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Alexco/JDS Group buys Abandoned Mine, Agrees to Remediate it

The Supreme Court of Yukon Territory recently approved the sale of the abandoned Mount Nansen Mine site to the Alexco/JDS Group. The unique arrangement with the Alexco/JDS Group, allows the company to pursue future work at the mine while obligating them to remediate contamination from past mining activities at the site.

The abandoned Mount Nansen site is a former gold and silver mine located in the traditional territory of the Little Salmon/Carmacks First Nation, near the Village of Carmacks. As a Type II Mine site, the Canadian federal government accepted responsibility for its existing liabilities in the 2012 Yukon Devolution Transfer Agreement. The federal government provides 100% of the funding for site care and maintenance operations as well as for the development of long-term remediation plans. This funding is provided through the Federal Contaminated Sites Action Plan 

Mt. Nansen; August 14; 2008; aerial photo; mill

The sale process began in 2016, when the Yukon Supreme Court appointed PriceWaterhouseCoopers Interim Receiver and Receiver-Manager of the mine’s former operator.

The sale of the mine was complicated by the fact that in involved the court-appointed receiver for the former owner of the mine, the Canadian federal government, the Yukon Territory government, and the Little Salmon/Carmacks First Nation.

Under the conditions of the sale, Alexexco/JDS Group must immediately accelerate work on the remediation plan that had been initiated by the Yukon government and submit it for regulatory approval. The Canadian government has committed funding to pay for the remediation.

Russell Blackjack, Chief of Little Salmon/Carmacks First Nation, stated in a news release: “After almost three decades of concern and constant pressure and monitoring from Little Salmon/Carmacks First Nation government, the citizens of the Little Salmon/Carmacks First Nation will be pleased to see the finalization of the agreements that will lead to the remediation of the abandoned BYG mine site at Mt. Nansen. ”

The new owners, Alexco/JDS Group, consists of Alexco (TSX: AXR / NYSE-American: AXU) , a primary silver company headquartered in Vancouver and JDS Energy & Mining Inc. , a Canadian-based resource development company with experience in mine design, development.

The Mount Nansen Mine is listed on the Federal Contaminated Sites Inventory. Approximately 5,400 hectares of land is contaminated at the site. There is also surface water contamination. Contaminants include petroleum hydrocarbons and metals.

The federal government estimates that clean-up of the site will cost $37 million with an additional $2.8 million for care and maintenance. It is estimated that the remediation of the mine site will take up to 10 years.

United States: Successor Liability for Environmental Liabilities

by Julie Vanneman, Director, Cohen & Grigsby

What happens when one company acquires the assets of another, then—many years later—receives a demand to participate in the clean-up of a contaminated site based on the acquired company’s long-ago shipment of materials to the site? 

As a general rule, the buyer of assets in an asset
acquisition does not automatically assume the liabilities of the seller. However,
under the doctrine of successor liability, a claimant may be able to seek
recovery from the purchaser of assets for liabilities that were not assumed as
part of an acquisition. This claim may be employed in cases involving
environmental liabilities, especially when the original party is defunct or
remediation costs are greater than the original entity’s ability to pay for the
cleanup.[1]

Courts have taken different positions on whether state law
or federal common law governs the determination of successor liability for
claims under the Comprehensive Environmental Response, Compensation, and
Liability Act (“CERCLA”), known also as Superfund. This distinction may have
little practical effect because federal common law follows the traditional
state law formulation. Notably, though, when evaluating successor liability
under federal law, and specifically environmental laws like CERCLA, the
doctrine may be more liberally applied because of policy concerns about
contamination.[2]

Under the successor liability doctrine, a buyer can be held
responsible for liabilities of the seller if 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.

K.C.1986 Ltd. P’ship v. Reade Mfg., 472 F.3d 1009,
1021 (8th Cir. 2007) (citing United States v. Mex. Feed & Seed,
Co., Inc.,
 980 F.2d 478, 487 (8th Cir. 1992)). A fifth exception, the
substantial continuity exception, is a broader standard,[3] but most circuit
courts do not apply it in CERCLA cases.[4]

Exception 1, express or implied assumption, must be analyzed
in terms of the specific asset agreement in question. Exception 4, fraud, is
generally employed in circumstances where the acquired company shifts its
assets to avoid exposure to another entity.[5]

Courts have addressed the main issue of successor liability
by asking whether the transaction is simply the handing off of a baton in a
relay race (successor liability) or whether the new company is running a
separate race (no liability).[6]  Examining factors relevant to the
remaining elements—numbers 2 (de facto merger) and 3 (continuation)—helps
answer the question. Under the doctrine of a de facto merger, successor
liability attaches if one corporation is absorbed into another without
compliance with statutory merger requirements. A court would look at whether
there is a continuity of managers, personnel, locations, and assets; the same
shareholders become part of the acquirer; the seller stops operating and
liquidates; and the acquirer assumes the seller’s obligations to continue
normal business operations.[7]  The “mere continuation” theory “emphasizes
an ‘identity of officers, directors, and stock between the selling and
purchasing corporations.’”[8]

Given the high stakes that can be involved with CERCLA
cleanups, assessing prospects for applying the successor liability doctrine
could be an important part of the liability analysis.


[1] See, e.g., James T. O’Reilly, Superfund and
Brownfields Cleanup § 8:16, at 360 (2017-2018 ed.) [hereinafter O’Reilly]
(“Mergers, sales of assets, and changing corporate names does not remove
potential CERCLA liability.”).

[2] See O’Reilly § 8:16; see
also,
 e.g.In re Acushnet River & New Bedford
Harbor Proceedings re Alleged PCB Pollution
, 712 F. Supp. 1010, 1013-19 (D.
Mass. 1989) (in the CERCLA context, concluding that successor liability applied
where there would be “manifest injustice” if one of the companies could
“contract away” liability for PCB contamination).

[3] See K.C.1986 Ltd. P’ship v. Reade
Mfg.
, 472 F.3d 1009, 1022 (8th Cir. 2007)

[4] See Action Mfg. Co. v. Simon Wrecking
Co.
, 387 F. Supp. 2d 439, 452 (E.D. Pa. 2005).

[5] See, e.g., Eagle Pac.
Ins. Co. v. Christensen Motor Yacht Corp.
, 934 P.2d 715, 721 (Wash. Ct.
App. 1997). This exception is rarely used. Restatement (Third) of Torts:Prod.
Liab. § 12 cmt. e (Am. Law Inst. 1998).

[6] See, e.g.Oman Int’l
Fin. Ltd. v. Hoiyong Gems Corp.
, 616 F. Supp. 351, 361-62 (D.R.I. 1985).

[7] Asarco, LLC v. Union Pac. R.R. Co., No.
2:12-CV-00283-EJL-REB, 2017 WL 639628, at *18 (D. Idaho Feb. 16, 2017).

[8] United States v. Mex. Feed & Seed Co.,
980 F.2d 478, 487 (8th Cir. 1992)  (quoting Tucker v. Paxson Mach.
Co.,
 645 F.2d 620, 626 (8th Cir. 1981)).

This article was first published on the Cohen & Grigsby website.

About the Author

Julie counsels and represents clients in a range of environmental and litigation matters. She assists clients with day-to-day environmental compliance concerns and provides enforcement defense counseling, particularly with solid waste and groundwater issues. Her extensive background in CERCLA matters includes serving as legal counsel for clients involved in remediation initiatives at complex Superfund sites as well as litigating cases through multiple phases, including discovery, allocation negotiations, and alternative dispute resolution. Julie’s litigation practice encompasses not only environmental matters, but also insurance coverage actions and other commercial and business disputes.