Yankee Gas Services Co. v. Ugi Utilities, Inc.

Decision Date22 May 2009
Docket NumberNo. 3:06-cv-01369 (MRK).,3:06-cv-01369 (MRK).
Citation616 F.Supp.2d 228
CourtU.S. District Court — District of Connecticut
PartiesYANKEE GAS SERVICES COMPANY and The Connecticut Light and Power Company, Plaintiffs, v. UGI UTILITIES, INC., Defendant.

Bruce W. Felmly, Barry Needleman, Cathryn E. Vaughn, McLane, Graf, Raulerson & Middleton, Manchester, NH, Charles J. Nicol, Duncan Ross Mackay, Northeast Utilities Service Co., Berlin, CT, for Plaintiffs.

Jay N. Varon, Foley & Lardner, Washington, DC, Paul Bargren, Foley & Lardner, Milwaukee, WI, Bridgeport, CT, for Defendant.

MEMORANDUM OF DECISION

MARK R. KRAVITZ, District Judge.

In this action, Yankee Gas Services Company ("Yankee Gas") and The Connecticut Light and Power Company ("CL&P"), both of which are subsidiaries of Northeast Utilities, sue UGI Utilities, Inc. ("UGI") under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. § 9601 et seq. ("CERCLA"), seeking to impose liability on UGI for pollution that occurred at thirteen facilities in Connecticut that produced manufactured gas from 1884 to 1941. These facilities are known as manufactured gas plants, or MGPs. At various points in time, CL&P was a subsidiary of UGI, or corporations in which UGI owned stock, until UGI was required to divest itself of its interest in CL&P in 1941 as a consequence of the passage of the Public Utility Holding Company Act of 1935.1

The U.S. Supreme Court's decision in United States v. Bestfoods, 524 U.S. 51, 118 S.Ct. 1876, 141 L.Ed.2d 43 (1998), provides the analytical framework for determining UGI's liability for contamination at these sites. This is not the first time that courts have addressed UGI's liability for pollution occurring at manufactured gas sites owned by its former subsidiaries, although this is the first case involving CL&P. See, e.g., Atlanta Gas Light Co. v. UGI Utilities, Inc., No. 3:03-cv-614-J, 2005 WL 5660476 (M.D.Fla. Mar.22, 2005), aff'd, 463 F.3d 1201 (11th Cir.2006) ("Atlanta Gas") (no liability for UGI under CERCLA); Consolidated Edison Co. of New York, Inc. v. UGI Utilities, Inc., 310 F.Supp.2d 592 (S.D.N.Y.2004), aff'd in relevant part, 153 Fed.Appx. 749 (2d Cir. 2005) ("Consolidated Edison") (same).

The Court and the parties agreed to try this case in two phases. The first phase was focused on certain statute of limitations issues as well as UGI's derivative and direct liability within the meaning of Bestfoods. The second phase was to focus on the allocation of remediation costs between the various potentially responsible persons. The first phase of the case was tried to the Court over four days. Plaintiffs submitted 529 exhibits; UGI introduced 1,147 exhibits. Given the years at issue, the Court was impressed by the wealth of documentation that is still available, including most of the minutes of the relevant companies' board meetings and committees and a substantial amount of correspondence and reports.2 Because no individuals who actually worked at these sites during the relevant period were still available to be called at trial, the witnesses were retained experts and one fact witness regarding Plaintiffs' clean-up efforts. The experts (none of whom was a historian) reviewed volumes of historical documents and gave their opinions based upon those documents or the impressions they derived from reading the documents.

Before, during, and after trial, UGI sought to strike Plaintiffs' experts on the basis of the Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993), line of cases. The Court declined to strike the experts' testimony, and so it remains in the record for what it's worth. Truth be told, with a single exception, the Court did not find the experts' testimony of much assistance in resolving the issues in this case. The Court says this for two principal reasons. For one, the Court was just as able as the experts to review the historical record and apply the Bestfoods standard to the facts as the Court found them. The Court did not need the experts to undertake that important task for the Court. For another, two of Plaintiffs' witnesses—Dr. Neil Shifrin and Mr. Thomas Blake—appeared to analyze the historical record using standards that are contrary to those set forth in Bestfoods. For example, Dr. Shifrin declined to accept the possibility that a person having a position with a subsidiary and also with the parent corporation could act for the subsidiary while engaged in the subsidiary's business. Dr. Shifrin's presumption is contrary to the statement in Bestfoods that "courts generally presume that the directors are wearing their `subsidiary hats' and not their `parent hats' when acting for the subsidiary...." Bestfoods, 524 U.S. at 61, 118 S.Ct. 1876 (quotation marks omitted). Mr. Blake testified that when a company owned more than fifty percent of another company, that created a presumption (albeit a rebuttable one) that the parent controlled the subsidiary's operations within the meaning of CERCLA. Mr. Blake's presumption is contrary to the statement in Bestfoods that "the exercise of the control which stock ownership gives to the stockholders ... will not create liability beyond the assets of the subsidiary," and that "nothing in CERCLA purports to reject this bedrock principle." Id. at 61-62, 118 S.Ct. 1876 (quotation marks omitted). In effect, Mr. Blake improperly shifted the burden of proof to UGI. Where the Court did find the experts' testimony of assistance (and did use it) was in connection with an understanding of the operation of the manufactured gas plants and the pollution they may have generated, as well as in interpreting technical aspects of the documentation.

By closing arguments, certain issues had dropped from the case. Before trial, Plaintiffs withdrew claims relating to three sites—Waterbury Benedict Street, Meriden South Colony Street, and Winsted Prospect Street—without prejudice to renewing those claims at an appropriate point in time. Also, at closing arguments, Plaintiffs withdrew their claim that the Court should pierce the corporate veil between UGI and CL&P—that is, in the parlance of Bestfoods, Plaintiffs withdrew their claim of derivative CERCLA liability. See Bestfoods, 524 U.S. at 64, 118 S.Ct. 1876. That concession focused the Plaintiffs' claims solely on UGI's direct liability as an "operator" of the remaining ten facilities. In particular, Plaintiffs sought to show that UGI operated the facilities "in the stead of [CL&P] or alongside [CL&P] in some sort of a joint venture." Id. at 71, 118 S.Ct. 1876.

UGI, for its part, agreed that it had operated the Waterbury North facility for the years in question but reserved its right to argue that Plaintiffs had not shown that any contamination occurred at that site during the relevant period of UGI's operation. Accordingly, the Waterbury North facility was removed from the first phase of the trial and will be addressed, if need be, during the next phase. Thus, the facilities at issue in this first phase included the following nine MGPs: Norwalk, Bristol, Meriden Cooper Street, Middletown, Putnam, Rockville, Waterbury South, Winsted Gay Street, and Willimantic.

Having carefully considered the documentary evidence and cognizant of the Bestfoods standard, the Court concludes that Plaintiffs have not sustained their burden of proving by a preponderance of the evidence that UGI operated these nine MGPs in the stead of CL&P or in some sort of joint venture with CL&P. Plaintiffs succeeded in showing that UGI was a vigilant parent that conducted detailed—yet not eccentric—oversight of the operations of its subsidiaries in Connecticut. But the facilities in question were operated by CL&P and its employees. To be sure, UGI provided assistance to CL&P from time to time when CL&P requested it; UGI also carefully oversaw the operations of CL&P, consistent with UGI's status as a corporate parent. But that assistance and oversight is a far cry from managing, directing, or operating the facilities in the stead of CL&P or in some sort of joint venture with it. In short, from the documentary record provided, the Court believes that CL&P was accurate and truthful when it told the Securities and Exchange Commission in 1940 that UGI "has never undertaken to control the affairs of this Company in any way." Ex. 1586 at 850. In addition, and in the alternative, for at least two of the facilities, the Court finds that Plaintiffs' cost recovery actions are time-barred.

Before turning to the Court's findings of fact and conclusions of law, the Court pauses to express its gratitude to counsel for both sides in this dispute. They were consummate professionals who dealt with the Court civilly and with commendable candor at all times. Given the volume of evidence provided to the Court, it would have been impossible to review it meaningfully without the superb assistance from all counsel.

I.

What follows in this section are the Court's findings of fact in accordance with Rule 52 of the Federal Rules of Civil Procedure. The Court will begin with a general overview of manufactured gas production and the companies in question. Given the complexity of the issues involved and in order to avoid unnecessary repetition, the Court will keep this first section relatively brief and will make further findings of fact in connection with the Court's discussion of the various issues presented by the parties.

Basic Operations of Manufactured Gas Plants. During the heyday of manufactured gas production—between 1816 and 1960—approximately 1,000-1,500 MGPs were built and operated in the United States. See Ex. 1 at 9. Prior to the development of natural gas supplies and transmission systems during 1940s and 1950s, virtually all fuel and lighting gas used in the United States was manufactured at MGPs using one of three basic processes: (1) coal gas, which was produced from thermal destruction of coal in the absence of air; (2) oil...

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