Petitioner
United States
Respondent
CPC International Inc. (later renamed Bestfoods), Aerojet-General Corporation, Cordova Chemical Company, Cordova Chemical Company of Michigan
Petitioner's Claim
That CPC International was liable, under Section 107(a)(2) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) for costs of cleaning up industrial waste at a former subsidiary's chemical plant.
Justices for the Court
Stephen Breyer, Ruth Bader Ginsburg, Anthony M. Kennedy, Sandra Day O'Connor,William H. Rehnquist, Antonin Scalia, David H. Souter (writing for the Court), John Paul Stevens, Clarence Thomas
Justices Dissenting
None
Place
Washington, D.C.
Date of Decision
8 June 1998
Decision
That the petitioner had failed to establish CPC/Bestfoods's parental responsibility, either in a direct or derivative sense, for the environmental damagein question.
Significance
The Court's unanimous decision in United States v. Bestfoods provideda framework for establishing the limits of responsibility on the part of a corporate parent--parenthood being defined by the ownership of a controlling interest in another corporation's stock--for damages incurred by a polluting subsidiary. On the one hand, the Court held that derivative liability can be established only when the "corporate veil" has been "pierced"--that is, when itis established that the subsidiary is acting only as a proxy for the parent.On the other hand, the Court found that parental responsibility does not follow from simple ownership of a subsidiary; rather, it must be shown that theparent acted as an operator in the subsidiary's facility. The decision reliedon the Court's distinction between subsidiaries and facilities, which invalidated a lower court's tests regarding actual control as opposed to capacity to control.
Don't Drink the Water
In 1957, Ott Chemical Company, which manufactured products for the pharmaceutical, veterinary, and agricultural industries, began operation of a plant ina rural area near Muskegon, in western Michigan. Founder Arnold Ott served aspresident and principal shareholder. Eight years later, in 1965, CPC International incorporated the Ott Chemical Company as a subsidiary. Thus, there were three entities named "Ott": the original company, its founder, and the later subsidiary. To avoid confusion when the case came before it in 1998, the Supreme Court designated the first Ott Chemical Company as Ott I, and the CPC subsidiary as Ott II. Likewise when CPC changed its name to Bestfoods not longbefore the Court reviewed the case, this too added confusion. Hence, the named defendant is designated by its later name, but in the review of the case it is referred to by its old name, which it held at the time of the actions inquestion.
Soon after its incorporation, Ott II purchased Ott I's assets in exchange forCPC stock. Ott I ceased to function as such, but the new owners retained OttI's personnel, including its managers and Arnold Ott himself. In fact Mr. Ott, along with other executives and board members, took paid positions not with Ott II, but with CPC, the parent company. In 1972, Ott II again changed hands when CPC sold it to Story Chemical Company, which retained it for five years, until it went bankrupt in 1977. Soon after Story Chemical disappeared from the scene, the Muskegon site received a visit from a Michigan Department ofNatural Resources (MDNR) team, and thus began a barrage of litigation that would include the liability dispute reviewed in United States v. Bestfoods.
Regardless of owner, the purpose of the Muskegon plant remained the same: themanufacture of chemicals, which produced a hazardous by-product in the formof chemical waste. The dumping of hazardous substances, both "intentional andunintentional," in the Court's words, "significantly polluted the soil and ground water at the site." Specifically, the plant had discharged waste into on-site lagoons, which were not properly lined to prevent seepage into the water table, a practice which continued at least until 1968. In addition, through 1972, Ott II workers had buried hundreds of drums containing hazardous waste, and had scattered literally thousands of drums in the surrounding woods. This was all clearly "intentional," but in addition, there were numerous "unintentional" spills from railroad cars, and from a cement-lined basin that repeatedly overflowed.
Thus, as the Court reported, when MDNR "examined the site for environmental damage, it found the land littered with thousands of leaking and even exploding drums of waste, and the soil and water saturated with noxious chemicals." The MDNR report indicated that "Groundwater pumped to the surface contained foam and a brownish color like root beer," and the soil was "purplish" from allthe hazardous waste in it. Not only was the groundwater contaminated with pollutants such as phosgene gas, benzene, phenol, methyl chloride, and methyl isocyanate, but with its introduction to the water table, the contamination was seeping ever further. As water seeks its own level, the hazardous waste moved ever onward toward two nearby creeks, from where it entered the nearby community's water supply. This situation could not continue, and MDNR proposed asolution which promised to address the environmental problem--but created ahost of legal ones.
Shifting the Burden to the Responsible Parties
Attempting to remedy the situation at the Muskegon factory, MDNR began looking for a corporation that would purchase the site and help pay for its cleanup. Naturally, given the situation, the state was not inundated with offers, but finally in late 1977, it found Aerojet-General Corporation, which agreed tobuy the Muskegon plant from Story Chemical's bankruptcy trustee. In order todo so, Aerojet created Cordova Chemical Company (which the Court designatedas Cordova/California) as a wholly owned subsidiary to purchase the property,and Cordova/California in turn established its own wholly owned subsidiary,Cordova Chemical Company of Michigan (Cordova/Michigan). The latter operatedas a chemical manufacturer at the site until 1986.
But in the intervening years, the federal government began to take an increasing interest in cleaning up the Muskegon plant and sites like it. Congress in1980 passed CERCLA, the Comprehensive Environmental Response, Compensation,and Liability Act, to respond to situations such as the one that occurred atthe Muskegon plant. The act, the Court noted in Exxon Corp. v. Hunt, was, "As its name implies, . . . a comprehensive statute that grants the President broad power to command government agencies and private parties to cleanup hazardous waste sites." In the following year, 1981, the federal Environmental Protection Agency (EPA) assessed the Muskegon site in particular, and called for a clean-up plan that would cost tens of millions of dollars. However, rather than merely shift the burden of this cleanup to the taxpayers--manyof whom were themselves victims of environmental irresponsibility on the partof corporations--the federal government in 1989 took legal action against CPC, Aerojet, Cordova/California, Cordova/Michigan, and Arnold Ott himself.
The basis for the legal action was a provision in CERCLA for a "Hazardous Substance Superfund," which would pay for environmental cleanups. Money for thisSuperfund would come in part from lawsuits against those responsible for thehazardous substances in the first place, including "any person who at the time of disposal of any hazardous substance owned or operated any facility." The act defined "person" as a corporate entity, and similarly delineated the terms of "facility" in a common-sense fashion. With regard to "owner or operator," however, it was more vague, defining these as "any person owning or operating" a facility. This, the Court noted, was a tautology, or a redundant, information-free statement. As it pointed out in Exxon, CERCLA "unfortunately, is not a model of legislative draftsmanship." It was a fact that wouldbe highlighted by the legal actions surrounding the cleanup.
Ott I and Ott II, both defunct by the time of the 1989 suit, were not included among the named defendants in the EPA case, and Arnold Ott himself would end up settling out of court just before the case actually came to trial. As for CPC, Aerojet, and the latter's two Cordova subsidiaries, in the Court's words these entities, along with MDNR, "launched a flurry of contribution claims, counterclaims, and cross-claims." The district court therefore opted to consolidate all the cases into liability, remedy, and insurance coverage phases.As of 1991, the case had not gone beyond the first of the three phases, liability.
A Question of Parenthood
In 1991, a fifteen-day bench trial on the question of liability focused on issues of corporate parenthood. Specifically, the district court sought to determine whether CPC, as the parent company of Ott II, and Aerojet, parent to the Cordova companies, had "owned or operated" the Muskegon facility within thedefinition established under Section 107(a)(2) of CERCLA. In so doing, the court noted that a corporate parent may be liable either directly, inasmuch asit operates a facility, or indirectly, when "the corporate veil can be pierced under state law." Thus, if either CPC or Aerojet could be found to have operated the facility by "exert[ing] power or influence over its subsidiary byactively participating in and exercising control over the subsidiary's business during a period of disposal of hazardous waste," liability could be established. Whereas "mere oversight" does not make a corporate parent an "operator"--and thus liable--actual participation in operations does. In evaluating CPC's liability, the district court noted that the parent had selected the board of directors for Ott II, and had installed CPC officials in the subsidiary's executive ranks. Particularly telling, in the district court's view, was the fact that one G. R. D. Williams, a CPC employee, "played a significant rolein shaping Ott II's environmental compliance policy." CPC was consequently held liable, as was Aerojet, which the court found subject both to direct andderivative liability due to the fact that it "totally dominated Cordova/Michigan, creating a complete identity of interests between the parent and its wholly owned subsidiary"--a situation that, under Michigan law, justified piercing the corporate veil.
The case next came before the Court of Appeals for the Sixth Circuit, which in a divided decision reversed in part. That court ended up vacating its decision, granting a hearing en banc (that is, with full judicial authority) to a thirteen-judge Court of Appeals panel. By a 7-6 decision, this court reversed the district court, noting that a parent corporation might conceivably supplant the functions of its subsidiary entirely, but otherwise rejectingthe lower court's analysis. "[W]hether the parent will be liable as an operator," the Sixth Circuit court observed, "depends upon whether the degree to which it controls its subsidiary and the extent and manner of its involvement with the facility, amount to the abuse of the corporate form that will warrantpiercing the corporate veil and disregarding the separate corporate entitiesof the parent and subsidiary." According to this analysis, neither CPC nor Aerojet had directly operated the Muskegon facility, because both had "maintained separate personalities, and the parents did not utilize the subsidiary corporate form to perpetrate fraud or subvert justice."
"A Relaxed, CERCLA-Specific Rule of Derivative Liability"
The subsequent Supreme Court case involved only CPC/Bestfoods, as the Aerojetaction touched on questions unrelated to the issue of corporate veil-piercing. The Court, which reviewed the case in June of 1998--some forty years afterOtt I first began operating at, and presumably polluting, the Muskegon site--handed down a unanimous ruling that upheld the Sixth Circuit's decision. Nonetheless, the Court's opinion, delivered by Justice Souter, noted aspects ofthe appeals court's reasoning which it deemed faulty.
In the first part of its ruling, the Court observed that it is an accepted principle of corporate law--one which CERCLA did not purport to invalidate--that corporate parents are not automatically liable for the actions of their subsidiaries. An exception to this principle, of course, would occur when (and only when) the corporate veil could be pierced. One example of an instance inwhich veil-piercing would be justified is when "the corporate form would otherwise be misused to accomplish certain wrongful purposes, most notably fraud,on the shareholders' [i.e., parent's] behalf." In the absence of clearly defined stipulations in CERCLA regarding the definition of corporate parenthood,the Court found, the wisest course would be to refer to common law, or in this case to the "general principle of corporate law that a parent corporation(so-called because of control through ownership of another corporation's stock) is not liable for the acts of its subsidiaries."
The Court held that only "a corporate parent that actively participated in, and exercised control over, the operations of its subsidiary's facility may beheld directly liable [as an operator] in its own right" under Section 107 ofCERCLA. Addressing questions of direct, rather than derivative, liability, the Court sought to clarify CERCLA's definition of "operator," and found thatin the present context of an environmental cleanup, "an operator must manage,direct, or conduct operations specifically related to the leakage or disposal of hazardous waste, or decisions about compliance with environmental regulations." The Sixth Circuit had been correct to reject the district court's analysis of direct liability, which had rested merely on the fact of CPC's ownership of the subsidiary. Instead of this parent-subsidiary focus, the Court found, the district court should have based its analysis on the question of whether CPC actually "operated"--i.e., directly participated in the operations of--the facility. Inasmuch as an officer or director of Ott II had a role in CPC as well, in accordance with common-law principles, their actions should beattributed to Ott II rather than to the parent. By failing to focus on the more significant parent-facility relationship, and by mistakenly attributing the actions of Ott II officers to CPC, the district court had overstepped commonly accepted standards of limited liability. Hence it would have created "what is in essence a relaxed, CERCLA-specific rule of derivative liability" that neither justified in the common law nor in CERCLA's (and Congress's) silence on the subject.
But the Court also faulted aspects of the Sixth Circuit's ruling, inasmuch asit "limit[ed] direct liability under CERCLA to a parent's sole or joint venture operation, so as to eliminate any possible finding that CPC is liable asan operator on the facts of the case." Thus it had ignored the possibility ofa joint officer or director who claims to operate on behalf of the subsidiary, or both the subsidiary and the parent, but in fact operates solely on behalf of the parent. To make this determination, the appeals court needed only to observe "norms of corporate behavior (undisturbed by any CERCLA provision)." Such a route offered promise, the Court noted, due to "evidence that an agent of CPC alone [G. R. D. Williams] engaged in activities at Ott II's plant that were eccentric under accepted norms of parental oversight at a subsidiary's facility." The fact that Williams had been instrumental in shaping the environmental compliance policy of the subsidiary, in the Court's view, suggested a possibility not so much that CPC fully controlled Ott II (as the districtcourt had held), but that it actually was operating the Muskegon plant directly. Had this been shown, the results of United States v. Bestfoods might have been quite different. But this was beyond the Court's directive in the present case, as Justice Souter noted: "The findings [with regard to Williams's role] are enough to raise an issue of CPC's operation of the facility,though this Court draws no ultimate conclusion, leaving the issue for the lower courts to reevaluate and resolve in the first instance."
Impact
Stephen L. Kass and Jean M. McCarroll, who published several pieces in the New York Law Journal regarding the liability of corporate parents underCERCLA, wrote that the Court's decision in Bestfoods had "brought someprecision and balance to the task of determining under what circumstances acorporate parent may be charged with liability as an operator of its subsidiary's polluting facility." But to Peter M. Gillon, who presented a critique ofthe case in Toxics Law Reporter, the ruling "represents a valiant, although not altogether successful, attempt to provide . . . clarity" regardingquestions of liability. In Gillon's view, the Court's inability to draw bright lines regarding corporate liability leaves corporations in a position of unnecessary uncertainty. Even Kass and McCarroll, while taking a more positiveview of the ruling in terms of the direction it provides for future decisions, concluded that "some murky areas remain." Nonetheless, they hailed the Bestfoods decision for offering a distinction between the tests of directand derivative liability, and for "its sensible and proper deference to thefact-finding role of the trial court." Kass and McCarroll on the one hand, and Gillon on the other, do seem to agree on one general principle: that the Bestfoods decision can be best understood as an attempt to define, rather than to conclude, questions regarding the corporate parent's liability in hazardous waste cleanups or other situations.
Related Cases
United States
Respondent
CPC International Inc. (later renamed Bestfoods), Aerojet-General Corporation, Cordova Chemical Company, Cordova Chemical Company of Michigan
Petitioner's Claim
That CPC International was liable, under Section 107(a)(2) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) for costs of cleaning up industrial waste at a former subsidiary's chemical plant.
Justices for the Court
Stephen Breyer, Ruth Bader Ginsburg, Anthony M. Kennedy, Sandra Day O'Connor,William H. Rehnquist, Antonin Scalia, David H. Souter (writing for the Court), John Paul Stevens, Clarence Thomas
Justices Dissenting
None
Place
Washington, D.C.
Date of Decision
8 June 1998
Decision
That the petitioner had failed to establish CPC/Bestfoods's parental responsibility, either in a direct or derivative sense, for the environmental damagein question.
Significance
The Court's unanimous decision in United States v. Bestfoods provideda framework for establishing the limits of responsibility on the part of a corporate parent--parenthood being defined by the ownership of a controlling interest in another corporation's stock--for damages incurred by a polluting subsidiary. On the one hand, the Court held that derivative liability can be established only when the "corporate veil" has been "pierced"--that is, when itis established that the subsidiary is acting only as a proxy for the parent.On the other hand, the Court found that parental responsibility does not follow from simple ownership of a subsidiary; rather, it must be shown that theparent acted as an operator in the subsidiary's facility. The decision reliedon the Court's distinction between subsidiaries and facilities, which invalidated a lower court's tests regarding actual control as opposed to capacity to control.
Don't Drink the Water
In 1957, Ott Chemical Company, which manufactured products for the pharmaceutical, veterinary, and agricultural industries, began operation of a plant ina rural area near Muskegon, in western Michigan. Founder Arnold Ott served aspresident and principal shareholder. Eight years later, in 1965, CPC International incorporated the Ott Chemical Company as a subsidiary. Thus, there were three entities named "Ott": the original company, its founder, and the later subsidiary. To avoid confusion when the case came before it in 1998, the Supreme Court designated the first Ott Chemical Company as Ott I, and the CPC subsidiary as Ott II. Likewise when CPC changed its name to Bestfoods not longbefore the Court reviewed the case, this too added confusion. Hence, the named defendant is designated by its later name, but in the review of the case it is referred to by its old name, which it held at the time of the actions inquestion.
Soon after its incorporation, Ott II purchased Ott I's assets in exchange forCPC stock. Ott I ceased to function as such, but the new owners retained OttI's personnel, including its managers and Arnold Ott himself. In fact Mr. Ott, along with other executives and board members, took paid positions not with Ott II, but with CPC, the parent company. In 1972, Ott II again changed hands when CPC sold it to Story Chemical Company, which retained it for five years, until it went bankrupt in 1977. Soon after Story Chemical disappeared from the scene, the Muskegon site received a visit from a Michigan Department ofNatural Resources (MDNR) team, and thus began a barrage of litigation that would include the liability dispute reviewed in United States v. Bestfoods.
Regardless of owner, the purpose of the Muskegon plant remained the same: themanufacture of chemicals, which produced a hazardous by-product in the formof chemical waste. The dumping of hazardous substances, both "intentional andunintentional," in the Court's words, "significantly polluted the soil and ground water at the site." Specifically, the plant had discharged waste into on-site lagoons, which were not properly lined to prevent seepage into the water table, a practice which continued at least until 1968. In addition, through 1972, Ott II workers had buried hundreds of drums containing hazardous waste, and had scattered literally thousands of drums in the surrounding woods. This was all clearly "intentional," but in addition, there were numerous "unintentional" spills from railroad cars, and from a cement-lined basin that repeatedly overflowed.
Thus, as the Court reported, when MDNR "examined the site for environmental damage, it found the land littered with thousands of leaking and even exploding drums of waste, and the soil and water saturated with noxious chemicals." The MDNR report indicated that "Groundwater pumped to the surface contained foam and a brownish color like root beer," and the soil was "purplish" from allthe hazardous waste in it. Not only was the groundwater contaminated with pollutants such as phosgene gas, benzene, phenol, methyl chloride, and methyl isocyanate, but with its introduction to the water table, the contamination was seeping ever further. As water seeks its own level, the hazardous waste moved ever onward toward two nearby creeks, from where it entered the nearby community's water supply. This situation could not continue, and MDNR proposed asolution which promised to address the environmental problem--but created ahost of legal ones.
Shifting the Burden to the Responsible Parties
Attempting to remedy the situation at the Muskegon factory, MDNR began looking for a corporation that would purchase the site and help pay for its cleanup. Naturally, given the situation, the state was not inundated with offers, but finally in late 1977, it found Aerojet-General Corporation, which agreed tobuy the Muskegon plant from Story Chemical's bankruptcy trustee. In order todo so, Aerojet created Cordova Chemical Company (which the Court designatedas Cordova/California) as a wholly owned subsidiary to purchase the property,and Cordova/California in turn established its own wholly owned subsidiary,Cordova Chemical Company of Michigan (Cordova/Michigan). The latter operatedas a chemical manufacturer at the site until 1986.
But in the intervening years, the federal government began to take an increasing interest in cleaning up the Muskegon plant and sites like it. Congress in1980 passed CERCLA, the Comprehensive Environmental Response, Compensation,and Liability Act, to respond to situations such as the one that occurred atthe Muskegon plant. The act, the Court noted in Exxon Corp. v. Hunt, was, "As its name implies, . . . a comprehensive statute that grants the President broad power to command government agencies and private parties to cleanup hazardous waste sites." In the following year, 1981, the federal Environmental Protection Agency (EPA) assessed the Muskegon site in particular, and called for a clean-up plan that would cost tens of millions of dollars. However, rather than merely shift the burden of this cleanup to the taxpayers--manyof whom were themselves victims of environmental irresponsibility on the partof corporations--the federal government in 1989 took legal action against CPC, Aerojet, Cordova/California, Cordova/Michigan, and Arnold Ott himself.
The basis for the legal action was a provision in CERCLA for a "Hazardous Substance Superfund," which would pay for environmental cleanups. Money for thisSuperfund would come in part from lawsuits against those responsible for thehazardous substances in the first place, including "any person who at the time of disposal of any hazardous substance owned or operated any facility." The act defined "person" as a corporate entity, and similarly delineated the terms of "facility" in a common-sense fashion. With regard to "owner or operator," however, it was more vague, defining these as "any person owning or operating" a facility. This, the Court noted, was a tautology, or a redundant, information-free statement. As it pointed out in Exxon, CERCLA "unfortunately, is not a model of legislative draftsmanship." It was a fact that wouldbe highlighted by the legal actions surrounding the cleanup.
Ott I and Ott II, both defunct by the time of the 1989 suit, were not included among the named defendants in the EPA case, and Arnold Ott himself would end up settling out of court just before the case actually came to trial. As for CPC, Aerojet, and the latter's two Cordova subsidiaries, in the Court's words these entities, along with MDNR, "launched a flurry of contribution claims, counterclaims, and cross-claims." The district court therefore opted to consolidate all the cases into liability, remedy, and insurance coverage phases.As of 1991, the case had not gone beyond the first of the three phases, liability.
A Question of Parenthood
In 1991, a fifteen-day bench trial on the question of liability focused on issues of corporate parenthood. Specifically, the district court sought to determine whether CPC, as the parent company of Ott II, and Aerojet, parent to the Cordova companies, had "owned or operated" the Muskegon facility within thedefinition established under Section 107(a)(2) of CERCLA. In so doing, the court noted that a corporate parent may be liable either directly, inasmuch asit operates a facility, or indirectly, when "the corporate veil can be pierced under state law." Thus, if either CPC or Aerojet could be found to have operated the facility by "exert[ing] power or influence over its subsidiary byactively participating in and exercising control over the subsidiary's business during a period of disposal of hazardous waste," liability could be established. Whereas "mere oversight" does not make a corporate parent an "operator"--and thus liable--actual participation in operations does. In evaluating CPC's liability, the district court noted that the parent had selected the board of directors for Ott II, and had installed CPC officials in the subsidiary's executive ranks. Particularly telling, in the district court's view, was the fact that one G. R. D. Williams, a CPC employee, "played a significant rolein shaping Ott II's environmental compliance policy." CPC was consequently held liable, as was Aerojet, which the court found subject both to direct andderivative liability due to the fact that it "totally dominated Cordova/Michigan, creating a complete identity of interests between the parent and its wholly owned subsidiary"--a situation that, under Michigan law, justified piercing the corporate veil.
The case next came before the Court of Appeals for the Sixth Circuit, which in a divided decision reversed in part. That court ended up vacating its decision, granting a hearing en banc (that is, with full judicial authority) to a thirteen-judge Court of Appeals panel. By a 7-6 decision, this court reversed the district court, noting that a parent corporation might conceivably supplant the functions of its subsidiary entirely, but otherwise rejectingthe lower court's analysis. "[W]hether the parent will be liable as an operator," the Sixth Circuit court observed, "depends upon whether the degree to which it controls its subsidiary and the extent and manner of its involvement with the facility, amount to the abuse of the corporate form that will warrantpiercing the corporate veil and disregarding the separate corporate entitiesof the parent and subsidiary." According to this analysis, neither CPC nor Aerojet had directly operated the Muskegon facility, because both had "maintained separate personalities, and the parents did not utilize the subsidiary corporate form to perpetrate fraud or subvert justice."
"A Relaxed, CERCLA-Specific Rule of Derivative Liability"
The subsequent Supreme Court case involved only CPC/Bestfoods, as the Aerojetaction touched on questions unrelated to the issue of corporate veil-piercing. The Court, which reviewed the case in June of 1998--some forty years afterOtt I first began operating at, and presumably polluting, the Muskegon site--handed down a unanimous ruling that upheld the Sixth Circuit's decision. Nonetheless, the Court's opinion, delivered by Justice Souter, noted aspects ofthe appeals court's reasoning which it deemed faulty.
In the first part of its ruling, the Court observed that it is an accepted principle of corporate law--one which CERCLA did not purport to invalidate--that corporate parents are not automatically liable for the actions of their subsidiaries. An exception to this principle, of course, would occur when (and only when) the corporate veil could be pierced. One example of an instance inwhich veil-piercing would be justified is when "the corporate form would otherwise be misused to accomplish certain wrongful purposes, most notably fraud,on the shareholders' [i.e., parent's] behalf." In the absence of clearly defined stipulations in CERCLA regarding the definition of corporate parenthood,the Court found, the wisest course would be to refer to common law, or in this case to the "general principle of corporate law that a parent corporation(so-called because of control through ownership of another corporation's stock) is not liable for the acts of its subsidiaries."
The Court held that only "a corporate parent that actively participated in, and exercised control over, the operations of its subsidiary's facility may beheld directly liable [as an operator] in its own right" under Section 107 ofCERCLA. Addressing questions of direct, rather than derivative, liability, the Court sought to clarify CERCLA's definition of "operator," and found thatin the present context of an environmental cleanup, "an operator must manage,direct, or conduct operations specifically related to the leakage or disposal of hazardous waste, or decisions about compliance with environmental regulations." The Sixth Circuit had been correct to reject the district court's analysis of direct liability, which had rested merely on the fact of CPC's ownership of the subsidiary. Instead of this parent-subsidiary focus, the Court found, the district court should have based its analysis on the question of whether CPC actually "operated"--i.e., directly participated in the operations of--the facility. Inasmuch as an officer or director of Ott II had a role in CPC as well, in accordance with common-law principles, their actions should beattributed to Ott II rather than to the parent. By failing to focus on the more significant parent-facility relationship, and by mistakenly attributing the actions of Ott II officers to CPC, the district court had overstepped commonly accepted standards of limited liability. Hence it would have created "what is in essence a relaxed, CERCLA-specific rule of derivative liability" that neither justified in the common law nor in CERCLA's (and Congress's) silence on the subject.
But the Court also faulted aspects of the Sixth Circuit's ruling, inasmuch asit "limit[ed] direct liability under CERCLA to a parent's sole or joint venture operation, so as to eliminate any possible finding that CPC is liable asan operator on the facts of the case." Thus it had ignored the possibility ofa joint officer or director who claims to operate on behalf of the subsidiary, or both the subsidiary and the parent, but in fact operates solely on behalf of the parent. To make this determination, the appeals court needed only to observe "norms of corporate behavior (undisturbed by any CERCLA provision)." Such a route offered promise, the Court noted, due to "evidence that an agent of CPC alone [G. R. D. Williams] engaged in activities at Ott II's plant that were eccentric under accepted norms of parental oversight at a subsidiary's facility." The fact that Williams had been instrumental in shaping the environmental compliance policy of the subsidiary, in the Court's view, suggested a possibility not so much that CPC fully controlled Ott II (as the districtcourt had held), but that it actually was operating the Muskegon plant directly. Had this been shown, the results of United States v. Bestfoods might have been quite different. But this was beyond the Court's directive in the present case, as Justice Souter noted: "The findings [with regard to Williams's role] are enough to raise an issue of CPC's operation of the facility,though this Court draws no ultimate conclusion, leaving the issue for the lower courts to reevaluate and resolve in the first instance."
Impact
Stephen L. Kass and Jean M. McCarroll, who published several pieces in the New York Law Journal regarding the liability of corporate parents underCERCLA, wrote that the Court's decision in Bestfoods had "brought someprecision and balance to the task of determining under what circumstances acorporate parent may be charged with liability as an operator of its subsidiary's polluting facility." But to Peter M. Gillon, who presented a critique ofthe case in Toxics Law Reporter, the ruling "represents a valiant, although not altogether successful, attempt to provide . . . clarity" regardingquestions of liability. In Gillon's view, the Court's inability to draw bright lines regarding corporate liability leaves corporations in a position of unnecessary uncertainty. Even Kass and McCarroll, while taking a more positiveview of the ruling in terms of the direction it provides for future decisions, concluded that "some murky areas remain." Nonetheless, they hailed the Bestfoods decision for offering a distinction between the tests of directand derivative liability, and for "its sensible and proper deference to thefact-finding role of the trial court." Kass and McCarroll on the one hand, and Gillon on the other, do seem to agree on one general principle: that the Bestfoods decision can be best understood as an attempt to define, rather than to conclude, questions regarding the corporate parent's liability in hazardous waste cleanups or other situations.
Related Cases
- Chicago, M. & St. P. R. Co. v. Minneapolis Civic and Commerce Assn., 247 U.S. 490 (1918).
- Edmonds v. Compagnie Generale Transatlantique, 443 U.S. 256 (1979).
- Exxon Corp. v. Hunt, 475 U.S. 355 (1986).
- Pennsylvania v. Union Gas Co., 491 U.S. 1 (1989).
- United States v. Texas, 507 U.S. 529 (1993).
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