September.16.2014
In a 66-page opinion, the U.S. Court of Appeals unanimously ruled on September 11 that a trial court correctly pierced the corporate veil to hold FirstEnergy Corp. liable to contribute to the costs of cleanup of several environmental sites formerly owned and operated by New York State Electric and Gas Corp. The court ruled that FirstEnergy’s predecessor, Associated Gas & Electric Co. so dominated NYSEG from 1922-1940 that it justified the extraordinary remedy of piecing NYSEG’s corporate veil to hold FirstEnergy liable as AGECO’s successor to contribute under the federal CERCLA statute to the cleanup costs that NYSEG is incurring to remediate several of its former manufactured gas plants under a New York state consent order.
The Second Circuit also rejected FirstEnergy’s main argument that NYSEG had released the claims at issue under a 1945 covenant not to sue. The court did slightly reduce NYSEG’s damages by holding that subsidiaries that AGECO later acquired and merged into NYSEG would be deemed controlled as of the date of the merger into NYSEG, not the date of their acquisition by AGECO.
FirstEnergy also will be liable for future cleanup costs incurred by NYSEG at the same percentage rate that ultimately will be applied to the damages for each site based on the Second Circuit’s ruling. The amount of damages that NYSEG has sustained since the trial alone are significant. Finally, the court upheld the lower court’s ruling that the statute of limitations barred NYSEG’s claims at two sites, but not the most significant site at issue in the case.
NYSEG was represented by David L. Elkind, who joined Orrick this past March. FirstEnergy was represented by former Solicitor General Paul D. Clement of Bancroft PLLC.