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Opinions – 4/18/13: 4th U.S. Circuit Court of Appeals

Constitutional Law

Free speech in schools 

BOTTOM LINE: When a student wore shirts that displayed the Confederate flag in a community where racial tensions continued to exist, such speech threatened to disrupt school and school officials could prohibit or punish that speech without violating the student’s constitutional rights.

CASE: Hardwick v. Heyward, No. 12-1455 (filed Mar. 25, 2013) (Judges Niemeyer, SHEDD & Agee). RecordFax No. 13-0325-60, 28 pages.

COUNSEL: Frederick Daniel Taylor, Stallings, Bush & Randall, PC, Suffolk, VA, for Appellant. Vinton D. Lide, Lide & Pauley, LLC, Lexington, SC, for Appellees.

FACTS: On multiple occasions while attending middle school, Candice Hardwick was asked by school officials, including principal Martha Heyward, to remove Confederate flag shirts she wore to school and, on one occasion, was punished for wearing those shirts. Hardwick’s parents sent the superintendent a letter stating that Hardwick’s clothing was approved by them and received a response that, based on a long history of racial tension and the potential for different interpretations of the meaning of the Confederate flag, school officials could prohibit clothing that contained images of that flag.

Hardwick continued to wear these shirts in high school and the school board maintained its position that Hardwick could not wear Confederate flag shirts at school and that such clothing would likely cause a disruption at school and was thus prohibited.

Hardwick filed an action pursuant to 42 U.S.C. §1983 claiming that her First Amendment right to free speech and expression was violated because she was not allowed to wear the Confederate flag shirts or protest shirts; that her Fourteenth Amendment right to due process was violated because the schools’ dress codes are overbroad and vague; and that her Fourteenth Amendment right to equal protection was violated because the school officials specifically targeted her Confederate flag shirts while not punishing other racially themed shirts.

Hardwick moved for summary judgment. The affidavits and depositions of the school officials filed with the motion revealed continuing racial tension that existed between the community’s white and black students.

The district court granted summary judgment to the school district on Hardwick’s First Amendment claim based on the Confederate flag shirts and on her Fourteenth Amendment equal protection and due process claims. Hardwick appealed, but the 4th Circuit concluded that it lacked jurisdiction because the district court’s opinion did not address all of Hardwick’s claims, specifically, her claims related to the protest shirts, which made the appeal “interlocutory in nature.” The court therefore dismissed the appeal and remanded the case for further proceedings.

On remand, the district court granted summary judgment to Heyward and the school district on Hardwick’s First Amendment claim based on the protest shirts and reaffirmed its previous grant of summary judgment on Hardwick’s Fourteenth Amendment claims, thereby disposing of all claims.

Hardwick appealed again to the 4th Circuit, which affirmed.

LAW: The Supreme Court’s landmark decision in Tinker v. Des Moines Independent Community School District established the basic framework governing student speech. Although students do not shed their constitutional rights to freedom of speech or expression at the schoolhouse gate,” Tinker, 393 U.S. at 506, “the constitutional rights of students in public school are not automatically coextensive with the rights of adults in other settings,” Bethel Sch. Dist. No. 403 v. Fraser, 478 U.S. 675, 682 (1986).

By interpreting the First Amendment in light of special characteristics of the school environment, school officials may prohibit and punish student speech that would materially or substantially interfere with the operations of the school. Tinker, 393 U.S. at 506. School officials may regulate such speech even before it occurs, as long as they can point to “facts which might reasonably have led [them] to forecast” such a disruption. Tinker, 393 U.S. at 514. School officials may not, however, punish speech based on only an “undifferentiated fear or apprehension of disturbance” or “a mere desire to avoid the discomfort and unpleasantness that always accompany an unpopular viewpoint.” Id. at 508, 509.

In this case, where the school district was able to clearly demonstrate that racial tensions continued to exist, the school district’s decision to bar Hardwick from wearing shirts with the Confederate flag in school was necessary to keep order and promote education. Heyward and the school district complied with the requirements for regulating student speech as established under the substantial disruption test in Tinker, so Hardwick’s First Amendment rights were not violated and the school dress codes and their enforcement did not violate the Fourteenth Amendment.

Accordingly, the judgment of the district court was affirmed.


Arbitration clause 

BOTTOM LINE: An airport shuttle driver who worked under a franchise agreement with a taxi service must arbitrate his Fair Labor Standards Act and state law wage claims against the taxi service despite a class action waiver in the agreement’s arbitration clause, as this clause was not unconscionable.

CASE: Muriithi v. Shuttle Express, Inc., No. 11-1445 (filed Apr. 1, 2013) (Judges Davis, KEENAN & Gibney). RecordFax No. 13-0401-60, 17 pages.

COUNSEL: Christopher A. Parlo, Morgan Lewis & Bockius, LLP, New York, NY, for Appellant. John Michael Singleton, Sr., Lutherville, MD, for Appellee.

FACTS: Samuel Muriithi, an airport shuttle driver, brought suit based on the franchise agreement he signed as part of his employment with the taxicab service, Shuttle Express, Inc. Muriithi claimed that Shuttle Express induced him to sign a Unit Franchise Agreement that improperly classified him as an “independent contractor,” rather than an “employee” and thereby afforded him lesser compensation. Muriithi initiated a collective action against Shuttle Express under the Fair Labor Standards Act (FLSA), 29 U.S.C. §§201 through 219 and various Maryland state law claims on behalf of all members of a purported class. Muriithi and Shuttle Express acknowledged that their relationship was unique and that there may be differences from the relationships Shuttle Express may have with other franchisees or licensees, therefore, any arbitration, suit, action or other legal proceeding would be conducted and resolved on an individual basis only and not on a class-wide, multiple plaintiff, consolidated or similar basis.

Shuttle Express moved to dismiss the complaint or to compel arbitration. Shuttle Express based its motion to compel arbitration on the Arbitration Clause included in the parties’ Franchise Agreement. The district court held that, because Muriithi’s claims arose out of the Franchise Agreement, they were within the scope of the Arbitration Clause. However, the court concluded that the Arbitration Clause was not enforceable based on three unconscionable provisions in the Franchise Agreement, to wit, (1) the fee-splitting provision, (2) the class action waiver, and (3) the one-year limitations provision.

Shuttle Express appealed to the 4th Circuit, which vacated the district court’s judgment and remanded the case for entry of an order compelling arbitration of Muriithi’s claims.

LAW: The Court addressed the enforceability of the class action waiver. The district court held that the class action waiver prevented Muriithi from fully vindicating his statutory rights and thereby rendered the Arbitration Clause unconscionable. On appeal, Shuttle Express cited AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), which held that Federal Arbitration Act (FAA) preempted a state rule requiring the availability of classwide arbitration, therefore, a class action waiver did not render unenforceable an otherwise valid arbitration agreement.

Although Muriithi argued that Concepcion was limited in scope to the FAA’s preemption of state law on this issue, the Court disagreed and concluded that the Supreme Court’s holding was not merely an assertion of federal preemption, but also plainly prohibited application of the general contract defense of unconscionability to invalidate an otherwise valid arbitration agreement under these circumstances.

State law cannot stand as an obstacle to the accomplishment of the FAA’s objectives by interfering with the fundamental attributes of arbitration. Concepcion bars courts from “altering otherwise valid arbitration agreements by applying the doctrine of unconscionability to eliminate a term barring classwide procedures.” Noohi v. Toll Brothers Inc., 2013 BL 50544 (4th Cir. 2013). Therefore, even though Muriithi’s case involved no state law prohibitions on class action waivers, Concepcion still applied and the district court erred by holding the arbitration clause unenforceable because it precluded class actions.

Accordingly, the judgment of the district court was vacated and the case remanded for entry of an order compelling arbitration of Muriithi’s claims.

Criminal Procedure

Involuntary guilty plea 

BOTTOM LINE: Defendant’s guilty plea was rendered involuntary, and his due process rights violated, by admitted falsehoods in the sworn affidavit that underpinned the search warrant for defendant’s home and vehicle.

CASE: U.S. v. Fisher, No. 11-6781 (filed Apr. 2, 2013) (Judges WYNN & Floyd) (Judge Agee dissenting). RecordFax No. 13-0402-60, 32 pages.

COUNSEL: Marta Kahn, Baltimore, MD, for Appellant. Philip Jackson, Office of the United States Attorney, Baltimore, MD, for Appellee.

FACTS: On October 29, 2007, Mark Lunsford, a Baltimore City Drug Enforcement Agency (“DEA”) Task Force Officer, applied for a search warrant for Cortez Fisher’s residence and vehicle. In his sworn affidavit, Lunsford averred that he targeted Fisher after a confidential informant, named in the affidavit, told him that Fisher distributed narcotics from his residence and vehicle and had a handgun in his residence. Lunsford further stated that the confidential informant provided him with a physical description of Fisher, Fisher’s residential address, the make and model of Fisher’s vehicle, and his license plate number. Based on this information, Lunsford obtained a photograph of Fisher, and the confidential informant confirmed Fisher’s identity.

Lunsford declared that he subsequently conducted surveillance and saw Fisher make narcotics transactions from his car, after which Fisher returned to his residence. On October 29, 2007, Lunsford and other officers saw Fisher leave his residence and stopped him for questioning. According to Lunsford, Fisher declined questioning and backed into a police vehicle. Officers then arrested and searched Fisher and found 50 empty glass vials in his pants pocket. Solely on the basis of his sworn affidavit, Lunsford obtained a search warrant for Fisher’s residence and vehicle on and executed the warrant that same day. During the search, officers found crack cocaine and a loaded handgun.

Fisher was charged with possession with intent to distribute cocaine base in violation of 21 U.S.C. §841, and possession of a firearm by a convicted felon in violation of 18 U.S.C. §922(g). Fisher entered into a plea agreement which, among other things, required him to plead guilty to possession of a firearm by a felon. Fisher was sentenced to ten years in prison.

Over a year after Fisher pled guilty, Lunsford was charged with various fraud and theft offenses related to his duties as a DEA officer, including falsely attributing information to a confidential informant with whom he was splitting reward money. On March 15, 2010, Lunsford pled guilty to several such offenses. Regarding Fisher’s case, Lunsford admitted to the Federal Bureau of Investigation that the confidential informant he identified in his affidavit had no connection to the case and that another individual was “the real informant.”

Fisher subsequently filed a pro se motion seeking to have his guilty plea vacated based upon Lunsford’s criminal misconduct. The district court denied the motion.

Fisher appealed to the 4th Circuit, which reversed.

LAW: Fisher contended that the district court erred by concluding that his guilty plea was knowing, intelligent, and voluntary because he did not know at the time he entered his plea that Lunsford lied in his search warrant affidavit. See Brady v. United States, 397 U.S. 742 (1970).

The longstanding test for determining the validity of a guilty plea is whether the plea represents a voluntary and intelligent choice among the alternative courses of action open to the defendant. Hill v. Lockhart, 474 U.S. 52, 56 (1985). Accordingly, to set aside a plea as involuntary, a defendant who was fully aware of the direct consequences of the plea must show that: (1) some egregiously impermissible conduct antedated the entry of his plea; and (2) the misconduct influenced his decision to plead guilty or, put another way, that it was material to that choice. Ferrara v. United States, 456 F.3d 278, 290 (1st Cir. 2006).

This case presented highly uncommon circumstances in which gross police misconduct went to the heart of the prosecution’s case. Lunsford falsely testified in his sworn search warrant affidavit that he targeted Fisher based on information from a reliable confidential informant, whom Lunsford identified in his affidavit. Then, over a year after Fisher pled guilty, Lunsford himself pled guilty to fraud and theft offenses and admitted that the confidential informant he identified in his affidavit “had no connection to the case.” Thus, Fisher’s misapprehension stemmed from an affirmative government misrepresentation that struck at the integrity of the prosecution as a whole. Even the government and the district court acknowledged the importance of Lunsford’s misrepresentation. In refusing to set aside Fisher’s guilty plea, the district court went so far as to state that unquestionably, had Fisher known of Lunsford’s criminal misconduct, he would have filed a motion to suppress, which might well have been successful. And without the suppressed evidence, there likely would have been no prosecution at all.

As such, Fisher successfully showed that impermissible government conduct occurred. To have his plea vacated, in addition to showing impermissible government conduct, it was further necessary for Fisher to show that the misconduct induced him to plead guilty. Brady v. United States, 397 U.S. at 755. Based on the record, there was at least a “reasonable probability” that Fisher would not have pled guilty, had he known of the impermissible government conduct. Ferrara v. United States, 456 F.3d 278, 294 (1st Cir. 2006).

Even if Fisher’s suppression efforts were not successful, there is a reasonable probability that knowledge of Lunsford’s criminal misconduct would have changed Fisher’s decision to plead guilty. Fisher’s attorney explained that he would have advised Fisher that a key consideration in deciding whether to enter a guilty plea or proceed to trial was the role that Officer Lunsford’s credibility would play at trial. Thus, this second requirement was satisfied as well. In sum, Fisher showed a reasonable probability that he would not have pled guilty, had he known of Lunsford’s criminal misconduct. Therefore, Lunsford’s misconduct rendered Fisher’s plea involuntary under Brady v. United States.

Accordingly, the judgment of the district court was reversed.

DISSENT: A defendant is not entitled to withdraw his plea merely because he discovers long after the plea has been accepted that his calculus misapprehended the quality of the State’s case. Brady v. United States, 397 U.S. 742, 757 (1970). Under the facts of this case, where the evidence at issue was not exculpatory, but impeachment only, and where the defendant did not contest his guilt, the type of disclosures required by Brady v. Maryland and its progeny were not required as a predicate for a knowing, voluntary plea of guilty. Consequently, Fisher had no basis under Brady v. Maryland upon which to withdraw his guilty plea.

Criminal Procedure

Sentencing enhancements 

BOTTOM LINE: Each pornographic picture uploaded by defendant, even if the same image was sent to multiple recipients, was considered to be one image; therefore, when defendant uploaded more than 600 pornographic images, a five-level enhancement was appropriately applied under the U.S. Sentencing Guidelines.

CASE: U.S. v. Price, No. 12-4010 (filed Mar. 29, 2013) (Judges GREGORY, Keenan & Payne). RecordFax No. 13-0329-60, 9 pages.

COUNSEL: Kristen Marie Leddy, Office of the Federal Public Defender, Martinsburg, WV, for Appellant. Robert Hugh McWilliams, Jr., Office of the United States Attorney, Wheeling, WV, for Appellee.

FACTS: State Police traced uploaded images of child pornography to Sean Price’s email account and obtained a warrant to search Price’s residence, where officers seized computers with images of child pornography found on the hard drives. During the search, Price consented to an interview with law enforcement officials and admitted to possessing child pornography, to posting images of child pornography and requesting child pornography on an internet. Price also admitted that he sent emails containing images of child pornography to 93 people. Price was charged with one count of accessing the internet with the intent to view child pornography, in violation of 18 U.S.C. §§2252A(a)(5)(B) and (b)(2). Price entered a guilty plea.

A Presentence Report (PSR) calculated the total number of images of child pornography to be 2,696 images. A five-level enhancement pursuant to the United States Sentencing Commission Guidelines Manual §2G2.2(b)(7)(D) was recommended, given that the offense involved 600 or more images of child pornography.

Price challenged the calculation of the number of images, arguing that duplicate images cannot be counted when applying §2G2.2(b)(7) enhancement. Further, he claimed that he did not duplicate the images when he sent them to multiple people via email. Price wanted the district court to only consider at sentencing the number of unique images he possessed or emailed, which was 113, according to which a two-level sentencing enhancement should have been applied.

The district court concluded that, when Price sent the same image to multiple recipients via email, Price duplicated the image, and each instance of duplication can be counted separately. As such, the PSR calculation was correct. Accordingly, the district court imposed a five-level enhancement and sentenced Price to a prison term of 120 months.

Price appealed to the 4th Circuit, which affirmed.

LAW: Section 2G2.2(b)(7) provides for a sentencing enhancement based on the number of images of child pornography involved in the underlying offense. If a crime involves more than 600 images, a five-level enhancement applies. U.S.S.G. §2G2.2(b)(7)(D). When determining the number of images under subsection §2G2.2(b)(7)(D), each photograph, picture, computer or computer-generated image, or any similar visual depiction is considered to be one image. An image is any visual depiction that constitutes child pornography. Each and any image of child pornography shall be counted when applying the §2G2.2(b)(7) enhancement. United States v. Hudson, 272 F.3d 260, 263 (4th Cir. 2001). Nothing in the Sentencing Guidelines limits this broad pronouncement.

This conclusion is supported by the legislative history of §2G2.2(b)(7). Section 2G2.2(b)(7) was enacted under the Prosecutorial Remedies and Tools Against the Exploitation of Children Today (PROTECT) Act of 2003. Pub L. No. 108-21, 117 Stat. 650 (codified in scattered sections of 18 U.S.C.), and Congress has shown its clear intent to stop the proliferation of child pornography by enacting the PROTECT Act and the concomitant sentencing enhancements. Nothing indicates Congress was concerned with the unique characteristics of an image when it sought to punish child pornographers. Therefore, when viewing the plain language of §2G2.2(b)(7) in conjunction with its legislative history, the district court did not err by counting each image in each email separately when applying the §2G2.2(b)(7) enhancement.

Accordingly, the judgment of the district court was affirmed.

Environmental Law

Acquiring corporation’s CERCLA liability 

BOTTOM LINE: Although acquisition agreement was ambiguous as to whether acquiring corporation assumed liabilities of acquired corporation for past acts under federal environmental act allowing private parties to recover costs of cleaning up hazardous land waste, extrinsic evidence demonstrated such intent, and acquiring corporation was therefore a “potentially responsible person” subject to liability under act.

CASE: PCS Nitrogen Incorporated v. Ashley II of Charleston LLC, No. 11-1662 (filed Apr. 4, 2013) (Judges MOTZ, King & Diaz). RecordFax No. 13-0404-60, 42 pages.

COUNSEL: Brian Murray, Jones Day, Chicago, IL, for PCS Nitrogen Incorporated. Thomas Barefoot, Bethesda, MD, for Ashley II of Charleston LLC. Capers Barr, Barr, Unger & McIntosh, Charleston, SC, for J. Holcombe Enterprises LP. J. Henry Fair, ; Daniel McQueeney, Pratt-Thomas Walker, PA, Charleston, SC, for Ross Development Corporation. Timothy Bouch, Leath, Bouch & Crawford, LLP, Charleston, SC, for Robin Hood Container Express, Incorporated. Lewis Jones, King & Spalding, LLP, Atlanta, GA, for Koninklijke DSM NV. DSM Chemicals of North America, Incorporated. Jason Luck, Seibels Law Firm, PA, Charleston, SC, for Allwaste Tank Cleaning, Incorporated.

FACTS: This appeal involved liability for cleanup of hazardous substances at a former fertilizer manufacturing site in Charleston, South Carolina. Congress enacted the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) 42 U.S.C. §§9601-9675 (2006), in response to the increasing environmental and health problems associated with inactive hazardous waste sites. CERCLA allows private parties to recover the costs of cleaning up hazardous wastes from certain defined types of person. Under CERCLA, a private-party plaintiff establishes a prima facie case for cost recovery by establishing that (1) the defendant is a potentially responsible person (“PRP”); (2) the site constitutes a “facility”; (3) a “release” or a threatened release of hazardous substances exists at the “facility”; (4) the plaintiff has incurred costs responding to the release or threatened release of hazardous substances (“response costs”); and (5) the response costs conform to the National Contingency Plan.

The site at issue here was approximately 43 acres. As a result of decades of phosphate fertilizer production, the westernmost 34 acres of the site required remediation of soils contaminated with arsenic, lead, and other hazardous substances. The site was purchased by Planters Fertilizer & Phosphate Company, later known as Ross Development Corporation, in 1906. Planters manufactured phosphate fertilizer at the site by reacting sulfuric acid with phosphate. In 1966, Planters sold the site to Columbia Nitrogen Corporation (“Old CNC”). Old CNC’s superphosphate fertilizer production generated dust that contained elevated levels of arsenic and lead, and contributed to soil contamination on the site. Old CNC continued operations of its acid and fertilizer plants on the site until 1970 and 1972, respectively. In 1985, Old CNC sold the site to James Holcombe and J. Henry Fair. In doing so, however, Old CNC did not transfer any of its corporate liabilities for past actions on the site. Thus, Old CNC, if still in existence, would be a PRP with respect to the site.

While owning the site, Old CNC also owned and operated an ammonia and nitrogen fertilizer plant in Augusta, Georgia. In 1986, Old CNC’s parent corporations, Koninklijke DSM N.V. and DSM Chemicals North America (collectively, “DSM Parties”), decided to shut down Old CNC to benefit from a $100 million tax advantage in the Netherlands. To do so, Old CNC sought a buyer for certain “Assets” and its “Acquired Business,” including its Augusta plant and operation. A law firm specializing in the acquisition of businesses incorporated CNC Corp. (“New CNC”) to purchase Old CNC’s “Assets” and “Acquired Business.” The acquisition closed on November 6, 1986. After closing, New CNC immediately changed its name to “Columbia Nitrogen Corporation” — the same name under which Old CNC had operated. After the acquisition, New CNC continued producing fertilizers at the Augusta plant. By virtue of a series of mergers and acquisitions, PCS Nitrogen, Inc., became a successor to New CNC.

Meanwhile, Holcombe and Fair, who had acquired the Charleston site from Old CNC in 1985, eventually became aware of the presence of hazardous substances at the site in 1990, but nevertheless undertook site-wide earth-moving activities until as late 1998, destroying on-site wetlands along the Ashley River. During their ownership, Holcombe and Fair subdivided and conveyed several parcels from the original site. In 2003, Holcombe and Fair sold their remaining 27.62 acres of the site to Ashley II of Charleston, Inc., for $2.7 million. As with other parcels within the project, Ashley purchased the site with knowledge of, and the intent to remediate, the contaminated soils. In investigating and remediating the site, Ashley incurred response costs totaling at least $194,000.

On September, 26, 2005, Ashley an action in the district court, seeking a declaratory judgment that PCS was jointly and severally liable under CERCLA for response costs, and recovery of response costs already incurred. Ashley contended that PCS was a successor corporation to Old CNC, and thus liable under CERCLA as a potentially responsible person (“PRP”) in Old CNC’s stead. The district court bifurcated the case for trial. At the conclusion of the first bench trial, the district court found PCS a PRP jointly and severally liable for response costs at the site. At the conclusion of the second bench trial, the court found some of the other parties, including Ashley, PRPs, each liable for an allocated portion of the site’s response costs.

PCS, Ashley, and other parties appealed to the 4th Circuit, which affirmed.

LAW: PCS challenged the district court’s finding that PCS was a PRP for the Charleston site as the corporate successor to Old CNC. Although PCS never owned or operated the site, it admitted that it was a successor to New CNC, and that Old CNC, despite dissolving decades prior, would be a PRP. Under CERCLA, successor corporations may be liable for the actions of their predecessors. United States v. Carolina Transformer Co., 978 F.2d 832, 837 (4th Cir. 1992). However, as at common law, a corporation that acquires the assets of another corporation typically does not acquire its liabilities, unless: (1) the successor expressly or impliedly agrees to assume the liabilities of the predecessor; (2) the transaction may be considered a de facto merger; (3) the successor may be considered a “mere continuation” of the predecessor; or (4) the transaction is fraudulent. Id. at 838. The relevant issue on appeal was whether New CNC either unambiguously, or based on extrinsic evidence, assumed Old CNC’s liabilities for the site under the 1986 Acquisition Agreement.

New York law enforces unambiguous contracts in accordance with their plain terms. W.W.W. Assocs., Inc. v. Giancontieri, 566 N.E.2d 639, 642 (N.Y. 1990). In determining whether a contract is ambiguous, a court must examine the entire contract and consider the relation of the parties and the circumstances under which it was executed. William C. Atwater & Co. v. Panama R.R. Co., 159 N.E. 418, 419 (N.Y. 1927). Applying these principles, the district court initially held, as Ashley maintained, that New CNC unambiguously assumed Old CNC’s CERCLA liabilities for the Charleston site under the Acquisition Agreement. This conclusion was erroneous. Section §3.4 of the Agreement, on which the district court relied, did unambiguously transfer all obligations required to be performed under all court, administrative and regulatory orders. However, neither §3.4, nor any other portions of the Agreement, addressed, let alone unambiguously provided, that it covered CERCLA “obligations” arising after execution of the Agreement, nor did any of the other portions of the Agreement.

Usually, when it is found that a district court has erred in holding a contract unambiguous, remand is necessary for a factual determination of the parties’ intent based on consideration of extrinsic evidence. However, in this case, the district court had already analyzed the extrinsic evidence offered by the parties during the bench trial, and alternatively found based on that evidence that New CNC intended to and did acquire CERCLA liabilities for the site under the Acquisition Agreement. The district court based its ultimate factual finding that extrinsic evidence established that New CNC intended to assume CERCLA liability for the Charleston site on several predicate findings.

Considering the extrinsic evidence, the district court reasonably found that the evidence demonstrated that the parties did intend to enter into an agreement “tantamount to a stock sale.”

In support of this critical finding, the district relied on the abundant extrinsic evidence that New CNC knew of Old CNC’s determination to dissolve by December 31, 1986, to preserve the $100 million tax advantage. The court found that New CNC’s knowledge of Old CNC’s paramount aim to avail itself of this tax advantage supported Ashley’s contention that the parties, Old CNC and New CNC, agreed that New CNC would acquire “all of Old CNC that was not specifically retained or sold to another entity.” Given that no party contended that Old CNC’s CERCLA liability for the Charleston site was “specifically retained or sold to another entity,” the court correctly found that this evidence supported Ashley’s position that Old CNC transferred this liability to New CNC.

The district court also pointed to the extrinsic evidence that Old CNC discounted its sale price of $50 million by 60 percent from book value, and discounted an additional $5 million from the sale price in exchange for New CNC’s assumption of the business and assets “as is” — i.e., including unknown environmental liabilities. The court concluded that the heavily discounted purchase price further reduced by the $5 million discount for acceptance “as is” constituted additional extrinsic evidence that New CNC acquired “all of Old CNC that was not specifically retained or sold to another entity,” including CERCLA liability for the site.

Finally, the court found that New CNC intended to acquire “substantially all” of Old CNC, including its environmental liabilities, evidenced by two other agreements that New CNC entered into at the same time as the Acquisition Agreement. In both of these agreements, New CNC stated that it was purchasing “substantially all” of Old CNC’s liabilities. Based on these facts, the court found that the parties intended to and in the Acquisition Agreement did transfer all of Old CNC’s assets and liabilities not explicitly retained or sold to another entity, including Old CNC’s latent CERCLA liabilities for the site.

Because this finding and the other findings of the district court were not clearly erroneous, the judgment of the district court holding, in part, that in the Agreement New CNC assumed Old CNC’s CERCLA liabilities for the site and that PCS was therefore a PRP as a successor to Old CNC’s CERCLA liability for the site was affirmed in all respects.