In re Dravo

307 A.3d 146

IN RE: DRAVO LLC-Derivative Claims Against Carmeuse Lime, Inc., and Certain Affiliated Entities

Appeal of: All Plaintiffs Represented By Goldberg, Persky & White, P.C.

In re: Dravo LLC - Derivative Claims Against Carmeuse Lime, Inc., and Certain Affiliated Entities

Appeal of: All Plaintiffs Represented By Savinis, Kane & Gallucci, LLC

No. 1210 WDA 2022

No. 1284 WDA 2022

Superior Court of Pennsylvania.

Argued June 28, 2023

Filed December 19, 2023

Appeal from the Order Entered October 5, 2022, In the Court of Common Pleas of Allegheny County, Civil Division, at No(s): GD 20-010198, Christine A. Ward, J.

Jason T. Shipp, Pittsburgh, for appellants.

Andrew J. Muha, Pittsburgh, for Carmeuse Lime, Inc, participant.

BEFORE: MURRAY, J., McLAUGHLIN, J., and PELLEGRINI, J.^*

OPINION BY McLAUGHLIN, J.:

Here we have an appeal in a proceeding to determine whether asbestos plaintiffs may pierce the corporate veil and hold Carmeuse Lime, Inc. and certain affiliated entities (together, "CLI") liable for the torts of Dravo Corporation ("Dravo"). Each of the asbestos plaintiffs filed a lawsuit against CLI as well as other defendants. The trial court severed the claims against CLI from each individual case and consolidated them into the instant proceeding.¹ The asbestos plaintiffs are in two groups: those represented by Goldberg, Persky & White, P.C. ("GPW Plaintiffs"), and those represented by Savinis, Kane & Gallucci, LLC ("SKG Plaintiffs"). The asbestos plaintiffs’ cases against the remaining defendants in the individual actions continued in the individual actions.

The trial court granted summary judgment to CLI, holding that plaintiffs could not pierce the veil, and the asbestos plaintiffs appealed. We conclude that the court erred in granting summary judgment to CLI. The asbestos plaintiffs produced evidence that in practice CLI and Dravo acted as a single entity and that CLI used its control of Dravo to leave Dravo subject to the asbestos liabilities, take significant assets for itself, and leave Dravo with inadequate assets to satisfy foreseeable asbestos liabilities. We therefore reverse and remand.

Factual History

A. Dravo’s Background and Insurance Policies

Prior to October 19, 1998, Dravo was a publicly traded corporation. Stipulation of Undisputed Facts ("Undisputed Facts"), filed Dec. 3, 2021, at ¶ 4. It was "involved in a number of businesses involving heavy industry," including manufacturing watercraft and industrial heating equipment and providing construction and engineering services in steel mills, chemical plants, and other industrial settings. Id. at ¶ 5. Since at least the early 1990s, Dravo had been sued in a number of lawsuits that sought damages due to alleged bodily injury caused by exposure to asbestos, where the exposure typically occurred during its operations from the 1940s through the 1980s. Id. at ¶¶ 6-7.

Between 1971 and 1986, Dravo purchased primary liability insurance policies ("Primary Policies") from Liberty Mutual Insurance Company ("Liberty Mutual"). The policies provided coverage for the defense and resolution of asbestos claims. Dravo also obtained during that same period excess liability insurance from London Market insurers, providing similar coverage. Id. at ¶ 8.

In the early 1990s, Dravo and Liberty Mutual had a disagreement "over what constituted ‘an occurrence’ under the Primary Policies, as that term was to, be applied in the context of asbestos-related bodily injury claims against Dravo." Supplemental Stipulation of Undisputed Facts ("Supplemental Stipulation"), at ¶ 11. They resolved the dispute "by agreeing to treat ‘clusters’ of asbestos-related claims as occurrences under those policies[.]" Id. They memorialized the agreement in 1996 in a written document. Id. Dravo and Liberty Mutual continued to have disagreements, and created another "cluster" for asbestos-related claims arising out of Allegheny County, Pennsylvania. Id. at ¶ 12. They also continued to disagree about the limits of coverage applicable to each cluster. Id. Dravo and Liberty Mutual resolved the issues in a 2015 settlement regarding "Dravo’s coverage for asbestos-related bodily injury claims under the Primary Policies." Id. Dravo received $8 million in insurance proceeds as part of the settlement.

As early as 2005, Dravo notified the excess insurers that the excess coverage could be implicated in the future. Id. at ¶ 13. "In a letter dated October 13, 2005, an attorney" for certain excess insurers "advised that those insurers were reserving their rights and defenses regarding Dravo’s right to coverage under the Excess Policies for reasons that included (among others) issues regarding what may or may not constitute an ‘occurrence’ under the Excess Policies." Id. at ¶ 14.

B. CLI’s Acquisition of Dravo and Dravo’s Dissolution

Previously, in 1998, CLI, a Belgian company specializing in the mining and sale of natural resources such as lime, sought to acquire Dravo to gain control of Dravo Lime Company. Undisputed Facts at ¶¶ 10. CLI formed a wholly owned subsidiary called DLC Acquisition Corporation ("DLCAC") for the purpose of acquiring Dravo. Id. at ¶ 11. When announcing plans for this acquisition, CLI and Dravo issued a "Joint Press Release" stating that they had "announced agreement on a merger[.]" Id. at ¶¶ 12-13. The press release explained that DLCAC, as the acquiring company, would make a cash tender offer for all outstanding stock of Dravo. Id. at ¶ 13. DLCAC ultimately acquired 100% of the shares of Dravo common stock. Id. at ¶ 14. An "Agreement and Plan of Merger" that governed the process by which CLI acquired Dravo² stated explicitly that DLCAC merged into Dravo and ceased to exist.

[U]pon DLCAC’s purchase of the shares of Dravo, DLCAC ‘shall be merged into [Dravo] and the separate existence of [DLCAC] shall thereupon cease, and [Dravo], as the surviving corporation in the Merger, shall by virtue of the Merg-er continue its corporate existence under the laws of the Commonwealth of Pennsylvania with all of its rights, privileges, immunities, powers, and franchises unaffected thereby.

Id. at ¶ 16 (alterations in original). The articles of merger were filed with the Pennsylvania Corporation Bureau, in October 1998, and DLCAC merged with and into Dravo, with Dravo being the surviving corporation. Id. at ¶ 18.

After the acquisition, Dravo continued to be named as a defendant in asbestos suits. It continued to have access to insurance coverage under the primary insurance policies "and presumably tile Excess Policies for the purpose of defending and resolving [a]sbestos [c]laims." Undisputed Facts at ¶ 21.

Dravo determined in 2018 that it would dissolve. Trial Court Opinion, dated Oct. 3, 2022, at 5. CLI, as Bravo’s sole shareholder, exercised its right to approve plans for termination. Id. It formed a new subsidiary, Dravo 2018 Inc. ("Dravo 2018"), to serve as a holding company for Dravo. Id. Dravo and Dravo 2018 then reorganized so that Dravo 2018 was the direct parent of Dravo. Id. CLI transferred all Dravo stock to Dravo 2018, making Dravo 2018 the direct parent of Dravo, and leaving CLI the direct parent of Dravo 2018. Id. Dra, vo – until then a corporation - then converted to a limited liability company. Subsequently, on July 5, 2018, it filed for dissolution. Id.

C. Dravo’s Operations

From 1998 until Dravo converted to a limited liability company in 2018, "every one of Dravo’s corporate officers simultaneously were also officers or employees of CLI." Id. at ¶ 20. After CLI acquired Dravo, Dravo "ceased having employees of its own, and the people within CLI’s corporate family who did Dravo-related work were employees of CLI or an affiliate of CLI other than Dravo." Supplemental Stipulation, at ¶ 1. Those individuals did not receive a salary or wages from Dravo for the work they performed on Dravo’s behalf. Id. Therefore, from the 1998 until the time Dravo converted to a limited liability company, it had only corporate officers, and no employees. Id. at ¶ 2. Once it converted to a limited liability company, it had only a member and managers, no employees. Id. CLI does not have corporate minutes or similar records to show who served as its corporate officers between 1999 and 2002. Id. at ¶ 3.

Dravo’s insurers contacted and communicated with people employed by CLI (or an affiliate other than Dravo) about coverage issues involving Dravo. Id. at ¶ 4-5. CLI’s employees, and employees of its affiliates other than Dravo, "used CLI letterhead (or letterhead identifying a non-Dravo affiliate)" to correspond with third parties about Dravo. Id. Insurance consultants providing advice about Dravo’s asbestos coverage contacted or communicated with people employed by CLI (or an affiliate other than Dravo). Id. at ¶ 6. Email communications with insurers "routinely included a disclaimer" indicating the communication was only for "the recipient and that the communication was private and/or privileged and not intended for third parties." Id. at ¶¶ 7-8. Some contained address and contact information for the sender that listed CLI or an affiliate as the sender’s workplace. Id.

Individuals who were officers of both CLI and Dravo ("or who otherwise acted on behalf of CLI and Dravo on an as-needed basis") "advised Dravo’s insurers and/or insurance consultants that communications and notices regarding Dravo should be directed to individuals who acted on behalf of both CLI and Dravo[.]" Id. at ¶¶ 9-10. They communicated on behalf of Dravo through email addresses that included a CLI-related suffix, i.e., "@carmeusena.com."

In communications about the negotiations for the 2015 settlement between Dravo and Liberty Mutual, a Dravo and CLI officer emailed that another individual "would attend for [CLI]." SKG’s Response to CLI’s Motion for Summary Judgment ("SKG’s Response"), Exh. 13, Email from Kevin Whyte to Gregg Russell and Carl Brigada dated Dec. 3, 2014. Emails show that during the negotiations, Liberty Mutual understood...