Fla. Power Corp. v. Firstenergy Corp.

• Decision Date: 08 December 2016
• Docket Number: CASE NO. 1:12-cv-1839-DAP
• Parties: FLORIDA POWER CORPORATION, d/b/a PROGRESS ENERGY FLORIDA, INC., Plaintiff, v. FIRSTENERGY CORP., Defendant.
• Court: U.S. District Court — Northern District of Ohio

FLORIDA POWER CORPORATION,d/b/a PROGRESS ENERGY FLORIDA, INC., Plaintiff, v. FIRSTENERGY CORP., Defendant.

CASE NO. 1:12-cv-1839-DAP

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF OHIO EASTERN DIVISION

December 8, 2016

JUDGE DAN AARON POLSTER

OPINION AND ORDER

This case is before the Court on two motions. The first is Duke Energy's Motion for Partial Summary Judgment ("Duke Energy's Motion"). (Doc #: 106.) Therein, Duke Energy contends that Defendant FirstEnergy Corp. is liable, in part, for cleanup costs Duke Energy has incurred in connection with the release of hazardous substances on two properties Duke Energy currently owns in Florida. For the Court to find FirstEnergy also liable for those costs, Duke Energy must present sufficient evidence to pierce the corporate veil between FirstEnergy's predecessor (a company called AGECO) and the manufactured-gas plants that released those hazardous substances approximately 80 years ago. If Duke Energy fails to make that showing, then the Court cannot hold FirstEnergy liable for any of Duke Energy's response costs. Because the parties stipulated, infra at 4, that liability is a summary judgment issue in either party's favor, the Court will construe Defendant FirstEnergy Corp.'s Brief in Opposition as a cross-motion for summary judgment on liability. (Doc #: 114.)

The second motion before the Court is FirstEnergy's Motion for Partial Summary Judgment as to Liability Following the Filing of Bankruptcy on January 10, 1940 ("FirstEnergy's Motion) (Doc #: 109). Therein, FirstEnergy contends that even if the Court finds that Duke Energy has pierced the corporate veil and FirstEnergy is liable for response costs, its liability is cutoff on the day AGECO filed for bankruptcy.

For the following reasons, the Court DENIES Duke Energy's Motion (Doc #: 106) and GRANTS FirstEnergy's cross-motion for summary judgment on the issue of liability (Doc #: 114). Furthermore, even if the Court had granted Duke Energy's Motion on liability, the Court would also have granted First Energy's Motion for Partial Summary Judgment following the bankruptcy filing. (Doc #: 109.)

I. Introduction

Plaintiff Duke Energy Florida ("Duke Energy"), formerly known as Florida Power Corporation d/b/a Progress Energy Florida, Inc., brought this action under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), 42 U.S.C. § 9601 et seq., to recover cleanup costs it has incurred in connection with the release of hazardous substances on two properties in Florida, one in Orlando and the other in Sanford. At the time of the hazardous releases, between 1929 and 1943, these properties were owned by Florida Public Service Company ("FPSC") and Sanford Gas Company ("Sanford"), respectively. Although Duke Energy did not release the hazardous substances, the Environmental Protection Agency ("EPA") concluded that as the current owner of the sites, Duke Energy is responsible for the cleanup costs under CERCLA. Duke Energy is, however, allowed to recoup those costs fromother parties who are also liable under CERCLA. Defendant FirstEnergy is alleged to be one such party.

The parties agree that the hazardous substances were generated and released onto the properties by FPSC and Sanford, both subsidiaries of Associated Gas & Electric Company ("AGECO"). By Motion, Duke Energy is trying to pierce the corporate veil separating FPSC and Sanford from AGECO, claiming that AGECO dominated the two subsidiaries and should also be liable for the release of hazardous substances. If AGECO is liable, then Defendant FirstEnergy is liable as a corporate successor to AGECO.

Although Duke Energy has filed 53 exhibits to support its veil-piercing theory, it primarily relies upon two New York district court opinions with somewhat similar facts, along with the expert opinion of Professor Jonathan R. Macey,¹ an expert on the history of AGECO and its subsidiaries - and upon whose opinion the New York district courts relied. Duke Energy also contends, in an argument reduced to a footnote, that FirstEnergy is collaterally estopped from disputing AGECO's domination and control over FPSC and Sanford because the New York district courts found that AGECO dominated the two New York subsidiaries to such an extent that the corporate veil could be pierced. (Duke Energy's Mot. at 7 n.4.) Even if Duke Energy is successful in piercing the corporate veil, FirstEnergy asks the Court to rule that its liability was cut off when AGECO and AGECORP filed for bankruptcy on January 10, 1940 - in other words, when independent trustees began controlling AGECO's operations.

II. Procedural Background

Duke Energy filed this cost recovery and contribution CERCLA action against FirstEnergy in the Middle District of Florida for costs related to both the Orlando and Sanford sites. (Doc #: 1 ("Complaint.")) The Florida court transferred the case to the Northern District of Ohio due to lack of jurisdiction over FirstEnergy in Florida. (Doc #: 32.) FirstEnergy thereafter moved for judgment on the pleadings arguing that Duke Energy's claims were barred by the applicable statute of limitations. (Doc #: 56.)

The Court initially denied the motion. (Doc #: 59.) FirstEnergy subsequently moved for reconsideration following the Sixth Circuit's decision in Hobart Corp. v. Waste Management of Ohio, Inc., 758 F.3d 757 (6th Cir. 2014). (Doc #: 84.) The Court then reversed itself and dismissed Duke Energy's claims. (Doc #: 88.) On appeal, the Sixth Circuit held that Duke Energy's claims were not barred by the statute of limitations, and remanded for further proceedings. (Doc #: 96.) Florida Power Corp. v. FirstEnergy Corp., 810 F.3d 996, 999 (6th Cir. 2015).

Following remand, the Court held a teleconference with counsel during which they agreed to undergo private mediation. (Minutes of Proceedings 1/6/16.) When mediation failed, the Court held a teleconference with counsel to determine how best to move forward. (Doc ##: 99, 100.) Based on those discussions, the Court scheduled a bench trial, no longer than five days, beginning on September 26, 2016. (Id.) Counsel agreed on a deadline for filing a joint statement of key disputed facts, as well as a joint proposal on how to try the case. (Id.)

After reviewing the key disputed facts and the joint proposal for trial procedure (respectively, Doc ##: 102, 103), the Court held a teleconference with counsel to discuss theproblems attendant to trying the case - given that the salient facts occurred nearly 80 years ago, there are few, if any, living persons with firsthand knowledge of Sanford or FPSC's inner workings, the key dispute is whether Duke Energy "fact" is actually a legal argument (requiring the Court to rule on collateral estoppel), and the trial would mostly be a battle of the parties' experts. Counsel agreed with the Court's assessment and decided to give mediation another try. (Minutes of Proceedings 7/13/16.)

When private mediation again failed, counsel requested a teleconference with the Court which was held on August 25, 2016. (Doc #: 104.) At that time, counsel agreed that the question of liability could be resolved entirely on paper. On the question of liability, Duke Energy would argue that , proposed a briefing schedule, and stipulated that there are no material factual issues to be resolved. (Id. at 1-2.) Counsel also agreed that, if the Court ruled in Duke Energy's favor, FirstEnergy would not challenge the reasonableness and necessity of Plaintiff's recent settlement with the EPA and that the parties probably would be able to settle the allocation of damages. (Id. at 2.) Perhaps most important, counsel agreed that, should the parties appeal the Court's decision on any of the issues being briefed, neither side would contend that there are any material disputed issues of fact. (Id.) In other words, the parties agreed that the question of liability is a summary judgment issue for one side or the other in the district court and in the appeals court. Based on these agreements, the Court cancelled the September 7, 2016, bench trial and is now prepared to issue its rulings.

//

//

//

II. Substantive Background

A. FPSC and Sanford

This case involves two Florida-based manufactured-gas plants, one located in Orlando and the other located in Sanford:

[F]rom 1929 until 1943, [FPSC] owned the Orlando site and operated the manufactured-gas plant there. At the time, FPSC was a wholly owned subsidiary of Gen Gas, a public utility holding company. Gen Gas, in turn, was a subsidiary of Associated Gas & Electric Corporation, ("AGECORP"), which was itself a subsidiary of AGECO, the predecessor company of Defendant FirstEnergy.

(Doc #: 107-1 ("Plaintiff's Ex. 1, Expert Report of Jonathan Macey" [hereinafter "Macey"]) ¶ 12.) The Sanford site was originally city-owned, and "[o]n March 31, 1928, Sanford Gas purchased the Sanford Site." (Id. at ¶ 14.)

In the early 1920s, W.S. Barstow & Company ("Barstow"), a utility engineering and management company which contracted with its gas operating subsidiaries, acquired several central Florida utility companies, including FPSC, and began to manage and operate the Orlando site. (Macey ¶ 12.)

Barstow also owned Gen Gas. Upon its acquisition by Barstow, FPSC became a wholly owned subsidiary of Gen Gas. On February 5, 1929, AGECO purchased Barstow. Upon AGECO's acquisition of Barstow, Gen Gas came under the control of AGECORP . . . . AGECORP was a direct subsidiary of AGECO. Thus, by 1929, AGECO owned FPSC.

. . . .

By the end of 1930, Gen Gas had acquired all 190 outstanding shares of Sanford Gas. Since AGECO owned Gen Gas via the 1929 Barstow purchase, AGECO ipso facto owned Sanford Gas from the end of 1930 to 1943.

(Macey at ¶¶ 13, 15.)

B. The AGECO Empire

AGECO was incorporated as a public utility holding company in 1906. (Motion 2.) "In 1922, Howard Hopson, a man who has become an iconic felon among those who study corporate governance and corporate fraud[,] acquired control of AGECO along...