porzio, brqmberg & newman r. mcdaniel judit h a. mcdonoug rand1 n. pomerantz cynthia d....

PORZIO, BRQMBERG & NEWMAN______ A P R O F E S S I O N A L C O « P O I! A T I O N__________

Practice Limited to Litigation and Environmental Law

COUNSELLORS AT LAW

163 MADISON AVENUEMORR.ISTOWN, N J 07962 -1997TELEPHONE (201) 538-4006FAX(201) 538-5146

655 THIRD AVENUE (SUITE 900)NEW YORK, NY 10017-5617TELEPHONE (212) 986-0600FAX (212) 986-6491

STEVEN P. BENENSON *ROBERT J. BRENNANLISA MURTHA BROMBERCMYRON J. BROMBERCD. JEFFREY CAMPBELLTHOMAS R. CHESSONROY ALAN COHENALEXANDER J. DRACOLAUREN E. HANDLEREDWARD A. HOGANANITA HOTCHKISSKENNETH R .MEYERJOHN M. NEWMANHOWARD J. SCHWARTZ

RETIREDRALPH PORZIO

COUNSELSTEWART A. CUNNINCHAMCHARLES E. ERWAY, IHTHOMAS SP1ESMANM1TCHELL I. WEITZ +

ANNE F. BARETZCRAIC B. BLEIFERCHRISTOPHER P. DEPH1LLIPS*

GAR1NEH S. DOVLETIANPETER A.DRUCKERANDREW 5. EPSTEINFRANK FAZIOBRIAN T. FLANACAN *JOHN M. IXVANESSA M. KELLYJONATHAN M. KORNWILLIAM A.KRAISJONATHAN R. KUHLMANCONNIE A.MATTEOJAY R. McDANIELJUDITH A. McDONOUGHRAND1 N. POMERANTZCYNTHIA D. RICHARDSONDAVID S. SAGER*DIANE M.SIANACHARLES J. 5TOIAMORNA L.SWEENEYMICHAEL M.TINGOLISTEPHEN L. WILLI5

N. J. 8 N.Y. BARS*N. J. BAR ONLY+ N.Y. BAR ONLY

September 7, 1995

Caroline KwanProject ManagerUnited States Environmental Protection AgencyNY/Caribbean Superfund Branch II290 Broadway, 20th FloorNew York, New York 10007-1866

Andrew Praschak, Esq.United States Environmental Protection AgencyCaribbean Field OfficeCentre Europa Building1492 Ponce DeLeon AvenueSuite 417San Juan, Puerto Rico 00907-4127

Re: Tutu Wellfield Superfund SiteOur File No. 05120.23876_____

Dear Ms. Kwan and Mr. Praschak:

This firm represents the Laga Parties (i.e. . LagaIndustries, Ltd. ("Laga"), The Duplan Corporation ("Duplan") , PanexIndustries, Inc. ("Panex"), and Paul Lazare and Andreas Gal intheir capacities as former directors and officers of thosedissolved corporations). We write in response to the USEPA lettersdated August 3, 1995, directed to Laga, Panex and Duplan. It isour understanding that similar letters were sent to Messrs. Gal andLazare and may have also been (or will be) sent to the Panex

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oos >• j • "'

Caroline Kwan/*-\ Andrew Praschak, Esq.

September 7, 1995

PORZIO, BROMBERG & NEWMANA P R O F E S S I O N A L C O R P O R A T I O N

Industries, Inc. Stockholders' Liquidating Trust (the "Trust"),First Manhattan Co./Firmanco and Goldman Sacks.1

In response, this letter addresses two issues: (1) theabsence of any basis for finding that the Laga Parties contributedto the contamination of the Tutu soils or aquifer; and (2) as amatter of law, it is incorrect to suggest that dissolvedcorporations and their liquidating Trust or former shareholders canbe held liable as PRPs.

Background

The facts concerning the history and relationship amongLaga, Duplan and Panex are well settled. Laga was incorporated byPaul Lazare and Andreas Gal in late 1968. In 1969, Laga built astate-of-the-art textile manufacturing plant in Anna's Retreat, St.Thomas. In 1970, Laga was acquired by Duplan as a wholly ownedsubsidiary. In 1976, Duplan filed for bankruptcy under Chapter XI,which was later converted to a Chapter X. From 1976 to 1978, Lagaoperated on a substantially reduced basis and continued to incurlosses. All operations at Laga ceased in 1978-79. It isundisputed that during Laga's years of operation, Laga always useda closed-loop dry cleaning system with no possibility for leakingcontaminants. (Further exculpatory facts are discussed infra.)

1 On April 15, 1995, Nancy D'Anna, Esq., counsel forL'Henri, Inc., and Timothy Knudson, Esq., counsel for Texaco,submitted a letter to the USEPA which advocated naming asadditional Potentially Responsible Parties ("PRPs") Duplan,Panex, the Trust and the four shareholder groups composed of theLazare family, the Gal family, First Manhattan Co./Firmanco andGoldman Sachs.

We did not learn of the D'Anna/Knudson letter until itwas mentioned at the EPA legal meeting held in New York City onJune 12, nearly three months after it was sent. Moreover, Ms.D'Anna's claim that we were "copied" on the letter is certainlyquestionable since we never received the letter and nowhere onthe letter does it indicate that a copy was sent to anyone.After exposure at the EPA meeting, Ms. D'Anna finally provided uswith a copy of the letter on June 13, 1995. The inordinate delayin receipt of this letter explains the reason we did not have anopportunity to respond to the D'Anna/Knudson letter prior to theUSEPA's issuance of their August 3 correspondence.

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Caroline Kwanf—s Andrew Praschak, Esq.

September 7, 1995

PORZIO, BROMBERG & NEWMANA C S O F E S S I O N A l C O R P O R A T I O N

In 1979, during Duplan's bankruptcy, Laga's onlysignificant asset, the Virgin Islands property, was sold to anentity named Panex Co.2 Laga was thereafter dissolved in June1981, by Order of the Bankruptcy Court, and was again dissolved inNovember 1981, by the Lt. Governor of the Virgin Islands.

In 1981, Duplan was dissolved and a new entity emergedfrom the bankruptcy, Panex, a Delaware corporation. Nearly all ofthe assets of Duplan had been sold during the bankruptcy, with theexception of Wundies, Inc. and Rochester Button, which became theonly manufacturing operations conducted by Panex.

Panex was a publicly traded company with over 300stockholders. All of the stockholders of Panex paid valuableconsideration for the acquisition of their shares. The originalfounders of Laga, Messrs. Gal and Lazare, together with members oftheir respective families, collectively acquired a total of about27% of the stock of Panex (contrary to a misstatement at p. 3 ofthe D'Anna/Knudson letter that "each owned 27%").

In September 1984, following operating losses, thestockholders of Panex voted in favor of a Plan of Liquidation,which was adopted and carried out in accordance with all applicableSEC rules and regulations. Panex was obligated under the thenprovisions of §337 of the Internal Revenue Code to distributewithin a year all of its assets to its over 300 stockholders.

The assets were liquidated and distributed in threedistributions completed by September 12, 1985. None of the assetsliquidated or the funds distributed to the Panex shareholders wererelated to the Laga operations; the Laga assets had been sold yearsbefore, in the Duplan bankruptcy, prior to even the formation ofPanex. Panex had no connection whatsoever with the Laga site.

The Certificate of Dissolution for Panex was filed onApril 15, 1985. Thus, the three-year period under the Delaware

/**•"•.

2 Panex Co. (not to be confused with Panex) is a New Yorkpartnership composed of Paul Lazare and Andreas Gal, which ownedthe vacant Laga site during 1979-1981, then sold it to the VirginIslands government. No operations of any kind were conducted onthe site by Panex Co. Panex Co. is represented by separatecounsel, Marc Z. Edell, Esq., and is responding on behalf of PanexCo. , and Messrs. Lazare and Gal as partners thereof, under separatecover.

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Caroline KwanAndrew Praschak, Esq.September 7, 1995


corporate dissolution non-claim statute (Delaware GeneralCorporation Law §278) expired on April 15, 1988.

The Plan of Liquidation of Panex, as approved by thestockholders, called for the creation of the Trust. The Trust wascreated by an agreement dated September 12, 1985, and funded withthe sum of approximately $6,000,000. The Trust was principallyestablished to cover possible tax liabilities which could ariserelating to Panex's operating losses for fiscal years 1982-1984.It was the intent, as expressed in the Trust Agreement, that theTrust would last for three years (which paralleled the statute oflimitations applicable to the potential tax liabilities for whichthe Trust was created and the Delaware non-claim statute).

In July 1987, the statute of limitations expired on twoof the Panex tax years in question, thereby relieving the Trust ofa possible liability of approximately $5,000,000. Thereafter, theTrust made a distribution in a similar amount to the TrustBeneficiaries (prior stockholders of Panex) in accordance with theterms of the Trust Agreement. At the time of this Trustdistribution, neither the Trustees nor any of the officers,directors or shareholders of Panex were aware of any potentialliability or claim relating to the environmental problems in theVirgin Islands. In April 1988, at the time the statute oflimitations on the last possible tax liability was to expire, theTrust was notified of potential environmental problems at a priorPanex facility located in Wellsville, New York (Rochester Button)and immediately suspended any further Trust distributions anddelayed the termination of the Trust, originally scheduled for nolater than September 12, 1988 (three years from the date of theTrust Agreement).

At no time during the 1984-1985 liquidation of Panex didthe officers, directors or shareholders have knowledge of anypotential environmental liabilities relating to either the formerLaga site or the Wellsville facility. In fact, the Trustees didnot learn of the alleged environmental liabilities relating to theformer Laga site until March 1992. when Laga, Duplan, Panex andMessrs. Gal and Lazare were joined in the litigation pending beforeJudge Brotman in the Virgin Islands. After extensive discovery inthat litigation, the other parties are unable to point to one shredof evidence that suggests that any of the officers, directors orshareholders of Panex, or the Trustees of the Trust, actedwrongfully or had any knowledge of potential environmentalliabilities relating to the Laga or Wellsville sites, at the timeof the Panex liquidation or the Trust distributions.

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Issue No. l; The Laga Site

In a letter to EPA Project Manager Ms. Caroline Kwan,dated May 3, 1995, this firm commented on the March 1995 draftfeasibility study prepared by Geraghty & Miller, Inc., a consultantretained by TEIC (Texaco, Esso, et al.). The comments wereaccompanied by an environmental investigation report prepared byArthur D. Little, Inc. ("ADL"). The following underscores severalmatters noted in our May 3, 1995 letter.

With regard to the Laga site, it is important todistinguish between activities and potential releases while thefacility was used by Laga for textile manufacturing and thesubsequent activities and potential releases during the U.S.V.I.Department of Education's use of the site as the Curriculum Center.Environmental investigation results are not consistent with theallegations that PCE from a dry cleaning still and muck cookersludge were disposed to an alleged pit (north of the building) viaa piping system. ADL installed a deep bore hole in the vicinity ofthe alleged pit and did not find any sludge present. If suchdisposal did take place, sludges or their residues would be presenteven long after disposal. The available data has not demonstratedthe presence of sludges or soils with elevated concentrations ofchlorinated VOCs indicative of sludge disposal.

The Geraghty & Miller Phase II RI states (at page 5-7),"PCE was detected in eight soil samples collected along the northside of the building in the vicinity of the former discharge pipeand the alleged former waste pit." The sample with the highestconcentration of PCE (180 ug/kg at SS-9) was collected in the topsix inches of soil. Had Laga discharged any VOCs — prior to 1978,when Laga ceased operations — contamination in the top six inchesof soil largely would have volatized long ago, such that thehighest concentration of PCE would not be found on top. Thepresence of PCE in shallow soil indicates a more recent source ofcontamination.

In addition to the foregoing, the sworn testimony ofdisinterested and unbiased witnesses in the Virgin Islandslitigation demonstrates that Laga operated an environmentallysecure and safe knitting facility for approximately eight years(1970 to 1978).

Riley Kirk, Vice President of Boggs, the company whichdesigned and supplied Laga with the state-of-the-art closed loopdry cleaning system used at the facility, testified that the Lagasystem contained the most advanced PCE recycling mechanism. The

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PQRZIO, BROMBERG & NEWMANA P R O F E S S I O N A L C O R P O R A T I O N

only effluent from the system was a semi-solid distillationresidue, which contained no PCE and could not possibly pass throughpipes (even though none existed) to the rear of the facility.Moreover, Mr. Kirk testified that it was technically impossible forsuch a pipe to exist on the system.

In addition, the plant and production managers of theformer Laga facility, Messrs. Hartley and Moscoso, respectively,testified that no discharge pipe or pit existed on the site.Representatives of Lockwood Green (Messrs. Rourk and Evans), theengineering firm responsible for the design and construction of theLaga facility, also testified that the plans did not call for, andfacility as built did not contain, a discharge pipe from the drycleaning system.

After more than 200 depositions, the only testimony whichsuggests the alleged existence of an effluent pipe came from twoformer Laga employees, Winston Smith and Anthony Richards, whoclaimed they had "heard" (from whom, neither could recall) thatthere was an underground pipe running from the dry cleaning systemto the rear of the facility through which PCE may have beendischarged. Neither of these individuals had ever seen such a pipeinside the facility, nor had either ever seen a discharge pipeexiting the facility. Further, there is no evidence of any othercontaminant spills or leaks.

The current owner, the Virgin Islands government, hascontradicted the statements of both Messrs. Smith and Richardsthrough the testimony of its own employees, who have testified atlength that no such effluent pipe or pipes existed at the time theproperty was acquired.

Clement Hendricks (Director of Property Procurement forthe Virgin Islands Department of Education), Adlah A. Donastorg(Director of Planning and Maintenance for the Virgin IslandsDepartment of Education) and Pedrito Lanclos (AssistantSuperintendent of Plant Operations and Maintenance for the VirginIslands Department of Education), all testified that when thefacility was acquired by the Virgin Islands government it wasthoroughly inspected and no such alleged pipe was found.

It is undisputed that in 1981, when the Virgin IslandsDepartment of Education occupied the former Laga facility, theproperty was free of drums and waste products. All employees ofLaga, including Messrs. Smith and Richards, have testified thatLaga never stored drums of hazardous materials outside of thefacility. However, comparatively recent inspections of the site by

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ADL and the EPA have revealed that containers of paint thinners anddegreasers containing chlorinated solvents were present and thatthe outside grounds were littered with drums, pails, chemicalscraps and scrap parts. It is undisputed that any such drums andother materials discovered at the site by EPA and others were theproperty and result of the operations conducted by the VirginIslands Department of Education.

We enclose for your review complete copies of thedeposition transcripts of Messrs. Kirk, Hartley, Moscoso, Rourk,Evans, Hendricks, Donastorg and Lanclos, with key testimonyhighlighted.

All of this undisputed evidence. none of which hadapparently been considered by Geraghty & Miller, establishes thatthe operations of Laga were not a contributing source ofcontamination. If the Curriculum Center is a source, it is theresult of the subsequent use and maintenance of the site by theVirgin Islands government.

Issue No. 2; Neither Dissolved Corporations and Their LiquidatingTrust or Former Shareholders Can Be Held Liable as PRPs.

By its August 3 correspondence, the USEPA has expressedits intention of bringing enforcement actions imposing CERCLAliability on Laga, Duplan, Panex and the Trust, and in turnpossibly compel the former shareholders of Panex to refund theliquidating distributions made to them long ago. Both of thosesuggestions are simply incorrect as a matter of law.

PANEX AND THE TRUST CANNOT BECONSIDERED POTENTIALLY RESPONSIBLE PARTIES

Panex was dissolved over ten years ago. In WitcoCorp. v. Beekhuis, 38 F.3d 682 (3rd Cir.1994), the Third Circuitheld that for purposes of CERCLA liability, capacity to be sued isgoverned by state law. Under Delaware law the existence of aliquidating trust neither extends a dissolved corporation'scapacity to be sued, nor is a liquidating trust automaticallydeemed a dissolved corporation's successor for all purposes. SeeCity Investing Co. v. Continental Casualty Co.. 624 A.2d 1191 (Del.1993). In City Investing, the Delaware Supreme Court affirmed aruling that after the three year post-dissolution period hadexpired: (1) the dissolved corporation "no longer existed as alegal entity and was not subject to suit"; and (2) the former

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corporation's liquidating trust was a separate entity whosepotential liability "must be resolved through interpretation of theTrust Agreement." 624 A.2d at 1194 (emphasis added).

1. Capacity to be Sued

The Witco decision directs us to disregard the so-calledfederal common law distinction between "dead" and "dead-and-buried"and instead to look to state law regarding capacity to be sued.Although Witco addressed a decedent's estate and a trust it hadestablished, it is equally applicable to a dissolved corporationand the trust it had established.

In Witco. the district court granted motions for summaryjudgment by the executrix of a decedent, Dr. Beekhuis, and by thetrustee of a residuary trust, dismissing CERCLA contribution claimsbecause they were not filed within the eight-month statutory periodprovided under Delaware law for asserting claims against the estateof a decedent. 822 F. Supp. 1084 (D. Del. 1993) . On appeal,plaintiff Witco argued that its claims were filed within the three-year CERCLA limitations period and, to the extent the eight-monthstatutory period under Delaware law conflicts, Witco argued thatstate law was preempted.

Judge Cowen, writing for a unanimous Court of Appeals,rejected Witco's argument that CERCLA preempted the Delaware non-claim statute, concluding "state capacity statutes . . . are notpreempted under CERCLA." 38 F.3d at 689-690. Other parties to thepending federal court action have finally conceded, in briefs filedas recently as a month ago with the Third Circuit, that Witco iscontrolling law on the issue of whether CERCLA preempts statecapacity statutes. Witco held that CERCLA does not preempt statecapacity statutes. Witco is equally applicable to the Delawarecorporate dissolution nonclaim statute (Delaware GeneralCorporation Law §278) , which requires that suits against dissolvedcorporations must be commenced within three years after the filingof a certificate of dissolution.

It is undeniably clear that Laga, Duplan and Panex weredissolved over a decade ago. Accordingly, Panex is not subject tosuit.

2. Interpretation of the Trust Agreement

Under Delaware law, as held in City Investing, supra.whether and to what extent a dissolved corporation's liquidatingtrust has assumed liabilities, and, therefore, may be deemed the

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corporation's successor, depends on "interpretation of the trustagreement." 624 A.2d at 1194. Interpretation of the TrustAgreement at issue here involves trust language that is differentfrom that involved in City Investing. In that case, theliquidating trust was subject to a claim asserted beyond thethree-year statutory period because the court held that the trustlanguage had assumed all liabilities of the former corporationwithout restriction, and that an attempt "to present parol evidenceto vary the clear language of the Trust Agreement" wasimpermissible. 624 A.2d at 1197-98. In contrast, here the trustlanguage in Article VIII, § 8.1, at 5, expressly provides asfollows:

This Trust Agreement shall terminate threeyears from the date of this Trust Agreement... provided further, however, that this TrustAgreement shall continue to exist for areasonable period beyond three years . .. forthe limited purpose of discharging any knownliabilities of the Trust or of Panex orliabilities of the Trust or of Panex which theTrustees have reasonable grounds to believemay be asserted ....

Accordingly, the Trust could exist beyond the three-yearcut-off date solely for the limited purpose of discharging any"known liabilities" as of such time. This Trust provisionparallels the three-year statutory nonclaim provision underDelaware law. Both that statute, and this Trust provision,provided a three-year deadline. The claims here were not made"known" to the Trustees until long after the three years hadexpired, and so the Trust Agreement did not assume liability onthese late-asserted alleged claims. Witco. supra, similarlyinvolved a trust that had received assets, but the trust languagehad not assumed liability for the claims at issue. Here, as inWitco, the Trust is not potentially liable.

FORMER SHAREHOLDERS ARE MOT POTENTIALLYRESPONSIBLE PARTIES BECAUSE THE EQUITABLE LIENOR TRUST FUND THEORY HAS NO APPLICATION HERE

The USEPA states in its August 3 correspondence toMessrs. Gal and Lazare that they may be liable under CERCLA asshareholder distributees of Panex, contending that they may bepotentially liable to the extent they received distributions during

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the course of the Panex dissolution and from the Trust.3 It isdifficult to see how former shareholders of Panex could be deemed"owners or operators" within the meaning of CERCLA, 42 U.S.C.§ 9601(20); but in any event, the only possible theory of liabilitywhich could be asserted is based on the doctrine of an "equitablelien" or a resulting "constructive trust," which doctrines simplyhas no application here.

Under the lien or trust doctrine, property distributed toshareholders by a dissolving corporation may pass subject to anequitable lien in favor of creditors of the corporation "of whomthe corporation had reason to know" at the time. See, e.g. . In reReao Co. . 623 A.2d 92, 95 (Del. Ch. 1992).4 Where that is thecase, the distributees are deemed to hold the property inconstructive trust, due to the equitable lien. However, here thepotential claims were unknown at the time of the Panex dissolutionand Trust distribution. Accordingly no equitable lien or trustattached at that time to Panex's assets, which in turn weredistributed to the shareholders.

The lien and trust cases rely on the existence of anobligation at the time of distribution to support a finding that alien or trust could equitably be deemed imposed on the corporateproperty while it was corporate property, which could then followthat property into the hands of another. Any contrary rule — thata lien could suddenly arise upon the property of a third personmerely because of the former ownership of that property — would bea complete anomaly, and essentially an impossibility, either in lawor in equity. As explained in Coleman v. Golkin. 562 F.2d 166, 169(2d Cir. 1977) , "If the property in the hands of the corporation isburdened with a trust, it remains burdened with the trust whendistributed to the corporate stockholders."

As noted in In re Rego. this doctrine originated inJustice Story's opinion in Wood v. Dummer. 3 Mason C.C. Rpts. 308,30 Fed. Cas. 435 (U.S. Circuit Court 1824). That decision

3As previously stated, the D'Anna/Knudson letter alsorequested the USEPA to name as PRPs the other two Panexshareholder groups, First Manhattan Co./Firmanco and GoldmanSachs.

4 In re Rego addressed new Delaware statutes, enacted in 1987,designed to avoid any uncertainty in this area by providing astatutory means for judicial approval, at the time of dissolution,of the adequacy of the provision for payment of debts.

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explained the theory's logical underpinnings, which have remainedunchanged through the present time.

Wood deemed there to be such a resulting trust impressedon assets distributed to stockholders where an incorporated bankwas chargeable with "a gross over issue of bank notes, and otherviolations of the charter, and of a fraudulent dividend by thestockholders with a knowledge of their insolvency." 30 Fed. Gas.at 436. Soon thereafter, similar principles were recognized inMumma v. The Potomac Company. 33 U.S. 281, 283 (1834), where thedefendant corporation dissolved to avoid paying a judgment, but theSupreme Court held the "lien of the judgment remained" on thecorporate assets.

Wrongdoing, although of a less deliberate sort, was alsoinvolved in Cans v. MDR Liquidating Corp.. 1991 WL 114514 (Del.Ch.), appeal refused. 599 A.2d 413 (Del. 1991). There defendantMDR purchased all of the stock of a corporation from plaintiffs,and, as part of the purchase, agreed to provide them with pensionsuntil their death; two years later MDR dissolved without making anyprovision for plaintiffs7 pensions, and so the trust fund doctrinewas applicable. See also Bovay v. H.M. Byllesby & Co. , 38 A.2d 808(Del. 1944) (doctrine applied to money allegedly fraudulentlydiverted from an insolvent corporation); John Julian ConstructionCo. v. Monarch Builders. Inc.. 306 A.2d 29, 35 (Del. Super. 1973),aff'd. 324 A.2d 208 (Del. 1974) (dissolution allegedly wasfraudulent as to the plaintiff).

City of Philadelphia v. Stepan Chemical Co. , 713 F. Supp.1491 (E.D. Pa. 1989), is also instructive here. In 1979 and 1980,the City of Philadelphia wrote letters to Eastern States, acorporation, and its sole shareholder and president, Neuman, notingthey were potentially liable for hazardous wastes at a city site.In January 1981, shortly before his death, Neuman transferred allof the stock in Eastern States to a trust with his daughter as thesole beneficiary. In December 1981, the trustees liquidated theassets of Eastern States and distributed them to the trust. Twoyears later the City filed a CERCLA claim against Neuman's estate(which action was dismissed) and then filed an amended CERCLAcomplaint against the trustees. Judge Ditter granted defendants'motion for summary judgment, stating:

The City attempts to portray itself as acorporate creditor of Eastern States; however,there was no debt due the City by EasternStates at the time of liquidation, nor wasthere any legal claim pending against it. The

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PQRZIO, BROMBERG & NEWMANA P R O F E S S I O N A L C O R P O R A T I O N

City did not turn itself into a creditor ofEastern States by requesting that the companycontribute to the costs to clean up theEnterprise Avenue landfill.

The City has pointed to no authority thatcharges a defendant corporation with notice ofCERCLA liability absent service of a com-plaint. Since no CERCLA action had been filedagainst Eastern States or against the trusteesof the Sarah Kate Neuman Trust at the time ofliquidation, the City was not a 'creditor7 ora 'claimant' of Eastern States. The trusteeshad no duty to notify the City of its 'windingup' proceedings, 15 P.S. § 2104(B), and had noconcurrent obligation to set aside funds onbehalf of the City, id. at § 2104 (C). Itfollows that the transfer of corporate assets

/*"*S to the trust could not have been in fraud ofthe City.

713 F. Supp. at 1493-1494. Stepan Chemical, which the ThirdCircuit cited with approval in Witco, supra. thus shows that thereis no basis for contending that the Trustees of the Trust canrecall the liquidating distributions made to the former Panexshareholders long ago, many years before any CERCLA claim.5

The constructive trust doctrine is substantially broaderin its scope of potential application than just the corporatedissolution context, but wrongful conduct of some sort is aconsistent requirement. As stated by the Supreme Court of Delawarein Hogq v. Walker. 622 A.2d 648, 652 (Del. 1993), "A constructivetrust is [imposed] ... to redress a wrong." See, e.g.. Brophy v.Cities Service Co.. 70 A.2d 5, 7 (Del. Super. 1949) ("constructivetrusts depend for their existence on the wrongful conduct of adefendant"); Greenly v. Greenly. 49 A.2d 126, 129 (Del. Ch. 1946)

. (a constructive trust requires "wrongful conduct of thedefendant") . See also Phar-Mor. Inc. v. Coopers & Lybrand. 22 F.3d1228, 1239 n. 17 (3d Cir. 1994) (characterizing a proceeding "to

5The D'Anna/Knudson letter stresses that in 1984 a Panexproxy statement informed shareholders that a constructive trustcould be imposed in an appropriate case; however, that mereobservation regarding the law does not make this such a case.

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impose a constructive trust" as "a proceeding to determine, avoid,or recover fraudulent conveyances") .

Here there was no alleged fraud or other wrongdoingresulting in unjust enrichment. Despite extensive discovery in thepending lawsuits (e.g.. several depositions of the two Trustees andthe production of documents and boxes of records relating to theliquidation of Panex and the management of the Trust), no party isable to point to one piece of evidence to substantiate any claim ofwrongdoing or knowledge of the subject claims at the time ofcorporate dissolution or at the time of any of the distributions.The lack of such evidence is fatal to the suggested PRP claims,since without such a factual basis, pleadings would be subject todismissal for failure to state a claim against the formershareholder distributees.

For example, in Witco. supra. the Third Circuit not onlydismissed CERCLA claims asserted against the defendants at issuethere, but also noted that plaintiff "Witco filed in the Court ofChancery in New Castle County, Delaware, a petition for aconstructive trust on Dr. Beekhuis' edismissed the action for failure to statue., a(emphasis added) . The same principles woii

The Chancery CourtLaim\." 38 F.3d at 685apply here.

Thank you for your considerati se matters.

John M. NewmanJMN/CEE/mlpEnclosures

cc: Honorable Stanley S. Brotman (w/o encs.)All Counsel on Attached List (w/o encs.)

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/•"""V TUTU WATER WELLS CONTAMINATION LITIGATION

COUNSEL LIST

ROBERT L. TOFEL, ESQ.Tofel Berelson Saxl & Partners, P.C.780 Third AvenueNew York, New York 10017

KEVIN A. RAMES, ESQ.2111 Company Street, Suite 3P.O. Box 3030Christiansted, St. CroixU.S. Virgin Islands 00822

PANEX COMPANY AND ANDREAS GAL AND PAUL LAZARE AS PARTNERS OF PAN EXCOMPANY

MARC Z. EDELL, ESQ.1776 On the GreenMorristown, New Jersey 07962-2355

RHODA J. HARTHMAN, EDGAR A. HARTHMAN, SAMMY E. HARTHMAN,~^ CHARLOTTE A. LABARRE, ALBERT E. HARTHMAN, ARTHUR E. HARTHMAN

AUSTIN E. HARTHMAN, P.I.P., INC., WATER SERVICES, LTD.,and TUTO SERVICES, LTD.

THOMAS H. HART, III, ESQ.Alkon, Rhea & Hart2115 Queen StreetChristiansted, St. CroixU.S. Virgin Islands 00820

FRITZ JEKEL, ESQ.Ness, Motley, Loadholt, Richardson & Poole151 Meeting Street, Suite 600P.O. Box 1137Charleston, SC 29402

RICHARD R. KNOEPFEL, ESQ.Briggs, Knoepfel & Ronca30 Dronningens GadeP.O. Box 6286Charlotte Amalie, St. ThomasU.S. Virgin Islands 00804

FOUR WINDS PLAZA PARTNERSHIP

/— JOHN K. DEMA, ESQ.Law Offices of John K. Dema, P.C.1236 Strand Street, Suite 103Christiansted, St. CroixU.S. Virgin Islands 00820-5008

OOS 06O&

DARKEN DEFOE, ESQ.Knight Memorail LibraryRout 35/37P.O. Box 127Waterford, ME 04088

ESSO STANDARD OIL, 8. A., LTD. - ES80 VIRGIN ISLANDS, INC.ESSO STANDARD OIL COMPANY (PUERTO RICO)

DOUGLAS L. CAPDEVILLE, ESQ.2191 Church Street, Suite 2P.O. Box 4191Christiansted, St. CroixU.S. Virgin Islands 00822-4191

ROBERT T. LEHMAN, ESQ.WILLIAM O'KANE, ESQ.Archer & Greiner, P.C.One Centennial SquareP.O. Box 3000Haddonfield, NJ 08033-0968

ROBERT N. DE LUG A, ESQ.Attorney for Esso EmployeesSaul, Ewing, Remick & Saul3800 Centre Square WestPhiladelphia, PA 19102

TEXACO, INC. - TEXACO CARIBBEAN, INC.

EDGAR CHRISTENS EN, ESQ.Law Offices of R. Eric Moore54AB Company StreetChristiansted, St. CroixU.S. Virgin Islands 00820

ADDISON J. MEYERS, ESQ.MARY HOERBER, ESQ.Law Offices of O' Connor, Meyers & Lemos2801 Ponce DeLeon Boulevard, 9th FloorCoral Gables, FL 33114

RICKS FRAZIER, ESQ.ROSE ANNE MODEL, ESQ.150 Alhambra CircleCoral Gables, FL 33134

STEVEN E. KIRKLAND, ESQ.1111 Bagby StreetSuite 2740Houston, TX 77002

TIMOTHY KNUDSON, ESQ.2000 Westchester AvenueWhite Plains, New York 10650

TUT OOS O60

VERNON MORGAN

JOHN A. ZEBEDEE, ESQ.Law Offices of James L. Hymes10 Norre GadeP.O. Box 990Emancipation Garden StationCharlotte Amalie, St. ThomasU.S. Virgin Islands 00802

DANIEL BAYARD - BAYARD AUTOMOTIVE

FRANCIS E. JACKSON, JR., ESQ.P.O. BOX 6591Charlotte Amalie, St. ThomasU.S. Virgin Islands 00804

RAMSAY MOTORS. INC.

CAROL ANN RICH, ESQ.Campbell, Arellano & RichNo. 4A and B Kongens GadeP. O. Box 11899Charlotte Amalie, St. ThomasU.S. Virgin Islands 00801

L'HENRI, INC.

PATRICIO MARTINEZ LORENZO, ESQ.Chase Manhattan Bank BuildingSuite 311416 Ponce de Leon AvenueHato Rey, Puerto Rico 00918

NANCY D'ANNA, ESQ.18-38 Estate EnighedCruz Bay, St. JohnU.S. Virgin Islands 00830

EXXON CORPORATION

RICHARD DALEY, ESQ.Law Offices of Pattie & Daley1104 Strand Street, Suite 204Christiansted, St. CroixU.S. Virgin Islands 00820-5003

KELL M. DAMSGAARD, ESQ.TERRI JACOBSEN, ESQ.Morgan, Lewis & Bockius2000 One Logan SquarePhiladelphia, PA 19103-6993

TUT OOS O6O8

WILLIAM J. STACK, ESQ.Exxon Company, U.S.A.800 Bell Street, Room 2225Houston, TX 77002

WESTERN AUTO SUPPLY COMPANY

JOHN R. COON, ESQ.Law Offices of John R. Coon6 Chandler's Wharf, Suite 202P.O. Box 25918Gallows Bay, St. CroixU.S. Virgin Islands 00824

V.I. HOUSING AUTHORITY

RALDO V. SIMMONDS, ESQ.402 Estate Anna's RetreatP.O. Box 7668Charlotte Amalie, St. ThomasU.S. Virgin Islands 00802

GOVERNMENT OF THE VIRGIN ISLANDS

MICHAEL LAW, ESQ.Assistant Attorney GeneralsDepartment of Justice48B-50C Kronprindsens GadeCharlotte Amalie, St. ThomasU.S. Virgin Islands 00802

SIEGFRIED TORINUS AND WALTRAD TORINUS

KATHERINE E. HARSCH, ESQ.TREGENZA ROACH, ESQ.Bornn, Bornn, Handy & Rashid8 Norre GadeCharlotte Amalie, St. ThomasU.S. Virgin Islands 00804

TAG. INC.

GEORGE MARSHALL MILLER, ESQ.26A Norre GadeCharlotte Amalie, St. ThomasU.S. Virgin Islands 00801

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porzio, brqmberg & newman r. mcdaniel judit h a. mcdonoug rand1 n. pomerantz cynthia d....

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