Case Study: The Buffalo Creek Disaster

On February 26th, 1972, took place the incident that would shake an entire town and bring it to its knees. To summarize, the Buffalo Creek disaster was when a Buffalo mining company’s reckless actions and lack of precautions caused an outburst of water and sludge to flood over 17 miles. This flood led to the death of 125 people, 1200 to be injured and around 4000 people left to be homeless survivors of the disaster. This disaster was caused because Pittston never paid attention to previous incidents and were negligent. Prior to the incident, the weather caused heavy rainfall, which led to the increase in water pressure. Finally, the dam couldn’t hold this mixture of water and remains of the coal, which led to it overflowing and causing damage
This is usually when the shareholders have used the corporations name to advance their own interests, leading to the misconduct. But to prove this, the burden falls on the plaintiff. The plaintiff is responsible for bringing up facts that determine the lack of separate identities between the corporation and its shareholders. The plaintiff also has to prove to the court that there would be unjust or unequal consequences if only the corporation is found guilty, letting the shareholders go scot-free. There are many ways to pierce the corporate veil. In Frank Brunetti’s book “Piercing the Corporate Veil”, he talks a little bit about some of these methods. They include proper record keeping of meetings, each corporation being provided adequate capital and corporations with similar stock ownership could be causes for piercing the corporate veil.
Brunetti also talks about how misusing corporate funds for personal gain of the shareholders is cause for penalizing the shareholders over the corporation. Failure to issue stock in the right manner, holding the minimum required shareholder meetings with proper documentation and using the company for fraudulent purposes are the main arguments that are used to direct the court’s attention towards punishing
He said that they would be better off looking for other terms on which to sue them. But some of the plaintiff’s arguments are as follows:
• The plaintiff argued that the Buffalo Mining Company was not a separate entity, rather it was a part of the Pittston company. Pittston had actually purchased the Buffalo Mining Company in 1970 and decided to expand its operations by building a larger dam. The Buffalo Mining Company operated as a division of the Pittston company, hence it was possible to pierce the corporate veil on the basis of lack of individuality and interlocking stock ownership. This was also publicly revealed, so there was blatant proof that there was a lack of separate legal entity.
• The Buffalo mining company had significantly low funds. They could not afford to take the necessary precautions to prevent a disaster and their inflow of money depended on the Pittston company. The Buffalo Mining Company could not afford the lawsuit and with a net worth of only $7 million, they did not have enough of an insurance coverage as well. This was also grounds of piercing the corporate veil under the capitalization section, as they were