Rochester Gas & Electric Corp. v. GPU, Inc.

09-0482-cv
Rochester Gas & Elec. Corp. v. GPU, Inc.
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUM M ARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO SUM M ARY
ORDERS FILED AFTER JANUARY 1, 2007, IS PERM ITTED AND IS GOVERNED BY THIS COURT’S
LOCAL RULE 32.1 AND FEDERAL RULE OF APPELLATE PROCEDURE 32.1. IN A BRIEF OR OTHER
PAPER IN W HICH A LITIGANT CITES A SUM M ARY ORDER, IN EACH PARAGRAPH IN W HICH A
CITATION APPEARS, AT LEAST ONE CITATION M UST EITHER BE TO THE FEDERAL APPENDIX OR
BE ACCOM PANIED BY THE NOTATION: “(SUM M ARY ORDER).” A PARTY CITING A SUM M ARY
ORDER M UST SERVE A COPY OF TH AT SUM M ARY ORDER TOGETHER W ITH THE PAPER IN
W HICH THE SUM M ARY ORDER IS CITED ON ANY PARTY NOT R EPRESENTED BY COUNSEL
UNLESS TH E SUM M ARY ORDER IS AVAILABLE IN AN ELECTRONIC DATABASE W HICH IS
PUBLICLY ACCESSIBLE W ITHOUT PAYM ENT OF FEE (SUCH AS THE DATABASE AVAILABLE AT
HTTP://W W W .CA2.USCOURTS.GOV/). IF NO COPY IS SERVED BY REASON OF THE AVAILABILITY
OF THE ORDER ON SUCH A DATABASE, THE CITATION M UST INCLUD E REFERENCE TO THAT
DATABASE AND THE DOCKET NUM BER OF THE CASE IN W HICH THE ORDER W AS ENTERED.
At a stated term of the United States Court of Appeals for the Second Circuit, held
at the Daniel Patrick Moynihan United States Courthouse, 500 Pearl Street, in the City of
New York, on the 10 th day of December, two thousand nine.
PRESENT: JOHN M. WALKER, JR.,
JOSEPH M. McLAUGHLIN,
REENA RAGGI,
Circuit Judges.
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ROCHESTER GAS AND ELECTRIC
CORPORATION,
Plaintiff-Counter-Defendant-Appellee,
v. No. 09-0482-cv
GPU, INC.,
Defendant-Counter-Claimant-Appellant.
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APPEARING FOR APPELLANT: JOHN F. STOVIAK (Cathleen M. Devlin,
Christine M. Pickel, Christina M. Deeney, on the
brief), Saul Ewing LLP, Philadelphia,
Pennsylvania.
APPEARING FOR APPELLEE: WOODY N. PETERSON (David L. Elkind,
Geoffrey M. Long, on the brief), Dickstein
Shapiro LLP, Washington, D.C.
Appeal from the United States District Court for the Western District of New York
(Jonathan W. Feldman, Magistrate Judge).1
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND
DECREED that the judgment and order of the district court entered on January 6, 2009, and
March 31, 2009, respectively, are AFFIRMED.
Defendant GPU, Inc. (“FirstEnergy”)2 appeals from a judgment in favor of plaintiff
Rochester Gas and Electric Corp. (“RG&E”) entered after a bench trial on RG&E’s suit
under the Comprehensive Environmental Response, Compensation, and Liability Act
(“CERCLA”), 42 U.S.C. § 9601 et seq., to recover costs incurred during the voluntary
cleanup of two manufactured gas plants. FirstEnergy argues that the district court (1)
misapplied established principles of New York law in allowing RG&E to pierce its own
corporate veil; (2) improperly considered and adopted the legal conclusions of RG&E’s
expert on corporate governance; (3) erred in concluding that FirstEnergy was derivatively
liable under CERCLA as the corporate successor to Associated Gas and Electric Company
(“AGECO”), RG&E’s former corporate parent; and (4) erred in concluding that AGECO’s
bankruptcy did not extinguish RG&E’s CERCLA claim. We assume the parties’ familiarity
with the facts and record of prior proceedings, which we reference only as necessary to
1
The parties consented to proceed before a magistrate judge pursuant to 28 U.S.C.
§ 636(c).
2
GPU, Inc., merged with FirstEnergy Corp. in 2001.
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explain our decision to affirm.
1. Standards of Review
“We review the district court’s findings of fact after a bench trial for clear error and
its conclusions of law de novo.” Arch Ins. Co. v. Precision Stone, Inc., 584 F.3d 33, 38-39
(2d Cir. 2009) (internal quotation marks omitted). In reviewing for clear error, we will not
second-guess the trial court’s credibility assessments or its choice between permissible
competing inferences. See Amalfitano v. Rosenberg, 533 F.3d 117, 123 (2d Cir. 2008). We
review de novo mixed questions of law and fact and the district court’s use of facts “to draw
conclusions of law, including a finding of liability.” Travellers Int’l, A.G. v. Trans World
Airlines, Inc., 41 F.3d 1570, 1575 (2d Cir. 1994).
2. Piercing the Corporate Veil
CERCLA provides that any corporation that “owned or operated any facility” from
which hazardous materials were released is liable for costs incurred by any other person or
corporation that cleans up the contamination pursuant to a government-approved plan. See
42 U.S.C. § 9607(a)(2), (a)(4)(B). A parent corporation can be held derivatively liable as the
effective owner/operator of a subsidiary’s facility where circumstances justify piercing the
subsidiary’s corporate veil. See United States v. BestFoods, 524 U.S. 51, 63-64 (1998). In
New York, a court may disregard the corporate form if (1) the parent corporation so
dominates the subsidiary as to render it “a mere instrumentality of the parent,” (2) the parent
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uses its control “to commit fraud or other wrong,” and (3) “the fraud or wrong results in an
unjust loss or injury to plaintiff.” Wm. Passalacqua Builders, Inc. v. Resnick Developers S.,
Inc. 933 F.2d 131, 138 (2d Cir. 1991) (internal quotation marks omitted).3 FirstEnergy
argues that veil piercing was unwarranted in this case because the district court failed to find
the required link between AGECO’s domination of RG&E and the coal tar contamination
at RG&E’s plants. See Bedford Affiliates v. Sills, 156 F.3d 416, 432 (2d Cir. 1998) (“[A]
finding that [defendant’s] corporate domination caused the contamination at the Site must
be made . . . .”); Morris v. N.Y. State Dep’t of Taxation & Fin., 623 N.E.2d 1157, 1161, 82
N.Y.2d 135, 141-42 (1993) (“[D]omination, standing alone, is not enough; some showing
of a wrongful or unjust act toward plaintiff is required.”). We are not persuaded.
The district court found that coal tar was an inevitable byproduct of RG&E’s
manufactured gas production; that leakage and soil contamination were “inherent” in the
storage methods used at the relevant time; and that AGECO so dominated RG&E that “the
actions of RG&E were the actions of AGECO” during the period in question. Rochester Gas
& Elec. Corp. v. GPU, Inc., No. 00-cv-6369, slip op. at 68 (W.D.N.Y. Aug. 8, 2008). Under
these circumstances, a decision to produce gas was, in effect, a decision to pollute, and that
decision to cause harm was effectively AGECO’s. The district court’s factual findings thus
3
The Supreme Court has expressly declined to decide “whether, in enforcing
CERCLA’s indirect liability, courts should borrow state law, or instead apply a federal
common law of veil piercing.” United States v. BestFoods, 524 U.S. at 63 n.9. We need not
reach the issue, as FirstEnergy’s challenge fails whichever law applies.
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amply supported its conclusion that there was a “direct nexus” between AGECO’s
domination and coal tar contamination at the RG&E plants. Id. at 67.
FirstEnergy argues further that New York law prohibits a subsidiary corporation from
piercing its own corporate veil to reach its parent. The argument overlooks the flexible
nature of New York’s veil-piercing doctrine, which may be employed “whenever necessary
to prevent fraud or to achieve equity.” Morris v. N.Y. State Dep’t of Taxation & Fin., 623
N.E.2d at 1160, 82 N.Y.2d at 140 (internal quotation marks omitted); see also Wm.
Passalacqua Builders, Inc. v. Resnick Developers S., Inc., 933 F.2d at 139 (observing that
application of veil-piercing factors “to the infinite variety of situations that might warrant
disregarding the corporate form is not an easy task because disregarding corporate
separateness is a remedy that differs with the circumstances of each case” (internal quotation
marks omitted)).
Like the district court, we conclude that the circumstances of this case justify veil
piercing given RG&E and AGECO’s evolution into wholly distinct entities now looking back
across decades to the period when RG&E was dominated by its parent. In short, this case
is not akin to Corcoran v. Frank B. Hall & Co., in which the Appellate Division observed that
“a suit by a viable corporate entity seeking to pierce its own veil is the equivalent of a suit
by a corporation for the benefit of its shareholders brought against its shareholders, an
absurdity.” 149 A.D.2d 165, 174, 545 N.Y.S.2d 278, 283 (1st Dep’t 1989). Rather, as the
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district court aptly concluded, “RG&E’s current posture is more akin to an injured third party
than a subsidiary of a parent.” Rochester Gas & Elec. Corp. v. GPU, Inc., No. 00-cv-6369,
slip op. at 69-70. Indeed, if a third party, such as the government, may pierce a subsidiary’s
corporate veil to impose CERCLA liability on a dominating parent, see United States v.
BestFoods, 524 U.S. at 55, it is hard to see why a company that voluntarily cleans up
contamination caused by its former parent (through its then-domination of the company)
should be barred from seeking similar recovery. To preclude a company from piercing its
own veil in such circumstances would run directly counter to CERCLA’s twin goals of
“encouraging the timely cleanup of hazardous waste sites and placing the cost of that cleanup
on those responsible for creating or maintaining the hazardous condition.” Consol. Edison
Co. of N.Y. v. UGI Utils., Inc., 423 F.3d 90, 94 (2d Cir. 2005) (internal quotation marks and
alterations omitted); see also Schenley Distillers Corp. v. United States, 326 U.S. 432, 437
(1946) (observing that “corporate entities may be disregarded where they are made the
implement for avoiding a clear legislative purpose”).
Accordingly, we conclude that the district court properly pierced the corporate veil
between RG&E and AGECO to achieve equity on the unusual facts of this case.
3. RG&E’s Expert
FirstEnergy faults the district court’s reliance on RG&E’s expert, Professor Jonathan
R. Macey, in conducting its veil-piercing analysis. We are not persuaded. District courts
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enjoy broad discretion in admitting expert testimony, and we will reverse only for manifest
error. See Zerega Ave. Realty Corp. v. Hornbeck Offshore Transp., LLC, 571 F.3d 206, 213
(2d Cir. 2009). The district court may admit expert testimony “in the form of an opinion or
otherwise” when the district court concludes that it “will assist the trier of fact” – in this case
the court itself – “to understand the evidence or to determine a fact in issue.” Fed. R. Evid.
702. Here, after studying the historical record, Macey testified about RG&E’s corporate
structure and evidence of dominance by AGECO. FirstEnergy does not point to any specific
portions of Macey’s testimony that impermissibly stated legal conclusions. Moreover, the
district court clearly understood the limits of Macey’s role, observing that it was for the court
alone to determine whether the facts met the standard for piercing the corporate veil. On this
record, we detect no manifest error in the district court’s admission and use of Macey’s
testimony.
4. Successor Liability Under CERCLA
FirstEnergy submits that the district court erred in imposing CERCLA liability on
FirstEnergy as the successor to AGECO despite the bankruptcy reorganization of AGECO
and GPU’s later divestment of RG&E to comply with the Public Utility Holding Company
Act. The argument fails in light of record evidence that AGECO survived the bankruptcy,
changed its name to GPU Corp., and continued in existence. See Certificate of
Consolidation, Jan. 10, 1946, at ¶ 3 (“The consolidated corporation is one of the constituent
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corporations, namely Ageco, and not a new corporation. The existence of Ageco shall
continue for all purposes whatsoever after the consolidation and merger . . . .”). The record
further indicates that, in the years following the bankruptcy, GPU continued to operate from
AGECO’s corporate headquarters, held itself out as the successor of AGECO, and claimed
RG&E as a wholly-owned subsidiary until 1949, when GPU sold RG&E. In light of this
factual record, we detect no error in the district court’s determination that AGECO emerged
from bankruptcy as a viable public utility holding company. Nor is there evidence or legal
authority to support FirstEnergy’s claim that the subsequent sale of RG&E somehow
extinguished FirstEnergy’s potential liability as direct successor to AGECO.4
5. CERCLA Liability After the AGECO Bankruptcy
FirstEnergy’s argument that the AGECO bankruptcy extinguished any future
CERCLA claim is without merit given our precedent holding that a defendant may be liable
for claims that did not exist pre-bankruptcy, as where a statute enacted after the bankruptcy
creates a new cause of action, even if the claim relates to pre-petition activity. See In re
Chateaugay Corp., 53 F.3d 478, 497 (2d Cir. 1995); see also In re Duplan Corp., 212 F.3d
4FirstEnergy urges reliance on Interstate Power Co. v. Kansas City Power & Light
Co., 909 F. Supp. 1241 (N.D. Iowa 1993), but, in addition to lacking precedential weight, the
case is inapposite. Interstate Power declined to impose successor liability on a pre-existing
company that received assets following an SEC-mandated liquidation, in a context where the
acquiring company did not hold itself out as the successor to, share the same offices or
employees with, or produce the same product as the acquired entity. Id. at 1256-57, 1276-77,
1282. None of these facts is present in this case.
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144, 151 (2d Cir. 2000) (“CERCLA claims arise for purposes of bankruptcy at the earliest
on the date that CERCLA became effective, December 11, 1980.”). FirstEnergy’s argument
that the claim in this case is a veil-piercing claim that existed before the bankruptcy fares no
better, as veil piercing is not “a cause of action independent of that against the corporation;
rather it is an assertion of facts and circumstances which will persuade the court to impose
the corporate obligation on its owners.” Morris v. N.Y. State Dep’t of Taxation & Fin., 623
N.E.2d at 1160, 82 N.Y.2d at 141.
We have considered FirstEnergy’s remaining arguments and conclude that they are
without merit. Accordingly, the judgment of the district court is AFFIRMED.
FOR THE COURT:
CATHERINE O’HAGAN WOLFE, Clerk of Court
By:
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