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United States v. Bestfoods

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 the definition established under Section 107(a)(2) of CERCLA. In so doing, the court noted that a corporate parent may be liable either directly, inasmuch as it 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 by actively 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 role in shaping Ott II's environmental compliance policy." CPC was consequently held liable, as was Aerojet, which the court found subject both to direct and derivative 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 rejecting the 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 warrant piercing the corporate veil and disregarding the separate corporate entities of 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."

Additional topics

Law Library - American Law and Legal InformationNotable Trials and Court Cases - 1995 to PresentUnited States v. Bestfoods - Significance, Don't Drink The Water, Shifting The Burden To The Responsible Parties, A Question Of Parenthood