N.Y. State Electric & Gas Corp. v. Firstenergy Corp.

• Decision Date: 11 July 2011
• Docket Number: Civil Action No. 3:03-CV-0438 (DEP)
• Parties: NEW YORK STATE ELECTRIC & GAS CORPORATION,Plaintiff, v. FIRSTENERGY CORPORATION, Defendant. FIRSTENERGY CORPORATION, Third-Party Plaintiff, v. I.D. BOOTH, INC., Third-Party Defendant.
• Court: U.S. District Court — Northern District of New York

NEW YORK STATE ELECTRIC & GAS CORPORATION,Plaintiff, v. FIRSTENERGY CORPORATION, Defendant.

FIRSTENERGY CORPORATION, Third-Party Plaintiff, v. I.D. BOOTH, INC., Third-Party Defendant.

Civil Action No. 3:03-CV-0438 (DEP)

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF NEW YORK

Dated: July 11, 2011

APPEARANCES:

FOR PLAINTIFF:

DICKSTEIN SHAPIRO LLP

OF COUNSEL:

DAVID L. ELKIND, ESQ.

KEISHA A. GARY, ESQ. GEOFFREY M. LONG, ESQ.

KRISTIN C. DAVIS, ESQ.

HINMAN, HOWARD LAW FIRM

JAMES S. GLEASON, ESQ.

FOR DEFENDANT/THIRD-PARTY PLAINTIFF:

SAUL EWING LLP

JOHN F. STOVIAK, ESQ.

CATHLEEN M. DEVLIN, ESQ.

CHRISTINA D. RIGGS, ESQ.

AMY L. PICCOLA, ESQ.

COSTELLO, COONEY LAW FIRM Salina Place

PAUL G. FERRARA, ESQ.

FOR THIRD-PARTY DEFENDANT I.D. BOOTH, INC.:

DAVIDSON & O'MARA, P.C.

DAVID E. PEEBLES

U.S. MAGISTRATE JUDGE

DONALD S. THOMSON, ESQ.

TABLE OF CONTENTS

I. FINDINGS OF FACT.................................... 5

A. Corporate Histories................................. 5

1. NYSEG..................................... 5

2. AGECO..................................... 7

3. FirstEnergy................................. 18

B. Facts Related to Veil-Piercing Analysis................ 18

1. 1906-1922.................................. 18

2. 1922-1940.................................. 24

3. 1940-1942.................................. 46

C. Environmental Concerns Associated with MGP Operations Generally....................................... 47

D. Summary of NYSEG'S MGP Investigations and Remedial Responses...................................... 52

E. NYSEG's Responses at the Sixteen Sites in Dispute...... 69

1. Corning.................................... 69

a. Ownership and Operation..................69

b. Investigation and Remediation.............70

2. Cortland-Homer.............................. 71

a. Ownership and Operation..................71

b. Investigation and Remediation.............. 77

3. Dansville................................... 83

a. Ownership and Operation..................84

b. Investigation and Remediation.............. 85

4. Elmira-Madison Avenue........................88

a. Ownership and Operation..................88

b. Investigation and Remediation.............. 93

5. Geneva-Border City........................... 96

a. Ownership and Operation..................96

b. Investigation and Remediation.............. 97

6. Goshen................................... 100

a. Ownership and Operation................. 101

b. Investigation and Remediation............. 102

7. Granville.................................. 103

a. Ownership and Operation................. 103

b. Investigation and Remediation............. 1058. Ithaca - Court Street......................... 106

a. Ownership and Operation................. 106

b. Investigation and Remediation............. 108

9. Ithaca - First Street.......................... 114

a. Ownership and Operation ................ 114

b. Investigation and Remedial............... 115

10. Mechanicville - Central Avenue................. 117

a. Ownership and Operation................. 117

b. Investigation and Remediation............. 119

11. Newark................................... 125

a. Ownership and Operation................. 125

b. Investigation and Remediation............. 126

12. Norwich................................... 127

a. Ownership and Operation................. 127

b. Investigation and Remediation............. 128

13. Oneonta................................... 133

a. Ownership and Operation................. 133

b. Investigation and Remediation............. 135

14. Owego.................................... 140

a. Ownership and Operation................. 140

b. Investigation and Remediation............. 142

15. Penn Yan-Water Street....................... 147

a. Ownership and Operation................. 147

b. Investigation and Remediation............. 149

16. Plattsburgh-Saranac Street.................... 150

a. Ownership and Operation................. 151

b. Investigation and Remediation.................. 154

F. Cost Recovery and Allocation....................... 162

II. PROCEDURAL HISTORY.............................. 164

III. DISCUSSION....................................... 167

A. CERCLA Liability Generally........................ 167

B. Summary of NYSEG Claims and FirstEnergy Defenses. . . 176

C. Analysis of FirstEnergy's Liability Under CERCLA....... 179

1. Direct Owner Liability ........................ 180

2. Direct Operator Liability....................... 181

3. Indirect Liability as an Owner and/or Operator...... 188a. Pre-1922.............................. 198

b. 1922-1940............................ 200

c. 1940-1942............................ 208

D. Affirmative Defenses.............................. 209

1. Bankruptcy Discharge........................ 210

2. 1945 Covenant Not to Sue....................211

3. Statute of Limitations......................... 213

a. Plattsburgh............................ 225

b. Owego............................... 231

c. Ithaca-Court Street...................... 233

d. Norwich.............................. 236

E. Analysis of I.D. Booth's CERCLA Liability.............. 239

F. Compensable Response Costs..................... 254

1. Certainty of Damages........................ 255

2. NCP Compliance............................ 259

3. Necessity of Cost............................ 262

4. Offset for Recovery From Collateral Sources...... 269

a. Insurance Recovery..................... 271

b. Rate Recovery......................... 276

G. Allocation...................................... 279

1. Allocation Generally.......................... 279

2. Allocation as Between NYSEG and FirstEnergy. . . . 283

3. Allocation as Between FirstEnergy and I.D. Booth.. . 286

IV. CONCLUSIONS OF LAW.............................. 290

V. SUMMARY AND ORDER.............................. 295

DECISION AND ORDER

Plaintiff New York State Electric & Gas Corporation ("NYSEG") commenced this action in April of 2003 seeking to recover from defendant FirstEnergy Corporation ("FirstEnergy") expenses incurred to remediate twenty-four hazardous waste sites throughout Upstate New York formerly associated with manufactured gas plant ("MGP") operations of NYSEG and its predecessor utility companies. The MGP operations conducted at those locations were typical of those carried out by many public utilities during the 1800s and the first half of the twentieth century to produce gas, manufactured principally through processes employing coal as raw material, for commercial and residential usage. By their nature, MGP facilities generated significant quantities of byproducts, including coal tar and oils, containing what have come to be regarded as hazardous substances. Those byproducts were typically stored on-site and often released into the soil and groundwater at and near the MGP sites, on occasion migrating off-site and into nearby waterways.

NYSEG's complaint, as amended in October 2004, at one time asserted a combination of federal and state law causes of action including, inter alia, under the Comprehensive Environmental Response,Compensation and Liability Act of 1980 ("CERCLA"), as amended, 42 U.S.C. § 9601 et seq. Its claims, however, have been materially reshaped as a result of the ongoing refinement of CERCLA jurisprudence. Given the rapid and robust development of environmental caselaw, coupled with rejection by the court of plaintiff's contribution cause of action under § 113(f) of CERCLA, and dismissal of plaintiff's New York Navigation Law and common law indemnification counts, on stipulation of the parties, all that now remains is NYSEG's cost recovery claim against FirstEnergy under § 107(a) of CERCLA, together with FirstEnergy's contribution counterclaim and a third-party claim for contribution against I.D. Booth, Inc. ("I.D. Booth"), the current owner of portions of two of the sites in issue, both of which are asserted under § 113(f).

The action was tried to the court beginning on December 6, 2010.¹For a variety of reasons, by the time of trial the number of former MGP sites implicated were winnowed from twenty-four to seventeen and, with the dismissal at trial of claims related to one site, now stands at sixteen.NYSEG claims to have paid more than $94 million through the end of 2009 to address contamination at the sixteen remaining MGP sites in issue, with the expectation that the expenditure of upwards of an additional $144 million will be required in order to complete the cleanup process. Those remedial efforts have been conducted in large part pursuant to an administrative order issued in 1994 by the New York State Department of Environmental Conservation ("DEC"), on consent, addressing remediation efforts at several former MGP sites including all but one of those now in issue.

In addition to the issues normally associated with a typical environmental cost recovery action, NYSEG's claims present complex threshold questions regarding the interplay between a number of related corporations, revolving around events dating back to the early twentieth century. Resolution of the CERCLA claims now presented turns, in the first instance, on an exceedingly labyrinthine set of facts surrounding the corporate history of NYSEG and its predecessor utility companies as well as the relationship of NYSEG and its affiliates with their former parent company, the Associated Gas & Electric Company ("AGECO") - a predecessor of defendant FirstEnergy. NYSEG contends that AGECO,although in title a mere holding company, in reality ran the MGP facilities falling under its umbrella and is therefore directly liable under CERCLA as an operator of the sites involved at the time of the hazardous releases in issue. Alternatively, NYSEG argues that the facts justify piercing its corporate veil, and those of its related utility operating companies, in order to find derivative liability on the part of AGECO, the parent corporation, for the environmental liabilities at issue, based upon AGECO's overwhelming domination of those subsidiaries.

Although thousands of documents were received...