New York v. National Services Industries, Inc.

Serv-All Uniform Rental Corporation (Serv-All) operated a uniform-rental service that also dry-cleaned the uniforms. In 1978, Serv-All had hazardous materials used in its dry-cleaning service disposed of at a landfill. As a result of this disposal, Serv-All was potentially responsible for environmental clean-up costs at the landfill pursuant to a federal environmental statute. In October 1988, Serv-All sold its uniform business, its name, and nearly all of its other assets to Initial Service Investments (Initial). Serv-All then changed its name and, ultimately, dissolved on January 27, 1989. Following the sale, except for Serv-All’s dry-cleaning practice (which Initial did not conduct or pursue), Initial operated the purchased assets and business substantially the same as Serv-All had historically operated, including using Serv-All’s name and Serv-All’s former employees. In 1995, Initial merged into National Service Industries, Inc. (NSI) (defendant). The landfill had been listed as a contaminated site on the National Priority List since 1987 and, by 2002, the State of New York (plaintiff) had spent over $12 million in environmental clean-up costs at the site of the landfill. The state brought an action against NSI to recover the costs of the clean-up, alleging that the purchase of the original Serv-All’s assets was a de facto merger and that NSI had successor liability for the original Serv-All’s acts. The district court found that there was no de facto merger because there was no continuity of ownership between NSI and the original Serv-All entity. The state appealed the district court’s ruling, asserting that state law—not a national rule based on traditional common law—applied and that it was unsettled as to whether a lack of continuity of ownership was a required element of de facto ownership.