## Facts

- Serv-All Uniform Rental Corp. operated a uniform-rental business on Long Island from 1962 to 1988 and used perchloroethylene (PCE) in dry cleaning.
- In 1978, Serv-All arranged for disposal of multiple drums of PCE at the Blydenburgh Landfill in Islip, New York; PCE and related compounds are hazardous substances under CERCLA.
- In October 1988, Serv-All sold its uniform-rental business, trade name, and nearly all assets to Initial Service Investments.
- After the sale, Initial continued the uniform-rental business using Serv-All’s name and many employees, but did not continue Serv-All’s dry-cleaning operations; Serv-All later dissolved in January 1989.
- In 1995, Initial merged into National Service Industries, Inc. (NSI).
- The Blydenburgh Landfill was placed on the National Priorities List in 1987; by 2002, New York had spent over $12 million on cleanup.
- New York sued NSI in federal court under CERCLA and also pleaded unjust enrichment and restitution, asserting successor liability based on a de facto merger theory.
- The district court granted summary judgment to NSI, finding no de facto merger because there was no continuity of ownership between Serv-All and Initial/NSI.

## Issues

1. Whether successor liability for CERCLA purposes is governed by state law (New York) incorporated into federal common law, or by a uniform federal common law rule derived from traditional common-law principles.
2. Whether NSI could be held liable as Serv-All’s successor under a de facto merger theory despite the absence of continuity of ownership.
3. Whether unjust enrichment and restitution claims can succeed where successor liability is not established.

## Decision

- The Second Circuit affirmed summary judgment for NSI.
- The court declined to resolve the state-law versus federal-common-law question because the State’s claim failed under either New York law or traditional common law.
- The court held that New York follows traditional successor-liability rules and requires some evidence of continuity of ownership as an indispensable element of a de facto merger.
- Because Serv-All’s owners did not receive an ownership interest in Initial/NSI as a result of the asset sale, there was no de facto merger and no CERCLA successor liability.
- The court also rejected the State’s unjust enrichment and restitution claims on the same basis.

## Legal Principles

- An asset purchaser is generally not liable for the seller’s liabilities absent an exception recognized in successor-liability doctrine.
- Under New York law, consistent with traditional common law, de facto merger successor liability requires continuity of ownership (typically, the seller’s shareholders becoming shareholders of the buyer through equity consideration).
- Continuity of business operations, management, personnel, name, or location cannot substitute for the absence of continuity of ownership when de facto merger is the asserted basis for successor liability.
- Where successor liability is not established, related equitable claims seeking to shift the predecessor’s liabilities to the asset purchaser fail.

## Conclusion

The Second Circuit held that NSI was not liable for CERCLA cleanup costs attributable to Serv-All’s waste disposal because the 1988 asset sale lacked continuity of ownership, a required element of de facto merger under New York and traditional common-law successor-liability rules, and the State’s equitable claims failed for the same reason.


New York v. Nat'l Serv. Indus., Inc., 460 F.3d 201 (2d Cir. 2006)