Court Opinion

ID: 4555763
Source: CourtListenerOpinion
Date Created: 2020-08-14 17:00:18.676039+00
Date Added: 2024-06-11T09:26:46.080650
License: Public Domain

NOT PRECEDENTIAL

              UNITED STATES COURT OF APPEALS
                   FOR THE THIRD CIRCUIT

                            ___________

                             No. 19-3881

        SHAWN MCELROY; AMBER MCELROY, his wife,
                               Appellants

                                  v.

                     FIRSTENERGY CORP.
            _____________________________________

        On Appeal from the United States District Court for the
                  Western District of Pennsylvania
                (District Court No.: 2-18-cv-01612)
           Magistrate Judge: Honorable Patricia L. Dodge

            _____________________________________

            Submitted under Third Circuit L.A.R. 34.1(a)
                           July 2, 2020

                       (Filed: August 14, 2020)

Before: GREENAWAY, JR., SHWARTZ, and RENDELL, Circuit Judges.
                                    O P I N I O N*

RENDELL, Circuit Judge.

       Shawn McElroy (“McElroy”) fell while working at a power plant operated by

FirstEnergy Generation, LLC (“FirstEnergy Generation”). McElroy seeks to recover for

negligence and loss of consortium. But rather than sue FirstEnergy Generation, McElroy

instead sues FirstEnergy Generation’s parent company, FirstEnergy Corporation, and

seeks to impose liability on FirstEnergy Corporation by piercing FirstEnergy

Generation’s corporate veil. The District Court ruled that McElroy could not pierce the

corporate veil and, because McElroy had not asserted any viable claim against

FirstEnergy Corporation directly, he had failed to state a claim upon which relief could

be granted. Accordingly, the District Court dismissed his complaint. For substantially

the same reasons stated in the District Court’s thorough opinion, we will affirm.

                                             I1

       While working for Securitas Services USA, Inc. at the Beaver Valley Generation

Power Plant (“BVNPP”), McElroy fell on a set of stairs and injured his ankle.

BVNPP is operated by FirstEnergy Generation, a wholly-owned subsidiary of

FirstEnergy Corporation. FirstEnergy Nuclear Operating Company (“FirstEnergy

*
 This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not
constitute binding precedent.
1
 Because we write for the parties, who are familiar with the facts and the procedural
posture to date, we only include what is necessary to explain our decision.

                                             2
Nuclear”), another wholly owned subsidiary of FirstEnergy Corporation, had received

five notifications that the stairs were deteriorated and dangerous.

         To recover for McElroy’s injuries, McElroy and his wife, Amber McElroy

(referred to in this opinion together as “McElroy”), sued FirstEnergy Corporation in the

Court of Common Pleas of Beaver County, Pennsylvania. The case was then removed to

the United States District Court for the Western District of Pennsylvania. McElroy’s

complaint asserts three causes of action: a claim for negligence; a claim for loss of

consortium; and a claim for “Piercing the Corporate Veil/Alter Ego,” in which McElroy

alleges that FirstEnergy Corporation, FirstEnergy Generation, and FirstEnergy Nuclear

are liable for McElroy’s injuries because FirstEnergy Generation and other corporate

entities are sham corporations created for the purpose of defrauding and injuring entities

and persons, including him. FirstEnergy Generation, the owner and operator of the

power plant where McElroy was injured, and FirstEnergy Nuclear were in bankruptcy

when McElroy sued, and McElroy missed the deadline to submit his claim in Bankruptcy

Court.

         FirstEnergy Corporation moved to dismiss McElroy’s complaint and the District

Court granted FirstEnergy Corporation’s motion. The District Court ruled that

Pennsylvania choice of law principles dictate that Ohio law governs whether McElroy

may pierce FirstEnergy Generation’s corporate veil to reach FirstEnergy Corporation. It

then ruled that McElroy had not satisfied Ohio’s requirements for veil piercing, and

dismissed his complaint because he had not pleaded any independent basis of liability on

                                             3
the part of FirstEnergy, and therefore, without veil-piercing, had failed to state a claim for

relief.

                                              II2

          We review the District Court’s order dismissing the complaint de novo. See City

of Edinburgh Council v. Pfizer, Inc., 754 F.3d 159, 166 (3d Cir. 2014) (“We review de

novo the District Court’s decision to grant [a] Rule 12(b)(6) motion to dismiss.”);

Robeson Indus. Corp. v. Hartford Accident & Indem. Co., 178 F.3d 160, 164-65 (3d Cir.

1999) (“Choice-of-law is a question of law which [we] review de novo.”).

                                              III

          The District Court properly dismissed McElroy’s complaint. First, the District

Court correctly ruled that Ohio law governs whether McElroy may pierce the corporate

veil. Under Pennsylvania choice of law principles,3 a court must look to the law of the

state in which an entity is incorporated to determine whether a plaintiff may pierce that

entity’s corporate veil. See, e.g., Commonwealth v. Golden Gate Nat’l Senior Care LLC,

158 A.3d 203, 236 (Pa. Commw. Ct. 2017) (holding that because, “[u]nder Pennsylvania

law, the existence and extent of shareholder liability . . . is determined by the law of the

state of incorporation,” the law of the state of incorporation also governs whether a

corporation is subject to veil-piercing (citing Broderick v. Stephano, 171 A. 582 (Pa.

2
  The District Court had diversity jurisdiction under 28 U.S.C. § 1332. We have
jurisdiction under 28 U.S.C. § 1291.
3
 A federal court sitting in diversity applies the choice-of-law principles of the state in
which in which the District Court sits. See, e.g., Berg Chilling Sys., Inc. v. Hull Corp.,
435 F.3d 455, 462 (3d Cir. 2006).

                                               4
1934))), aff’d in part, rev’d in part on other grounds sub nom. Commonwealth by

Shapiro v. Golden Gate Nat’l Senior Care LLC, 194 A.3d 1010 (Pa. 2018). Because

FirstEnergy Generation and FirstEnergy Nuclear—the entities whose corporate veils

McElroy seeks to pierce—are undisputedly incorporated in Ohio, the District Court

correctly ruled that Ohio law governs the issue of whether McElroy may pierce the

corporate veil.

       Second, the District Court also correctly ruled that McElroy is not entitled to

pierce the corporate veil under Ohio law. The leading Ohio case on this point,

Dombroski v. WellPoint, Incorporated, requires a plaintiff seeking to pierce the corporate

veil to show:

       (1) control over the corporation by those to be held liable was so complete
       that the corporation has no separate mind, will, or existence of its own,
       (2) control over the corporation by those to be held liable was exercised in
       such a manner as to commit fraud or an illegal act against the person seeking
       to disregard the corporate entity, and (3) injury or unjust loss resulted to the
       plaintiff from such control and wrong.

895 N.E.2d 538, 543 (Ohio 2008) (quoting Belvedere Condo. Unit Owners’ Ass’n v. R.E.

Roark Cos., 617 N.E.2d 1075, 1086 (Ohio 1993)). In order to satisfy the second

requirement, a plaintiff must show that “egregious wrongs” were committed by the

shareholders, not just a “straightforward tort.” Id. at 545. “Piercing the corporate veil in

this manner remains a ‘rare exception,’ to be applied only ‘in the case of fraud or certain

other exceptional circumstances.’” Id. at 542-43 (quoting Dole Food Co. v. Patrickson,

538 U.S. 468, 475 (2003)). Piercing the corporate veil should occur “only in instances of

extreme shareholder misconduct.” Id. at 545.

                                              5
       Applying this legal standard, the District Court appropriately ruled that although

McElroy’s complaint does allege a scheme in which FirstEnergy’s bankrupt subsidiaries

avoided liability through bankruptcy protection, McElroy’s only causes of action are

negligence and loss of consortium, exactly the types of “straightforward tort[s]” for

which veil-piercing is not available under Dombroski and Ohio law. Id. We agree.

Indeed, McElroy concedes that “the underlying incident was a straightforward tort.”

Appellant’s Br. at 11. Because the allegations that form the bases of McElroy’s

negligence and loss of consortium claims do not amount to the type of “extreme

shareholder misconduct” contemplated by Dombroski, 895 N.E.2d at 545, McElroy may

not pierce the corporate veil to impose liability on FirstEnergy Corporation.

       Finally, the District Court correctly dismissed the remainder of McElroy’s

complaint. The District Court ruled that, “[g]iven the failure to pierce the corporate veil,”

McElroy has “not pleaded any independent basis of liability on the part of” FirstEnergy

Corporation. App. 10. Rather, because “[t]here are no allegations that [FirstEnergy

Corporation] owns[,] possesses, maintains or controls the premises or had knowledge of

any dangerous conditions on the property,” id., McElroy had failed to state a claim

against FirstEnergy. We agree.

                                             IV

       For the reasons stated above, we will affirm the judgment of the District Court.

                                             6