Foster Wheeler Energy Corp. v. Metropolitan Knox Solid Waste Authority, Inc.

Citation970 F.2d 199
Decision Date02 September 1992
Docket NumberNo. 91-6129,91-6129
PartiesFOSTER WHEELER ENERGY CORPORATION; Foster Wheeler Knox County, Inc., Plaintiffs-Appellees, v. The METROPOLITAN KNOX SOLID WASTE AUTHORITY, INC., Defendant, City of Knoxville, Tennessee; the County of Knox, Tennessee, Defendants-Appellants.
CourtUnited States Courts of Appeals. United States Court of Appeals (6th Circuit)
Order Denying Rehearing and

Clarifying Opinion

Sept. 2, 1992.

Charles J. Gearhiser (briefed), Robert Lockaby, Jr. (argued) Michael Anderson, Gearhiser, Peters & Horton, Chatanooga, Tenn., for plaintiffs-appellees.

John A. Lucas (argued and briefed), J. Burns Newsome, Hunton & Williams, Thomas A. Varlan, Director of Law, City of Knoxville Law Dept., Knoxville, Tenn., for defendant-appellant City of Knoxville, Tenn.

Richard T. Beeler, John E. Owings (briefed), Knox County Law Director's Office, Tenn., for defendant-appellant County of Knox, Tenn.

Before: KEITH and SUHRHEINRICH, Circuit Judges; and CONTIE, Senior Circuit Judge.

CONTIE, Senior Circuit Judge.

Defendants, the City of Knoxville, and Knox County, Tennessee, appeal an interlocutory order, pursuant to 28 U.S.C. § 1292(b), denying their motion to dismiss this diversity contract action on grounds that they were not liable for the contractual obligations of the separately incorporated Waste Authority.

I.

This lawsuit arises out of the proposed construction of a solid waste incinerator (the "Facility") in Knox County, Tennessee. For this purpose, the City of Knoxville and the county jointly created the Metropolitan Knox Solid Waste Authority ("Waste Authority"), a nonprofit corporation, on July 30, 1986. Foster Wheeler Energy Corporation contracted with the Waste Authority to design, construct and test the Facility (the "DCT Agreement"), and Foster Wheeler Knox County, Inc. entered a separate agreement with the Waste Authority to operate and maintain the Facility (the "O & M Agreement"). The plaintiffs contracted with the Waste Authority as a separate entity; there was no direct contractual relationship with the city or county.

In furtherance of this project, the city and county adopted resolutions declaring their intent to proceed with the Facility "for the benefit of the residents of the county [and] city." In July 1986, the city and county entered into a Cooperation Agreement as authorized by the Interlocal Cooperation Act, Tenn.Code Ann. §§ 12-9-101 et seq. In this agreement, the city and county agreed to take all necessary action "to cause a solid waste disposal and energy recovery Facility to be financed, constructed, owned and operated" by the Waste Authority.

In August 1986, the Waste Authority was incorporated as a Tennessee non-profit corporation to construct and operate the incinerator. The city and county both appointed members to the Waste Authority's board of directors. The board was responsible for the construction, operation and maintenance of the Facility, although the county could initiate proceedings to remove board members "for cause." The city and county played no other role in the day-to-day operations of the Facility.

Pursuant to the approval of the city council and county commission, the Waste Authority issued revenue bonds in the amount of $174,995,000 to finance the Facility. Although the full cooperation of the city and county was necessary to issue these bonds, they were the sole obligation of the Waste Authority and not the city or county. These bonds were to be paid off with revenues generated from the Waste Authority. No taxpayer money was to be used to pay the bonds.

The Waste Authority remarketed the bonds in April 1989, such that the bonds were due to be remarketed again on April 19, 1990. The Waste Authority insured the bonds through a municipal bond insurer for the anticipated April 19, 1990 remarketing.

Almost three years after the initial issuance of the bonds, the Waste Authority contracted with plaintiffs to construct the Facility (the DCT Agreement) and to operate and manage the Facility (the O & M Agreement). The DCT Agreement was to pay plaintiffs $86,824,000 for its design and construction efforts. The O & M Agreement would pay plaintiffs a monthly operating fee, plus a percentage of revenues. Unfortunately, the project never proceeded to this stage.

Shortly before the scheduled April 19, 1990 remarketing of the bonds, the city withdrew from the project. The plaintiffs allege that an announcement by the city's mayor that the city was withdrawing its support for the Facility led to a withdrawal of insurance for the Waste Authority's bonds. The bonds were then redeemed.

Foster Wheeler then sued the Waste Authority, the city and the county in district court for breach of the DCT and O & M Agreements. The plaintiffs alleged, inter alia, that the city and county were liable even though they were not parties to the agreements, because they "dominated and controlled" the Waste Authority causing it to breach its contracts. They also alleged that the Waste Authority constituted nothing more than the alter ego of the city and county, and thus the court should "pierce the corporate veil" of the corporation to reach the true wrongdoers--the city and county.

The defendants moved to dismiss the plaintiffs' complaint for failure to state a claim upon which relief could be granted. The plaintiffs responded by filing their first amended complaint, standing only on the alter ego/corporate veil claim. The defendants moved to dismiss the first amended complaint for failure to state a claim.

On June 20, 1991 the court entered a memorandum opinion and order denying the defendants' motions to dismiss. The district court, after apparently rejecting the viability of plaintiffs' alter ego/corporate veil claim, nevertheless found that the city and county may be liable under a type of undefined agency theory. The court cited numerous cases which held that corporations created by a municipality were mere agencies or instrumentalities of the government, and therefore the district court reasoned that city and county should be liable on the contractual obligations of the Waste Authority in this case. In addition, the court cited numerous Tennessee statutes which purport to prevent a city or county from escaping liability when they jointly undertake various cooperative ventures. It therefore denied the city's and county's motions to dismiss.

The city and county thereafter sought, and were granted, an order to certify this case for interlocutory appeal. The district court felt that this case presented complex issues of law, and it was "not entirely convinced of the correctness of its holdings or of its analysis of the issues." Joint Appendix at 420. This circuit granted defendants' petition for interlocutory appeal pursuant to 28 U.S.C. § 1292(b). Plaintiffs also petitioned for interlocutory appeal, however, this circuit denied that petition as untimely.

II.

This case comes to us on defendants' petition for interlocutory review. 28 U.S.C. § 1292(b). Defendants seek review of the district court's denial of its motion to dismiss, arguing that the district court's proposed theory of liability was not supported by the law. Plaintiffs also sought interlocutory appeal, but this petition was denied as untimely. We may nevertheless address the issues raised by the defendants as well as the plaintiffs, because the reviewing court is not restricted to deciding only those issues raised in this appeal, but instead may address all matters in the suit. Walsh v. Ford Motor Co., 807 F.2d 1000, 1002 n. 2 (D.C.Cir.1986), cert. denied, 482 U.S. 915, 107 S.Ct. 3188, 96 L.Ed.2d 677 (1987).

A.

Plaintiffs contend that we are bound by the standard of review governing the review of dismissals ordered pursuant to Fed.R.Civ.P., Rule 12(b)(6). We disagree. The district court did not grant defendants' motion to dismiss, and an order denying a motion to dismiss is not appealable. Webster v. Sowders, 846 F.2d 1032, 1039 (6th Cir.1988). Since this appeal was not taken from an order of dismissal under Rule 12(b)(6), but instead concerns the legal conclusions which justified the court's denial of the motion to dismiss, we are not governed by the Rule 12(b)(6) standard of review. On interlocutory appeal the appellate court has no authority to review disputed questions of fact. 1 Yalkut v. Gemignani, 873 F.2d 31 (2d Cir.1989); White v. Frank, 855 F.2d 956 (2d Cir.1988); Link v. Mercedes-Benz of North America, Inc., 550 F.2d 860 (3d Cir.), cert. denied, 431 U.S. 933, 97 S.Ct. 2641, 53 L.Ed.2d 250 (1977). Therefore, our review of the district court's decision is limited to pure questions of law. Miller v. Bolger, 802 F.2d 660, 666-67 (3d Cir.1986).

B.

In the instant case, the plaintiffs' first amended complaint alleged "the Waste Authority, at the direction of its executive committee, and as a result of the complete dominion and control of the Waste Authority by the city and county ... executed an agreement with the city and county on June 1, 1990 divesting itself of any power or authority to comply with the terms of the DCT Agreement and O & M Agreement." Therefore, plaintiffs alleged that the Waste Authority was merely acting as the alter ego of the city and county, and thus the "corporate veil" of the Waste Authority should be pierced and contractual liability imposed on the city and county. The defendants argue that the corporate veil theory is not applicable in this context, and even if it was applicable it could not be invoked in this case because the defendants did not completely dominate the Waste Authority, nor did they commit any fraud or wrongdoing.

In response to the defendants' motion to dismiss, the district court held:

No Tennessee law can be found that would prevent the corporate veil of a nonprofit corporation to be pierced to reach its members for the same reasons that the veil of a business corporation could be pierced to reach its stockholders, and § 48-56-205(a) recognizes...

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