ELR Citation: ELR 21122
No(s). 92-2150 (1st Cir. May 26, 1993)

The court affirms a district court's apportionment of liability between utility companies and holds that a parent company must pay for cleanup of coal and oil gas waste on property formally operated by its subsidiary. New England Electric System (NEES) bought about 97% of the Lynn Gas & Electric Co. in 1957 and in 1959 created a new company, Lynn Gas Co. Lynn Gas acquired the gas portion of Lynn Gas & Electric and Lynn Gas & Electric changed its name to Lynn Electric Co. Lynn Gas agreed to assume duties and liabilities of Lynn Gas & Electric related to the gas business. In 1962, Lynn Electric merged into the Massachusetts Electric Co. (Mass. Electric), an NEES subsidiary, which continued to convey gas-related parcels of land to Lynn Gas until 1970. In 1973, NEES sold Lynn Gas to an unaffiliated company, Boston Gas, which assumed certain liabilities of Lynn Gas. Boston Gas property, formerly occupied by Lynn Gas & Electric, was then taken by eminent domain and sold to outside buyers. The buyers discovered that the property was contaminated by coal gas waste and sued NEES, its subsidiaries, and Boston Gas and under the Comprehensive Environmental, Response Compensation, and Liability Act (CERCLA) and Massachusetts' Superfund law. Additionally, Boston Gas filed a claim against NEES about property it acquired with Lynn Gas which was contaminated with oil gas waste. A partial consent decree held the utilities jointly and severally liable to the buyers for the contamination.

Applying Massachusetts law, the court holds that—as between Mass. Electric and Boston Gas—Mass. Electric is responsible for cleanup of the coal gas waste on the plaintiffs' property. Although the government or a private party may pursue any responsible party, parties can allocate responsibility among themselves by contract. State contract law provides the substantive rules to be applied so long as state law is not hostile to federal interests. Under Massachusetts law, to transfer CERCLA liability, an agreement must contain language broad enough to transfer either contingent, environmental liability or all liability. The 1959 agreement under which Lynn Gas assumed liabilities related to the gas business did not evidence the intent to transfer environmental liabilities with the requisite broad language. Thus, Mass. Electric, as the successor to Lynn Gas and Electric, is the responsible party.

The court next holds that NEES, the parent of Lynn Gas, is liable for the oil gas waste contamination on property acquired by Boston Gas when it acquired Lynn Gas from NEES. The court holds that Boston Gas did not assume environmental liabilities when it bought Lynn Gas, the closing agreement limits the liabilities assumed by Boston Gas and Boston Gas lacked the intent to assume cleanup liability. Parent companies may be directly liable as operators of contaminated property—without piercing the corporate veil—if they were actively involved in the activities of the subsidiary. The district court did not clearly err in finding that NEES was actively involved in the activities of its subsidiary, Lynn Gas. The court rules that Boston Gas, and Lynn Gas before it, were not successor corporations of Lynn Gas & Electric. The court affirms the district court's holding that General Laws of the Commonwealth of Massachusetts ch. 164 §98, regarding assumption of liabilities by utilities, serves to allocate the rights of the public with respect to utilities, but does not curtail the rights of contracting utilities to allocate liability between themselves. The court holds that the district court's judgment was not inequitable.

Counsel for Appellees
Gerald P. Tishler, James W. Stoll, Jonathan J. Kane
Brown, Rudnick, Freed & Gesmer
One Financial Ctr., Boston MA 02111
(617) 330-9000

Counsel for Appellants
Scott P. Lewis, John F. Sherman III
Palmer & Dodge
One Beacon St., Boston MA 02108
(617) 573-0100