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May 1st, 2018
environmental
SIXTH CIRCUIT DECLINES TO PIERCE CORPORATE VEIL IN CERCLA SUIT

In Duke Energy Florida, LLC v. Firstenergy Corp., CV No. 17-3024, April 10, 2018, the Sixth Circuit refused to pierce the corporate veil to determine which corporate entity would be liable under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), 42 U.S.C. § 9601 et seq., for costs associated with cleaning up hazardous waste released at two manufactured gas plants in the early 1900s.  The processes used at the time to create gas for home consumption inevitably released harmful byproducts, including coal tar, into the local environment, causing groundwater contamination.

At the time the tar was released, two utility companies, Florida Public Service Company (FPSC) and Sanford Gas Company (Sanford) operated the plants. A New York holding company, Associated Gas & Electric Company (AGECO), owned the controlling interest in both companies through its subsidiaries.  Duke Energy is the corporate successor to FPSC and Sanford, and FirstEnergy was the stipulated corporate successor to AGECO.

Beginning in 1998, Duke Energy and other previous owners of the gas plant sites entered into a series of agreements with the Environmental Protection Agency (EPA) to conduct remediation at the sites and reimburse the EPA for response costs it had incurred. Duke Energy asserted that FirstEnergy, as AGECO’s corporate successor, should be required to contribute to the cleanup costs based on the theory of indirect liability.

A corporate parent may be held indirectly liable under CERCLA only if the corporate veil separating parent and subsidiary may be pierced under the corporate law of the relevant state.  Florida courts are reluctant to pierce the corporate veil and take such action only in severely limited circumstances. The party seeking to pierce the veil in Florida must prove three elements: (1) the shareholder dominated and controlled the corporation to such an extent that the corporation’s independent existence was in fact non-existent and the shareholders were in fact alter egos of the corporation; (2) the corporate form must have been used fraudulently or for an improper purpose; and (3) the fraudulent or improper use of the corporate form caused injury to the claimant.

The U.S. District Court declined to pierce the corporate veils separating FPSC and Sanford from AGECO.  The Sixth Circuit affirmed the District Court’s finding that although Duke Energy had successfully shown that AGECO dominated and controlled FPSC and Sanford, it had not proven by clear and convincing evidence that AGECO had used the two subsidiaries for an improper or fraudulent purpose.  As a result, Florida law did not permit piercing the veil on the facts of this case.


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