of the traditional "mere continuation" test) to protect the policy concerns of CERCLA

first requires a consideration of whether the successor corporation retains the same

employees, the same supervisory personnel, the same production facilities in the same

location, the same product, the same name, a continuity of assets and general business

operations, and holds itself out as a continuation of the previous enterprise. See

United States v. Carolina Transformer Co., 978 F.2d 832, 838 (4th Cir. 1992) (listing

these eight factors, as well as additional concerns). Additional factors that courts

consider integral to this test include whether the transfer to the successor corporation

was an attempt to avoid CERCLA liability, see id., and whether the successor had

knowledge of the unremedied contamination, see Mex. Feed and Seed, 980 F.2d at

488. See also Nat'l Servs. Indus., 352 F.3d at 693 (Leval, J., concurring) ("The courts'

ultimate decisions whether to impose successor liability [under the substantial

continuity test] have turned on additional factors involving whether failure to impose

liability on the successor would undermine the objective of [CERCLA] to impose

liability on responsible parties."); Atchison, Topeka & Santa Fe Ry. v. Brown &

Bryant, Inc., 159 F.3d 358, 364 (9th Cir. 1998) (noting that "altering the traditional
-21-

'mere continuation' exception to encompass the broader 'substantial continuation'

exception adds little in the end. In the cases in which the broader exception has been

applied to hold an asset purchaser liable, there has usually been some fraudulent intent

and collusion present, in which case the purchaser would have likely already been

liable under another traditional exception – the fraudulently-entered transaction

exception."). Ultimately, the proper application of the substantial continuity test

requires a consideration of whether "CERCLA-defeating conduct" is present. Nat'l

Servs. Indus., 352 F.3d at 694 (Leval, J., concurring).

While not expressly considering each of the factors listed above, the district

court articulated the basis for imposing successor liability on Habco International as

follows:

I am basing that decision primarily on the continuity of assets,

continuation of product line, similarities in management, employees. I

am also taking into account the equitable ownership that Habco had in

Habco Loram in the sense of the assets which were the major part of

Habco Loram. . . . I think this is a very unique situation and it is because

Habco International basically ends up with the same assets as Habco,

Inc. and that Donald Horne is consistently identified in each one of these

organizations either as an owner or president, having some interest.

(DeAngelo's Add. at 292-93.) This ruling relies solely on the general continuity of the

purchased business, its assets and employees, and the personal involvement of Donald

Horne. Importantly, however, with regard to one of the requirements of the

substantial continuity test as it is articulated in Mexico Feed and Seed, 980 F.2d at

487-88, the district court made no finding that the purchase by Habco-Loram was an

attempt to avoid CERCLA liability on the part of Habco-Loram or that Habco-Loram

took the clean assets with knowledge of the unremedied contamination at the Armour

Road Site. No investigation of the Site had been previously conducted at the time

Habco-Loram purchased Habco's operating assets and began to conduct its business

at a different location. In fact, the record reflects no dispute over the fact that the sale
3

By contrast, the district court expressly found that Mr. Horne, who created and

solely controls K.C. 1986 and DEH Merrywood, had knowledge of the unremedied

contamination and refused to cooperate in the cleanup efforts. Mr. Horne and K.C.

1986 are held liable, and pursuant to the district court's ruling concerning orphan

shares within an era, the Hornes will be liable for Habco's share if DeAngelo is not.

(See Jan. 7, 2005, Allocation Order, DeAngelo's Add. at 248 n.7.) 

-22-

of the operating assets from Habco to Habco-Loram was a bona fide, arm's length

transaction. Borax's attorney admitted the following at the 1997 summary judgment

hearing: "I don't have any evidence that there was anything tricky going on[,] that

Habco Loram was anything other than an arm's-length transaction. But we don't think

that is relevant." (DeAngelo's Add. at 276.) The record regarding the transaction

between Habco and Habco-Loram provides no basis on which to find an intent by

Habco-Loram to circumvent the purposes of CERCLA, or any knowledge of

contamination on the part of Habco-Loram. Habco-Loram was not sued in this case,

and Donald Horne will not escape liability for the Habco-era contamination if in fact

Habco International is determined not to be a successor corporation to Habco.3

Borax attempts to focus our inquiry on the continuity of assets and similarity

of operation between Habco and Habco International, asserting that the intervening

sale to Habco-Loram is irrelevant. We respectfully disagree. The arm's length nature

of the transaction between Habco and Habco-Loram severed the operating assets of

the business from the contaminated real property. Habco-Loram never purchased or

leased the Site but purchased only the operating assets and moved its operation

elsewhere, though it did continue the business, and Donald Horne served as its

president for a time. See Nat'l Servs. Indus., 352 F.3d at 693 (Leval, J., concurring)

("If a seller's CERCLA liability could be imposed on a purchaser of assets merely

because it continued in substantially unchanged form the operations of the seller, the

rule would result in disastrously unfair consequences, which furthermore would be

harmful to the economy as a whole."). There is no evidence that Donald Horne

expected those operating assets, sold to Habco-Loram for their full value of $2.6
-23-

million, to end up with him at some future date so that he could continue to be in the

herbicide business shed of the contaminated Site and that the sale to Habco-Loram

was so structured. The secured assets of Habco-Loram did not come into his hands

until two years later, when Habco-Loram's business venture became unprofitable, was

shutting down, and a default in payment of the notes he held was anticipated. (See

Borax's App. at 3479.) Habco-Loram's unsecured assets were then transferred to the

corporate entity of Habco International, without any lingering connection or

reconnection to the Armour Road Site. Habco-Loram had no dirty assets to convey.

Habco International never owned or operated the Site, and Donald Horne remains

liable for the contaminated real property. On this undisputed record, CERCLA

liability did not flow through Habco-Loram as a substantial continuation of Habco,

and we will not overlook the arm's length, bona fide business transaction between

Habco and Habco-Loram. 

The district court expressed concern about Mr. Horne having retained an

"equitable ownership" interest in Habco-Loram through his holding of the secured

notes and the transfer to him and to Habco International of Habco-Loram's assets

following Habco-Loram's failure. We are mindful that the present case is

complicated, to say the least, by Donald Horne's renewed involvement with these

assets following Habco-Loram's arm's length purchase and ultimate business failure.

As Habco-Loram's asset purchase was originally structured, however, Mr. Horne had

no personal equitable interest in Habco-Loram because the notes were issued to, held

by, and belonged to Habco. We do not think it unusual that a seller would agree to

finance and carry part of the purchase price. The notes were later distributed to

Habco's four shareholders when Habco dissolved, and subsequently, when HabcoLoram failed, Mr. Horne acquired the other noteholders' interests and accepted HabcoLoram's offer to convey the secured assets to him personally (together with a

$400,000 cash payment) in satisfaction of the unpaid balance on the notes that he held.

As we understand the record, it is undisputed that Habco-Loram initiated the voluntary

foreclosure. Borax's attorney admitted on the record at the 1997 summary judgment
4 Because there is no assertion that the applicable state corporation law would

be any different from traditional common law principles with regard to successor

liability in this case, we have no occasion to decide whether CERCLA requires the

displacement of state law in favor of a national rule. Compare New York v. Nat'l

Serv. Indus., 460 F.3d 201, 206-09 (2d Cir. 2006) (favoring the nondisplacement of

state law but concluding that resolving the issue was not necessary in that case), and

Davis, 261 F.3d at 54 (applying state law provided it is not hostile to the federal

interests underlying CERCLA), with Gen. Battery Corp., 423 F.3d at 298-305

(adhering to federal common law in order to preserve uniformity, and noting "that

CERCLA incorporates, but does not expand upon, 'fundamental' common law

principles of indirect corporate liability" (citing Bestfoods, 524 U.S. at 62-64)). 

-24-

hearing that Mr. Horne did not have an equity interest in Habco-Loram. (DeAngelo's

Add. at 277 (the attorney also states, "we don't think that is relevant").)

Despite Donald Horne's subsequent personal re-involvement with the operating

assets, we cannot say that this is a situation where a corporation was permitted "to

evade [its] responsibility by dying [a] paper death[], only to rise phoenix-like from the

ashes, transformed, but free of [its] former liabilities." Mex. Feed and Seed, 980 F.2d

at 487. Had DeAngelo purchased the assets directly from Habco-Loram, there would

be no question of CERCLA nonliability, because it is undisputed that Habco-Loram's

asset purchase was an arm's length deal and no trickery was involved. The secured

assets did not become magically re-entangled with the contaminated property (long

since transferred to K.C. 1986) by reason of Habco-Loram's business failure. We

conclude that even if the substantial continuity test survives Bestfoods, DeAngelo is

not a corporate successor for CERCLA liability purposes on this record using that test.

Borax also argues that DeAngelo remains liable under the traditional exceptions

for imposing successor liability. Our review of the record convinces us otherwise.4

First, there was no express or implied agreement by Habco-Loram to assume the

liabilities of Habco. (See Borax's App. at 3197 (the asset purchase agreement

expressly states that "Buyer is not assuming and under no circumstances shall be
-25-

deemed to have assumed . . . any debt, liability or other obligation of the Seller of any

kind").) 

Second, there was no continuity of shareholders between Habco and HabcoLoram, which is a key element in determining whether there has been a de facto

merger. See Gen. Battery Corp., 423 F.3d at 307 (noting de facto merger requires

some continuity of ownership). There was a continuity of enterprise and employees

between Habco and Habco-Loram to the extent Habco-Loram continued operating

essentially the same business but at a different location, and Donald Horne was

Habco-Loram's president for a time, but this factor will not carry the day for a de facto

merger where there is no continuity of ownership. See id. at 306 (noting "continuity

of shareholders" "is designed to identify situations where the shareholders of a seller

corporation retain some ownership interest in their assets after cleansing those assets

of liability"). There was no continuity of shareholders between Habco and HabcoLoram, or between Habco-Loram and Habco International. We conclude that it is

inappropriate to skip over the arm's length sale of the operating assets to Habco-Loram

in an attempt to stretch CERCLA liability to include Habco International. 

Third, the mere continuation theory fails on this record for the reasons already

articulated. See Davis, 261 F.3d at 53 (listing five traditional factors to consider in

mere continuation analysis: (1) the divesting corporation's transfer of assets, (2)

payment by the buyer of less than fair market value, (3) continuation by buyer of the

divesting corporation's business, (4) common officer instrumental in the transfer, and

(5) an inability of the divesting corporation to pay its debts after the asset transfer).

Specifically, the arm's length transaction between Habco and Habco-Loram broke the

chain of successor liability under this theory. See id. at 54-55 (concluding that an

arm's length sale of assets precludes a finding of liability as a successor under the

mere continuation test). Because Habco-Loram was not a mere continuation of

Habco, it was incapable of transferring CERCLA liability to Habco International, or
-26-

 DeAngelo, because Habco-Loram itself had no CERCLA liability to pass along or to

share. 

Finally, Borax argues that the facts fit the fraudulent transfer doctrine, but again

we respectfully disagree. In Mexico Feed and Seed, we indicated that a situation

where the purchasing corporation "bought only 'clean' assets, and knowingly left 'dirty'

assets behind with an insufficient asset pool to cover any potential liability" would be

covered by the fraudulent transaction exception. 980 F.2d at 489-90 & n.14.

Additionally, "the sufficiency of the consideration given for the sale also plays a large

factor in determining whether the sale was fraudulent." Atchison, Topeka & Santa Fe

Ry., 159 F.3d at 365. There is no evidence in the record to indicate that Habco-Loram

purchased only the clean assets while knowingly leaving the dirty assets behind with

an insufficient asset pool. Borax has pointed to no evidence showing that, at the time

of the sale, Habco-Loram knew of any potential CERCLA liability (let alone its

extent) on the part of Habco, or that Habco's remaining assets would be so insufficient

as to render it unable to satisfy its creditors. Neither is there any evidence that HabcoLoram was set up to be a sham or a pass-through entity. Further, Habco-Loram paid

full consideration for the assets in an admittedly arm's length transaction. 

Accordingly, we conclude that the district court erred as a matter of law in

granting summary judgment against DeAngelo and holding it liable as a successor

corporation to Habco. We remand for entry of judgment in accordance with this

opinion and for reallocation of DeAngelo's share to the Hornes as articulated in

footnote 7 of the district court's January 7, 2005, Allocation Order. (DeAngelo's Add.

at 248 n.7.) 

2. Inconsistent Orders by the District Court

DeAngelo argues that we must reconcile the inconsistency between two orders

entered by the district court – in the 1997 bench order, the district court stated that it
-27-

would not permit any judgment to be pursued against Habco International until all

other sources of payment of the judgment have been pursued, but then in the January

7, 2005, Allocation Order, the district court allocated 15% of all response costs to

DeAngelo, as successor to Habco International and Habco, without any such

limitation. Our conclusion as a matter of law that Habco International and DeAngelo

are not successor corporations to Habco, and ordering reallocation of DeAngelo's

share to the Hornes, renders it unnecessary to address the merits of this issue.

III.

We reverse and remand in part for further proceedings to permit the district

court to consider the application of any settlement credits against the judgment, to

reconsider the prejudgment interest award based on any application of settlement

credits it may see fit to make, and to reallocate DeAngelo's share to the Hornes in

accordance with footnote 7 of the district court's January 7, 2005, Allocation Order.

In all other respects, we affirm the judgment of the district court. 

______________________________