On August 3, 2021, in the Methyl Tertiary Butyl Ether (“MTBE”) MDL the Court ruled that while the Commonwealth of Pennsylvania's alter ego allegations were sufficient to pierce the corporate veil as between defendants Lukoil Americas Corporation and its subsidiary Getty Petroleum Marketing Inc. for jurisdictional purposes, they were not sufficient to pierce the veil for liability purposes, nor was there successor liability, resulting in the dismissal of all claims against LAC.
In its complaint, the Commonwealth of Pennsylvania alleged that Getty Petroleum Marketing Inc. (“GPMI”) released MTBE – an additive which oxygenates gasoline – contaminating the ground water throughout Pennsylvania. The complaint was initially filed in Philadelphia county, but the case was removed to the United States District Court for the Eastern District of Pennsylvania, then transferred to the MDL in the Southern District of New York. Lukoil Americas Corporation (“LAC”) is a Delaware corporation that wholly owns GPMI, a Maryland corporation. While there was no dispute that GPMI’s contacts were sufficient for personal jurisdiction in Pennsylvania, LAC argued that GPMI is a separate corporate entity and its contacts and conduct should not be imputed to LAC. The Commonwealth argued LAC is the alter ego and successor-in-liability to GPMI, a crucial allegation given that GPMI had previously been through a contentious bankruptcy and its only remaining assets were insurance policies.
In first addressing LAC’s motion to dismiss for lack of personal jurisdiction, the Court applied the law of the transferor forum – Pennsylvania - and held GPMI and LAC were sufficiently intertwined for jurisdictional purposes. The Court relied on evidence showing, among other things, that LAC owned all of GPMI’s stock, there was near complete overlap among the officers and directors, and LAC had provided key financing in various transactions. The Court held the evidence, in total, was sufficient to give rise to a “reasonable inference” of control such that LAC and GPMI were alter egos for jurisdictional purposes.
The Court then, however, granted LAC’s motion to dismiss for failure to state a claim, refusing to pierce the corporate veil and finding no basis to impose liability on LAC for GPMI’s conduct. Applying Pennsylvania choice of law rules, the Court held that Maryland law controlled the analysis. Maryland law is particularly restrictive, permitting the corporate veil to be pierced only “where it is necessary to be prevent fraud or enforce a paramount equity”, and the Court found no evidence of such fraud. Accordingly, the Court dismissed any claims premised on GPMI’s conduct following its acquisition by LAC.
The Court further found the Commonwealth had failed to properly plead that LAC was liable as a successor corporation to GPMI. Finding there was no conflict between the law of Pennsylvania, Maryland, and Delaware, the Court applied Pennsylvania law to the Commonwealth’s claim of successor liability, holding that a company does not assume the liabilities of another company unless: 1) the purchaser agreed to assume liability, 2) the transaction was entered into fraudulently for the purpose of escaping liability, 3) the purchase amounts to a consolidation or merger, or 4) the purchaser is a mere continuation of the seller. The Court held that the Commonwealth had failed to plead any specific factual allegations showing LAC’s purchase of GPMI fell into any of these exceptions, and dismissed all claims against LAC premised on pre-acquisition conduct by GPMI, thus resulting in the dismissal of all claims as to LAC.
The Court also dismissed particular causes of action against certain other defendants, including 1) public nuisance, finding plaintiff had failed to allege defendants had “possession or control over the sites from which the nuisance originated”, and 2) violations of the Pennsylvania Unfair Trade Practices and Consumer Protection Law, holding the complaint did not sufficiently allege any representation which would qualify as “false” or “deceptive” under the statute. The Court denied, however, defendants’ motion to dismiss plaintiff’s unjust enrichment claims, holding the complaint sufficiently alleged that the insurance defendants had violated their duty to provide information regarding private insurance coverage while receiving funds from the Pennsylvania Storage Tank and Spill Prevention Act.
United States Supreme Court decisions in recent years have made it increasingly difficult for a plaintiff to show that a court may exercise personal jurisdiction over a foreign parent corporation. See, e.g., Daimler AG v. Bauman, 134 S. Ct. 746, 751 (2014) and Bristol-Myers Squibb Co. v. Superior Court of California, 137 S. Ct. 1773, 1776 (2017). Even where the plaintiff can make a showing sufficient to overcome a 12(b)(2) motion to dismiss, this case demonstrates that defendants should consider whether the standard for piercing the corporate veil in the liability context may be more restrictive and thus provide an alternative route to dismissal.