In the

United States Court of Appeals

For the Seventh Circuit

No. 99-4328

Maytag Corporation,

Applicant-Appellee,

v.

Navistar International Transportation Corp., et

al.,

Respondents-Appellants.

Appeal from the United States District Court

for the Northern District of Illinois, Eastern

Division.

No. 75 B 2697--Charles P. Kocoras, Judge.

Argued June 5, 2000--Decided June 27, 2000

 Before Easterbrook, Diane P. Wood, and

Evans, Circuit Judges.

 Easterbrook, Circuit Judge. Twenty years

ago the storied Rock Island Line, losing

about $40 million annually, abandoned its

railroad operations as part of a

bankruptcy under sec.77 of the Bankruptcy

Act of 1898. See Chicago, Rock Island &

Pacific R.R., 363 I.C.C. 150 (1980). Free

of its cash sinkhole, the Rock Island

retired its debts and emerged from

bankruptcy in 1984 as the Chicago Pacific

Corporation, a holding company with more

than $350 million in liquid assets,

substantial operating loss carryovers,

and a portfolio of miscellaneous business

ventures. In January 1989 Chicago Pacific

merged into Maytag Corporation,

manufacturer of refrigerators, ranges,

and other appliances.

 One of Chicago Pacific’s assets when the

bankruptcy wrapped up was the Iowa

Transfer Railway, which owned a railyard

in Rock Island, Illinois, near the Sylvan

Slough, a tributary of the Mississippi

River. Four months out of bankruptcy,

Chicago Pacific sold the Iowa Transfer to

Heartland Rail Corporation, which leased
the yard and other operating assets to

Iowa Interstate Railroad. Iowa Interstate

has operated that business ever since. In

1993 the Coast Guard concluded that

petroleum is leaking from the railyard

into the Sylvan Slough. Heartland and

Iowa Interstate are cleaning up the

premises and adjacent land, an expensive

endeavor. Two of their neighbors,

Navistar International Transportation

Corp. and the Burlington Northern & Santa

Fe Railway, blame Heartland and Iowa

Interstate for pollution. They have sued

under the Oil Pollution Act of 1990, 33

U.S.C. sec.sec. 2701-52, in the Central

District of Illinois, demanding that

Heartland and Iowa Interstate contribute

toward their own cleanup costs.

Heartland, Iowa Interstate, Navistar, and

Burlington Northern all believe that much

of the oil seeped into the land while the

Rock Island Line was operating the yard.

All four have added Maytag (as Chicago

Pacific’s successor) as a third-party

defendant in the Central District action,

seeking contribution under Illinois law,

740 ILCS 100/2, and perhaps federal law

as well (though both the complaint and

the parties’ briefs in this court are

silent on the legal theory underlying the

demand for contribution from Maytag).

 Maytag asked the Northern District of

Illinois, where the Rock Island

bankruptcy had been administered, to

enjoin prosecution of the claim for

contribution. It offered two theories:

first that a request for recovery on

account of pollutants deposited before

1984 is a claim in bankruptcy barred by

the injunction issued when the bankruptcy

was closed, and second that because the

Rock Island was "liquidated" rather than

"reorganized" Maytag did not inherit any

of the Rock Island’s debts. See In re

Erie Lackawanna Ry., 803 F.2d 881 (6th

Cir. 1986). The second point concerns the

general law of corporate obligations.

Debts do not pass to those who buy assets

(unless contracts provide for this

transfer), though shareholders may be

liable up to the amount of a net

distribution when a corporation

dissolves, see Model Business Corporation

Act sec.14.07(d)(2), and federal law does

not displace the norm that corporate

liability ends with the corporation’s

existence. Section 113(a)(1) of the

Comprehensive Environmental Response,

Compensation, and Liability Act (cercla),
42 U.S.C. sec.9613(a)(1), permits a

person who has paid for a cleanup to

obtain contribution "from any other

person who is liable or potentially

liable under section 107(a)";

sec.107(a)(2) in turn allows recovery

from "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"

(emphasis added)./* A buyer or

distributee of a polluter’s assets does

not qualify under this language. Citizens

Electric Corp. v. Bituminous Fire &

Marine Insurance Co., 68 F.3d 1016, 1021-

22 (7th Cir. 1995). Cf. United States v.

Bestfoods, 524 U.S. 51 (1998) (corporate

form must be respected in litigation

under cercla). Even when state law makes

the buyer of assets that constitute an

ongoing business liable as a successor,

it does not impose liability on firms

that purchase assets unrelated to those

that created the deferred liability. But

this point has nothing to do with

bankruptcy law in general or the Rock

Island reorganization in particular. If

as Maytag insists it is a stranger to

Rock Island’s corporate obligations and

therefore is not a "person who at the

time of disposal of any hazardous

substance owned or operated any facility

at which such hazardous substances were

disposed of", it is equally a stranger to

Rock Island’s bankruptcy and is not

entitled to relief from the Northern

District. If, on the other hand, Maytag

is the Rock Island’s successor, and

therefore entitled to take advantage of

the terminating injunction, it is

properly in the Northern District, but

cannot prevail on its second line of

argument.

 Disregarding our conclusion in In re

Chicago, Rock Island & Pacific R.R., 794

F.2d 1182 (7th Cir. 1986), an earlier

episode in this case, that bankruptcy

courts do not have perpetual authority to

grant protection to persons who acquire a

debtor’s assets, see also Zerand-Bernal

Group, Inc. v. Cox, 23 F.3d 159 (7th Cir.

1994); Pettibone Corp. v. Easley, 935

F.2d 120 (7th Cir. 1991), the Northern

District addressed the second of Maytag’s

arguments, concluded that the Rock Island

Line had been liquidated rather than

reorganized, and enjoined prosecution of

the Central District action against

Maytag. 1999 U.S. Dist. Lexis 19455 (N.D.
Ill. Dec. 2, 1999). (The Northern

District’s subject-matter jurisdiction is

not in question, given Maytag’s

invocation of the injunction, and as the

parties do not contest the court’s

apparent resort to the supplemental

jurisdiction to consider Maytag’s second

theory, we do not pursue the question

whether this would have been better left

to the Central District. See Myers v.

County of Lake, 30 F.3d 847 (7th Cir.

1994).) According to the Northern

District,

the Rock Island abandoned and liquidated

its rail business more than three years

prior to the consummation order. The only

assets it retained were non-rail related,

and which were used to create [Chicago

Pacific] in an effort to maximize the

ability to satisfy the claims of the Rock

Island’s creditors. ... Therefore, we ...

[hold] that the Rock Island was

liquidated, eliminating any entity which

might be sued, regardless of when the

claim arose.

The underpinning of this passage, and of

the district court’s conclusion, is that

abandonment of the rail business is the

same thing as corporate liquidation. But

that is untenable. Corporations change

lines of business frequently without

liquidating. If Maytag tomorrow were to

abjure the washing-machine business to

concentrate on refrigerators and

microwave ovens, it would not have

"liquidated" and would remain liable for

debts (including deferred environmental

liabilities) associated with its whole

line of appliances. 

 Just so with the Rock Island. During

bankruptcy the Rock Island quit the

railroad business but retained

substantial assets. The corporate entity

was renamed "Chicago Pacific Corporation"

at the close of the bankruptcy, and

Chicago Pacific avowedly was a

continuation of the original firm, rather

than (say) the buyer or distributee of

the Rock Island’s assets. How else could

Chicago Pacific have retained the Rock

Island’s substantial operating loss

carryforwards? Tax attributes cannot be

sold or given away; only the company that

generated the losses may use them. When

the bankruptcy wrapped up, accumulated

tax losses were a major asset of the

estate. It would have been folly to throw
them away, as a liquidation would have

done. And there is substantial reason to

doubt that sec.77 of the old Bankruptcy

Act even allowed liquidations; certainly

they could not be accomplished under that

name. See Julie A. Veach, On Considering

the Public Interest in Bankruptcy:

Looking to the Railroads for Answers, 72

Ind. L.J. 1211, 1221 (1997).

 Liquidation in or out of bankruptcy

means the end of a corporation’s

existence. Liquidation may occur without

closing down a line of business: a firm

may sell its assets as a going concern,

then distribute the proceeds to its

creditors (and, if a surplus remains, to

its equity holders) and dissolve. See

Douglas G. Baird, The Elements of

Bankruptcy 15-16, 255-56 (rev. ed. 1993).

Likewise abandonment may occur without

liquidation. Many a firm in bankruptcy

has a positive cash flow from current

operations but is unable to meet its

debts--perhaps because it has made

promises to creditors that prove

excessive in retrospect, perhaps because

one line of business has gone sour. Such

debtors withdraw from the losing line of

business (by selling it en bloc, selling

it piecemeal, or abandoning it utterly)

and restructure their debt, emerging with

bright prospects in their remaining

endeavors. That classic reorganization is

exactly what Rock Island the corporation

did, retaining its profitable activities

and transmuting into Chicago Pacific

Corporation (and then Maytag), even

though the Rock Island Line is defunct.

See In re Penn Central Transportation

Co., 944 F.2d 164 (3d Cir. 1991). To the

extent Erie Lackawanna may hold that

getting out of the railroad business is

the same thing as "liquidation" for

purposes of corporate liability, it would

be incompatible not only with Penn

Central but also with the normal

understanding of corporate liquidation.

But that would not be the best

interpretation of Erie Lackawanna, which

rests on a special liquidation provision

in 45 U.S.C. sec.791(b)(4), not on sec.77

of the Bankruptcy Act. See Lemelle v.

Universal Mfg. Corp., 18 F.3d 1268, 1273

n.3 (5th Cir. 1994). The Rock

Islandbankruptcy did not entail use of

sec.791(b)(4). Earlier appellate

proceedings arising from the Rock Island

bankruptcy say, or assume, that Chicago

Pacific is the same corporation as the
debtor, and that a reorganization

occurred. See In re Chicago, Rock Island

& Pacific R.R., 788 F.2d 1280, 1281-82

(7th Cir. 1986); Chicago Pacific Corp. v.

Canada Life Assurance Co., 850 F.2d 334,

335 (7th Cir. 1988). What was an

assumption in 1986 and 1988 now becomes a

holding.

 On remand the district court must

consider whether Maytag, as the

continuation of the Rock Island, is

entitled to protection under the

injunction issued in 1984. It is

difficult to see why the injunction

matters to either Heartland or Iowa

Interstate; their recovery depends on the

terms of the sale, which occurred after

the end of the bankruptcy. Lines of

business may be spun off with or without

the possibility of deferred liability for

cleanup expenses. See PMC, Inc. v.

Sherwin-Williams Co., 151 F.3d 610, 613

(7th Cir. 1998); Truck Components Inc. v.

Beatrice Co., 143 F.3d 1057 (7th Cir.

1998). If Heartland and derivatively Iowa

Interstate obtained a better price

because they agreed to bear any costs of

cleanup themselves, they must live with

that deal; they cannot have both the low

price and contribution too. Similarly if

Chicago Pacific promised indemnity or

contribution, it may not appeal to the

earlier injunction to escape its bargain.

But Navistar and Burlington Northern are

strangers to that arrangement and thus

unaffected by it. They are entitled to

proceed under sec.113(f)(2) because

Chicago Pacific is the "person who at the

time of disposal of any hazardous

substance owned or operated [the]

facility at which [the] hazardous

substances were disposed of", and Maytag

as the surviving corporation in a merger

bears all of Chicago Pacific’s

liabilities. Thus for Navistar and

Burlington Northern the terms of the 1984

injunction may make all the difference--

though even without the injunction Maytag

may invoke the principle that bankruptcy

effectively cleaves the debtor in two,

preventing the reorganized firm from

being saddled with debts attributable to

pre-bankruptcy activities. See Boston &

Maine Corp. v. Chicago Pacific Corp., 785

F.2d 562 (7th Cir. 1986); In re CMC

Heartland Partners, 966 F.2d 1143 (7th

Cir. 1992). We have resisted the

temptation to examine the terms of the

1984 injunction, because the parties
agree that the district judge should

consider these in the first instance, and

that agreement ensured that the subject

was not fully briefed in this court.

Reversed and Remanded

/* We refer to cercla in this opinion with

diffidence, because the plaintiffs in the Central

District action are being coy about their legal

theory. cercla is the normal basis for

contribution in environmental-cleanup cases, but

the Central District complaint does not mention

it, relying instead on the Oil Pollution Act of

1990, which like cercla contains a contribution

provision. 33 U.S.C. sec.2709. But contribution

under the Oil Pollution Act is available only

from a person liable under some other provision

of the Oil Pollution Act or another statute. If

the other statute turns out to be cercla, then

sec.2709 adds nothing. If instead the plaintiffs

argue that Maytag is liable under the Oil

Pollution Act itself, then they must establish

that Maytag is a "responsible party" under

sec.2701(32)(B), a definition that appears to be

more restrictive than cercla’s. To simplify

exposition, we assume that the demand for

contribution ultimately will depend on cercla--

but without locking the litigants into that

statute or resolving any issue about the

potential scope of recovery under the Oil

Pollution Act or any other federal environmental

statute, such as the Resource Conservation and

Recovery Act of 1976, 42 U.S.C. Ch. 82.