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NEW YORK v. PANEX INDUS.

August 16, 1994

THE STATE OF NEW YORK and LANGDON MARSH, as Acting Commissioner of the New York State Department of Environmental Conservation and Trustee of the Natural Resources, Plaintiffs,
v.
PANEX INDUSTRIES, INC., PANEX INDUSTRIES, INC. LIQUIDATING TRUST, DANIEL ROSENBLOOM and PAUL LAZARE, as Trustees of Panex Industries, Inc. Liquidating Trust, ALPINE GROUP, INC., ROCHESTER BUTTON COMPANY, INC., TURBODYNE ELECTRIC POWER CORPORATION, MCGRAW-EDISON COMPANY, INC., DRESSER-RAND COMPANY, ABB AIR PREHEATER, INC. and VILLAGE OF WELLSVILLE, Defendants.



The opinion of the court was delivered by: JOHN T. ELFVIN

 The plaintiffs brought this action pursuant to New York's common law and the Comprehensive Environmental Response, Compensation & Liability Act ("CERCLA"), 42 U.S.C. ┬ž 9601 et seq., seeking from the defendants costs for the cleanup of the Wellsville-Andover landfill ("the Site") in which defendant Panex Industries Inc. ("Panex") -- a Delaware corporation -- allegedly disposed of chemicals that subsequently leached into the soil, groundwater, wells and springs near the Site. Before this Court is the plaintiffs' motion to enjoin preliminarily the Trustees of defendant Panex Industries, Inc. Liquidating Trust ("the Trust") from expending its assets until the Trustees shall have provided the plaintiffs with discovery re the current assets and expenditures of the Trust and set aside assets of the Trust for the plaintiffs' claims pursuant to a plan for the equitable distribution of such assets as allegedly is required by Delaware law. The motion will be denied. The facts as set forth in the defendants' papers and uncontested by the plaintiffs follow.

 Panex, formerly known as Duplan, was a clothing manufacturer. One of its divisions -- Rochester Button Company, Inc. -- manufactured buttons in Wellsville, N.Y. and, along with others of the defendants, allegedly illegally disposed of in the Site chemical wastes which New York's Department of Environmental Conservation ("the DEC") estimates will cost $ 14.6 million to eradicate.

 In 1976 Duplan petitioned for reorganization under Chapter XI of the Bankruptcy Act and subsequently the bankruptcy judge appointed a trustee. Duplan emerged from bankruptcy in 1981 as the renamed, reorganized and recapitalized entity, Panex Industries, Inc.

 After the sale of various of its assets, Panex's stockholders adopted a Plan of Liquidation September 21, 1984 and Panex filed a Certificate of Dissolution with Delaware's Secretary of State April 15, 1985. Thereafter it sold its manufacturing facilities, distributed specified assets to its shareholders and, on September 12, 1985, formed the Trust to wind up its affairs in compliance with Delaware law. Such was accomplished before the plaintiffs had asserted any of their instant claims.

 The Trust was established

 
"for the sole purpose of holding the Assets transferred to it by Panex on behalf of the Beneficiaries [Panex's shareholders], enforcing the rights of the Beneficiaries thereto, collecting the income thereon, satisfying any and all liabilities of Panex which are not paid or otherwise discharged, distributing the Trust Property to the Beneficiaries, and taking such other action as is necessary to conserve and protect the Trust Property and to provide for the orderly liquidation of any and all of the Assets." Panex Industries Stockholders' Liquidating Trust Agreement ("the Agreement"), at Section 3.1 (see Affidavit of Roberta G. Gordon, Esq. in support of Plaintiffs' Motion for a Preliminary Injunction, at Exh. B, and Affidavit of Joseph Zuckerman, Esq. in Opposition to said Motion, at Exh. E.)

 The Trust was to terminate after three years but was to continue for up to nine additional years "for the limited purpose of discharging any known liabilities of the Trust or of Panex or liabilities of the Trust or of Panex which the Trustees have reasonable grounds to believe may be asserted * * *." The Agreement, at Section 8.1. The Trust currently has approximately $ 1.275 million in assets, together with the possibility of indemnification from liability insurers.

 In 1988 the plaintiffs informed Panex that they were asserting a CERCLA claim against it and requested that it take remedial action to clean up the Site. Periodically thereafter the plaintiffs requested that Panex provide information to them but they did not file the instant suit until May 25, 1994 after they had learned of the existence of the Trust and that Panex and the Trustees were also defendants in other CERCLA suits -- namely, in two CERCLA actions brought in 1992 in the United States Virgin Islands because of Panex's alleged polluting of the "Tutu Aquifer" there. In one such action -- Four Winds Plaza Partnership v. Texaco, Inc. et al. ("Four Winds"), 1994 V.I. LEXIS 8, Civil Action No. 1989-224 -- Panex and the Trustees reached, in January 1994, a tentative settlement wherein they agreed to pay $ 890,000 of the $ 35 million originally sought by that plaintiff. After further negotiations the parties presented a settlement agreement dated April 27, 1994 to United States District Judge Stanley S. Brotman *fn1" who signed an Order and Decree stating that such was binding and effective and that payment was required. The other action -- Harthman et al. v. Texaco et al., 1994 V.I. LEXIS 8, Civil Action No. 1989-220 -- is ongoing. Various of the defendants in both actions have asserted cross-claims for contribution. Additionally, the United States Environmental Protection Agency has begun an investigation of the Tutu Aquifer and has notified the Trustees that they are "potentially responsible parties."

 Between the time the settlement was signed and Judge Brotman's effectuation of such, the plaintiffs filed the instant action and thereafter (on June 28th) the Trustees filed a petition with Delaware's Court of Chancery seeking an order approving the payment of the Four Winds settlement or, in the alternative, for instruction re the payment of the settlement as that Court determines is proper under Delaware law.

 The plaintiffs first argue that section 281(b) of Title 8 of Delaware's Corporation Code *fn2" and the Agreement itself require the Trustees to distribute ratably the Trust assets to contingent claimants such as the plaintiffs and thus that no payment should be made in the Four Winds (or any other) action until the Trustees devise a plan for such. However, section 281(b) was enacted two years after Panex had dissolved and the sparse relevant Delaware precedent is unclear as to whether it applies retroactively. Given that neither side disputes that Delaware law controls the Trust, this Court agrees with the defendants that Delaware is the proper forum in which to resolve this question and any other questions concerning the Trustees' duties under the Trust. Thus, because the defendants have petitioned the Delaware Court to resolve such questions and the plaintiffs will have a full opportunity to be heard there, and because the defendants have represented to this Court (during oral argument on July 8th) that, in the interim, *fn3" no or "minimal" *fn4" funds of the Trust would be expended to settle the Four Winds (or the other) action, the plaintiffs' arguments re the dictates of Delaware law are premature and need not be addressed.

 The extraordinary remedy of a preliminary injunction will not issue unless the plaintiffs carry their burden of showing

 
"(a) irreparable harm and (b) either (1) likelihood of success on the merits or (2) sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly toward the party requesting the preliminary relief." Jackson Dairy, Inc. v. H.P. Hood & Sons, 596 F.2d 70, 72 (2d Cir. 1979).

 Preservation of the status quo pendente lite is the purpose of a preliminary injunction, Guinness & Sons v. Sterling Pub. ...


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