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W.D. Pa. Declines to Hold Parent Corporations Liable

In Rice v. First Energy Corporation, a putative class of plaintiffs living near a former landfill filed trespass, nuisance, negligence, and medical monitoring claims against First Energy Corporation and NRG Energy, Inc., alleging that each Defendant was liable for claims arising from their respective subsidiaries’ disposal of coal ash in the landfill. No. 2:17-cv-489-LPL, 2018 WL 4282850, at *1 (W.D. Pa. Sept. 7, 2018). Though it frequently noted Plaintiffs’ lackluster efforts to pursue discovery and their heavy reliance on conclusory, minimalistic arguments, U.S. Magistrate Judge Lisa Pupo Lenihan nevertheless dug deep into the parties' arguments to issue a thorough and strong opinion highlighting the difficulty of piercing a corporate veil in an environmental case and concluding that the Defendants were neither corporate successors nor alter egos of their respective subsidiaries. Id. at *13.

Plaintiffs’ stronger arguments were against First Energy. Allegheny Energy Supply Co., LLC (“AE Supply”) owned two coal-fired electric generating facilities during period in which coal ash from the facilities was disposed in the landfill at issue. Id. at *2.  AE Supply is a direct subsidiary of Allegheny Energy, Inc. (“AE”), which itself is a direct subsidiary of First Energy. AE Supply was therefore an indirect subsidiary of First Energy. Id. at *1-2. Plaintiffs however failed to join AE or AE Supply as defendants.

The Court first dismissed Plaintiffs’ corporate successor theory against First Energy almost off-hand, finding that Plaintiffs’ “argument” was merely a conclusory allegation without analysis, id. at *5, before turning to Plaintiffs' argument that First Energy was the alter ego of AE Supply, or the “de facto Owner/Operator” of the two coal-fired facilities.  Among Plaintiffs’ more compelling facts, it asserted that First Energy exerted control over AE Supply as its sole member; that AE Supply was party to an intercompany tax allocation agreement with other subsidiaries; that AE Supply received loans from First Energy; that First Energy referred generally to itself and its subsidiaries by a single umbrella term in its SEC reports; that First Energy – not AE Supply – issued the press releases announcing the closure of the coal-fired facilities at issue; and that another First Energy subsidiary, First Energy Service Company, negotiated an agreement with the landfill at issue on AE Supply’s behalf. Id. at *7-9.

Taking on each factual assertion individually, the court held that no reasonable jury could find that First Energy was the alter ego of AE Supply. Id. at *11. The court laid out the high standard against which alter ego allegations are judged in Pennsylvania, stating that the veil should be pierced “only when the corporation was an artifice and a sham to execute illegitimate purposes and an abuse of the corporate fiction and immunity that it carries.” Id. at *7 (quoting Kaplan v. First Options of Chicago, Inc., 19 F.3d 1503, 1521 (3d Cir. 1994)). The Court also reminded that that the “factors to be considered in determining whether to pierce the corporate veil include, among other things, ‘undercapitalization, failure to adhere to corporate formalities, substantial intermingling of corporate and personal affairs and use of the corporate form to perpetrate a fraud.” Id. (quoting Lumax Indus., Inc. v. Aultman, 669 A.2d 893, 895 (Pa. 1995)). The Court ultimately found that the First Energy’s interactions with AE Supply were not uncommon between any parent and subsidiary and did not give rise to a colorable alter ego argument to be presented to a jury. Id. at *11.

The alter ego case against NRG Energy was dismissed even more quickly, the Court disposing of each of Plaintiffs' arguments in rapid succession.  Id. at *12 - 13.  Finally, while the Court granted Plaintiffs leave to amend the Complaint to add new defendants, it did not allow the Plaintiffs to replead their claims against First Energy or NRG. 

Taken collectively, the Court’s conclusions regarding the independence of the subsidiaries of First Energy and NRG Energy are powerful reminders of courts’ reverence for the corporate form under Pennsylvania law. In particular, to prevail on an alter ego theory, a plaintiff must demonstrate that the subsidiary or affiliate was a “sham” or that it was “perpetrating a fraud,” and typical intermingling of management obligations between affiliates will not suffice.