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United States v. Bestfoods: The U.S. Supreme Court Sets New Limits on Direct Liability of Parent Corporations for Polluting Acts of Subsidiaries

September 1999

Citation: ELR 10545

Author: George C. Hopkins

Editors' Summary: Defining the scope of parent corporation liability under CERCLA has been a source of disagreement between appellate courts for years. This Article examines this disagreement and how it led to the U.S. Supreme Court decision in United States v. Bestfoods. First, the Article examines the two contradictory lines of cases that spawned the disagreement. Courts using the remedial purpose doctrine have held parent corporations directly liable under CERCLA based on general involvement with the business and not due to specific involvement in the polluting activities. In contrast, courts employing a corporate law approach have rejected direct liability and have only found indirect CERCLA liability where the corporate veil has been pierced. The Article then describes how the Court's attempt to resolve the disagreement in United States v. Bestfoods drew from both lines of cases but effectively curtailed direct liability. According to the Court, a parent corporation may only be held indirectly liable for its subsidiaries' acts when the corporate veil is pierced. Direct liability, however, can be imposed only if a parent corporation operates a subsidiary facility through the parent's agents on the parent's behalf. The Article then claims that the Court failed to define what activities will constitute a parent's "operation" of a subsidiary, did not address the liability of managing shareholders, and did not specify whether state or federal law will control veil-piercing standards. To highlight these unresolved issues, the Article examines recent decisions in which several appellate courts struggled with application of United States v. Bestfoods. The Article concludes that considering the remaining unresolved issues, the significance of the Court's effort to scale back direct liability in United States v. Bestfoods remains uncertain.

George C. Hopkins is a partner in the Washington, D.C., office of Vinson & Elkins L.L.P., where he represents clients in a variety of litigation matters arising under environmental laws. Among other cases that he has played a lead role in include Pneumo Abex Corp. v. High Point, Thomasville & Denton R.R., 142 F.3d 769, 28 ELR 21261 (4th Cir. 1998), cert. denied, 119 S. Ct. 407 (1998). He also routinely advises clients on environmental issues in various commercial contexts. Mr. Hopkins is a 1981 graduate of Tufts University and a 1985 graduate of Boston College Law School. The author wants to acknowledge the assistance of Benjamin R. Lippard in preparing this Article.

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