A Creditor Must Show Causation when Asserting an Alter Ego Claim Against a Parent or Grandparent Corporation

Patrick T. Kennedy 

St. John's University School of Law 

American Bankruptcy Institute Law Review Staff


In In re Maxus Energy Corporation, the Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) held that at summary judgment stage for a claim of alter ego liability, the creditor must show causation to hold the parent corporation of a debtor liable.[1] On July 17, 2016, Maxus Energy filed a voluntary petition for relief under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”). On May 22, 2017, the Bankruptcy Court confirmed the plan. Under the plan, the Trust of Maxus Creditors (the “Trust”) was created. Shortly after, the Trust filed an adversary proceeding against YPF and Repsol. YPF is the parent holding corporation that originally purchased Maxus, while Repsol was the grandparent holding corporation who purchased YPF. [2]

 The bankruptcy and the subsequent adversary proceeding has a long and complex factual and procedural history. Maxus was formerly known as Diamond Alkali Company from 1951 to 1969.[3] During this time, Maxus discharged dichlorodiphenyltrichloroethane (“DDT”) and dioxins into the Passaic River in New Jersey. After a variety of name changes, Diamond Alkali Company became Maxus Energy in 1983.[4] Due to the discharging of DDT, Maxus faced extensive environmental liabilities.[5] These environmental liabilities were not solely based upon Maxus’s release of DDT into the Passaic River, however the Passaic River liability was the greatest in amount.[6] Ultimately, Maxus faced the possibility of upwards of $2 billion in liabilities for the release of DDT into the Passaic River under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), by the authority of the Environmental Protection Agency (“EPA”).[7] Under CERCLA, all contaminators could be held jointly and severely liable for the full extent of the liabilities of the contamination. [8]

On February 28, 1995, YPF, an Argentinian energy company acquired Maxus through a leveraged buyout (“LBO”).[9] YPF did not do proper due diligence into Maxus’ potential environmental liability, and it was only after YPF had already purchased Maxus that YPF learned of the full extent of Maxus’ potential liability.[10] It is alleged by the Trust that YPF began to sell off assets of Maxus, in a strategy to distance itself from liability of Maxus.[11] There is a dispute over whether this strategy was to limit liability in the ordinary course of business, or in an attempt to hurt the creditors of Maxus, as is claimed by the Trust.[12]

In 1999 Repsol, another DDT liability defendant, acquired YPF through a hostile takeover acquiring 99% of the shares in YPF.[13] The Trust alleges that once Repsol acquired YPF, Respol installed its own board of directors and continued the strategy of selling off assets to hurt creditors.[14] Repsol claimed, just as YPF did, that the sale of assets was in the ordinary course of business.[15]

Maxus filed for relief under chapter 11 of the Bankruptcy Code on June 17, 2016. After the confirmation of the plan, and the creation of the Trust, the Trust commenced an adversary proceeding against YPF and Repsol, under the theory of alter ego liability to recover $712,560,327.76, plus the prejudgment interest which the Bankruptcy Court estimated to be between $12 and $14 Billion.[16] The Trust sought summary judgment holding YPF and Repsol liable for all of Maxus’s unpaid environmental debts.[17] The Bankruptcy Court referred to this theory of liability as an All Liabilities Damages Theory. The Trust is seeking to pierce Maxus’ corporate veil and is attempting to convince the Bankruptcy Court to rule as a matter of law and give no consideration to causation of the environmental damages. Ultimately, the Trust aimed to hold YPF and Repsol jointly and severely liable for the full amount of Maxus’ environmental debt by piercing Maxus’ corporate veil, under a theory of alter ego, even if there is no causation as to YPF and Respol.[18] Conversely, YPF and Repsol claimed they should only be held liable as alter egos of Maxus under a theory of causation.[19]

The Bankruptcy Court denied the Trust’s motion for summary judgment, holding that the Trust could not pierce the corporate veil and hold YPF and Repsol jointly and severely liable for all the environmental claims.[20] Among other claims, the Bankruptcy Court focused on the Trust’s claim for alter ego liability. The Trust analogized its alter ego claim to Pharmacia Corp. v. Motor Carrier Servs. Corp, because the Trust argued that it supported it’s claim of holding YPF and Repsol liable, as parent and grandparent corporations, for all the environmental liability.[21] The Bankruptcy Court rejected the Trust’s analogy, and distinguished the facts of this case, stating, “Pharmacia does not stand for the proposition that an alter ego parent or grand-parent entity is liable for all the dominated subsidiary's environmental debts regardless of the corporate harm they caused.”[22] Furthermore, the Bankruptcy Court went on to say, “[u]nlike Pharmacia, this is not a contract dispute but, rather, an alter ego and fraudulent transfer case; no one contests any contractual liability herein.”[23]

The Bankruptcy Court also distinguished alter ego liability from CERCLA liability.[24] Under CERCLA liability, all parties can be held jointly and severely liable without demonstrating causation, but under alter ego liability this is not the case.[25] The Bankruptcy Court held that under alter-ego liability, the Trust must demonstrate causation to hold the parent and grandparent corporations liable for Maxus’ environmental debts. The Bankruptcy Court further held that the Trust must hold YPF and Repsol liable only for the damage that they each caused, not those cause by Maxus, which were issues that would need to be decided at trial.[26]

The Bankruptcy Court ruled that alter ego liability did not make parent or grandparent corporations, such as YPF and Repsol, jointly and severally liable for the environmental debts of Maxus.[27] The Bankruptcy Court held that there must be some degree of causation that is proven and shown at trial when there is an issue of material fact, such as whether YPF and Repsol can be held liable for the actions of their subsidiary Maxus. This ruling favors companies that acquire companies through LBOs and hostile takeovers, because it does not allow creditors to pierce the corporate veil of the bankrupt subsidiary company to hold the parent companies fully liable.[28]

[1] In re Maxus Energy Corp., 641 B.R. 467, 569 (Bankr. D. Del. 2022). 

[2] Id. at 489.

[3] Id.at 489.

[4] Id.

[5] Id.

[6] Id.

[7] Id.

[8] Id. at 490.

[9] Id. at 491.

[10] Id.

[11] Id. at 492. 

[12] Id. 

[13] Id. at 494. 

[14] Id.

[15] Id. 

[16] Id. at 499. 

[17] Id. 

[18] Id.

[19] Id.

[20] Id. 

[21] Pharmacia Corp. v. Motor Carrier Servs. Corp., 309 Fed. App'x 666, 666 (3d Cir. 2009).

[22] 641 B.R. at 503.

[23] Id. 

[24] Id. at 504. 

[25] Id. 

[26] Id. 

[27] Id. at 569. 

[28] See id.