UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
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No. 92-2150
THE JOHN S. BOYD COMPANY, INC., ET AL.,
Plaintiffs, Appellees,
v.
BOSTON GAS COMPANY, ET AL.,
Defendants, Appellees,
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NEW ENGLAND ELECTRIC SYSTEM, ET AL.,
Defendants, Appellants.
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APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Joseph L. Tauro, U.S. District Judge]
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Before
Torruella, Cyr and Boudin,
Circuit Judges.
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Scott P. Lewis, with whom Palmer & Dodge, and John F.
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Sherman III, were on brief for appellants.
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Gerald P. Tishler, with whom James W. Stoll, Jonathan J.
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Kane, Brown, Rudnick, Freed & Gesmer, Lawrence E. McCormick, and
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Wendy B. Levine, were on brief for appellees.
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May 26, 1993
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TORRUELLA, Circuit Judge. In this appeal we determine
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whether appellants must pay the entire cost of cleaning up two
different environmental hazards: coal gas waste and oil gas
waste. As the district court correctly apportioned liability
under the governing principles of the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA"), 42
U.S.C. 9601 et seq., and the Massachusetts Superfund Act, Mass.
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Ann. L. ch. 21E (1993), we affirm.
FACTS
FACTS
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The Lynn Gas Light Co. began manufacturing gas in
Massachusetts in the mid-1800's. The Lynn Electric Light Co., an
electric utility, began operation some thirty years later. These
companies merged in 1888, by legislative decree, to form the Lynn
Gas and Electric Co. That company continued to manufacture gas
from coal ("coal gas") in large quantities until 1951, when
natural gas became available. After that date, Lynn Gas and
Electric Co. and the successor to its gas business manufactured
gas from oil ("oil gas") in small quantities, to supplement the
supply of natural gas during peak periods of use. This
manufacture, called peak shaving, continued until 1972.
New England Electric System ("NEES"), a holding company
owning various utilities and an appellant in this case, bought
about 97% of the Lynn Gas and Electric Company in 1957. In 1959,
NEES created a new company, called the Lynn Gas Co., and
structured a transaction between the new company and the Lynn Gas
and Electric Co. In this transaction, the Lynn Gas Co. acquired
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the gas portion of the Lynn Gas and Electric Co. Lynn Gas and
Electric Co. kept the electric portion and changed its name to
Lynn Electric Co. Lynn Gas Co. became part of NEES' gas
division. In 1962, Lynn Electric merged into the Massachusetts
Electric Company ("Mass. Electric"), a subsidiary of NEES and
also an appellant in this case.
In the 1959 Separation Agreement, Lynn Gas agreed to
assume "all the duties and liabilities of Lynn Gas and Electric
related to such gas business." The Agreement spelled out those
duties and liabilities, but did not mention environmental or
other contingent liabilities. Nonetheless, Lynn Gas Co. agreed
to "indemnify and save harmless Lynn Electric Company from any
duty or liability with respect to the gas business." The
separation of the Lynn Gas Co. from Mass. Electric was not truly
completed by the Agreement. Mass. Electric conveyed much of the
gas-related real estate to Lynn Gas in 1962, more than two years
after the separation occurred, and continued conveying gas-
related parcels of land to Lynn Gas until 1970. Mass. Electric
never transferred other parcels.
In 1964 the SEC ordered NEES to divest itself of its
gas holdings under the Public Utilities Holding Company Act, 15
U.S.C. 79a et seq. The Supreme Court affirmed. SEC v. New
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England Electric System, 390 U.S. 207 (1968). NEES finalized the
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divestiture in 1973 by selling Lynn Gas and several other gas
companies to Boston Gas, a company unaffiliated with NEES. In
the Purchase Agreement, Boston Gas agreed to assume the
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liabilities of Lynn Gas "as then existing." A similar clause in
the later document entitled Assumption of Liabilities provided
that Boston Gas would assume all liabilities "outstanding at the
date hereof." The Lynn Gas Co. was dissolved in 1980.
Some of the land upon which the Lynn Gas & Electric Co.
and Lynn Gas Co. manufactured gas was taken by eminent domain
from Boston Gas and Mass. Electric in 1981 and sold to outside
buyers. When these buyers discovered that the property was
contaminated by coal gas waste, they sued NEES, NEES
subsidiaries, and Boston Gas under CERCLA and its Massachusetts
parallel.1 During the course of the suit, Boston Gas filed a
claim against NEES because oil gas waste, generated after 1951,
contaminated property it acquired in the Lynn Gas Co. deal.
The case proceeded in two phases. The first phase
resulted in a partial consent decree holding the utilities
jointly and severally liable to plaintiffs for the cleanup. The
second phase concerned liability among the utilities, and is the
subject of this appeal. In the second phase, the court assigned
full liability to Mass. Electric, as the successor of the Lynn
Gas and Electric Co., for the cleanup of coal gas waste on
plaintiffs' property. The court also ordered NEES and its
subsidiary New England Power Service Co. ("NEPSCO")2 to pay for
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1 Plaintiffs also raised other claims, but their disposition is
not at issue on appeal.
2 NEPSCO is a service company devoted to providing
administrative, engineering, and other services to NEES
companies.
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the cleanup of oil gas waste on Boston Gas' property. This
appeal followed.
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DISCUSSION
DISCUSSION
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Under CERCLA3, four parties may be responsible for the
costs of an environmental cleanup. These are: the owner or
operator of a contaminated vessel or facility; the owner and
operator of a facility at the time it became contaminated; any
person who arranges for the transport or disposal of hazardous
wastes; and any person who accepts hazardous wastes for the
purposes of transport or disposal. 42 U.S.C. 9607(a). Courts
have interpreted this statute to include successor corporations
in a merger situation, e.g., Anspec Co. v. Johnson Controls,
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Inc., 922 F.2d 1240, 1245 (6th Cir. 1991); Louisiana-Pacific
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Corp. v. Asarco, Inc., 909 F.2d 1260, 1262-63 (9th Cir. 1990),
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and parent corporations when the parent can be considered an
operator, United States v. Kayser-Roth Corp., 910 F.2d 24, 26
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(1st Cir. 1990), cert. denied, 111 S. Ct. 957 (1991), or an
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owner, United States v. Kayser-Roth Corp., 724 F. Supp. 15, 23
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3 Although we primarily discuss CERCLA in the body of the
opinion, we have not overlooked the fact that the Massachusetts
Superfund Act is also a part of this case. CERCLA "is in many
ways analogous to the Massachusetts statute." Acme Laundry Co.
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v. Secretary of Environmental Affairs, 410 Mass. 760, 575 N.E.2d
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1086, 1092 (1991); see also Dedham Water Co. v. Cumberland Farms
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Dairy, Inc., 889 F.2d 1146, 1156 (1st Cir. 1989) (Massachusetts
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statute "is patterned after the federal CERCLA statute"). As
such, the Massachusetts courts construe it in line with the
Federal decisions "absent compelling reasons to the contrary or
significant differences in content." Rollins Environmental
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Services, Inc. v. Superior Court, 368 Mass. 174, 330 N.E.2d 814,
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818 (1975) (discussing rules of procedure). Of course, the
Massachusetts statute differs from CERCLA in some respects. See
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Griffith v. New England Telephone & Telegraph Co., 414 Mass. 824,
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610 N.E.2d 944 (1993) (defining owner and operator differently
for the purposes of strict liability). We will not discuss
Massachusetts law unless it becomes relevant to the case.
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(D. R.I. 1989).
The list of responsible parties reflects CERCLA's
"essential purpose" of making "those responsible for problems
caused by the disposal of chemical poisons bear the costs and
responsibility for remedying the harmful conditions they
created." Dedham Water Co. v. Cumberland Farms Dairy, Inc., 805
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F.2d 1074, 1081 (1st Cir. 1986).4 CERCLA thus makes such
parties liable to the government or to other private parties for
the costs of a cleanup. Id.
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If 9607(a) imposes liability on a party, then that
party cannot escape liability by means of a contract with another
party. 42 U.S.C. 9607(e)(1) provides that "[n]o . . .
agreement or conveyance shall be effective to transfer from the
owner or operator of any vessel or facility or from any person
who may be liable for a release or threat of release under this
section, to any other person the liability imposed under this
section." That is, the government or a private party can pursue
any responsible party it desires.
Two or more parties, however, can allocate ultimate
responsibility among themselves by contract. The same statute
states that "[n]othing in this subsection shall bar any agreement
to insure, hold harmless, or indemnify a party to such agreement
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4 In Dedham Water, we recognized one other fundamental policy of
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CERCLA: "Congress intended that the federal government be
immediately given the tools necessary for a prompt and effective
response to the problems of national magnitude resulting from
hazardous waste disposal." 805 F.2d at 1081. That policy is not
implicated in this appeal.
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for any liability under this section." Id. Such agreements have
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been described as "tangential" to the enforcement of CERCLA.
Jones-Hamilton Co. v. Beazer Materials and Services, Inc., 973
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F.2d 688, 692 (9th Cir. 1992).
Appellants contend that the district court erred in
imposing the full cost of cleanup in this case on them because,
as companies separate from the Lynn Gas and Electric Co. or the
Lynn Gas Co., they are not responsible parties under CERCLA.
Rather, the district court should have imposed the full cost of
cleanup on appellee Boston Gas. Appellants arrive at this
conclusion in two steps. First, they argue that the Lynn Gas Co.
is the direct successor to the gas portion of the Lynn Gas and
Electric Co., and assumed its coal gas liability. Next,
appellants argue that Boston Gas, as the successor of the Lynn
Gas Co., assumed its coal and oil gas liabilities. We disagree
with appellant on all points.
I.
I.
We first discuss who is responsible for the coal gas
waste created before any of the present parties were involved
with the Lynn Gas and Electric Co. To accept appellant's
conclusion, we must find that the liability shifted from the
independent Lynn Gas and Electric Co., to the NEES-owned Lynn Gas
and Electric Co. (renamed the Lynn Electric Co.), to the Lynn Gas
Co., and finally to Boston Gas. We cannot do so, as the district
court correctly found that the chain of liability for coal gas
waste broke at the link between NEES and the Lynn Gas Co.
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When NEES bought Lynn Gas and Electric Co., it
maintained that company as a separate entity with continuing
liability under CERCLA for the waste it created before 1951. See
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42 U.S.C. 9607(a)(1) (owner and operator of a vessel or
facility is a responsible party). When 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.
Consistent with CERCLA's policy of holding the company
that sullied the property responsible for the costs of cleanup,
see Dedham Water, supra, those liabilities travelled to the
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successor, if any, of Lynn Gas and Electric. See 42 U.S.C.
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9607(a)(2) (owner or operator of facility at time of discharge is
a responsible party); Smith Land & Improvement Corp. v. Celotex
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Corp., 851 F.2d 86, 91 (3d Cir. 1988), cert. denied, 488 U.S.
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1029 (1989).
Initially, Lynn Gas and Electric Co. and Lynn Electric
Co. were the same entities. That fact is reflected not merely
because of a simple name change, but also because the Lynn
Electric Co. kept Lynn Gas and Electric's property. As noted
above, the Lynn Electric Co., which by then merged into Mass.
Electric, conveyed the gas-related property to the Lynn Gas Co.
at various points between 1962 and 1970. By virtue of the
merger, Mass. Electric became the heir to the assets and
liabilities of the Lynn Electric Co. See Smith Land, 851 F.2d at
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91 ("In case of merger . . . where one corporation ceases to
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exist and the other corporation continues in existence, the
latter corporation is liable for the debts, contracts and torts
of the former").
The question, then, is whether the Lynn Gas and
Electric Co. transferred to the Lynn Gas Co. ultimate
responsibility for environmental hazards by contract. The
relevant document is the Separation Agreement (the "Agreement")
entered into between the parties on September 9, 1959; a later
indenture also bears on the issue. As neither document
apportions CERCLA liabilities explicitly, we must discern the
intent of the parties. We do this by reference to other cases
dealing with nonexplicit assumptions of liability in order to set
a standard by which to measure that intent.
We note at the outset that the district court was
uncertain whether to use a state rule of contract interpretation
or a uniform federal rule. Indeed, while federal law governs the
validity of liability agreements in the CERCLA context, Mardan
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Corp. v. C.G.C. Music, Ltd., 804 F.2d 1454, 1457 (9th Cir. 1986),
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courts have wrestled with what the content of that law should be.
The majority of courts have turned to state contract law to
provide the substantive rule, so long as it is not hostile to the
federal interests animating CERCLA. E.g., id.; United States v.
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Hardage, 985 F.2d 1427, 1433 (10th Cir. 1993); Jones-Hamilton Co.
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v. Beazer Materials & Services, Inc., 973 F.2d 688, 692-93 (9th
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Cir. 1992); Olin Corp. v. Consolidated Aluminum Corp, 807 F.
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Supp. 1133, 1141 (S.D.N.Y. 1992); Rodenbeck v. Marathon Petroleum
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Co., 742 F. Supp. 1448, 1456-57 (N.D. Ind. 1990). But see Mobay
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Corp. v. Allied-Signal, Inc., 761 F. Supp. 345, 352 (D. N.J.
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1991); Wiegmann & Rose Int'l Corp. v. NL Industries, 735 F. Supp.
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957, 961-62 (N.D. Cal. 1990).
This circuit recently reached the same conclusion in an
analogous situation. American Policyholders Insurance Co. v.
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Nyacol Products, Inc., No. 92-1949, slip op. at 16 (1st Cir.
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Feb. 24, 1993) (rejecting use of "uniform federal rule of
decision to govern interpretation of an insurance policy's scope
of coverage vis-a-vis CERCLA liability"); see also Robertshaw
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Controls Co. v. Watts Regulator Co., 807 F. Supp. 144, 153 (D.
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Me. 1992) (applying state rather than federal law to interpret
whether settlement agreement shifted CERCLA liability).
We thus look to Massachusetts law for guidance in
interpreting the Agreement with respect to CERCLA liabilities.
Two principles strike us as particularly relevant. First, "laws
enacted after the execution of an agreement are not commonly
considered to become part of the agreement unless its provisions
clearly establish that the parties intended to incorporate
subsequent enactments into their agreement." Arthur D. Little,
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Inc. v. Commissioner of Health and Hospitals, 395 Mass. 535, 481
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N.E.2d 441, 452 n.13 (1985) (quoting Feakes v. Bozycako, 373
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Mass. 633, 369 N.E.2d 978, 980 (1977)); see also Mayor of Salem
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v. Warner-Amex Cable Communications, Inc., 392 Mass. 663, 467
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N.E.2d 208, 210 (1984). Second, "a general release . . . is to
be given effect, even if the parties did not have in mind all the
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wrongs which existed at the time of the release," so long as the
language of that release is broad enough to encompass such
contingent liability. Naukeag Inn, Inc. v. Rideout, 351 Mass.
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353, 220 N.E.2d 916, 918 (1966).
These principles essentially lead to one rule
applicable to the present case. To transfer CERCLA liability,
the Agreement must contain language broad enough to allow us to
say that the parties intended to transfer either contingent,
environmental liability, or all liability. The Agreement must
recognize the possibility of future liability or dispense Lynn
Gas and Electric of all liabilities in the form of a general
release. Unfortunately for appellants, the language of the
Agreement is not drafted in such broad terms.
While initially the Agreement provides that "Lynn Gas
will assume and take over all the duties and liabilities" related
to the gas business, the Agreement later lists those obligations.
The series contains obligations pertaining only to the existing
business, such as obligations to serve gas customers, honor
contracts for the purchase and sale of new facilities, and
provide reserves to account for bad debt and depreciation on the
gas plant. No reference is made to any future or contingent
liabilities.
An indenture entered into by the parties several months
later contains a similar list. A catch-all provision on
liability refers to the liabilities "indicated in summary form by
the balance sheet" attached to the document, revealing an intent
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that the only liabilities assumed were those known, existing, and
somehow accounted for at the time of execution. It is true that
the indenture states that the liabilities specifically assumed by
Lynn Gas are "without implied limitation." But it is one thing
to say that the list of liabilities is not all-inclusive and
quite another to assume that the obligations not specified
include then non-existent environmental liabilities to be created
under CERCLA and unforeseeable when the agreement was made.
We must conclude that neither document evidences the
intent to transfer environmental liability in the requisite broad
language. The responsible party in this case, as between Mass.
Electric and Boston Gas, is Mass. Electric -- the successor to
the Lynn Gas and Electric Co. See ante at 7-8.
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II.
II.
We now discuss who is responsible for the oil gas waste
contaminating the property owned by Boston Gas. To find for
appellants, we must determine that Boston Gas agreed to assume
the environmental liabilities of the oil gas waste produced by
Lynn Gas Co. between 1951 and 1970. Happily, the contract
principles that steered our analysis on the issue of coal gas
waste steer most of our analysis on this issue also. We must
determine whether Boston Gas agreed to assume environmental
liabilities in its agreement to buy Lynn Gas Co.5
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5 Technically, NEES sold the Lynn Gas Co. first to Eastern Gas
and Fuel Associates, the parent company of Boston Gas. Eastern
then sold Lynn Gas to Boston Gas on the same day. Because this
intermediate transaction does not alter any liability in this
case by statute, contract, or any other norm, we discuss Eastern
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The contract governing the sale of Lynn Gas to Boston
Gas, the Closing Agreement, provides an easier case than did the
Agreement discussed above. The Closing Agreement expressly
limited the liabilities assumed by Boston Gas to those "as then
existing." A similar clause in the Assumption of Liabilities
document provided that Boston Gas would assume only those
liabilities "outstanding at the date hereof." Such language
fairly obviously forecloses the possibility that Boston Gas
agreed to assume any contingent liabilities, much less the
environmental liabilities at issue here. Nothing in the
remaining documents changes this conclusion.
Apart from the language of the contract, the district
court found several other facts convincing in finding that Boston
Gas lacked the intent to assume the liability here at issue. For
example, the parties did not discuss oil gas waste in their
negotiations. Indeed, it does not appear that Boston Gas was
informed about the oil gas waste at all. Furthermore, there was
no communication between the parties about any contingent
liabilities not appearing on the balance sheet. These facts
bolster our confidence in concluding that Boston Gas did not
accept those liabilities.
Although we are convinced that Boston Gas cannot be
held liable for the oil gas waste, we must determine whether the
district court was correct to impose those liabilities on NEES
and NEPSCO. In other words, are NEES and NEPSCO responsible
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no further.
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parties?
In Kayser-Roth, 910 F.2d at 26, we determined that
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parent companies can be held liable for CERCLA liability as
operators of a contaminated facility under 42 U.S.C.
9607(a)(2).6 Such liability is direct; it does not require us
to pierce the corporate veil. Id. at 27 ("Kayser is being held
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liable for its activities as an operator, not the activities of a
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subsidiary"). In contrast, piercing the corporate veil is a form
of owner liability. Kayser Roth, 724 F. Supp. at 23. The
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district court determined that Kayser was liable both as an
operator and an owner. Id. at 22-24. When the case came before
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our court, we left open the question of owner liability because
our finding on operator liability resolved the issues
satisfactorily. 910 F.2d at 28 n.11.
We envisioned in Kayser that holding a parent liable as
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an operator would be somewhat unusual. Id. at 27. "To be an
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operator requires more than merely complete ownership and the
concomitant general authority or ability to control that comes
with ownership. At a minimum it requires active involvement in
the activities of the subsidiary." Id. This standard requires
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an investigation into the relationship between the parent and
subsidiary, in order to reveal the requisite level of corporate
involvement. As the question is fact-laden, we review the
district court's findings only for clear error. Id.
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6 That section holds liable "any person who at the time of
disposal of any hazardous substance owned or operated any
facility at which such hazardous substances were disposed of."
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The relationship among the relevant companies in this
case amply demonstrates that operator liability burdens NEES and
NEPSCO with the responsibility to purge the oil gas waste from
Boston Gas' property. We recite only a few of the facts which
the district court found dispositive, and which we too find
important.
NEES continually maintained a presence among the
officers and directors of Lynn Gas. The president of Lynn Gas
was also the president of NEES' gas division; he was appointed by
the chairman of NEES and reported directly to NEES officials.
NEES selected the directors of Lynn Gas, and a senior officer of
NEES approved Lynn Gas' budget. Lynn Gas needed approval for all
expenditures over $5,000. NEPSCO provided extensive services to
Lynn Gas, such as controlling the checking account, handling the
purchase of the oil used in peak shaving, and maintaining Lynn
Gas property. NEPSCO employees were also well represented among
Lynn's officers and directors.
Given the almost overwhelming evidence, we cannot say
that the district court clearly erred in finding that NEES and
NEPSCO were operators of the Lynn Gas facilities. NEES and
NEPSCO are responsible parties for the oil gas waste created
while they were linked to the Lynn Gas Co.
III.
III.
We must resolve several residual matters, but they need
not detain us long.
Appellants contend that under the principles of
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successor liability, Boston Gas must be liable for the cleanup of
the waste sites. Appellants' argument has initial appeal in that
Boston Gas, and Lynn Gas before it, took over the gas business of
other companies. This argument, however, does not reflect the
successor corporation doctrine. In Dayton v. Peck, Stow and
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Wilcox Co., 739 F.2d 690, 692 (1st Cir. 1984), we identified four
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situations in which successor liability is appropriate: when the
buyer agrees to assume liability; when a consolidation or de
facto merger occurs; when the buyer is merely a continuation of
the seller; and when the transaction is a fraud to escape
liability.
We have already determined that Boston Gas, and Lynn
Gas before it, did not agree to assume environmental liability.
Furthermore, there is no allegation of fraud in this case. Only
the merger and continuation situations remain to bind Boston Gas
as successor to the gas liabilities in this case. There was, of
course, no formal merger by which Lynn Gas Co. -- and later
Boston Gas -- assumed the liabilities of Lynn Gas and Electric
Co., so appellants would have to prove a de facto merger claim.
Central to a de facto merger or continuation of the seller
corporation claim, however, is a finding that shareholders,
officers and directors continued into the buyer corporation. Id.
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at 693. Boston Gas, however, did not share any such continuity.
The successor corporation doctrine actually supports imposing
liability on appellants, as the requisite continuity existed in
their corporate structures.
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Appellants also argue that Mass. Gen. L. ch. 164 98
requires the assumption by Boston Gas of the environmental
liabilities at issue here. That brief statute states that "[t]he
purchasing or consolidated company shall . . . 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." The district court found
that the statute simply serves to allocate the rights of the
public with respect to the utilities, and does not curtail the
rights of contracting parties to allocate ultimate liability
between themselves.
We find no error in the district court's interpretation
of 98. The documents transferring the gas business to Lynn Gas
Co. and later selling Lynn Gas Co. to Boston Gas both refer to
98. The documents proceed to list the present liabilities owed
by the companies to customers and other members of the public.
The parties thus understood the statute to allocate certain,
existing liabilities only. The liabilities at issue in this case
are not among them.
Finally, appellants argue that equity requires Boston
Gas to share in the cost of the cleanup. We find nothing
inequitable in imposing those costs solely on appellants,
however. The policy underlying CERCLA -- to make those who
befouled the environment responsible for its cleanup -- is
certainly equitable. See Dedham Water, 805 F.2d at 1081. We
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have found that appellants were the proper responsible parties in
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this case, and it is equitable for them to clean up the property.
Affirmed.
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