Filed: Sep. 11, 2014
Latest Update: Mar. 02, 2020
Summary: 11-4143-cv (L) New York State Elec. & Gas Corp. v. FirstEnergy Corp. UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT August Term 2013 (Argued: March 6, 2014 Decided: September 11, 2014) Docket Nos. 11-4143-cv(L); 11-4146-cv(XAP); 11-4149-cv(XAP) 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. B
Summary: 11-4143-cv (L) New York State Elec. & Gas Corp. v. FirstEnergy Corp. UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT August Term 2013 (Argued: March 6, 2014 Decided: September 11, 2014) Docket Nos. 11-4143-cv(L); 11-4146-cv(XAP); 11-4149-cv(XAP) 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. BO..
More
11‐4143‐cv (L)
New York State Elec. & Gas Corp. v. FirstEnergy Corp.
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
August Term 2013
(Argued: March 6, 2014 Decided: September 11, 2014)
Docket Nos. 11‐4143‐cv(L); 11‐4146‐cv(XAP); 11‐4149‐cv(XAP)
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.
ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF NEW YORK
Before:
RAGGI, LYNCH, AND CHIN, Circuit Judges.
Appeal from a judgment after trial before the United States District
Court for the Northern District of New York (Peebles, M.J.), addressing claims
under the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, 42 U.S.C. §§ 9601 et seq., for costs incurred in cleaning up
coal tar contamination at manufactured gas plant sites in upstate New York. The
district court held the corporate successor to plaintiffʹs former parent company
liable for a portion of the costs on a veil‐piercing theory, and it held the current
owner of one site liable for a portion of the costs as well.
AFFIRMED IN PART, VACATED IN PART,
AND REMANDED.
____________________________
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
‐ 2 ‐
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 & OʹMara, P.C., Elmira,
NY, for Third‐Party Defendant‐Appellant I.D.
Booth.
____________________________
CHIN, Circuit Judge:
In this case, New York State Electric and Gas Corporation
(ʺNYSEGʺ) sued FirstEnergy Corporation (ʺFirstEnergyʺ) under section 107(a) of
the Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, 42 U.S.C. §§ 9601 et seq. (ʺCERCLAʺ), to recover certain costs incurred in
remediating coal tar contamination at certain of NYSEGʹs manufactured gas
plants in upstate New York. NYSEG contends that FirstEnergy is liable as the
successor to NYSEGʹs former parent company, Associated Gas & Electric
Company (ʺAGECOʺ), for a portion of the cleanup costs. FirstEnergy filed
counterclaims against NYSEG and third‐party claims against I.D. Booth, Inc.
(ʺI.D. Boothʺ), the current owner of one of the sites, for cost contribution under
section 113(f) of CERCLA.
‐ 3 ‐
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) (ʺNYSEGʺ).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 (ʺMGPsʺ) 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,
1 In accordance with 28 U.S.C. § 636(b)(1)(B), the parties consented to have a United
States magistrate judge conduct the proceedings.
‐ 4 ‐
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 (ʺEPAʺ)
listed coal tar as a hazardous waste in 1992. See 40 C.F.R. § 261.32(a) (2012); see
also Identification 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 (ʺDECʺ) in 1986 as Class ʺ2aʺ sites
‐ 5 ‐
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
2 Generally, Class 2 sites present a ʺsignificant threat to public health or the
environment.ʺ N.Y. Comp. Codes R. & Regs. tit. 6, § 375‐2.7(b)(3)(ii). Class 2a is a
temporary classification assigned to a site that has had inadequate and/or insufficient
date for inclusion in any of the other classifications. See Hazardous Waste Site
Classification, New York State Department of Environmental Conservation,
www.dec.ny.gov/chemical/8654.html (last visited Sept. 9, 2014).
3 As the district court noted, FirstEnergy is collaterally estopped from challenging the
findings of the district court in Rochester Gas & Elec. Corp. v. GPU, Inc., No. 00‐CV‐6369,
2008 WL 8912083 (W.D.N.Y. Aug. 8, 2008), affʹd, 355 Fed. Appʹx 547 (2d Cir. 2009),
regarding the corporate history of AGECO and FirstEnergy. FirstEnergy is in privity
with GPU, as the two were merged in 2001. NYSEG, 808 F. Supp. 2d at 430 n.3.
‐ 6 ‐
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, NYSEGʹs
board of directors adopted a resolution not to bring any claims against AGECO,
instead assigning NYSEGʹs 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
‐ 7 ‐
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, NYSEGʹs 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.
‐ 8 ‐
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 ʺowner.ʺ
3) FirstEnergy was not directly liable for cleanup costs as an
ʺoperator.ʺ
4) NYSEG was permitted to pierce the corporate veil to hold
FirstEnergy liable as an ʺoperatorʺ 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 FirstEnergyʹs 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. Boothʹs status as an owner of one of the sites.
‐ 9 ‐
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 ʺconsistent with the national contingency plan.ʺ 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 ʺpotentially responsible
partiesʺ (ʺPRPsʺ). 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 substances. 42 U.S.C. § 9607(a); see also
Price Trucking Corp. v. Norampac Indus., Inc., 748 F.3d 75, 79‐80 (2d Cir. 2014).
‐ 10 ‐
Private parties have two options to recover their cleanup costs from
other PRPs. First, under section 107(a), a property owner or operator who has
spent money on cleaning up hazardous waste may seek reimbursement for
cleanup costs from other PRPs. See Niagra Mohawk Power Corp. v. Chevron U.S.A.,
Inc., 596 F.3d 112, 120‐21 (2d Cir. 2010). This option, however, is limited to the
ʺnecessary costs of response . . . consistent with the national contingency plan.ʺ
42 U.S.C. § 9607(a)(4)(B).
Second, under section 113(f), ʺ[a]ny person may seek contribution
from any other person who is liable or potentially liable under [section 107(a)]
during or following any civil action under section 9606 of this title or under
section 9607(a) of this title.ʺ 42 U.S.C. § 9613(f)(1). In other words, a PRP who
has been sued under section 107(a) to contribute to cleanup costs ‐‐ even if it has
not yet spent any money on cleanup activities ‐‐ can seek contribution from other
PRPs for cleanup costs, including from the initial plaintiff who sued the PRP
under section 107(a). Here, NYSEG has sued FirstEnergy under section 107(a)
and FirstEnergy has filed claims against NYSEG and I.D. Booth under section
113(f).
‐ 11 ‐
We construe CERCLA liberally to advance its ʺdual goals of cleaning
up hazardous waste and holding polluters responsible for their actions.ʺ New
York v. Next Millenium Realty, LLC, 732 F.3d 117, 124 (2d Cir. 2013); see also Prisco
v. A&D Carting Corp., 168 F.3d 593, 602 (2d Cir. 1999) (ʺAs a remedial statute,
CERCLA should be construed liberally to give effect to its purposes.ʺ (quoting
B.F. Goodrich v. Betkoski, 99 F.3d 505, 514 (2d Cir. 1996), overruled on other grounds
by New York v. Natʹl Serv. Indus., Inc., 532 F.3d 682, 685 (2d Cir. 2003) (internal
quotation marks omitted)); B.F. Goodrich Co. v. Murtha, 958 F.2d 1192, 1198 (2d
Cir. 1992) (ʺBecause it is a remedial statute, CERCLA must be construed liberally
to effectuate its two primary goals: (1) enabling the EPA to respond efficiently
and expeditiously to toxic spills, and (2) holding those parties responsible for the
releases liable for the costs of the cleanup.ʺ).
B. Analysis
These appeals present the following issues: (1) whether NYSEGʹs
CERCLA claims against FirstEnergy are barred by the covenant not to sue; (2)
whether AGECO is directly liable under CERCLA as an operator; (3) whether
FirstEnergy is liable to NYSEG on a piercing the corporate veil theory (a) based
on AGECOʹs control over NYSEG from 1922 to 1940, and (b) for contamination
‐ 12 ‐
created by other AGECO subsidiaries before the subsidiaries were merged into
NYSEG, and before AGECO owned the subsidiaries that were later merged into
NYSEG; (4) whether NYSEGʹs claims as to the Plattsburgh, Norwich, and Owego
sites are time‐barred; (5) whether the district court erred in calculating total gas
production at the sites; (6) whether NYSEGʹs recovery from FirstEnergy could be
reduced by a portion of NYSEGʹs $20 million insurance settlement; (7) whether
NYSEGʹs recovery should have been reduced either (a) to reflect the increased
value of the remediated properties or (b) because of NYSEG’s alleged delay in
the remedial efforts; and (8) whether I.D. Booth is liable for a portion of cleanup
costs.
We review the district courtʹs interpretation of the covenant not to
sue, its decisions whether to pierce the corporate veil, and its
statute‐of‐limitations determinations de novo. See Krumme v. WestPoint Stevens
Inc., 238 F.3d 133, 144 (2d Cir. 2000) (waiver); Thrift Drug, Inc. v. Universal
Prescription Admʹrs, 131 F.3d 95, 97 (2d Cir. 1997) (veil piercing); Castagna v.
Luceno, 744 F.3d 254, 256 (2d Cir. 2014) (statute of limitations). We review the
district courtʹs findings of fact for clear error and its conclusions of law de novo,
Amalfitano v. Rosenberg, 533 F.3d 117, 123 (2d Cir. 2008), and its evidentiary
‐ 13 ‐
rulings for abuse of discretion, Boyce v. Soundview Tech. Grp., Inc., 464 F.3d 376,
385 (2d Cir. 2006). We review the district courtʹs allocation of response costs for
abuse of discretion. Goodrich Corp. v. Town of Middlebury, 311 F.3d 154, 168‐69 (2d
Cir. 2002).
1. The Covenant Not To Sue
FirstEnergy argues the district court erred when it held that
NYSEGʹs claims were not foreclosed by the covenant not to sue that AGECO
included in the resolution adopted by NYSEGʹs board of directors during the
bankruptcy proceedings in 1945. NYSEG, 808 F. Supp. 2d at 503.
NYSEG argues that the covenant does not bar its claims
because: (1) there is no evidence the covenant was ever executed and
delivered and (2) the resolution is limited to claims of NYSEG in 1945
against the bankruptcy estates of AGECO and AGECORP in the
bankruptcy proceedings.
A covenant not to sue is ʺan agreement by one having a
present right of action against another not to sue to enforce such right.ʺ
Colton v. New York Hosp., 53 A.D.2d 588, 589, 385 N.Y.S.2d 65, 66 (1st Depʹt
1976); accord McMahan & Co. v. Bass, 250 A.D.2d 460, 461, 673 N.Y.S.2d 19,
‐ 14 ‐
21 (1st Depʹt 1998) (covenant not to sue ʺconstitutes an agreement to
exercise forbearance from asserting any claim which either exists or which
may accrueʺ). Although a covenant not to sue is distinct from a release,
which is the ʺpresent abandonment of a right or claim,ʺ Colton, 53 A.D.2d
at 589, a covenant not to sue has been ʺheld to operate as a release . . . in so
far as the person to whom the covenant, in terms, runs, is concerned.ʺ
Shaw v. Crissey, 182 Misc. 27, 28, 43 N.Y.S.2d 237, 239 (Sup. Ct. Saratoga
Cnty. 1943).
Here, however, the covenant never became operative because
a condition precedent to its validity never occurred. Under New York
Law, ʺwhen there is a ʹcondition precedent to the formation or existence of
the contract itself . . . no contract arises ʹunless the condition occurs.ʹʺ
Adams v. Suozzi, 433 F.3d 220, 227 (2d Cir. 2005) (quoting Oppenheimer &
Co., Inc. v. Oppenheim, Appel, Dixon, & Co., 86 N.Y.2d 685, 690 (1995))
(emphasis omitted). The board resolution explicitly stated that NYSEG
releases its claims ʺprovided . . . that [AGECO Trustees] shall execute and
deliver to [NYSEG] an appropriate covenant not to sueʺ for certain alleged
failures. NYSEG, 808 F. Supp. 2d at 433. Yet FirstEnergy failed to offer
‐ 15 ‐
proof that satisfied this condition. Because FirstEnergy failed to carry its
burden of proof to show that the conditions precedent to the existence of
the NYSEG covenant occurred, we affirm the district courtʹs ruling that the
covenant does not bar NYSEGʹs claims.4
2. AGECOʹs direct liability as a CERCLA ʺoperatorʺ
NYSEG argues that FirstEnergy is directly liable as an operator of
the Cortland‐Homer, Ithaca‐Court Street, and Norwich MGPs between 1906 and
1910 and the Oneonta MGP between 1916 and 1922 because AGECO ʺdirectly
managed and operatedʺ these MGPs. NYSEG Br. at 24.
Under CERCLA, ʺany person who operates a polluting facility is
directly liable for the costs of cleaning up the pollution . . . regardless of whether
that person is the facilityʹs owner [or] the ownerʹs parent corporation.ʺ United
States v. Bestfoods, 524 U.S. 51, 65 (1998) (internal citations omitted). An
ʺoperatorʺ is defined as ʺsomeone who directs the workings of, manages, or
4 Although the district court held that the resolution did not bar NYSEGʹs claims against
FirstEnergy because the language was not broad enough to cover CERCLA liability,
NYSEG, 808 F. Supp. 2d at 503, we may ‐‐ and do ‐‐ affirm on other grounds. See Olsen
v. Pratt & Whitney Aircraft Div. of United Techs. Corp., 136 F.3d 273, 275 (2d Cir. 1998) (ʺIt
is well settled that we may affirm on any grounds for which there is a record sufficient
to permit conclusions of law, including grounds not relied upon by the district court.ʺ
(internal quotation marks omitted)).
‐ 16 ‐
conducts the affairs of a facility.ʺ Id. at 66. To be held liable under CERCLA, an
operator must ʺmanage, direct, or conduct operations specifically related to
pollution, that is, operations having to do with the leakage or disposal of
hazardous waste, or decisions about compliance with environmental
regulations.ʺ Id. at 66‐67. Whether an entity directly operates a facility is a
factual issue that we review for clear error. See Am. Cyanamid Co. v. Capuano, 381
F.3d 6, 23 (1st Cir. 2004).
There are three circumstances under which a parent can be held
liable as a direct operator of a subsidiaryʹs facilities: (1) ʺwhen the parent operates
the facility in the stead of its subsidiary or alongside the subsidiary in some sort
of a joint ventureʺ; (2) when ʺa dual officer or director . . . depart[s] so far from
the norms of parental influence exercised through dual officeholding as to serve
the parent, even when ostensibly acting on behalf of the subsidiaryʺ; and (3)
when ʺan agent of the parent with no hat to wear but the parent’s
hat . . . manage[s] or direct[s] activities at the facility.ʺ Bestfoods, 524 U.S. at 71.
In considering these questions, a court must focus on the relationship between
‐ 17 ‐
the parent and the facility in question, not the parent and the subsidiary. See id. at
67‐68. 5
Here, the district court found that AGECO was not an operator
during this period because it did not sufficiently ʺparticipate[ ] in the activitiesʺ
of the facilities. Id. at 68. Specifically, the district court relied on the fact that:
[E]ach MGP facility retained its own superintendent on
site who was responsible for the day‐to‐day activities,
and there is no evidence that the superintendent
reported to and was controlled by AGECO and the
service companies, as distinct from the corporate
management and board of directors of NYSEG and
those of other subsidiary utility companies.
NYSEG, 808 F. Supp. 2d at 493.
The district court noted that while NYSEG and AGECO entered into
service agreements under which AGECO was ʺretained to provide such services
as general operator and financial manager of NYSEGʹs properties,ʺ those
agreements did not ʺreveal the type of management and control over polluting
activities envisioned by Bestfoods as necessary to support a finding of direct
operator liability.ʺ Id. at 493‐94. The fact that AGECO took steps to ʺmonitor and
controlʺ its subsidiariesʹ activities, including arranging for these service
5 As discussed below, the parentʹs control over the subsidiary can establish indirect
liability under a veil‐piercing theory. Bestfoods, 524 U.S. at 70.
‐ 18 ‐
agreements, was consistent with AGECOʹs role as a parent corporation managing
the activities of its subsidiary. Id. As the Bestfoods court observed:
Activities that involve the facility but which are
consistent with the parentʹs investor status, such as
monitoring of the subsidiaryʹs performance, supervision
of the subsidiaryʹs finance and capital budget decisions,
and articulation of general policies and procedures,
should not give rise to direct liability.
524 U.S. at 72 (alterations omitted).
NYSEGʹs arguments to the contrary are not persuasive because the
activities it cites are consistent with acceptable practices of a parent corporation.
For example, NYSEG points to a series of reports issued by the Federal Trade
Commission between 1932 and 1934, which stated that after AGECOʹs owners
transferred the stock of Ithaca Gas Light, Norwich Gas Company, and Homer &
Cortland Gas Light Company (the owners of the Cortland‐Homer, Ithaca‐Court
Street, and Norwich MGPs) to AGECO, AGECO brought the companies under
ʺcommon control and managementʺ and managed and operated their MGPs
from 1906 to 1910. NYSEG Br. at 5. More specifically, NYSEG cites Brownʹs
Directory of American Gas Companies (ʺBrownʹs Directoryʺ), which reported that the
same AGECO personnel held the offices of President, Vice‐President, Secretary,
and General Manager of the three MGPʹs during this period. NYSEG also points
‐ 19 ‐
to the previously mentioned service contracts with W.S. Barstow & Company
and J.G. White & Company, which were in effect at various points between 1910
and 1922 as evidence of direct control of the Cortland‐Homer, Ithaca‐Court
Street, Norwich, and Oneonta MGPs.
The district court did not err in holding that these general
allegations failed to support a finding of direct operator liability as they do not
show that AGECO operated the facility ʺin the stead of its subsidiary.ʺ See
Bestfoods, 524 U.S. at 71. The holding of dual officerships and directorships,
without more, is insufficient to establish operator liability. Id. at 70‐71. To
warrant direct liability, a dual officer or director must ʺdepart so far from the
norms of parental influence exercised through dual officeholding as to serve the
parent, even when ostensibly acting on behalf of the subsidiary in operating the
facility.ʺ Id. The district court did not commit clear error in finding no such
departure in this case. F.D.I.C. v. Providence Coll., 115 F.3d 136, 140 (2d Cir. 1997)
(ʺWe will set aside a district courtʹs findings of fact following a bench trial only if
those findings are clearly erroneous.ʺ). Similarly, the supervisory activities
engaged in by AGECO (monitoring performance, supervising finances, etc.) fall
within the parameters of the parent‐subsidiary relationship. Bestfoods, 524 U.S. at
‐ 20 ‐
72. Thus, we affirm the district courtʹs decision not to find direct operator
liability.
3. Piercing the Corporate Veil
a. Contamination Created by NYSEG.
FirstEnergy argues that the district court erred in piercing the
corporate veil to hold it liable for cleanup costs for pollution created by NYSEG.
It is fundamental that a parent is considered a legally separate entity
from its subsidiary, and cannot be held liable for the subsidiaryʹs actions based
solely on its ownership of a controlling interest in the subsidiary. Bestfoods, 524
U.S. at 61; Carte Blanche (Singapore) Pte., Ltd. v. Diners Club Intern., Inc., 2 F.3d 24,
26 (2d Cir. 1993). Under New York law,6 however, a parent can be held liable for
the actions of a subsidiary where a plaintiff shows: (1) the parent corporation
dominates the subsidiary in such a way as to make it a ʺmere instrumentalityʺ of
the parent; (2) the parent company exploits its control to ʺcommit fraud or other
wrongʺ; and (3) the plaintiff suffers an unjust loss or injury as a result of the
fraud or wrong. Wm. Passalacqua Builders, Inc. v. Resnick Developers S., Inc., 933
6 The parties agree that this issue is governed by New York law. See NYSEG, 808 F.
Supp. 2d at 496.
‐ 21 ‐
F.2d 131, 138 (2d Cir. 1991) (internal quotations omitted); accord Bestfoods, 524
U.S. at 63‐64.
As to the first prong, courts consider the following factors to
determine the degree of domination by the parent:
(1) the absence of the formalities and paraphernalia that are part and
parcel of the corporate existence, i.e., issuance of stock, election of
directors, keeping of corporate records and the like[;]
(2) inadequate capitalization[;]
(3) whether funds are put in and taken out of the corporation for
personal rather than corporate purposes[;]
(4) overlap in ownership, officers, directors, and personnel[;]
(5) common office space, address and telephone numbers of
corporate entities[;]
(6) the amount of business discretion displayed by the allegedly
dominated corporation[;]
(7) whether the related corporations deal with the dominated
corporation at arms length[;]
(8) whether the corporations are treated as independent profit
centers[;]
(9) the payment or guarantee of debts of the dominated corporation
by other corporations in the group[;] and
‐ 22 ‐
(10) whether the corporation in question had property that was
used by other of the corporations as if it were its own.
Passalacqua, 933 F.2d at 139. The ultimate question is whether ʺthe policy behind
the presumption of corporate independence and limited shareholder liability ‐‐
encouragement of business development ‐‐ is outweighed by the policy
justifying disregarding the corporate form ‐‐ the need to protect those who deal
with the corporation.ʺ Id.
NYSEG sought to pierce the corporate veil here in three respects: (a)
AGECOʹs control over NYSEG from 1922 to 1940; (b) contamination created by
other subsidiaries before they were merged into NYSEG; and (c) contamination
created by other subsidiaries before AGECO owned the subsidiaries that were
merged into NYSEG.
FirstEnergy argues that the district court failed to make sufficient
NYSEG‐specific findings to warrant piercing the corporate veil.7 We disagree.
7 FirstEnergy also argues that a subsidiary cannot pierce its own corporate veil to reach
its former parent under New York law. We previously addressed this issue in Rochester
Gas & Elec. Corp. v. GPU, Inc. (ʺRG&Eʺ), a case which involved a different former
AGECO subsidiary and FirstEnergy:
[I]f a third party, such as the government, may pierce a subsidiaryʹs
corporate veil to impose CERCLA liability on a dominating parent, . . . 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)
‐ 23 ‐
The district court made numerous findings regarding AGECOʹs domination of
NYSEG when it carefully considered the Passalacqua factors in reaching its
decision. These include findings specific to NYSEG as well as more general
findings regarding AGECOʹs abuse of all its subsidiaries, including NYSEG.
While it is true that not every factor is present in this case, that is not a
requirement under Passalacqua, which recognized the ʺinfinite variety of
situations that might warrant disregarding the corporate form.ʺ Passalacqua, 933
F.2d at 139; see also Freeman v. Complex Computing Co., Inc., 119 F.3d 1044, 1053
(2d Cir. 1997) (holding ʺ[n]o one [Passalacqua] factor is decisiveʺ).
As an initial matter, the district court found that between 1922 and
1940 AGECO was dominated and controlled by Howard C. Hopson and John I.
Mange. NYSEG, 808 F. Supp. 2d at 436. Hopson and Mange had acquired all
AGECOʹs shares of voting stock by April 1923. Id. One way in which Hopson
should be barred from seeking similar recovery. To preclude a company
from piercing its own veil in such circumstances would run directly
counter to CERCLAʹs 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.
355 Fed. Appʹx 547, 551 (2d Cir. 2009) (internal quotations and citations omitted).
Although RG&E was only a summary order, we agree with this reasoning and we reach
the same conclusion here.
‐ 24 ‐
controlled the subsidiary companies was by holding the directorsʹ undated,
signed resignations in hand. Id. at 499.
While the district court found that NYSEG was not
undercapitalized, it did find that Hopson freely transferred funds in and out of
AGECO and its subsidiaries, and that the subsidiaries were considered ʺmere
pocketsʺ of AGECO. Id. For example, the New York Public Service Commission
(ʺPSCʺ) examined the books, records, accounting methods and documents of
NYSEG, as well as other subsidiaries, from 1934 to 1938. Id. at 439‐40. It issued a
report (the ʺBrewster Reportʺ) finding that AGECO and its affiliates ʺsiphon[ed]ʺ
off funds from the operating companies and deposited them into the ʺpockets of
those individuals and corporations engaged in milking the operating companies
through the device of servicing and management contracts.ʺ Id. at 439 (internal
quotation marks ommitted). It also found that Hopson and Howard C. Hopson
& Company defrayed personal expenses with funds from the operating
companies within the AGECO system. Id. at 440.
Furthermore, the district court found abuses by the Utility
Management Corporation (ʺUMCʺ), which charged operating companies in the
AGECO system, including NYSEG, a management fee of 2.5 percent of their
‐ 25 ‐
gross revenues even though no management employees from UMC were located
on any property owned by the operating companies. Id. The court also found
substantial overlap in officers, directors, and personnel of AGECO and the
subsidiaries. For example, during virtually all the years from 1922 to 1940,
Mange served as president of AGECO and a director of NYSEG, and Hopson
was on the NYSEG board from 1927 to 1934. Id. at 442‐43.
Between 1922 and 1940, board meetings for NYSEG and various
other AGECO operating companies were usually held in New York City at or
near AGECOʹs office at 61 Broadway, which was also the primary location of
Hopsonʹs accounting and financial organization that rendered financial, legal,
accounting, and auditing services to AGECO and its subsidiaries. Id. at 442.
The district court found that the terms of the service contracts
between the service companies run by AGECO and the operating utility
companies, including NYSEG, left the utility companies with ʺno vestige of
independent authority or controlʺ because ʺ[u]nder the provisions of these
contracts, the service corporations manage, dominate, and practically operate the
utilities.ʺ Id. at 439 (quoting 1932 PSC Report).
‐ 26 ‐
The district court found that AGECO and the subsidiaries did not
deal at arms length, as no one represented NYSEG or any of the other
subsidiaries in the service contract negotiations. Id. at 443. In addition, AGECO
loaned money to NYSEG and guaranteed debts by others to NYSEG. Id. at 499.
Considering the totality of these NYSEG‐specific findings, we conclude the
district court correctly found that veil piercing was warranted. See Passalacqua,
933 F.2d at 139.8
8 As noted above, we upheld a similar decision to allow an AGECO subsidiary,
Rochester Gas & Electric (ʺRG&Eʺ), to pierce the corporate veil to hold FirstEnergy
liable for cleanup at two MGPs. See RG&E, 355 Fed. Appʹx 547. There, RG&Eʹs expert,
Jonathan Macey (also NYSEGʹs expert) testified that under Hopson and Mange,
AGECO used a pyramidal holding company structure to exercise dominance over
RG&E ‐‐ the same structure that was used to control NYSEG. RG&E, 2008 WL 8912083,
at *5. Through the service companies, AGECO engaged in abuses such as siphoning off
revenues from RG&E. Id. at *6. Reports by the Securities and Exchange Commission,
the Federal Trade Commission, and Federal Power Commission also documented
AGECOʹs domination and abuse of its subsidiaries through the service companies. Id.
at *2‐3. As with NYSEG, we found the use of overlapping directors and officers within
the holding company structure allowed Hopson and Mange to control the financial
matters of the subsidiaries. Id. at *6. Furthermore, Mange exercised general supervision
of the physical operations of the system through the same management corporation that
he used to control NYSEG, namely UMC. Id. at *7. Hopson controlled the financial,
legal, and accounting side of the companies through his service company, H.C. Hopson
& Company, located at 61 Broadway (the same location for many of NYSEG meetings).
Id. RG&E held numerous Board and Executive Committee meetings, as well as at least
three shareholder meetings at AGECOʹs 61 Broadway offices. Id. at *8. The service
contracts between AGECO and RG&E were also not negotiated at arms length. Id. at *9‐
10.
‐ 27 ‐
The question remains as to when AGECOʹs domination of NYSEG
ended. FirstEnergy argues that any domination ended on January 10, 1940, the
day the bankruptcy was filed. The district court held that AGECOʹs domination
did not end until December 31, 1940. NYSEG, 808 F. Supp. 2d at 539.
The district courtʹs conclusion that domination continued
throughout 1940 is not supported by the record. 9 As the party seeking to pierce
the corporate veil, NYSEG has the ʺheavy burdenʺ of demonstrating domination,
TNS Holdings v. MKI Secs. Corp., 92 N.Y.2d 335, 339, 680 N.Y.S.2d 891 (1998), yet it
adduced a paucity of affirmative evidence that AGECO continued to control
NYSEG after filing for bankruptcy. Indeed, in its findings of fact the district
court found that ʺNYSEG . . . failed to prove a basis for veil‐piercing . . . for the
period following AGECOʹs bankruptcy filing.ʺ NYSEG, 808 F. Supp. 2d at 502
(emphasis added). It was only later, in its conclusions of law, that the district
court concluded that liability would extend throughout 1940 because there was
testimony from NYSEGʹs expert that ʺcontrol and dominance of AGECO over its
subsidiaries extended well into 1941.ʺ Id. at 539. We conclude that these
seemingly contradictory statements betray the lack of affirmative evidence
9 We need not decide whether duration of control is reviewed de novo, or, as an arguably
more factual question, for clear error, because the district courtʹs holding fails even clear
error review.
‐ 28 ‐
needed for NYSEG to have carried its burden of proving dominance and control
sufficient to warrant piercing the corporate veil past AGECOʹs bankruptcy filing.
b. Contamination Created by Other AGECO Subsidiaries.
The parties have raised two additional issues regarding veil
piercing: (1) whether the district court erred in piercing the corporate veil to hold
FirstEnergy liable for contamination created by other AGECO subsidiaries before
those subsidiaries were merged into NYSEG by AGECO; and (2) whether the
district court erred in refusing to pierce the corporate veil to hold FirstEnergy
liable for contamination that was created by companies before they were owned
by either NYSEG or AGECO.
Between 1929 and 1939, AGECO merged five subsidiaries into
NYSEG: (1) Eastern New York Electric and Gas Company (owner of the
Granville, Mechanicville and Plattsburgh MGPs); (2) Elmira Light, Heat & Power
Corporation (owner of the Elmira MGP); (3) New York Central Electric
Corporation (owner of the Corning, Dansville, Newark, and Penn Yan MGPs); (4)
Empire Gas & Electric Company (owner of the Geneva MGP); and (5) Owego
Gas Corporation (owner of the Owego MGP). 10 NYSEG, 808 F. Supp. 2d at 501.
10 The record contains ample evidence that NYSEG merged with Eastern New York
Electric & Gas Company, Elmira Light, Heat and Power Corporation, Empire Gas &
‐ 29 ‐
NYSEG also acquired the Federal‐New York Company, Inc., owner of the
Goshen MGP during this period. Id. Hence, these five subsidiaries owned ten
MPGs.
According to NYSEG, FirstEnergy absorbed all of the subsidiariesʹ
preexisting liabilities when NYSEGʹs veil was pierced, even those liabilities that
were incurred before either NYSEG or FirstEnergy owned the subsidiaries.
NYSEG argues that because AGECO merged the five subsidiaries into NYSEG,
these subsidiaries fall into one of the exceptions to the general rule regarding
liabilities acquired through asset purchases. We disagree.
When a corporation purchases the assets of another corporation, it
does not acquire its liabilities, unless one of four exceptions applies. See New York
v. Natʹl Serv. Indus., Inc., 460 F.3d 201, 209 (2d Cir. 2006). The four exceptions are:
(1) the buyer ʺexpressly or impliedly assumed the predecessorʹs tort liability, (2)
there was a consolidation or merger of seller and purchaser, (3) the purchasing
corporation was a mere continuation of the selling corporation, or (4) the
transaction [wa]s entered into fraudulently to escape such obligations.ʺ Id.
Electric Company, New York Central Electric Corporation and Owego Gas Corporation.
Not only did the district court explicitly make findings about such mergers, see NYSEG,
808 F. Supp. 2d at 429‐30, the parties stipulated to these mergers. See Pretrial
Stipulations of Facts, Dkt. No. 28 (November 23, 2010), at ¶ 21, ¶ 35, ¶ 104, ¶ 159, ¶ 314.
‐ 30 ‐
(internal quotation marks omitted). Here, because there is no question that
AGECO merged these five subsidiaries into NYSEG, NYSEG acquired their
liabilities, including liabilities for past contamination. See Maline v. City of Utica,
267 A.D.2d 1022, 1022, 701 N.Y.S.2d 202, 203 (4th Depʹt 1999) (as a result of
merger with co‐defendant, defendant became the owner of co‐defendantʹs
property and assumed all of its ʺliabilities, obligations and penaltiesʺ). That does
not answer the question, however, as to what extent those liabilities flowed to
NYSEGʹs parent, AGECO, under a veil‐piercing theory.
1. Pre‐Merger Liability
FirstEnergy argues that the district court erred in piercing the
corporate veil to hold it liable for contamination created at the ten MGPs owned
by AGECO subsidiaries before the subsidiaries were merged into NYSEG.
FirstEnergy notes that six of the AGECO‐owned MGPs ceased producing gas
before AGECO merged these subsidiaries with NYSEG.11
11 The subsidiaries and MGPs are as follows: (1) Elmira Light, Heat & Power
Corporation merged into NYSEG in 1936 and the Elmira MGP ceased production in
1931; (2) Empire Gas & Electric Company merged into NYSEG in 1936 and the Geneva
MGP ceased production in 1934, and the Newark MGP ceased production in 1929; (3)
New York Central Electric Corporation merged into NYSEG in 1936 and the Penn Yan
MGP ceased production in 1929, and the Dansville MGP ceased production in 1930;
and, (4) Owego Gas Corporation was merged into NYSEG in 1939 and the Owego MGP
ceased production in 1935.
‐ 31 ‐
As a general matter, under a veil‐piercing theory, a parent can only
be liable for a wrong committed by the subsidiary under the influence of the
parent. Passalacqua, 933 F.2d at 138. The use of control to commit a wrong is a
key component to veil piercing. Id. (control of the subsidiaries by the parent ʺis
the key; the control must be used to commit a fraud or other wrong that causes
plaintiffʹs lossʺ); Bedford Affiliates v. Sills, 156 F.3d 416, 431 (2d Cir. 1998) (court
must find that parental control was used to cause a wrong), overruled on other
grounds by W.R. Grace & Co.‐Conn. v. Zotos Intern., Inc., 559 F.3d 85, 89‐90 (2d Cir.
2009). Domination and control by themselves are not sufficient to support a
finding of veil piercing. Id. (ʺMere domination or control of the corporation is
insufficient to permit a court to disregard the existence of the corporate entity.ʺ).
The district court held that the veil of the non‐NYSEG subsidiaries
could be pierced to hold FirstEnergy liable for contamination created while the
subsidiaries were dominated by AGECO but before they were merged into
NYSEG. NYSEG, 808 F. Supp. 2d at 491‐500. (ʺ[E]quity requires piercing of the
NYSEG corporate veil as well as the other operating companies within the
AGECO Empire and ultimately folded into NYSEG . . . during the times between
1922 and 1940 when AGECO acquired domination and control over the various
‐ 32 ‐
subsidiary operating utility companies owning those facilities.ʺ). The district
court based this holding primarily on the testimony of NYSEGʹs expert, Jonathan
Macey, who stated that AGECO treated these other operating companies in the
same manner as NYSEG. Id. at 443.
The district court, however, did not make any specific veil‐piercing
findings or discuss the Passalacqua factors with respect to AGECOʹs alleged
control over the non‐NYSEG subsidiaries before NYSEG acquired them. The
district court did not make any findings concerning, for example, capitalization,
director/officer overlap, and observance of corporate formalities, with respect to
these subsidiaries during this time period. Hence, the district courtʹs findings are
insufficient to support a conclusion of veil piercing in this respect. See William
Wrigley Jr. Co. v. Waters, 890 F.2d 594, 601‐02 (2d Cir. 1989) (vacating finding of
veil piercing where evidence showed individual defendant was personally
involved with corporationʹs work but not that he controlled corporation and was
using it for fraudulent ends). Accordingly, we conclude that the district court
erred by piercing the corporate veil of the five subsidiaries to hold FirstEnergy
‐ 33 ‐
liable for contamination that occurred while under AGECOʹs control, but before
the subsidiaries were merged into NYSEG.12
2. Pre‐Ownership Liability
NYSEG then goes one step further with its argument. Because all
five of these subsidiaries were merged into NYSEG during the period when
AGECO improperly dominated NYSEG (between 1922 and 1940), NYSEG argues
that AGECO is responsible for all of the subsidiariesʹ liabilities, even those that
pre‐date AGECOʹs ownership. NYSEG reasons that all of the subsidiariesʹ
liabilities became NYSEGʹs liabilities as a result of the merger, even those
incurred before the subsidiaries were purchased by AGECO. Thus, once
NYSEGʹs veil was pierced, all of its liabilities ‐‐ including those inherited from
the merged subsidiaries ‐‐ became AGECOʹs liabilities.
Courts will pierce the corporate veil to prevent fraud or achieve
equity by imposing a corporate obligation upon a parent. Matter of Morris v. New
York State Dept. of Taxation and Fin., 82 N.Y.2d 135, 141 (N.Y. 1993). But to
successfully pierce the veil, a plaintiff must show both domination of the
12 To the extent these five subsidiaries caused any contamination after they were merged
into NYSEG, however, FirstEnergy is liable for such contamination under a veil‐
piercing theory for the reasons previously discussed.
‐ 34 ‐
corporation and that ʺsuch domination was used to commit a fraud or wrong
against the plaintiff which resulted in plaintiffʹs injury.ʺ Id.
Here, the ʺfraudʺ or ʺwrongʺ committed by AGECO would be the
merger of the subsidiaries into NYSEG, not the creation of coal tar. There is
nothing in the record to suggest AGECO was directing the creation of coal tar at
the subsidiaries prior to purchasing them. While AGECO may have sought to
merge its subsidiaries into NYSEG to further its financial improprieties, NYSEG
does not allege AGECO did so to avoid CERCLA liability. Environmental
liability for spilling coal tar was not a major concern at the time these
subsidiaries were merged. AGECOʹs domination was not used to commit a
fraud or wrong against NYSEG regarding pollution, and domination by itself is
not enough to justify veil piercing ‐‐ it must be accompanied by a showing of
wrongful or unjust action toward the plaintiff. Id. at 142 (plaintiff must show
that owners ʺabused the privilege of doing business in the corporate form to
perpetrate a wrong or injustice against that party such that a court in equity will
interveneʺ); see also Freeman v. Complex Computing Co., 119 F.3d 1044, 1053 (2d Cir.
1997); Passalacqua, 933 F.2d at 138 (control by parent must be used ʺto commit a
fraud or other wrong that causes plaintiffʹs lossʺ). Thus, the district court
‐ 35 ‐
correctly declined to pierce the corporate veil to hold AGECO responsible for
contamination on sites that occurred prior to when either NYSEG or AGECO
owned the sites. NYSEG, 808 F. Supp. 2d at 500.
4. Statute of Limitations Regarding the Plattsburgh, Norwich, and
Owego MGP Sites
The district court held that that the statute of limitations barred
NYSEG from recovering cleanup costs from FirstEnergy for the Norwich and
Owego sites, but not the Plattsburgh site. NYSEG, 808 F. Supp. 2d at 504‐14 .
FirstEnergy argues that cost‐recovery actions for cleanup expenses at the
Plattsburgh, Norwich, and Owego sites are all barred by CERCLAʹs six‐year
statute of limitations on remedial actions. See 42 U.S.C. § 9613(g)(2)(B). Because
we conclude that the cleanup at the Norwich and Owego sites were remedial
actions and the cleanup at the Plattsburgh site was a removal action, we affirm
the district courtʹs decisions.
Removal and remedial actions are governed by different statutes of
limitations. For removal actions, a party must seek to recoup cleanup costs
within three years ʺafter completion of the removal action.ʺ Id. at § 9613(g)(2)(A).
For remedial actions, a party must seek to recoup costs within six years ʺafter
initiation of physical on‐site construction of the remedial action.ʺ Id.
‐ 36 ‐
at § 9613(g)(2)(B).13 Because a statute of limitations is an affirmative defense,
FirstEnergy bears the burden of proof to show it bars the claims. See Overall v.
Estate of Klotz, 52 F.3d 398, 403 (2d Cir. 1995); Yankee Gas Servs. Co. v. UGI Utils,
Inc., 616 F. Supp. 2d 228, 269 (D. Conn. 2009).
Whether a suit to recover response costs under section 107 of
CERCLA is a ʺremoval actionʺ or a ʺremedial actionʺ is a question of law that we
review de novo. Next Millenium, 732 F.3d at 126; United States v. W.R. Grace & Co.,
429 F.3d 1224, 1234 (9th Cir. 2005) (ʺWhether the . . . cleanup activity was a
removal action ‐‐ or, on the other hand, a remedial action in removal actionʹs
clothing ‐‐ is a question of statutory interpretation.ʺ).
Removal actions are generally clean‐up measures taken in response
to immediate threats to public health and safety. See 42 U.S.C. § 9601(23); 14 see
13 Section 9613(g)(2)(B) further provides that any ʺcosts incurred in the removal action
may be recovered in the cost recovery actionʺ for the remedial action, ʺif the remedial
action is initiated within 3 years after the completion of the removal action.ʺ 42 U.S.C. §
9613(g)(2)(B).
14 42 U.S.C. § 9601(23) provides:
The terms ʺremoveʺ or ʺremovalʺ mean[] the cleanup or removal of
released hazardous substances from the environment, such actions
as may be necessary taken in the event of the threat of release of
hazardous substances into the environment, such actions as may be
necessary to monitor, assess, and evaluate the release or threat of
release of hazardous substances, the disposal of removed material,
‐ 37 ‐
also Next Millenium, 732 F.3d at 124‐25); W.R. Grace & Co., 429 F.3d at 1244
(ʺCourts have . . . stressed the immediacy of a threat in deciding whether a
cleanup is a removal action.ʺ (collecting cases)); Minnesota v. Kalman W. Abrams
Metals, Inc., 155 F.3d 1019, 1024 (8th Cir. 1998) (removal actions are those ʺtaken
to counter imminent and substantial threats to public health and welfareʺ).
Removal actions are also generally designed to address contamination at its
endpoint and not to permanently remediate the problem. See 42 U.S.C.
§ 9601(24); Next Millenium, 732 F.3d at 127; W.R. Grace & Co., 429 F.3d at 1247
(finding cleanup activity to be removal action where it did not ʺfully eliminate
the public health threat or amount to a full‐blown remediationʺ).
Remedial actions are typically actions designed to permanently
remediate hazardous waste. 42 U.S.C. § 9601(24); 15 see also Next Millenium, 732
or the taking of such other actions as may be necessary to prevent,
minimize, or mitigate damage to the public health or welfare or to
the environment, which may otherwise result from a release or
threat of release. The term includes, in addition, without being
limited to, security fencing or other measures to limit access,
provision of alternative water supplies, temporary evacuation and
housing of threatened individuals not otherwise provided for,
action taken under section 9604(b) of this title, and any emergency
assistance which may be provided under the Disaster Relief and
Emergency Assistance Act [42 U.S.C.A. § 5121 et seq.].
15 42 U.S.C. § 9601(24) provides in part:
‐ 38 ‐
F.3d at 125; Schaefer v. Town of Victor, 457 F.3d 188, 195 (2d Cir. 2006) (remedial
actions are ʺgenerally long‐term or permanent containment or disposal
programsʺ (quoting New York v. Shore Realty Corp., 759 F.2d 1032, 1040 (2d Cir.
1985) (internal quotation marks omitted))); California ex rel. Cal. Depʹt of Toxic
Substances Control v. Neville Chem. Co., 358 F.3d 661, 667 (9th Cir. 2004) (ʺremedial
actions generally are permanent responsesʺ (quoting Geraghty & Miller, Inc. v.
Conoco, Inc., 234 F.3d 917, 926 (5th Cir. 2000) (internal quotation marks omitted))).
a. Plattsburgh
The district court held that NYSEGʹs claim to recover costs for the
cleanup at the Plattsburgh MGP pursuant to a 1994 DEC Consent Order was
The terms ʺremedyʺ or ʺremedial actionʺ mean[] those actions
consistent with permanent remedy taken instead of or in addition
to removal actions in the event of a release or threatened release of
a hazardous substance into the environment, to prevent or
minimize the release of hazardous substances so that they do not
migrate to cause substantial danger to present or future public
health or welfare or the environment. The term includes, but is not
limited to, such actions at the location of the release as storage,
confinement, perimeter protection using dikes, trenches, or ditches,
clay cover, neutralization, cleanup of released hazardous
substances and associated contaminated materials, recycling or
reuse, diversion, destruction, segregation of reactive wastes,
dredging or excavations, repair or replacement of leaking
containers, collection of leachate and runoff, onsite treatment or
incineration, provision of alternative water supplies, and any
monitoring reasonably required to assure that such actions protect
the public health and welfare and the environment.
‐ 39 ‐
timely. NYSEG, 808 F. Supp. 2d at 510‐11. FirstEnergy argues that NYSEGʹs
claim was untimely because the cleanup NYSEG conducted in 1981 was a
remedial action, triggering the six‐year statute of limitations. Although NYSEG
is not seeking to recover cleanup costs associated with the 1981 Consent Order,
id. at 511 n.53, FirstEnergy contends that the 1981 cleanup triggered the statute of
limitations. 16
The Plattsburgh MGP, which sits adjacent to the south bank of the
Saranac River, functioned as a coal gasification plant from 1896 to 1960. Coal tar
had been kept on site in unlined ponds since 1898. As coal tar is heavier than
water, it migrated from these ponds through the subsurface soils into the Saranac
River, creating both soil and groundwater contamination.
In 1975, NYSEG began investigating the coal tar seeping into the
Saranac River. Id. at 482. In mid‐1980, DEC became aware that coal tar was
seeping into the river. In 1981, NYSEG entered into a consent order with DEC to
16 At the time the work commenced in 1981, CERCLA did not contain any statute of
limitations. The statute of limitations was created in 1986 when Congress passed the
Superfund Amendments and Reauthorization Act of 1986 (ʺSARAʺ), Pub. L. No. 99‐499,
Oct. 17, 1986, 100 Stat. 1613 (codified at 42 U.S.C. §§ 9601 et seq.). Accordingly, the
district court found that the earliest the statute of limitations could have commenced
was the day SARA took effect, October 17, 1986. NYSEG, 808 F. Supp. 2d at 509‐10 n.51.
If the statute of limitations indeed started to run on that date, as FirstEnergy contends, it
would have expired in 1992.
‐ 40 ‐
undertake work to prevent coal tar from reaching the Saranac River from a tar
lagoon located across the street from the MGP. Id. This work was also to include
cleaning up coal tar that had already migrated from the lagoon into the Saranac
River, roughly thirty feet away. Id. at 509. As part of this effort, NYSEG built a
slurry wall around the lagoon to isolate the coal tar, as well as a second slurry
wall to catch any coal tar that made it past the first wall. It also excavated
contamination from the river, filled in excavated areas with clean fill, capped
containment areas, and constructed a treatment system for the water collected
from behind the slurry wall. Id. This work did not involve the area where the
former MPG plant was located. Id. at 482. This project took one year and cost
less than $2 million.
Unfortunately, by the 1990s, coal tar was found in the river again.
Between October 1997 and November 2000, NYSEG conducted further study of
the Plattsburgh site. Id. at 483. Between April and August 2002, NYSEG
excavated and removed waste from three gas holder foundations,
coal‐tar‐containing process pipe, and other MGP associated structures. DEC
approved this work in 2003. Id.
‐ 41 ‐
In 2004, DEC issued a Record of Decision (ʺRODʺ) requiring
additional remedial efforts. Id. This work included excavation of the former
MGP tar lagoon and surrounding areas where coal tar had migrated to the
subsurface, as well as excavation of the contaminated sediment from the parts of
the Saranac River immediately adjacent to the MGP site. Id. The excavated soils
were disposed of off‐site. Id. NYSEG performed the ROD‐mandated work
between 2006 and 2009. Id. This included paying the City of Plattsburgh
approximately $900,000 to move a substation and associated electrical lines
owned by the cityʹs municipal power company from the northeast portion of the
site. Id. NYSEG also relocated a twenty‐one inch sewer crossing, constructed a
stabilized soil barrier wall, and removed 150,816 tons of soil ʺdown to till or
bedrock inside the wall.ʺ Id.
In 2009, NYSEG prepared another report which proposed
ʺdewater[ing] the Saranac River channelʺ to permit further excavation of
coal‐tar‐containing sediment. Id. NYSEG has implemented the first phase of this
project and was scheduled to begin the second phase in 2011. Id. at 483‐84.
Between 1994 and 2009, NYSEG incurred $29,086,329.86 in response costs. Id. at
484.
‐ 42 ‐
FirstEnergy argues that because the cleanup pursuant to the 1981
Consent Order was a remedial action that triggered the six‐year statute of
limitations, all later cost recovery efforts at the site are time‐barred, including the
work done pursuant to the 1994 Consent Order. The district court disagreed,
and held instead that the statute of limitations was not triggered because at the
time the 1981 cleanup was conducted, coal tar was not a hazardous substance:
The work performed at Plattsburgh under the 1981
Consent Order . . . cannot properly be regarded as
consistent with the EPAʹs remedial plan under CERCLA
based upon more modern notions regarding the
hazards presented by the presence of coal tar and soils
contaminated with coal tar, and thus the actions taken
at Plattsburgh did not commence the running of the
statute of limitations.
Id. at 510.
The district court also noted that the cleanup was ʺfar more akin to a
removal actionʺ than a remedial action because it only addressed work
ʺperformed at a discrete portion of the site, which was significantly removed
from the location of the former MGP facility [the source of contamination],ʺ and
was designed to contain the contamination migrating from the lagoon to the
Saranac River. Id. Accordingly, the district court concluded that the 1981
‐ 43 ‐
removal action did not trigger the statute of limitations for the later remedial
effort for which NYSEG now seeks contribution.
Assuming the 1981 cleanup was a triggering event, we agree with
the district court that the 1981 cleanup was more akin to a removal than a
remedial action. This cleanup was a discrete project designed both to prevent
coal tar from reaching the river and to remove it from the river. See NYSEG, 808
F. Supp. 2d at 509. It was not designed to clean up contamination at the source,
namely by removing the coal tar from the area around the MGP. Id. at 482.
Instead, as the district court pointed out, ʺ[t]he evidence at trial reflected that
neither DEC nor NYSEG envisioned the project as encompassing a CERCLA‐
quality clean‐up of the entire MGP site.ʺ Id. at 538 (emphasis added). As we
noted in Next Millenium, measures taken to minimize and mitigate
contamination, but not to permanently eliminate it, are properly classified as
removal actions. 732 F.3d at 127; see also W.R. Grace & Co., 429 F.3d at 1247
(cleanup activity was a removal action where it did not ʺfully eliminate the
public health threat or amount to a full‐blown remediationʺ).
Here, the 1981 cleanup was an immediate response to a health
concern about coal tar in the Saranac River. DEC first became aware of the
‐ 44 ‐
problem in the mid‐1980s and by 1981 had a Consent Order in place with
NYSEG. Moreover, the cleanup was not a ʺpermanentʺ solution designed to
remove the ultimate source of contamination at the MGP. Rather, it involved
building slurry walls to contain coal tar from further migrating into the river.
These actions were not ʺdesigned to remedy the underlying source of the
contamination, namely, the hazardous waste at the [MPG].ʺ Next Millennium,
732 F.3d at 127; accord Schaefer, 457 F.3d at 195.
The work in 2002 and pursuant to the 2004 ROD, in contrast, was
designed to remediate the pollution at its source. It included excavating the
former MPG tar lagoon and surrounding area, moving an entire substation and
corresponding electrical wires, the relocation of a sewer line, and the removal of
over 150,000 tons of soil. The 2004 remedial action was clearly designed to
permanently remediate the coal tar on the site.
In addition, the 2004 cleanup has already taken several years and
cost over $29 million, with costs expected to rise to $54 million. This is in
keeping with a remedial, rather than removal, action. See 42 U.S.C. § 9604(c)(1)
(generally removal measures ʺshall not continue after $2,000,000 has been
obligated for response actions or 12 months has elapsed from the date of initial
‐ 45 ‐
responseʺ); accord 40 C.F.R. § 300.415(b)(5). In sum, the district court correctly
held that, because the 1981 cleanup was a removal action, it did not trigger the
statute of limitations for the later remedial actions.17
b. Norwich
The district court held that NYSEGʹs cost recovery claims for its 1997
cleanup at Norwich were barred by the six‐year statute of limitations on
remedial actions. NYSEG argues that the 1997 cleanup was a removal action,
subject to a different statute of limitations.
The Norwich MGP produced gas from 1863 to 1952. In 1993,
NYSEG began a three‐phase Interim Remedial Measure (ʺIRMʺ) in conjunction
with DEC to clean up this site. In Phase I, which ran from 1993 to the last quarter
of 1994, NYSEG excavated the former distribution holder area and stockpiled the
soil. In Phase II, which ran from May to September 1996, NYSEG transported
and thermally treated 1,600 tons of the stockpiled soil.
In Phase III, which ran from April to August 1997, NYSEG removed
two or more feet of soil from the surface of the entire site, as well as the former
17 FirstEnergy argues that the contemporaneous use of the word ʺremedialʺ by NYSEG
and DEC supports its argument that the 1981 cleanup was a remedial action. The word
ʺremedial,ʺ however, is often used in its every day sense of ʺintended as a remedy,ʺ and
the mere usage of the word does not render an action ʺremedialʺ for the purposes of
CERCLAʹs statute of limitations. Next Millenium, 732 F.3d at 130‐31.
‐ 46 ‐
relief holder, the former tar well, and process piping. This project was conducted
to protect potential customers at an adjacent supermarket to be constructed
shortly thereafter. In total, more than 11,000 tons of soil were removed. Phase III
cost less than $2 million and was completed in four months. This is the cleanup
for which NYSEG is seeking to recover costs.
FirstEnergy argues that the three phases of the IRM constituted one
remedial project that commenced in 1997, and thus NYSEGʹs cost recovery action
is barred by the six‐year statute of limitations. NYSEG argues its claims are
timely because all three phases of the IRM were removal actions, including the
1997 IRM. According to NYSEG, the 1997 IRM was a discrete project undertaken
to address an immediate health hazard to future customers at a soon‐to‐be‐built
nearby supermarket. NYSEG also argues that because DEC approved the work
as an IRM, it is a removal action.
The district court correctly found that the three‐phase IRM cleanup
was one remedial cleanup. First, NYSEG stipulated that the Norwich IRM was a
single action comprised of three phases. Second, the cleanup was not designed
to address an imminent health concern. See Next Millenium, 732 F.3d at 124‐25
(holding that removal actions are cleanup measures taken in response to
‐ 47 ‐
immediate threats to public health and safety). As the court noted, ʺimmediate
action . . . was not required to address high levels of toxic chemicals.ʺ NYSEG,
808 F. Supp. 2d at 513. Similarly, in its 1987 preliminary assessment, EPA
deemed cleanup at the site a ʺmedium priority,ʺ rather than a high priority. Id.
Hence, this was not an immediate threat to public health and safety.
Third, while IRMs can resemble removal actions, they can also
resemble remedial actions. Under New York law, IRMs are defined as:
[A]ctivities to address both emergency and
non‐emergency site conditions, which can be
undertaken without extensive investigation and
evaluation, to prevent, mitigate or remedy
environmental damage or the consequences of
environmental damage attributable to a site.
N.Y. Comp. Codes R. & Regs. tit. 6, § 375‐1.2(ab). This definition encompasses
elements of both removal (emergency) and remedial (non‐emergency) actions, as
well as elements common to both (preventing or mitigating environmental
damage). See 42 U.S.C. § 9601(23) (defining ʺremovalʺ to include actions to
ʺprevent, minimize, or mitigate damage to the public health or welfare or to the
environmentʺ); id. § 9601(24) (defining ʺremedialʺ to include actions to ʺprevent
or minimize the release of hazardous substancesʺ so that they do not endanger
public health or the environment).
‐ 48 ‐
DECʹs present internal guidance and the guidance in effect during
the Norwich IRM make clear that IRMs are not always removal actions. See, e.g.,
New York State Department of Environmental Conservation, DER‐10 / Technical
Guidance for Site Investigation and Remediation, at 35 (May 3, 2010), available at
http://www.dec.ny.gov/docs/remediation_hudson_pdf/der10.pdf (describing
ʺ[a]n emergency IRMʺ as well as ʺ[a] non‐emergency or non‐time critical IRM . . .
which may be undertaken at any time during the course of the remedial
programʺ); Plʹs. Exh. 4, New York State Department of Environmental
Conservation, Interim Remedial Measures ‐‐ Procedures (TAGM‐4048), at 2‐3
(Dec. 9, 1992) (providing guidance for an IRM ʺconsist[ing] of a ʹremovalʹ as
identified in the NCP at 40 C.F.R. § 300.415(d)ʺ and an IRM ʺrepresent[ing] a
significant portion of the remedy,ʺ which ʺmust be part of the Proposed
Remedial Action Plan (PRAP)/ROD process at the completion of the Remedial
Investigation/Feasibility Studyʺ).18 Clearly, IRMs can either be removal or
remedial actions. Accordingly, because the 1997 cleanup was part of a larger
remedial action that began in 1993, NYSEGʹs claims are time‐barred.
18 TAGM 4048 was superseded by DER‐10. See New York State Department of
Environmental Conservation, DER‐10 / Technical Guidance for Site Investigation and
Remediation, at 35 (May 3, 2010), available at http://www.dec.ny.gov/docs/
remediation_hudson_pdf/der10.pdf
‐ 49 ‐
c. Owego
The district court found that the six‐year statute of limitations
barred NYSEG from recovering costs for the 2003 cleanup of a portion of the
Owego site because that cleanup was part of a remedial cleanup begun in 1994.
NYSEG, 808 F. Supp. 2d at 511. NYSEG argues that the 2003 cleanup was
separate from the 1994 cleanup, triggering a separate statute of limitations.
Between September 1994 and July 1995, NYSEG remediated the
portion of the site known as ʺOperational Unit 1ʺʹ (ʺOU‐1ʺ) by removing and
thermally destroying 13,000 tons of coal tar‐contaminated soil. Id. NYSEG
performed this work pursuant to the ROD issued by DEC in 1994.
In 1996, NYSEG discovered more coal tar contamination in the
Susquehanna River on what became ʺOperational Unit 2ʺ (ʺOU‐2ʺ). In 1998,
NYSEG identified a pipe leading to the riverbed as the source of contamination.
In 2002, DEC ordered NYSEG to remove the pipe as well as the contaminated
river sediments. In 2003, NYSEG completed remediating the river and pipe by
removing 1,200 tons of sediment and 30 feet of pipeline.
NYSEG now seeks to recover for the cost of groundwater
monitoring and pipe and sediment removal performed at OU‐2 in 2003, arguing
‐ 50 ‐
that it was a separate remedial action. FirstEnergy argues that this cleanup is a
continuation of the remedial work begun in 1994 on OU‐1, and thus time‐barred.
The district court found that the work at OU‐2 was part of the earlier
remedial action at OU‐1. We agree. First, the work at OU‐2 was remedial ‐‐ it
was designed to permanently eliminate the coal tar contamination from the
Susquehanna River by removing the pipe leading to the river and the
contaminated sediment.
Second, the district court correctly held that there can only be one
remedial action at any given site. Id. Virtually every court that has considered
this issue has agreed. See generally Colorado v. Sunoco, 337 F.3d 1233, 1241 (10th
Cir. 2003) (ʺIn our view, this language [of the statute] indicates there will be but
one ʹremoval actionʹ per site or facility, as well as a single ʹremedial actionʹ per
site or facility.ʺ); Kelley v. E.I DuPont de Nemours & Co., 17 F.3d 836, 843 (6th Cir.
1994) (holding that all removal activity should be considered part of one removal
action because ʺ[i]t is simply inconsistent with the[] ʹessential purposesʹ [of
CERCLA] to require suit on each arguably independent removal activityʺ)
(internal citations omitted); Yankee Gas Servs. Co., 616 F. Supp. 2d at 270
(ʺ[C]ourts have generally held that there can be only one removal and one
‐ 51 ‐
remedial action per facility, regardless of the number of phases in which the
clean‐up occurs.ʺ); California ex rel Cal. Depʹt of Toxic Substances Control v.
Hyampom Lumber Co., 903 F. Supp. 1389, 1394 (E.D. Ca. 1995) (ʺThere is no
authority for the view that each ʹremedialʹ activity undertaken at a site triggers a
new cause of action for the cost recovery of that activity.ʺ). But see United States v.
Manzo, 182 F. Supp. 2d 385, 402 (D. N.J. 2000) (finding different statutes of
limitation for different operable units); United States v. Ambroid Co., Inc., 34 F.
Supp. 2d 86, 88 (D. Mass. 1999) (finding more than one removal action in the
ʺunusual circumstanceʺ where eighteen months after EPA closed site leaving
behind drums of hazardous waste which had no legally‐approved method of
disposal, site was broken into and drums damaged, requiring second removal
action).
We agree with the majority view and hold that there can only be one
remedial action at a site. The very nature of a remedial action is to permanently
remediate hazardous waste. Next Millenium, 732 F.3d at 125. A remedial action
is supposed to be a final, once‐and‐for‐all cleanup of a site, and once a PRP
completes an approved remediation plan, it would not be logical ‐‐ or fair ‐‐ to
subject that entity to additional CERCLA lawsuits seeking yet additional
‐ 52 ‐
permanent relief, although we recognize that what seems final at a given point in
time might come to appear inadequate at a later date as scientific knowledge
progresses.19
This limitation on remedial actions does not, however, foreclose cost
recovery actions for supplemental cleanup costs incurred after the limitations
period has run on the initial cleanup, if they are filed within three years of the
completion of the remedial work. Section 9613(g)(2) distinguishes between an
ʺinitial actionʺ and a ʺsubsequent action or actionsʺ to recover additional
response costs as part of the same remedial action. 42 U.S.C. § 9613(g)(2).
Section 9613(g)(2) provides that subsequent actions for ʺfurther response
costs . . . may be maintained at any time during the response action, but must be
commenced no later than 3 years after the date of completion of all response
action.ʺ Id. As long as the party seeking to recover costs filed an initial action for
cost recovery within the time period specified in § 9613(g)(2)(A) and (B), the
party can recover the costs of later cleanups if the action to recover such costs is
filed no later than three years after the date of completion of the new cleanup.
We express no view as to whether there may only be one removal action under
19
CERCLA.
‐ 53 ‐
See id. Here, the later cleanup could not qualify as a ʺfurther response costʺ
because the three‐year period had expired. Id.
Therefore, the district court correctly held that NYSEGʹs claims for
cost recovery for the remedial work at OU‐2 is time‐barred.
5. Gas Production
The district court used total gas production at each site to allocate
liability because both parties agree that coal tar was generally created in
proportion to the amount of gas produced. NYSEG, 808 F. Supp. 2d at 484. The
parties disagree, however, as to how to determine the amount of gas produced
by a particular plant at a particular time. While the parties agree on the amount
of coal tar produced between 1887 and 1932, they do not agree about the amount
of coal tar produced before 1887 or after 1932.20
Specifically, NYSEG argues that the district court was incorrect in
adopting FirstEnergyʹs estimates for the pre‐1887 and post‐1932 period.
Regarding the pre‐1887 period, FirstEnergy’s expert took the production
numbers reported in the first year of the Brownʹs Directory in 1887 for a particular
20 Between 1887 and 1932, Brownʹs Directory of American Gas Companies published
specific gas production figures. Both parties agree that Brownʹs Directory production
numbers are correct, and therefore do not dispute numbers for this period. NYSEG, 808
F. Supp. 2d at 530‐32.
‐ 54 ‐
plant and assumed that the plant had produced one‐half of that amount of gas
each year, from its first year of operation until 1887.
For the period from 1932 to 1940, First Energyʹs expert used Brownʹs
Directory records which contained system‐wide (not plant‐by‐plant) reports for
1932 to 1940. He then made production estimates for each plant based on those
records and extrapolated to estimate production for years when exact gas
volume data was not available.
NYSEG argues that for the period before 1887, the district court
should have found no gas production at all ‐‐ even though there was gas
production ‐‐ because the numbers are not reliable. For the 1932 to 1940 period,
NYSEGʹs expert relied on yearly production figures found in data collected by
the PSC for most of the operating plants. If a PSC record was not available for
that year, NYSEGʹs expert treated that year as if there were no gas production.
In light of the severely limited information available, the district
court did not err in using FirstEnergyʹs estimates. It was reasonable for the court
to use its best estimates for periods in which there was indisputably some gas
production, rather than to treat those years as if there were no production at all.
‐ 55 ‐
6. NYSEGʹs $20 Million Insurance Settlement
NYSEG received $20 million in an insurance settlement, which
covered thirty‐eight sites, including the sixteen sites in this suit. Id. at 484. The
settlement also extinguished third‐party property damage claims against the
settling insurer. Id.
Although there was no evidence regarding the allocation of the
settlement amount among the thirty‐eight sites, the district court chose to apply a
portion of the settlement to reduce FirstEnergyʹs cleanup costs. Id. at 527. In
doing so, the district court calculated a pro rata share of the insurance settlement
by using 42.1 percent of $20 million, which represented the proportion between
the sixteen sites in this case and the thirty‐eight involved in the insurance
settlement. Id. This came to a total of $8,421,052, the pro rata share of the
settlement attributable to the sixteen sites. That amount is 8.9 percent of the total
amount of money sought for cleanup, $94,277,153, which percentage the court
then applied evenly over the sixteen sites to reduce NYSEGʹs recovery. Id.
NYSEG argues that none of the money should have been applied to
reduce FirstEnergyʹs payments because (1) FirstEnergy did not carry its burden
‐ 56 ‐
to prove the affirmative defense that the insurance proceeds should be applied to
reduce its liability and (2) there is no risk of double recovery for NYSEG.21
The district court did not err in reducing NYSEGʹs recovery to
account for the insurance proceeds. To begin, we note that the district court was
correct that the collateral source rule does not apply in CERCLA cases. The
collateral source rule generally provides that ʺdamages recoverable for a wrong
are not diminished by the fact that the party injured has been wholly or partially
indemnified for his loss by insurance effected by him and to the procurement of
which the wrongdoer did not contribute.ʺ Ocean Ships, Inc. v. Stiles, 315 F.3d 111,
116 (2d Cir. 2002) (internal quotations marks omitted). ʺ[T]he policy underlying
the collateral source rule ‐‐ to provide the innocent party with the benefit of any
windfall ‐‐ is simply not advanced in [CERCLA] cases.ʺ Friedland v. TIC‐The
Indus. Co., 566 F.3d 1203, 1207 (10th Cir. 2009); see also Basic Mgmt. Inc. v. United
States, 569 F. Supp. 2d 1106, 1123‐24 (D. Nev. 2008) (refusing to apply collateral
source rule to insurance proceeds because ʺCERCLA contribution actions are not
injury actions in which the injured party is seeking compensation for damages to
be made whole againʺ). Rather, in resolving contribution claims under CERCLA,
21 NYSEG argues that it paid more than $94 million to clean up the sites and expects to
spend another $114 million. Therefore, even with $30 million from FirstEnergy, there is
no chance of double recovery if the $20 million is applied.
‐ 57 ‐
a ʺcourt may allocate response costs among liable parties using such equitable
factors as the court determines are appropriate.ʺ 42 U.S.C. § 9613(f)(1); see
Goodrich Corp. v. Town of Middlebury, 311 F.3d 154, 168 (2d Cir. 2002) (ʺ[T]he court
must allocate response costs among liable parties in an equitable manner.ʺ).
Here, in reducing NYSEGʹs recovery in light of the insurance
payment, the district court reasonably exercised its equitable powers to allocate
response costs between the parties. First, insofar as NYSEG contends that
FirstEnergy failed to carry its burden of proving that consideration of the
insurance settlement was warranted, the argument fails. FirstEnergy presented
evidence of the $20 million insurance payment. NYSEG, the party in position to
explain how the proceeds were allocated among the thirty‐eight sites, failed to
present any such evidence. Given the sparseness of the record as to the
allocation of the proceeds, therefore, the district courtʹs pro rata allocation based
on the number of sites should be applied was not arbitrary or haphazard, but
reasonable.
Second, while it is undoubtably correct that there was no risk of
NYSEG receiving a double recovery, that fact did not preclude the district court
from equitably reducing NYSEGʹs recovery to account for the insurance
‐ 58 ‐
proceeds. See, e.g., Basic Mgmt. Inc., 569 F. Supp. 2d at 1125 (ʺEquity and common
sense . . . dictate that [p]laintiffs cannot recover the remediation costs paid for by
their insurance policies.ʺ). Instead, CERCLAʹs ʺexpansive language . . . affords a
district court broad discretion to balance the equities in the interests of justice.ʺ
Bedford Affiliates, 156 F.3d at 429. Accordingly, the district court did not err in
applying NYSEGʹs insurance settlement to reduce FirstEnergyʹs liability.
7. Should NYSEGʹs Recovery be Reduced Either Because of Economic
Benefit or Alleged Delay in Cleaning Up?
FirstEnergy argues that the district court should have reduced
NYSEGʹs recovery to reflect the fact that NYSEG would benefit from the
increased value of the cleaned up sites. It also argues that NYSEGʹs recovery
should be reduced because NYSEG was slow to remediate and ʺengaged in
unnecessarily piecemeal remediation.ʺ FirstEnergy Br. at 87. These arguments
are not persuasive.
Regarding the economic benefit of the cleanup, the district court
recognized the substantial amount of money NYSEG was spending on cleanup ‐‐
$94 million to date with another $114 million expected in future costs.
Considering that NYSEG does not expect to collect a comparable amount from
other PRPs, NYSEG is hardly gaining a windfall. FirstEnergy also fails to offer
‐ 59 ‐
evidence about any increase in the value of the land, much less an increase over
the $200 million NYSEG will expend to clean up the properties.
FirstEnergyʹs argument that NYSEG caused unreasonable delay in
the cleanup fails as well. FirstEnergy points to two specific examples of alleged
delay: (1) in 1983, a NYSEG employee proposed a program under which all MGP
investigation would be completed by 1988, with remediation completed within
two years (this plan was not adopted) and (2) in 1989, NYSEG employees
proposed a ʺcomprehensive approachʺ to site cleanup, but NYSEG did not move
forward with broad remediation efforts until 1994. FirstEnergy Reply Br. at 35.
FirstEnergy offers no explanation as to why NYSEG was unreasonable in failing
to adopt the 1983 plan, nor has it shown that the plan was even technically or
financially feasible. FirstEnergy also fails to explain how NYSEG was
unreasonable in adopting the 1994 plan instead of the 1989 proposal. In short,
the record simply does not support FirstEnergyʹs argument that NYSEG caused
unreasonable delay in the cleanup by declining to follow a plan suggested in
1983 or delaying its cleanup plan until it adopted a joint plan with DEC in 1994.
‐ 60 ‐
8. I.D. Booth
I.D. Booth bought the Cortland‐Homer MGP from Mack Trucks, Inc.
in 1971, which bought it from NYSEG. NYSEG, 808 F. Supp. 2d at 453. As a
result, it is liable under CERCLA as a current owner. It now raises two issues on
appeal. First, I.D. Booth argues that the district court erred in finding it liable for
cleanup costs at the Cortland‐Homer site. Second, I.D. Booth argues
alternatively that the amount of liability assigned to it by the district court was
too high.
The Cortland‐Homer site is divided into two parcels: OU‐1, which
is comprised of the former MGP area and the structures below its surface, and
OU‐2, which consists of the adjacent land. I.D. Boothʹs office building was
located in OU‐1 and sat on top of two buried gasholders.
Sometime in the mid‐1990s, after coal tar contamination was
discovered on the Cortland‐Homer site, NYSEG offered to buy the southern
portion of the Booth building from I.D. Booth. Although the building was
appraised at $350,000, I.D. Booth demanded $2 million, which included the cost
of business disruption. Negotiations began in mid‐November 2005. On May 8,
2008, NYSEG paid $1.8 million for the southern portion of the building and gave
‐ 61 ‐
I.D. Booth the right to buy the property back after remediation for $1 in the event
NYSEG were to decide to sell it. I.D. Booth retained ownership of the northern
portion of the building.
I.D. Booth claims to be entitled to a ʺthird‐partyʺ defense under
section 107(b)(3), which requires it to establish that:
[T]he offending ʺrelease . . . of a hazardous substance and the
damages resulting therefrom were caused solely by . . . an act or
omission of a third party,ʺ provided that (1) the third party is not
ʺone whose act or omission occurs in connection with a contractual
relationship, existing directly or indirectly, with the defendant,ʺ (2)
the defendant ʺtook precautions against foreseeable acts or
omissions of any such third party and the consequences that could
foreseeably result from such acts or omissions,ʺ and (3) the
defendant ʺexercised due care with respect to the hazardous
substance concerned, taking into consideration the characteristics of
such hazardous substance, in light of all relevant facts and
circumstances.ʺ
New York v. Lashins Arcade Co., 91 F.3d 353, 359 (2d Cir. 1996) (quoting 42
U.S.C. § 9607(b)(3)). I.D. Booth bears the burden of showing by preponderance
of the evidence that all four of these conditions are met. NYSEG, 808 F. Supp. 2d
at 514.
Here, the district court correctly held that I.D. Booth failed to meet
its burden with respect to the third requirement because it did not exercise due
care with respect to the cleanup effort. Id. at 519; see Lashins Arcade Co., 91 F.3d at
‐ 62 ‐
361 (explaining that ʺdue care would include those steps necessary to protect the
public from a health or environmental threatʺ) (internal citations and quotations
omitted).
The district court found that I.D. Boothʹs tactics created extensive
delays in negotiations. Despite knowing that NYSEG could not begin
remediation until it acquired portions of the Cortland‐Homer site ‐‐ which
included the removal of two former gasholders from below I.D. Boothʹs
building ‐‐ I.D. Booth engaged in ʺprotracted negotiations.ʺ NYSEG, 808 F. Supp.
2d at 518. As a result, I.D. Booth was largely responsible for a two‐year delay in
the cleanup due to its untimely responses to NYSEGʹs proposals and its
ʺaggressive price demand.ʺ Id. As FirstEnergy’s expert testified, this delay most
likely allowed more coal tar to migrate. Id. at 519. Because I.D. Boothʹs delays
prevented NYSEG from obtaining control of the I.D. Booth building located on
OU‐1, NYSEG was forced to consider implementing the remedy at OU‐2 first,
even though this was not the optimal order in which to proceed with cleanup.
Id.
To further exacerbate the problem, I.D. Boothʹs cooperation in
cleanup efforts was ʺsomewhat lackluster,ʺ as it failed, for example, to provide
‐ 63 ‐
NYSEG with ʺfeedback.ʺ Id.; see Lashins Arcade Co., 91 F.3d at 361 (landowner
failed to exercise ʺdue careʺ where it remained passive ʺsimply because public
environmental authorities are addressing a hazardous waste situationʺ). Because
this finding was not clearly erroneous, we affirm.22
I.D. Booth also complains that the portion of the cleanup costs
assigned to it was too high. The district court assigned I.D. Booth 15 percent of
FirstEnergyʹs costs at the Cortland‐Homer site, or 6.7 percent of NYSEGʹs total
Cortland‐Homer costs. NYSEG, 808 F. Supp. 2d at 535, 542. Accordingly, the
district court found that I.D. Booth was liable for $160,089 in past costs, and for
15 percent of all future ʺnecessary and NCP compliant costs incurred by
NYSEG.ʺ Id. I.D. Booth argues that even if it caused a delay, that delay should
be measured from date of the issuance of the ROD approving the remediation
method (March 2007) to the date of sale (April 2008), or 14 months. Using those
dates, I.D. Booth would only owe 1.35 percent of total costs ‐‐ 14 months out of 75
total years of production (1858 to 1933). In the alternative, I.D. Booth argues that
22 I.D. Booth claims the testimony of NYSEG expert Robert Karls supports its position
that any delay had no impact on the contamination. Karls stated that there was no need
to ʺre‐prioritize[ ]ʺ the removal of contamination ʺbefore the scheduled implementation
of remediation.ʺ App. at 1413. This statement, however, merely suggests that Karls
agreed with the timing of the remediation plan in place. It does not contradict the
district courtʹs findings that I.D. Booth exacerbated the contamination by delaying
negotiations.
‐ 64 ‐
the amount it owes should only be .67 percent, which is one year out of the
roughly one‐hundred and fifty years the site has been in existence (1858‐2014).
We find that the district court did not abuse its discretion in
allocating the response costs. The district court reasonably took into account the
fact that I.D. Booth would benefit from the increased property value after
remediation and that its negotiating tactics led to significant delays in
remediating the property. Id. at 533. Accordingly, we affirm.
CONCLUSION
In sum, we hold:
(1) NYSEGʹs CERCLA claims against FirstEnergy are not barred by
the covenant not to sue;
(2) AGECO is not directly liable under CERCLA as an operator;
(3) FirstEnergy is liable to NYSEG on a veil piercing theory based on
AGECOʹs control over NYSEG from 1922 to January 10, 1940, but not for
contamination created by other AGECO subsidiaries before those subsidiaries
merged into NYSEG;
(4) NYSEGʹs claims as to the (a) Plattsburgh site are timely, (b)
Norwich site are untimely, and (c) Owego site are untimely;
‐ 65 ‐
(5) The district court did not err in calculating total gas production at
the sites;
(6) The district court did not abuse its discretion in reducing
NYSEGʹs recovery from FirstEnergy by a portion of NYSEGʹs $20 million
insurance settlement;
(7) The district court did not abuse its discretion in declining to
reduce NYSEGʹs recovery to reflect the increased value of the remediated
properties or NYSEGʹs alleged delay in the remedial efforts; and
(8) I.D. Booth is liable for a portion of cleanup costs and the district
court did not abuse its discretion in apportioning liability in this respect.
For the foregoing reasons, the judgment of the district court is
AFFIRMED in part and VACATED in part, and the case is REMANDED for
further proceedings.
‐ 66 ‐
