United States v. Nicolet, Inc.
Citation: 19 ELR 21192
No. No. 85-3060, 712 F. Supp. 1193/29 ERC 1851/(E.D. Pa., 05/10/1989) Motion to dismiss corporate veil-piercing claim denied
The court holds that federal law determines whether the corporate veil should be pierced in a cost recovery action under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). The court first grants the government's motion for leave to file a second amended complaint. The motion is based upon alleged facts uncovered during the formal discovery period, and the defendant will not be unduly prejudiced. The court also holds that the doctrine of collateral estoppel does not bar litigation of the government's claim that defendant is the alter ego of a former owner of the hazardous waste site. Although the government was previously involved in litigation with the defendant's subsidiary, the defendant's control over this subsidiary was not at issue. The court then holds that federal law controls its determination of whether defendant was the alter ego of its subsidiary with respect to activities at the site. The nature of the hazardous waste program instituted by CERCLA requires national uniformity in rules of decision. Moreover, the application of varying state corporate veil-piercing laws would hamper the federal cleanup program, since liability would depend simply on where a particular defendant happened to reside. Application of a federal rule will also not disrupt commercial relationships based on state law. Relying on federal case law dealing with alter ego liability, the court fashions a federal rule of decision as to when the corporate veil can be pierced in a CERCLA case. The court rules that the veil can be pierced where the subsidiary is a member of a potentially liable class of persons under CERCLA § 107(a), the parent had a substantial financial or ownership interest in the subsidiary, and the parent controls or controlled at the relevant period the subsidiary's management and operations. The court declines to rule on whether the veil should be pierced in this case, although it notes that the government has pleaded facts that would be sufficient if proven at trial.
The court rules that a corporate stockholder may be directly liable under CERCLA § 107(a) as a former owner and operator when it actively participates in the management of a subsidiary owner or operator of a CERCLA facility. CERCLA § 101(20)(A) provides that a person holding indicia of ownership primarily to protect a security interest is not liable under § 107(a), but the exemption has been held not to include individual stockholders who actively participate in a corporation's management. There is no basis under CERCLA to distinguish between the liability of an individual stockholder who actively participates in the management of a corporation and a corporate stockholder that so participates, since both individuals and corporations are persons within the meaning of CERCLA. The court rules that a corporate parent can be directly liable under CERCLA § 107(a) as a former owner and operator of the site if it was familiar with its subsidiary's waste disposal practices, had the capacity to control both the disposal and the release, and benefited from the subsidiary's waste disposal procedures. Finally, the court rules that a mortgagee can be held liable under CERCLA only if the mortgagee participated in the managerial and operational aspects of the facility in question.
Counsel for Plaintiff
Land and Natural Resources Division
U.S. Department of Justice, Washington DC 20530
Counsel for Defendants
Jon S. Brooks
Richards & O'Neil
885 Third Ave., New York NY 10022-4802
Manta & Welge
1515 Market St., Ste. 1818, Philadelphia PA 19102