Let’s Be Fair to Dow

October 9, 2007 at 1:30 pm | | news, science and the public, science community

[Editor’s note: This is a follow-up of a previous post. Apparently, Charles disagrees with me. -Sam]

Let’s be fair to Dow here.

The Bhopal pesticide plant explosion was a horrible incident by all accounts! The disaster caused around 8,000 immediate deaths. 12,000 deaths have been linked to the disaster, and another 100,000 or so people suffer lingering health risks.

To start with, let’s see what Union Carbide has tried to do to rectify the situation:

  1. The day of the explosion (December 4th, 1984), Union Carbide sent material aid and medical experts to Bhopal to assist with treatment.
  2. Carbide donated an immediate $2 million into the Indian Prime Minister’s disaster relief fund within 1 week after the incident (December 11th, 1984).
  3. 3 months after the incident (February 1985), Carbide established the “Employee’s Bhopal Relief Fund” which raised more than $5 million for immediate relief.
  4. 5 months after the incident (April 1985), Carbide paid for Indian medical experts to take part in training of treatment techniques.
  5. Less than 3 years after the incident (August 1987), made an additional $4.6 million for humanitarian relief.
  6. In 1989, Carbide settled with the Indian Government in the Indian court system for $470 million. The settlement was paid in full almost immediately. In the settlement it was agreed that the state government of Madya Pradesh would take full responsibility for the site cleanup.
  7. In April 1992, Carbide sold 50.9% of it’s shares of UCIL (Union Carbide of India Limited – the subsidiary responsible for the incident) to fund a $90 million trust fund for the establishment of a Bhopal hospital treating heart, lung, and eye ailments. As of 2001, when the hospital opened it’s doors, the trust had amounted an estimated $100 million.
  8. In addition, Carbide provided $2.2 million to Arizona State University to establish a vocational-technical training center in Bhopal (which was later closed) and $5 million to the Indian Red Cross.
  9. Carbide developed the “Responsible Care” system with other members of the chemical community to “help prevent such an event [as Bhopal] in the future by improving community awareness, emergency preparedness, and process safety standards.”

So, over the course of the 20 years between the incident and the purchase of Union Carbide by Dow Chemical, Union Carbide had spent almost $600 million towards the cleanup and relief efforts.

Now, let’s compare the 1989 $470 million dollar settlement ($686.2 million in 2007 dollars) against other U.S. settlements by chemical companies:

The largest Superfund site in the U.S. today is the Hudson River, in which over 500 tons of polychlorinated biphenyls (PCBs) have been dumped over the course of 80 years (most by GE in the last 30 years). The estimated cost is $500 million. GE has formed an agreement with the EPA to pay a total of $7.62 million and donate scientists and manpower to the initial sampling and cleanup effort. Unknown population affected over 80 year period. PCB’s have been linked to cancer, although GE denies that there are increased cancer risks in the area.

The 2nd largest settlement in Superfund history, and the largest settlement involving a chemical company, was the Sikes Disposal Pits near Crosby, an illegal toxic waste dump used by a variety of petrochemical companies, which has affected an estimated 10,000 people. 30 chemical companies were sued successfully for an estimated $120 million in cleanup costs.

The Love Canal incident in 1953, which prompted the creation of Superfund, occurred when the Hooker Chemical Company covered area over a toxic dump with dirt and sold it the city of Love Canal for $1 an acre. Numerous houses and a school were built on the site. Unknown numbers of people were affected, but over 221 families were evacuated by 1981. People from the area suffered larger than average rates of birth defects and miscarriages. The government finally sued and won around $129 million for cleanup costs in 1995.

Of course, the scale of the disaster in the Bhopal case makes these other cases pale in comparison. That’s why criminal charges are proceeding against 6 UCIL members (including the former Chairman of UCIL, the Managing Director, the Vice-President Functioning in charge, the Works Manager, and the Production Manager). That’s also why the parent company of Union Carbide paid out so much both to the Indian Government (which it HAS to work through for environmental cleanup) and directly to the victims (around 20% of the money Carbide spent went to medical training, immediate humanitarian aid, and the establishment of hospitals and medical trust funds).

And also, granted, much of the money (specifically the $470 million) did not reach the victims families and was not spent on cleanup, but that’s due to the incompetence and/or corruption of the Indian government. In April 2005, the Indian Supreme Court ruled the government had to release remaining settlement funds to the victims and their families. After taking into account accrued interest, the remaining settlement amount is estimated at $330 million (See NYT article cited below). It is certainly NOT Union Carbide or Dow’s fault that the Indian government and sat on the money instead of using it for cleanup or victims reparations. Remember, part of the $470 million settlement was that the local government be responsible for cleanup (presumably using part of the settlement for cleanup).

Now, Union Carbide can’t take what happened back – I’m sure they would like to if they could. No one wants to be responsible for up to 20,000 deaths. But they can’t, so they spent more on the cleanup efforts than any other single U.S. corporation for a chemical spill or dumping in the short history of corporate environmental responsibility. Not only more, but almost 5 times more (6-7 times more in current dollars).

So where is the justification, legal or moral, for the Indian Government to sue Dow, who was NOT responsible for the incident, for $22 million when they are sitting on $330 million from the initial settlement? Why should Dow pay for the cleanup when Union Carbide already paid for the cleanup as part of it’s 1989 settlement, and paid more than any other single U.S. corporation in history (that I could find) for a chemical spill!

If Dow were to accept any responsibility, it would set a very dangerous precedent. Can you imagine a world where a company is sued by a government and settles: the case is closed. That company is acquired 15 years later. The government now sues the new corporation even though the previous acquisition has already fulfilled its legal and financial obligations. That’s legally and morally irresponsible, especially considering the goverment in question has 70% of the intial settlement still on-hand.

Bhopal Sources:

Wikipedia Article on Bhopal with Citations

Union Carbide Bhopal Information Center

New York Times Article from 2004: “Bhopal Victims Not Fully Paid, Rights Group Says.”

Other Sources:

EPA: Hudson River Superfund Site

EPA: Sikes Disposal Pits Superfund Site

DOJ: Fiscal Year 2001 Accomplishments (Including Sikes Disposal Pits Settlement)

EPA: Love Canal History

DOJ: Press Release on Love Canal Settlement


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  1. OK, that’s a pretty strong case for Dow. I’m glad someone on this site does their research before complaining about stuff.
    I guess I’m only left with my annoyance with the ad campaign.

    Comment by sam — October 9, 2007 #

  2. You’re right, Charles. Dow should pay!

    Comment by wm — October 10, 2007 #

  3. Let’s put this in perspective: Dow did 12.4 _billion_ (that’s a b!) in sales in the first quarter of 2007 (source: http://www.dow.com/financial/reports/07q1earn.htm). Sure, their earnings on the quarter were (only) 274 million (on target to earn more than a billion (again, b) this year), so that sum of 600 million over 20 years doesn’t really make me feel all warm and fuzzy inside.

    Comment by PhilipJ — October 10, 2007 #

  4. A) Sales are great, but it’s income that matters. Your first number is worthless for what we’re talking about, it’s the second number that matters (net income).

    B) Great, Dow earned a lot of money. Dow has paid squat to India, and it should pay squat to India, because Dow acquired UNION CARBIDE 20 YEARS after the disaster while India still sits on 70% of the original settlement with UNION CARBIDE!

    C) In 1989, Union Carbide had a net income of $576 million (after the $470 million settlement). Of course, at the time they also had a $3.3 billion debt. So the $470 million settlement was almost equal to their net income that year. Pretty substantial settlement, no?

    D) I don’t make people feel warm and fuzzy, it’s not what I do. But I do tell it how it is, and I’m telling everyone that’s it’s irresponsible, naive, and bordering on absurd to blame DOW for India’s failure to cleanup the site as per the 1989 settlement with Union Carbide. It’s not like India doesn’t have the money…they’re sitting on it (70% of the Initial Investment).

    E) Of course I want the site cleaned up. I want the Indian Government to do the right thing. But I absolutely hate this knee-jerk reaction that corporations are inherently evil just because they’re profit driven. Corporations are not malevolent, they’re just NECESSARILY not benevolent – they can’t be and still make profit. Dow has as much ETHICAL and LEGAL responsibility to clean up the site as does GOOGLE. So let’s start petitioning Google, no? Or Microsoft? Or G.E.? Or perhaps Exxon-Mobil…hell, everyone hates Exxon-Mobil.

    F) Union Carbide did MORE than was required of them legally – all that was legal required was a $470 million settlement. 6 former members of the Indian subsidiary of their corporation are undergoing criminal proceedings. They even sold their majority shares in the Indian subsidiary to build a hospital in the region. What more would you expect of them? Their settlement specifically stipulated that the INDIAN GOVERNMENT would use the money for reparations and cleanup. It’s not their fault that 1/2 of their income that year was instead INVESTED by the governmetn for it’s own purposes instead of spent on helping its people. They are not responsible for the corruption or incompetence of the Indian Government. And let’s be frank here…the Indian government is not known for it’s humanitarian prowess.

    G) If you have a rational reason you think Dow owes (other than: “They made a lot of money, therefore they (and Paris Hiton too, why not) should give it all back because that’s what a benevolent corporation would do!”) then fine. But I have yet to see an argument other than “This is a bad situation, India didn’t keep up it’s end of the bargain, Dow has money, let’s disenfranchise the stockholders by forcing the corporation to clean up a mess it didn’t cause AND for which the clean costs have already been paid by it’s acquisition 20 years ago!

    Comment by charles — October 10, 2007 #

  5. “I don’t make people feel warm and fuzzy, it’s not what I do.”
    but what about your supple hands??

    Comment by sam — October 10, 2007 #

  6. Comment by charles — October 10, 2007 #

  7. Dear Charles,

    for those with access to sources other than Dow’s Bhopal website (run by a hired pr firm in Texas), your research seems less impressive. In fact, it’s strewn with errata of both the major and minor kinds. Before becoming so impassioned, it would be sensible to get your facts straight.

    As you’ve set them out accessibly, I’ll tackle the points you made in reply to Philipj:

    B) Dow merged with Carbide 17 years after the disaster, not 20. At that time, there were two legal cases ongoing: a criminal case, in which Union Carbide corporation, the corporation itself, and ex-officials are among the prime accused; and a lawsuit in the Southern district court of New York addressing contamination left behind at the plant in Bhopal. Dow was very well aware of these. To argue that it wasn’t is to argue for its supreme incompetence.

    Dow managers therefore, in full knowledge, merged their company with a fugitive from justice: in Feb 1992 Union Carbide was declared a criminal absconder in India for refusing to attend criminal proceedings, proceedings its own lawyers had accepted when they were reinstituted during a Supreme court review of the 1989 settlement (that had illegally suspended them).

    Dow shareholders familiar with these outstanding liabilities brought a case against Dow in New York in 1999 attempting to stop the merger. They argued that Dow wasn’t informing shareholders of the liability risks. The suit against the merger was eventually dismissed on a technicality. It emerged later that Dow made a false declarations to the US SEC and its European equivalent pertaining to the ongoing proceedings.

    The remaining compensation money has been all but distributed. Those injured have received around $1000 each in total – substantially less than they would have received had they been injured by the Indian railways. It’s less than 15 cents per day since exposure and falling – enough to get you a cup of tea and a samosa in Bhopal. The majority of ailments have been getting worse each day, leading to greater medical costs.

    One more thing on this point: criticising the Indian authorities is not equivalent to defending Dow. They have both behaved with extreme inhumanity towards the survivors. You might like to take a look at the report produced by Amnesty International, who blame both parties for adversely impacting the human rights of survivors. To quote: “The Bhopal case illustrates how companies evade their human rights responsibilities and underlines the need to establish a universal human rights framework that can be applied to companies directly.”

    C) It’s utterly fallacious to suggest that the settlement was substantial by any measure. The original suit against Carbide was for $3 billion. However, in the wake of the disaster they set about asset stripping and reorganising to insure against high damages, making them a much more competitive business later on. By the time of the settlement Carbide’s shares were worth three times the value they were just before Bhopal. Dividends and three-for-one bonuses were paid to shareholders in 1985-6, making a tidy sum for all those who hung on through a 40% share drop in the immediate aftermath. Carbide paid more to leverage debt in 1986 – $700 million – than they ever paid in compensation (about $100 million that was not covered by insurance). 1989, the year of the settlement, was by their own declaration Carbide’s most profitable on record. Dow bought Carbide for $11 billion.

    D) Environmental liabilities (site clean up) had absolutely nothing to do with the 1989 settlement, which addressed civil claims relating to the gas disaster alone. In 1989, only Union Carbide itself knew how extensive and how deadly the contamination was: it conducted secret tests of soil and water that year that resulted in 100% mortality to fish. Local groups have gradually brouight the contamination to light in the years since 1989.

    E) Your argument here is risibly poor, revealing an entire absence of knowledge of merger and aquisitions law in addition to a surfeit of ludicrous rhetoric. Dow has inherited legal responsibility (successor liability) from Carbide by dent of a statutory merger. Even if Dow were to argue that it hasn’t merged with Carbide, but aquired its assets, it is still no defence:


    “In most jurisdictions, the common law rule states that a corporation acquiring the assets of another only takes on its liabilities if one of four exceptions is met:

    … 2. The transaction amounts to a de facto merger or consolidation. The hallmark of a de facto merger is that the shareholders of the seller receive all or a portion of the purchase price in stock, thereby retaining ownership while also attempting to cleanse their assets of liability.”

    Then consider this, from 1999:

    “Union Carbide shareholders will own about 25 percent of Dow Chemical after the deal is complete, and Union Carbide Chairman and Chief Executive Officer William Joyce will become vice chairman of the Dow Chemical board of directors.
    Under the deal, Union Carbide shareholders will receive 0.537 share of Dow Chemical for each of
    their Union Carbide shares _ or $66.96 based on Tuesday’s closing price of Dow Chemical’s stock.”

    F) Once again, 1989 did NOT relate to the contamination problem. Union Carbide is legally required to attend criminal proceedings where its accused of manslaughter. It hasn’t deigned to turn up. When asked why not, it says that the Indian courts have no jurisdiction over it. That translates as ‘they can’t make us so we won’t go’. Had Carbide been an Indian company, and Bhopal been in, say, Denver, Delhi would have been carpet bombed. Under ‘polluter pays’ law, Carbide is also legally required to clean up the more than 5000 tonnes of carcinogenic and mutagenic toxins it dumped and knew were leaching into local groundwater. A clinic opened in Bhopal last year that has so far treated 130 children deformed and maimed by these poisons.

    The hospital: in 1994, Carbide sold its interest in UCIL in order to escape the Indian courts, who threatened Carbide’s assets due to their non-appearance in the criminal case. A judge declared this transfer of shares to be ‘malafide’. I visited the hospital less than a year after it finally opened in 2000. Assuming I was ‘on side’, its pr manager told me that the gas victims were phoney freeloaders and that the management couldn’t wait to go wholly private at the end of a stipulated period of 7 years. Theye were already taking 15-20 % of private patients. Mortally ill survivors I met couldn’t get referred there. A number of gas-affected patients were given heart surgery – though their problems were pulmonary – and died in their ‘care’. On site were facilties such as a swimming pool and tennis courts. It was like a very dark joke.

    G) There you go.

    Comment by Tim Edwards — October 22, 2007 #

  8. flame war … go!

    Comment by sam — October 22, 2007 #

  9. Tim,
    No references make your arguments moot and irrelevant. If you noticed, I referenced multiple sources (not just the Union Carbide site, regardless of your tactless and baseless allegations) and those sources also had references. If you have the time to write something that comprehensive, then you have the time to show what your references are. I’ll be surprised if it isn’t all just rhetoric from cites known for being inflammatory and anti-corporate.

    Comment by charles — October 23, 2007 #

  10. Charles,

    the Bhopal references you give are from Wikipedia – Dow was recently exposed in the international press as actively censoring Wikipedia articles (eg. http://news.independent.co.uk/sci_tech/article2874112.ece) – from the pr site I mentioned, and from a single NYT article, dated 2004. Is that your idea of vigorous sourcing?

    I referenced a report by Amnesty International – http://web.amnesty.org/pages/ec-bhopal-eng – that itself derives from multiple primary sources. Will you employ the ad hominem ‘inflammatory and anti-corporate’ against Amnesty International? True, its report implicitly repudiates and explicitly refutes much of the content Dow’s pr site, but who has the more obvious vested interest here?

    I also gave direct reference to a paper by a US based corporate law firm to make a point about merger law – is this also ‘inflammatory and anti-corporate’? You equated Dow with Microsoft with Exxon with Google from some apparently chaotic corner of your mind.

    If you’d like to go deeper, you could begin with:

    The Uncertain Promise of Law, Jamie Cassels
    Behind the Poison Cloud, Larry Everest,
    Bhopal, The Inside Story, TR Chouhan et al
    Bhopal, The lessons of a tragedy, Sanjoy Hazarika (ex NYT correspondent)
    The Bhopal Tragedy, Morehouse & Subramaniam

    When you’ve read some of those, I’d be happy to be able to conduct a more rational debate with you.

    Comment by Tim Edwards — October 24, 2007 #

  11. Man, Charles, you attracted some with this post. Here’s Tim’s earlier letter to C&EN.

    Comment by sam — October 24, 2007 #

  12. I’ll have to take a look at those references, Tim. Thanks for bringing them to the ES community’s attention!

    Comment by charles — October 24, 2007 #

  13. Okay, so the main point about Dow’s corporate liability boils down to the Common Law Rules for Successor Liability.
    Basically, a parent corporation “does not take the liabilities of the predecessor corporation from which the assets were acquired unless one of four generally recognized exceptions are met: (1)the successor expressly or implicitly agrees to assume the liabilities of the predecessor; (2)the transaction may be considered a de facto merger; (3)the successor may be considered a “mere continuation” of the predecessor; or (4)the transaction was fraudulent.” http://library.findlaw.com/1997/Jun/1/127681.html
    So by default, parent companies DO NOT inherit an acquisitions liabilities UNLESS it meets one of these 4 specific examples. Let’s examine the Dow/Union Carbide merger in this context:
    1)”the successor expressly or implicitly agrees to assume the liabilities of the predecessor.”
    There is no indication that Dow expressly or implicitly agreed to assume the liability of Union Carbide. In fact, Dow has said more than once that it assumes no liability, specifically for Bhopal.
    2)”the transaction may be considered a de facto merger”
    The difference between an “aquisition” and “merger” is very delicate to say the least! They are used almost synonomously in common language, but mean slightly different things. All quotes come from the “Investopedia” by Forbes:
    “In the pure sense of the term, a merger happens when two firms, often of about the same size, agree to go forward as a single new company rather than remain separately owned and operated. This kind of action is more precisely referred to as a “merger of equals.” Both companies’ stocks are surrendered and new company stock is issued in its place. For example, both Daimler-Benz and Chrysler ceased to exist when the two firms merged, and a new company, DaimlerChrysler, was created. In practice, however, actual mergers of equals don’t happen very often. Usually, one company will buy another and, as part of the deal’s terms, simply allow the acquired firm to proclaim that the action is a merger of equals, even if it’s technically an acquisition.”
    “As you can see, an acquisition may be only slightly different from a merger. In fact, it may be different in name only. Like mergers, acquisitions are actions through which companies seek economies of scale, efficiencies and enhanced market visibility. Unlike all mergers, all acquisitions involve one firm purchasing another – there is no exchange of stock or consolidation as a new company. Acquisitions are often congenial, and all parties feel satisfied with the deal. Other times, acquisitions are more hostile.
    In an acquisition, as in some of the merger deals we discuss above, a company can buy another company with cash, stock or a combination of the two. Another possibility, which is common in smaller deals, is for one company to acquire all the assets of another company. Company X buys all of Company Y’s assets for cash, which means that Company Y will have only cash (and debt, if they had debt before). Of course, Company Y becomes merely a shell and will eventually liquidate or enter another area of business.”
    Another definition of merger comes from the Small Business encylcopedia: htpp://www.answers.com/topic/mergers-and-acquisitions?cat=biz-fin
    “A merger occurs when one firm assumes all the assets and all the liabilities of another. The acquiring firm retains its identity, while the acquired firm ceases to exist. A majority vote of shareholders is generally required to approve a merger. A merger is just one type of acquisition. One company can acquire another in several other ways, including purchasing some or all of the company’s assets or buying up its outstanding shares of stock.”
    The definition of a statutory merger (and consolidiation) from answers.com: “Legal combination of two or more corporations in which only one survives as a Legal Entity. It differs from statutory consolidation, in which all the companies in a combination cease to exist as legal entities and a new corporate entity is created. See also Merger.”
    A de-facto merger just means that “where an asset acquisition leads to the same result as a statutory merger, these jurisdictions demand that shareholders are given the same rights as in the statutory merger.” http://www.answers.com/topic/de-facto-merger
    So the question here is whether Union Carbide (which is now a wholly-owned subsidiary of Dow) “merged” with Dow or was “aquired” by Dow. Since aquisitions can be paid for in cash or stock, paying the shareholders does not necessarily mean that it is a meger!
    The key here is that Union Carbide still exists as a legal entity with it’s own assets and liabilities! The US courts seem to think so too, which is why civil court cases in the US since the acquisition have been against Union Carbide, not Dow.
    That means it did NOT undergo a stautory merger – Dow purchased all outstanding shares which is necessary for an aquisition. Therefore, I think Dow “aquired” and not “merged” with Union Carbide. However, this is something for corporate lawyers to wrangle about.
    3) and 4) are not really applicable.
    So the argument about legal responsibility and/or liability for Bhopal rests on whether Dow agreed to assume liability for Union Carbide and whether it’s aquisition was really a statutory merger.
    Since the corporate entity Dow did not agree to assume liability of Union Carbide (which they’d have had to be idiots to do or have REALLY bad laywers) and since Union Carbide is a seperate entity from Dow, meaning it was NOT a statutory merger betweent he two, then Dow inherits no legal liability for Bhopal.

    Comment by charles — October 24, 2007 #

  14. Dear Charles,

    the main, overwhelming points about Dow’s inherited liabilities (and I’m happy that you’re not now disputing that the liabilities exist) are moral and ethical. People are being poisoned even whilst we have this discussion. Have a look at the front page of http://www.bhopal.net and you’ll see photographs of 24 children maimed for the rest of their lives because a $50 billion company refuses to put any value upon their existence.

    What is commonly held to be the purpose of the law? To serve itself, or to serve principle and justice?

    If you believe it’s the latter – and if you don’t then I’m wasting my time debating with you – then I wonder why you’d seek to establish that by dent of a hyper-technical legal transaction the people of Bhopal should no longer have any right to justice.

    The legal principle ‘polluter pays’ is designed to ensure that the legal person causing an environment to become toxic is the one who should pay to undo the contamination. Its statutory law in the US and India and it defies common sense to imply it should be otherwise. You suggested earlier that the Indian govt. should carry the can for the clean up. Leaving aside the question of compensation for health damages (and what compensation could possibly make up for a ruined life), it would effectively mean either that the Indian taxpayer should pay, or that those already poisoned in 1984 – who make up a high proportion of those being poisoned right now by the contamination – should lose a chunk of their meagre entitlement to cover the costs. Are you seriously suggesting that this would be a just result? What about the entity whose reckless and depraved indifference to human life caused this situation in the first place?

    Then there’s the criminal proceedings. The law in India derives from the same anglo saxon principles as US law: a person is innocent unless proven otherwise. Union Carbide – which no longer exists in distinction from Dow in any meaningful sense, but which does exist on paper – is charged with culpable homicide. As it hasn’t turned up, the Indian courts summoned Dow’s Indian subsidiary to ask why it wasn’t producing Carbide in the courts. It said that it had no relation to the parent Dow, and that the parent Dow had no control over Union Carbide. That’s the 100% owned subsidiary Union Carbide, which describes itself in SEC filings as a part of Dow’s global operations, whose executive officers are Dow managers and which only supplies products to Dow. So the Judge issued a summons to Dow itself to explain why it didn’t hand Carbide over. Dow then used its Indian subsidiary to get a stay order on the summons – the same subsidiary it apparently had nothing to do with.

    Do you think that what Dow/Carbide is doing is in the spirit of the law or is it abuse of the law?

    Now to the technical arguments you present. The civil case in the New York court proceeds against Carbide because it was initiated 18 months before the merger went ahead, before Dow assumed Carbide’s liabilities, not because the courts have made any kind of ruling around liability.

    Now to the rest. The transaction by which Dow Chemical acquired Union Carbide is described in Union Carbide’s own quarterly filings with the US Securities and Exchange Commission as a merger: “Since February 6, 2001, the Corporation has been a wholly owned subsidiary of The Dow Chemical Company (“Dow”) as a consequence of the Corporation merging with a wholly owned subsidiary of Dow effective that date (the “merger” or “Dow merger”).” As you say, in the case of a statutory merger, where the selling corporation becomes the buyer’s subsidiary, its liabilities as well as its assets are transferred by operation of law. During Dow’s acquisition of Union Carbide, however, Dow created a subsidiary company for the sole purpose of merging with Union Carbide – a type of company it is appropriate to describe in this context as a corporate ‘shell’. The apparent reason for this practise was to create an additional corporate veil for the purpose of avoiding liabilities inherited from Union Carbide. Under US State and Federal law, however, a company may not escape successor liability if it is deemed to have become derivatively liable as a consequence of “eccentric” management practice, that is, managerial undertakings that transparently attempt to denude a company of successor liability. Undercapitalizing a shell company is one such eccentric practise.

    There are additional ways in which it’s possible to apply successor liability to Dow under established principles of law. As you suggest, in adjudging successor liability cases, US courts have typically decided that asset purchasing companies are not liable as successors unless one of four exceptions applies. These four exceptions are where: (1) the purchaser expressly or impliedly assumes the liability; (2) the purchase constitutes a de facto merger; (3) the purchasing entity constitutes a “mere continuation” of the selling entity; and (4) the transaction was fraudulently conducted to avoid liability.

    In relation to exception (1), it’s worth noting that Dow Chemical has assumed express responsibility for asbestos related liabilities of Union Carbide in a number of US lawsuits (http://www.businessweek.com/bwdaily/dnflash/jan2002/nf20020122_7284.htm). In respect of exception (2), the hallmark of a de facto merger is that the shareholders of the seller receive all or a portion of the purchase price in stock, thereby retaining ownership while also attempting to cleanse their assets of liability. Under the terms of the Dow-Union Carbide merger, Union Carbide shareholders gained 25% of Dow Chemical’s overall stock as the purchase price: the deal is thus properly described as a de facto merger, regardless of the utilization of a shell company during the takeover. In the case of exception (3), Union Carbide’s SEC filings say the following: “The Corporation’s business activities comprise components of Dow’s global operations rather than stand-alone operations.” Owing to its status as representative of Union Carbide’s business in India, and as the sole shareholder of Union Carbide, Dow Chemical has continued to profit from the sales of its subsidiary’s products in India, effectively continuing the business of the selling entity, despite the subsidiary’s status as an absconder. Indeed it’s arguable that this, and numerous other identifiable aspects of Dow’s business in the aftermath of the merger with Union Carbide, such as continuity of name, products, facilities, personnel, business operations and Union Carbide’s general enterprise, could be said to be effecting a fifth exception to absence of successor liability: the “substantial continuity test”, which originated in a series of U.S. Supreme Court labour relations and product liability cases.

    In India, Dow exists as the sole representative of Union Carbide, its owner and its only shareholder. Dow’s presence as a respondent in the criminal case is essential as a matter of due process, and in order to enforce the appearance of Union Carbide.

    Or would you have it that Union Carbide should evade it’s legal human rights responsibilities by dent of an accounting trick?

    Comment by Tim Edwards — October 26, 2007 #

  15. Wow, this is pretty interesting stuff. There are alot of great people working hard to get justice and clean up with the survivors of the Bhopal Disaster. Do lend a hand in our action to keep the Indian government Ministers from making a deal with Dow Chem to remove Dow’s name from the Clean up case: The long suffering survivors deserve a real clean up. http://www.studentsforbhopal.org/emailaction07/email_action

    Comment by Aquene — November 5, 2007 #

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