In re Flint Water Litig.

• Decision Date: 09 February 2022
• Docket Number: Case No. 17-10164, CASE NO. 17-108646-NO
• Citation: 584 F.Supp.3d 383
• Parties: IN RE FLINT WATER CASES. This Order Relates To: Bellwether I Cases In re Flint Water Litigation
• Court: U.S. District Court — Eastern District of Michigan

584 F.Supp.3d 383

IN RE FLINT WATER CASES.

This Order Relates To:

Bellwether I Cases

In re Flint Water Litigation

Case No. 17-10164
CASE NO. 17-108646-NO

United States District Court, E.D. Michigan, Southern Division.

Signed February 9, 2022

584 F.Supp.3d 392

JOINT OPINION AND ORDER GRANTING IN PART, DENYING IN PART DEFENDANT LEO A. DALY COMPANY'S MOTION FOR SUMMARY JUDGMENT [CASE No. 17-10164, ECF NO. 345] AND DENYING THE PEOPLE'S MOTION FOR PARTIAL SUMMARY JUDGMENT UNDER MCR 2.116(C)(10) [CASE No. 16-107576]

JUDITH E. LEVY, United States District Judge, JOSEPH J. FARAH, Circuit Judge

This Opinion and Order considers two motions, each separately before the Federal Court and the Genesee County Circuit Court in the State of Michigan (hereinafter, jointly "the Courts") in two of the pending Flint Water Cases¹ : (1) Defendant Leo A. Daly Company's ("LAD")² motion for summary judgment in the Federal Court (ECF No. 345)³ ; and (2) the People of the State of Michigan's motion for partial summary disposition pursuant

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to M.C.R. 2.116(C)(10) in the State Court (Case No. 16-107576, People's Br.). These motions are two of several motions for summary judgment filed as part of the Bellwether cases. On November 23, 2021, the Courts held a hearing on this matter, with both the Hon. Judith E. Levy and the Hon. Joseph J. Farah presiding. (ECF No. 452.) Because the two motions concern overlapping determinations regarding the relationship between LAD and Defendant Lockwood, Andrews & Newman, Inc. ("LAN"), the Courts considered them in tandem during the November 23, 2021 hearing and in the opinion set forth below.

In LAD's motion for summary judgment, LAD seeks summary judgment on three separate grounds: (1) LAN is not the alter ego of LAD such that the corporate veil cannot be pierced to hold LAD responsible for any actions of LAN as LAD's subsidiary; (2) LAD is not vicariously liable for professional negligence committed by the engineers who performed work for the Flint water project; and (3) Plaintiffs have failed to establish a viable professional negligence claim of any kind. (ECF No. 346, PageID.21825–21826.) However, because LAD relies on the arguments set forth in the separate motion for summary judgment brought by the LAN Defendants (ECF No. 334) in support of their third basis for relief, which this Court has granted in part and denied in part (ECF No. 662), the Courts need not address LAD's third basis for relief proffered in this motion.

For the reasons set forth below, LAD's motion for summary judgment is GRANTED IN PART and DENIED IN PART. The People's motion for summary disposition is DENIED.

I. Background – The relationship between LAD and LAN

A. General Corporate Structures

LAN, a Texas corporation with its principal place of business in Texas, has one shareholder: LAD. (ECF No. 346, PageID.21827.) The City of Flint solely contracted with LAN (and not LAD) regarding the provision of engineering services related to the Flint Water Treatment Plant ("FWTP"). (Id. ; ECF No. 346-1, PageID.21843.) However, LAN's proposal to the City of Flint to do work on the FWTP included reference to its relationship with LAD and LAN's access to LAD's resources. (See ECF No. 372-2, PageID.24607.)

LAD, a Nebraska corporation with its principal place of business in Nebraska, is the parent company of LAN. (ECF No. 346, PageID.21826.) LAD also only has one shareholder: Leo A. Daly III. (Brader deposition, pages 51, 130.)⁴ LAD describes itself as "an architectural firm" that "derives its revenue from its own activities separate and apart from the activities of LAN[;]" LAD also asserts that it "does not perform infrastructure engineering projects such as those performed in connection with the [FWTP]." (ECF No. 346, PageID. 21826; ECF No. 346-2, PageID.21858) This is proposed in direct contrast to LAN, which does perform such projects, and which also has revenue from its own activities. (ECF No. 346, PageID.21827.)

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The parties agree that the two corporations have commonalities, although LAD nevertheless argues that the two maintain separate corporate formalities. LAD has two directors (i.e., Leo A. Daly III and Grega G. Daly), while Leo A. Daly III is also among LAN's group of directors. (ECF No. 346, PageID.21827; Brader deposition, page 101.) Leo A. Daly III is the chairman of the board for both LAD and LAN. (Brader deposition, page 57.) LAD and LAN are both insureds under the same policy in addition to (at various points) sharing both the same general counsel (Edward Benes), chief financial officer (Jay Brader), controller, human resources, IT, and the director of project accounting. (ECF No. 346, PageID.21827; ECF No. 346-2, PageID.21855; ECF No. 372-2, PageID.24579–24580, PageID.24585.) During the relevant time period of the events underlying this action, at least a majority of the directors of LAN also had roles at LAD. (ECF No. 372-2, PageID.24586.) LAD occasionally refers to LAD and LAN as two separate "brands." (Brader deposition, page 30; ECF No. 346-6, PageID.21958.)

B. Financial Organization and Profits

In 2004, the accounting structures for both LAD and LAN were consolidated for efficiency purposes. (See ECF No. 372-2, ECF No. 372-2, PageID.24572.) As a result, LAD and LAN share a joint bank account, with a shared accounting system that tracks two different balance sheets for each company. (Id. at PageID.24573.) For example, even though LAN and LAD both put money into this joint account, the accounting system separately keeps track of LAN's own revenue, in addition to its separate costs and expenses, to obtain a balance sheet with related profits and losses for LAN, specifically. (Id. at PageID.24583, 24590–24591.) Relatedly, any debit that comes out of the shared account is allocated to either LAD or LAN. (Id. at PageID.24600.) This shared bank account issued paychecks for employees who work for LAN. (ECF No. 346-2, PageID.21863; ECF No. 372-2, PageID.24606.) With regard to the work done for the City of Flint, LAD procured the professional liability insurance policy as required by the City of Flint, shared the cost of these premiums with LAN, and was listed as an insured on that policy. (ECF No. 372, PageID.24553; ECF No. 372-2, PageID.24588, 24594.)

Nevertheless, the two corporations also engage in at least some distinct operations. Since 2005, expenses for shared services (such as those offered by the shared general counsel and CFO) are allocated based on the ratio of their labor between the two companies. (ECF No. 346, PageID.21827; ECF No. 346-2, PageID.21862; ECF No. 372-2, PageID.24582; Brader deposition, pages 47–48.) LAN pays its share of the overhead for the shared insurance policy and is solely responsible for the workers' compensation claims filed by LAN employees. (ECF No. 346, PageID.21827.) LAD and LAN maintain separate disbursement accounts for expenses (including bonuses and profit-sharing benefits), and run separate bonus structures (i.e., if LAD had no profits in a particular year, its employees did not receive a bonus regardless of LAN's profitability). (ECF No. 346, PageID.21827–21828; ECF No. 346-2, PageID.21863, 21868–21869; ECF No. 372-2, PageID.24599; Brader deposition, pages 70, 117.) The two produce separate earnings statements. (ECF No. 346-2, PageID.21861.) LAN holds assets in its own name (although it is unclear if that is entirely separate and apart from LAD). (See id. at PageID.21867, 21888; Brader deposition, page 90.) LAN was responsible for the costs and expenses of the FWTP

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project, and all the revenue from that project is accounted for by LAN. (ECF No. 372-2, PageID.24584, 24600.)

Additionally, LAN is allegedly more profitable than LAD: Brader, VP and CFO of LAD/LAN since April of 2013, testified that LAD has had negative annual profits in most years over the last decade, and that in certain years LAD made no profit when LAN did make a profit. (See ECF No. 346-2, PageID.21865, 21870; Brader deposition, pages 24, 122.) In contrast, over the course of 2010 to 2020, LAN's profits exceeded $22 million. (Brader deposition, page 91.) In support of its assertion that the two corporations have different revenue streams (see ECF No. 346, PageID.21831), LAD cites office earnings reports for both LAN and LAD, separately, spanning approximately 10 years, as well as asset lists. (Brader deposition, pages 17, 26, 42.) LAN's figures are not included as a subset of LAD figures, but rather, are kept separate in a distinct set of earnings reports. (Id. , pages 33, 42; ECF No. 346-2, PageID.21876–21886.)

C. Employee Leasing Agreement ("the Agreement")

The relationship between the engineers who performed work on behalf of LAN for the City of Flint and LAD is crucial to the Courts' consideration of this motion. Specifically, there is a question of whether LAD and LAN effectively share employees through a formal Employee Leasing Agreement effective as of March of 2004 (hereinafter, the "Agreement").⁵ (ECF No. 346, PageID.21828.) Corporate designee deponents Benes and Brader offer different testimony on this issue. According to Benes, since 2004, every employee who performed work for LAN is a LAD employee, leased to LAN subject to the Agreement—including all employees who performed work for the City of Flint under the contract with LAN. (ECF No. 372, PageID.24552; ECF No. 372-2, PageID.24581.) Through the Agreement, "the workforce of LAN is seconded to LAN by LAD" (ECF No. 346, PageID. 21828) for purposes of efficiencies in accounting, benefits, and insurance. (ECF No. 372-2, PageID.24582.)

However, Brader disputes this: according to Brader, none of the employees are leased and the agreement was "never used[,]" not "ever truly implemented[,]" and "not how we acted or functioned." (Brader deposition, pages 72, 74, 134.) Specifically, "[Brader] and most other people [he] would say were not even aware of the [Agreement]." (Id. , page 75.) Yet, Brader agreed that the Agreement had...