Donahey v. Bogle

BOYCE F. MARTIN, JR., Chief Judge,

dissenting.

According to the en banc majority opinion, the sole shareholder of a corporation will escape liability under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. §§ 9601-9675 , for environmental damage unless there are grounds for piercing the corporate veil. The majority has extended United States v. Cordova Chem. Co. of Michigan, 113 F.3d 572 (6th Cir.1997), petition for cert. filed, 66 U.S.L.W. 3157 (U.S. Aug. 8, 1997) (No. 97-296), an opinion on corporate veil piercing and CERCLA, to protect shareholders from environmental liability in all but the most extreme cases. I dissented in Cordova, and I write again to register my continuing unhappiness that the majority has turned a blind eye to congressional intent. The en banc majority merely compounds the error of Cordova and pushes responsibility for environmental liability onto the wrong parties. The majority opinion not only creates new law but also offers novel opportunities for the savvy polluter. Therefore I dissent on this issue.

The majority opinion relieves defendant Seabourn Livingstone of CERCLA responsibility, but the larger problem is the blueprint it provides for future environmental malfea-sors. Facility owners and operators are liable for pollution under 42 U.S.C. § 9607 (a)(1) and (2), but the ruling of the en banc majority provides the savvy polluter with a way to avoid that liability. The savvy polluter can form a closely held corporation of which he holds 100 percent of the shares. He can play an.active role in the company but follow a “don’t ask, don’t tell” policy regarding the disposal of environmental toxins. This savvy polluter, although he manages the company and owns all the shares, nonetheless will not be considered an “owner” or “operator” under the majority’s reading of CERCLA. The only way to reach the savvy polluter is to pierce the corporate veil and hold him derivatively hable. Of course, the hypothetical polluter posited herein is savvy enough to realize that in some states it is easier to pierce the veil than it is in others. He therefore will incorporate where he has the greatest *845 protection. In Michigan, for instance, the savvy polluter will be protected from veil piercing unless it can be shown that he engaged in fraud — a difficult evidentiary standard to meet. Cordova, 113 F.3d at 580 . In this way, the en banc majority opinion short-circuits CERCLA.

The majority gives the savvy polluter an opportunity to play state law off against federal law. A corporation is a product of state law. As such it should not provide a shield behind which an individual can flaunt federal law. “[T]he Court has consistently refused to give effect to the corporate form where it is interposed to defeat legislative policies.” First Nat’l City Bank v. Banco Para El Comercio Exterior de Cuba, 462 U.S. 611, 630 , 103 S.Ct. 2591, 2601 , 77 L.Ed.2d 46 (1983). One of the legislative policies behind CERCLA is to make “those responsible for disposal of chemical poisons bear the cost and responsibility for remedying the harmful conditions they created.” Anspec Co. v. Johnson Controls, Inc., 922 F.2d 1240, 1247 (6th Cir.1991) The en banc majority allows Livingstone to misuse, a state creation, a corporation, to circumvent a federal policy.

Federal-state issues aside, this case is not about imposing liability on the average shareholder. In discussing “shareholder” liability in this context, I limit my comments specifically to sole shareholders who are active in the corporation. I reserve the question of the liability of people who own less than 100 percent of a corporation’s shares or who are not active in management. I do so because CERCLA specifically excludes shareholders who are not involved in the management of companies from the definition of “owners” and “operators.” 42 U.S.C. § 9601 (20)(A)(iii). The explicit exclusion of one class of shareholders from the class of owners or operators “implies that an owning stockholder who manages the corporation ... is hable under CERCLA as an ‘owner or operator.’ ” New York v. Shore Realty Corp., 759 F.2d 1032, 1052 (2d Cir.1985). Some degree of control of the corporation is necessary.

Livingstone does not fall into the class of shareholders excluded by 42 U.S.C. § 9601 (20)(A)(iii) because he exercised the requisite control. Livingstone owned 100 percent of the St. Clair Rubber Company’s stock. By definition, anyone who owns all the stock has plenary power to run a company, but Livingstone’s formal role in the company is also well recorded. Livingstone was active in managing the financial aspects of the business. He was the treasurer and chairman of the board. The district court found that although “Livingstone had the authority to control waste disposal practices, he never exercised such authority.” Mem. Op. at 28-29. Simply ignoring environmental misdeeds, however, should not be a way of avoiding CERCLA liability. United States v. TIC Inv. Corp., 68 F.3d 1082, 1089 (8th Cir.1995), cert. denied, — U.S. —, 117 S.Ct. 50 , 136 L.Ed.2d 14 (1996) (noting, in context of arranger liability, that it would violate the goals of CERCLA if “[a] corporate officer, who has virtually unlimited control over a company and in fact exercises that control but knows well enough to close his or her eyes to the specific details of the company’s hazardous waste disposal practice's, could avoid CERCLA liability”). The district court found that the St. Clair Rubber Company’s activities caused environmental harm, but the buck did not stop with St. Clair-because the company was dissolved in the early 1980s. Mem. Op. at 9. Nor did the buck stop with Livingstone.

Livingstone, however, should bear responsibility as a “covered person” under 42 U.S.C. § 9607 . In light of his role as owner and manager, Livingstone is an “operator” under CERCLA. TIC Inv. Corp., 68 F.3d at 1089 (holding that arranger liability, which is analogous to operator liability, for corporate officers is premised on having authority to control that is exercised directly or indirectly); United States v. Northeastern Pharm. & Chem. Co., 810 F.2d 726 , 743 (8th Cir.1986); Shore Realty, 759 F.2d at 1052 . Because he had the ability to control waste disposal, it need not be shown that Livingstone actually was involved in the disposal. A good analysis is found in Kelley v. Thomas Solvent Co., 727 F.Supp. 1532, 1544 (W.D.Mich.1989): “[T]he focus on the inquiry is whether the corporate individual could have prevented the hazardous waste discharge at issue.” We *846 should adopt a similar view; Livingstone could have stopped the pollution. He did not.

Given that Livingstone can be considered an “operator” of the company in the parlance of CERCLA, the en banc majority is speaking in the wrong idiom when it talks of piercing the corporate veil in order to hold him derivatively liable. Under derivative liability, a shareholder would be held responsible for the environmental sins of his corporation if the corporate veil could be pierced. There is no reason to discuss piercing the corporate veil when a 100 percent shareholder can be held directly liable as an operator under 42 U.S.C. § 9607 (a)(2). As the district court stated in an unreviewed opinion in Kelley : “I believe that CERCLA’s statutory scheme varies the configuration of traditional corporate principles which prevent individual liability absent a conclusion that an individual engaged in procedural irregularities justifying a court in ‘piercing the corporate veil’...." 727 F.Supp. at 1542 .

I am not advocating the total disregard of limited liability for shareholders. Limited liability is too important to capital formation to be readily dismissed. My dissent covers a far more restricted class of persons than the average shareholder. A holder of one share of stock in a Fortune 500 company need not fear personal liability for the company’s potential environmental liabilities. When, however, a person owns all the shares in a corporation and plays a management role, that person should be considered an operator under 42 U.S.C. § 9607 (a)(2) and subjected to the corresponding liability under CERCLA. I therefore respectfully dissent from the majority opinion.