At the end of the Nineteenth century, the developing gas and electrical business in the United States experienced concentration of ownership in a relatively small number of holding companies. From 1870 to 1935, hundreds of local utility operating companies were acquired by holding companies which were essentially parent corporations offering proprietary equipment and technology, and an organizational structure that often relied on extensive operational control of the subsidiaries. Today, many of these operating companies, long ago separated from their ancestral parents, are faced with liabilities for environmental contamination, most notably from old manufactured gas plants. For example, hundreds of former manufactured gas plants, which produced gas for industry and residential uses, are contaminated with the by-products of this process - principally coal tar which leaked from storage vessels or piping, or in some cases was a residual of wastewater discharges.
As utility companies now the bear burden of remediating these sites, they are confronted with a critical question: how can they pursue contribution claims against the successors to former holding companies that once owned or controlled these plants? The answer depends on an assessment of many issues, including an evaluation of whether you can (1) pursue an "operator" claim for direct liability or an "owner" claim for indirect liability (veil piercing) in light of United States v. Bestfoods, 542 U.S. 51 (1998); and (2) develop admissible evidence to prove that a parent controlled the operation and management of a subsidiary between 50 and 120 years ago, especially where it is virtually certain there will be no live fact witnesses.
The challenge of assembling evidence of operational control for periods in which the last live witnesses died decades ago affects almost all aspects of this litigation. The practitioner, working with experts, must build the case through intensive historic analysis focusing on the operation of the facilities including such critical factors as parental control of waste discharge, design, and construction of storage facilities, maintenance of facilities, and supervision or direction of employees. Expert scientific assistance may be required to explain how gas plants worked, where the contamination came from and how can it be traced to certain machinery and specific time periods. Expert accounting and corporate governance assistance may also be needed to describe methods of control and place in context those elements of the parent-subsidiary relationship that were inconsistent with the accepted corporate norms of the time period. In fact, it is not unusual to find situations where the parent manipulated and hid its control of the subsidiaries through complex stock ownership and transfer schemes. Expert assistance on that issue will be especially helpful.
The lynchpin of your case will be proving that the parent had control over the processes or devices that caused the contamination at issue. Scientific evidence, coupled with specific operational knowledge about the facility, must be used to tie the contamination to a particular manufacturing process or time period. In turn, this evidence must be correlated with the time periods during which the holding company had control over the operations of the subsidiary. This evidence will not only be invaluable to help prove your claim, but the allocation of costs may be heavily dependent on it as well. For example, the chemical signatures of certain tar types, or the physical contamination patterns may be used to show when releases occurred and how remediation costs should be allocated. Developing information about purchase of feed stocks and the sale of tar and tar byproducts may also be a central part of this effort.
Plaintiffs will need to make strategic choices about how to frame their case in light of Bestfoods by considering the specific facts at their site. How you prove liability under Bestfoods could vary substantially depending on whether there was an intentional discharge of waste to the environment, as opposed to the contamination arising predominantly from unintended incidents. For example, unintended leaking of tar from the foundations of masonry storage holders is very likely a different case to prove than a situation where the historic operating company was intentionally disposing of waste. It may be far easier to show parental control over day-to-day manufacturing operations as opposed to direction or control over discreet acts of dumping.
The information you obtain in discovery will play a central role in showing that the parent controlled the subsidiary under Bestfoods. This information may include company memorabilia, formal historical descriptions of the parent prepared by the parent, corporate minutes describing parental interactions and oversight of the subsidiary, inspection reports of the subsidiary's plants prepared by the parent's agents and management agreements between the parent and subsidiary.
Corporate records from the parent and subsidiary, while invaluable, are only one potential source of information. You should also take full advantage of the abundant, publicly available documentation that may be available. The archives of state public utility regulators often contain reports filed by operating companies that describe their relationship to the parent entities. Moreover, because these utility plants were important community businesses, local historical societies and other depositories of community knowledge often contain critical evidence such as history books and newspaper accounts. In one case we used a plant manager's personal correspondence, obtained at a local historical society, as a key trial exhibit. Valuable information may also be found in government records, especially those related to the enactment of the Public Utility Holding Company Act. These and many other sources can provide useful and sometimes essential evidence to establish parental liability.
Do not limit your discovery efforts to historic information focused solely on your plant. To fill gaps in your site-specific evidence you many want to focus on how the parent engaged in a system-wide pattern of control. The evidence will likely show that the parent operated a system of companies and applied a "cookie-cutter" approach to management in order to gain efficiencies. Thus, patterns of control at other plants may provide useful insights into how the parent controlled your particular subsidiary. Gaining discovery regarding other subsidiaries may be instrumental to your case and will likely be an area of substantial dispute.
One critical aspect of the "systemic" approach to management often involved the use of officers and employees in dual roles for the subsidiary and the parent. These dual office holders were used by the parent to control the subsidiary by ensuring that key management representatives of the parent had an "on the ground" presence at the subsidiary. Often, the key to establishing that fact is demonstrating that the dual officers viewed their loyalty as unquestionably flowing to the parent.
Opportunities will exist to settle these cases. A strong liability case, coupled with good information about when and where the contamination was produced, will be key components of the settlement process. It will also be necessary to agree about the total costs of the remedy. Since these cases are often brought before the sites are actually fully remediated, the parties will have to agree on solid projections regarding the ultimate site costs. Sound probabilistic analysis can be a very useful tool for this purpose.
Although complex and challenging, these cases have been successfully pursued in numerous instances. The key to prevailing is recognizing the pitfalls inherent in this unique type of contribution litigation and designing a strategy that avoids those traps. That strategy will include effective use of good experts, a well coordinated plan for seeking out and assembling the massive amount of historical documents that will be collected, and developing a detailed analysis of the complicated inter-corporate relationships so you have a complete understanding of precisely how the parent controlled the subsidiary.