Yankee Gas Servs. Co. v. UGI Utilities, Inc.

• Decision Date: 30 March 2012
• Docket Number: No. 3:10–cv–580 (MRK).,3:10–cv–580 (MRK).
• Citation: Yankee Gas Servs. Co. v. UGI Utilities, Inc., 852 F.Supp.2d 229 (D. Conn. 2012)
• Court: U.S. District Court — District of Connecticut
• Parties: YANKEE GAS SERVICES CO., Plaintiff, v. UGI UTILITIES, INC., Defendant.

852 F.Supp.2d 229

YANKEE GAS SERVICES CO., Plaintiff,

v.UGI UTILITIES, INC., Defendant.

No. 3:10–cv–580 (MRK).

United States District Court, D. Connecticut.

March 30, 2012.

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

Brian J. Kapatkin, Foley & Lardner, Washington, DC, Lee D. Hoffman, Pullman & Comley, Hartford, CT, Paul Bargren, Foley & Lardner, Milwaukee, WI, for Defendant.

MEMORANDUM OF DECISION

MARK R. KRAVITZ, District Judge.

In this case, the Court is asked to decide how the cost of environmental cleanup at the Waterbury North Manufactured Gas Plant should be allocated between its current owner, the Yankee Gas Services Company (“Yankee Gas”), and UGI Utilities, Inc. (“UGI”), the operator of the plant during its heyday a century ago. Yankee Gas brought this suit under § 107(a) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. §§ 9601–9675 (“CERCLA”), seeking to impose liability on UGI for the pollution—particularly, tar and oil pollution—at the facility, which UGI leased and operated from either 1884 or 1889 until 1914. UGI subsequently filed a contribution counterclaim against Yankee Gas under CERCLA § 113(f), which allows courts to “allocate response costs among liable parties using such equitable factors as the court determines are appropriate.” 42 U.S.C. § 9613(f)(1).

This is the not the Court's first encounter with this litigation. In a previous and related case, the parties agreed to try their dispute in two phases. See Yankee Gas Servs. Co. v. UGI Utils., Inc., 616 F.Supp.2d 228, 231 (D.Conn.2009), aff'd,428 Fed.Appx. 18 (2d Cir.2011). The first phase, which required a four-day trial and resulted in a lengthy opinion, see id., addressed questions about statutes of limitations and UGI's derivative and direct liability for pollution at thirteen manufactured gas plants, or MGPs, throughout Connecticut. The Court will not revisit the issues that it addressed in that first opinion.

The second phase was to have focused on the allocation of remediation costs among any potentially responsible parties. See id. at 232. Yet because the Court had granted judgment for UGI with respect to nine of the MGPs and Yankee Gas had dropped its claim with respect to three more, see id. at 277, 232, only one facility remained: Waterbury North. UGI agreed that it had operated the Waterbury North MGP for a certain number of years, but it reserved the right to argue that Yankee Gas had not shown that any contamination occurred at Waterbury North during those years. However, before launching into phase two of the trial, the parties asked for a postponement in order to carry out further investigations of the Waterbury North site. The Court instead entered final judgment on the issues decided in the first phase and severed the second phase of the dispute, requiring the parties to file their claims and counterclaims as a new case—that which is presently before the Court.

In August and September 2011, three days of testimony and an additional several hours of closing arguments were offered. As it did after the last trial, see id. at 233, the Court takes this opportunity to commend the professionalism and civility of both parties' counsel throughout this process. The small mountain of exhibits in this case would have been far less traversable without their able guidance.

Having carefully reviewed the documentary evidence and testimony presented to it, the Court is now able to decide the several disputed issues that remain in this matter. First, whether Yankee Gas and UGI are jointly and severally liable for the tar pollution at Waterbury North. The Court holds that they are. Second, whether Yankee Gas has incurred costs consistent with the National Contingency Plan. The Court holds that it has. Third, whether UGI assumed all liabilities of, or de facto merged with, the United Gas Improvement Company (“UGIC”), thus becoming liable for any damage that may have occurred between 1884 and 1889. That is a close question, but the Court finds that Yankee Gas has met its burden of showing a de facto merger. Fourth, whether there is a basis to allocate between UGI and Yankee Gas for the pollution on the site's three areas: the Holders, the Tailrace, and the so-called Areas Beyond the Holders. The Court concludes that there is a basis for allocation between UGI and Yankee Gas; the details of this allocation are discussed in detail in Part V below. Fifth, whether the allocation should include an owner's share. The Court concludes that it should. Finally, whether UGI should get the benefit of insurance proceeds and rate recovery that Yankee Gas has received. The Court holds that UGI should get the benefit of an allocable share of insurance proceeds but not of Yankee Gas's rate recovery.

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. The Court will also make additional findingsof fact in connection with the various issues discussed in the sections to follow.

Manufactured Gas Plants (“MGPs”). During the heyday of manufactured gas production—between 1816 and 1960—approximately 1,000 to 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 gas, which was manufactured by enriching super-heated air with carbureted petroleum; and (3) carbureted water gas (“CWG”), which was made by blowing steam through red hot coke and/or coal to create water gas, followed by spraying (carbureting) petroleum into the hot water gas to enrich it. Id. CWG was the dominant process used in Connecticut (and nationwide) after the 1890s and is the process for which UGI had an exclusive patent. CWG was the process used at Waterbury North during UGI's lease; prior to that lease, Waterbury North used coal gas.

Both tar and oil—referred to today as “non-aqueous phase liquids” or “NAPLs”—were generated as byproducts from all three manufactured gas processes. See id. at 10. Other byproducts included wastewater, purifier wastes, ash, clinker, and coke. See id. at 12. The amount of byproducts produced was substantial. Tar, in particular, was produced by the millions of gallons over the lifetime of an MGP. See id. at 10–11. Many of these byproducts were valuable in their own right and were collected and sold by the MGPs. Tar, known as “black gold,” was sold for use as fuel, as well as for roofing, wood treating, road surfacing, dyes, medicines, disinfectants, explosives, and chemicals such as benzene and naphthalene. See id. at 17, 22. The recovery and sale of these byproducts was practiced throughout the MGP industry and was essential to their profitability. See id. at 19.

However, as both Plaintiff's and UGI's experts have testified, it was difficult to operate MGPs without some leakage of tar and oil into the environment. See id. at 12; Ex. 2246 at 5. Although MGPs attempted to minimize leakage (not for environmental reasons but because of the monetary value of the byproducts), tar and oil could—and often did—enter the environment during many stages of the CWG process. Leakage also routinely occurred as a consequence of the demolition of former MGPs. These various forms of contamination remain hazardous for decades or even centuries after entering the environment.

UGI's History. The Court reviewed the history of UGI in its earlier opinion. See Yankee Gas, 616 F.Supp.2d at 235–37. UGI played a key role in the establishment of CWG as the preeminent process for gas manufacturing in the eastern half of the United States. The CWG process was invented in 1872 by Thaddeus Lowe, a former consultant to President Lincoln and Chief Aeronaut of the Union Army's Balloon Corps. Mr. Lowe's new method produced gas with more illuminating power at less cost than coal gas processes. In order to maximize the profit potential of the CWG process, Mr. Lowe teamed with other businessmen and investors to form the United Gas Improvement Company (“UGIC”) in 1882. In agreements dating between 1882 and 1885, Mr. Lowe sold the exclusive right to sell, manufacture, and install the CWG process to UGIC; he served as chief engineer of the new company.

Like most corporate charters of the day, UGIC's charter did not allow it to own stock in other companies. After several years of trying to circumvent this restriction through the use of trusts, UGIC formed another corporation called the Union Company, which purchased the corporate charter of the Union Contract Company at a sheriff's sale. This charter, granted to the Union Contract Company by a special act of the Pennsylvania legislature in 1870, allowed the purchase and ownership of stock in other corporations. In 1885, the charter rights and franchisees of the Union Contract Company were transferred to the Union Company. In April 1888, the Union Company changed its name to The United Gas Improvement Company (“TUGIC”), which became UGI in 1968. UGI admits that it is the corporate successor to TUGIC.

A disputed question in this case is whether UGI is also the corporate successor to UGIC. The parties agree on at least the following facts. On July 5, 1888, TUGIC resolved to enter into a transaction to purchase UGIC's assets. The parties have not found the purchase and sale contract by which TUGIC acquired UGIC. However, there are board minutes and an FTC report that refer to the acquisition....