# Appendix — United States v. Bestfoods

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 1998
- **Citation:** 524 U.S. 51

## Text

Supreme Court, U.S.
FILED

97.45 4 SEP 1 0 1997

2

No.

In the Supreme Court of the United States

OCTOBER TERM, 1996

UNITED STATES OF AMERICA, PETITIONER
U.

CPC INTERNATIONAL, INC., ET AL.

ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT

APPENDIX TO
PETITION FOR A WRIT OF CERTIORARI

SETH P. WAXMAN
Acting Solicitor General

Lois J. SCHIFFER
Assistant Attorney General

LAWRENCE G. WALLACE
Deputy Solicitor General

JEFFREY P. MINEAR
Assistant to the Solicitor
General

MARTIN W. MATZEN
MICHAEL J. MC NULTY
EVELYN S. YING
Attorneys
Department of Justice
Washington, D.C. 20530-0001
(202) 514-2217

60

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TABLE OF CONTENTS

Appendix A (court of appeals’ opinion dated
May 13, 1997)

Appendix B (district court’s opinion dated
Aug. 27, 1991)

Appendix C (court of appeals’ opinion dated
July 14, 1995)

Appendix D (court of appeals’ order dated
Oct. 19, 1995)

Og te

APPENDIX A

UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT

Nos. 92-2288, 92-2326

UNITED STATES OF AMERICA, PLAINTIFF-APPELLEE
v.

CORDOVA CHEMICAL COMPANY OF MICHIGAN;
CORDOVA CHEMICAL COMPANY; AEROJET-GENERAL
CORPORATION (92-2288), DEFENDANTS-APPELLANTS

CPC INTERNATIONAL INC. (92-2326),
DEFENDANT-APPELLANT

MICHIGAN DEPARTMENT OF NATURAL RESOURCES,
DEFENDANT-APPELLEE

[Decided: May 13, 1997

OPINION
Before: MARTIN, Chief Judge; MERRITT, KENNEDY,
MILBURN, NELSON, RYAN, Boas, Norris, SILER,
BATCHELDER, DAUGHTREY, and Moore, Circuit
Judges.

Norris, J., delivered the opinion of the court, in
which KENNEDY, MILBURN, NELSON, Boaes, SILER,
and BATCHELDER, JJ., joined and in which MERRITT, J.,
joined as to Part III.C.3. Merritt, J. (pp. (24a-32a)),
delivered a separate opinion concurring in part and
dissenting in part. RYAN, J. (pp. [82a-54a)), delivered a
separate dissenting opinion in which MARTIN, C.J.,
DAUGHTREY, and Moore, JJ., joined and in which
MERRITT, J., joined as to Part I.

(la)

2a

ALAN E. Norris, Circuit Judge.

This appeal highlights the difficulty that often
attends the apportionment of liability for the clean-up
costs of sites that have been subjected to long-
term environmental degradation. In the present case,
brought pursuant to the Comprehensive Environ-
mental Response, Compensation, and Liability Act
(“CERCLA”), 42 U.S.C. $§ 9601-9675 (1988 & Supp. V
1993), the environmental damage occurred over a
period of decades and during the watch of several
owners.

A central concern on appeal is the criteria required
under CERCLA before a parent corporation can be
held financially liable for pollution that occurred on a
site owned by a subsidiary. Because we adopt a
stricter standard than did the district court for
imposition of such liability, we reverse certain of its
determinations and remand for further proceedings.

I. PROCEEDINGS BELOW

In May and June 1991, the district court conducted
a fifteen-day bench trial to determine which parties
were responsible for clean-up costs related to pollu-
tion of a site located in Dalton Township, Michigan.
In addition to the live testimony of twenty-nine wit-
nesses, the court received more than 2,300 exhibits
and reviewed dozens of deposition transcripts. Given
the complexity of the proceedings below, the
factual findings contained in the district court’s
published opinion are extensive. CPC Int'l, Inc. v.
Aerojet-General Corp., 777 F.Supp. 549, 555-70 (W. D.

3a

Mich. 1991). We summarize them here by way of
background.

Beginning in 1957, a series of owners used the
Dalton Township site to manufacture chemicals. The
initial owner, the Ott Chemical Company (“Ott I”),
controlled the site from 1957 until 1965. During
this time, the groundwater flowing underneath the
site became contaminated, a development confirmed
by tests conducted in 1964.

Pollution of soil, surface water, and groundwater
continued after the Ott Chemical Company (“Ott II”),
a wholly owned subsidiary of CPC International, Inc.
(“CPC”), took over ownership of the site in 1965. The
use of unlined lagoons as a means of chemical waste
disposal was the principal cause of the contamination.
According to the district court, this practice spanned
the period from 1959 until at least 1968.

See page from these lagoons did not, however, con-
stitute the sole source of pollution that occurred
during the ownership of Ott I and Ott II. Further
contamination emanated from chemical spills from
train cars, from chemical drums, from overflows of
chemicals contained in a cement-lined equalization
basin, and from other sources. Groundwater pollution
did not go completely untreated during this time;
from 1965 until 1974, purge wells were operated
intermittently in an attempt to alleviate the problem.

In 1972, the Story Chemical Company (“Story”)
acquired the site from Ott II and continued to operate
it until 1977, when bankruptcy ended operations. At
that point, the trustee in bankruptcy assumed title to
the site and attempted to find a buyer.

4a

Active governmental response to the pollution prob-
lems at the site began in 1977, after Story’s bank-
ruptcy, when the Michigan Department of Natural
Resources (“MDNR”) visited the site to assess the
situation. In view of the severity of the environ-
mental problems and the lack of resources to pay for a
cleanup, the MDNR became active in an effort to
attract a purchaser who would participate financially
in clean-up efforts. This search led to the signing
of a document on October 13, 1977, by the Cordova
Chemical Company (“Cordova/California”). a wholly
owned subsidiary of Aerojet-General Corporation
(“Aerojet”), and the MDNR. The district court de-
scribed the agreement and its aftermath:

It addressed the problem of environmental con-
tamination at the property and set forth obliga-
tions with respect to cleanup activities

. . « MDNR agreed to remedy the waste
container and sludge problems, and Cordova/
California agreed to eliminate the phosgene gas
and give MDNR $600,000 to defray the costs of the
agency’s cleanup of the waste containers, sludge
and residential wells.

With respect to Cordova/California’s $600,000
payment and the company’s responsibility or
liability for the contamination at the site it was
acquiring, the [agreement] stated:

5a

Cordova Chemical Company shall not have
any responsibility or liability in connection
with any other corrective actions which the
Department of Natural Resources or any other
governmental agency may hereafter deem

However, the agreement did not provide for a
total cleanup of the site’s severe environmental
problems.

In particular, MDNR and Cordova/ California
did not reach an agreement regarding a remedy
for the groundwater contamination problem.
Instead, the fate of the groundwater problems was
not resolved, with MDNR left to tackle the
problem as part of its overall regulatory
responsibility for the site.

Cordova/ California and MDNR fulfilled
their cleanup obligations under the [agreement].

CPC Int'l v. Aerojet-General, 777 F.Supp. at 564-67.

Having executed this document, Cordova/California
purchased the site the following day from the Story
bankruptcy trustee. Cordova Chemical Company of
Michigan (“Cordova/Michigan”), a wholly owned sub-
sidiary of Cordova/California, acquired ownership of
the site in 1978. Cordova/Michigan retains owner-
ship, although manufacturing operations at the site
ceased in 1986.

6a

The district court made the following observations
regarding conditions at the site during the ownership
of the Cordova companies:

During their period of operations, [the com-
panies} neither buried waste nor dumped it onto
the ground. No chemical waste was disposed into
the unlined lagoons that had been used during the
Ott I and Ott II eras. Before beginning chemical
manufacturing, Cordova/Michigan repaired the
equalization basin and chemical sewer system.
When operating, Cordova/Michigan discharged
chemical waste through o/f-site disposal or to a
sewer that flowed to the Muskegon County
treatment facility.

Id. at 556. In short, although the preexisting ground-
water contamination problem was not remedied dur-
ing their ownership, the trial court concluded that
neither Cordova/California nor Cordova/Michigan
exacerbated the condition.

The federal Environmental Protection Agency
became involved in cleanup of the site in 1981. Since
then, the EPA has formulated a long-term response to
the environmental damage that has occurred at the
site; the cost of this effort will run into the millions of
dollars.

The district court noted that two hazardous chemicals—
benzene and 1,2 dichloroethane—were found at the site and
used during the Cordova period of ownership. Id. at 556, 579
n. 11. Although Cordova/Michigan, in an April 5, 1984 letter to
the federal EPA, acknowledges generating small quantities of
these materials for disposal, we find nothing in the record to
support a finding that any additional release of hazardous sub-
stances occurred at the site during the Cordova period.

7a

II. CERCLA LIABILITY

Section 107(a) of CERCLA lists the parties who are
potentially liable for the clean-up costs of a polluted
site.“ 42 U.S.C. § 9607(a). For the purposes of this
action, those parties include the present owner and
operator of a facility from which there is a release of
a hazardous substance, any prior owner or operator of
a facility whose involvement coincided with disposal
of a hazardous substance, and any person who
arranged for the disposal or transport of hazardous
waste from a facility. 42 U.S.C. § 9607(a)(1)-(3). The
parties stipulated that the site is a “facility” as de-
fined by CERCLA, that it contains “hazardous sub-

® 42 U.S.C. § 9607(a) states, in part:

Notwithstanding any other provision or rule of law, and
subject only to the defenses set forth in subsection (b) of
this section—

(J) the owner and operator of a . . facility,

(2) any person who at the time of disposal of any
hazardous substance owned or operated any facility at
which such hazardous substances were disposed of,

(3) any person who by contract, agreement, or
otherwise arranged for disposal or treatment, or
arranged with a transporter for transport for disposal
or treatment, of hazardous substances

(4) any person who accepts or accepted any hazard-
ous substances for transport to disposal or treatment
facilities, . from which there is a release, or a
threatened release which causes the incurrence of

Te costs, of a hazardous substance, shall be liable
or—

(A) all costs of removal or remedial action.

8a

stances,” that “releases” of hazardous substances
have occurred and threaten to continue, and that
CPC, the MDNR, Aerojet, Cordova/California, and
Cordova/Michigan are “persons” as defined by the
statute. Jd. at 556.

Because courts that have been asked to render
liability decisions in CERCLA actions frequently
invoke the remedial purpose of the act, e.g., United
States v. Kayser-Roth Corp., Inc., 910 F.2d 24, 26 (Ist
Cir. 1990), cert. denied, 498 U.S. 1084, 111 S. Ct. 957,
112 L.Ed.2d 1045 (1991), we will review that subject
before considering the liability of those parties now
before us.

Congress enacted CERCLA as a “remedial statute
designed to protect and preserve public health and the
environment.” Kayser-Roth, 910 F.2d at 26; accord
Schiavone v. Pearce, 79 F.3d 248, 253-54 (2d Cir.
1996); Lansford-Coaldale Joint Water Auth. v.
Tonolli Corp., 4 F.3d 1209, 1221 (8d Cir. 1993); Anspec
Co., Inc. v. Johnson Controls, Inc., 922 F.2d 1240,
1241-42 (6th Cir. 1991) (reviewing this circuit’s ap-
proach to CERCLA liability). Accordingly, courts
generally will not interpret § 9607(a) in a way that
apparently frustrates the statute's goals in the
absence of specific congressional intent to the
contrary. Anspec, 922 F.2d at 1247 (citing New York
v. Shore Realty Corp., 759 F.2d 1032, 1045 (2d Cir.

1985)).

It must be recognized, however, that it is difficult
to divine the specific, as opposed to the general, goals
of Congress with respect to CERCLA liability since
the statute represents an eleventh hour compromise.
See generally Shore Realty Corp., 759 F. 2d at 1039-42
(discussing legislative history). As the district court

9a

recognized, “some of CERCLA’s provisions are
vague and its legislative history sparse.“ CPC Int'l
v. Aerojet-General, 777 F.Supp. at 571; accord
Anspec, 922 F.2d at 1247 (characterizing the legisla-
tive history as “scant”); Lansford-Coaldale Joint
Water Auth., 4 F.3d at 1221 (Clongressional intent
may be particularly difficult to discern with precision
in CERCLA, a statute notorious for its lack of clarity
and poor draftsmanship.”).

Courts would not be warranted, therefore, in point-
ing to the “remedial legislation” litany, see generally
Norman J. Singer, 3 Southerland Statutory Con-
struction § 60.01 (5th ed.1992) (the rule that remedial
statutes should be liberally construed is “firmly
established”); Dennis v. Higgins, 498 U.S. 439, 443,
111 S.Ct. 865, 868, 112 L.Ed.2d 969 (1991) (noting
that 42 U.S.C. § 1983, as a remedial statute, should be
liberally construed), as a reason for filling in the
blanks left by this sketchy legislative history to
impose liability under nearly every conceivable
scenario. Thus, while the liability provisions con-
cerning facility operators should be construed so
that financial responsibility for clean-up operations
falls upon those entities that contributed to the
environmental problem, the widest net possible ought
not be cast in order to snare those who are either
innocently or tangentially tied to the facility at issue.
In fact, this court has pointed out that, “Congress
intended that those responsible for disposal of
chemical poisons bear the cost and responsibility for
remedying the harmful conditions they created.”
Anspec, 922 F.2d at 1247 (emphasis added).

In turning to the specific facts now before us, we
adhere to the tenet that liability attaches only to

10a

those parties who are culpable in the sense that they,
by some realistic measure, helped to create the
harmful conditions.

In its effort to discern the sweep of CERCLA
liability, the district court concluded that:

CERCLA broadens the potential for liability of
parent corporations without discarding entirely
the traditional concept of limited liability that is
central to corporate law

Accordingly, it seems that CERCLA’s “owned
or operated” language forges a new, middle
ground. It is a ground that at once accommodates
the general principle of limited liability and the
broader principle of liability attaching for opera-
tive activity. To permit these principles to
coexist under CERCLA, the liability of a parent
corporation cannot attach simply because a parent
has had involvement with its subsidiary in a
manner merely consistent with their investment
relationship. Rather, a parent must have actually
operated the business of its subsidiary.

In this court’s view, then, a parent corporation
is directly liable under section 107(a)(2) as an
operator only when it has exerted power or
influence over its subsidiary by actively partici-
pating in and exercising control over the sub-
sidiary’s business during a period of disposal of
hazardous waste. A parent’s actual participation
in and control over a subsidiary’s functions
and decision-making creates “operator” liability
under CERCLA; a parent’s mere oversight of a
subsidiary’s business in a manner appropriate and
consistent with the investment relationship

lla

between a parent and its wholly owned subsidiary
does not.

CPC Intl v. Aerojet-General, 777 F.Supp. at 573
(emphasis added).

On the basis of this “new, middle ground,” the
district court found both CPC and Aerojet liable as
operators for the disposal of hazardous substances
oo occurred while their subsidiaries operated the
site.

III. DISCUSSION
A. CPC

The district court reasoned that liability poten-
tially could attach to CPC as a parent corporation
in two ways: direct liability under CERCLA’s
“operator” language or by common law veil-piercing.
Clearly, since the facility was titled in the sub-
sidiary’s name, CPC could be found liable as an owner
only through veil piercing. The court determined
that CPC was liable as an operator of the site for
environmental damage that occurred during the
ownership of Ott II; this liability was grounded in
section 107(a)(2) of CERCLA, which renders “any
person [liable] who at the time of disposal of any
hazardous substance owned or operated any facility at
which such hazardous substances were disposed of.”
42 U.S.C. § 9607(a)(2). To reach this conclusion, the
court necessarily had to hold CPC, as a parent cor-
poration, accountable for the environmental conduct
of its wholly owned subsidiary corporation, Ott II.
And, because the court held CPC directly liable as
an operator, it did not reach the question of whether

12a

CPC was liable as an owner pursuant to the tradi-
tional common law doctrine of veil-piercing.

{t is not at all clear from the district court’s
opinion whether the basis for finding parental liabil-
ity as an operator under its “new, middle ground” is
the actual operation of the subsidiary’s business or,
on the other hand, the exertion of power or influence
through active participation in the subsidiary’s
business. Although they are used interchangeably in
the district court’s opinion, the two concepts are not
interchangeable. If anything, the facts recited by the
district court support liability under the latter
standard but not under the former. This confusion
underscores the inevitable difficulty that arises when
courts attempt to erect new concepts of corporate
liability within the framework of CERCLA in the
absence of direction from Congress. We are not per-
suaded that, in enacting CERCLA, Congress con-
templated the abandonment of traditional corcepts of
limited liability associated with the corporate form in
favor of an undefined “new, middle ground.”

Actually, another scenario occurs to us under
which one could argue that a parent corporation
should be deemed to have directly operated a facility
owned by its subsidiary. At least conceivably, a
parent might independently operate the facility in the
stead of its subsidiary; or, as a sort of joint venturer,
actually operate the facility alongside its subsidiary.
However, this is not a theory of operator liability
relied upon by the district court, or alluded to in its
opinion.

13a

CERCLA defines the “owner or operator” of an
onshore facility as “any person owning or operating
such facility.“ 42 U.S.C. § 9601(20)(A)(ii). When the
facility has been conveyed to a unit of state or local
government, the definition differs. It then includes
“any person who owned, operated or otherwise con-
trolled activities at such facility immediately [before
the transfer to the governmental authority].” 42
U.S.C. § 9601(20)(A)(iii). It thus appears that the
drafters of the statute distinguished an operator from
a person who “otherwise controlled” a facility. When
the owner of a facility contracts out the daily running
of the operation to a third party, that party pre-
sumably attains operator status (and its attendant
liability). However, when a parent corporation ac-
tively participates in the affairs of its subsidiary
consistent wich the restrictions imposed by tradi-
tional corporations law, nothing in the definition just
cited or in the rest of the statute indicates that the
parent has assumed the role of operator.

Despite the definition of “owner or operator,”
several circuits, like the district court below, have
determined that parent corporations can attain
operator status by exerting significant control over
the operations of their subsidiaries. See, e.g.,
Kayser-Roth, 910 F.2d at 26-27; Schiavone, 79 F.3d at
255; Lansford-Coaldale Joint Water Auth., 4 F.3d at
1221; Nurad, Inc. v. William E. Hooper & Sons Co.,
966 F. 2d 837, 842 (4th Cir.), cert. denied, 506 U.S. 940,
113 S.Ct. 377, 121 L.Ed.2d 288 (1992); CPC Intl v.
Aerojet-General, 777 F.Supp. at 572-73.

While some may wish to extend the reach of
CERCLA to maximize the impact of its remedies,
nothing in the statute or its legislative history

14a

warrants the invocation by courts of vague, expansive
concepts, such as the district court’s “new, middle
ground,” which threaten the efficacy of time-honored
limited liability protections afforded by the corporate
form. As the Court of Appeals for the Fifth Circuit
has noted in this context, if Congress wanted to
extend liability to parent corporations it could have
done so, and it remains free to do so.” Joslyn Mfg. Co.
v. T. L. James & Co., Inc., 893 F.2d 80, 83 (5th Cir.
1990).

The district court’s approach presents a number of
problems. First, it replaces the relatively bright line
provided by the traditional doctrine of piercing the
corporate veil with a nebulous “control” test. When,
precisely, is a parent acting in a manner consistent
with its investment relationship as opposed to a
manner that triggers operator liability? The indicia
enumerated by the district court, such as participa-
tion in the subsidiary’s board of directors and in-
volvement in specific policy decisions, offer little
guidance. Certainly, these activities are not grounds
traditionally relied upon as warranting the disregard
of separate corporate existences.

Second, the threat of unlimited liability will likely
deter private sector participation in the cleanup of
existing sites. The case before us illustrates this
point. There is no dispute that the MDNR actively
sought a private sector partner to take over and
assist in the remediation of the site. Aerojet indi-
cated an interest on the condition that it could cap its
potential liability for environmental cleanup, which it
sought to accomplish through the negotiation of
the agreement with the MDNR and the use of sub-

l5a

sidiaries.“ To scuttle such sensible and legitimate
precautions in favor of an unpredictable “control” test
would actually contravene the public interest by
discouraging businesses from being involved in such
projects.

Accordingly, we reject the district court’s “new,
middle ground” as the basis for fixing operator
liability and hold that where a parent corporation is
sought to be held liable as an operator pursuant to 42
U.S.C. § 9607(a)(2) based upon the extent of its control
of its subsidiary which owns the facility, the parent
will be liable only when the requirements necessary
to pierce the corporate veil are met. In other words,
under the circumstances of this case, whether the
parent will be liable as an operator depends upon
whether the degree to which it controls its subsidiary
and the extent and manner of its involvement with the
facility, amount to the abuse of the corporate form
that will warrant piercing the corporate veil and
disregarding the separate corporate entities of the
parent and subsidiary.

Whether the circumstances in this case warrant a
piercing of the corporate veil will be determined
by state law. See Anspec, 922 F. 2d at 1248. Michigan
appears to follow the general rule that requires
demonstration of patent abuse of the corporate form
in order to pierce the corporate veil. There must be
such a unity of interest and ownership that the
separate personalities of the corporation and its
owner cease to exist, and the circumstances must

Although it does not affect our resolution of the liability
issue, we note that these negotiations occurred before the
enactment of CERCLA.

l6a

be such that adherence to the fiction of separate
corporate existence would sanction a fraud or
promote injustice. 1 William M. Fletcher, Fletcher
Cyclopedia of the Law of Private Corporations § 41.30
(perm. ed. rev. vol. 1990); Stephen H. Schulman et al.,
Michigan Corporation Law & Practice § 3.9%c) (1991
Supp.); Seasword v. Hilti, Inc., 449 Mich. 542, 548, 537
N.W.2d 221, 224 (1995) (corporate veil may be pierced
where the subsidiary is a “mere instrumentality” of
the parent and the separate corporate existence is
used to subvert justice or cause result contrary to
clearly overriding public policy); see also Boden-
hamer Bldg. Corp. v. Architectural Research Corp.,
873 F.2d 109, 111-12 (6th Cir. 1989) (surveying
Michigan corporate veil-piercing decisions). Organi-
zation of a corporation for the avowed purpose of
avoiding personal responsibility does not in itself
constitute fraud or reprehensible conduct justifying a
disregard of the corporate form. Gledhill v. Fisher &
Co., 272 Mich. 353, 359, 262 N.W. 371, 373 (Mich.
1935).*

The district court relied upon a number of factors
in determining that CPC “actively participated in and
exerted significant control over Ott II's business
and decision-making” and was therefore directly
liable under 42 U.S.C. § 9607(a)(2) as an operator:

4 We do not conclude, as suggested by the dissent, It hat
piercing the corporate veil under Michigan law requires show-
ing that the corporate form was used to ‘subvert justice.
Rather, it requires that the subsidiary be a “mere instrumental-
ity” of the parent which is used either to subvert justice or
to circumvent overriding public policy. In our view, none of
these factors fairly characterize the relationship between CPC
and Ott II.

17a

100% ownership of Ott II; participation on Ott II's
board of directors; a cross-pollination of officers
who were involved in decision-making and daily opera-
tions; active participation by CPC officials in en-
vironmental matters; and financial control of Ott II
through approval of budgets and capital expenditures.
CPC Int'l v. Aerojet-General, 777 F.Supp. at 575.
While these factors reveal a parent that took an active
interest in the affairs of its subsidiary, they do not
indicate such a degree of control that the separate
personalities of the two corporations ceased to exist
and that CPC utilized the corporate form to per-
petrate the kind of fraud or other culpable conduct
required before a court can pierce the veil. While
CERCLA contemplates allocating financial respon-
sibility to those corporations that cause environ-
mental degradation, it does not authorize assignment
of liability to parent corporations that abide by the
proper use of the corporate form.

In summary, then, it seems to us that under
the “owned or operated” language of 42 U.S.C.
§ 9607(a)(2), there are three scenarios under which a
parent corporation could be held liable for the disposal
of hazardous substances at a facility whose owner of
record was the parent’s subsidiary corporation.
First, as an owner, by piercing the corporate veil.
Second, as an operator, where the parent directly
operates the facility itself, either independently of its
subsidiary, or as an actual co-operator alongside the
subsidiary.’ Although a parent conceivably could be

® Thus, the dissent’s characterization of our opinion as
holding “that a parent cannot, as a matter of law, be held
directly liabie under 42 U.S.C. § 9607(a)(2) as an ‘operator’ of a
facility owned by its subsidiary corporation” is mistaken.

18a

held liable under this theory, it is not the one relied
upon by the district court, and, in any event, is not
supported by the facts in the record before us.

Finally, operator liability may be based upon the
conduct of the parent in the course of its affiliation
with its subsidiary, including the degree of control
exerted by the parent over its subsidiary. This is the
scenario utilized by the district court, relying upon
its “new, middle ground” standard to define the cir-
cumstances under which the parent will be liable. As
pointed out above, we conclude that this “new, middle
ground” is unworkable, and that traditional veil pierc-
ing is the only standard under which this scenario for
liability can be assessed reliably.

Accordingly, the district court’s finding of operator
liability with respect to CPC must be reversed.

B. MDNR Liability

The district court rejected liability claims that
were advanced against the MDNR on two fronts: as
an operator and as an “arranger.” Only the district
court’s decision regarding arranger liability is
appealed.

CERCLA imposes liability on

any person who by contract, agreement, or
otherwise arranged for disposal or treatment, or
arranged with a transporter for transport for
disposal or treatment of hazardous substances
owned or possessed by such person, by any other
party or entity, at any facility . owned or operated
by another party or entity and containing such
hazardous subs tances.

19a

42 U.S.C. § 9607(a)(3).

It is contended that the MDNR incurred arranger
liability when it negotiated with Cordova/California
for the acquisition of the site and agreed with
Cordova/California on a plan to clean up the ground-
water contamination.

We agree with the district court’s conclusion that
the MDNR escapes liability because its actions
were taken in response to the Act’s environmental
emergency provision:

No state or local government shall be liable
under this subchapter for costs or damages as
a result of actions taken in response to an
emergency created by the release or threatened
release of a hazardous substance generated by or
from a facility owned by another person. This
paragraph shall not preclude liability for costs
or damages as a result of gross negligence or
intentional misconduct by the State or local
government. For the purpose of the preceding
sentence, reckless, willful, or wanton misconduct
shall constitute gross negligence.

42 U.S.C. § 9607(d)(2). Our reading of the record
indicates that the MDNR acted in good faith when
attempting to address the groundwater contamination
of the site. That its efforts proved to be less than
entirely successful is unfortunate, but does not
subject the agency to liability.“

We note that, since this case was briefed and argued, the
Supreme Court decided Seminole Tribe of Fla. v. Florida, —
U.S. ——, 116 S.Ct. 1114, 134 L.Ed.2d 252 (1996), which poten-
tially provides the MDNR with an Eleventh Amendment de-
fense. Because this issue has not been raised by the parties

20a

C. Liability of Aerojet and its Subsidiaries
I. Owner Liability

The district court held both Aerojet and Cordova/
Michigan liable as present owners of the site under
CERCLA’S section 107(a)(1) which assigns liability
to “the owner and operator of a. .. facility.” 42 U.S.C.
§ 9607(a)(1). Cordova/Michigan does not challenge
this decision on appeal and we therefore express no
opinion with respect to its liability.

As for the parent corporation, Aerojet could be
found liable as an owner only through veil piercing,
since Cordova/Michigan was the owner of record.
The district court appropriately looked to Michigan
law to determine whether to pierce the corporate veil
and, in its view, the evidence supported a conclusion
that Aerojet had “totally dominated Cordova/
Michigan, creating a complete identity of interests
between the parent and its wholly owned subsidiary.”
CPC Intl v. Aerojet-General, 777 F.Supp. at 578.
Accordingly, the court determined that it was appro-
priate to pierce the corporate veil. Among the
grounds cited for its decision, the court highlighted
the total ownership by the parent, Aerojet’s active
participation in the acquisition of the site, the timing
of the incorporation of the subsidiaries, cross- pollina-
tion of corporate officers, financial control, and the
integration of the businesses. Id. at 577.

through supplemental briefs and the resolution of the case with
respect to the MDNR is not affected, we choose not to consider
the impact of Seminole Tribe at this point in the proceedings.

21a

These facts, however, fall somewhat short of
what is required to pierce the corporate veil under
Michigan law. They do not establish that Cordova/
Michigan was a mere instrumentality of Aerojet in
the sense that the separate corporate personalities
of the parent and subsidiary ceased to exist. More
tellingly, they do not reveal activity by Aerojet that
approaches the level of culpable conduct contemplated
by Michigan law as a predicate to disregarding the
separate corporate form. Bodenhamer Bldg. Corp.,
873 F.2d at 112. While Aerojet obviously sought to
limit its liability for existing environmental problems
through good faith negotiation with the MDNR and
prudent use of the corporate form, there is nothing to
suggest that the company acted to subvert justice
or with fraudulent intent or otherwise sought to
distort the legitimate purposes of the corporate form.
Although Aerojet took an active interest in its sub-
sidiaries, the record does not support a conclusion
that Cordova/Michigan was not a viable corporate
entity. Accordingly, the district court erred when it
pierced the corporate veil to assign liability to
Aerojet as an owner.

The district court also noted that Cordova/
California actually owned the site from October 1977
until November 1978. Although the company began
clean-up operations as required by its agreement
with the MDNR, the district court found that
additional releases of hazardous substances occurred
during this period. CPC Int'l v. Aerojet-General, 777
F. Supp. at 579. It thus imposed liability on Cordova/
California as a former owner pursuant to section
107(a)(2).

22a

This conclusion, however, conflicts with the
district court’s summary of activity at the site during
the ownership of the Cordova companies. Id. at 556.
On remand, therefore, we ask the district court to
indicate with greater specificity precisely which por-
tions of the record it relies upon to support a finding
that additional releases of hazardous substances
occurred during Cordova/California’s brief owner-
ship. Absent such evidence, liability cannot attach to
Cordova/California as a former owner of the site.

2. Operator Liability

Finally, we turn to the district court’s alternative
imposition of liability on Aerojet pursuant to section
107(a)(2), precisely the same basis for liability that we
have already discussed, and rejected, with respect to
CPC. Since we decline to adopt the “new, middle
ground” control test utilized by the district court, no
liability attaches unless the corporate veil can be
pierced. And because the record does not support veil
piercing, Aerojet cannot be held liable as an operator
pursuant to section 107(a)(2).

3. Defenses

Upon remand, the district court should also revisit
its treatment of the defense raised by Aerojet,
Cordova/California, and Cordova/Michigan under sec-
tion 107(b)(3.. The pertinent part of the statute
follows:

[A] person otherwise liable who can establish by a
preponderance of the evidence that the release or
threat of release of a hazardous substance and the
damages resulting therefrom were caused solely
in :

(3) an act or omission of a third party other
than . . one whose act or omission occurs in
connection with a contractual relationship,
existing directly or indirectly, with the defendant
... if the defendant establishes by a preponderance
of the evidence that (a) he exercised due care with
respect to the hazardous substance concerned.
and (b) he took precautions against foreseeable
acts or omissions of any such third party and the
consequences that could foreseeably result from
such acts or omissions. . . .

42 U.S.C. § 9607(b) (emphasis added).

In parsing the exceptions to the defense, the
district court noted that under 42 U.S.C. § 9601(35)
(A), the term “contractual relationship” includes
deeds transferring title. Thus, the district court
concluded that a defense would be unavailable to a
defendant who had a direct or indirect contractual
relationship with the parties responsible for contami-
nating the site. CPC Int'l v. Aerojet-General, 777
F.Supp. at 581. Under this view, the defense could not
be invoked by any defendant who was a party to a deed
with a polluter. The district court, however, 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. The “in connection with” language of
the defense appears to have been designed to preclude

24a

a person from escaping liability by contracting for a
third party to do his dirty work for him.

As we pointed out above, from what we glean from
the district court’s recitation of facts, the release of
hazardous substances appears to have been caused
solely by the predecessors of these three defendants.

IV. CONCLUSION

For the foregoing reasons, the district court is
reversed in part and affirmed in part and this cause
is remanded to the district court for further pro-
ceedings consistent with this opinion.

MERRITT, Circuit Judge, concurring in part and
dissenting in part.

I concur in part I of Judge Ryan’s opinion, which
would hold CPC International directly liable as
an operator. I also concur in part III.C.3. of Judge
Norris’ opinion for the Court and support remanding
the case for further findings regarding the Aerojet
defendants’ assertion of the “third-party” defense,
CERCLA S 107(b)(3), 42 U.S.C. § 9607(b)(3), and for
further findings regarding whether or not disposal of
hazardous substances occurred while the Aerojet
defendants owned the site. Unlike Judges Ryan and
Norris, however, I believe that federal common law
governs the question of whether Cordova/California
and Aerojet are liable as current owners pursuant
te CERCLA S 107(a)(1), 42 U.S.C. § 9607(a)(1), rather
than Michigan’s doctrine of piercing the corporate
veil. Since the district court improperly analyzed
this question using Michigan state law, I would
remand the case for further findings.

25a

I. State Law v. Federal Common Law

Several of the parties argue that Cordova/
Michigan, the nominal owner of the site, is an alter
ego of Cordova/California and Aerojet and that
Cordova/California and Aerojet should thus be held
liable as owners under the doctrine of piercing the
corporate veil. Resolution of this issue first requires
deciding whether the question is governed by state
law or federal common law.

It is well-established that actions arising under
nationwide federal programs are governed by federal
law. United States v. Kimbell Foods, Inc., 440 U.S.
715, 726, 99 S.Ct. 1448, 1457, 59 L.Ed.2d 711 (1979). But
federal law can incorporate applicable state law doc-
trines in appropriate circumstances. Id. at 727-28,
99 S. Ct. at 1457-59. In Kimbell Foods, the Supreme
Court enumerated the factors a court must consider
in deciding whether to apply state law or federal
common law. “[FJederal programs that ‘by their
nature are and must be uniform in character through;
out the Nation’ necessitate formulation of controlling
federal rules,” id. at 728, 99 S.Ct. at 1458 (quoting
United States v. Yazell, 382 U.S. 341, 354, 86 S. Ct.
500, 507, 15 L.Ed.2d 404 (1966)), but courts must also
consider “whether application of state law would
frustrate specific objectives of the federal programs”
and “the extent to which application of a federal rule
would disrupt commercial relationships predicated on
state law.” Id.

Under the Kimbell Foods test, federal common
law standards for piercing the corporate veil should
be applied in CERCLA actions against parent cor-

26a

porations. All three of the Kimbell Foods factors
support using a uniform federal standard.

In attempting to eliminate the dangers of hazard-
ous wastes, CERCLA presents a national solution
to a nationwide problem. One can hardly imagine
a federal program more demanding of national
uniformity than environmental protection. Con-
gress did not intend that the ability of the
executive to fund the clean up of hazardous waste
sites should depend on the attitudes of the several
states toward parent-subsidiary liability in
general, or CERCLA in particular. The need for a
uniform federal rule is especially great for ques-
tions of piereing the corporate veil, since liability
under the statute must not depend on the partieu-
lar state in which a defendant happens to reside.

In re Acushnet River & New Bedford Harbor
Proceedings re Alleged PCB Pollution, 675 F.Supp.
22, 31 (D. Mass. 1987).

Congress intended for CERCLA to cast a wide net
of responsibility for the costs of environmental
cleanup. Uniform national standards of liability are
necessary to effectuate this goal. Following state law
in this area would allow corrore‘ions to easily evade
their environmental respons ilities under CERCLA
by incorporating subsidiaries in states with stringent
standards for piercing the corporate veil. See 126
Cong. Rec. H11787 (daily ed. Dec. 3, 1980) (statement
of Rep. Florio, CERCLA House sponsor) (Atlo insure
the development of a uniform rule of law, and to dis-
courage business dealings in hazardous substances
from locating primarily in Stafes with more lenient
laws, the bill will encourage the further development
of a Federal common law in this area”). In addition,

27a

states’ interests in regulating corporations are
strongest with respect to internal affairs of the cor-
poration, and are less compelling with respect to
external affairs such as shareholder liability to out-
side parties. See Henry Hansmann & Reinier
Kraakman, A Procedural Focus on Unlimited
Shareholder Liability, 106 Harv. L.Rev. 446, 450-53
(1992) (arguing that choice of law concerns do not bar
unlimited shareholder liability in tort actions); Note,
Piercing the Corporate Veil: The Alter Ego Doctrine
Under Federal Common Law, 95 Harv. L.Rev. 853,
862-63 (1982) (arguing that piercing the corporate veil
relates to external affairs and should be governed by
the law of the forum); cf. First Nat'l City Bank v.
Banco Para El Comercio Exterior De Cuba, 462
U.S. 611, 621, 103 S.Ct. 2591, 2597, 77 L.Ed.2d 46 (1983)
(“As a general matter, the law of the [country] of
incorporation normally determines issues relating to
the internal affairs of a corporation. . Different
conflicts principles apply, however, where the rights
of third parties external to the corporation are at
issue.” (citations omitted)).

Federal precedents support using a federal common
law standard for piercing the corporate veil to deter-
mine parent corporation CERCLA liability. Al-
though few circuit courts have considered the issue,
compare Lansford-Coaldale Joint Water Authority
v. Tonolli Corp., 4 F.3d 1209, 1225 (3d Cir. 1993)
(applying federal common law) with Joslyn Manu-
facturing Co. v. T.L. James & Co., 893 F.2d 80 (5th
Cir. 1990) (affirming a district court opinion that
declined to address the choice of law question on the
grounds that the standard for piercing the corporate
veil are the same under state and federal law), district

28a

courts have overwhelmingly applied federal common
law in this context. IJdylwoods Assocs. v. Mader
Capital, Inc., 915 F.Supp. 1290, 1805 (W.D.N.Y. 1996);
Atlantic Richfield Company v. Blosenski, 847
F.Supp. 1261, 1278 (E. D. Pa. 1994); City of New York
v. Exxon Corp., 112 B. R. 540, 552 (S. D. N. V. 1990),
aff'd on other grounds, 932 F.2d 1020 (2d Cir. 1991);
United States v. Kayser-Roth Corp., 724 F.Supp. 15,
20 (D.R.1.1989), aff'd on other grounds, 910 F.2d 24
(Ist Cir. 1990); United States v. Nicolet, Inc., 712
F.Supp. 1193, 1201 (E.D. Pa.1989); In re Acushnet
River & New Bedford Harbor Proceedings re
Alleged PCB Pollution, 675 F.Supp. 22, 30-31 (D.
Mass. 1987); cf. Jacksonville Elec. Auth. v. Eppinger
and Russell Co., 776 F.Supp. 1542, 1545-46 (M.D. Fla.
1991) (applying Fifth Circuit standard without
discussing the choice of law question), aff'd on other
grounds sub nom Jacksonville Elec. Auth. „.
Bernuth Corp., 996 F.2d 1107 (11th Cir. 1998); United
States v. Mottolo, 695 F.Supp. 615, 624 (D.N.H. 1988)
(holding parent corporation liable without piercing
the corporate veil because “CERCLA places no
importance on the corporate form”).

Additional support for using a federal common law
standard comes from cases involving successor cor-
poration liability under CERCLA. Although this
Court has previously relied on state law in that
context, see Anspec Co. v. Johnson Controls, Inc., 922
F. 2d 1240 (6th Cir. 1991), other circuits that have con-
sidered this issue have applied federal common law.
See B.F. Goodrich v. Betkoski, 99 F.3d 505, 519 (2d
Cir. 1996); United States v. Carolina Transformer
Co., 978 F.2d 832 (4th Cir. 1992); Louisiana · Pacific
Corp. v. Asarco, Inc., 909 F.2d 1260 (9th Cir. 1990);

29a

Smith Land & Improvement Corp. v. Celotex Corp.,
851 F.2d 86 (3d Cir. 1988); see also United States v.
Mexico Feed and Seed Co., 980 F.2d 478, 487 n. 9 (8th
Cir. 1992) (stating in dicta that federal common law
should probably be applied).

Il. The Proper Federal Standard

Piercing the corporate veil is an equitable doctrine.
“The federal common law in this area emerges from
the general principle that ‘a corporate entity may be
disregarded in the interests of public convenience,
fairness and equity.“ In re Acushnet River & New
Bedford Harbor Proceedings re Alleged PCB
Pollution, 675 F.Supp. 22, 33 (D. Mass. 1987) (quoting
Town of Brookline v. Gorsuch, 667 F.2d 215, 221 (Ist
Cir.1981)); see also American Bell Inc. v. Federation
of Tel. Workers, 736 F. 2d 879, 886 (3d Cir. 1984) (“the
appropriate occasion for disregarding the corporate
existence occurs when the court must prevent fraud,
illegality or injustice, or when recognition of the
corporate entity would defeat public policy or shield
someone from liability for a crime”). Two elements
are generally regarded to be essential to pierce the
corporate veil: “First, the dominant corporation
must have controlled the subservient corporation, and
second, the dominant corporation must have proxi-

The Eleventh Circuit recently applied state law to deter-
mine the CERCLA liability of limited partners, see Redwing
Carriers, Inc. v. Saraland Apartments, 94 F.3d 1489 (11th Cir.
1996). That is not necessarily inconsistent with applying
federal law in claims involving subsidiary corporations, how-
ever, since the danger of corporations creating subsidiary part-
nerships, as compared to subsidiary corporations, in order to
evade CERCLA liability is fairly attenuated.

30a

mately caused plaintiff harm through misuse of this
control.” Krivo Indus. Supply Co. v. National
Distillers & Chem. Corp.,.483 F.2d 1098, 1103 (5th
Cir. 1973).

Although some cases require a showing of fraud,
see, e. g., Edwards Co. v. Monogram Indus., 730 F.2d
977, 980-81 (5th Cir.1984), even jurisdictions that re-
quire such a showing in some circumstances often
recognize that fraud is not always required. See, e.g.,
United States v. Jon-T Chems., Inc., 768 F.2d 686,
692-93 (5th Cir. 1985) (finding that fraud is not re-
quired to pierce the veil in tort cases even though
fraud is required in contract cases). Courts applying
federal common law have found that fraud is not
required to pierce the corporate veil. See, e.g., Valley
Fin., Inc. v. United States, 629 F.2d 162, 172 (D.C.
Cir. 1980). Requiring a showing of fraud would be
particularly inappropriate in CERCLA cases. The
fraud requirement appears to arise from the equitable
nature of the piercing doctrine. The public policy
considerations underlying CERCLA, however, pro-
vide a sufficient equitable basis for piercing the
corporate veil whether or not fraud has been shown.
This conclusion is further supported by CERCLA’s
limited deference to corporate form. See United
States v. Mottolo, 695 F.Supp. 615, 624 (D.N.H. 1988);
United States v. Kayser-Roth Corp., 724 F.Supp. 15,
23-24 (D. R. I. 1989), af d on other grounds, 910 F.2d 24
(Ist Cir. 1990).

Similarly, the proximate cause element should not
be required in CERCLA cases, because Congress has
provided statutory liability criteria. If a CERCLA
defendant is a potentially responsible party under

3la

CERCLA § 107, 42 U.S.C. § 9607, then no further
finding of proximate causation should be required.

The test for piercing the corporate veil under
federal common law in CERCLA cases thus should be
simply whether the parent corporation “controls or
at the relevant time controlled the management and
operations of the subsidiary.” United States v.
Nicolet, Inc., 712 F.Supp. 1193, 1202 (E.D. Pa. 1989).
Federal courts applying this standard in CERCLA
cases have relied on one of two tests: a twelve-factor
test set out in United States v. Jon-T Chems., Inc.,
768 F.2d 686, 691-92 (5th Cir. 1985); see Jacksonville
Elec. Auth. v. Eppinger and Russell Co., 776 F.Supp.
1542, 1545 (M. D. Fla. 1991), af d on other grounds sub
nom Jacksonville Elec. Auth. v. Bernuth Corp., 996
F. 2d 1107 (11th Cir. 1993); Joslyn Corp. v. T. L. James
& Co., 696 F.Supp. 222, 227 (W. D. La. 1988), aff’d, 893
F. 2d 80 (5th Cir. 1990); or a seven- factor test set out
in In re Acushnet River & New Bedford Harbor Pro-
ceedings re Alleged PCB Pollution, 675 F.Supp. 22,
33 (D. Mass. 1987); see Idylwoods Assocs. v. Mader
Capital, Inc., 915 F.Supp. 1290, 1305 (W.D.N.Y. 1996);
City of New York v. Exxon Corp., 112 B.R. 540, 553
(S. D. N. V. 1990), aff d on other grounds, 932 F.2d 1020
(2d Cir. 1991); United States v. Kayser-Roth Corp.,
724 F.Supp. 15, 20 (D.R.I. 1989), aff d on other
grounds, 910 F.2d 24 (Ist Cir. 1990). These tests over-
lap, and neither list of factors is exhaustive. Piercing
the corporate veil requires a fact-specific inquiry
taking into account all of these factors and any other
pertinent circumstances. The trier of fact must con-
sider the totality of the circumstances to determine
whether the parent controls or controlled the man-

agement and operations of the subsidiary.

32a

Because the district court applied Michigan law
rather than the proper federal common law standard
for piercing the corporate veil, I would remand the
case for further review under the proper standard.

RYAN, Circuit Judge, dissenting.

My colleagues’ opinion today reaches three impor-
tant and dispositive conclusions:

That a parent corporation cannot, as a matter
of law, be held directly liable under 42 U.S.C.
§ 9607(a)(2) as an “operator” of a facility owned
by its subsidiary corporation, but may face only
vicarious liability under state-law corporation-
veil-piercing principles;

That piercing the corporate veil under Michigan
law requires circumstances showing that the
corporate form was used to “subvert justice”; and

That the district court erred in finding that the
defendants failed to prove their entitlement to
the so-called third-party defense under 42 U.S.C.
§ 9607(b)(3).

In my judgment, the court is mistaken on all three
grounds, and I therefore respectfully dissent.

I.
Direct Liability of a CPC Under Section 107(4)(2)
A.
Parent Corporations as “Operators”

CERCLA identifies two distinct categories of
individuals or entities that may be held directly liable,

33a

as responsible parties, for the costs of cleanup of an
environmentally contaminated facility:

(1) the owner and operator of a vessel or a
facility, [or]

(2) any person who at the time of disposal of any
hazardous substance owned or operated any
facility at which such hazardous substances were

disposed of].]

42 U.S.C. § 9607(a) (emphasis added). The parties
have stipulated that the site is a “facility” as defined
by CERCLA, and that the site contains “hazardous
substances.”

The terms “owner” and “operator,” as used in sec-
tion 107(a)(2), are defined in the statute as “any
person owning or operating such facility,” 42 U.S.C.
§ 9601(20)(A)(ii), a definition that is, at best, circular
and unhelpful. At least one court has observed that
“(tlhe circularity strongly implies ... that the
statutory terms have their ordinary meanings rather
than unusual or technical meanings.” Edward Hines
Lumber Co. v. Vulcan Materials Co., 861 F.2d 155,
156 (7th Cir. 1988). Further, it is noteworthy that the
definition of “owner” explicitly excludes one whose
ownership interest is merely that of a stockholder
and who does not participate in management of the
facility, 42 U.S.C. § 9601(20)(A)(iii), suggesting that
ene who does participate in management is accord-
ingly susceptible to liability, see United States v.
Kayser-Roth Corp., 910 F.2d 24, 26 n. 6 (Ist Cir. 1990).
Finally, “person” is defined expansively as “an indi-
vidual, firm, corporation, association, partnership,
consortium, joint venture, commercial entity, United
States Government, State, municipality, commission,

34a

political subdivision of a State, or any interstate
body.” 42 U.S.C. § 9601(21). The breadth of this de-
finition plainly leaves room for a parent corporation.
See Kayser-Roth, 910 F.2d at 25 n. 5.

The first question presented by this appeal is
whether a parent corporation may be considered an
“operator” under section 107(a)(2) when its subsidiary
is the “owner.” The district court determined that a
parent corporation may face potential liability as an
operator of a contaminating facility because the plain
language of section 107(a)(2) indicates that Congress
intended to impose liability on any entity actually
operating a facility, regardless of the nature of the
entity’s ostensible interest in the facility. It is a con-
clusion with which I agree; indeed, it is a conclusion
that the vast majority of circuits—eight out of nine
considering the question—have reached as well.
Certain Underwriters at Lloyd’s, London v. St. Joe
Minerals Corp., 90 F.3d 671, 673-74 (2d Cir. 1996),
Schiavone v. Pearce, 79 F.3d 248, 253-55 (2d Cir.
1996); FMC Corp. v. United States Dep’t of Cori-
merce, 29 F.3d 833, 842 (8d Cir. 1994) (en banc);
Lansford-Coaldale Joint Water Authority v. Tonoiii
Corp., 4 F.3d 1209, 1221-22 (3d Cir. 1993); Jacksonville
Elec. Auth. v. Bernuth Corp., 996 F.2d 1107, 1110
(11th Cir. 1993); John S. Boyd Co. v. Boston Gas Co.,
992 F.2d 401, 408 (Ist Cir. 1993); see Kaiser Alumi-
nim and Chem. Corp. v. Catellus Dev. Corp., 976
F. 2d 1338, 1341-42 (9th Cir. 1992); Kayser-Roth Corp.,
910 F.2d at 27; see also United States v. TIC
Investment Corp., 68 F.3d 1082, 1091-92 (8th Cir.
1995), cert. denied, — U.S. ——, 117 S.Ct. 50, 136
L.Ed.2d 14 (1996); Nurad, Inc. v. William E. Hooper
& Sons Co., 966 F.2d 837, 842 (4th Cir. 1992); of.

35a

Sidney S. Arst Co. v. Pipefitters Welfare Educ.
Fund, 25 F.3d 417, 420 (7th Cir. 1994). But see Joslyn
Mfg. Co. v. T. L. James & Co., 893 F.2d 80 (5th Cir.
1990).

My colleagues offer several reasons for parting
company with this impressive wealth of authority.
First, they argue that courts have relied on the
so-called remedial purpose of CERCLA to justify
their conclusion that CERCLA should be given an
expansive meaning, including a meaning that admits
of liability for parent corporations as operators.
Certainly, the shibboleth “remedial purpose” is a
weak basis for legal analysis and I do not find it
necessary to resort to it. But what the majority sees
as the logical secend step to a rejection of the
remedial-purpose litany, namely, its “adhere[nce] to
the tenet that liability attaches only to those parties
who are culpable in the sense that they, by some
realistic measure, helped to create the harmful
conditions,“ is, to put it mildly, a non sequitur. (Maj.
op. at 578.) Implicit in the majority’s chosen “tenet”
is rejection of the universally accepted principle that
liability under CERCLA is both strict, as well as
joint and several. See, e.g., Kayser-Roth, 910 F.2d at
26; FMC Corp., 29 F.3d at 835. Whether CERCLA’s
purpose is “remedial” or not, the sounder proposition,
I think, is that liability attaches only to those entities
whom Congress has singled out for liability. For the
reasons set forth below, the statutory language
leaves no room to doubt that Congress has singled out
operators for liability, irrespective of their corporate
form.

The majority is also critical of the district court’s
language that liability should be predicated on a “new,

36a

middle ground,” and contends that this choice of
language makes it unclear “whether the [district
court's] basis for finding parental liability as an
operator. is the actual operation of the
subsidiary’s business or . . . the exertion of power
or influence through active participation in the sub-
sidiary’s business.” (Maj. op. at 579.) It may be that
trial courts’ inventive “new, middle ground” expres-
sion is more conferring than clarifying, but my
colleagues’ conclusion that the district court’s
holding “threaten[s] the efficacy of time-honored
liability protections afforded by the corporate form,”
simply does not follow. And my colleagues’ ultimate
conclusion, that a parent can only be found liable
“when the requirements necessary to pierce the
corporate veil are met,” contradicts the plain lan-
guage of section 107(a)(2). Moreover, it is a conclu-
sion that begs the question this case presents, which,
under subsection (a)(2), is not whether a parent
corporation may be held vicariously liable for abuse of
its subsidiary’s corporate form—clearly it may—but
whether Congress has created direct liability if the
facts show that the parent corporation was the actor
actually operating a contaminating facility. Stated
differently, the issue is whether Congress has ex-
cused a parent corporation that is in fact operating a
contaminating facility from direct liability, simply
because it is doing so in the name of a corporate
subsidiary. The majority’s belief that such an excuse
may be found in the statute does not, for me,
withstand close scrutiny.

The structure of the statute, on its face, requires
a recognition that “ ‘owner’ liability and ‘operator’
liability denote two separate concepts and hence re-

37a

quire two separate standards for determining
whether they apply.“ Lansford-Coaldale, 4 F.3d at
1220. “‘CERCLA’s language.. indicates an intent
to hold a corporation liable for the environmental
violations of its subsidiaries and sister corporations,
if it is otherwise determined to have operated the
facility in question.“ Schiavone, 79 F.3d at 255
(quoting Lansford-Coaldale, 4 F.3d at 1221 n. 11). As
the Kayser-Roth court observed,

Congress, by including a liability category in
addition to owner (“operators”) connected by the
conjunction “or,” implied that a person who is an
operator of a facility is not protected from liability
by the legal structure of ownership. Given this
grammatical construction and the broad definition
of “person,” corporate status, while relevant to
determine ownership, cannot shield a person from
operator liability.

Kayser-Roth, 910 F.2d at 26; see Schiavone, 79 F.3d at
254. In short, direct CERCLA liability under sub-
section (a)(2) may be predicated on one’s status as an
owner or on one’s status as an operator.

Alternatively, of course, a parent corporation may
also be derivatively liable if circumstances warrant
piercing the corporate veil in order to treat that
parent corporation as an owner, when its subsidiary
is in fact the owner. The majority opinion conflates
and confounds the two types of liability, which are
analytically distinct, and erroneously concludes that
the latter is the exclusive basis for liability. See
Sidney S. Arst Co., 25 F.3d at 420; cf. Schiavone, 79
F.3d at 253. As a result, the majority’s analysis
founders on a perceived tension between the standard

38a

of a derivative liability arising out of common-law
principles of corporate law and the standard of direct
liability arising out of an application of the statutory
language of CERCLA. The tension is chimerical.
The statute explicitly provides for distinct, direct
operator liability, and “the basis for such operator
liability is wholly independent of any liability on the
part of” the subsidiary, Schiavone, 79 F.3d at 254; it
is a direct liability that “stem[s] directly from [the
parent's] control over the plant,” that is, its own
actions as an operator, id. The mere fact that
derivative owner liability requires a veil-piercing
analysis simply does not speak to the appropriate
analysis of direct operator liability.

As previously alluded to, many courts have ana-
lyzed the issue of direct operator liability of a parent
corporation. Most have followed the approach of
Kayser-Roth, in which the court declared that At lo be
an operator requires more than merely complete
ownership and the concomitant general authority or
ability to control that comes with ownership. At a
minimum it requires active involvement in the activi-
ties of the subsidiary.” 910 F.2d at 27. “This standard
requires an investigation into the relationship
between the parent and subsidiary, in order to reveal
the requisite level of corporate involvement.” John S.
Boyd, 992 F.2d at 408. Thus, the degree of control
required is more.. than simple ownership and the
general authority or control that comes with it.”
Certain Underwriters, 90 F.3d at 674. In Lansford-
Coaldale, 4 F.3d 1209, the court embraced the Kayser-
Roth standard, emphasizing that “operator liability
may be established even without evidence that a
[parent] corporation controlled the environmental

39a

decisions of an affiliated corporation as long as there
exist other factors which sufficiently demonstrate
pervasive control.” Id. at 1222 n. 13. Similarly, in
Jacksonville Electric, 996 F.2d 1107, the court agreed
that the test for direct parent corporation liability as
an operator was whether the parent “ ‘exercises
actual and pervasive control of the subsidiary to the
extent of actually involving itself in the daily
operations of the subsidiary. Actual involvement in
decisions regarding the disposal of hazardous sub-
stances is a sufficient, but not a necessary, condition
to the imposition of operator liability.’ “Jd. at 1110
(citation omitted). As is clear from the language
of these cases, and as the Kayser-Roth court empha-
sized, it would “obviously not [be] the usual case that
the parent of a wholly owned subsidiary is an operator
of the subsidiary.” Kayser-Roth, 910 F.2d at 27; see
John S. Boyd, 992 F.2d at 408.

Among the many courts that have recognized that a
parent corporation may be directly liable as an
operator under section 107(a)(2), there has been a
difference of opinion “as to whether operator liability
should be predicated on the actual control one cor-
poration has over the other, or whether the cor-
poration’s capacity or authority to control is suffi-
cient.” Lansford-Coaldale, 4 F.3d at 1220. The
minority view has been adopted by the Fourth and
Ninth Circuits, which would hold a parent cor-
poration directly liable as an operator not because the
parent corporation actually controlled the subsidiary,
but rather because it had the authority to do so. See,
e.g., Nurad, 966 F.2d at 842; Kaiser Aluminum, 976
F.2d at 1341. Those courts have justified their test
as “one which properly declines to absolve from

40a

CERCLA liability a party who possessed the author-
ity to abate the damage caused by the disposal of
hazardous substances but who declined to actually
exercise that authority by undertaking efforts at a
cleanup.” Nwrad, 966 F. 2d at 842.

This view, I think, goes too far, because it assigns
liability to the parent corporations beyond that
intended by Congress. But in holding, as the majority
of circuits have, that a parent corporation may be
liable when it actually operates the facility in ques-
tion, a court simply faithfully interprets plain statu-
tory language.

Only the Fifth Circuit has adopted the limited view
of operator liability described in the majority opinion
here, in which the corporate form of the alleged
operator is dispositive. The Joslyn court framed its
inquiry as being whether to “impose direct liability
on parent corporation for the violations of their
wholly owned subsidiaries.” Joslyn, 893 F.2d at 81.
This somewhat disingenuous framing of the question
ignores the direct link contemplated by the majority
of other courts that have discussed operator liability,
and suggests that operator liability for parent
corporations, like owner liability, would simply be
another type of derivative liability, albeit of a less
demanding nature than corporate-veil-piercing. The
Joslyn court reasoned that because “CERCLA does
not [explicitly] define ‘owners’ or ‘operators’ as in-
cluding the parent company of offending wholly-owned
subsidiaries,” id. at 82, there can be no operator
liability for parents in the absence of veil-piercing.
This analysis completely misses the point, which is
that since a parent corporation is certainly within
the statutory definition of “person,” the relevant

41a

question is simply whether the particular corporation
was, in fact, an operator of the facility in question.
Thus, the Joslyn court’s invitation to Congress to
“extend liability to parent corporations” if it wishes
to do so, id. at 83, is simply meaningless. It is obvious
that CERCLA does extend liability to all cor-
porations, including parent corporations, so long as
they satisfy the statutory prerequisite that they be
operators. I note, too, that another panel of the Fifth
Circuit, in a case decided after Joslyn, observed in
dicta that individual shareholders or officers could
be held directly liable as an operator, when “they
themselves actually participate in the wrongful
conduct prohibited by the Act,” and recognized that
“this personal liability is distinct from the derivative
liability that results from ‘piercing the corporate
veil.’” Riverside Mkt. Dev. Corp. v. International
Bldg. Prods., Inc., 931 F.2d 327, 330 (5th Cir. 1991).
The Riverside holding indicates, at a minimum, a
reluctance within the Fifth Circuit to broadly apply
Joslyn.

In sum, I conclude, as the district court did, that a
parent corporation may be held directly liable as an
operator of a contaminating facility under section
107(a)(2) if the facts of the case show that its domina-
tion and control of the subsidiary corporation ostensi-
bly operating the facility is so pervasive that the
parent is the operator in fact.

CPC’s Liability Under Section 107(a)(2)

In addition to generally repudiating the possibility
of direct operator liability for parent corporations,
which has been adopted in a majority of circuits con-

42a

sidering the question, my colleagues have a factual
dispute with the district court. That is, given my
conclusion that CERCLA plainly contemplates the
possibility of direct operator liability for parent cor-
porations, the analysis necessarily turns to whether
such liability is appropriately imposed here: whether
CPC, as a factual matter, operated the facility. My
colleagues acknowledge that, arguendo, “where the
parent directly operates the facility itself, either in-
dependently of its subsidiary, or as an actual co-
operator alongside the subsidiary,” liability would be
appropriate, but they assert that this theory “is not
the one relied upon by the district court and, in any
event, is not supported by the facts in the record
before us.” (Maj. op. at 581.) This assertion simply
belies the record and te district court’s opinion,
and further, it fails to recognize that our review on
this point is limited to review for clear error.
Lansford-Coaldale, 4 F.3d at 1219; John S. Boyd, 992
F. 2d at 408; Kayser-Roth, 910 F.2d at 27.

The district court found that CPC, Ott II’s parent
corporation, so totally and completely controlled
Ott II that CPC was the actual operator of the con-
taminating facility in Dalton Township, Michigan.
There is an abundance of evidence in the record to
support this factual finding, and in all events, not
even my colleagues claim it is clearly erroneous. It
follows, therefore, as the district court found, that
CPC is directly liable under section 107(a)(2) as the
operator of the site. I agree.

Section 107(a)(2) provides that a parent corporation
is liable if it is the operator-in-fact of the facility as
indicated by the extent of its domination and control
of the subsidiary, the ostensible operator. The

43a

district court pointed out that some of the factors
relevant to deciding whether the parent is the
operator-in-fact include considerations such as the
parent corporation’s involvement in the subsidiary’s
board of directors and daily operations, and the parent
corporation’s control over the subsidiary’s policy
making in areas such as personnel, finance, and waste
disposal. Also relevant are the facts leading up to the
subsidiary’s origin and the reasons for its existence,
and the parent’s level of financial monitoring and its
cooperation or consolidation with the subsidiary's
accounting, legal, and research fur.ctions.

The specific facts with regard to CPC, as found by
the district court, are these:

From CPC’s acquisition of Ott II in October 1965
through April 1966, all four directors on Ott II's board
were CPC officers. Over the next three and one-half
years, at least three of the eight board members were
officers of CPC, and for the following two and one-half
years, until CPC sold Ott II, CPC officials comprised
the majority of the then eleven-director board. At all
times during Ott II's existence, the chairman of its
board was a high-level CPC executive, appointed by
CPC’s president. In addition, the managers of Ott II
who exerted active control over the subsidiary’s day-
to-day activities also were officers of CPC. Arnold
Ott, who had been chief executive officer of Ott I,
continued as Ott II’s chief executive officer until
1969, during which time he also was CPC’s vice
president for scientific research and president of
CPC’s development company, a subsidiary with over-
sight responsibility for several CPC subsidiaries
including Ott II. In addition, James Eiszner, who had
been Ott I’s vice president of marketing, served as Ott

doa

II's president from 1967 to 1970. During Eiszner's
tenure with Ott II. he also served as vice president of
CPC's development company, and eventually became
CPC’s chief executive officer. Moreover, Eiszner, in
particular, was criticized during his tenure as an Ott
II official for paying too much attention to his CPC
responsibilities and not enough attention to Ott II.
Beverly Warner served as Ott II's chief executive
officer from 1970 until it was sold in 1972, at the same
time serving as president of CPC’s development com-
pany.

Not only did CPC participate in Ott Il's environ-
mental matters via the CPC’s environmental affairs
director, G.R.D. Williams, but it was instrumental in
setting Ott II's environmental policies. For example,
because Williams did not believe Ott II needed a
biological waste treatment facility, Ott II officers
abandoned presenting plans for such a facility at a
meeting with the state of Michigan. Moreover,
Williams repeatedly controlled the interaction be-
tween Ott II officials and state and federal regulators,
and instructed Ott II’s officers “to consult with CPC
before responding to regulatory questionnaires or
other inquiries.” CPC Int'l, Inc. v. Aerojet-General
Co, 777 F.Supp. 549, 561 (W. D. Mich. 1991). Finally,
as the district court found, CPC's involvement in Ott
II’s financial affairs involved more than mere review
and oversight. For example, CPC made loans to Ott
II in excess of $5 million, while assuming many of Ott
II's existing loans. In addition, CPC commingled
its funds with Ott II's funds. CPC also limited
the amount of capital expenditures that Ott II could
approve without further approval by CPC’s board of
directors. As to personnel matters, CPC repeatedly

45a

participated in Ott II's labor negotiations with local
unions.

Based on these and many other findings, the dis-
trict court concluded that At he evidence shows a
level of participation and control by CPC that exceeds
the bounds of an interested investor and enters the
realm of an active operator.” Id. at 575. These find-
ings are amply supported in the record. As I have
said, my colleagues do not claim they are clearly
erroneous. Accordingly, the district court’s con-
clusion that CPC was directly liable under section
107(a)(2) as an operator should be affirmed.

II.
Aerojet’s Liability Under Section 197(a)(1)

The district court found Aerojet liable as a present
“owner” of a contaminated facility under section
107(a)(1). It did so after finding that the facts justified
piercing the corporate veil that thinly shielded
Cordova/Michigan from Aerojet. My colleagues hold
that the district court erred because it misapplied
Michigan law: “(The district court’s findings do] not
suggest that the company acted to subvert justice or
with fraudulent intent or otherwise sought to distort
the legitimate purposes of the corporate form.” (Maj.
op. at 582.)

While there is no question that fraudulent intent or
a subversion of justice justifies piercing the
corporate veil, there is ample authority under
Michigan law for finding parent corporation liability
through veil piercing for a less egregious reason,
such as unjustified use of the corporate form. Indeed,

16a

the Michigan Supreme Court has onl
restated the applicable rule: diaper’

Michigan law presumes that, absent some abuse of
corporate form, parent and subsidiary cor-
porations are separate and distinct entities. This
presumption, often referred to as a “corporate
veil,” may be pierced only where an otherwise
separate corporate existence has been used to
— justice ot cause a result that [is] con-
rary some r clearly overriding public
policy.” More specifically, Michigan —4—
generaliy required that a subsidiary must
become ‘a mere instrumentality’ of the parent”
before its separate corporate existence will be
disregarded.

Seasword v. Hilti, Inc., 449 Mich. 542, 537 N.W.2d 221
224 (1995) (emphasis added) (citations omitted); see
Wells v. Firestone Tire and Rubber Co., 421 Mich.
641, 364 N.W.2d 670, 675 (1984); Herman v. Mobile
Homes Corp., 317 Mich. 233, 26 N.W2d 757, 762-63
(1947); Potter v. Michigan Bell Tel. Co., 246 Mich. 198,
224 N.W. 438, 439 (1929). But the most instructive
language of Seasword, for purposes of this case, is in
the court’s illustrative listing of “relevant factors

showing that a subsidiary is a ‘mere instrumentality’
of its parent”:

[The parent and subsidiary shared principal
offices, or had interlocking boards of directors or
frequent interchanges of employees, that the
subsidiary is the parent’s exclusive distributing
arm, or the parent’s revenues are entirely derived
from sales by the subsidiary.

Seasword, 537 N.W.2d at 224 n. 10.

47a

The coincidence between these hypothetical factors
and the reality of Aerojet’s relationship with its
subsidiaries is, to put it mildly, striking. The district
court found that Aerojet was the 100% shareholder
of Cordova/California; that Cordova/California, in
turn, was the sole shareholder of Cordova/Michigan;
and that the boards of directors of Cordova/California
and Cordova/Michigan were titular only, not even
convening for meetings. At least twenty Aerojet of-
ficers simultaneously held the same or nearly
identical positions in Cordova/California and Cordova/
Michigan. Aerojet so completely controlled the
finances of all companies that neither Cordova/
California nor Cordova/Michigan were permitted to
maintain separate bank accounts. In addition, there
was evidence that Aerojet used Cordova/Michigan
by transferring to Cordova/California millions in
worthless debt owed to Aerojet by Cordova/Michigan,
effectively canceling debt owed by Aerojet to Cordova/
California. These findings are supported by the
record and are not clearly erroneous. The evidence
established that Cordova/Michigan operated as a
“mere instrumentality” of Aerojet.

Even more compelling are the findings of the
district court regarding Cordova/Michigan’s corpo-
rate purpose. When Aerojet began negotiations with
MDNR for the Dalton Township property, Aerojet
negotiated side-by-side with its then-unincorporated
division, Cordova. After Aerojet entered two short-
term stipulations with MDNR, and merely eleven
days before the sale was concluded, Aerojet incorpo-
rated Cordova as a wholly-owned subsidiary. Al-
though Aerojet had initially drafted the stipulation
and consent order with MDNR, it was “Cordova

48a

Chemical Company” that actually signed the agree-
ment. Then, in November 1978, with the remodeling
of the facility complete and manufacturing about
to begin, Cordova/California incorporated Cordova/
Michigan, transferring to it Cordova/California’s
ownership of the facility. Despite the separate
corporate form of Cordova/Michigan, throughout
operations, Aerojet actively participated in negotia-
tions with prospective buyers for the possible sale of
the facility. Once Cordova/Michigan ceased opera-
tions at the site, it was Aerojet that took responsibil-
ity for leasing portions of the site to third parties. It
is clear that Aerojet took pains to insulate itself from
environmenta! liability for the situation they knew
new 45 at the site. Aerojet admits as much in its
rief:

By using well-capitalized, non-fraudulent, sepa-
rate corporate subsidiaries, such as Cordova/
California and then Cordova/Michigan, Aerojet
could justify an attempt to reclaim and make
the waste Site productive without risking all of
its corporate assets. A rule of law imposing
enormous environmental liability on parent cor-
porations whose subsidiary neither perpetrated a
fraud nor contributed to actual contamination
would result in contaminated waste sites being
permanently abandoned as unproductive, orphan
properties, because no rational corporate officer
could support a decision to rehabilitate a contami-
nated site if such liability were unavoidable.

Thus, Aerojet admits that Cordova/Michigan was
established solely as a facade, to avoid any legal
obligation to pay for further environmental cleanup at

49a

the site. Under Michigan law, its admission is
sufficient to justify piercing the corporate veil. See
Potter, 224 N.W. at 440. As Aerojet points out, it is
possible that a refusal to allow a prospective pur-
chaser of a contaminated site to avoid liability will
result in a scarcity of willing buyers. Certainly, both
EPA and MDNR have a substantial interest in locat-
ing conscientious purchasers, who are willing to
reclaim environmentally corrupt facilities. However,
there is no evidence that the Michigan courts would
view this interest as an exception to the state's
veil-piercing standard, especially in light of the com-
peting interest in imposing environmental cleanup
costs on private industry rather than on taxpayers.
Congress certainly was not deterred by this argu-
ment, given its balancing of interests in favor of
imposing liability on new owners. Moreover, Aerojet
and the Cordovas are not blameless, as they would
have the court believe. The district court found that
the entities actively contributed to the contamination
and then failed to take remedial action, despite knowl-
edge that contamination was continuing to migrate.

Accordingly, the district court’s conclusion that,
by piercing the corporate veil, Aerojet may be held
liable as an owner under 42 U.S.C. § 9607(a)(1) should
be affirmed.

I further agree with the district court that Aerojet
was directly liable as an operator under section
107(a)(2):

In light of the same facts that were probative in
concluding Aerojet is liable under section
107(a)(1), the court concludes that Aerojet operat-
ed the site through active participation and

50a

pervasive control over the businesses of both
Cordova/California and Cordova/Michigan.

As with CPC’s involvement with Ott II, Aerojet’s
participation and control over the board, manage-
ment and decision-making at Cordova/California
and Cordova/Michigan shows that the parent
operated the facility. Aerojet’s conduct toward its
subsidiaries extended well beyond the activities
that are merely indicative of a parent’s general
oversight of a wholly owned subsidiary.

Accordingly, the court concludes the [sic]
Aerojet is directly liable as an operator under
section 107(a)(2).

CPC Int'l, Inc., 777 F.Supp. at 580.
III.
Third-Party Defense Under Section 107 (b) (3)

Finally, I do not agree that the district court
should be required, upon remand, to “revisit its
treatment of the [third-party] defense raised by
Aerojet, Cordova/California, and Cordova/Michigan”
under section 107(b)(3). (Maj. op. at 582-83.) To
succeed under section 107(b)(3), the defendants are
required to_prove all four elements of a third-party
defense, which are:

1. That they did not contribute to the con-
tamination;

2. That they were not in a direct or indirect
contractual relationship with any person

5la

who, in connection with the contractual re-
lationship, caused the contamination;

3. That they exercised due care throughout
their ownership or operation of the con-
taminating facility; and

4. That they protected against those acts and
omissions of the polluting persons, and the
consequences of those acts and omissions,
that were foreseeable.

See 42 U.S.C. § 9607(b)(3); see also Kerr-McGee
Chem. Corp. v. Lefton Iron & Metal Co., 14 F.3d 321,
325 (7th Cir. 1994).

The district court found that the defendants failed
to carry their burden on all four elements of the
section (b)(3) defense. My colleagues, in desiring that
the district court “revisit its treatment of the
defense” raised by the defendants, address only the
“contractual relationship” ground. Even if the
district court erred in its treatment of that element
of the defense, its findings that the defendants have
not carried their burden of proving the remaining
three elements of the section 107(b)(3) defense, which
my colleagues do not question, is amply supported in
the record.

The district court committed no clear error in
finding that the defendants demonstrated neither the
exercise of due care nor the use of appropriate
precautions. For example, in a May 1980 environ-
mental risk report covering Aerojet and several
subsidiaries including Cordova/Michigan, the defen-
dants repeatedly stated their intent to take a

52a

head-in-the-sand approach with respect to the con-
tamination problem:

The most significant environmental problems
associated with the facility are those relating to
the residues of past industrial occupants of the
site. Management has adopted the position that
any injury to others arising out of contamination
from these residues is the responsibility of
the State of Michigan Department of Natural
Resources and that, accordingly, Cordova should
insulate itself from any knowledge of, or in-
volvement in monitoring these wastes.

The report went on to acknowledge that waste drums
remained buried, despite completion of MDNR's
removal efforts. Moreover, the report acknowledged
that the stipulation entered into by Cordova and
MDNR was never intended to resolve the contamina-
tion problem. In describing the responsibilities
assumed by the parties under the stipulation, the
report admitted that MDNR’s duties were limited
to removing 8700 drums and a portion of the con-
taminated soil and sludge, and that the stipulation’s
hold-harmless clause relieved the defendants only of
liability arising out of these specified removal efforts.
In addition, as the report acknowledged, the MDNR
absolved the defendants of liability relating to

procurement of an alternative community water
source.

As the district court pointed out, and as the report
confirms, the stipulation did not resolve responsibil-
ity for the remaining drums and contaminated soil
and sludge, as well as responsibility for groundwater

contamination. In this regard, the report specifically
opined:

53a

Between 65 and 100 monitoring wells for testing
groundwater were either installed by Story or
have been installed more recently under a State /
Federal study of groundwater contamination at
the site. The study is being carried out by several
consulting organizations under contract to the
state. Cordova management believes the studies
show little or no contamination but has avoided
any participation or liaison with the study teams.
.. . Because of the possibility that Cordova 8
potential liability for groundwater contamination
may have survived the Consent Order, it would
appear desirable for Cordova management to keep
abreast of current monitoring results. In addition,
although a high chloride content would show con-
tinuation of problems from the old Story wastes, a
high sulphate concentration would indicate see
page problems arising out of Cordova’s current

operations.

Fully aware that waste drums remained buried
beneath the site and that the majority of the con-
taminated soil had not been removed, and cognizant of
groundwater contamination to which they may have
been contributing, the defendants believed the solu-
tion to these problems was to don blinders. Their
willful blindness can hardly be characterized as the
exercise of due care.

For the same reasons, it cannot be said that the
defendants took adequate precautions to protect
against the consequences of Ott II's and Story 8
omissions and acts. While the parties, in their briefs,
debate whether reimplementation of the purge wells
would have been an adequate precaution, they over-
look the big picture. The defendants, fully aware that

54a

contamination problems on their property were not
being addressed, chose to take no precautions to
protect against the foreseeable consequences of these
problems—namely, further migration.

Accordingly, because the defendants have failed to
prove at least two of the requisite elements of the
third-party defense, the district court properly held
that they were not entitled to invoke it. It is simply
unnecessary to consider whether they sustained
their burden regarding the remaining two elements,
including whether any of the pollution was the act of a
third party “in connection with” the contractual re-
lationship with the defendants.

IV.

The judgment of the district court sh
NA. should be

55a

APPENDIX B

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

Nos. G&9-10503 CA, G89-961 CA

CPC INTERNATIONAL, INC., PLAINTIFF
U.
AEROJET-GENERAL CORPORATION

CorDOVA CHEMICAL COMPANY, CORDOVA CHEMICAL
COMPANY OF MICHIGAN, AND
MICHIGAN DEPARTMENT OF NATURAL RESOURCES,
DEFENDANTS

UNITED STATES OF AMERICA, PLAINTIFF
.

CoRDOVA CHEMICAL COMPANY OF MICHIGAN,
CoRDOVA CHEMICAL COMPANY OF CALIFORNIA,
AEROJET-GENERAL CORPORATION,

CPC INTERNATIONAL, INC.,

AND Dr. ARNOLD C. OTT, DEFENDANTS

CPC INTERNATIONAL, INC., THIRD-PARTY PLAINTIFF
V.

COMMERCIAL UNION INSURANCE COMPANY, ET AL.,
THIRD-PARTY DEFENDANTS

(Filed: Aug. 27, 1991]

HILLMAN, Senior District Judge.

TABLE OF CONTENTS
e cetcihenetacernsnemnenssensennnneseasece [56a]
Be , „ 58a

e [58a]
1 58a
2 — [60a]
27. IIOD Weeccieectenstncncscstscncocescesessece [62a]
ES [63a]

B. Ownership by Ott I: 1957 te 1965 [68a]

C. Ownership by Ott II: 1965 to 1972 (65a)
1. Acquisition of Ott ! 6a
ee [67a]
——— [69a }
4. CPC's development company [72a]
5. Environmental matters . . [74a]
D csessenbomnemnes {76a}
. [77a]
8. Other business matters {77a}
9. Sale of Ott II to Stor [78a]

D. Ownership by Story: 1972 to 1977 [78a]

E. Agreement between MDNR and Cordova/
California: 1977 ..... ü —— [79a]

1. MDNR's environmental emergency .... [79a]
2. Negotiations between MDNR and

Aerojet’s Cordova Chemical CO. [Sia]
3. The stipulation and consent order [83a]

0 d

TABLE OF CONTENTS—Continued: TABLE OF CONTENTS—Continued:
F. Ownership by Cordova/California and Conclusions of law regarding liability of
Cordova/Michigan: Since 1977 . . [92a] ” Aerojet, Cordova/California,
1. Acquisition of the site (92a) Cordova/Michigan liga
2. Incorporation of Cordova/ California, 1. Claims against Aerojet and its sub-
Cordova/Michigan Na sidiaries [IIgga]
3. Aerojet’s direct involvement with the 2. Section 107(a)(1) “present owner”
site 0 = [94a] liability {119a}
4. Integration of business [95a] 3. Section 107(a)(2) “operator”
5. Board of directors [96a] liability [123a]
2— — 4. Section 107(a)(3) “arranger”
7. Financial matters 994 liability 1125 a
III. CONCLUSIONS OF LAW .... — 100a 5. Section 107(b)(3) innocent landowner
A. CERCLA overview [100a] defense (126)
B. Conclusions of law regarding CPC IV. Conclusion [128a}
liability — 10 2a
1. Claims against CPC [102a]

2. Section 107(a)(2) “operator” liability [108a]
a. Parent corporation liability under

section 107(a)(2) [108a]

b. Liability of CPC under section
107(a(2) . [110a}

C. Conclusions of law regarding MDNR
liability ; {1l4a]}
I. Claims against MDNR [1l4a]}

2. Section 107(a)(3) “arranger”

0 — ee cS [114a]

3. Section 107(a)(2) “operator”
liability .. — [118a]

56a

I. INTRODUCTION

This consolidated action involves a series of clai
brought under the Comprehensive se adheye re
Response, Compensation, and Liability Act
(“CERCLA”), 42 U.S.C. § 9601 et seq. (1988). The par-
ties are litigating who must pay past and future costs
incurred in the environmental cleanup of the soil
surface water and groundwater surrounding a dor-
mant chemical manufacturing plant that has become
one of the nation’s most severely contaminated areas.

Following denial of summary j iabili
judgment on liabilit
issues, the CERCLA liability phase of this case —
tried before the court over 15 days in May and June
ro gle 8 sets forth the court’s findings of
a conclusions of la i

— w regarding CERCLA

The parties participating in the liability phase

the United States; CPC — A oor oy
(“CPC „ the Michigan Department of Natural Re-
sources (“MDN R”); and Aerojet-General Corporation
(“Aerojet ), along with its two wholly owned sub-
sidiaries, Cordova Chemical Company and Cordova

Chemical Company of Michi i *
Cordova defendants”). ere

: .
By prior order of the court, this case has been separated

into three phases: liability, remedy and insurance rage
See Order, November 14, 1990. The court denied mAh disposi.
— motions filed with respect to liability. See Bench Opinion
ebruary 4, 1991 & CPC Int'l, Inc. v. Aerojet-General Corp.
759 F.Supp. 1269 (W.D. Mich. 1991). .
The parties announced on the i i
morn of trial t
claims had been settled against another — Arnold Ott. The
court is currently awaiting presentation of a consent decree in

57a

CPC, MDNR and the Cordova defendants each
defended theories of liability advanced by the United
States or other defendants under CERCLA’s liability
provisions in section 107(a) of the statute.’ 42 U.S.C.
§ 9607(a). The court heard live testimony from
29 witnesses, received all or part of dozens of de-
positions, and admitted more than 2,300 trial exhibits.
Following the trial, each party submitted proposed
findings of fact and conclusions of law. On June 28,
1991, the parties delivered closing arguments.

After careful consideration of all the evidence and
arguments set forth, the court makes the following
findings of fact and conclusions of law on the issues of
CERCLA liability, in accordance with Fed. R. Civ. P.

52(a).*

accordance with CERCLCA's settlement provisions, 42 U.S.C.
§ 9622 et seq.

On April 30, 1991, the state filed a motion to dismiss based
on eleventh amendment immunity all state-law claims brought
against it by Aerojet, Cordova/California and Cordova/
Michigan. On May 24, 1991, the court granted the motion in an
opinion and order dismissing without prejudice claims for
breach of contract, promissory estoppel, negligent misrepre-
sentation and specific performance. CPC, International, Inc.
v. Aerojet-General Corp., 764 F.Supp. 479. 482 (W.D. Mich.
1991).

4 CERCLA liability, when it attaches is joint and several
unless a defendant proves that the harm is divisible. United
States v. Northeastern Pharmaceutical & Chem. Co., 579
F.Supp. 823 (W.D. Mo. 1984), 4d in part and rev'd in part on
other grounds, 810 F.2d 726 (8th Cir. 1986); United States v.
Ottati & Goss, Inc., 630 F.Supp. 1361 (D.N.H. 1985). How-
ever, under a provision of CERCLA added by Congress in 1986,
a potentially liable party may seek contribution from any other
potentially liable party for a share of the response costs. 42
U.S.C. § 9613(f (1). In allocating response costs in a contribu-

58a
II. FINDINGS OF FACT

A. Background

1. Ownership

The site of contamination that is the subject of this
litigation is located at 500 Agard Road in Dalton
Township, Michigan, (“the site”), near Muskegon in a
primarily rural area in the western part of the state.
Groundwater underneath the site flows through

tion action, a court has broad discretion to use equitable factors
as it deems appropriate. United States v. R.W. Meyer, Inc.,
932 F. 2d 568 (6th Cir. 1991).

In this case, the parties have advanced contribution claims
against each other, seeking to reduce the amount of any liabil-
ity that may attach. As previously indicated to the parties, the
court is electing to defer until after the remedy phase findings
of fact and conclusions of law with respect to allocation of
liability. After the remedy phase, the court will have heard
evidence regarding the extent of the harm caused by hazard-
ous waste disposal as well as the cost of the remedy. At that
time, the court will be able to reach an equitable decision re-
garding how cleanup costs should be allocated among liable
parties.

Deferring allocation decisions until after the remedy phase is
consistent with the legislative history of section 113(f)(1). The
House Committee that drafted the provision stated, “/A/fter
all questions of liability and remedy have been resolved, courts
may consider any criteria relevant to determining whether
there should be apportionment.” H.R. 253(III), 99th Cong., 2d
Sess. 19, (1985), reprinted in 1986 U.S.Code Cong. & Admin.
News 3038, 3041-42 (emphasis added). See also Amoco Oil Co.
v. Borden, Inc., 889 F.2d 664, 667-68 (5th Cir. 1989) (favoring
resolution of liability issues “ before deciding the more compli-
cated and technical questions of appropriate cleanup measures
and the proportionate fault of liable parties”).

59a

an aquifer in a southeasterly direction toward two
waterways, Little Bear Creek and the Unnamed
Tributary.

From approximately 1959 to 1986, the site was used
by a series of owners as a chemical manufacturing
facility for the production of a variety of synthetic
organic intermediate chemicals used for pharmaceuti-
cal, veterinary and agricultural purposes.

From 1957 to 1965, the site was owned and operated
by the Ott Chemical Company, a Michigan corpora-
tion (“Ott I”).

From 1965 to 1972, the site was owned and operated
by a wholly owned subsidiary of CPC International,
Inc. (“CPC”), known as Ott Chemical Company (“Ott
II”).

In 1972, Ott II sold the site to Story Chemical
Company (“Story”), a Georgia corporation. Story
owned and operated the site until it was adjudicated
bankrupt in 1977.

In 1977, the Michigan Department of Natural Re-
sources (“MDNR”) initiated a regulatory investiga-
tion at the site aimed at determining the extent of
environmental problems and possible remedies. As
part of its efforts, MDNR tried to attract a new
purchaser for the site who would participate in a
cleanup of the site. As a result of these efforts
MDNR entered into negotiations with Aerojet-
General Corporation and its subsidiary, Cordova

5 After the events at issue in this case, Corn Products Com-
pany changed its name to CPC International, Inc. For simplic-
ity, “CPC” will be used in all of the court’s references to the
company.

60a

Chemical Company. These negotiations were fruitful
and on October 13, 1977, Cordova Chemical Company
(“Cordova/California”) signed a “stipulation and
consent order” with MDNR that set forth obligations
with respect to efforts to remedy environmental
contamination problems at the site. One day later,
Cordova/California, a wholly. owned subsidiary of
Aerojet-General Corporation (“Aerojet”), purchased
the site from the Story bankruptcy trustee.

In 1978, Cordova Chemical Co. of Michigan
(“Cordova/Michigan”), a wholly owned subsidiary of
Cordova/California, became the owner of the site.
Cordova/Michigan continues to own the site, but the
facility has not been in operation since 1986.

2. Contamination

Prior to the commencement of chemical manu—
facturing at the site in 1957, the quality of the
groundwater underneath the site was excellent.

By 1959, as a result of chemical waste disposal, the
water pumped for use in the manufacturing process
at the site had become contaminated. By 1964, test
results showed that the groundwater flowing under-
neath the site had become contaminated.

As a result of chemical manufacturing and waste
disposal practices at the chemical facility, the soil,
surface water and groundwater at the site contain a
large number of toxic chemicals.

The principal source of contamination at the site
was the use of engineered, unlined lagoons at the
northwestern edge of the site for chemical waste
disposal. From 1959 to at least 1968, during the

6la

Ott I and Ott II periods of ownership, wastewaters
and other chemical waste used in the manufacturing
process were discharged into the lagoons, where
much of the contaminants seeped into the ground and
water. No disposal into the lagoons occurred during
the Story and Cordova periods.

During the Ott I and Ott II era, chemical waste also
entered the ground through the burial and slitting of
hundreds of drums in a sandy pit; numerous spills of
hundreds of gallons of chemicals from train cars onto
railroad tracks; frequent overflows of chemical waste
at a cement-lined equalization basin; and the dumping
into the woods of buckets of hazardous chemicals that
had spilled during the manufacturing process. Some
spills of hazardous waste also occurred during the
Story and Cordova periods of ownership.

Contamination entering the ground from disposal
in the lagoons or through spills then seeped into the
ground and migrated away from the site via the
aquifer to the southeast, ultimately reaching two
waterways, Little Bear Creek and the Unnamed

Tributary.

Beginning in 1965 during the Ott I period of
ownership and continuing during the Ott II period.
purge wells were used internuttently at the site in an
attempt to treat the groundwater contamination and
retard the spread of contamination away from the
site.

However, after 1974 during the Story era of
ownership and continuing through periods of owner-
ship by Cordova/California and Cordova/Michigan, the
purge wells were not operated for any significant
time period, resulting in the continued, unchecked

62a

spread of contamination away from the site through
groundwater.

During their period of operations, Cordova/
Michigan and Cordova/California neither buried
waste nor dumped it onto the ground. No chemical
waste was disposed into the unlined lagoons that
had been used during the Ott I and Ott II eras. Before
beginning chemical manufacturing, Cordova/ Michi-
gan repaired the equalization basin and chemical
sewer system. When operating, Cordova/Michigan
discharged chemical waste through off-site disposal
or_to a sewer that flowed to the Muskegon County
treatment facility.

However, two hazardous chemicals used in small
amounts by Cordova/Michigan—benzene and 1, 2
dichloroethane—are in the soil and groundwater at
the site.

3. EPA’s response

In 1981, the federal Environmental Protection
Agency (EPA) began investigating how to remedy
severe contamination problems in the ground and
water at the site and surrounding area resulting from
hazardous waste disposal practices at the site.

In 1982, the EPA placed the site and surrounding
area on the federal government’s National Priorities
List of locations in need of a long-term remedial
response. It is ranked 137th among this country’s
environmentally hazardous sites most in need of
federal remedial action.

63a

The EPA is presently continuing development of
a three-phase, multi-million dollar remedial plan for
the soil, surface water and groundwater at and sur-
rounding the site.

This litigation consists of a series of consolidated
claims regarding who should be liable for cleanup
costs under CERCLA, 42 U.S.C. §§ 9607, 9613 et seq.

4. Stipulations

The parties have stipulated that the site is a
“facility”; that the site contains hazardous sub-
stances”; that “releases” have occurred and threaten
to continue, as defined under CERCLA’s relevant
provisions; and that CPC, MDNR, Aerojet, Cordova/
California and Cordova/Michigan are “persons”, as
defined under CERCLA’s relevant provisions, 42
U.S.C. § 9601.

B. Ownership by Ott I: 1957 to 1965

From 1957 to 1965, Ott I, a publicly traded Michigan
corporation, owned and operated the site as a chemical
manufacturing plant.

The company was steered by an active board of
directors that was significantly involved in the man-
agement of the company. Ott I’s board of directors
made company decisions regarding policies, goals and
directions in regular meetings which were commemo-
rated in detailed minutes. During these meetings,
the board conducted working sessions in which com-
pany officers presented comprehensive reports on the
performance and activities of the various divisions.

64a

Arnold Ott was the leading officer and director of
Ott I. From the inception of Ott I in 1956 through its
sale in 1965 to CPC, he served as president and chief
executive officer of Ott I, and at various times served
in other positions, including treasurer. He also
served on the company’s board of directors, which he
chaired for a period of time. In addition, he was the
company’s largest shareholder, owning nearly 30
percent of its stock in July 1965, a time when the next
largest shareholder owned only about 5 percent.

Another leading Ott I official was James Eiszner, a
vice-president of marketing.

In 1963, Alexander McFarlane, CPC’s chairman of
the board, joined the Ott-I board. He soon became
impressed by members of Ott I’s management group,
whom he admired for their dynamic, entrepreneurial
spirit. McFarlane became interested in the possibility
of tapping the scientific talent he had encountered to
help CPC expand its primary business areas of corn
wet-milling and consumer food products.

In the spring of 1965, McFarlane and Arnold Ott
began to discuss the possibility of CPC acquiring Ott
I. McFarlane was interested in bringing Ott I
officials, particularly Ott and Eiszner, into the CPC
management structure.

As a result of the discussions, McFarlane stepped
down from the board of Ott I, and negotiations
between top officials of Ott I and CPC followed in
April and May 1965.

65a

C. Ownership by Ott II. 1965 to 1972
1. Acquisition of Ott I

In June 1965, the Ott I board approved in principle
an agreement and plan of reorganization for the
purchase of the company by CPC.

The same month, Arnold Ott moved to New York
and assumed responsibilities within CPC manage-
ment. Ott initially worked with Harold Hellman,
CPC’s assistant to the chairman. Ott also continued
to function as president, chief executive officer, and
director of Ott I. Ott’s move took place three months
before the formal purchase of Ott I.

In September 1965, in preparation for closing on
the sale, CPC created the Four Lakes Chemical
Company, a wholly owned subsidiary incorporated in
Delaware and capitalized with $1,000, for purposes of
acquiring Ott I. The initial directors of Four Lakes
were Arnold Ott and three CPC employees.

On September 22, 1965, the Four Lakes board of
directs elected as its officers five people, including
Ott and Eiszner, who had held identical positions with
Ott I. The board also voted to change its name,
effective October 1, 1965, from Four Lakes to the Ott

Chemical Company (“Ott II“)

Then on September 29, 1965, Ott I’s assets and
certain liabilities were sold to CPC’s subsidiary Four
Lakes, in exchange for 75,300 shares of CPC common

stock.
Under the agreemert, Four Lakes agreed to

assume some specific liabilities of Ott J. with Ott I
continuing to be responsible for those not designated.

66a

Ott I expressly remained liable for “injury or dam-
ages to persons or property arising out of the sale of
any goods, the provision of any services, or the
conduct of” Ott I prior to closing. In addition, the
agreement set forth that Ott I “expressly represents
that it will pay, or make provision for the payment of,
all liabilities and obligations of, or claims against
Seller [Ott I] not expressly assumed” by CPC or
Four Lakes.

The acquisition by CPC was publicized to custom-
ers, creditors, suppliers and the public.

After the sale, Ott I maintained public liability
insurance for three years, but it ceased to operate as
a functioning corporation. The company’s name was
changed to Muskegon Chemical Company.

On October 1, 1965, two days after the formal sale of
Ott I, Four Lakes officially became the Ott Chemical
Company (“Ott II“).

Following the acquisition, Ott II functioned in a
number of ways as Ott I had prior to the sale. The
officers of Ott II remained identical to the officers of
Ott I until March 1966. Ott II continued to use the
name, “Ott Chemical Company.” Ott II continued to
manufacture substantially the same products. Ott II
continued to sell products to nearly all of Ott I’s
customers. Ott II continued to employ most of the
same personnel as Ott J. And Ott II continued the
same chemical manufacturing operation at the same
facility.

CPC nevertheless planned rapid growth for Ott II.
Prior to the sale, Arnold Ott reported to the Ott I

board that McFarlane and CPC president Howard C.
Harder “envisage the chemical operation to reach

67a

at least $100,000,000 in five years.” Following the
acquisition, Ott II’s production capacity significantly
increased as CPC contributed millions of dollars to
expansion efforts. This increase in production, in
turn, created substantially greater amounts of waste-
water and chemical waste in need of disposal in the
unlined lagoons, which were expanded to accommo-
date the additional waste.

2. Board of directors

Following its acquisition of Ott II, CPC actively
participated in, and at times controlled, the policy-
making decisions of its subsidiary through its repre-
sentation on the Ott II board of directors.

The Ott II board of directors was an active board
during CPC’s period of ownership, continuing the
tradition established in the Ott I era of functioning
in an engaged, participatory manner. The board
established policies and goals for the company. It also
regularly received reports and presentations from
Ott II officers, including accounts of mounting prob-
lems with waste disposal. These sessions sometimes
lasted three to five hours. Far more than a rubber
stamp for management, the Ott II board functioned as
a major source of power and decision-making at the
company.

CPC had majority control of the board for nearly
three years. In the first six months following the
acquisition, all four directors on the then four-
member board were CPC officials, including Ott.
Then, from March 1970 until the sale of the company
to Story in June 1972, six of the eleven board members
of Ott II were individuals with CPC positions. No

68a

fewer than three CPC-affiliated directors served on
the Ott II board at all times, and CPC, as 100- percent
shareholder, controlled the selection of board
members.

CPC directors serving on the O;, board reported
back to CPC about Ott programs and gave approval on
behalf of CPC for appropriation requests.

During CPC’s entire period of ownership of Ott II,
the chairman of the Ott II board was always a
top-ranking CPC executive. The president of CPC
had the authority to determine who served as Ott II’s
chairman. Arnold Ott served as chairman from 1966
to 1969 at the same time that he was a CPC vice-
president and the president of CPC’s development
company. From 1969-1970, Eiszner was the Ott II
chairman in addition to serving as a CPC vice-
president. Finally, Beverly Warner served as
chairman from 1970 to 1972 while also serving as
president of CPC’s development company.

Other CPC officials served as particularly
influential members of the Ott II board. Within six
months of the acquisition, CPC placed Harold
Hellman, a CPC vice-president and assistant to
CPC’s president, on the board. James W. McKee,
CPC’s financial officer, served on the board from 1968
to 1969.

When the Ott II board expanded from eight to
eleven members in 1970, the three additional directors
were senior CPC employees, including Warner who
was elected chairman and chief executive officer.

CPC executives who were not Ott II board
members also occasionally attended Ott II board

69a

meetings, including CPC’s president and its chair-
man of the board.

CPC matters were discussed at board meetings,
and Ott II board members recognized the need to
consider CPC’s interest and seek strong guidance
from the parent company during these sessions.

The site of the Ott II board meetings regularly
alternated between Ott II's headquarters in
Muskegon and CPC’s headquarters in New York and
later Englewood Cliffs, New Jersey.

3. Management

CPC also actively participated in and exerted
control over day-to-day decision-making at Ott II
through representation in the highest levels of the
subsidiary’s management.

Although Ott II corporate officers set the day-to-
day operating policies for the company without any
need to obtain formal approval from CPC, CPC
actively participated in this decision-making because
high-ranking CPC officers served in Ott II man-
agement positions. In addition, the president of Ott II
reported directly to CPC’s president.

The Ott II management formulated and imple-
mented the company’s day-to-day operating policies,
including sales, marketing, advertising, the purchase
of raw materials, research and development, hiring
and personnel policies, capital expenditures, manu-
facturing, and environmental matters.

Several individuals served simultaneously as
top-ranking Ott II and CPC officials. In some

70a

instances, the officials with dual roles at Ott II and
CPC worked out of CPC’s headquarters in New York.

Arnold Ott was one of the principal CPC officials
who exerted control within Ott II management.
Following his move to CPC headquarters to assume
new corporate responsibilities at CPC even prior
to the formal acquisition of Ott I, Ott served as
president and chief executive officer of Ott II through
December 1966. During this period, Ott worked from
CPC’s headquarters where he served concurrently
as a CPC vice-president responsible for scientific
research. In 1968, Ott became the first president of
CPC’s development company, a division with over-
sight responsibility for Ott II and other wholly owned
subsidiaries involved in scientific development.
During his tenure as president of CPC’s development
company, Ott also served as Ott II's chief executive
officer.

James Eiszner similarly held a major position at
CPC at the same time that he was an active and
influential member of Ott II’s management. Eiszner
served as Ott II’s president from 1967 to 1970, and
in 1968, he became a vice president of CPC’s develop-
ment company, reporting directly to its president,
Arnold Ott. Eiszner subsequently ascended through
the ranks of CPC, where he eventually became chief
executive officer.

In another instance, a high-ranking CPC official
became an Ott II senior officer. Beverly Warner, who
became president of the development company in 1969,
assumed the position of Ott II’s chief executive officer
in 1970, a position he retained until the sale of Ott II
to Story in 1972.

71a

CPC officials thus played decisive roles in Ott II's
policy-making structure. As top officers at Ott II,
these CPC officials exerted significant control and
bore ultimate responsibility over decision-making at
the subsidiary in areas including waste disposal,
sales, marketing, manufacturing, purchasing and per-
sonnel.

The direct involvement and influence of CPC
officials in Ott II decision-making at times created
controversy and strains within the subsidiary.

While serving as CPC’s development company
president and Ott II’s chief executive officer, Beverly
Warner controlled decisions including production,
pricing and plant operations at Ott II actually
undermined a number of Ott II programs. According
to Eiszner, who eventually became CPC’s chief ex-
ecutive officer, Warner “made some terrible, terrible
management decisions which were probably what led”
to the sale of Ott II in 1972.

Eiszner himself was the subject of criticism for
improperly giving too much attention to CPC matters
while serving in dual management roles at Ott II and
CPC. At an Ott II board meeting, board members
admonished Eiszner for improperly allocating too
much management time to CPC.

The Ott II company airpiane also was frequently
unavailable for use by Ott II executives because CPC
officials were occupying it for travel between their
headquarters and the subsidiary.

Arnold Ott’s control over Ott II matters continued
even after he relinquished the Ott II presidency and
served as CPC’s development company president and
Ott II chairman. For example, Ott singlehandedly

72a

made the decision to move Gerald Roberts, Ott II's
controller and treasurer since 1967, to a similar
position with the CPC’s development company in
1968. Ott also personally selected Roberts’ successor
at Ott II, David Hackney.

4. CPC’s development company

CPC’s development company also actively partici-
pated in and exerted control over policy-making at Ott
II in efforts to enhance performance, shape decisions
and affect personnel changes.

The development company, which had oversight
responsibility for a number of CPC subsidiaries with
scientific or technical specialties, served as another
source of policy-making for Ott II. Prior to the
closing of sale of Ott II to Story in 1972, Ott II pre-
sident William T. White described to Story Chemical
official Harry Forman: “Ott has been operating as
part of the CPC Development Company, and, in
addition, Ott has had its own Board of Directors.
Thus ... overall policy has come from two sources

Arnold Ott and Beverly Warner served
successively as president of the development company
during the Ott II era, and each held positions as chief
executive officer and chairman of Ott II during their
respective tenures with the development company.
James Eiszner served as vice-president of the
development company.

The development company regularly reviewed Ott
II and recommended changes on matters ranging from
finances to personnel, exerting pressure to generate
more profits and enhance performance. The company

73a

sought to ensure that Ott II met profit plans and
policy goals. It also decided, among other things, who
would represent CPC on Ott II’s board of directors.

Ott II submitted monthly financial reports to the
development company and an annual financial pro-
spectus known as the “green book” for review and
approval. Top Ott II officers reported to development
company officials as well as the Ott II board.

In addition, the development company conducted re-
views of the subsidiary’s performance that would be
followed by calls for change within the subsidiary.
For example, in December 1970, Arnold Ott and James
Eiszner, who no longer held posts with Ott II, visited
the subsidiary at Warner’s request. In a December
21, 1970, memo to Warner summarizing the visit, Ott
wrote, “No intent was made to be demeaning or
critical, but rather to evoke constructive discussion
on policy interpretation, goal definition, organization
for achieving and means for directing and controlling
the profit-generating process.” The memo also stated
that Ott and Eiszner had “admonished” the Ott II
officers “to be more incisive and decisive, more frugal
on authorizations of expenditures and to let all the
personnel know—now—that the Company is off
course and the team must win.” After another review
of Ott II, Arnold Ott took the unusual step of re-
porting the results to Warner in the form of a
telegram sent to his home. It read, in part: “Am
absolutely convinced that total financial capability [at
Ott II] is grossly lacking. Sound fiscal management
impossible. At present don’t see plan to make
profitable operations for first quarter of 71. Suggest
replacing Hackney immediately as one element of
remedy.” David Hackney was subsequently replaced.

74a

Other CPC officials engaged in similar missions to
Ott II in which Ott II officials received instructions
and directives on how to improve and change.
Development company vice-president Kenneth W.
Knief visited Ott II to discuss with Ott officials the
accuracy of the subsidiary’s profit plans shortly
before CPC’s sale of Ott II to Story. In a March 27,
1972, memo, following the visit, Knief wrote to
Warner that Ott II management “had been advised not
to implement any changes in activity without dis-
cussion with Englewood Cliffs,” CPC’s headquarters.

In sum, CPC engaged in active participation in and
significant control over Ott II policy matters and
decision-making both internally through representa-
tion within Ott II's management and board and
externally through the supervision of CPC’s develop-
ment company.

5. Environmental matters

Along with its overall participation in Ott II
policies through extensive involvement in Ott II’s
board and management and through active oversight
by the development company, CPC actively partici-
pated in Ott II environmental matters.

Discussions of waste disposal problems and po-
tential solutions was a major topic of discussion
within the Ott II management structure and board
that CPC at times dominated and controlled.

In addition, CPC became directly involved in en-
vironmental and regulatory matters through the
work of G.R.D. Williams, CPC’s governmental and
environmental affairs director. Williams coordinated
all pollution activities for CPC and its divisions and

75a

subsidiaries and became heavily involved in environ-
mental issues at Ott II.

At the suggestion of Ott board member and CPC
executive Harold Hellman, Williams became involved
with Ott II in 1966 when Ott II was considering waste
disposal alternatives to be discussed at an upcoming
meeting with the state Water Resources Commis-
sion. Hellman recommended involving Williams
because he handled all CPC pollution problems and
had dealt with similar waste disposal issues at
another CPC subsidiary.

CPC’s Williams then actively participated in and
exerted control over a variety of Ott II environmental
matters

In the meeting with the Water Resources Commis-
sion, Williams participated in discussions, which, as a
result of his influence, did not include presentation by
Ott II of plans for a biological waste treatment
facility. Williams did not feel that Ott II should
mention the option because he did not think it would
be needed as a waste disposal alternative.

CPC’s Williams also instructed Ott II officials to
limit cooperation with state and federal regulators
regarding waste disposal and to consult with CPC
before responding to regulatory questionnaires or
other inquiries. In a memo to a new Ott II vice-
president for manufacturing in 1967, Ott II president
Eiszner wrote that Williams “feels that delaying
tactics are almost always advisable.” In a 1968 memo
to top-ranking Ott II officials, Williams instructed
that any unannounced visit by regulators “should
be stalled for advice from N.Y.” and that “(aJjny
questionnaires should be filled in promptly in pencil

76a

and forwarded to Air & Water Programs for review
and decision on reply.“ In a 1969 memo to an Ott II
project engineer regarding an upcoming visit by a
state regulator, Williams wrote, As you know, it is
our posture to be cooperative on the occasion of such
inspections. We answer questions that are not
self-incriminating, but we do not volunteer informa-
tion, particularly about planned capital expenditures,
production rates, sales volume and the like.“ In a 1971
memo regarding an upcoming federal survey to be
completed by Ott II plant chemists, Williams in-
structed that if test results “meet acceptable levels,
then the survey should be completed and forwarded by
the plant manager. If they do not for any reason meet
such levels, then this office should be queried with
the details before the survey r

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385014_0121%3A03. Public record. Not legal advice.