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United States v. Bestfoods

"a Relaxed, Cercla-specific Rule Of Derivative Liability"

The subsequent Supreme Court case involved only CPC/Bestfoods, as the Aerojet action touched on questions unrelated to the issue of corporate veil-piercing. The Court, which reviewed the case in June of 1998--some forty years after Ott 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 of the 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 in which 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 be held directly liable [as an operator] in its own right" under Section 107 of CERCLA. Addressing questions of direct, rather than derivative, liability, the Court sought to clarify CERCLA's definition of "operator," and found that in 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 be attributed 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 as it "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 as an operator on the facts of the case." Thus it had ignored the possibility of a 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 district court 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."

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