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United States v. Bestfoods

Citation: 28 ELR 21225

The U.S. Supreme Court holds that a parent corporation that actively participated in, and exercised control over, the operations of a subsidiary may not be held liable under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) as an operator of a polluting facility owned or operated by the subsidiary unless the corporate veil may be pierced. However, a corporate parent that actively participated in, and exercised control over, the operations of the facility itself may be held directly liable as an operator of the facility. The Court first holds that the appeals court was correct in holding that when (but only when) the corporate veil may be pierced, may a parent corporation be charged with derivative CERCLA liability for its subsidiary's actions. It is a general principle of corporate law that a parent corporation is not liable for the acts of its subsidiaries. Nothing in CERCLA purports to reject this bedrock principle, and against this venerable common-law backdrop, the congressional silence is audible. The Court further notes, however, that there is an equally fundamental principle of corporate law that the corporate veil may be pierced and the shareholder held liable for the corporation's conduct when the corporate form would otherwise be misused to accomplish certain wrongful purposes on the shareholder's behalf. Nothing in CERCLA purports to rewrite this well-settled rule either.

Nevertheless, the Court next holds that nothing in CERCLA's terms bars a parent corporation from direct liability for its own actions in operating a facility owned by its subsidiary. Under the plain language of the statute, any person who operates a polluting facility is directly liable for the costs of cleaning up the pollution. This is so regardless of whether that person is the facility's owner, the owner's parent corporation or business partner, or even a saboteur. The difficulty comes in defining actions sufficient to constitute direct parental operation. Thus, to sharpen the definition for purposes of CERCLA's concern with environmental contamination, the Court holds that 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.

The Court further holds that direct liability analysis should rest on the relationship between the parent corporation and the facility itself, rather than the parent and the subsidiary. Moreover, it is entirely appropriate for directors of a parent corporation to serve as directors of its subsidiary, and that fact alone may not serve to expose the parent corporation to liability for its subsidiary's acts. Therefore, the district court's focus on the relationship between parent and subsidiary, combined with its automatic attribution of the actions of dual officers and directors to the corporate parent, erroneously treated CERCLA as though it displaced or fundamentally altered common-law standards of limited liability. Thus, the appeals court was correct in rejecting the district court's direct liability analysis. Nonetheless, the Court then holds that the appeals court stopped short when it confined its examples of direct parental operation to exclusive or joint ventures and declined to find at least the possibility of direct operation by the parent in this case. The critical question 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. In this case, there is some evidence that the parent engaged in just this type and degree of activity at the facility. Thus, the Court remands the case for a reevaluation of the roles of any agents of the parent who might be said to have had a part in operating the facility.

[Prior decisions in this litigation are published at 20 ELR 20712, 22 ELR 20022, 20029, and 20457, 25 ELR 21399, and 27 ELR 20949. Briefs and pleadings in this litigation are digested at ELR BRIEFS & PLEADS, 66554, 66567, and 66599.]

Counsel for Petitioner
Seth P. Waxman, Martin W. Matzen
Environment and Natural Resources Division
U.S. Department of Justice, Washington DC 20530
(202) 514-2000

Counsel for Respondents
Kenneth S. Geller
Mayer, Brown & Platt
2000 Pennsylvania Ave. NW, Washington DC 20006
(202) 463-2000