N.Y. State Elec. v. Firstenergy Corp.

766 F.3d 212

NEW YORK STATE ELECTRIC AND GAS CORPORATION, Plaintiff–Counter–Defendant–Appellant–Cross–Appellee,

v.FIRSTENERGY CORPORATION, Defendant–Counter–Claimant–Appellee–Cross–Appellant,FirstEnergy Corporation, Third–Party Plaintiff–Appellee,

v.I.D. Booth, Inc., Third–Party Defendant–Appellant.

Docket Nos. 11–4143–cv(L); 11–4146–cv(XAP); 11–4149–cv(XAP).

United States Court of Appeals, Second Circuit.

Argued: March 6, 2014.

Decided: Sept. 11, 2014.

David L. Elkind (Keisha A. Gary, Woody N. Peterson, Geoffrey M. Long, on the brief), Dickstein Shapiro LLP, Washington, DC, for Plaintiff–Counter–Defendant–Appellant–Cross–Appellee New York State Electric and Gas Corporation.

Paul D. Clement (Gregory W. Hicks, Jr., Erin E. Murphy, on the brief), Bancroft PLLC, Washington, DC, and John F. Stoviack, Saul Ewing LLP, Philadelphia, PA, for Defendant–Counter–Claimant–Appellee–Cross–Appellant–Third–Party Plaintiff–Appellee FirstEnergy Corporation.

Bryan J. Maggs (Donald S. Thompson, on the brief), Davidson & O'Mara, P.C., Elmira, N.Y., for Third–Party Defendant–Appellant I.D. Booth.

Before: RAGGI, LYNCH, and CHIN, Circuit Judges.

CHIN, Circuit Judge:

In this case, New York State Electric and Gas Corporation (“NYSEG”) sued FirstEnergy Corporation (“FirstEnergy”) under section 107(a) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. §§ 9601 et seq. (“CERCLA”), to recover certain costs incurred in remediating coal tar contamination at certain of NYSEG's manufactured gas plants in upstate New York. NYSEG contends that FirstEnergy is liable as the successor to NYSEG's former parent company, Associated Gas & Electric Company (“AGECO”), for a portion of the cleanup costs. FirstEnergy filed counterclaims against NYSEG and third-party claims against I.D. Booth, Inc. (“I.D. Booth”), the current owner of one of the sites, for cost contribution under section 113(f) of CERCLA.

On July 11, 2011, following a bench trial, the United States District Court for the Northern District of New York (Peebles, M.J.) issued a decision and order holding that NYSEG was entitled to recover certain cleanup costs from FirstEnergy based on a veil-piercing theory, but limiting that recovery to certain sites. New York State Elec. & Gas Corp. v. FirstEnergy Corp., 808 F.Supp.2d 417, 499–502 (N.D.N.Y.2011) (“ NYSEG ”).¹ The district court also found I.D. Booth liable for a portion of the cleanup costs at one site. Id. at 519.

We affirm in part, vacate in part, and remand.

STATEMENT OF THE CASE

A. The MGPs

This case arises from the cleanup of hazardous waste created at certain former manufactured gas plants (“MGPs”) in upstate New York, currently or formerly owned by NYSEG or its predecessor companies. MGPs began operating in the United States in the 1800s, producing gas used for cooking, lighting, and heating. The plants created gas by heating coal to very high temperatures in large ovens. The gas was then cleaned, processed and piped out for use. Unfortunately, as the gas cooled, it created a number of by-products, including coal tar, which inevitably leaked from tar-handling equipment. Because coal tar is heavier than water, it tends to migrate in the subsurface, and travels underground from a site through the water table until it runs into a confining layer, such as bedrock. Coal tar also leaches into groundwater, causing groundwater contamination. The Environmental Protection Agency (“EPA”) listed coal tar as a hazardous waste in 1992. See40 C.F.R. § 261.32(a) (2012); see alsoIdentification and Listing of Hazardous Waste; CERCLA Hazardous Substance Designation; Reportable Quantity Adjustment; Coke By–Products Wastes, 57 Fed.Reg. 37,284–285 (Aug. 18,1992) (codified at 40 C.F.R. Pts. 261, 271, & 302).

Most of the MGPs closed in the 1930s and 1940s when natural gas began to be delivered through interstate pipelines. In this case, all of the waste in dispute was manufactured before 1940. NYSEG or its predecessors owned at least thirty-eight MGP sites, including the sites at issue in this case.

B. The Cleanup

Most of the sites at issue were listed by the New York State Department of Environmental Conservation (“DEC”) in 1986 as Class “2a” sites on the Registry of Inactive Hazardous Waste Disposal Sites in New York.² In the 1980s, NYSEG investigated all the MGP sites involved in this case, except Newark and Corning. In March 1994, DEC entered into a Consent Order with NYSEG addressing the investigation and cleanup of coal tar and associated hazardous substances at all the sites in this action, except Corning. Since then, DEC has retained oversight of the cleanup process and approved all cleanup projects at each MGP site at issue in this case.

C. Corporate History

The history of the corporations involved in this case is long and tortured. We relate only the points relevant to the issues before us.³

AGECO was incorporated as a public utility holding company in 1906. By 1907 it owned the common stock of several utility companies. Mergers of certain of its subsidiaries in 1916 and 1918 eventually led to what became known as the New York State Gas and Electric Corporation. In 1928, the latter entity changed its name to the New York State Electric Corporation, and a year later it adopted its current name, New York State Electric and Gas Corporation. Hence, NYSEG was created through the merger of certain AGECO subsidiaries.

Over the years, AGECO acquired other utility companies and MGPs, either directly or through other holding companies. In the 1930s, NYSEG acquired a number of MGPs from AGECO subsidiaries. By 1939, NYSEG had acquired all the MGPs at issue in this action from AGECO.

D. The Bankruptcy

On January 10,1940, AGECO filed for bankruptcy. Pursuant to the reorganization plan, AGECO merged into AGECORP, which subsequently changed its name to General Public Utilities Corporation, which later became GPU. In 2001, GPU merged into FirstEnergy. Hence, FirstEnergy is the successor to AGECO.

On June 26, 1945, during the bankruptcy proceedings, NYSEG's board of directors adopted a resolution not to bring any claims against AGECO, instead assigning NYSEG's claims to N.Y. PA NJ Utilities Company:

[T]hat in accordance with the request of N.Y. PA NJ Utilities Company dated May 9,1945, this Company shall take no action with respect to the filing of any claim or claims against the Estate of [AGECO] or the Estate of [AGECORP] ...; provided, however, that in consideration therefor N.Y. PA NJ Utilities Company shall release this Corporation and its officers and directors from any liability arising from the omission of this Corporation to file such claim or claims and also from any liability for having made or approved allegedly excessive payments through various service corporations or funds prior to 1939; and provided, further that the Trustees of the above-mentioned Estates shall execute and deliver to this Corporation [an] appropriate covenant not to sue on account of any alleged failure to pay its pro rata share of any alleged Federal tax liability for the years 1927 to 1993, inclusive.

NYSEG, 808 F.Supp.2d at 433 (emphasis added).

E. Procedural History

This litigation began in April 2003, when NYSEG sued FirstEnergy under section 107(a) of CERCLA for cleanup costs at twenty-four MGPs in upstate New York. This number was reduced to seventeen sites before trial. During the trial, NYSEG's claims with respect to the Auburn Clark Street site were dismissed pursuant to Fed.R.Civ.P. 52(c), leaving sixteen sites at issue. NYSEG, 808 F.Supp.2d at 446 n. 11.

At trial, NYSEG alleged that it spent more than $94 million in cleanup costs on the sixteen sites through the end of 2009, and that it faced another $144 million in future cleanup costs. Id. at 428.

On July 11, 2011, the district court issued a decision and order, NYSEG, 808 F.Supp.2d 417, holding principally that:

1) NYSEG was not barred by a covenant not to sue from seeking contribution from FirstEnergy under CERCLA.

2) FirstEnergy was not liable for cleanup costs as an “owner.”

3) FirstEnergy was not directly liable for cleanup costs as an “operator.”

4) NYSEG was permitted to pierce the corporate veil to hold FirstEnergy liable as an “operator” for the period from 1922 to 1940.

5) NYSEG was not permitted to pierce the corporate veil for the period prior to 1922 or after 1940.

6) Cost recovery by NYSEG at the Norwich and Owego sites was precluded by the statute of limitations.

7) Cost recovery by NYSEG at the Plattsburgh site was not precluded by the statute of limitations.

8) A portion of a $20 million insurance payment to NYSEG could be used to offset costs assigned to FirstEnergy.

9) The court could rely on FirstEnergy's coal tar production calculations for (1) the pre–1887 period and (2) the post–1930 period.

10) FirstEnergy was entitled to contribution from I.D. Booth based on I.D. Booth's status as an owner of one of the sites.

An Amended Final Judgment was entered on September 7, 2011, awarding NYSEG $29,715,225 for past and future cleanup costs for sixteen sites. I.D. Booth was held liable for $179,122 plus a share of future costs with respect to the Cortland–Homer site.

These appeals followed.

DISCUSSION

A. CERCLA

Congress enacted CERCLA, 42 U.S.C. §§ 9601 et seq., to address the cleanup of hazardous waste by imposing strict liability for necessary cleanup costs incurred that are “consistent with the national contingency plan.” CERCLA § 107(a)(4)(B), 42 U.S.C. § 9607(a)(4)(B). Private parties who engage in cleanup activity can recover costs associated with such actions by bringing claims under either section 107(a) or section 113(f) of CERCLA against “potentially responsible parties” (“PRPs”). CERCLA created four classes of PRPs: (1) present owners and operators of facilities that accepted hazardous substances for transport; (2) past owners and operators of such facilities; (3) generators of hazardous substances; and (4) certain transporters of hazardous...