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United States v. Cordova Chem. Co. of Mich.

ELR Citation: 25 ELR 21399
Nos. Nos. 92-2288, -2326, 59 F.3d 584/41 ERC 1001/(6th Cir., 07/14/1995) Aff'd in part, rev'd in part, & remanded on issue of parent corp. liab.

The court holds that a parent corporation incurs operator liability under §107(a)(2) of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) for the conduct of its subsidiary only when the requirements necessary to pierce the corporate veil are met. A state environmental agency actively worked to attract a purchaser of a contaminated site who would participate financially in cleanup efforts. The purchaser was a wholly owned subsidiary. The site' prior owner, which was responsible for the contamination, was also a wholly owned subsidiary. Addressing the liability of the prior owner's parent corporation, the court rejects the district court's approach to defining parent corporation CERCLA liability. The district court held that such liability is contingent on whether the parent exerted "significant control" over their subsidiaries' operations. The "significant control" test is not a bright-line test, and the indicia the district court enumerated to apply this test offer little guidance in actual application. Also, the threat of unlimited liability will likely deter private sector participation in the cleanup of existing sites. The court concludes that a parent corporation incurs liability under §107(a)(2) for the conduct of its subsidiary only when the requirements necessary to pierce the corporate veil are met. Looking to Michigan law, the court notes that these requirements are that (1) there be such a unity of interest and ownership that the separate personalities of the corporation and its owner cease to exist, and (2) that the circumstances be such that adherence to the fiction of separate corporate existence would sanction a fraud or promote injustice. The court holds that the corporate veil has not been pierced because there is no evidence that the parent corporation of the prior owner used the corporate form to perpetrate a fraud or wrong.

The court holds that the state agency that negotiated for the acquisition of the site and agreed with the purchaser on a plan to clean up contamination at the site is not liable as an arranger under §107(a)(3). The agency's actions were taken in response to an environmental emergency under §107(d)(2).

The court holds that the parent corporation of the current owner is not liable under §107(a)(1) because the parent's actions do not approach the level of culpable conduct necessary to pierce the corporate veil under Michigan law. Although the parent corporation sought to limit its liability for existing environmental problems through good-faith negotiation with the state agency and prudent use of corporate form, there is nothing to suggest that the company acted with fraudulent intent or otherwise sought to distort the legitimate purposes of the corporate forms. For the same reasons it rejected liability with respect to the parent corporation of the prior owner, the court next rejects the district court's alternative imposition of §107(a)(2) operator liability on the parent corporation of the current owner. Finally, the court orders the district court to revisit the §107(b)(3) defense raised by the parent corporation of the current owner. The lower court had determined that the third-party defense could not be invoked by a defendant who was a party to a deed with a polluter, however, the lower court ignored the requirement that in order to render the defense inapplicable, the hazardous substance release must have resulted from the act of a third party in connection with the contractual relationship with the defendant. It appears instead that the release of hazardous substances was caused solely by the defendant's predecessors.

[Prior decisions in this litigation are published at 21 ELR 20802 and 20805. A related decision is published at 24 ELR 20424.]

Counsel for Plaintiff
Robert P. Reichel
Environment and Natural Resources Division
U.S. Department of Justice, Washington DC 20530
(202) 514-2000

Counsel for Defendants
John V. Byl
Schenk, Boncher & Prasher
1220 Bridgewater Pl., Grand Rapids MI 49504
(616) 454-8277

Before: CELEBREZZE, RYAN, and NORRIS, Circuit Judges.