67 Mass. App. Ct. 474 | Mass. App. Ct. | 2006
The plaintiff, Wayne Scott, trustee of 12 Woodbury Court Trust, purchased property in Salem in January, 2002, with the plan to build two townhouses. As construction got underway, Scott discovered that the site was contaminated with material resembling coal tar. The likely source of the contamination was the property on the northern boundary, formerly home to a gas manufacturing plant that used coal in the production of gas in the 1800’s. Scott has since undertaken remedial action to assess, contain, and remove the hazardous materials, assumed, for our purposes, to have migrated onto his property from the former gas facility. In this action, Scott seeks damages and reimbursement for his response costs from the defendants, pursuant to G. L. c. 21E, the Massachusetts Oil & Hazardous Material Release Prevention Act (Act), based on their prior connections to the gas company that operated the offending facility.
According to the record, the gas manufacturing plant that formerly occupied the site adjacent to Scott’s property was originally owned and operated by Salem Gas Light Company (Salem Gas). Between 1850 and 1890, Salem Gas used the facility, located on Northey Street in Salem, to manufacture gas
The history that connects Salem Gas to the current defendants is based on undisputed facts. Between 1926 and 1931, North Boston Lighting Properties (NBLP), a utility holding company, purchased shares of Salem Gas stock. New England Power Association (NEPA) then purchased NBLP stock, so that Salem Gas became a subsidiary of NEPA. In 1947, a reorganization of NEPA led to the formation of New England Electric System (NEES), with NEES becoming the parent of Salem Gas. NEES formed an unincorporated gas division in 1951 to oversee its gas operations. In 1952, NEES organized North Shore Gas (North Shore), to acquire Salem Gas and other NEES gas subsidiaries. NEES consolidated the gas operations of Salem Gas, Gloucester Gas Light Company, and Beverly Gas and Electric Company into North Shore in 1953. North Shore thereafter operated the Pierce Street facility.
In 1964, the Securities and Exchange Commission (SEC) ordered NEES to divest itself of all gas subsidiaries. In 1973, NEES entered into an agreement to sell North Shore’s stock, along with that of Lynn Gas Company and Mystic Valley Gas Company, to Boston Gas’s parent, Eastern Gas & Fuel Associates (Eastern), for $26,888,351.75, adjusted for the stock’s book value as of the date of closing. North Shore’s assets were purchased by Boston Gas, which, pursuant to the defendants’ asset purchase agreement, also assumed the liabilities of North Shore “as then existing.” After the closing, all outstanding shares of North Shore were liquidated. Many of North Shore’s employees accepted jobs with Boston Gas, but management of the gas operation was taken over by the existing management of Boston Gas. In 2002, Eastern was merged into KeySpan New England, and Boston Gas became a KeySpan New England subsidiary. NEES has been succeeded by NG US 1, Inc., doing business as National Grid USA.
Scott filed his complaint in this action on September 5, 2002, alleging that the defendants were liable, pursuant to G. L.
We turn first to the plaintiff’s claims against NEES.
1. NEES as an “operator” under G. L. c. 21E. General Laws c. 21E, § 4, provided Scott, as one who undertook the cleanup of hazardous materials that migrated onto his property, with a private right of action to seek recovery of his response costs from the parties responsible for the contamination.
Scott charged NEES with liability for his response costs and damages, under the theory that NEES should be treated as a present operator of the Northey Street site pursuant to G. L.
On appeal, Scott asserts that NEES should be treated as a present operator nonetheless, because NEES is presently storing hazardous wastes at the site — that is, the coal tar that was left behind by its former subsidiary. The plaintiff argues that the discharge of hazardous materials into the soil at the Northey Street site, and their continued presence there, is equivalent to storage in containers or a lagoon and that, so long as NEES fails to remove the hazardous materials and clean up the site, NEES continues to be an operator of the site under G. L. c. 21E, § 5(a)(1). The plaintiff cites to no authority for this broad interpretation of what constitutes a present operator under the statute, and we decline to extend its meaning to an entity in NEES’s position that never conducted any activities at the site.
In any event, as NEES points out, another subsection of the statute, § 5(a)(2), imposes liability on “any person who at the time of storage or disposal of any hazardous material owned or operated any site at or upon which such hazardous material was stored or disposed of and from which there is or has been a
2. Piercing the corporate veil. While NEES is not directly liable as a present operator under G. L. c. 21E, § 5(a)(1), we are mindful that NEES, as the parent corporation of Salem Gas and North Shore, still may be subject to derivative liability for its subsidiary’s contamination of the Northey Street site through the doctrine of “piercing the corporate veil.” See United States v. Bestfoods, 524 U.S. 51, 63-64 (1998). See also Martignetti v. Haigh-Farr, Inc., supra at 301 n.16. The doctrine is an equitable one, permitting the court to set aside the separate corporate form that would ordinarily protect a parent from the liability of its subsidiary. “Particularly is this true (a) when there is active and direct participation by the representatives of one corporation, apparently exercising some form of pervasive control, in the activities of another and there is some fraudulent purpose or injurious consequences of the intercoiporate relationship . . . .” My Bread Baking Co. v. Cumberland Farms, Inc., 353 Mass. 614, 619 (1968). The judge here rejected the doctrine’s application in this case, reasoning that the corporate relationship between NEES and Salem Gas did not exist in the late 1800’s, when Salem Gas released hazardous materials at the Northey Street site.
In considering whether equitable principles warrant veil-piercing, there is a tendency to highlight aspects of the relationship between a parent and a subsidiary that evince some unsavory motive or other impropriety in the use of separate corporate forms. See, e.g., My Bread Baking Co. v. Cumberland Farms, Inc., supra at 621 (individual controlling several separate corporations failed to “dispel ambiguities” as to which entity he represented in dealing with the plaintiff and used the corporate form in a “very confused manner”). See also Dale v. H.B. Smith Co., 910 F. Supp. 14, 18 (D. Mass. 1995) (disregarding separate corporate form “is particularly appropriate where there is fraud and injurious consequences from such an intercor-
“The doctrine of corporate disregard is an equitable tool that authorizes courts, in rare situations, to ignore corporate formalities, where such disregard is necessary to provide a meaningful remedy for injuries and to avoid injustice. See My Bread Baking Co. v. Cumberland Farms, Inc., [supra at 620]. In certain situations, the doctrine may also properly be used to carry out legislative intent and to avoid the evasion of statutes. See Packard Clothes, Inc. v. Director of the Div. of Employment Sec., [318 Mass. 329, 335 (1945)]. See also C.A. Peairs, Jr., Business Corporations § 646, at 565 (2d ed. 1971) (“corporate entity will be disregarded when necessary to . . . consummate the objective of a statute or other overriding public policy which would be frustrated by observance of the entity”).
Thus, in Attorney Gen. v. M.C.K., Inc., supra, the court acknowledged that no impropriety necessarily attached to the use of two separate corporations to carry out the business objectives of the single person who controlled them. “Nevertheless, when one of the corporations . . . later seeks to disassociate itself from the other . . . , in a way that leads to complete frustration of a statutory purpose, the court may be warranted in carefully scrutinizing the corporate form, regardless whether actual fraud has been shown.” Id. at 557.
Undoubtedly, a significant statutory purpose is at stake here. The statute’s principal objective, that is, the prompt “assessment, containment and removal,” G. L. c. 21E, § 4, of releases of hazardous materials, is advanced by requiring prompt response action by even an innocent property owner, and then allowing for reimbursement to the property owner by the party actually responsible for the problem. See Martignetti v. Haigh-Farr, Inc., 425 Mass, at 320. Accordingly, in considering whether to pierce the corporate veil, we take into account one of the primary aims of G. L. c. 21E, that the party that caused the environmental contamination should be responsible for the cost of its cleanup. See Garweth Corp. v. Boston Edison Co.,
Furthermore, unlike direct liability as an owner or operator under G. L. c. 21E, § 5, our focus in considering whether to pierce the corporate veil is on the parent’s control of the subsidiary itself, rather than its control of the facility where the contamination occurred. See United States v. Bestfoods, 524 U.S. at 68 (comparing the focus on the parent’s control of a facility under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. §§ 9601 et seq. [CERCLA], to the parent’s control of the subsidiary in a veil-piercing inquiry). Here, we have before us evidence, assumed true for purposes of these proceedings, identifying Salem Gas as the entity that caused the initial release of hazardous materials, as well as evidence of the chain of corporate consolidation and succession that linked Salem Gas to NEES’s control.
The record here is replete with evidence supporting the plaintiff’s position that NEES controlled Salem Gas, and subsequently North Shore, to such an extent as to raise a question of fact whether NEES should be held liable for its subsidiary’s actions. In Securities & Exch. Commn. v. New England Elec. Sys., 390 U.S. 207, 212 (1968), which addressed the divestiture order against NEES, the United States Supreme Court observed that “[t]he eight gas companies were organized administratively as a Gas Division with centralized management, marketing and supply, operations, and merchandising departments,” the chief executive of which answered to NEES’s vice president in charge of management. In that case, because NEES exercised joint control over NEES’s gas divisions as well as its electric operations through a central management, the divestiture order regarding the gas divisions was held to be warranted. The evidence of NEES’s pervasive control over its gas companies was, indeed, “almost overwhelming.” John S. Boyd Co. v. Boston Gas Co., 992 F.2d 401, 408 (1st Cir. 1993) (describing NEES’s control over Lynn Gas, another of its gas subsidiaries managed in a similar fashion to Salem Gas). Similarly, according to the Federal District Court judge’s find
NEES counters that, in order to justify piercing the corporate veil, the parent must be in control of the subsidiary at the time the offensive conduct occurred. See, e.g., My Bread Baking Co. v. Cumberland Farms, Inc., 353 Mass. at 619 (“injurious consequence[s]” resulting from the intercorporate relationship). See also Dale v. H. B. Smith Co., 910 F. Supp. at 19 (interpreting Massachusetts law under My Bread Baking Co. v. Cumberland Farms, Inc., supra, as requiring evidence that the parent controlled the subsidiary “at any relevant time”). NEES reiterates the judge’s reasoning here, in granting NEES’s motion for summary judgment, that because Salem Gas released contaminants at the Northey Street site many years before Salem Gas came under NEES’s control, NEES’s control was unrelated to the damage caused by the spread of hazardous materials to the plaintiffs property.
“But, while CERCLA does not require wholesale abandonment of conventional principles for determining corporate liability, ‘the policies underlying the statute in question can direct the emphasis the court will place on the various factors examined in deciding whether to pierce the corporate veil.’ ” John S. Boyd Co. v. Boston Gas Co., 775 F. Supp. 435, 442 (D. Mass. 1991), quoting from In re Acushnet River & New Bedford Harbor Proceedings, 675 F. Supp. 22, 33 (D. Mass. 1987). Taking our lead from the application of CERCLA, see Griffith v. New England Tel. & Tel. Co., 414 Mass, at 827-829, we refer to the policies underlying G. L. c. 21E to determine whether “injurious consequences” flowed from NEES’s control over Salem Gas.
As previously explained, the policies underlying G. L. c. 21E are principally concerned with the prompt response to releases of hazardous materials and the recovery of response costs from those responsible. See Garweth Corp. v. Boston Edison Co., 415 Mass. at 307. The reach of the statute, and indeed much of its content, goes far beyond the instant in time when hazardous
We emphasize that by considering the injurious consequences of the corporate relationship in a broader context, we do not enlarge the definition of an owner or operator who is directly liable under G. L. c. 21E, § 5(a)(1), as the plaintiff urges; we speak only to the equitable considerations that come into play when applying the statutory objectives to the common-law doctrine of piercing the corporate veil. We deal here with a statutory scheme that recognizes the ongoing nature of the harm caused by releases and that specifically imposes obligations on the party responsible for the continuing harm, even when the release occurred long ago or the party is no longer involved at the site where the harm originated. See, e.g., G. L. c. 21E, § 5(a)(2); Sheehy v. Lipton Indus., Inc., supra (§ 5[a][2] extends c. 21E liability to prior owners of property where hazardous materials have been stored).
Consequently, in weighing the factors that determine whether NEES may remain insulated behind its separate corporate form, our inquiry does not end with the fact that the relationship between NEES and Salem Gas came into being years after the hazardous materials were initially released at the Northey Street site. We may also consider their relationship during the period when the harm from that release persisted, unabated and unmitigated, to the point where surrounding properties were contaminated as well. To the extent NEES controlled Salem Gas, it may be reasonable to infer, from materials in the record, that NEES set the policies for Salem Gas with respect to
For example, the record suggests that gas manufacturing companies in Massachusetts were aware of certain health and environmental dangers posed by their coal to gas operations in the late 1800’s, at the time Salem Gas operated the Northey Street plant. By the time NEES took over Salem Gas, it appears that the utility companies knew significantly more about those dangers, and regulations had been established by that time to restrict or prohibit the disposal of coal tar and other hazardous wastes.
These equitable considerations regarding policy-making and financial control also come into play in connection with NEES’s
We think both equity and public policy cut against a determination as a matter of law that corporate form and the passage of time protected NEES from the liabilities of Salem Gas, especially when an innocent third party will be left with the expense of the present-day cleanup. As the United States Court of Appeals for the First Circuit observed in John S. Boyd Co. v. Boston Gas Co., 992 F.2d at 405, wherein NEES was held hable for coal tar contamination at another gas plant site, “[w]hen NEES sold the gas portion of Lynn Gas and Electric Co. to the newly-created Lynn Gas Co., the environmental liabilities of Lynn Gas and Electric did not disappear.” So too, here, neither the coal tar on the plaintiff’s property nor responsibility for its cleanup simply disappeared over time. We conclude that the plaintiff’s claim against NEES, under the doctrine of piercing the corporate veil, warrants further evaluation of the evidence bearing on the relationship between NEES and Salem Gas, and the “injurious consequences” flowing therefrom, during the period that NEES exercised pervasive control over its subsidiary. See, e.g., Attorney Gen. v. M.C.K., Inc., 432 Mass. at 555 & n.19. We therefore vacate the entry of summary judgment in NEES’s favor on the plaintiff’s claim pursuant to G. L. c. 21E.
3. Claims against Boston Gas. The plaintiff also brought claims against Boston Gas, charging it with liability for the
The judge was correct in ruling that the sale of North Shore to Boston Gas did not constitute a de facto merger or mere continuation of the business, so as to justify the transfer of Salem Gas’s environmental liabilities to Boston Gas.
“In determining whether a de facto merger has occurred, courts pay particular attention to the continuation of management, officers, directors and shareholders.” Id. at 360. See Dayton v. Peck, Stow & Wilcox Co., 739 F.2d 690, 693 (1st Cir. 1984), quoting from Leannais v. Cincinnati, Inc., 565 F.2d 437, 440 (7th Cir. 1977) (“The key element of a ‘continuation’ is a common identity of the officers, directors and stockholders in the selling and purchasing corporations”). We agree with the judge that here, the lack of continuity in management, officers,
There is no authority to support the plaintiff’s argument that G. L. c. 164, § 98, which, together with §§ 97 through 101, governs the merger or transfer of hydroelectric plants within Massachusetts, imposed North Shore’s environmental liabilities for the Northey Street site on Boston Gas when it purchased North Shore from NEES.
Finally, the plaintiff points to the assumption of liabilities language in the purchase agreement between Boston Gas and NEES, whereby Boston Gas expressly assumed certain of North Shore’s liabilities. In considering the same contractual language in Boston Gas’s purchase of Lynn Gas from NEES, the First Circuit instructed that the limiting language regarding the assumption of Lynn Gas’s then-existing liabilities did not operate to transfer to Boston Gas the subsequent liability for environmental damages caused by Lynn Gas; that liability remained with NEES. John S. Boyd Co. v. Boston Gas Co., 992 F.2d at 406-407. Thus it was held that Boston Gas’s agreement to assume certain liabilities in purchasing NEES’s gas company did not encompass environmental liabilities under CERCLA that were not known by the parties at the time of the agreement. We see no reason to depart from the First Circuit’s analysis in our interpretation of the contractual arrangement here. As between NEES and Boston Gas, absent express language in the purchase agreement, responsibility under G. L. c. 21E for Salem Gas’s contamination at the Northey Street site remained, if at all, with NEES.
4. Attorney’s fees. Based on the foregoing, we need not address the cross appeal of NEES regarding its entitlement to attorney’s fees under G. L. c. 2IE, § 4A(f).
With respect to Boston Gas’s cross appeal, the case of John S. Boyd Co. v. Boston Gas Co., supra, while instructive, did not clearly establish Boston Gas’s defense to the plaintiff’s claim of assumption of the liability by contract, as Boston Gas insists. The First Circuit was applying CERCLA to a dispute between the two utilities to determine which one was liable for the government’s response costs. We deal here with a matter involving G. L. c. 21E and corporate successor liability towards an innocent third party.
In addition, as noted by the judge, the record does not establish that the plaintiff refused to participate in negotiation or dispute resolution in good faith. The judge’s denial of the defendants’ requests for attorney’s fees was thoroughly justified.
5. Conclusion. Summary judgment for NEES on the plaintiff’s claim asserting liability for the contamination of the Northey Street site, and the damages to the plaintiff’s property allegedly caused thereby, pursuant to the doctrine of piercing the corporate veil is reversed, and the case is remanded for further proceed
So ordered.
General Laws c. 21E, § 4, as amended by St. 1992, c. 133, § 293, provides, in relevant part, that “[a]ny person who undertakes a necessary and appropriate response action regarding the release or threat of release of oil or hazardous material shall be entitled to reimbursement from any other person liable for such release or threat of release for the reasonable costs of such response action.”
General Laws c. 21E, § 5(a)(5)(iii), inserted by St. 1983, c. 7, § 5, provides, in relevant part, that “any person who otherwise caused or is legally responsible for a release or threat of release of oil or hazardous material . . . shall be liable, without regard to fault ... to any person for damage to his real or personal property incurred or suffered as a result of release or threat of release.”
General Laws c. 21E, § 5, as inserted by St. 1983, c. 7, § 5, provides, in relevant part:
“(a) Except as otherwise provided in this section, (1) the owner or operator of a vessel or a site from or at which there is or has been a release or threat of release of oil or hazardous material; . . . and (5) any person who otherwise caused or is legally responsible for a release or threat of release of oil or hazardous material from a vessel or site, shall be hable without regard to fault, . . . (iii) to any person for damage to his real or personal property incurred or suffered as a result of such release or threat of release . . . .”
A May 25, 1990, report on the dangers to public health posed by gas manufacturing in the late 1800’s, authored as part of a settlement agreement between several gas companies, including Boston Gas, and the Department of Public Utilities, indicated that the health hazards associated with gas manufacturing plants prompted the passage of regulatory measures as early as the late 1800’s. According to this document, gas companies were increasingly subject to private lawsuits for damages caused by the manufacturing plants to land, animals, crops, vegetation, and water resources. The report also indicates that by the 1930’s, the link between coal tar and cancer had been conclusively established.
Taking our lead from the Federal District Court judge’s observation in In re Acushnet River & New Bedford Harbor Proceedings, 712 F. Supp. 1010, 1019 n.15 (D. Mass. 1989), that the “the de facto merger exception subsumes the continuation exception,” we will discuss the doctrines as one.
The plaintiff s focus on Eastern’s role in the purchase, as somehow providing the requisite continuity, is unpersuasive. As the court in John S. Boyd Co. v. Boston Gas Co., made clear, Eastern’s role in purchasing North Shore’s stock has no bearing in determining whether the transfer of Lynn Gas to Boston Gas constituted a de facto merger or continuation. John S. Boyd Co. v. Boston Gas Co., 992 F.2d at 407 n.5 (“Because this intermediate transaction does not alter any liability in this case by statute, contract, or any other norm, we discuss Eastern no further”). The same holds true here.
General Laws c. 164, § 98, entitled “Rights of company acquiring water storage reservoir or hydro-electric plant,” provides in relevant part: “The purchasing or consolidated company shall. . . have and enjoy all the powers, rights, locations, licenses, privileges and franchises, and be subject to all the duties, liabilities and restrictions, of the company selling or merged as aforesaid, so far as they are applicable to the purchasing or consolidated company.”
General Laws c. 21E, § 4A(f), inserted by St. 1992, c. 133, § 294,
Atlas Tack Corp. v. Crosby, 41 Mass. App. Ct. 429 (1996), upon which Boston Gas also relies, involved a very different factual scenario that would not have alerted the plaintiff to any unreasonableness regarding his claim against Boston Gas.
