In this case, New York State Electric and Gas Corporation (“NYSEG”) sued FirstEnergy Corporation (“FirstEnergy”) under section 107(a) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. §§ 9601 et seq. (“CERCLA”), to recover certain costs incurred in remediating coal tar contamination at certain of NYSEG’s manufactured gas plants in upstate New York. NYSEG contends that FirstEnergy is hable as the successor to NYSEG’s former parent company, Associated Gas & Electric Company (“AGECO”), for a portion of the cleanup costs. FirstEnergy filed counterclaims against NYSEG and third-party claims against I.D. Booth, Inc. (“I.D. Booth”), the current owner of one of the sites, for cost contribution under section 113(f) of CERCLA
On July 11, 2011, following a bench trial, the United States District Court for the Northern District of New York (Peebles, M.J.) issued a decision and order holding that NYSEG was entitled to recover certain cleanup costs from FirstEnergy based on a veil-piercing theory, but limiting that recovery to certain sites. New York State Elec. & Gas Corp. v. FirstEnergy Corp.,
We affirm in part, vacate in part, and remand.
STATEMENT OF THE CASE
A. The MGPs
This case arises from the cleanup of hazardous waste created at certain former manufactured gas plants (“MGPs”) in upstate New York, currently or formerly owned by NYSEG or its predecessor companies. MGPs began operating in the United States in the 1800s, producing gas used for cooking, lighting, and heating. The plants created gas by heating coal to very high temperatures in large ovens. The gas was then cleaned, processed and piped out for use. Unfortunately, as the gas cooled, it created a number of byproducts, including coal tar, which inevitably leaked from tar-handling equipment. Because coal tar is heavier than water, it tends to migrate in the subsurface, and travels underground from a site through the water table until it runs into a confining layer, such as bedrock. Coal tar also leaches into groundwater, causing groundwater contamination. The Environmental Protection Agency (“EPA”) listed coal tar as a hazardous waste in 1992. See 40 C.F.R. § 261.32(a) (2012); see also Identification and Listing of Hazardous Waste; CERCLA Hazardous Substance Designation; Reportable Quantity Adjustment;
Most of the MGPs closed in the 1930s and 1940s when natural gas began to be delivered through interstate pipelines. In this case, all of the waste in dispute was manufactured before 1940. NYSEG or its predecessors owned at least thirty-eight MGP sites, including the sites at issue in this case.
B. The Cleanup
Most of the sites at issue were listed by the New York State Department of Environmental Conservation (“DEC”) in 1986 as Class “2a” sites on the Registry of Inactive Hazardous Waste Disposal Sites in New York.
C. Corporate History
The history of the corporations involved in this case is long and tortured. We relate only the points relevant to the issues before us.
AGECO was incorporated as a public utility holding company in 1906. By 1907 it owned the common stock of several utility companies. Mergers of certain of its subsidiaries in 1916 and 1918 eventually led to what became known as the New York State Gas and Electric Corporation. In 1928, the latter entity changed its name to the New York State Electric Corporation, and a year later it adopted its current name, New York State Electric and Gas Corporation. Hence, NYSEG was created through the merger of certain AGECO subsidiaries.
Over the years, AGECO acquired other utility companies and MGPs, either directly or through other holding companies. In the 1930s, NYSEG acquired a number of MGPs from AGECO subsidiaries. By 1939, NYSEG had acquired all the MGPs at issue in this action from AGECO.
D. The Bankruptcy
On January 10, 1940, AGECO filed for bankruptcy. Pursuant to the reorganization plan, AGECO merged into AGE-CORP, which subsequently changed its name to General Public Utilities Corporation, which later became GPU. In 2001, GPU merged into FirstEnergy. Hence, FirstEnergy is the successor to AGECO.
On June 26,1945, during the bankruptcy proceedings, NYSEG’s board of directors adopted a resolution not to bring any claims against AGECO, instead assigning
[T]hat in accordance with the request of N.Y. PA NJ Utilities Company dated May 9,1945, this Company shall take no action with respect to the filing of any claim or claims against the Estate of [AGECO] or the Estate of [AGECORPJ ...; provided, however, that in consideration therefor N.Y. PA NJ Utilities Company shall release this Corporation and its officers and directors from any liability arising from the omission of this Corporation to file such claim or claims and also from any liability for having made or approved allegedly excessive payments through various service corporations or funds prior to 1939; and provided, further that the Trustees of the above-mentioned Estates shall execute and deliver to this Corporation [an] appropriate covenant not to sue on account of any alleged failure to pay its pro rata share of any alleged Federal tax liability for the years 1927 to 1993, inclusive.
NYSEG,
E. Procedural History
This litigation began in April 2003, when NYSEG sued FirstEnergy under section 107(a) of CERCLA for cleanup costs at twenty-four MGPs in upstate New York. This number was reduced to seventeen sites before trial. During the trial, NY-SEG’s claims with respect to the Auburn Clark Street site were dismissed pursuant to Fed.R.Civ.P. 52(c), leaving sixteen sites at issue. NYSEG,
At trial, NYSEG alleged that it spent more than $94 million in cleanup costs on the sixteen sites through the end of 2009, and that it faced another $144 million in future cleanup costs. Id. at 428.
On July 11, 2011, the district court issued a decision and order, NYSEG,
1) NYSEG was not barred by a covenant not to sue from seeking contribution from FirstEnergy under CERCLA.
2) FirstEnergy was not liable for cleanup costs as an “owner.”
3) FirstEnergy was not directly liable for cleanup costs as an “operator.”
4) NYSEG was permitted to pierce the corporate veil to hold FirstEnergy hable as an “operator” for the period from 1922 to 1940.
5) NYSEG was not permitted to pierce the corporate veil for the period prior to 1922 or after 1940.
6) Cost recovery by NYSEG at the Norwich and Owego sites was precluded by the statute of limitations.
7) Cost recovery by NYSEG at the Plattsburgh site was not precluded by the statute of limitations.
8) A portion of a $20 million insurance payment to NYSEG could be used to offset costs assigned to FirstEnergy.
9) The court could rely on First-Energy’s coal tar production calculations for (1) the pre-1887 period and (2) the post-1930 period.
10) FirstEnergy was entitled to contribution from I.D. Booth based on I.D. Booth’s status as an owner of one of the sites.
An Amended Final Judgment was entered on September 7, 2011, awarding NY-SEG $29,715,225 for past and future cleanup costs for sixteen sites. I.D. Booth was held liable for $179,122 plus a share of future costs with respect to the Cortland-Homer site.
These appeals followed.
A. CERCLA
Congress enacted CERCLA, 42 U.S.C. §§ 9601 et seq., to address the cleanup of hazardous waste by imposing strict liability for necessary cleanup costs incurred that are “consistent with the national contingency plan.” CERCLA § 107(a)(4)(B), 42 U.S.C. § 9607(a)(4)(B). Private parties who engage in cleanup activity can recover costs associated with such actions by bringing claims under either section 107(a) or section 113(f) of CERCLA against “potentially responsible parties” (“PRPs”). CERCLA created four classes of PRPs: (1) present owners and operators of facilities that accepted hazardous substances for transport; (2) past owners and operators of such facilities; (3) generators of hazardous substances; and (4) certain transporters of hazardous substances. 42 U.S.C. § 9607(a); see also Price Trucking Corp. v. Norampac Indus., Inc.,
Private parties have two options to recover their cleanup costs from other PRPs. First, under section 107(a), a property owner or operator who has spent money on cleaning up hazardous waste may seek reimbursement for cleanup costs from other PRPs. See Niagara Mohawk Power Corp. v. Chevron U.S.A., Inc.,
Second, under section 113(f), “[a]ny person may seek contribution from any other person who is liable or potentially hable under [section 107(a) ] during or following any civil action under section 9606 of this title or under section 9607(a) of this title.” 42 U.S.C. § 9613(f)(1). In other words, a PRP who has been sued under section 107(a) to contribute to cleanup costs—even if it has not yet spent any money on cleanup activities—can seek contribution from other PRPs for cleanup costs, including from the initial plaintiff who sued the PRP under section 107(a). Here, NYSEG has sued FirstEnergy under section 107(a) and FirstEnergy has filed claims against NY-SEG and I.D. Booth under section 113(f).
We construe CERCLA liberally to advance its “dual goals of cleaning up hazardous waste and holding polluters responsible for their actions.” New York v. Next Millenium Realty, LLC,
B. Analysis
These appeals present the following issues: (1) whether NYSEG’s CERCLA claims against FirstEnergy are barred by the covenant not to sue; (2) whether AGE-CO is directly liable under CERCLA as an operator; (3) whether FirstEnergy is ha-ble to NYSEG on a piercing the corporate veil theory (a) based on AGECO’s control over NYSEG from 1922 to 1940, and (b) for contamination created by other AGE-CO subsidiaries before the subsidiaries were merged into NYSEG, and before
We review the district court’s interpretation of the covenant not to sue, its decisions whether to pierce the corporate veil, and its statute-of-limitations determinations de novo. See Krumme v. West-Point Stevens Inc.,
1. The Covenant Not To Sue
FirstEnergy argues the district court erred when it held that NYSEG’s claims were not foreclosed by the covenant not to sue that AGECO included in the resolution adopted by NYSEG’s board of directors during the bankruptcy proceedings in 1945. NYSEG,
NYSEG argues that the covenant does not bar its claims because: (1) there is no evidence the covenant was ever executed and delivered and (2) the resolution is limited to claims of NYSEG in 1945 against the bankruptcy estates of AGECO and AGECORP in the bankruptcy proceedings.
A covenant not to sue is “an agreement by one having a present right of action against another not to sue to enforce such right.” Colton v. New York Hosp.,
Here, however, the covenant never became operative because a condition precedent to its validity never occurred. Under New York Law, “when there is a ‘condition precedent to the formation or existence of the contract itself ... no contract arises ‘unless the condition occurs.’ ” Adams v. Suozzi,
2. AGECO’s direct liability as a CERCLA “operator”
NYSEG argues that FirstEnergy is directly liable as an operator of the Cortland-Homer, Ithaca-Court Street, and Norwich MGPs between 1906 and 1910 and the Oneonta MGP between 1916 and 1922 because AGECO “directly managed and operated” these MGPs. NYSEG Br. at 24.
Under CERCLA, “any person who operates a polluting facility is directly liable for the costs of cleaning up the pollution ... regardless of whether that person is the facility’s owner [or] the owner’s parent corporation.” United States v. Bestfoods, 524 U.S. 51, 65,
There are three circumstances under which a parent can be held liable as a direct operator of a subsidiary’s facilities: (1) “when the parent operates the facility in the stead of its subsidiary or alongside the subsidiary in some sort of a joint venture”; (2) when “a dual officer or director ... departfs] so far from the norms of parental influence exercised through dual officeholding as to serve the parent, even when ostensibly acting on behalf of the subsidiary”; and (3) when “an agent of the parent with no hat to wear but the parent’s hat ... manage[s] or direct[s] activities at the facility.” Bestfoods,
Here, the district court found that AGE-CO was not an operator during this period because it did not sufficiently “participate[] in the activities” of the facilities. Id. at 68,
[E]ach MGP facility retained its own superintendent on site who was responsible for the day-to-day activities, andthere is no evidence that the superintendent reported to and was controlled by AGECO and the service companies, as distinct from the corporate management and board of directors of NYSEG and those of other subsidiary utility companies.
NYSEG,
The district court noted that while NYSEG and AGECO entered into service agreements under which AGECO was “retained to provide such services as general operator and financial manager of NY-SEG’s properties,” those agreements did not “reveal the type of management and control over polluting activities envisioned by Bestfoods as necessary to support a finding of direct operator liability.” Id. at 493-94. The fact that AGECO took steps to “monitor and control” its subsidiaries’ activities, including arranging for these service agreements, was consistent with AGECO’s role as a parent corporation managing the activities of its subsidiary. Id. As the Bestfoods court observed:
Activities that involve the facility but which are consistent with the parent’s investor status, such as monitoring of the subsidiary’s performance, supervision of the subsidiary’s finance and capital budget decisions, and articulation of general policies and procedures, should not give rise to direct liability.
NYSEG’s arguments to the contrary are not persuasive because the activities it cites are consistent with acceptable practices of a parent corporation. For example, NYSEG points to a series of reports issued by the Federal Trade Commission between 1932 and 1934, which stated that after AGECO’s owners transferred the stock of Ithaca Gas Light, Norwich Gas Company, and Homer & Cortland Gas Light Company (the owners of the Cortland-Homer, Ithaca-Court Street, and Norwich MGPs) to AGECO, AGECO brought the companies under “common control and management” and managed and operated their MGPs from 1906 to 1910. NYSEG Br. at 5. More specifically, NYSEG cites Brown’s Directory of American Gas Companies (“Brown’s Directory”), which reported that the same AGE-CO personnel held the offices of President, Vice-President, Secretary, and General Manager of the three MGP’s during this period. NYSEG also points to the previously mentioned service contracts with W.S. Barstow & Company and J.G. White & Company, which were in effect at various points between 1910 and 1922 as evidence of direct control of the Cortland-Homer, Ithaca-Court Street, Norwich, and Oneonta MGPs.
The district court did not err in holding that these general allegations failed to support a finding of direct operator liability as they do not show that AGECO operated the facility “in the stead of its subsidiary.” See Bestfoods,
3. Piercing the Corporate Veil
а. Contamination Created by NYSEG.
FirstEnergy argues that the district court erred in piercing the corporate veil to hold it liable for cleanup costs for pollution created by NYSEG.
It is fundamental that a parent is considered a legally separate entity from its subsidiary, and cannot be held liable for the subsidiary’s actions based solely on its ownership of a controlling interest in the subsidiary. Bestfoods,
As to the first prong, courts consider the following factors to determine the degree of domination by the parent:
(1) the absence of the formalities and paraphernalia that are part and parcel of the corporate existence, i.e., issuance of stock, election of directors, keeping of corporate records and the like[;]
(2) inadequate capitalization^]
(3) whether funds are put in and taken out of the corporation for personal rather than corporate purposes[;]
(4) overlap in ownership, officers, directors, and personnel^]
(5) common office space, address and telephone numbers of corporate entities^]
(6) the amount of business discretion displayed by the allegedly dominated corporation^]
(7) whether the related corporations deal with the dominated corporation at arms length[;]
(8) whether the corporations are treated as independent profit centers[;]
(9) the payment or guarantee of debts of the dominated corporation by other corporations in the group[;] and
(10) whether the corporation in question had property that was used by other of the corporations as if it were its own.
Passalacqua,
NYSEG sought to pierce the corporate veil here in three respects: (a) AGECO’s control over NYSEG from 1922 to 1940; (b) contamination created by other subsidiaries before they were merged into NY-SEG; and (c) contamination created by other subsidiaries before AGECO owned
FirstEnergy argues that the district court failed to make sufficient NY-SEG-specifie findings to warrant piercing the corporate veil.
As an initial matter, the district court found that between 1922 and 1940 AGECO was dominated and controlled by Howard C. Hopson and John I. Mange. NYSEG,
While the district court found that NY-SEG was not undercapitalized, it did find that Hopson freely transferred funds in and out of AGECO and its subsidiaries, and that the subsidiaries were considered “mere pockets” of AGECO. Id. For example, the New York Public Service Commission (“PSC”) examined the books, records, accounting methods and documents of NYSEG, as well as other subsidiaries, from 1934 to 1938. Id. at 439-40. It issued a report (the “Brewster Report”) finding that AGECO and its affiliates “siphon[ed]” off funds from the operating companies and deposited them into the “pockets of those individuals and corporations engaged in milking the operating companies through the device of servicing and management contracts.” Id. at 439 (internal quotation marks omitted). It also found that Hopson and Howard C. Hopson & Company defrayed personal expenses with funds from the operating companies within the AGECO system. Id. at 440.
Furthermore, the district court found abuses by the Utility Management Corporation (“UMC”), which charged operating companies in the AGECO system, including NYSEG, a management fee of 2.5 percent of their gross revenues even though no management employees from UMC were located on any property owned by the operating companies. Id. The court also found substantial overlap in officers,
Between 1922 and 1940, board meetings for NYSEG and various other AGECO operating companies were usually held in New York City at or near AGECO’s office at 61 Broadway, which was also the primary location of Hopson’s accounting and financial organization that rendered financial, legal, accounting, and auditing services to AGECO and its subsidiaries. Id. at 442.
The district court found that the terms of the service contracts between the service companies run by AGECO and the operating utility companies, including NY-SEG, left the utility companies with “no vestige of independent authority or control” because “[u]nder the provisions of these contracts, the service corporations manage, dominate, and practically operate the utilities.” Id. at 439 (quoting 1932 PSC Report).
The district court found that AGECO and the subsidiaries did not deal at arms length, as no one represented NYSEG or any of the other subsidiaries in the service contract negotiations. Id. at 443. In addition, AGECO loaned money to NYSEG and guaranteed debts by others to NY-SEG. Id. at 499. Considering the totality of these NYSEG-specific findings, we conclude the district court correctly found that veil piercing was warranted. See Passalacqua,
The question remains as to when AGE-CO’s domination of NYSEG ended. First-Energy argues that any domination ended on January 10,1940, the day the bankruptcy was filed. The district court held that AGECO’s domination did not end until December 31, 1940. NYSEG,
The district court’s conclusion that domination continued throughout 1940 is not supported by the record.
b. Contamination Created by Other AGECO Subsidiaries.
The parties have raised two additional issues regarding veil piercing: (1) whether the district court erred in piercing the corporate veil to hold FirstEnergy liable for contamination created by other AGE-CO subsidiaries before those subsidiaries were merged into NYSEG by AGECO; and (2) whether the district court erred in refusing to pierce the corporate veil to hold FirstEnergy liable for contamination that was created by companies before they were owned by either NYSEG or AGECO.
Between 1929 and 1939, AGECO merged five subsidiaries into NYSEG: (1) Eastern New York Electric and Gas Company (owner of the Granville, Mechanic-ville and Plattsburgh MGPs); (2) Elmira Light, Heat & Power Corporation (owner of the Elmira MGP); (3) New York Central Electric Corporation (owner of the Corning, Dansville, Newark, and Penn Yan MGPs); (4) Empire Gas & Electric Company (owner of the Geneva MGP); and (5) Owego Gas Corporation (owner of the Ow-ego MGP).
According to NYSEG, FirstEnergy absorbed all of the subsidiaries’ preexisting liabilities when NYSEG’s veil was pierced, even those liabilities that were incurred before either NYSEG or FirstEnergy owned the subsidiaries. NYSEG argues that because AGECO merged the five subsidiaries into NYSEG, these subsidiaries fall into one of the exceptions to the general rule regarding liabilities acquired through asset purchases. We disagree.
When a corporation purchases the assets of another corporation, it does not acquire its liabilities, unless one of four exceptions applies. See New York v. Nat’l Serv. Indus., Inc.,
1. Pre-Merger Liability
FirstEnergy argues that the district court erred in piercing the corporate veil to hold it liable for contamination created at the ten MGPs owned by AGECO subsidiaries before the subsidiaries were merged into NYSEG. FirstEnergy notes that six of the AGECO-owned MGPs ceased producing gas before AGECO merged these subsidiaries with NYSEG.
As a general matter, under a veil-piercing theory, a parent can only be liable for a wrong committed by the subsidiary under the influence of the parent. Passalacqua,
The district court held that the veil of the non-NYSEG subsidiaries could be pierced to hold FirstEnergy liable for contamination created while the subsidiaries were dominated by AGECO but before they were merged into NYSEG. NYSEG,
The district court, however, did not make any specific veil-piercing findings or discuss the Passalacqua factors with respect to AGECO’s alleged control over the non-NYSEG subsidiaries before NY-SEG acquired them. The district court did not make any findings concerning, for example, capitalization, director/officer ov
2. Pre-Ownership Liability
NYSEG then goes one step further with its argument. Because all five of these subsidiaries were merged into NYSEG during the period when AGECO improperly dominated NYSEG (between 1922 and 1940), NYSEG argues that AGECO is responsible for all of the subsidiaries’ liabilities, even those that pre-date AGECO’s ownership. NYSEG reasons that all of the subsidiaries’ liabilities became NY-SEG’s liabilities as a result of the merger, even those incurred before the subsidiaries were purchased by AGECO. Thus, once NYSEG’s veil was pierced, all of its liabilities—including those inherited from the merged subsidiaries—became AGECO’s liabilities.
Courts will pierce the corporate veil to prevent fraud or achieve equity by imposing a corporate obligation upon a parent. Matter of Morris v. New York State Dept. of Taxation and Fin.,
Here, the “fraud” or “wrong” committed by AGECO would be the merger of the subsidiaries into NYSEG, not the creation of coal tar. There is nothing in the record to suggest AGECO was directing the creation of coal tar at the subsidiaries prior to purchasing them. While AGECO may have sought to merge its subsidiaries into NYSEG to further its financial improprieties, NYSEG does not allege AGECO did so to avoid CERCLA liability. Environmental liability for spilling coal tar was not a major concern at the time these subsidiaries were merged. AGECO’s domination was not used to commit a fraud or wrong against NYSEG-re-garding pollution, and domination by itself is not enough to justify veil piercing—it must be accompanied by a showing of wrongful or unjust action toward the plaintiff. Id. at 142,
4. Statute of Limitations Regarding the Plattsburgh, Norwich, and Owego MGP Sites
The district court held that the statute of limitations barred NYSEG from recovering cleanup costs from FirstEnergy for the Norwich and Owego sites, but not the Plattsburgh site. NYSEG,
Removal and remedial actions are governed by different statutes of limitations. For removal actions, a party must seek to recoup cleanup costs within three years “after completion of the removal action.” Id. at § 9613(g)(2)(A). For remedial actions, a party must seek to recoup costs within six years “after initiation of physical on-site construction of the remedial action.” Id. at § 9613(g)(2)(B).
Whether a suit to recover response costs under section 107 of CERCLA is a “removal action” or a “remedial action” is a question of law that we review de novo. Next Millenium,
Removal actions are generally clean-up measures taken in response to immediate threats to public health and safety. See 42 U.S.C. § 9601(23);
Remedial actions are typically actions designed to permanently remediate hazardous waste. 42 U.S.C. § 9601(24);
a. Plattsburgh
The district court held that NYSEG’s claim to recover costs for the cleanup at the Plattsburgh MGP pursuant to a 1994 DEC Consent Order was timely. NYSEG,
The Plattsburgh MGP, which sits adjacent to the south bank of the Saranac River, functioned as a coal gasification plant from 1896 to 1960. Coal tar had been kept on site in unlined ponds since 1898. As coal tar is heavier than water, it migrated from these ponds through the subsurface soils into the Saranac River, creating both soil and groundwater contamination.
Unfortunately, by the 1990s, coal tar was found in the river again. Between October 1997 and November 2000, NYSEG conducted further study of the Plattsburgh site. Id. at 483. Between April and August 2002, NYSEG excavated and removed waste from three gas holder foundations, coal-tar-containing process pipe, and other MGP associated structures. DEC approved this work in 2008. Id.
In 2004, DEC issued a Record of Decision (“ROD”) requiring additional remedial efforts. Id. This work included excavation of the former MGP tar lagoon and surrounding areas where coal tar had migrated to the subsurface, as well as excavation of the contaminated sediment from the parts of the Saranac River immediately adjacent to the MGP site. Id. The excavated soils were disposed of off-site. Id. NYSEG performed the ROD-mandated work between 2006 and 2009. Id. This included paying the City of Plattsburgh approximately $900,000 to move a substation and associated electrical lines owned by the city’s municipal power company from the northeast portion of the site. Id. NYSEG also relocated a twenty-one inch sewer crossing, constructed a stabilized soil barrier wall, and removed 150,816 tons of soil “down to till or bedrock inside the wall.” Id.
In 2009, NYSEG prepared another report which proposed “dewater[ing] the Saranac River channel” to permit further excavation of coal-tar-containing sediment. Id. NYSEG has implemented the first phase of this project and was scheduled to begin the second phase in 2011. Id. at 483-84. Between 1994 and 2009, NYSEG incurred $29,086,329.86 in response costs. Id. at 484.
FirstEnergy argues that because the cleanup pursuant to the 1981 Consent Order was a remedial action that triggered the six-year statute of limitations, all later cost recovery efforts at the site are time-barred, including the work done pursuant to the 1994 Consent Order. The district court disagreed, and held instead that the statute of limitations was not triggered because at the time the 1981 cleanup was conducted, coal tar was not a hazardous substance:
The work performed at Plattsburgh under the 1981 Consent Order ... cannot properly be regarded as consistent with the EPA’s remedial plan under CERC-LA based upon more modern notions regarding the hazards presented by the presence of coal tar and soils contaminated with coal tar, and thus the actions taken at Plattsburgh did not commence the running of the statute of limitations.
Id. at 510.
The district court also noted that the cleanup was “far more akin to a removal
Assuming the 1981 cleanup was a triggering event, we agree with the district court that the 1981 cleanup was more akin to a removal than a remedial action. This cleanup was a discrete project designed both to prevent coal tar from reaching the river and to remove it from the river. See NYSEG,
Here, the 1981 cleanup was an immediate response to a health concern about coal tar in the Saranac River. DEC first became aware of the problem in the mid-1980s and by 1981 had a Consent Order in place with NYSEG. Moreover, the cleanup was not a “permanent” solution designed to remove the ultimate source of contamination at the MGP. Rather, it involved building slurry walls to contain coal tar from further migrating into the river. These actions were not “designed to remedy the underlying source of the contamination, namely, the hazardous waste at the [MGP].” Next Millenium,
The work in 2002 and pursuant to the 2004 ROD, in contrast, was designed to remediate the pollution at its source. It included excavating the former MGP tar lagoon and surrounding area, moving an entire substation and corresponding electrical wires, the relocation of a sewer line, and the removal of over 150,000 tons of soil. The 2004 remedial action was clearly designed to permanently remediate the coal tar on the site.
In addition, the 2004 cleanup has already taken several years and cost over $29 million, with costs expected to rise to $54 million. This is in keeping with a remedial, rather than removal, action. See 42 U.S.C. § 9604(c)(1) (generally removal measures “shall not continue after $2,000,000 has been obligated for response actions or 12 months has elapsed from the date of initial response”); accord 40 C.F.R. § 300.415(b)(5). In sum, the district court correctly held that, because the 1981 cleanup was a removal action, it did not trigger the statute of limitations for the later remedial actions.
The district court held that NYSEG’s cost recovery claims for its 1997 cleanup at Norwich were barred by the six-year statute of limitations on remedial actions. NYSEG argues that the 1997 cleanup was a removal action, subject to a different statute of limitations.
The Norwich MGP produced gas from 1863 to 1952. In 1993, NYSEG began a three-phase Interim Remedial Measure (“IRM”) in conjunction with DEC to clean up this site. In Phase I, which ran from 1993 to the last quarter of 1994, NYSEG excavated the former distribution holder area and stockpiled the soil. In Phase II, which ran from May to September 1996, NYSEG transported and thermally treated 1,600 tons of the stockpiled soil.
In Phase III, which ran from April to August 1997, NYSEG removed two or more feet of soil from the surface of the entire site, as well as the former relief holder, the former tar well, and process piping. This project was conducted to protect potential customers at an adjacent supermarket to be constructed shortly thereafter. In total, more than 11,000 tons of soil were removed. Phase III cost less than $2 million and was completed in four months. This is the cleanup for which NYSEG is seeking to recover costs.
FirstEnergy argues that the three phases of the IRM constituted one remedial project that commenced in 1997, and thus NYSEG’s cost recovery action is barred by the six-year statute of limitations. NY-SEG argues its claims are timely because all three phases of the IRM were removal actions, including the 1997 IRM. According to NYSEG, the 1997 IRM was a discrete project undertaken to address an immediate health hazard to future customers at a soon-to-be-built nearby supermarket. NY-SEG also argues that because DEC approved the work as an IRM, it is a removal action.
The district court correctly found that the three-phase IRM cleanup was one remedial cleanup. First, NYSEG stipulated that the Norwich IRM was a single action comprised of three phases. Second, the cleanup was not designed to address an imminent health concern. See Next Millenium,
Third, while IRMs can resemble removal actions, they can also resemble remedial actions. Under New York law, IRMs are defined as:
[Ajctivities to address both emergency and non-emergency site conditions, which can be undertaken without extensive investigation and evaluation, to prevent, mitigate or remedy environmental damage or the consequences of environmental damage attributable to a site.
N.Y. Comp.Codes R. & Regs. tit. 6, § 375-1.2(ab). This definition encompasses elements of both removal (emergency) and remedial (non-emergency) actions, as well as elements common to both (preventing or mitigating environmental damage). See 42 U.S.C. § 9601(23) (defining “removal” to include actions to “prevent, minimize, or mitigate damage to the public health or welfare or to the environment”); id. § 9601(24) (defining “remedial” to include actions to “prevent or minimize the release of hazardous substances” so that they do
DEC’S present internal guidance and the guidance in effect during the Norwich IRM make clear that IRMs are not always removal actions. See, e.g., New York State Department of Environmental Conservation, DER-10/Technieal Guidance for Site Investigation and Remediation, at 35 (May 3, 2010), available at http://www.dec. ny.gov/docs/remediation_hudson_pdf/der 10.pdf (describing “[a]n emergency IRM” as well as “[a] non-emergency or non-time critical IRM ... which may be undertaken at any time during the course of the remedial program”); Pi’s. Exh. 4, New York State Department of Environmental Conservation, Interim Remedial Measures— Procedures (TAGM-4048), at 2-3 (Dec. 9, 1992) (providing guidance for an IRM “consist[ing] of a ‘removal’ as identified in the NCP at 40 C.F.R. § 300.415(d)” and an IRM “representing] a significant portion of the remedy,” which “must be part of the Proposed Remedial Action Plan (PRAP)/ROD process at the completion of the Remedial Investigation/Feasibility Study”).
c. Owego
The district court found that the six-year statute of limitations barred NYSEG from recovering costs for the 2003 cleanup of a portion of the Owego site because that cleanup was part of a remedial cleanup begun in 1994. NYSEG,
Between September 1994 and July 1995, NYSEG remediated the portion of the site known as “Operational Unit 1” (“OU-1”) by removing and thermally destroying 13,-000 tons of coal tar-contaminated soil. Id. NYSEG performed this work pursuant to the ROD issued by DEC in 1994.
In 1996, NYSEG discovered more coal tar contamination in the Susquehanna River on what became “Operational Unit 2” (“OU-2”). In 1998, NYSEG identified a pipe leading to the riverbed as the source of contamination. In 2002, DEC ordered NYSEG to remove the pipe as well as the contaminated river sediments. In 2003, NYSEG completed remediating the river and pipe by removing 1,200 tons of sediment and 30 feet of pipeline.
NYSEG now seeks to recover for the cost of groundwater monitoring and pipe and sediment removal performed at OU-2 in 2003, arguing that it was a separate remedial action. FirstEnergy argues that this cleanup is a continuation of the remedial work begun in 1994 on OU-1, and thus time-barred.
The district court found that the work at OU-2 was part of the earlier remedial action at OU-1. We agree. First, the work at OU-2 was remedial — it was designed to permanently eliminate the coal tar contamination from the Susquehanna River by removing the pipe leading to the river and the contaminated sediment.
Second, the district court correctly held that there can only be one remedial action at any given site. Id. Virtually every court that has considered this issue has agreed. See generally Colorado v. Sunoco, 337
We agree with the majority view and hold that there can only be one remedial action at a site. The very nature of a remedial action is to permanently remediate hazardous waste. Next Millenium,
This limitation on remedial actions does not, however, foreclose cost recovery actions for supplemental cleanup costs incurred after the limitations period has run on the initial cleanup, if they are filed within three years of the completion of the remedial work. Section 9613(g)(2) distinguishes between an “initial action” and a “subsequent action or actions” to recover additional response costs as part of the same remedial action. 42 U.S.C. § 9613(g)(2). Section 9613(g)(2) provides that subsequent actions for “further response costs ... may be maintained at any time during the response action, but must be commenced no later than 3 years after the date of completion of all response action.” Id. As long as the party seeking to recover costs filed an initial action for cost recovery within the time period specified in § 9613(g)(2)(A) and (B), the party can recover the costs of later cleanups if the action to recover such costs is filed no later than three years after the date of completion of the new cleanup. See id. Here, the later cleanup could not qualify as a “further response cost” because the three-year period had expired. Id.
Therefore, the district court correctly held that NYSEG’s claims for cost recovery for the remedial work at OU-2 is time-barred.
The district court used total gas production at each site to allocate liability because both parties agree that coal tar was generally created in proportion to the amount of gas produced. NYSEG,
Specifically, NYSEG argues that the district court was incorrect in adopting First-Energy’s estimates for the pre-1887 and post-1932 period. Regarding the pre-1887 period, FirstEnergy’s expert took the production numbers reported in the first year of the Brown’s Directory in 1887 for a particular plant and assumed that the plant had produced one-half of that amount of gas each year, from its first year of operation until 1887.
For the period from 1932 to 1940, First Energy’s expert used Brown’s Directory records which contained system-wide (not plant-by-plant) reports for 1932 to 1940. He then made production estimates for each plant based on those records and extrapolated to estimate production for years when exact gas volume data was not available.
NYSEG argues that for the period before 1887, the district court should have found no gas production at all — even though there was gas production — because the numbers are not reliable. For the 1932 to 1940 period, NYSEG’s expert relied on yearly production figures found in data collected by the PSC for most of the operating plants. If a PSC record was not available for that year, NYSEG’s expert treated that year as if there were no gas production.
In light of the severely limited information available, the district court did not err in using FirstEnergy’s estimates. It was reasonable for the court to use its best estimates for periods in which there was indisputably some gas production, rather than to treat those years as if there were no production at all.
6. NYSEG’s $20 Million Insurance Settlement
NYSEG received $20 million in an insurance settlement, which covered thirty-eight sites, including the sixteen sites in this suit. Id. at 484. The settlement also extinguished third-party property damage claims against the settling insurer. Id.
Although there was no evidence regarding the allocation of the settlement amount among the thirty-eight sites, the district court chose to apply a portion of the settlement to reduce FirstEnergy’s cleanup costs. Id. at 527. In doing so, the district court calculated a -pro rata share of the insurance settlement by using 42.1 percent of $20 million, which represented the proportion between the sixteen sites in this case and the thirty-eight involved in the insurance settlement. Id. This came to a total of $8,421,052, the pro rata share of the settlement attributable to the sixteen sites. That amount is 8.9 percent of the total amount of money sought for cleanup, $94,277,153, which percentage the court then applied evenly over the sixteen sites to reduce NYSEG’s recovery. Id.
NYSEG argues that none of the money should have been applied to reduce First-Energy’s payments because (1) First-
The district court did not err in reducing NYSEG’s recovery to account for the insurance proceeds. To begin, we note that the district court was correct that the collateral source rule does not apply in CERCLA cases. The collateral source rule generally provides that “damages recoverable for a wrong are not diminished by the fact that the party injured has been wholly or partially indemnified for his loss by insurance effected by him and to the procurement of which the wrongdoer did not contribute.” Ocean Ships, Inc. v. Stiles,
Here, in reducing NYSEG’s recovery in light of the insurance payment, the district court reasonably exercised its equitable powers to allocate response costs between the parties. First, insofar as NY-SEG contends that FirstEnergy failed to carry its burden of proving that consideration of the insurance settlement was warranted, the argument fails. FirstEnergy presented evidence of the $20 million insurance payment. NYSEG, the party in position to explain how the proceeds were allocated among the thirty-eight sites, failed to present any such evidence. Given the sparseness of the record as to the allocation of the proceeds, therefore, the district court’s pro rata allocation based on the number of sites should be applied was not arbitrary or haphazard, but reasonable.
Second, while it is undoubtably correct that there was no risk of NYSEG receiving a double recovery, that fact did not preclude the district court from equitably reducing NYSEG’s recovery to account for the insurance proceeds. See, e.g., Basic Mgmt. Inc.,
7. Should NYSEG’s Recovery be Reduced Either Because of Economic Beneñt or Alleged Delay in Cleaning Up?
FirstEnergy argues that the district court should have reduced NYSEG’s re
Regarding the economic benefit of the cleanup, the district court recognized the substantial amount of money NYSEG was spending on cleanup — $94 million to date with another $114 million expected in future costs. Considering that NYSEG does not expect to collect a comparable amount from other PRPs, NYSEG is hardly gaining a windfall. FirstEnergy also fails to offer evidence about any increase in the value of the land, much less an increase over the $200 million NYSEG will expend to clean up the properties.
FirstEnergy’s argument that NYSEG caused unreasonable delay in the cleanup fails as well. FirstEnergy points to two specific examples of alleged delay: (1) in 1983, a NYSEG employee proposed a program under which all MGP investigation would be completed by 1988, with remediation completed within two years (this plan was not adopted) and (2) in 1989, NYSEG employees proposed a “comprehensive approach” to site cleanup, but NYSEG did not move forward with broad remediation efforts until 1994. FirstEnergy Reply Br. at 35. FirstEnergy offers no explanation as to why NYSEG was unreasonable in failing to adopt the 1983 plan, nor has it shown that the plan was even technically or financially feasible. FirstEnergy also fails to explain how NYSEG was unreasonable in adopting the 1994 plan instead of the 1989 proposal. In short, the record simply does not support FirstEnergy’s argument that NYSEG caused unreasonable delay in the cleanup by declining to follow a plan suggested in 1983 or delaying its cleanup plan until it adopted a joint plan with DEC in 1994.
8. I.D. Booth
I.D. Booth bought the Cortland-Homer MGP from Mack Trucks, Inc. in 1971, which bought it from NYSEG. NYSEG,
The Cortland-Homer site is divided into two parcels: OU-1, which is comprised of the former MGP area and the structures below its surface, and OU-2, which consists of the adjacent land. I.D. Booth’s office building was located in OU-1 and sat on top of two buried gasholders.
Sometime in the mid-1990s, after coal tar contamination was discovered on the Cortland-Homer site, NYSEG offered to buy the southern portion of the Booth building from I.D. Booth. Although the building was appraised at $350,000, I.D. Booth demanded $2 million, which included the cost of business disruption. Negotiations began in mid-November 2005. On May 8, 2008, NYSEG paid $1.8 million for the southern portion of the building and gave I.D. Booth the right to buy the property back after remediation for $1 in the event NYSEG were to decide to sell it. I.D. Booth retained ownership of the northern portion of the building.
I.D. Booth claims to be entitled to a “third-party” defense under section 107(b)(3), which requires it to establish that:
[T]he offending “release ... of a hazardous substance and the damages resulting therefrom were caused solely by ... an act or omission of a third party,” provided that (1) the third party is not “one whose act or omission occurs in connection with a contractual relationship, existing directly or indirectly, with the defendant,” (2) the defendant “took precautions against foreseeable acts or omissions of any such third party and the consequences that could foreseeably result from such acts or omissions,” and (3) the defendant “exercised due care with respect to the hazardous substance concerned, taking into consideration the characteristics of such hazardous substance, in light of all relevant facts and circumstances.”
New York v. Lashins Arcade Co.,
Here, the district court correctly held that I.D. Booth failed to meet its burden with respect to the third requirement because it did not exercise due care with respect to the cleanup effort. Id. at 519; see Lashins Arcade Co.,
The district court found that I.D. Booth’s tactics created extensive delays in negotiations. Despite knowing that NY-SEG could not begin remediation until it acquired portions of the Cortland-Homer site — which included the removal of two former gasholders from below I.D. Booth’s building — I.D. Booth engaged in “protracted negotiations.” NYSEG,
To further exacerbate the problem, I.D. Booth’s cooperation in cleanup efforts was “somewhat lackluster,” as it failed, for example, to provide NYSEG with “feedback.” Id.; see Lashins Arcade Co.,
I.D. Booth also complains that the portion of the cleanup costs assigned to it was too high. The district court assigned I.D. Booth 15 percent of FirstEnergy’s costs at the Cortland-Homer site, or 6.7 percent of NYSEG’s total Cortland-Homer costs. NYSEG,
We find that the district court did not abuse its discretion in allocating the response costs. The district court reasonably took into account the fact that I.D. Booth would benefit from the increased property value after remediation and that its negotiating tactics led to significant delays in remediating the property. Id. at 533. Accordingly, we affirm.
CONCLUSION
In sum, we hold:
(1) NYSEG’s CERCLA claims against FirstEnergy are not barred by the covenant not to sue;
(2) AGE CO is not directly liable under CERCLA as an operator;
(3) FirstEnergy is liable to NYSEG on a veil piercing theory based on AGECO’s control over NYSEG from 1922 to January 10, 1940, but not for contamination created by other AGE CO subsidiaries before those subsidiaries merged into NYSEG;
(4) NYSEG’s claims as to the (a) Platts-burgh site are timely, (b) Norwich site are untimely, and (c) Owego site are untimely;
(5) The district court did not err in calculating total gas production at the sites;
(6) The district court did not abuse its discretion in reducing NYSEG’s recovery from FirstEnergy by a portion of NY-SEG’s $20 million insurance settlement;
(7) The district court did not abuse its discretion in declining to reduce NYSEG’s recovery to reflect the increased value of the remediated properties or NYSEG’s alleged delay in the remedial efforts; and
(8) I.D. Booth is liable for a portion of cleanup costs and the district court did not abuse its discretion in apportioning liability in this respect.
For the foregoing reasons, the judgment of the district court is AFFIRMED in part and VACATED in part, and the case is REMANDED for further proceedings.
Notes
. In accordance with 28 U.S.C. § 636(b)(1)(B), the parties consented to have a United States magistrate judge conduct the proceedings.
. Generally, Class 2 sites present a "significant threat to public health or the environment.” N.Y. Comp.Codes R. & Regs. tit. 6, § 375-2.7(b)(3)(ii). Class 2a is a temporary classification assigned to a site that has had inadequate and/or insufficient date for inclusion in any of the other classifications. See Hazardous Waste Site Classification, New York State Department of Environmental Conservation, www.dec.ny.gov/chemical/ 8654.html (last visited Sept. 9, 2014).
. As the district court noted, FirstEnergy is collaterally estopped from challenging the findings of the district court in Rochester Gas & Elec. Corp. v. GPU, Inc., No. 00-CV-6369,
. Although the district court held that the resolution did not bar NYSEG’s claims against FirstEnergy because the language was not broad enough to cover CERCLA liability, NYSEG,
. As discussed below, the parent's control over the subsidiary can establish indirect liability under a veil-piercing theory. Bestfoods,
. The parties agree that this issue is governed by New York law. See NYSEG,
. FirstEnergy also argues that a subsidiary cannot pierce its own corporate veil to reach its former parent under New York law. We previously addressed this issue in Rochester Gas & Elec. Corp. v. GPU, Inc. (“RG & E”), a case which involved a different former AGE-CO subsidiary and FirstEnergy:
[I]f a third party, such as the government, may pierce a subsidiary’s corporate veil to impose CERCLA liability on a dominating parent, ... it is hard to see why a company that voluntarily cleans up contamination caused by its former parent (through its then-domination of the company) should be barred from seeking similar recovery. To preclude a company from piercing its own veil in such circumstances would run directly counter to CERCLA’s twin goals of encouraging the timely cleanup of hazardous waste sites and placing the cost of that cleanup on those responsible for creating or maintaining the hazardous condition.
. As noted above, we upheld a similar decision to allow an AGECO subsidiary, Rochester Gas & Electric (“RG & E”), to pierce the corporate veil to hold FirstEnergy liable for cleanup at two MGPs. See RG & E,
. We need not decide whether duration of control is reviewed de novo, or, as an arguably more factual question, for clear error, because the district court’s holding fails even clear error review.
. The record contains ample evidence that NYSEG merged with Eastern New York Electric & Gas Company, Elmira Light, Heat and Power Corporation, Empire Gas & Electric Company, New York Central Electric Corporation and Owego Gas Corporation. Not only did the district court explicitly make findings about such mergers, see NYSEG,
. The subsidiaries and MGPs are as follows: (1) Elmira Light, Heat & Power Corporation merged into NYSEG in 1936 and the Elmira MGP ceased production in 1931; (2) Empire Gas & Electric Company merged into NYSEG in 1936 and the Geneva MGP ceased production in 1934, and the Newark MGP ceased production in 1929; (3) New York Central Electric Corporation merged into NYSEG in 1936 and the Penn Yan MGP ceased production in 1929, and the Dansville MGP ceased production in 1930; and, (4) Owego Gas Corporation was merged into NYSEG in 1939 and the Owego MGP ceased production in 1935.
. To the extent these five subsidiaries caused any contamination after they were merged into NYSEG, however, FirstEnergy is liable for such contamination under a veil-piercing theory for the reasons previously discussed.
. Section 9613(g)(2)(B) further provides that any "costs incurred in the removal action may be recovered in the cost recovery action” for the remedial action, "if the remedial action is initiated within 3 years after the completion of the removal action.” 42 U.S.C. § 9613(g)(2)(B).
. 42 U.S.C. § 9601(23) provides:
The terms "remove” or "removal” meant] the cleanup or removal of released hazardous substances from the environment, such actions as may be necessary taken in the event of the threat of release of hazardous substances into the environment, such actions as may be necessary to monitor, assess, and evaluate the release or threat of release of hazardous substances, the disposal of removed material, or the taking of such other actions as may be necessary to prevent, minimize, or mitigate damage to the public health or welfare or to the environment, which may otherwise result from a release or threat of release. The term includes, in addition, without being limited to, security fencing or other measures to limit access, provision of alternative water supplies, temporary evacuation and housing of threatened individuals not otherwise provided for, action taken under section 9604(b) of this title, and any emergency assistance which may be provided under the Disaster Relief and Emergency Assistance Act [42 U.S.C.A. § 5121 et seq.].
. 42 U.S.C. § 9601(24) provides in part:
The terms "remedy’' or "remedial action” mean[ ] those actions consistent with permanent remedy taken instead of or in addition to removal actions in the event of a release or threatened release of a hazardous substance into the environment, to prevent or minimize the release of hazardous substances so that they do not migrate to cause substantial danger to present or future public health or welfare or the environment. The term includes, but is not limited to, such actions at the location of the release as storage, confinement, perimeter protection using dikes, trenches, or ditches, clay cover, neutralization, cleanup of released hazardous substances and associated contaminated materials, recycling or reuse, diversion, destruction, segregation of reactive wastes, dredging or excavations, repair or replacement of leaking containers, collection of leachate and runoff, onsite treatment or incineration, provision of alternative water supplies, and any monitoring reasonably required to assure that such actions protect the public health and welfare and the environment.
. At the time the work commenced in 1981, CERCLA did not contain any statute of limitations. The statute of limitations was created in 1986 when Congress passed the Superfund Amendments and Reauthorization Act of 1986 ("SARA”), Pub.L. No. 99-499, Oct. 17, 1986, 100 Stat. 1613 (codified at 42 U.S.C. §§ 9601 et seq.). Accordingly, the district court found that the earliest the statute of limitations could have commenced was the day SARA took effect, October 17, 1986. NYSEG,
. FirstEnergy argues that the contemporaneous use of the word "remedial” by NYSEG and DEC supports its argument that the 1981 cleanup was a remedial action. The word “remedial,” however, is often used in its every day sense of “intended as a remedy,” and the mere usage of the word does not render an action "remedial” for the purposes of CERCLA’s statute of limitations. Next Millenium,
. TAGM 4048 was superseded by DER-10. See New York State Department of Environmental Conservation, DER-10/Technical Guidance for Site Investigation and Remediation, at 35 (May 3, 2010), available at http:// www.dec.ny.gov/docs/remediation_hudson_ pdf/derlO.pdf
. We express no view as to whether there may only be one removal action under CERC-LA.
. Between 1887 and 1932, Brown’s Directory of American Gas Companies published specific gas production figures. Both parties agree that Brown’s Directory production numbers are correct, and therefore do not dispute numbers for this period. NYSEG,
. NYSEG argues that it paid more than $94 million to clean up the sites and expects to spend another $114 million. Therefore, even with $30 million from FirstEnergy, there is no chance of double recovery if the $20 million is applied.
. I.D. Booth claims the testimony of NYSEG expert Robert Karls supports its position that any delay had no impact on the contamination. Karls stated that there was no need to “re-prioritize[]” the removal of contamination "before the scheduled implementation of remediation.” App. at 1413. This statement, however, merely suggests that Karls agreed with the timing of the remediation plan in place. It does not contradict the district court's findings that I.D. Booth exacerbated the contamination by delaying negotiations.