PARENT CORPORATION LIABILITY UNDER CERCLA: AN ANALYSIS OF THE SUPREME COURT'S FAILURES AND FORTUNES IN ITS DECISION IN UNITED STATES V. BESTFOODS

JOHN W. CHAPMAN[*]

Copyright © 1999 Journal of Land Use & Environmental Law

I. INTRODUCTION

The Industrial Revolution of the 1900's brought great wealth to the United States. However, this great wealth has come largely at the expense of harm to our environment. The dumping of hazardous substances and the creation of waste sites has damaged our environment immensely. In an effort to prevent the creation of hazardous waste sites and to clean up existing hazardous waste sites, the United States has enacted two major statutes. The principal statutory authorities enacted to regulate waste management and prevent the formation of hazardous waste sites are the Resource Conservation and Recovery Act (RCRA)[1] and the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA).[2]

Promulgated in 1976, RCRA is responsible for regulating waste management. CERCLA, on the other hand, provides a liability scheme that is designed to prevent the disposal of hazardous substances and provide funding for cleaning up hazardous waste sites. Congress promulgated CERCLA because it believed that RCRA was insufficient to control pollution. Congress determined that a liability scheme designed to hold parties responsible for violations against the environment would aid RCRA in controlling pollution.

Under CERCLA's liability scheme it is very important that the plaintiff file suit against potentially responsible parties with the financial capabilities to satisfy a judgment. Otherwise, a plaintiff may get stuck with an unsatisfied judgment. In an effort to hide from liability, many corporations set up subsidiary corporations to own the facilities that present a risk of releasing hazardous substances. Consequently, to reach the assets of the parent corporation the plaintiff must pierce the corporate veil or use some alternative theory of liability to reach the assets of the parent corporation.

The issue of parent corporations' liability for the environmental violations of their subsidiary corporations has intensified lately.[3] The intensification of the issue occurred largely as a result of the United States Court of Appeals for Sixth Circuit's opinion in United States v. Cordova Chemical Co. of Michigan.[4] In an en banc decision the Sixth Circuit held that a parent corporation may only be held liable for contamination caused by a subsidiary if the plaintiff can pierce the corporate veil.[5]

The Sixth Circuit's decision was celebrated by shareholders and parent corporations that were relying on the traditional limited liability protection of the corporate form.[6] However, a majority of the circuits that have considered this issue have concluded that the parent corporation can be found directly liable without piercing the corporate veil.[7] Thus, the Sixth Circuit placed itself in the clear minority view with its decision in Cordova.

Recently, in United States v. Bestfoods,[8] the United States Supreme Court reviewed the Sixth Circuit's opinion in Cordova, directly addressing the issue of parent corporation liability under section 107(a)(2) of CERCLA. This Note analyzes the Supreme Court's decision and discusses whether it provides a meaningful and uniform standard for determining parent corporation liability under CERCLA. Part II of this Note provides a brief explanation of CERCLA and its key provisions. Part III of this Note discusses some of the primary theories used by courts to determine parent corporation liability under CERCLA. Included within Part III is a summary of the Sixth Circuit's opinion in Cordova. Part IV provides a detailed explanation of the facts of Bestfoods along with a summary of the critical parts of the opinions of the district court and the Supreme Court. Part V provides a critical analysis of the Supreme Court's opinion in Bestfoods. In Part V, this Note suggests that the Supreme Court faltered by not addressing the issue of derivative liability under CERCLA, and as a result courts will continue to be inconsistent in determining derivative liability under CERCLA. This Note also advocates adopting a federal common law veil-piercing rule for finding a parent corporation indirectly liable under CERCLA. Finally, Part VI concludes that the Supreme Court properly ruled that a direct liability standard for finding a parent corporation liable exists under CERCLA.

II. COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION AND LIABILITY ACT

In order to gain a full understanding of the ramifications of the Bestfoods decision, a discussion of CERCLA's primary goals and its liability provisions is necessary.

A. CERCLA's Primary Goals

CERCLA is a comprehensive statute that grants the President of the United States broad power to command government agencies and private parties to clean up hazardous waste sites.[9] CERCLA's two fundamental goals are: (1) to deter the release of hazardous substances into the environment through a liability scheme; and (2) to provide for cleanup if a hazardous substance is released or threatened to be released into the environment.[10] The statute achieves these two goals through two main provisions. First, the statute provides for a federal fund that allows the government to finance the cleanup of a waste site.[11] Second, the statute provides a means for the government or any other party funding a cleanup to recoup cleanup costs from all potentially responsible parties.[12]

B. CERCLA's Liability Provisions

CERCLA's liability provisions are in section 107 of the statute.[13] Proving liability under CERCLA requires a party to first prove that the defendant is a potentially responsible party (PRP) as defined by the statute.[14] PRPs include: (1) current owners and operators of facilities where hazardous substances are released or threatened to be released; (2) owners or operators of facilities at the time hazardous substances are disposed; (3) persons who arranged for transportation or disposal or treatment of such substances; and (4) persons who accepted such substances for transport to disposal or treatment.[15] Notably, a PRP does not have to cause the environmental harm, nor does the plaintiff have to prove causation. The debate over parent corporation liability under CERCLA stems from the "owners or operators" language in section 107.

Second, the plaintiff must prove that a release or threatened release of a "hazardous substance" from a facility has occurred.[16] Third, the plaintiff must prove that the "release" or "threatened release" of a "hazardous substance" caused the plaintiff to incur response costs.[17] Fourth, if the plaintiff is a private party then the plaintiff must show that its response costs are necessary and consistent with the national contingency plan (NCP).[18] If the plaintiff is the federal or state government, then it must show that it incurred response costs that are not inconsistent with the NCP.[19] Thus, CERCLA allows the government to recoup expenses that are not response costs under the national contingency plan. Finally, if the defendant PRP lacks a defense under CERCLA's provisions, then the plaintiff's CERCLA lawsuit should be successful.[20]

III. PARENT CORPORATIONS' USE OF THE CORPORATE SHIELD TO ESCAPE CERCLA LIABILITY

Because CERCLA does not require the plaintiff to prove causation,[21] the issue of who may be a potentially responsible party becomes very important. In the context of corporations, whether corporations may hide behind the principle of limited liability has become a key issue.

Limited liability is a basic principle in the law of corporations. Essentially, the principle holds that shareholders of a corporation may only be liable to the extent of their investment in the corpora tion.[22] For parent corporations that are the sole shareholders of their subsidiary this means that only the subsidiary's assets may be reached. Thus, the parent's other assets are safeguarded from potential loss.

However, this principle of corporate law may succumb to the corporate veil-piercing principle that allows a court to find a parent corporation liable for the acts of its subsidiary.[23] Veil-piercing requirements differ amongst the states. Generally, veil-piercing occurs only if the corporate form was misused to commit fraud or some other illegal act.[24]

As stated previously, traditionally parent corporations are only held liable if the plaintiff can pierce the parent's corporate veil, essentially holding the parent derivatively liable for the costs of its subsidiary. There is, however, another rationale for finding a parent corporation liable, which is direct liability.[25] Direct liability applies if the parent corporation is deemed an "operator" of the facility.[26]

A. Direct Liability

The direct liability theory departs from the traditional limited liability principle and allows a court to find a parent liable without piercing the corporate veil. At least two tests have been applied under the direct liability rationale. Some courts apply the actual control test, which extends liability to the parent if the parent exercised actual control over the its subsidiary's activities.[27] Another variation of this test examines whether the parent exercised actual control over the facility in violation of CERCLA. Some courts apply the authority-to-control test, which extends liability to the parent for merely having the authority to control its subsidiary's activities.[28]

1. Examination of Circuit Court Decisions Applying the Actual Control Test

At least three federal circuit courts have applied the actual control test when analyzing direct liability under CERCLA.

a. First Circuit's Application of the Actual Control Test

The United States Court of Appeals for the First Circuit adopted the actual control test in United States v. Kayser-Roth Corp.[29] In Kayser-Roth, the Environmental Protection Agency (EPA) sued the parent corporation of a dissolved subsidiary to recover the cleanup costs incurred in response to a release of trichloroethylene (TCE). The EPA alleged that the parent was both an "owner" and an "operator" of the site.[30] The court's analysis began by acknowledging that CERCLA created two categories of potentially liable parties, "owners" and "operators."[31] The court determined that Congress did not intend to exclude parent corporations from falling under the definition of "operators."[32] Accordingly, the Kayser-Roth court held that CERCLA, along with its legislative history and purpose, provides no justification for not finding a parent corporation directly liable as an "operator" under CERCLA.[33]

The First Circuit's test focuses on the parent's actual control over the subsidiary, rather than the parent's ability to control the subsidiary. The First Circuit explained that the district court properly found that the parent exerted practical total influence and control over the subsidiary's operations.[34] The court stated that the parent's control included environmental matters such as the approval of the installation of the cleaning system that used the TCE.[35] The parent had the power to control the release or threat of release of TCE, the power to direct the machinery causing the release, and the ability to limit the damage.[36] Moreover, the parent approved the installation of a scouring system that used TCE and was able to direct the subsidiary on how to handle the TCE.[37] The court held that such control was more than sufficient to meet the actual control test.[38]

b. Third Circuit's Application of the Actual Control Test

In Lansford-Coaldale Joint Water Authority v. Tonolli Corp.,[39] the Third Circuit specifically rejected the authority-to-control test, stating that the authority-to-control test "sweeps too broadly."[40] However, the court acknowledged that traditional rules of limited liability for corporations do not apply under CERCLA.[41] Consequently, the court adopted the actual control test, reasoning that the actual control test balances the benefits of limited liability with CERCLA's remedial purposes.[42]

The court adopted the First Circuit's test as explained in Kayser-Roth, and as explained by the Western District Court of Michigan in CPC International, Inc. v. Aerojet-General Corp.[43] The court explained that being an "operator" under CERCLA requires more than mere ownership.[44] Being an "operator" requires "active involvement in the activities of the subsidiary."[45] "'[M]ere oversight' of the subsidiary or sister corporation's business in a 'manner appropriate and consistent with the investment relationship' does not ordinarily result in operator liability, a corporation's 'actual participation and control' over the other corporation's decision-making does."[46]

The court explained that determining whether the parent exercised sufficient control is a fact-intensive inquiry.[47] The inquiry involves considering the totality of the circumstances, while focusing on the parent's involvement in the subsidiary's day-to-day operations and policy-making decisions.[48] The court explained that since the test is concerned with control rather than ownership, a corpora tion can be held liable as the "operator" of its sister corporation.[49]

In United States v. USX Corp.,[50] the Third Circuit followed its ruling in Lansford-Coaldale. The court stated that it recognized that "owner" and "operator" liability were separate and distinct con cepts.[51] Accordingly, the court ruled that traditional corporate veil-piercing principles applied to cases where a plaintiff asserts that a parent is liable as an "owner."[52] However, where a plaintiff asserts that a parent corporation is liable as an "operator" then veil-piercing is not required.[53]

c. Eleventh Circuit's Application of the Actual Control Test

In Jacksonville Electric Authority v. Bernuth Corp.,[54] the Eleventh Circuit followed the Kayser-Roth court's ruling that merely owning stock of a corporation that disposes of hazardous waste is insufficient to find the shareholder liable as an "operator" of the corporation's facility.[55] The court reasoned that being an operator of a corporation's facility requires more than complete ownership and the ability to control the facility that comes with complete ownership.[56] The court ruled that to be directly liable as an "operator" the parent must actually supervise the activities of the facility.[57] Notably, the Eleventh Circuit focused on the parent corporation's supervision over the facility rather than the subsidiary corporation.[58]

The Eleventh Circuit stated that most courts that have been concerned with the meaning of "operator liability" have held shareholders responsible when the shareholder (1) "actually participated in the operations of the facility . . . [o]r in the activities which resulted in disposal" or (2) "actually exercised control over, or was otherwise intimately involved in the operations of, the corporation immediately responsible for the operation of the facility."[59]

The Eleventh Circuit agreed with the reasoning of these cases.[60] The Eleventh Circuit did not find any evidence in Bernuth that demonstrated that the parent was actively involved in the facility's occupational business affairs, or that the parent itself actually partici pated in the contamination.[61] Thus, the court affirmed the district court's judgment that the parent corporation was not liable.[62]

d. Criticisms of the Actual Control Test

At least one commentator has criticized the actual control test because it allows some entities that are related to the hazardous releases to escape liability.[63] Thus, this commentator complains that the standard is contrary to CERCLA's goal of broadly placing liability on those responsible for the substance's release.[64] The idea behind the goal is that CERCLA should place more cost on the entity so that the entity is encouraged to take more precautionary measures. Commentators argue that the actual control approach does not adequately address issues of fairness along with public health and safety.[65] One commentator notes, for example, that the test fails to consider the benefits the parent corporation receives from the illegal acts of its subsidiary.[66] This same commentator argues that if a parent benefits from its subsidiary's prohibited activity, then it ought to help cover clean-up costs in the interest of public health and safety.[67] The same commentator also disagrees with the actual control test because it allows a parent that has been involved in the subsidiary's activities to escape liability if it has not been in actual control of the activities that led to the pollution.[68]

2. Examination of Circuit Court Decisions Applying the Authority-to-Control Test

As explained previously, under the authority-to-control test a parent corporation may be held liable for the acts of its subsidiary merely for having the authority to control the activities of its subsidiary.[69] The Fourth Circuit has adopted this approach.[70] The Ninth Circuit has indicated in dicta that it favors this approach.[71]

a. Fourth Circuit's Application of the Authority-to-Control Test.

In Nurad, Inc. v. William E. Hooper & Sons Co.,[72] the Fourth Circuit ruled that authority to control the facility, not actual control, is the standard for liability under CERCLA.[73] The court stated that the authority-to-control standard is proper because it holds a party liable if that party has the authority to undertake efforts to abate damage, but the party fails to exercise that authority.[74]

The Nurad court erroneously stated that most of the courts applied the authority-to-control standard to the term "operator."[75] For support, the Nurad court inadequately cited two district court opinions.[76]The Nurad court then stated that under the authority-to-control standard, a court is entitled to consider a defendant's actual conduct as evidence of the authority to control.[77]

b. Criticisms of the Authority-to-Control Test

Commentators criticize this approach for being too broad.[78] One commentator argues that a literal application of the standard would make liability inescapable for a parent corporation in every case where the parent's subsidiary is accused of a CERCLA violation.[79] Most courts have refused to apply the standard because it essentially obliterates the well-established principle that limits shareholder liability to the shareholder's investment.[80] These courts reason that if the parent or a main shareholder exercises normal activity regarding its subsidiary, then the parent should not be held liable.[81]

3. Second Circuit's Adoption of a Direct Liability Standard

In Schiavone v. Pearce,[82] the Second Circuit attempted to draw a definite distinction between direct liability and derivative liability under CERCLA. The Second Circuit attempted to reconcile direct liability and derivative liability based on veil-piercing through an examination of CERCLA's goals and its unique statutory scheme.[83]

First, the court noted that CERCLA was designed to be remedial; thus it deserved a liberal interpretation.[84] Applying a liberal interpretation to CERCLA, the court concluded that imposing operator liability directly on parent corporations whose own acts violate CERCLA is consistent with the purpose of CERCLA.[85] The court then cited cases where courts held parent corporations independently liable, as operators, for the activities of their subsidiaries.[86] The court stated that the courts reasoned that finding operator liability in such cases was consistent with CERCLA's expansive goals despite the inconsistency with the traditional rules of corporate liability.[87] The court also cited cases where a subsidiary and its parent were respectively found independently liable as "owner" and "operator" for environmental harms caused by the same activities.[88] Again, the court stated that CERCLA's goals were to provide a liability scheme that departs from traditional corporate law limited liability principles.[89]

Despite the Second Circuit's references to CERCLA's goals as justification for finding a parent corporation directly liable, the Second Circuit stated that the most compelling argument for imposing direct liability on a parent corporation stems from the language of the statute.[90] The court highlighted Congress' use of "owner" and "operator" in section 107(a)(2) as denoting two different liability concepts.[91] The court proceeded to explain that the distinction between "owner" and "operator" has particular relevance in the context of parent and subsidiary corporations.[92] The court cited the Third Circuit, which explained:

Under CERCLA, a corporation may be held liable as an owner for the actions of its subsidiary corporation in situations in which it is determined that piercing the corporate veil is warranted . . . . Operator liability, in contrast, is generally reserved for those situations in which a parent or sister corporation is deemed, due to the specifics of its relationship with its affiliated corporation, to have had substantial control over the facility in question.[93]

Significantly, in a critical footnote the Schiavone court refused to rule on what degree of control was necessary to find the parent directly liable as an operator.[94] The court noted that the circuits were split on whether to apply the actual control standard or the authority-to-control standard.[95]

B. Derivative Liability

A minority of courts strictly abides by the traditional notion of finding a parent corporation liable only if veil-piercing is warranted. These courts refuse to adopt a direct liability standard under CERCLA, because they refuse to part from traditional corporate liability principles. Two options exist under the derivative liability rationale.[96] Some courts hold that state corporate veil-piercing laws should be applied to actions under CERCLA.[97] Other courts hold that a federal common law rule of veil-piercing should be applied under CERCLA in order to produce a uniform system of derivative liability under the federal statute.[98]

The conflict of whether to apply state veil-piercing law or to adopt a federal standard for veil-piercing under CERCLA has created a lack of uniformity in CERCLA's application. Adding to the confusion, the courts applying a federal common law rule of veil-piercing have not settled on one standard federal common law rule.[99] Consequently, this creates forum-shopping opportunities and prevents a consistent liability scheme from emerging under CERCLA.[100]

1. Fifth Circuit

In Joslyn Manufacturing Co. v. T.L. James & Co.,[101] the Fifth Circuit specifically refused to extend liability under CERCLA beyond the traditional concepts of corporate law.[102]The Joslyn court reasoned that CERCLA failed to define "owners" or "operators" as including the parent company of offending wholly owned subsidiaries.[103] Also, the Joslyn court reasoned that the legislative history of CERCLA failed to indicate that Congress intended to alter a basic tenet of corporate law by allowing for direct liability.[104]

In Riverside Market Development Corp. v. International Building Products, Inc.,[105] the Fifth Circuit held that a majority shareholder of a corporation that owns an asbestos manufacturing plant is not an "owner" under CERCLA's liability provisions.[106] The court stated that the property of the corporation belongs to the corporation not the shareholders.[107]

The Fifth Circuit then turned to the question of whether a majority shareholder can be considered an "operator" under CERCLA. The court first explained that it was not surprised that CERCLA failed to define "operator," because CERCLA was drafted hastily, "and passed through a lame-duck Congressional session . . . ."[108] The court then stated that it could conceive of situations where an "individual director, officer or employee of a corporation may be considered an 'operator' of a manufacturing facility as defined by CERCLA . . . ."[109]

The court explained that under traditional notions of corporate limited liability shareholders, officers, and employees would not be held responsible for acts of a valid corporation.[110] However, the court stated in dicta that CERCLA prevented individuals from hiding behind the corporate shield when they act as "operators" by actually participating in the conduct prohibited by the Act.[111] This statement is contrary to the Fifth Circuit's ruling in Joslyn, which occurred nearly one and a half years earlier. Thus, this indicates a change in the Fifth Circuit's view that corporate liability under CERCLA should strictly follow traditional notions of corporate liability.

IV. UNITED STATES V. BESTFOODS

In United States v. Bestfoods[112] the Supreme Court reviewed the Sixth Circuit's opinion in United States v. Cordova Chemical Co. of Michigan,[113] dealing directly with the issue of what determines parent corporation liability under CERCLA.

A. Facts of Bestfoods

In 1957, Ott Chemical Co. (Ott I) began manufacturing chemicals at a plant in Michigan.[114] Its unintentional and intentional dumping of hazardous substances caused significant pollution to the soil and ground water at the site.[115]

In 1965, CPC International (CPC)[116] incorporated a subsidiary to buy Ott I's assets in exchange for CPC stock.[117] CPC was the sole owner of the newly formed subsidiary.[118] CPC kept the name Ott Chemical Co. (Ott II) for the subsidiary, and continued manufacturing chemicals at the site and polluting the site and its surround ings.[119] CPC also kept the managers of Ott I and made them officers of Ott II.[120] Significantly, CPC kept the founder, president, and principal shareholder of Ott I, Arnold Ott, on board as an officer of Ott II.[121] Arnold Ott and several other officers of Ott II were also given positions at CPC.[122] Thus, these people performed duties for both CPC and Ott II.

In 1972, CPC sold Ott II to Story Chemical Company (Story).[123] Story operated the Ott II plant until it entered bankruptcy in 1977.[124] Soon after Story's bankruptcy, the Michigan Department of Natural Resources (MDNR) inspected the Ott II plant site for environmental damage.[125] MDNR found that the land was littered with thousands of leaking and exploding drums of waste.[126] MDNR also found that the soil and water was saturated with noxious chemicals.[127]

Soon after discovering the waste, MDNR began looking for a buyer for the property that would be willing to invest in the property's cleanup.[128] MDNR found Aerojet-General Corporation and arranged for the property's transfer from Story's bankruptcy trustee.[129] Rather than acquire the property in its own name, Aerojet created a wholly owned California subsidiary, Cordova Chemical Company (Cordova/California) to purchase the property.[130] Cordova/California then created a wholly owned Michigan subsidiary, Cordova Chemical Company of Michigan (Cordova/Michigan) to run the facility.[131] Cordova/Michigan manufactured chemicals at the former Ott II site until 1986.[132]

In 1981, the EPA decided to oversee the site's cleanup.[133] The cleanup plan estimated expenses far into the tens of millions of dollars.[134] To recover some of the money spent on the cleanup the United States filed suit against CPC, Aerojet, Cordova/California, Cordova/Michigan, and Arnold Ott.[135] The suit was filed under section 107(a)(2) of CERCLA, which authorizes suits against, among others, "any person who at the time of disposal of any hazardous substance owned or operated any facility."[136]

The district court separated the trial into three phases: (1) liability; (2) remedy; and (3) insurance coverage.[137] As of the date of the Supreme Court's opinion, only the liability phase had been completed.[138] The parties stipulated that the plant was a facility within the meaning of section 101(9), that hazardous substances were released at the facility, and that the United States incurred response costs to clean up the site that were reimbursable under CERCLA.[139] Thus, the trial centered on the issue of whether CPC, as the parent corporation of Ott II, and Aerojet, as the parent corporation of the Cordova companies, had "owned or operated" Ott II's plant within the meaning of section 107(a)(2).[140]

B. The District Court's Opinion

The district court ruled that liability of the parent corporation might exist in two ways.[141] First, the parent corporation may be directly liable under the "operator" language of CERCLA's section 107(a)(2).[142] The court reasoned that under this language CERCLA liability could attach to a parent corporation that acts in a manner that constitutes operation of a facility despite never owning the site. The court stated that Congress's addition of "operated . . . unmistakably expanded the reach of CERCLA beyond the limited realm of those who have 'owned' sites."[143] Second, the parent corporation may be held liable through common law veil-piercing, "which may arise in any liability case involving a corporate defendant."[144] Thus, the district court's opinion was consistent with the opinions of the majority of the circuits, which expanded corporate liability under CERCLA beyond traditional notions of corporate liability.

The district court reasoned, in its ruling on direct liability, that CERCLA's "owned or operated" language created a "new, middle ground" for corporate liability that "accommodates the general principle of limited liability and the broader principle of liability attaching for operative activity."[145] Accordingly, the court ruled that direct liability of a parent corporation is not found merely because a parent had involvement with its subsidiary through their investment relationship. Rather, the court ruled that the parent must actually "operate" the business of its subsidiary.[146]

The court applied the direct liability criteria to CPC and Aerojet and held both liable.[147] In regards to CPC, the court explained that CPC selected Ott II's board of directors and filled its executive offices with CPC's officials.[148] Further, another CPC official played a key role in developing Ott II's environmental compliance policy.[149]

The court did not reach the issue of determining whether the parents' actions were sufficient to pierce the corporate veil, because liability was already found under the direct liability approach.[150] However, the court stated that it would apply state veil-piercing laws if it were necessary.[151]

C. The Sixth Circuit's Opinion

The Sixth Circuit provided a majority opinion as well as a concurring opinion by Judge Merritt which provides a more in-depth analysis.

1. Majority Opinion

In United States v. Cordova Chemical Co. of Michigan[152] the Sixth Circuit Court of Appeal recognized that a parent corporation may be held directly liable under section 107(a)(2) if it actually operates its subsidiary's facility, or if the parent acts as a joint venturer with the subsidiary.[153] However, the Sixth Circuit refused to extend direct liability to the parent's actions concerning its subsidiary.[154] The Sixth Circuit explained that parent corporation liability for operating a facility that is held out to be operated by its subsidiary depends on two factors.[155] First, parent corporation liability depends upon the degree to which the parent controls the subsidiary.[156] Second, parent corporation liability depends upon the degree and form of its involvement with the facility.[157] These two factors must rise to a level that warrants piercing the corporate veil and disregarding the two separate corporate entities.[158] The Sixth Circuit's view was that traditional notions of corporate law must be strictly followed even when finding a parent corporation directly liable. Hence, the Sixth Circuit considered direct and derivative liability as a single inquiry.

The Sixth Circuit held that determining whether piercing the veil was warranted required application of Michigan law.[159] Applying Michigan veil-piercing law, the Sixth Circuit concluded that the parent corporations were not liable for controlling their subsidiaries' actions, because the parents and their subsidiaries maintained separate personalities and the parents never used their subsidiaries' corporate form to commit fraud or subvert justice.[160]

2. Judge Merritt's Opinion

Judge Merritt concurred with the portion of the district court's opinion that held CPC International directly liable as an "operator."[161] However, Judge Merritt disagreed with the majority's application of Michigan veil-piercing law.[162] Judge Merritt opined that federal common law should govern whether the parents should be held liable as current "owners."[163]

Judge Merritt was the only judge in the en banc hearing to address the choice of law issue. However, other judges have attempted to demonstrate why federal rules should be used for veil-piercing over state rules.[164]

Judge Merritt stated that the law is well-established that federal law governs actions arising under nationwide federal programs.[165] Judge Merritt explained that in United States v. Kimbell Foods, Inc.,[166] the Supreme Court enumerated factors that a court must consider in deciding whether to apply state law or federal common law to federal programs. The Kimbell Foods Court explained that federal programs that "by their nature" need to be uniform in application throughout the nation necessitate formulation of controlling federal rules.[167] However, if little need exists for uniform application of the law nationwide, then state law may be used as the federal rule of decision.[168] Along with uniformity, courts must also consider whether applying state law would frustrate specific objectives of the federal program.[169] Also, courts must consider whether application of a uniform federal rule would disrupt commercial relationships founded on state law.[170]

Applying the Kimbell Foods test, Judge Merritt determined that all three of the Kimbell Foods factors supported using a uniform federal rule for veil-piercing under CERCLA.

In attempting to eliminate the dangers of hazardous wastes, CERCLA presents a national solution to a nationwide problem. One can hardly imagine a federal program more demanding of national uniformity than environmental protection. Congress did not intend that the ability of the executive to fund the clean up of hazardous waste sites should depend on the attitudes of the several states toward parent-subsidiary liability in general, or CERCLA in particular. The need for a uniform federal rule is especially great for questions of piercing the corporate veil, since liability under the statute must not depend on the particular state in which a defendant happens to reside.[171]

Judge Merritt argued that allowing state law to control in this area would allow corporations to evade CERCLA by incorporating their subsidiaries in states with tougher veil-piercing re quirements.[172] In addition, Judge Merritt argued that states do not have as strong an interest in regulating shareholder liability to outside parties as they do in regulating the internal affairs of a corporation.[173]

Although few of the circuit courts have considered the choice of law issue,[174] Judge Merritt argues that the weight of federal precedent supports a federal common law standard for piercing the corporate veil.[175]

Judge Merritt then continued his opinion by advocating a federal standard for veil-piercing under CERCLA.[176] He states that two elements are generally regarded as essential to piercing the corporate veil: "First, the dominant corporation must have controlled the subservient corporation, and second, the dominant corporation must have proximately caused [the] plaintiff harm through misuse of this control."[177]

Judge Merritt acknowledged that some cases require an element of fraud for piercing the corporate veil.[178] However, Judge Merritt determined that fraud should not be required in cases under CERCLA.[179] He explained that the public policy considerations underlying CERCLA provide a sufficient equitable basis for piercing the corporate veil whether or not fraud is shown.[180]

Judge Merritt also dismissed the proximate cause element, because Congress provided statutory liability criteria for CERCLA.[181] Thus, if a CERCLA defendant is determined to be a potentially responsible party under section 107, then no finding of proximate cause is required.

Judge Merritt then explained that the federal common law test for piercing the corporate veil under CERCLA should be whether the parent corporation "controls or at the relevant time controlled the management and operations of the subsidiary."[182] Federal courts applying the above standard have utilized either a twelve-factor test[183] or a seven-factor test.[184] Judge Merritt explained that these tests overlap, and neither lists all the factors that should be considered.[185] Rather than advocate either of these two tests, Judge Merritt advocated a test that looks at the totality of the circumstances to determine whether the parent controls or controlled the management and operations of the subsidiary.[186] If the trier of fact determines that the parent controlled the management and operations of its subsidiary, then the veil would be pierced and the parent would be found liable.

D. The Supreme Court's Opinion

The Supreme Court granted certiorari to resolve a conflict among the circuits over the extent to which parent corporations may be held liable under CERCLA for environmental violations concerning their subsidiaries.[187] The Supreme Court split its opinion into a section addressing derivative liability and a section addressing direct liability.

1. Supreme Court's Opinion on Derivative Liability Under CERCLA

Justice Souter, writing for a unanimous Court, began the analysis with an explanation of general rules of corporate liability accompanied by an explanation of general corporate veil-piercing require ments.[188] The Court explained that CERCLA failed to specifically speak to the liability implications of corporate liability.[189] Accordingly, the Court refused to abrogate state law regarding corporate liability.[190] Thus, the Court ruled that the Sixth Circuit correctly applied state law in holding that derivative liability may only exist if the plaintiff can pierce the corporate veil.[191]

The Court acknowledged that the circuits were split on whether to apply applicable state veil-piercing law or to apply a federal common law of veil-piercing.[192] However, in a critical footnote the Court explained that the case did not raise this issue, stating that none of the parties challenged the Sixth Circuit's holding that CPC and Aerojet incurred no derivative liability.[193]

In footnote ten, the Court hid an additional important piece of information. The Court stated that some courts and commentators have suggested that the indirect, veil-piercing approach can only subject a parent corporation to liability as an "owner," and not as an "operator."[194] However, the Court disagreed with this.[195] The Court stated that in cases where a subsidiary "operates," but does not "own" a facility, the parent may be held derivatively liable for the subsidiary's acts as the "operator."[196] This finding requires that the parent pervasively control the subsidiary for a sufficiently improper purpose to justify veil-piercing.[197] Again, the Court fails to address the issue of what rules of veil-piercing should apply.[198]

2. Supreme Court's Opinion on Direct Liability Under CERCLA

The Court then addressed the issue of finding a parent company directly liable for its own actions in operating a facility owned by its subsidiary.[199] The Court explained that nothing in CERCLA's terms bar a parent corporation from direct liability.[200] Under CERCLA's plain language any person who "operates" a facility may be directly liable for the costs of cleaning up the pollution.[201] The Court stated that this extends to "the owner's parent corporation or business partner, or even a saboteur who sneaks into the facility at night to discharge its poisons out of malice."[202] Significantly, the existence of the parent-subsidiary relationship is of no relevance in cases where the operation of the facility is done on behalf of the parent corporation.[203] Thus, there is no veil-piercing requirement to find a parent corporation directly liable.[204]

In defining actions that deserve finding the parent corporation directly liable, the Court analyzed CERCLA's definition of a facility's "operator."[205] The Court determined that for purposes of CERCLA's concern with environmental contamination, "an operator must manage, direct, or conduct operations specifically related to pollution, that is, operations having to do with the leakage or disposal of hazardous waste, or decisions about compliance with environmental regulations."[206]

The Court overruled the Sixth Circuit's analysis of direct liability, because the Sixth Circuit combined direct and derivative liability.[207] The Court explained that the Sixth Circuit's test asks about the relationship between the parent and the subsidiary corporation, rather than asking about the parent corporation's interaction with the subsidiary's facility.[208] To keep direct and derivative liability distinct, the Court stated that the focus of the derivative and direct liability tests must be different.[209]

Under the direct liability test, the focus should not be whether the parent corporation "operates" the subsidiary.[210] Rather, the focus should be whether the parent corporation "operates" the facility, which is evidenced by the parent corporation's "participation in the activities of the facility."[211] Thus, the Court stated that the district court's analysis should have rested on the relationship between CPC and the facility in question, rather than solely on CPC's relationship with its subsidiary, Ott II.[212]

The Court also stated that the district court erred by not recognizing that merely serving as a director of a parent corporation and its subsidiary simultaneously is insufficient to subject the parent to liability for the acts of the subsidiary.[213] This was an error by the district court because the common law rule states that parents and subsidiaries may have dual office holders without attributing the acts of the subsidiary to the parent.[214] If the mere evidence of common corporate personnel acting at management or direction levels would support a finding of a parent corporation's direct liability, then piercing the corporate veil to find a parent indirectly liable would become "academic."[215] Upholding the district court's ruling would create "a relaxed, CERCLA-specific rule of derivative liability that would banish traditional standards and expectations from the law of CERCLA liability."[216] The Court based its refusal to apply this rule on Congress' failure to address it in CERCLA.[217]

Accordingly, the Court agreed with the Sixth Circuit's ruling that a participation-and-control test, examining the parent's supervision over its subsidiary and assuming that dual office holders always act for the parent, cannot be used to identify direct parental liability.[218] However, the Court opined that the Sixth Circuit erred by confining its examples of direct parental operation to exclusive or joint ven tures.[219] The Court stated that the Sixth Circuit erred by not considering the possibility of direct operation by CPC in this case.[220]

The Court proceeded to explain that Congress's use of the verb "to operate" means more than just mechanically activating pumps and valves.[221] Rather, Congress intended operation to include the "exercise of direction over the facility's activities."[222] The Sixth Circuit recognized this for two situations.[223] First, a parent may be directly liable if the parent operates the facility in place of the subsidiary.[224] Second, a parent may be directly liable if the parent operates the facility alongside the subsidiary in a type of joint venture.[225] The Supreme Court upheld the Sixth Circuit's ruling that direct liability should extend to these cases.

However, the Supreme Court extended the Sixth Circuit's reasoning to include a situation where a dual officer or director departs "so far from the norms of parental influence exercised through dual office-holding as to serve the parent, even when ostensibly acting on behalf of the subsidiary in operating the facility."[226] The Court also extended it to cases where a parent's agent directs activities at the facility when the agent has no responsibility to the subsidiary.[227]

The Court then engaged in a line-drawing analysis to separate acts that stem from the normal parent-subsidiary relationship from acts of direct operation that give rise to parent liability.[228] The Court stated that the critical question that must be answered to determine if a parent corporation should be held directly liable is "whether, in degree and detail, actions directed to the facility by an agent of the parent alone are eccentric under accepted norms of parental oversight of a subsidiary's facility."[229] The Court specifically excepted parent corporations from direct liability for engaging in:

[A]ctivities that involve the facility but which are consistent with the parent's investor status, such as monitoring of the subsidiary's performance, supervision of the subsidiary's finance and capital budget decisions, and articulation of general policies and procedures, should not give rise to direct liability.[230]

In the instant case, the Court determined that the district court's opinion indicated that evidence existed that supported finding CPC directly liable.[231] The Court mentioned the fact that an agent of CPC played a role in dealing with the toxic risks that emanated from the plant.[232] The agent was not an employee of CPC's subsidiary Ott II; thus his actions were on behalf of CPC.[233] The Court quoted language from the district court's opinion, stating that the agent "actively participated in and exerted control over a variety of Ott II environmental matters," and the agent "issued directives regarding Ott II's responses to regulatory inquiries."[234]

The Court refused to specifically rule that the evidence was enough to find CPC directly liable.[235] However, the Court stated that the findings were significant enough to raise an issue of CPC's operation of the facility through the agent's actions.[236] Conse quently, the Court vacated the Sixth Circuit's opinion and remanded the case to the district court for a reevaluation of the agent's role and the role of any other CPC agent who may have played a part in operating the Muskegon facility.[237]

V. ANALYSIS OF SUPREME COURT'S OPINION

The Supreme Court correctly broke down its analysis of parent corporation liability into the areas of derivative or indirect liability and direct liability. This is a correct analysis because CERCLA does not rest liability entirely on the ownership of the polluting facility. If CERCLA's liability provisions only provided for liability to the "owner" of the facility, then traditional corporate veil-piercing principles would be the only means to find a parent liable under CERCLA.

However, the statute's language states, and its purpose suggests, that CERCLA was intended to expand parent liability beyond traditional notions of corporate liability. This is evidenced by the term "operator" which coexists disjunctively with "owner" in CERCLA's liability provisions. The majority of the circuits agree with this position, and the Supreme Court correctly followed suit by splitting its decision into separate analyses of derivative liability and direct liability.

A. Supreme Court's Derivative Liability Standard

The Supreme Court implicitly upheld the Sixth Circuit's use of Michigan's veil-piercing laws for determining derivative liability under CERCLA.[238] The Court apparently based this ruling on its refusal to abrogate state corporation law, stating that state corporation law should not be ignored just because a federal statute is involved. The Court stated that "the failure of the statute to speak to a matter as fundamental as the liability implications of corporate ownership demands application of the rule that '[i]n order to abrogate a common-law principle, the statute must speak directly to the question addressed by the common law.'"[239]

The Court acknowledged the split amongst the circuit courts on whether to apply state veil-piercing law or whether to apply a federal common law rule of veil-piercing.[240] However, in a critical footnote the Court refused to rule on this issue.[241]

The Court's refusal to abrogate state corporation law based on CERCLA's failure to specifically speak to parent corporation liability indicates that the Court would probably rule that courts should apply the appropriate state veil-piercing law.[242] However, ruling that state veil-piercing law should apply under CERCLA would be a mistake. Making such a rule would allow parent corporations to forum shop by choosing to incorporate and locate their subsidiaries in states where veil-piercing laws are more stringent. Thus, proving parent corporation liability under CERCLA by piercing the corporate veil would become more difficult. Clearly, this is not the type of application that Congress envisioned when it enacted CERCLA. Moreover, this application would be contrary to CERCLA's underlying policy, which is to place liability on all potentially responsible parties.

Despite Congress's failure to specifically abrogate state corporation law, a federal rule of veil-piercing should be applied in cases under CERCLA. The Supreme Court should have adopted the federal common law test for veil-piercing that is advocated by Judge Merritt in his concurring opinion in United States v. Cordova Chemical Co. of Michigan.[243]

As explained, supra Part II.B.2.b, Judge Merritt's test requires that the trier of fact examine the totality of the circumstances to determine whether the parent controlled the management and operations of the subsidiary. If the trier of fact determines that the parent exerted control, then the corporate veil should be pierced and the parent should be found liable.

Consistent with CERCLA's relaxed liability policy of finding all potentially responsible parties liable, this test does not require that the plaintiff prove that the parent corporation proximately caused the violation. CERCLA provides for strict liability. Also consistent with CERCLA's liability policy, the test does not require that the plaintiff show that the parent corporation's conduct was fraudulent.

According to dicta in the Supreme Court's opinion in Bestfoods, this test should not only be applied to cases where a parent's subsidiary owns and operates a facility that violates CERCLA. Courts should also apply this test to pierce the corporate veil in cases where the subsidiary operates the facility, but does not own the facility.

Evidence of Congress's intent for federal common law to supplement CERCLA exists. During the debates on CERCLA Representative Florio stated, "[t]o insure the development of a uniform rule of law, and to discourage business[es] dealing in hazardous substances from locating primarily in states with more lenient laws, the bill will encourage the further development of a Federal common law."[244]

Also, prior Supreme Court rulings support adopting a federal common law rule for veil-piercing in cases under CERCLA. First, as explained in Judge Merritt's concurring opinion in Cordova, the Supreme Court's ruling in United States v. Kimbell Foods, Inc.[245] supports the adoption of a federal common law rule.[246]

Another justification for promulgating a federal rule of veil-piercing under CERCLA is the Supreme Court's ruling in Boyle v. United Technologies, Corp.[247] According to Boyle, federal common law principles should control where: (1) a unique federal interest is presented, and (2) significant conflict exists between a federal interest and state law.[248]

Consistent with the requirements in Boyle, this situation presents a unique federal interest. First, a unique federal interest exists because CERCLA is a federal statute and should be applied as uniformly as possible. CERCLA is the primary means for funding the cleanup of hazardous waste sites. If the Court continues to allow CERCLA's liability provisions to be manipulated by all the federal courts to provide an inconsistent liability scheme, then CERCLA will be evaded by corporations taking advantage of relaxed rules in certain states.

Second, determining whether a parent corporation is a potentially responsible party is key for a plaintiff to recover under CERCLA. This issue could determine whether the Superfund is reimbursed for a significant amount of money. Clearly, this is of interest to all United States taxpayers. Third, as explained above, Congress's intent that a federal common law assist in providing a uniform application of CERCLA is apparent in CERCLA's legislative history.

Also consistent with the Supreme Court's requirements, significant conflict exists between federal policy and state law. Currently, federal courts are split on whether to apply state veil-piercing principles or a federal common law rule of veil-piercing. The courts that apply a federal common law rule of veil-piercing are even split on what factors should make up the federal common law rule. This only serves to increase the inconsistencies in determining parent corporation liability under CERCLA. Thus, one federal rule for veil-piercing should be adopted and applied for cases arising under CERCLA.

B. Supreme Court's Direct Liability Standard

Since Congress failed to define "operate" within CERCLA, the Court appropriately provided definition to the word. The Court's definition essentially extends "operate" to any decision-making concerning environmental matters of a hazardous waste "facility."[249]

The Court properly ruled that parent corporations, as well as anyone else, should be included as operators if they act in a manner that falls within the Court's definition of "operate." This analysis was correct because CERCLA failed to specifically exclude parent corporations, or anyone else, from being classified as an operator. Also, and more importantly, CERCLA's policy of extending liability to all potentially responsible parties is upheld and bolstered by the Supreme Court's decision to include parent corporations under the term "operate." Moreover, a majority of the United States appellate courts have ruled that parent corporations should fall under the definition of "operate" if their acts constitute operation of the facility.

Significantly, the Court ruled that direct liability should focus on whether the parent "operated" the facility, rather than whether the parent "operated" the subsidiary. This is significant because, by demanding that the analysis of operation focus on the facility, the Court allows derivative liability alone to provide for liability where a parent controls the operation of its subsidiary. Notably, the circuit courts were inconsistent in their opinions on direct liability. While some referred to a parent operating its subsidiary when analyzing direct liability,[250] other circuits referred to the parent operating the specific facility that violated CERCLA.[251]

The Supreme Court's analysis was correct on this issue for two reasons. First, focusing on the parent's control of the facility allows traditional limited liability concepts to function independently of the direct liability standard that is prescribed by CERCLA. Second, the statute's liability provisions state that the issue of operation should focus on the operator of the facility.[252] The Supreme Court's ruling that a parent can be derivatively liable for a subsidiary's mere operation of a facility is not inconsistent with the statute, because it follows traditional veil-piercing principles.

To illustrate how the Court's opinion provides clarification, imagine a situation where a parent's subsidiary corporation owns other businesses besides a facility that has released hazardous waste. The parent may control the subsidiary's operation concerning its other businesses, but allow the subsidiary to run the facility. While this may be a situation that warrants piercing the corporate veil, it is clearly not a situation where the parent should be found directly liable.

Contrary to the decisions of the circuit courts regarding direct liability, the Supreme Court refused to adopt either the actual control standard or the authority-to-control standard. Rather, the Supreme Court adopted a standard that examines specific situations where a parent corporation's conduct rises to a level that warrants finding the parent corporation directly liable as an operator. Each of the situations described by the Court do not require an analysis of whether the parent controlled the subsidiary, as does the derivative liability standard. Two of the situations merely ask a court to examine if the parent was either running the facility independently or participating in a joint venture with its subsidiary to run the facility.

The Court does not list specific factors to examine when determining if the above two situations are met. However, determining whether a parent is running a facility is an easy inquiry. This determination just requires an examination of who is making the decisions concerning the facility. Determining whether a joint venture is taking place can be a more difficult inquiry. However, if the facts come close to suggesting a joint venture, then a court should find the parent and the subsidiary directly liable.

The third situation the Court describes is when the actions of an agent of the parent alone directed toward its subsidiary's facility are eccentric with respect to the normal parent-subsidiary relationship. The Court specifically excepted actions that deal with the parent's investor status. However, the Court clarified actions by a parent's agent that could be considered actions that rise to the level that warrants finding the parent directly liable as an "operator." These actions include any act by an agent to participate in, or control decisions concerning environmental matters for the subsidiary's facility.

The Court's extension of the scope of a parent corporation's direct liability under CERCLA to acts concerning a parent's agent is also consistent with CERCLA's policy of holding all potentially responsible parties liable. In such cases, the Court appropriately excludes financial oversight by a parent's agent, because finance is an area where a parent should always provide oversight. However, once a parent's agent acts in a manner which directly affects decisions concerning environmental matters that ultimately subject the facility to CERCLA violations, then the parent should be exposed to direct liability under CERCLA's "operator" provision. This standard appropriately prevents a parent corporation from escaping liability for acts of an agent, for which the corporation should be found vicariously liable.

The Court's standard for finding direct liability strikes an appropriate balance between the actual control and the authority-to-control standards. The standard does not violate the main criticism of the authority-to-control standard, which is that parents should not be held liable for exercising normal activity toward its subsidiary. Also, the standard does not make liability inescapable for a parent corporation in every case where its subsidiary is accused of violating CERCLA.

The standard does not violate the main criticism of the actual control test, which is that the standard is contrary to CERCLA's goal of placing liability on those responsible for the substance's release. Rather, the standard allows a parent to be held liable in the cases where a parent should be held directly liable, which is in cases where the parent takes an active role in making environmental decisions concerning the facility violating CERCLA.

VI. CONCLUSION

Clearly, the Court should have taken the opportunity in Bestfoods to adopt a federal common law rule of veil-piercing for cases under CERCLA. Such a rule, coupled with the Supreme Court's ruling regarding direct liability, would assist in providing a uniform and meaningful standard for determining parent corporation liability under CERCLA. However, if the Court continues to refuse to address this issue then Congress should amend CERCLA to provide clear criteria for determining parent corporation liability under CERCLA.

_______________________________

[*] J.D. Candidate May 1999, Florida State University College of Law; B.A., Government & Politics, Widener University, magna cum laude, 1995.Return to text.

[1] See 42 U.S.C. 6901-6987 (1998).Return to text.

[2] See 42 U.S.C. 9601-9675 (1998).Return to text.

[3] See Kamie Frischknecht Brown, Parent Corporation Liability for Subsidiary Violations Under 107 of CERCLA: Responding to United States v. Cordova Chemical Co., 1998 BYU L. REV. 265 (1998).Return to text.

[4] 113 F.3d 572 (6th Cir. 1997), rev'd. sub. nom. United States v. Bestfoods, Inc., 118 S.Ct. 1876 (1998).Return to text.

[5] See id. at 580.Return to text.

[6] See Brown, supra note 5, at 266.Return to text.

[7] See Shiavone v. Pearce, 79 F.3d 248 (2d Cir. 1996); United States v. TIC Inv. Corp., 68 F.3d 1082 (8th Cir. 1995); Lansford-Coaldale Joint Water Auth. v. Tonolli Corp., 4 F.3d 1209 (3d Cir. 1993); Jacksonville Elec. Auth. v. Bernuth Corp., 996 F.2d 1107 (11th Cir. 1993); John S. Boyd Co. v. Boston Gas Co., 992 F.2d 401 (1st Cir. 1993); Nurad, Inc. v. William E. Hooper & Sons, Co., 966 F.2d 837 (4th Cir. 1992); United States v. Kayser-Roth Corp., 910 F.2d 24 (1st Cir. 1990). But cf. Joslyn Mfg. Co. v. T.L. James & Co., 893 F.2d 80 (5th Cir. 1990) (ruling that a parent corporation's liability must be established by piercing the corporate veil). Joslyn's remaining precedence is in question as a result of a subsequent Fifth Circuit opinion holding that individual officers and employees could be held directly liable as CERCLA operators when they actually participate in wrongful conduct and that "[t]his personal liability is distinct from the derivative liability that results from "piercing the corporate veil." Riverside Mkt. Dev. Corp. v. International Bldg. Prods., Inc., 931 F.2d 327, 330 (5th Cir. 1991) (quoting United States v. Northeastern Pharm. & Chem. Co., 810 F.2d 726, 744 (8th Cir. 1986)).

[8] 118 S.Ct. 1876 (1998).Return to text.

[9] See RICHARD V. PERCIVAL ET AL., ENVIRONMENTAL REGULATIONLAW, SCIENCE, AND POLICY 284-85 (1996).Return to text.

[10] See Amy C. Stovall, Limiting Operator Liability for Parent Corporations Under CERCLA: United States v. Cordova Chemical Co., 43 VILL. L. REV. 219, 228 & n.28 (1998).Return to text.

[11] See 42 U.S.C. 9611.Return to text.

[12] There is debate over whether a private party can bring an action under CERCLA, but the language of the statute clearly provides that a private party may recover costs incurred consistent with the national contingency plan. See 42 U.S.C. 9607(a)(4)(B) (1995).Return to text.

[13] See 42 U.S.C. 9607 (1995).Return to text.

[14] See Stovall, supra note 12, at 234 & n.40.Return to text.

[15] See 42 U.S.C. 9607(a) (1)-(4) (1995).Return to text.

[16] See Stovall, supra note 12, at 234. "'[H]azardous substance' is broadly defined by section 101(14) to include hazardous wastes subject to regulation under subtitle C of RCRA, toxic water pollutants regulated under section 307 of the Clean Water Act, hazardous air pollutants listed under section 112 of the Clean Air Act, imminently hazardous chemicals regulated under section 7 of [the Toxic Substances Control Act], substances subject to 311 of the Clean Water Act, and additional substances designated by the EPA." PERCIVAL, supra note 11, at 285. Return to text.

[17] See Stovall, supra note 12, at 235 & n.44. "'Release' is broadly defined in section 101(22) to cover just about any means for a substance to escape into the environment. Not all releases of hazardous substances fall within CERCLA's jurisdiction. Section 107(i) of CERCLA exempts the application of pesticides registered under [the Federal Insecticide, Fungicide, and Rodenticide Act], and section 107(j) exempts federally permitted releases. Federally permitted releases are defined in section 101(10) to include discharges authorized by permits issued under the Clean Water Act, RCRA, the Ocean Dumping Act, the Safe Drinking Water Act, the Clean Air Act, and the Atomic Energy Act, and certain fluid injection practices for producing oil or natural gas." PERCIVAL, supra note 11, at 285.Return to text.

[18] See 42 U.S.C. 9607(a)(4)(B).Return to text.

[19] See 42 U.S.C. 9607(a)(4)(A).Return to text.

[20] See 42 U.S.C. 9607(b) (listing defenses).Return to text.

[21] CERCLA provides for strict liability; thus it is not necessary to prove fault. CERCLA also provides for joint and several liability whenever liability is indivisible. A defendant PRP may be found liable for damages that include: (1) all government or Indian tribe response costs not inconsistent with the NCP; (2) any other necessary private response costs consistent with the NCP; (3) damages for harm to natural resources, including reasonable costs of assessing such damage; and (4) costs of any health assessment or health effects study. Need Cite.Return to text.

[22] See Stovall, supra note 11, at 237-38 (citing Ronald G. Aronovsky & Lynn D. Fuller, Liability of Parent Corporations for Hazardous Substance Releases Under CERCLA, 24 U.S.F. L. REV. 421, 431 (1990)).Return to text.

[23] See Chicago, M. & St. P. Ry. Co. v. Minneapolis Civic and Commerce Assn., 247 U.S. 490, 501 (1918).Return to text.

[24] See United States v. Bestfoods, 118 S.Ct. 1876, 1885 (1998) (citing Anderson v. Abbott, 321 U.S. 349, 362 (1944); Chicago, M. & St. P. Ry. Co. v. Minneapolis Civic and Commerce Assn., 247 U.S. 490, 501 (1918)). Return to text.

[25] See Brown, supra note 5, at 270 n.23.Return to text.

[26] See id.Return to text.

[27] See, e.g., United States v. Kayser-Roth Corp., Inc., 910 F.2d 24, 27 (1st Cir. 1990). Return to text.

[28] See, e.g., Nurad, Inc. v. William Hooper & Sons Co., 966 F.2d 837 (4th Cir. 1992).Return to text.

[29] 910 F.2d at 27.Return to text.

[30] See id. at 25.Return to text.

[31] See id. at 26.Return to text.

[32] See id.Return to text.

[33] See id.Return to text.

[34] See id. at 27 (citing the district court's opinion at 724 F. Supp. 15, 18 (D.R.I. 1989)).Return to text.

[35] See id.Return to text.

[36] See id.Return to text.

[37] See id.Return to text.

[38] See id.Return to text.

[39] 4 F.3d 1209 (1993).Return to text.

[40] Id. at 1221.Return to text.

[41] See id. at 1220.Return to text.

[42] See id. at 1221.Return to text.

[43] See id. Significantly, CPC Int'l is the trial court's decision for Bestfoods.Return to text.

[44] See id. (citing CPC Int'l, Inc. v. Aerojet-General Corp., 777 F. Supp. 549 (W.D. Mich. 1991), rev'd and remanded sub nom. United States v. Cordova Chem. Co. of Mich., 113 F.3d 572 (6th Cir. 1997), vacated and remanded sub nom. United States v. Bestfoods et al., 118 S.Ct. 1876 (1998)).Return to text.

[45] Id. at 1222 (quoting United States v. Kayser-Roth Corp., 910 F.2d 24, 27 (1st Cir. 1990)).Return to text.

[46] Id. (quoting CPC Int'l, 777 F. Supp. 549).Return to text.

[47] See id. at 1222 (citing John S. Boyd Co. v. Boston Gas Co., 992 F.2d 401, 408 (1st Cir. 1993)).Return to text.

[48] See id. (citing CPC Int'l, 777 F. Supp. 549).Return to text.

[49] See id.Return to text.

[50] 68 F.3d 811 (3d Cir. 1995).Return to text.

[51] See id. at 822.Return to text.

[52] See id. at 823.Return to text.

[53] See id.Return to text.

[54] 996 F.2d 1107 (11th Cir. 1993).Return to text.

[55] See id. at 1110.Return to text.

[56] See id.Return to text.

[57] See id. (emphasis added).Return to text.

[58] The significance of this will be explained in Part IV.B.Return to text.

[59] Id. at 1110 (quoting Levin Metals, Corp. v. Parr-Richmond Terminal Co., 781 F. Supp. 1454, 1456-57 (N.D. Cal. 1991) (emphasis in original omitted)).Return to text.

[60] See id.Return to text.

[61] See id. at 1111.Return to text.

[62] See id.Return to text.

[63] See Brown, supra note 5, at 281-82.Return to text.

[64] See id.Return to text.

[65] See id.Return to text.

[66] See id.Return to text.

[67] See id.Return to text.

[68] See id.Return to text.

[69] See id. at 282-83.Return to text.

[70] See Nurad, Inc., v. William E. Hooper & Sons Co., 966 F.2d 837, 842 (4th Cir. 1992). Although this was a private cost-recovery action involving a lessor/lessee, not a parent/ subsidiary, presumably the Fourth Circuit would apply the same standard to parent corporations. See Brown, supra note 5, at 283 n.84.Return to text.

[71] See Kaiser Aluminum & Chem. Corp. v. Catellus Dev. Corp., 976 F.2d 1338, 1341-42 (9th Cir. 1992).Return to text.

[72] 966 F.2d 837 (4th Cir. 1992).Return to text.

[73] See id. at 842.Return to text.

[74] See id.Return to text.

[75] See id.Return to text.

[76] See id. (citing CPC Int'l, Inc. v. Aerojet-General Corp., 731 F. Supp. 783, 788 (W. D. Mich. 1989); Idaho v. Bunker Hill Co., 635 F. Supp. 665, 671-72 (D. Idaho 1986)).Return to text.

[77] See id. (citing Riverside Market Dev. Corp. v. International Bldg. Prods., Inc., 931 F.2d 327, 330 (5th Cir. 1991); New York v. Shore Realty Corp., 759 F.2d 1032, 1052 (2d Cir. 1985)). Return to text.

[78] See Constance S. Chandler & Rebecca J. Grosser, An Issue Ripe for Supreme Court Review: Whether Congress Intended to Alter the Common Law Principles of Corporate Limited Liability When Enacting CERCLA, 4 MO. ENVTL. L. & POL'Y. REV. 14, 24 (1996); Lynda J. Oswald, Bifurcation of the Owner and Operator Analysis Under CERCLA: Finding Order in the Chaos of Pervasive Control, 72 WASH. U. L. Q. 223, 260 (1994).Return to text.

[79] See Oswald, supra note 80, at 260.Return to text.

[80] See Brown, supra note 5, at 282-83.Return to text.

[81] See Stovall, supra note 11, at 249.Return to text.

[82] 79 F.3d 248 (2d Cir. 1996).Return to text.

[83] See id. at 253.Return to text.

[84] See id.Return to text.

[85] See id.Return to text.

[86] See id. (citing for example United States v. TIC Inv. Corp., 68 F.3d 1082, 1091 (8th Cir. 1995); Jacksonville Elec. Auth. v. Bernuth Corp., 996 F.2d 1107, 1110 (11th Cir. 1993); City of New York v. Exxon Corp., 112 B.R. 540, 547-48 (S.D.N.Y. 1990)).Return to text.

[87] See id.Return to text.

[88] See id.Return to text.

[89] See id.Return to text.

[90] See id.Return to text.

[91] See id.Return to text.

[92] See id.Return to text.

[93] Id. (quoting Lansford-Coaldale Joint Water Auth. v. Tonolli Corp., 4 F.3d 1209, 1221 (3d Cir. 1993)) (emphasis added).Return to text.

[94] See id. at 254 n.5.Return to text.

[95] See id.Return to text.

[96] See id. at 284.Return to text.

[97] See, e.g., New York v. Shore Realty Corp., 759 F.2d 1032, 1052 (2d Cir. 1985).Return to text.

[98] See, e.g., United States v. Nicolet, Inc., 712 F. Supp. 1193, 1201-02 (E.D. Pa. 1989); United States v. Mottolo, 695 F. Supp. 615, 624 (D.N.H. 1988).Return to text.

[99] See id.Return to text.

[100] See id.Return to text.

[101] 893 F.2d 80 (5th Cir. 1990).Return to text.

[102] See id. at 82.Return to text.

[103] See id.Return to text.

[104] See id.Return to text.

[105] 931 F.2d 327 (5th Cir. 1991).Return to text.

[106] See id. at 329.Return to text.

[107] See id.Return to text.

[108] Id. at 330.Return to text.

[109] Id.Return to text.

[110] See id.Return to text.

[111] See id.Return to text.

[112] 118 S.Ct. 1876 (1998).Return to text.

[113] 113 F.3d 572 (6th Cir. 1997) (explained supra Part II.B.2.).Return to text.

[114] See 118 S.Ct. at 1882.Return to text.

[115] See id.Return to text.

[116] CPC International, Inc. ("CPC") has since been renamed Bestfoods, Inc. See id. at 1882 n.3. It was referred to as CPC in the District Court, the Circuit Court, and the Supreme Court. I will also refer to it as CPC.Return to text.

[117] See id.Return to text.

[118] See id.Return to text.

[119] See id.Return to text.

[120] See id.Return to text.

[121] See id.Return to text.

[122] See id.Return to text.

[123] See id.Return to text.

[124] See id.Return to text.

[125] See id.Return to text.

[126] See id.Return to text.

[127] See id.Return to text.

[128] See id.Return to text.

[129] See id.Return to text.

[130] See id.Return to text.

[131] See id.Return to text.

[132] See id.Return to text.

[133] See id.Return to text.

[134] See id. at 1883.Return to text.

[135] See id.Return to text.

[136] 42 U.S.C. 9607(a)(2) (1998).Return to text.

[137] See Bestfoods, 118 S.Ct at 1883.Return to text.

[138] See id.Return to text.

[139] See id.Return to text.

[140] See id.Return to text.

[141] See CPC Int'l, Inc. v. Aerojet-General Corp., 777 F. Supp 549, 572 (W.D. Mich. 1991).Return to text.

[142] See id.Return to text.

[143] Id. at 573.Return to text.

[144] Id. The court stated that when applying a common law principle such as the vicarious liability of parent corporations the Sixth Circuit applies state law rules. See id.Return to text.

[145] Id.Return to text.

[146] See id. The court listed the following factors to consider when determining the issue of whether the parent operated its subsidiary: (1) "parent's participation in the subsidiary's board of directors, management, day-to-day operations, and specific policy matters, including manufacturing, finances, personnel and waste disposal" and (2) "origin and business function of the subsidiary in the context of the parent corporation's business . . . " Id. Return to text.

[147] See id. Return to text.

[148] See id.Return to text.

[149] See id.Return to text.

[150] See id. at 575.Return to text.

[151] See id. at 574.Return to text.

[152] See United States v. Cordova Chem. Co. of Mich., 113 F.3d 572, 580 (6th Cir. 1997), vacated and remanded sub nom. United States v. Bestfoods et al., 118 S. Ct. 1876 (1998).Return to text.

[153] See id. at 579.Return to text.

[154] See id. at 580.Return to text.

[155] See id.Return to text.

[156] See id.Return to text.

[157] See id.Return to text.

[158] See id.Return to text.

[159] See id.Return to text.

[160] See id.Return to text.

[161] See id. at 583. The district court's opinion on direct liability is explained supra part III.B.Return to text.

[162] See id. at 584.Return to text.

[163] See id.Return to text.

[164] See Lansford-Coaldale Joint Water Authority v. Tonnolli Corp., 4 F.3d 1209, 1225 (3d Cir. 1993) (citing United States v. Kimbell Foods, Inc., 440 U.S. 715, 726 (1979)); In re Acushnet River & New Bedford Harbor Proceedings, 675 F. Supp. 22, 30-31 (D.Mass. 1987) (applying federal common law to owner/operator liability under CERCLA); see generally Evelyn F. Heidelberg, Comment, Parent Corporation Liability Under CERCLA: Toward a Uniform Federal Rule Decision, 22 PAC. L. J. 854 (1991). Return to text.

[165] See United States v. Cordova Chem. Co., 113 F.3d 572, 584 (6th Cir. 1997) (citing United States v. Kimbell Foods, Inc., 440 U.S. 715, 726 (1979)).Return to text.

[166] 440 U.S. 715 (1979).Return to text.

[167] See id. at 728 (citing United States v. Yazell, 382 U.S. 341, 354 (1966)).Return to text.

[168] See id. at 728.Return to text.

[169] See id.Return to text.

[170] See id. at 729.Return to text.

[171] United States v. Cordova Chem. Co., 113 F.3d 572, 584 (6th Cir. 1997) (quoting In re Acushnet & New Bedford Harbor Proceedings re Alleged PCB Pollution, 675 F. Supp. 22, 31 (D. Mass. 1987)).Return to text.

[172] See id.Return to text.

[173] See id. (citing Henry Hansmann & Reiner Kraakman, A Procedural Focus on Unlimited Shareholder Liability, 106 HARV. L. REV. 446, 450-53 (1992) (arguing that choice of law concerns do not bar unlimited shareholder liability in tort actions); Note, Piercing the Corporate Veil: The Alter Ego Doctrine Under Federal Common Law, 95 HARV. L. REV. 853, 862-63 (1982) (arguing that piercing the corporate veil relates to external affairs and should be governed by the law of the forum)).Return to text.

[174] See, e.g., Lansford-Coaldale Water Authority v. Tonolli Corp., 4 F.3d 1209, 1225 (3d Cir. 1993) (the only other circuit court opinion applying federal common law); Joslyn Manufacturing Co. v. T.L. James & Co., 893 F.2d 80 (5th Cir. 1990) (affirming a district court opinion that declined to address the choice of law question on the grounds that the standard for piercing the corporate veil are the same under state and federal law).Return to text.

[175] See Cordova Chem. Co., 113 F.3d at 585. (citing numerous district court opinions that have applied federal common law in this context). For additional support Judge Merritt then cites other circuits that have applied federal common law in cases involving successor corporation liability under CERCLA. See id.Return to text.

[176] See id.Return to text.

[177] Id. at 585-86 (quoting Krivo Indus. Supply Co. v. National Distillers & Chem. Corp., 483 F.2d 1098, 1103 (5th Cir. 1973)).Return to text.

[178] See id.Return to text.

[179] See id.Return to text.

[180] See id.Return to text.

[181] See id.Return to text.

[182] Id. (quoting United States v. Nicolet, Inc., 712 F. Supp. 1193, 1202 (E.D. Pa. 1989)).Return to text.

[183] See id. The twelve-factor test examines a laundry list of factors that include whether: (1) the parent and the subsidiary have common stock ownership; (2) the parent and the subsidiary have common directors or officers; (3) the parent and the subsidiary have common business departments; (4) the parent and the subsidiary file consolidated financial statements and tax returns; (5) the parent finances the subsidiary; (6) the parent caused the incorporation of the subsidiary; (7) the subsidiary operates with grossly inadequate capital; (8) the parent pays the salaries and other expenses of the subsidiary; (9) the subsidiary receives no business except that given to it by its parent; (10) the parent uses the subsidiary's property as its own; (11) the daily operations of the two corporations are not kept separate; and (12) the subsidiary does not observe the basic corporate formalities, such as keeping separate books and records and holding shareholder and board meetings. See id. (citing United States v. Jon-T Chems., Inc., 768 F.2d 686, 691-92 (5th Cir. 1985); Jacksonville Elec. Auth. v. Eppinger and Russell Co., 776 F. Supp. 1542, 1545 (M.D. Fla. 1991), aff'd on other grounds sub nom. Jacksonville Elec. Auth. v. Bernuth Corp., 996 F.2d 1107 (11th Cir. 1993); Joslyn Corp. v. T.L. James & Co., 696 F. Supp. 222, 227 (W.D. La. 1988), aff'd., 893 F.2d 80 (5th Cir. 1990)).Return to text.

[184] See id. The seven-factor test examines in approximate descending order of importance: (1) inadequate capitalization in light of the purposes for which the corporation was organized; (2) extensive or pervasive control by the shareholder or shareholders; (3) intermingling of the corporation's properties or accounts with those of its owner; (4) failure to observe corporate formalities and separateness; (5) siphoning of funds from the corporation; (6) absence of corporate records; and (7) nonfunctioning officers or directors. See id. (citing In re Acushnet River & New Bedford Harbor Proceedings re Alleged PCB Pollution, 675 F. Supp. 22, 33 (D. Mass. 1987); Idylwoods Assocs. v. Mader Capital, Inc., 915 F. Supp. 1290, 1305 (W.D. N.Y. 1996); City of New York v. Exxon Corp., 112 B.R. 540, 553 (S.D.N.Y. 1990), aff'd on other grounds, 932 F.2d 1020 (2d Cir. 1991); United States v. Kayser-Roth Corp., 724 F. Supp. 15, 20 (D.R.I. 1989), aff'd on other grounds, 910 F.2d 24 (1st Cir. 1990)).Return to text.

[185] See id.Return to text.

[186] See id.Return to text.

[187] See United States v. CPC Int'l, Inc., 118 S.Ct. 621 (1997).Return to text.

[188] See United States v. Bestfoods, 118 S.Ct. 1876, 1884 (1998).Return to text.

[189] See id. at 1885.Return to text.

[190] See id.Return to text.

[191] See id. at 1885-86.Return to text.

[192] See id. at 1886 n.9.Return to text.

[193] See id. at 1886.Return to text.

[194] See id. at 1886 n.10.Return to text.

[195] See id.Return to text.

[196] See id.Return to text.

[197] See id.Return to text.

[198] See id.Return to text.

[199] See id.Return to text.

[200] See id.Return to text.

[201] See id.Return to text.

[202] Id.Return to text.

[203] See id.Return to text.

[204] See id.Return to text.

[205] See id. at 1887.Return to text.

[206] Id.Return to text.

[207] See id.Return to text.

[208] See id.Return to text.

[209] See id.Return to text.

[210] See id.Return to text.

[211] Id.Return to text.

[212] See id. at 1888.Return to text.

[213] See id.Return to text.

[214] See id.Return to text.

[215] See id.Return to text.

[216] Id. at 1889.Return to text.

[217] See id.Return to text.

[218] See id.Return to text.

[219] See id.Return to text.

[220] See id.Return to text.

[221] See id.Return to text.

[222] See id.Return to text.

[223] See id.Return to text.

[224] See id.Return to text.

[225] See id.Return to text.

[226] Id.Return to text.

[227] See id.Return to text.

[228] See id.Return to text.

[229] Id.Return to text.

[230] Id. (quoting Oswald, supra note 80 at 282).Return to text.

[231] See id. Return to text.

[232] See id. at 1890.Return to text.

[233] See id.Return to text.

[234] Id. (quoting CPC Int'l, Inc. v. Aerojet-General Corp., 777 F. Supp. 573, 575 (W.D. Mich. 1991)).Return to text.

[235] See id.Return to text.

[236] See id.Return to text.

[237] See id.Return to text.

[238] See United States v. Bestfoods, 118 S.Ct. 1876, 1885 (1998).Return to text.

[239] Id. (quoting United States v. Texas, 507 U.S. 529, 534 (1993)).Return to text.

[240] See id. at 1886 n.9.Return to text.

[241] See id.Return to text.

[242] Courts have generally applied the state veil-piercing law where the subsidiary corporation is incorporated.Return to text.

[243] See 113 F.3d 572, 583-86 (6th Cir. 1997) (explained supra Part II.B.2.b.).Return to text.

[244] 126 Cong. Rec. 31,965 (1980) (statement of Rep. Florio); see Stovall, supra note 12, at 270-71.Return to text.

[245] 440 U.S. 715 (1979).Return to text.

[246] For an explanation of how Kimbell Foods supports this proposition see supra Part II.B.2.b.Return to text.

[247] 487 U.S. 500 (1988).Return to text.

[248] See id. at 507 (citing Wallis v. Pan Am. Petroleum Corp., 384 U.S. 63, 68 (1966)).Return to text.

[249] See supra Part III.B., at 35 (providing the Court's specific definition of "operate").Return to text.

[250] See, e.g., United States v. Kayser-Roth Corp., Inc., 910 F.2d 24, 27 (1st Cir. 1990).Return to text.

[251] See, e.g., Lansford-Coaldale Joint Water Auth. v. Tonolli Corp., 4 F.3d 1209, 1221(3d Cir. 1993); Jacksonville Elec. Auth. v. Bernuth Corp., 996 F.2d 1107, 1110 (11th Cir. 1993).Return to text.

[252] See 42 U.S.C. 9607(a) (1996).Return to text.