Amicus Curiae Brief — United States v. Bestfoods

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IN THE SUPREME COURT OF THE A :

OCTOBER TERM, 1997

Pith E bD

FEB 20 1998

UNITED STATES OF AMERICA, PETITIONER

CPC INTERNATIONAL, INC., ET AL.,

On Writ Of Certiorari to the

United States Court of Appeals for the Sixth Circuit

BRIEF OF AMICUS CURIAE

SUGGESTING AFFIRMANCE

AMERICAN FOREST & PAPER ASSOCIATION,

AMERICAN PETROLEUM INSTITUTE,

GROCERY MANUFACTURERS OF AMERICA,

INSTITUTE OF SCRAP RECYCLING INDUSTRIES,

NATIONAL SOLID WASTES MANAGEMENT ASS’N,

UGI UTILITIES, INC., and

WASTE MANAGEMENT, INC.

DONALD B. MITCHELL, JR. *

JOHN C. CHAMBERS

LAUREL A. BEDIG

ARENT FOX KINTNER

PLOTKIN & KAHN

1050 Connecticut Avenue, N.W.

Washington, D.C. 20036-5339

(202) 857-6172

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TABLE OF AUTHBORITIRS .... ccc ccc cc eceness ili

INTEREST OF AMICUS CURIAE ................. l

SUMMARY OF THE ARGUMENT ................ l

ST kd eh G6 8K 61 6a eNOS 6 60 6 s0 60500495 3

I. CERCLA’S DEFINITION OF

“OWNER OR OPERATOR” IS

TO BE APPLIED IN LIGHT OF

TRADITIONAL CORPORATION LAW ........ 3

A. The Language Of The Statute

And Its Legislative History Contain

No Hint That Traditional Corporation

Law Principles Should Not Apply ....... 3

B. When Congress Acts Against An

Established Legal Background, Statutory

Terms Incorporate That Background

Unless Congress Otherwise Specifies... .. 6

1. Congress Knows How To

Overcome The Corporate Form

When It Intends To, And Did So

In A Different Clause Of This

PIED. ai cennextaoneasa oO 8

2. ‘The Statute 's Remedial Purpose

Is Not A License To Ignore Historic

Principles Of Corporation Law .... 10

3. Petitioner's Argument Goes Beyond

the Bounds of Statutory

Pee

Il. JUDICIAL CREATION OF A SPECIAL

FEDERAL COMMON LAW RULE IS

PERMISSIBLE ONLY IN “FEW AND

RESTRICTED” CIRCUMSTANCES ..........

A. State Law Should Not Be Displaced

By Special Federal Rules Except

in Rare Circumstances ..............:

B. The Area of Corporations Limited

Liability Law Is Particularly Unsuited

For Judicial Law-Making .............

Ill. THE QUESTION IN THIS CASE

ARISES IN MANY OTHER SITUATIONS

UNDER CERCLA ..ceccscvnncces epee

CONCLUGION $3 ..nscscuseeaeseunne seen

TABLE OF AUTHORITIES

CASES

Anspec Co. v. Johnson Controls, Inc., 922 F.2d 1240

ETE eee a 19, 29, 30

Atchison, Topeka & Santa Fe Railway Co. v. Brown

& Bryant, Inc, 132 F.3d 1295

CE 18, 26, 28, 29, 30

Atherton v. F D.LC.,117 8. Ct. 666 (1997) ....... passim

BF. Goodrich v. Betkoski, 99 F.3d 505 (2d Cir. 1996),

reh. denied, 112 F.3d 88 (2d Cir. 1997),

pet. for cert. pending sub nom. Zollo Drum

Co., Inc. v. B.F. Goodrich Co., U.S. No. 97-241 .... 29

Berger v. Iron Workers Reinforced Rodmen Local 201,

843 F.2d 1395, on reh., 852 F.2d 619

i ee 12,13

Burks v. Lasker, 441 U.S. 471 (1979) .......... 14, 15, 20

CPC International, Inc. v. Aerojet-General

Corp., 777 F. Supp. 549 (W.D. Mich. 1991) ........ 18

Chatham Steel Corp. v. Brown, 858 F. Supp. 1130

oct é cece duces 27

Citizens Electric Corp. v. Bituminous

Fire & Marine Insurance Co., 68 F.3d 1016

EE SE 26

Connors v. P & M Coal Co., 801 F.2d 1373

Ge, Ge. GE ahaa eeaeeen eee, oe cs 14

DeBrecini v. Graf Brothers Leasing, Inc., 828 F 2d 877

(1st Cir. 1987), cert. denied.

ep ee ee 13,14

Donahey v. Bogle, 129 F.3d 838 (6th Cir. 1997),

pet. for cert. pending, U.S. No. 97-1163 ........ 27.28

Edmonds v. Campagnie Generale Transatlantique,

CUS ae Kthintkshiee el 7,8

Edward Hines Lumber Co. v. Vulcan Materials Co.,

861 F.2d 155 (7th Cir. 1988) ................ 4.6, 11

Ernst & Ernst v. Hochfelder, 425 U.S. 185 (1976) ...... ll

Jacksonville Electric Authority v. Bernuth Corp.,

996 F.2d 1107 (11th Cir. 1993) .................. 28

Joslyn Mfg. Co. v. T.L. James & Company, Inc.,

893 F.2d 80 (5th Cir. 1990), cert. denied.

Ge Wy CHEE i enced sede ce 8

Joslyn Mfg. Co. v. T.L. James & Company, Inc.,

696 F. Supp. 222 (W.D. La. 1988),

aff'd, 893 F.2d 80 (Sth Cir. 1990),

cert. denied, 498 U.S. 1108 (1991) ............. 8, 29

Kamen v. Kemper Financial Services,

IS. SV a 15, 20, 21

Kelley v. Thomas Solvent Co., 727 F. Supp. 1532

Fah DS 8s Fedde vdeset cae ae 27,28

ae 4 woe oe 6 te “

Lansford-Coaldale Water Authority vy. Tonolli Corp.,

i gr 17, 18

Levin Metals Corp. v. Parr-Richmond Terminal Co. '

817 F.2d 1448 (9th Cir. 1987) ...... ............ 26

Midlantic National Bank v. New Jersey,

ay NI Ng os Kir a 7

Morissette v. United States, 342 U.S. 246 IEEE 7

New York v. Panex Industrial. Inc., 1996 US. Dist.

Lexis 9418 (W.D.N.Y. 1996) ................... 27

North Carolina v. W.R. Peele. Sr. T) rust,

876 F. Supp. 733 (E.D.N.C. 1995) ............... 27

Northwest Airlines, Inc. v. Transport Workers Union,

Tee es BED, ivecessemateese we 14

Nurad, Inc. v. William E. Hooper & Sons Co..

966 F.2d 837 (4th Cir.), cert. denied,

a gr ne i hs Se eS 18

O'Melveny & Myers v. F D.IC.,

Ee eT ee ee passim

Owen v. City of Independence, 445 U.S. 622 (1980) .... 12

Pierson v. Ray, 386 U.S. 547 (1967) ............. 11,12

Redwing Carriers, Inc. v. Saraland Apts., 94 F.3d 1489

ees NEUE. F5sb beak ou teehee ti 28

Riverside Market Development Corp. v.

International Building Products, Inc.,

931 F.2d 327 (Sth Cir.) (per curiam),

cert. denied, 502 U.S. 1004 (1991) ............... 28

Robert C. Herd & Co. v. Krawill Machinery Corp.,

SEDER. Fee eee tivcine ce ckeeccekviar wes 6

Schiavone v. Pearce, 79 F.3d 248 (2d Cir. 1996) ....... 18

Sidney S. Arst Co. v. Pipefitters Welfare Education Fund,

RT es 8 GE re eee 28

Soo Line R. Co. v. B.J. Carney & Co.,

797 F. Supp. 1472 (D. Minn. 1992) .............. 27

Spears v. Transcontinental Bus System, Inc.,

226 F.2d 94 (9th Cir. 1955), cert. denied,

BEDE SE -cetedehebeddideatencscceas 12

Tenney v. Brandhove, 341 U.S. 367 (1951) ........... 11

Texas Industries, Inc. v. Radcliff Materials, Inc.,

oR re oe ent ee 14

Tillman v. Wheaton-Haven Recreation Association,

ys & Foo Ff ree 12

Town of Oyster Bay v. Occidental Chemical Corp.,

1997 U.S. Dist. Lexis 18151

RE Fa ED kcteusctinceeecusst 26, 27

United States v. Carolina Transformer Co.,

See ee GG BONED oko wwe a des cnctudds 26

vii

United States v. Cordova Chemical Co.

113 F.3d 572 (6th Cir. 1997) (en banc),

cert granted sub nom., United States v.

CPC International, U.S. No. 97-454,

118 S. Ct. 621 (Dec. 12, 1997) ............. 8, 10, 24

United States v. Ira S. Bushey & Sons, Inc.,

363 F. Supp. 110 (D. Vt.), aff'd mem.,

487 F.2d 1393 (2d Cir. 1973), cert. denied,

Dae TEE odou babeees Chas ac bea war uss 6

United States v. Jon-T Chemicals, Inc.,

768 F.2d 686 (Sth Cir. 1985),

cert. denied, 475 U.S. 1014 (1986) ......... 11, 24, 25

United States v. Kayser-Roth Corp.,

910 F.2d 24 (Ist Cir. 1990),

cert. denied, 498 U.S. 1084 (1991) ........ 4,5, 10,17

United States v. Kimbell Foods, Inc.,

Pe PPE. GUO 6 eel bedscccduaiane passim

United States v. Menasche, 348 U.S. 528 (1955) ....... 10

United States v. Mexico Feed & Seed Co.,

i ace anu neeneccs 26

United States v. Midwestern Pouch Express, Inc.,

662 F. Supp. 207 CONST. 1967) ... ce cccccccccess 9

United States v. Sharon Steel Corp.,

681 F. Supp. 1492 (D. Utah 1987) ............... 27

United States Fire Insurance Co. v. Allied Towing Corp.,

SP ee HOUED vcnvedeuvinwseubanccs 25

Vili

Wallis v. Pan American Petroleum Corp.,

PP PE. pas acaeuek bovedies coadebexs 15

Witco Corp. v. Beekhuis, 38 F.3d 682 (3d Cir. 1994) .... 27

STATUTES

Civil Rights Acts of 1866 and 1871,

pane DUNE. ce vecdeu knee vetieus 11,12

Clean Water Act

§ 311 (ay(6), 33 U.S.C. § 1321(ay(6) .. 2... 2... 5, 6,9

§ 311 (ay6\(C), 33 U.S.C. § 1321(ay6VC) ... 2.0... 9

Comprehensive Environmental Response, Compensation

and Liability Act (“CERCLA”)

§ 101(20) Ai), 42 U.S.C.

SPOS UUMEMID on ccnccccccecs 2, 3, 4, 5, 8, 9, 10

§ 101(20 Aili), 42 U.S.C.

ET Seti c Laces od cee ebune’ 8,9, 10

§ 107(a)(2), 42 U.S.C. § 9607(ay(2) ... 2... as

Depository Institution Management Interlocks Act,

ee les PIED sinie edtathd ol ctl ewan ids 9

Employee Retirement Income Security Act,

ae ee oo ee ek ee 9

IE, Pon oe ba cid eons ocd ons oe dared 11

Fair Labor Standards Act, 29 U.S.C. § 203(r) .......... 9

Federal Aviation Act, 49 U.S.C. App. § 1301(31) ....... 9

Internal Revenue Code, 26 U.S.C. § 1239(a)(2), (3) ..... )

National Bank Act § 12, 12 U.S.C. § 63,

Te TIT TT TTT Te 9

Rules of Decision Act, 28 U.S.C. § 1652 ............. 16

Securities Exchange Act of 1934, 15 U.S.C. § 78t ....... 9

MISCELLANEOUS

P. Blumberg, THELAW OF CORPOR/ TE

GRoOuPS: SUBSTANTIVE LAW 681-92 (1987) ........ 21

Clark, The Duties of the Corporate Debtor

to its Creditors, 90 Harv. L. Rev. 505 (1977) ....... 21

Dennis, Liability of Officers, Directors and

Stockholders Under CERCLA:

The Case For Adopting State Law,

Se, See, CY, I Naa has po wde wa 17

F. Easterbrook and D. Fischel, THE ECONOMIC

STRUCTURE OF CORPORATE LAW (1991) ........... 21

Se. Oe: eddundecinegenbuevhaebuk utks 26, 27

H.R. 85, 96th Cong. § 101(x) (198077) ...........00005, 6

Hansmann & Kraakman, Toward Unlimited

Shareholder Liability for Corporate Torts,

Se WE a PENNER sccbccadesewvdderseucs 21

Manne, Our 7wo Corporations Systems:

Law and Economics, 53 Va. L. Rev. 259 (1967) .... 21

F. Powell, PARENT AND SUBSIDIARY

CORPORATIONS: LIABILITY OF A PARENT

FOR THE OBLIGATION OF ITS SUBSIDIARY ........... 2]

Stephen B. Presser, PIERCING

THE CORPORATE VEIL, (1997) .......... 20, 21, 22, 23

S. 1480, 96th Cong. § 2(1) (1980) ..............0.25. 5

BN re AT re? Pee pee eee 2

S. Rep. No. 96-848, 96th Cong., 2d Sess. (1980) ........ 5

Sisk & Anderson, The Sun Sets on Federal Common

Law: Corporate Successor Liability Under

CERCLA After O'Melveny & Myers,

16 Va. Envtl. L.J. 505 (1997) ............. 16, 19, 29

Thompson, Piercing the Corporate Veil:

An Empirical Study,

FO COREE bx CUNt: BOO COSOED © occa cctveecdvcbses 22

R. Winter, GOVERNMENT AND THE

SIN ie ig Lh ee 21

M. Wormser, DISREGARD OF THE CORPORATE

FICTION AND ALLIED CORPORATION

Pe Crees xe dba keene oak ree ek 21

‘ Se ee ee ee ee a ae - -

mts,

INTEREST OF AMICUS CURIAE

The amici are a group of business associations and

corporations which, either directly or through their members,

are consistently involved with issues arising under the

Comprehensive Environmental Response, Compensation and

Liability Act (“CERCLA”) and with issues concerning the

proper and legal structuring of corporations and other business

forms. The amici have broad experience in the capital markets

of the United States and deep understanding of the importance

of the principles of limited liability at issue in this case.+

SUMMARY OF THE ARGUMENT

The doctrine of limited liability was originally formulated

in the 19th century by the state legislatures to implement both

economic and democratic goals. It remains a fundamental part

of the statutory law in all fifty states. In its original conception,

limited liability was perceived as a means of encouraging the

small-scale entrepreneur, and of keeping entry into business

markets competitive and democratic. Limited liability reduces

the potential costs and risks of buying shares, and thus

encourages investment and capital formation. Limited liability

also facilitates the development of public markets for securities,

permits the allocation of risks or benefits between parties, and

supports the certainty of planning necessary to those who have

organized corporations. It is a fundamental background norm

of the American legal system, and is a principle well-known to

and understood by virtually all members of Congress.

In this case, the government (“Petitioner”) argues that it is

Y Pursuant to S. Ct. R. 37.6, no counsel for a party authored this brief.

Other than the amici, only Browning-Ferris Industries, Inc. made any

monetary contribution. Consents to file this brief have been received from

all parties and filed with the Court.

appropriate and necessary to extend the reach of CERCLA

liability in a manner contrary to these long-established

principles. In acceding to this desire, some lower courts,

however well-intentioned, have twisted the language of the

Statute and undermined two fundamental constitutional

principles. First, Congress, not the courts, writes the law. And,

in deference to our federal system, Congress must never be

presumed silently to have displaced state law.

The language of the statute is straight-forward. Section

107(a)(2) of CERCLA makes liable persons who “owned -or

operated” hazardous waste sites. Section 101(20)(A)(ii) defines

“owner or operator” as the “person owning or operating” such

a location. There is no question in this case that CERCLA

makes liable the subsidiary which actually conducted the

operations at the site. The issue here is whether the definition

of “operator” should be given an expanded interpretation to

cover additional parties who were neither the titular owner or

operator but who, according to Petitioner, should nonetheless

be swept into the CERCLA “operator” liability net on the

ground of having had “control” over the subsidiary’s conduct.

There is no statutory language suggesting that the term

“owning or operating” includes such broader concepts as mere

“control” of a subsidiary. Indeed, other sections of the statute

compel the conclusion that the “control” concept was purposely

excluded from the pertinent definition of “owner or operator”

by Congress. Congress acted against a long-standing backdrop

of state laws limiting liability for shareholders. There is a

presumption, having constitutional dimensions, that Congress

incorporates these background norms into its enactments unless

it explicitly states otherwise. But there is nothing in CERCLA

or its legislative history to suggest that Congress intended these

long-established state law principles to be displaced.

“

Recent decisions of this Court affirm that state law may

only be supplanted by judicially-created federal common law

in “extraordinary cases.” E.g., O'Melveny & Myers v. F.D.LC.,

512 U.S. 79, 89 (1994); United States v. Kimbell Foods, Inc.,

440 U.S. 715 (1979). There is nothing extraordinary about

CERCLA that justifies the ad hoc displacement of traditional

state law, nor are questions about when a shareholder should be

held subject to its subsidiary’s liabilities by any means unique.

Finally, the repeated creation of “federal common law”

under CERCLA, displacing traditional state law standards, has

affected the ability to allocate risks and benefits through use of

limited liability forms, the conduct of asset transactions, the

ability to dissolve corporations under state law, and even

probate of decedents’ estates. Absent a conflict with a

significant federal interest such tampering is unwarranted.

ARGUMENT

I. CERCLA’S DEFINITION OF “OWNER OR

OPERATOR’ IS TO BE APPLIED IN LIGHT OF

TRADITIONAL CORPORATION LAW

A. The Language Of The Statute And Its Legislative

History Contain No Hint That Traditional

Corporation Law Principles Should Not Apply

CERCLA § 107(a)(2) makes liable:

(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....

“Owner or operator” is defined in CERCLA § 101(20)(A):

The term “owner or operator” means ... (ii) in the case of an

onshore facility [like the one in this case] ... any person

owning or operating such facility, and (iii) in the case of

any facility, title or control of which was conveyed due to

bankruptcy, foreclosure, tax delinquency, abandonment, or

similar means to a unit of State or local government, any

person who owned, operated, or otherwise controlled

activities at such facility immediately beforehand.

Thus, an “owner” is “any person owning” and an “operator” is

“any person ... operating” the hazardous substance facility. The

very circularity of the definitional language is most important

guidance in answering the question before this Court —

whether a parent is the “operator” of a facility which is actually

both owned and operated by a subsidiary corporation.*

Petitioner argues that Congress (albeit silently) intended to

impose liability on a parent which “actively participates in and

exercises control over” the subsidiary’s facility and urges this

Court to adopt that test. E.g., Pet. Br. 17.4 No such intent is

» As the Seventh Circuit observed regarding this definition, Edward Hines

Lumber Co. v. Vulcan Materials Co., 861 F.2d 155, 156 (7th Cir. 1988)

(emphasis added):

[t}his [definition] is circular.... The definition ... [therefore] must come

from a source other than the text. The circularity strongly implies,

however, that the statutory terms have their ordinary meanings rather

than unusual or technical meanings.

» To do so, Petitioner makes much of Congress’ use of the word “or” to

connect “owner or operator,” arguing that this one word shows Congress

acted “without regard” to a party’s “formal corporate relationship to the

site.” Pet. Br. 21-22 (citing U.S. v. Kayser-Roth Corp., 910 F.2d 24, 26 (st

Cir. 1990), cert. denied, 498 U.S. 1084 (1991)). There is a simpler

explanation for using the word “or”: while often the same person both owns

revealed by the text of the statute or its legislative history. And

only buried at the end of its brief is Petitioner’s true test

revealed: a parent corporation will be liable when it “steps

beyond its role as a stockholder ... and actually participates in

the day-to-day operation of a subsidiary.” /d at 41. Factually,

Petitioner says its test will be satisfied by evidence showing

that the parent has caused its own officers also to become

active officers of the subsidiary, id. at 44, which is quite the

usual course in American business.

Petitioner does not offer a single citation to the 1980

legislative record regarding this definition to support its claim

about what Congress “intended.” This is not surprising in light

of the fact that CERCLA’s legislative history does not offer the

slightest suggestion that parent corporations should be liable

for actions of a subsidiary when traditional veil-piercing law

would not impose liability. Congress acted against a backdrop

and operates the site, sometimes, as in the case of a landlord (the owner)

and a tenant (the operator), ownership and operation are split. Section

107(a)(2) makes both liable — but the mere fact thai the owner and the

operator can be separate people does not support the much more dramatic

proposition that Congress intended to supplant principles of liniited liability.

* The CERCLA definition of “owner or operator” and the “security

interest” exemption attached to it are traceable in the legislative history to

separate provisions in the original Senate and House bills. The original

Senate bill, S. 1480, provided that the term “owner or operator” “shal! have

the meaning provided in section 31 1(a) of the Clean Water Act.” S. 1480,

96th Cong. § 2(1). Section 311(a)(6) of the Clean Water Act, 33 U.S.C.

§ 1321(a)(6), provided then (and now) that “owner or operator” means “(B)

in the case of an onshore facility ... any person owning or operating such

onshore facility..." This is the exact language now found in CERCLA

§ 101(20)(A)ii). This same language was reported to the floor of the

Senate, without any discussion of an intent to supplant limited liability, in

the committee report. S. Rep. No. 96-848, 96th Cong., 2d Sess. (1980).

of traditional principles of corporations law and expressed no

intent to depart from those principles.*

B. When Congress Acts Against An Established Legal

Background, Statutory Terms Incorporate That

Background Unless Congress Otherwise Specifies

That Congress intended the words “owner” and “operator”

to be given their usual meanings and understood in light of

their long-established corporations law backdrop is evident in

the very circularity of the definition. See Edward Hinés

Lumber, supra, 861 F.2d at 156. Congress did not expand

The original House bill on this subject, H.R. 85, expressly exempted

from its entirely different definition of “owner,” — not “operator” — any

person “who, without participating in the management or operation of a

vessel or facility, holds indicia of ownership primarily to protect his security

interest in the vessel or facility.” H.R. 85, 96th Cong. § 101(x). This

provision, aimed at protecting lenders in title theory states from “owner”

liability and wholly separated from the concept of “operator” liability, is

the source of the “security interest” exemption in CERCLA § 101(20)(A).

After these bills passed their respective chambers, various sections of

the bills were merged without any Conference Report in a lame duck

session after the 1980 elections (which changed control of the Senate). The

final compromise version of CERCLA § 101(20)A) used the Senate’s

incorporation of the Clean Water Act definition of “owner or operator,” and

appended to that Water Act definition the House’s “security interest”

exemption from “owner” liability.

* Since CERCLA’s definition of “owner or operator” was borrowed from

the Clean Water Act, supra n.4, this Court may consider cases interpreting

that statute. Robert C. Herd & Co. v. Krawill Machinery Corp., 359 U.S.

297, 301 (1959). In the only case addressing parent-subsidiary liability

under that Act, United States v. Ira S. Bushey & Sons, Inc., 363 F. Supp.

110 (D. Vt.), aff'd mem., 487 F.2d 1393 (2d Cir. 1973), cert. denied, 417

U.S. 976 (1974), the court applied a traditional veil piercing test.

upon the definition in order to provide other law to apply nor

did it suggest in the legislative history that the words were to be

applied in derogation of established corporations law concepts.

The simple meaning rule is especially applicable when, as

here, Congress has not otherwise defined the statutory terms

and those terms have a well-understood legal meaning. The

“normal rule of statutory construction is that if Congress

intends for legislation to change the interpretation of a

judicially created concept, it makes that intent specific.”

Midlantic Nat'l Bank v. New Jersey, 474 U.S. 494, 501

(1986).* Rejecting a suggestion that a new statute had changed

judicially developed concepts of tort liability, for example, this

Court held that:

[t]he legislative history strongly counsels against [such an]

interpretation of the statute, which modifies ... pre-existing

rights.... The reports and debates ... contain not a word of

this concept. This silence is most eloquent, for such

reticence while contemplating [what would be] an

important and controversial change in existing law is

unlikely. Moreover, the general statements appearing in the

legislative history ... are inconsistent with what respondent

argues was in the back of the legislators’ minds about this

specific issue.

[WJhere Congress borrows terms of-art in which are accumulated the

legal tradition and meaning of centuries of practice, it presumably

knows and adopts the cluster of ideas that were attached to each

borrowed word ... and the meaning its use will convey to the judicial

mind unless otherwise instructed .. [A]bsence of contrary direction

may be taken as satisfaction with widely accepted definitions, not as a

departure from them.

Edmonds v. Campagnie Generale Transatlantique, 443 U.S.

256, 266 (1979).

1. Congress Knows How To Overcome The Corporate

Form When It Intends To, And Did So In A Different

Clause Of This Very Statute

The en banc Sixth Circuit in this case explicitly noted the

difference between the definition in § 101(20)A)(jii), which

applies in this case — an “owner or operator” is “any person

owning or operating” — and the definition in the very next

clause of CERCLA, § 101(20)(A)(iii), which governs facilities

conveyed to state or local governments. In the latter case an

“owner or Operator” is “any person who owned, operated, or

otherwise controlled” the facility prior to such conveyance. As

the Sixth Circuit stated, “the drafters of the statute

distinguished an operator from a person who ‘otherwise

controlled’ a facility.” U.S. v. Cordova Chemical, 113 F.3d at

579. Accord Joslyn Mfg. Co. v. T.L. James & Company, Inc.,

893 F.2d 80, 83 (Sth Cir. 1990) (“No such ‘control’ test appears

in subsection (ii), the subsection at issue in this case, and we

will imply none.”), cert. denied, 498 U.S. 1108 (1991).2

As the district court in the Joslyn v. T.L. James case found,

the presumption that Congress intends its statutes to be read in

light of the traditional rules of limited liability is bolstered by

“the fact that Congress has, in the past, specified [when]

shareholders or controlling parties are to be held responsible for

the acts or debts of a valid corporation.” 696 F. Supp. 222, 226

(W.D. La. 1988), aff'd, supra. That court identified four

statutes where Congress had explicitly determined to override

Cf O'Melveny & Myers v. FDIC, $12 US. 79, 86 (1994) (quoting

maxim “7nclusio unius, exclusio alterius ”).

the corporate form or modify limited liability. Jd There are

many others. To ignore the corporate form without explicit

support in the text of the statute diminishes Congress’ power to

tecide when limited lisbility principles should be gs

a power exercised here only sparingly in the narrow case of

CERCLA § 101(20)A)(iii) facilities.“

Petitioner's second statutory interpretation argument — that

the “security interest” exemption from the definition of “owner ”

in § 101(20)(A) aids in construing the term “operator” in

§ 101(20)A)ii) because it suggests that Congress intended to

§§ 3201-3207; Internal Revenue Code, 26 U.S.C. § 1239%(a)(2), (3). Fair

Labor Standards Act, 29 U.S.C. § 203(r); and Employee Retirement Income

Security Act, 29 U.S.C. § 1301(b\1).

® £E.g, National Bank Act § 12, 12 U.S.C. § 63, repealed P.L. 86-230

(double liability of bank shareholders); Securities Exchange Act of 1934,

15 U.S.C. § 78t (liability of “controlling persons”), Federal Aviation Act,

49 U.S.C. App. § 1301(31) (defining “operation of aircraft” to include any

“person who causes or authorizes with or without the right of legal

control....”; see United States v. Midwestern Pouch Express, Inc., 662 F.

Supp. 207, 211-12 (D.N.J. 1987) (specifically distinguishing limited

liability principle on basis of this statutory language)).

The conclusion that it was Congress’ intent in CERCLA to impose

liability on persons who “otherwise controlled” a facility on/y in the narrow

instance of § 101(20)A)iii) is bolstered by comparison with the Clean

Water Act, the source of the CERCLA definition. In the Water Act the

third clause of the “owner or operator” definition imposes liability “in the

case of an abandoned ... facility, [upon] the person who owned or operated

such facility immediately prior to such abandonment.” 33 USC.

§ 1321(aX6\C). The Water Act does not impose liability upon those who

“otherwise controlled” activities at those abandoned facilities, as does the

CERCLA definition. The only possible conclusion is that Congress

purposely adopted the broader “control” standard only for the case of

CERCLA clause (iii) facilities conveyed to state or local governments.

reach anyone who “participates in the management” of a

facility, Pet. Br. 22-23 & 25 — fails for two reasons. First, an

exemption from “owner” liability for holders of security

interests who “participate” says nothing about the meaning of

“operator.” Second, the argument founders on the shoals of

clause (iii). The “security interest” exemption on which

Petitioner relies applies to al/ three clauses of § 101(20)(A). If

the word “operator” in these three clauses already includes

those who “participate” or otherwise have “control” by virtue of

gloss derived from the “security interest” exemption, then why

did Congress need to use the words “or otherwise controlled

activities” in order to broaden clause (iii)? Using the “security

interest” exemption to construe the word “operator” to include

a participation or control test makes the phrase “or otherwise

controlled activities” in clause (iii) mere surplusage, which is

a forbidden result. United States v. Menasche, 348 U.S. 528,

538-39 (1955) (“i]t is our duty ‘to give effect, if possible, to

every clause and word of a statute’”).

2. The Statute’s Remedial Purpose Is Not A License To

Ignore Historic Principles Of Corporation Law

The Sixth Circuit properly refused “to erect new concepts

of corporate liability within the framework of CERCLA in the

absence of direction from Congress.” 113 F.3d at 579. But

Petitioner and its amici contend that the “remedial” nature of

CERCLA and its “objectives” dictate that limitations on

liability be ignored, Pet. Br. at 26, accord Amici States Br. at

15-16, as if unstated congressional language could be divined

simply because this is an environmental statute. “Remedial”

4 Even the case primarily relied upon by Petitioner, U.S. v. Kayser-Roth,

supra, notes that the “security interest” exemption is only an “explicit

limitation” on “owner liability.” 910 F.2d at 26 n.6.

purpose alone cannot change the facts that Congress chose not

to do what Petitioner desires this Court to do, and that courts

construing remedial statutes cannot simply rewrite them to

ignore long-standing principles of limited liability.“

The powerful remedial purposes of the Civil Rights Acts of

1866 and 1871, 42 U.S.C. §§ 1981-1983, for example, have not

empowered the courts to disregard traditional principles of

limited liability, nor have courts felt compelled to do so when

implementing such remedial statutes as the Employee

Retirement Income Security Act, 29 U.S.C. § 1381, et seq.»

In Tenney v. Brandhove, 341 U.S. 367, 376 (1951), this

Court refused to ignore the long-standing background principle

of legislative immunity in interpreting § 1983. Noting

congressional silence on the question, the Court held that it

could not “believe that Congress ... would impinge on a

tradition so well grounded in history and reason by covert

inclusion in the general language before us.” Fifteen years

later, the Court ruled similarly regarding judicial immunity:

2 Cf Edward Hines Lumber, 86\ F.2d at 157 (“To the point that courts

could achieve ‘more’ of the legislative objectives by adding to the lists of

those responsible, it is enough to respond that statutes have not only ends

but also limits. Born of compromise, laws such as CERCLA ... do not

pursue their ends to their logical limits. A court’s job is to find and enforce

stopping points no less than to implement other legislative choices.”).

Similar arguments have been rejected in cases arising under other

remedial statutes. E.g., Ernst & Ernst v. Hochfelder, 425 U.S. 185, 199

(1976) (Securities Act: “remedial purpose” not sufficient to “add a gloss to

the operative language of the statute quite different from its commonly

accepted meaning”); United States v. Jon-T Chemicals, Inc., 768 F.2d 686

(Sth Cir. 1985) (applying usual veil piercing tests in False Claims Act case

against parent of subsidiary convicted of stealing $2.53 million from the

United States), cert. denied, 475 U.S. 1014 (1986).

We do not believe that this settled principle of law was

abolished by § 1983, which makes liable “every person”...

The legislative record gives no clear indication that

Congress meant to abolish wholesale all common-law

immunities... [W]e presume that Congress would have

specifically so provided had it wished to abolish the

doctrine.

Pierson v. Ray, 386 U.S. 547, 554-55 (1967). Accord Owen v.

City of Independence, 445 U.S. 622, 637-39 (1980) (applying

common law rules of corporation liability to municipal

corporation liability under § 1983).

These principles have also long been applied to business

entity liability questions arising under the Civil Rights Acts. In

Tillman v. Wheaton-Haven Recreation Ass'n, 517 F.2d 1141

(4th Cir. 1975), the court held that traditional corporation law

rules should apply to the liability ve/ non of corporate directors

who violate §§ 1981 and 1982. Discussing Tenney and

Pierson, supra, the court held:

[iJn short, the Court interpreted § 1983 as neither enlarging

nor diminishing traditional immunities of public officials.

Comparably, §§ 1981 and 1982 should be interpreted as

neither enlarging nor diminishing the liability of directors

under general corporation law for tortious acts performed

nominally by the corporation.

Tillman, 517 F.2d at 1143-44.4

4 Similarly, in Spears v. Transcontinental Bus System, Inc., 226 F.2d 94,

97 (9th Cir. 1955), cert. denied, 350 U.S. 950 (1956), the court applied

traditional veil piercing theories and refused to find a parent corporation

liable for the civil rights violations of its subsidiary. See also Berger v. Iron

. ee ae

Cases under ERISA, too — another remedial statute

designed to protect a government fund from costly corporate

defaults — have rejected attempts to impose liability upon

shareholders without regard to the corporate form. £.g,,

DeBrecini v. Graf Bros. Leasing, Inc., 828 F.2d 877 (ist Cir.

1987), cert. denied, 484 U.S. 1064 (1988). There, the fund

trustee argued that the undefined term “employer” should be

construed in light of “economic reality” to reach the shareholder

because the latter maintained “virtually complete control of the

day to day operations” of the corporation. /d at 879. The court

“beg[a]n with the observation that the principle of limited

liability is a cornerstone of corporate law.” /d.

We have [here] a statute that, on its face, does

nothing to alter the principle of limited liability, but that

appellant urges us should nevertheless be read to do

so... [T]he principle of limited liability for corporate

debts is longstanding enough and important enough to

be considered a background norm, against which

Congress may act of course, but which is controlling in

the absence of such action... The way that one could

have expected Congress to make such an intention felt

was through a definition of the word “employer.” Yet

Congress did not define the word....

Workers Reinforced Rodmen Local 201, 843 F.2d 1395, 1428 (D.C. Cir.

1988) (rejecting argument that “special standards” should apply under

§ 1981: “where Congress has not otherwise declared the standards ..., a

union’s liability for the acts of another is to be determined under

common-law agency principles.... [W]e think that if Congress intended that

international unions be held liable for the failings of their locals with regard

to civil rights under a special standard, it would have given some indication

to that effect), on reh., 852 F.2d 619, 621 (“distinct juridical personality of

an entity is not a legal nicety”).

Id. at 880.

3. Petitioner’s Argument Goes Beyond

the Bounds of Statutory Interpretation

In essence, Petitioner very artfully argues that its proposed

test of parent corporation operator liability is merely a matter

of statutory construction of the alleged “ordinary meaning” of

the definition of “owner or operator.” E.g., Pet. Br. 17. “But,”

as this Court has observed, “the authority to construe a statute

is fundamentally different from the authority to fashion a new

rule ... which Congress has decided not to adopt.” Northwest

Airlines, Inc. v. Transport Workers Union, 451 U.S. 77, 97

(1981). See also Texas Indus., Inc. v. Radcliff Materials, Inc.,

451 U.S. 630, 642-47 (1981). Petitioner’s proposed test crosses

well over the line where statutory construction becomes the

fashioning of a new federal common law rule.

The principle of limited liability is a background norm,

against which Congress may, of course, act, but which is

controlling in the absence of such action. E.g., Burks v. Lasker,

441 U.S. 471, 478 (1979) (“Congress has [not] indicated that

the entire corpus of state corporation law is to be replaced....”).

Moreover, there is nothing in CERCLA or its legislative history

to suggest that Congress contemplated that its definition of

“owner or operator” would result in the dilution of the principle

of limited shareholder liability. In such a situation — the

“= Accord Connors v. P & M Coal Co., 801 F.2d 1373, 1376-77 (D.C. Cir.

1986) (“nothing in either the language or purpose of MPPAA to justify so

significant a compromise of the ... principle of limited liability, nothing to

suggest that Congress intended to subject owner-operators of a closely held

corporation to personal liability merely because they actively participated

in running the business. Acceptance of the district court’s ‘interest and

control’ test would ... subvert the major purpose of incorporation....”).

existence of a strong background norm combined with the

absence of any information suggesting legislative intent to

overcome it — an approach such as Petitioner’s, with a result as

dramatic as Petitioner’s, cannot be deemed mere statutory

construction. Instead, Petitioner's argument constitutes the

improper making of federal common law.

Il. JUDICIAL CREATION OF A SPECIAL FEDERAL

COMMON LAW RULE IS PERMISSIBLE ONLY IN

“FEW AND RESTRICTED” CIRCUMSTANCES

A. State Law Should Not Be Displaced By Special

Federal Rules Except in Rare Circumstances

Several times in recent years this Court has addressed the

limited circumstanc2s in which uniform federal common law

rules of decision may be created in lieu of the adoption of state

law to answer questions of federal law. Atherton v. F.D.LC.,

117 S. Ct. 666 (1997); O'Melveny & Myers v. F.D.LC., 512

U.S. 79 (1994); United States v. Kimbell Foods, Inc., 440 U.S.

715 (1979). See also Wallis v. Pan American Petroleum Corp.,

384 U.S. 63, 68-69 (1966). The Court has stated that only in

“extraordinary cases [is] judicial creation of a federal rule of

decision is warranted.” O'Melveny, 512 U.S. at 89. The Court

has, moreover, applied these federalism-based holdings directly

to questions about whether to displace state corporations law,

and has consistently rejected the creation of federal common

law tests to resolve corporations law questions arising under

federal statutes. Kamen v. Kemper Fin. Servs., 500 U.S. 90,

98-99 (1991): Burks v. Lasker, supra, 441 U.S. at 478.

Kimbell Foods established a three-part test to limit when

courts may create uniform federal rules of decision to supplant

state law. Under Kimbell, the criteria to be considered are: (1)

the need for national uniformity, (ii) whether the application of

state law would conflict with specific objectives of the federal

program, and (iii) the disruption displacing state law would

have on commercial relationships. 440 U.S. at 728-29.

The Kimbell Foods Court gave little credence to

“generalized pleas for uniformity” in the absence of “concrete

evidence that adopting state law would adversely affect” the

federal program. /d. at 730. Likewise, the Court found that the

threat to a federal policy must be acute and substantial; the fact

that state law might “undermine its ability to recover funds

disbursed” — a primary argument of Petitioner here — does not

constitute a sufficient “conflict with program objectives.” /d.

at 733. And appropriate deference must be given to state law

because “businessmen depend on state commercial law to

provide the stability essential for reliable evaluation of the risks

involved.” /d. at 739. A unanimous Court concluded that “the

prudent course is to adopt the readymade body of state law as

the federal rule of decision until Congress strikes a different

accommodation.” /d. at 740.48

The recent O'Melveny and Atherton decisions reinforce this

Court’s holding in Kimbell Foods. In both cases the Court held

that the “cases in which judicial creation of a special federal

rule would be justified are ‘few and restricted.” O'Melveny,

512 U.S. at 87; Atherton, 117 S. Ct. at 670. Both cases

negative presumption against federal common law” that is “the opposite side

of the same coin as the Rules of Decision Act,” originally § 34 of the

Judiciary Act of 1789 and now codified at 28 U.S.C. § 1652, which, in turn,

“{a]t a minimum ... creates a presumption in favor of state law.” Sisk and

Anderson, The Sun Sets on Federal Common Law: Corporate Successor

Liability Under CERCLA After O'Melveny & Myers, \6 Va. Envtl. L.J. 505,

560 (1997).

underscore the need to find unequivocally that application of

state law would, in a meaningful and critical way, significantly

conflict with federal policy or interests. /d.

O'Melveny found that it is particularly inappropriate to

“supplement statutory regulation that is comprehensive and

detailed; matters left unaddressed in such a scheme are

presumably left subject to the disposition provided by state

law.” 512 U.S. at 85. As Petitioner admits, CERCLA is such

a “comprehensive” scheme. Pet. Br. 18. To allow the creation

of “additional ‘federal common-law’ ... is not to ‘supplement’

this scheme, but to alter it.” O'Melveny, 512 U.S. at 87.

The need for uniformity is commonly trumpeted as an

important federal interest but such generic calls for uniformity

are often “lightly invoked” and without merit. /d. at 88; accord

Atherton, 117 S. Ct. at 671. Here, Petitioner makes a similar

argument, citing the alleged “vagaries” of the various states’

laws, Pet. Br. 40. In O'Melveny, this Court rejected the

government's argument that uniformity was needed to facilitate

its litigation, commenting that if that were so, the country

would be “awash in federal common-law rules.” 512 U.S. at 88

(quotations omitted). And, at any rate, despite linguistic

variations, the issue of disregard of the corporate form shows

substantial doctrinal consistency among the States. £.g,,

Dennis, Liability of Officers, Directors and Stockholders Under

CERCLA: The Case For Adopting State Law, 36 Vill. L. Rev.

1367, 1424 n.233 (1991).4%

Ironically, one of the primary results of creating an allegedly “uniform”

federal common law of parent-subsidiary liability under CERCLA is the

inconsistency the tests create. Compare U.S. v. Kayser-Roth Corp., 910

F.2d at 27 (ist Cir. 1990) (applying “active involvement” test “without

deciding the exact standard necessary for a parent to be an operator”), with

Lansford-Coaldale Water Auth. v. Tonolli Corp., 4 F.3d 1209, 1221(3d Cir.

One of the reasons cases authorizing displacement of state

law are so rare is because such displacement requires a

“specific concrete federal policy or interest that is

compromised” by using state law. /d. at 88; accord Atherton,

117 S. Ct. at 670 (conflict is a “precondition”). In O'Melveny

the government argued that its interest that the bank deposit

insurance fund not be depleted constituted such a conflict. The

same argument is made repeatedly by Petitioner in the instant

case. E.g., Pet. Br. at 26; 33 n.18; and 38. But in O'Melveny

this Court held that federal common law could not be created

for that purpose “because there is no federal policy that the

fund should always win.” 512 U.S. at 88 (emphasis added).

This “more money” argument has also been made and rejected

in Kimbell Foods, 440 U.S. at 737-38, and in other cases. See

O'Melveny, 512 U.S. at 88 (citing cases). Indeed, the very

reason why CERCLA’s “Superfund” exists is to pay for

cleanups where, even under CERCLA’s broad liability scheme,

no solvent liable party exists — a powerful indication that

Congress expressly contemplated that there would be cases

where the fund would not “win.”

1993) (adopting “actual control” standard, “which appears to strike the

appropriate middle ground”), with Nurad, Inc. v. William E. Hooper & Sons

Co., 966 F.2d 837, 842 (4th Cir.) (adopting “authority to control” test), cert.

denied, 506 U.S. 940 (1992), with Schiavone v. Pearce, 79 F.3d 248, 254

n.5 (2d Cir. 1996) (adopting federal common law but declining to specify

its content, thus leaving businesses in the Second Circui* in the dark). The

district court in this case itself observed that “different tests for liability

have been developed” by the courts it followed. CPC v. Aerojet-General,

777 F. Supp. 549, 573. The confusion is such that even Petitioner identifies

three standards and is forced to disclaim reliance on the Nurad standard.

See Pet. Br. at 31 n.17. See also Atchison, Topeka & Santa Fe Ry. Co. v.

Brown & Bryant, Inc., 132 F.3d 1295, 1300 n.4 (9th Cir. 1997) (“courts that

have attempted to fashion federal common law rules ... under CERCLA

have created conflicts and uncertainties over a number of issues”).

Last, but by no means least, Petitioner's rule would

interfere with the state corporate law rules that have for decades

shaped the legal expectations of parties to all types of complex

business transactions, mergers and acquisitions, and in the very

creation of corporate and partnership forms.“ The States have

long weighed and considered the value of limited liability and

how best to provide transactional certainty. The state limited

liability statutes and veil-piercing rules at issue are rules of

general applicability which the States have found fit to apply to

a wide variety of disputes among their own citizens. There is

no showing of a “race to the bottom,” or that the States have

designed their corporate liability rules to defeat legitimate

federal interests. Anspec, supra, 922 F.2d at 1250 (Kennedy,

J., concurring). This disruption of long-established commercial

practices weighs heavily against Petitioner.

B. The Area of Corporations Limited Liability Law Is

Particularly Unsuited For Judicial Law-Making

This Court has repeatedly warned against second guessing

the wisdom of state law, citing the danger of a “facile approach

to federal-common-law-making.” O'Melveny, 512 U.S. at 89.

Federal common-law-making in this area will inevitably

8 Accord Anspec Co. v. Johnson Controls, Inc., 922 F.2d 1240, 1250 (6th

Cir. 1991) (Kennedy, J. concurring):

Private parties have relied on state corporation law when making

corporate acquisitions and in forming and dissolving corporations. The

prices paid by the buyers to the sellers in those transactions undoubtedly

reflected, in part, the parties’ understanding concerning who retained the

seller's liabilities.

See generally Sisk and Anderson, The Sun Sets on Federal Common Law,

supra, 16 Va. Envtl. L.J. at 571-75.

encounter a myriad of legislative and policy problems, forcing

judges to consider and weigh all sorts of cost-benefit issues

better left to the evolution of state common law or to the

legislative process. And separation of powers concerns inhere

in every exercise of federal common law making, as the courts

become “untethered to a genuinely identifiable (as opposed to

judicially constructed) federal policy.” Jd.

It is particularly inappropriate for the federal courts to

tamper with the limited liability law of the States because that

law is predicated on a complex interplay of historic

considerations. In O'Melveny this Court repeated that “the

function of weighing and appraising” the multitude of

considerations that make up “what sort of ... liability to impose”

“is more appropriately for those who write the laws, rather than

for them who interpret them.” /d This Court has emphasized:

the presumption that state law should be incorporated ... is

particularly strong in areas in which private parties have

entered legal relationships with the expectation that their

rights and obligations would be governed by state-law

standards.... Corporation law is one such area.

Kamen, 500 U.S. at 98. See also Burks v. Lasker, 441 U.S.

471, 478 (1979) (“Congress has never indicated that the entire

corpus of state corporation law is to be replaced simply because

a ... cause of action is based upon a federal statute.”). Creating

a new federal common law of limited liability (or unlimited

liability) will “necessarily infuse corporate decisionmaking

with uncertainty” and unsettle over a century of business

practice. Kamen, 500 U.S. at 105.

Such a “quantum of federal common lawmaking,” too,

implicates substantial political and policy questions that

“exceed{] [the] federal courts’ interstitial mandate.” Kamen at

104. The “doctrine of limited liability was originally

formulated, in this country, in order to implement both

economic and democratic goals.” Stephen B. Presser, PIERCING

THE CORPORATE VEIL, § 1.01, at p. 1-4 (1997) (emphasis in

original).” In its original conception, “limited liability was

perceived as a means of encouraging the small-scale

entrepreneur, and of keeping entry into business markets

competitive and democratic". an “extremely popular

2 The entire question of the rationale and purpose of limited liability has

been the subject of energetic scholarly and political debate for almost a

century. See Presser, supra, PIERCING THE CORPORATE VEIL, Chapter |,

“Economics and Democracy: A Historical and Analytical Overview of the

Piercing Doctrine.” Professor Presser identifies at least three discrete

policy-based veil-piercing schools and rationales that have developed since

the beginning of the 20th Century. These policy-based standards range

from the “law and economics” approach (e.g., vy + hag

Corporations Systems. Law and Economics, 53 Va. L. Rev. 259 ( » R.

Winter, GOVERNMENT AND THE CORPORATION (1978); and F. Easterbrook

and D. Fischel, THE ECONOMIC STRUCTURE OF CORPORATE LAW (1991)),

to the centrist approach based on equity and the review of the proverbial

“laundry list” of factors that appears to predominate in the case law (eg. M.

Wormser, DISREGARD OF THE CORPORATE FICTION AND ALLIED

CORPORATION PROBLEMS (1927); F. Powell, PARENT AND SUBSIDIARY

CORPORATIONS: LIABILITY OF A PARENT FOR THE OBLIGATIONS OF ITS

SUBSIDIARY (1931); and ”. Clark, The Duties of the Corporate Debtor to

its Creditors, 90 Harv. L. Rev. 505 (1977)), to approaches “on the left,”

Presser at § 1.01, p.1-8 n.13, that would reduce or eliminate limited liability

(e.g., P. Blumberg, THE LAW OF CORPORATE GROUPS: SUBSTANTIVE LAW

681-92 (1987) (advocating elimination of limited liability for affiliated

corporations); and Hansmann & Kraakman, Toward Unlimited Shareholder

Liability for Corporate Torts, 100 Yale L.J. 1879 (1991)).

Not coincidentally, Petitioner's Brief cites three of Professor

Blumberg’s books and articles, Pet. Br. 33, 39, 40, but none from any of

the competing policy schools in Petitioner's attempt to have this Court

make the legislative choice that Congress left to the States and to state law.

justification for limited liability ... rarely observed by modern

scholars.” /d at p.i-14. Indeed, “if we are still interested in

ine individual hip t hi

this ought to be, perhaps, the most crucial aspect to be

considered in veil-piercing doctrine.” /d at p.1-48.

Limited liability also reduces the pote.tial costs and risks

of buying shares, and thus encourages investment and capital

formation. /d at p.1-42. “[I}nsulating parents from liability

[for] their subsidiar[ies’] activities reduces the costs to the

parent,” making the parent’s shares more valuable and creating

added incentive to invest. /d at p.1-68 n.43.10. Limited

liability also “facilitates the development of public markets for

securities, permits the allocation of risk or benefits between

parties, and supports the certainty of planning by those who

have organized the corporation.” Thompson, Piercing the

Corporate Veil: An Empirical Study, 76 Cornell L. Rev. 1036,

1073 (1991). Some scholars argue that without limited liability

“shareholders would find it necessary to monitor closely the

activities of their corporations in order to escape liability, and

that the high cost of this monitoring would itself discourage

investment.” Presser, supra, at p.1-40. The reduction in

monitoring obligations afforded by limited liability likely

makes diversification of investment possible. /d “{I}n an era

when grave concern is expressed that corporations are too

inclined to use debt rather than equity for financing, we should

hesitate before undercutting any legal doctrines that appear to

promote equity investment.” /d at p.1-70. Professor Presser

concludes “[a]bsent clear indication from the legislature ... it is

difficult to understand how courts can be justified in piercing

the veil in a manner that ignores the original legislative

justification, the promotion of investment.” /d. at p.1-69.

The federal courts, in particular, are neither equipped nor

a ee a —

empowered to determine that other policies are more

important. The risks of federal judicial law-making are

perhaps best exemplified in the Petitioner's own brief, where

it sets forth the factual test it would use to implement its

“control and participation” legal standard of “operator” liability.

According to the Petitioner, “a parent corporation [that] steps

beyond its role as a stockholder” of a subsidiary would be

liable. Pet. Br. 41. Petitioner would still allow a parent

corporation to “exercise [the] traditional powers” of stock

ownership, which Petitioner would define as the right to

“choose the subsidiary’s board of directors and to vote on

general matters of corporate governance....” /d. at 43. “If the

parent corporation, however, departs from the [assertedly]

typical practice and employs its own agents as executive

directors (or as board members performing the typical functions

of an executive officer) to manage the subsidiary, then a court

may conclude that the parent corporation is, in fact, operating”

and CERCLA liability will attach. /d at 44.

The facts are, however, that many — if not most — parent

corporations place one or more their officers in senior officer

or board positions at their subsidiaries and have long done so

under sanction of state law“ Under Petitioner's federal

2 See Presser, supra, at p. 1-71 (citation omitted):

If we are committed to federal and state policies of encouraging

investments, it would seem dubious to entrust even the federal courts

with what would amount to a delicate task of balancing the policies of

encouraging investment and the other, more particularized federal

regulatory or welfare goals... It would seem better, as [Harvard Dean}

Clark suggested, to let these delicate balancing acts be performed by the

more democratic organs of the state and federal legislatures.

7 This case does not present the situation where employees of the parent

who are not employees of the subsidiary have full-time jobs operating the

common law test, appointment of dual officers, though

woefully insufficient to cause the corporate veil to be pierced,

would now result in CERCLA liability. The en banc Sixth

Circuit below correctly observed that the government's test:

replaces the relatively bright line provided by the traditional

doctrine ... 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 ..., such as participation

... and involvement in specific policy decisions, offer little

guidance.

United States v. Cordova Chem., 113 F.3d at 580.

Petitioner's test completely ignores the significant issue of

role attribution — the long-standing presumption in

corporations law that an individual can “wear two hats” and be

an officer of both companies, and that when such a dual officer

acts in his role as an officer of the subsidiary he binds only thar

corporation. It is a fundamental principle that an officer's

actions are on/y attributable to the company on whose behalf he

is acting unless one ts justified in disregarding the corporate

form. As one court described it:

one-hundred percent ownership and identity of directors

and officers are, even together, an insufficient basis ... to

pierce the corporate veil. Instead, we maintain the fiction

that an officer or director of both corporations can change

subsidiary’s business. The court below made a similar observation. 113

F 3d at 579 (case does involve a parent which “independently operate(s] ...

in the stead of its subsidiary or as a sort of joint venturer ... alongside its

subsidiary"). What test to apply in such a case is not before this Court.

hats and represent the two corporations separately, despite

their common ownership.

United States v. Jon-T Chemicals, Inc., 768 F.2d 686, 691 (Sth

Cir. 1985), cert. denied, 475 U.S. 1014 (1986) (citations

omitted). Under general corporation law, then, the actions of

dual officers or directors affecting the subsidiary are

attributable only to the subsidiary unless the veil can be

pierced. Any other rule necessarily would result in parent

liability for all of a subsidiary’s torts or contracts whenever a

dual-role person is involved. The government’s proposed test

invites just such a result.

Ill. THE QUESTION IN THIS CASE ARISES IN

MANY OTHER SITUATIONS UNDER CERCLA

The instant situation — whether to apply existing state law

or, instead, create a federal common law rule to determine

2 Accord United States Fire Ins Co. v. Allied Towing Corp., 966 F 2d

$20, 828-29 (4th Cir. 1992) (in case of two corporations with identical

ownership, boards and management, it was improper to “pierce[] Transerve

Marine's corporate veil [by] holding it responsible for the [negligent]

inaction of its officers and directors in their capacities as Allied Towing s

officers and directors”) (emphasis in original).

2 Petitioner's test is doubly improper when one remembers the retroactive

nature of CERCLA liability. Petitioner's test would impose liability for

business practices based on state law principles that have been in place for

nearly a century and — without any hint of Congressional intent to do so —

would reallocate risk for liabilities flowing from ancient business

transactions and practices. Long prior to CERCLA, corporations made

decisions about officers’ or board members’ participation in a subsidiary’s

corporate governance based upon approved principles of law in effect in

their states. Petitioner's test would change the rules after the fact, creating

a different standard under the guise of federal common law.

whether a parent corporation is liable under CERCLA at a

facility operated by its subsidiary — is only one of several

analogous questions of what law to apply that have repeatedly

arisen under CERCLA, emphasizing the importance of

faithfulness to the federal courts’ limited role.

Similar questions arise when a claimant seeks to hold a

purchaser of assets from a site owner or operator liable as a

“successor” to that owner or operator. Should the court apply

the traditional state law asset-purchaser non-liability rule, with

its four usual exceptions,“ or should the court adopt a new

federal common law standard perceived by it to further the

“goals” of CERCLA? What about when the site operator is

a dissolved corporation? Should the court apply state law

governing the capacity to sue that corporation®® or may it

develop a special federal common law standard which preempts

State corporate dissolution law to address that dissolved

corporation’s liability? And what if an individual owner or

* See Atchison, Topeka & Santa Fe Ry. Co. v. Brown & Bryant, Inc., 132

F.3d 1295 (9th Cir. 1997) (applying state law).

Cir. 1992) (adopting federal “substantial continuity” test); United States v.

Mexico Feed & Seed Co., 980 F.2d 478, 487 (8th Cir. 1992) (adopting

“substantial continuity” test but only if buyer knows of seller's liability).

* Eg., Levin Metals Corp. v. Parr-Richmond Terminal Co., 8\7 F.2d

1448, 1451 (9th Cir. 1987) (“CERCLA does not preempt California law

determining capacity [of a dissolved corporation] to be sued”), Citizens

Elec. Corp. v. Bituminous Fire & Marine Ins. Co., 68 F.3d 1016, 1019 (7th

Cir. 1995) (same, but finding that even if CERCLA preempts F.R. Civ. P.

17 then, under O'Melveny, state law would apply).

“ E.g., Town of Oyster Bay v. Occidental Chem. Corp..1997 U.S. Dist.

Lexis 18151, at *46-47 (E.D.N.Y. Nov. 14, 1997) (“finding Rule™17(b) to

operator is dead? Should the federal court apply generally

applicable state probate law regarding the pursuit of claims

against estates or is state probate law preempted in favor of

a federal policy-based common law rule designed to enhance

recoveries from decedents’ estates and their beneficiaries?”

Similar questions have arisen when CERCLA claims are filed

against officers, directors or sole shareholders of corporate

owners or operators, especially in close corporations,“ and

be superseded in the CERCLA context” but noting that “there is no single

uniform approach” to the substitute federal common law rule), New York v.

Panex Indus., Inc., 1996 U.S. Dist. Lexis 9418, at *17 (W.D.N.Y. 1996)

(“CERCLA supersedes FRCvP 17(b) and preempts state [capacity} law,”

collecting cases at n.23); Chatham Steel Corp. v. Brown, 858 F. Supp. 1130,

1152 (N.D. Fla. 1994) (federal common law “dead and buried” test), U.S.

v. Sharon Steel Corp., 681 F. Supp. 1492, 1496-98 (D. Utah 1987) (state

law preempted where corporation is dead but “the funeral is still going on").

#® See Witco Corp. v. Beekhuis, 38 F.3d 682, 690 (3d Cir. 1994)

(respecting state probate law: “It is untenable that Congress intended to

reach so deep into the domain of state probate administration and use the

heavy hand of CERCLA to disturb and upset long-settled estates.").

® Ex, North Carolina v. W.R Peele, Sr. Trust, 876 F. Supp. 733, 743

(E.D.N.C. 1995) (approving claim under federal common law “trust fund

theory” against widow who inherited from deceased operator's estate, which

was fully and properly closed under state law eight years earlier, because

such claim “furthers CERCLA’s remedial purpose”); Soo Line R. Co. v. B.J

Carney & Co., 797 F. Supp. 1472, 1485 (D. Minn. 1992) (finding claim-

timing provisions of Nevada probate law preempted because Nevada law

would “release responsible parties from liability”).

2 Compare Donahey v. Bogle, \29 F.3d 838 (6th Cir. 1997), pet. for cert.

pending, U.S. No. 97-1163 (even sole shareholders of close corporations

will be protected by the corporate form unless the veil can be pierced), with

Kelley v. Thomas Solvent Co., 727 F. Supp. 1532, 1544 (W.D. Mich. 1989)

(corporate officer, director or sole shareholder is liable under CERCLA if

he “could have prevented or significantly abated the .. discharge that 1s the

when claims are filed against the limited partners of limited

partnerships that may be CERCLA owners or operators.

The federal courts have splintered in their approach to every

one of these questions, sometimes following Kimbell Foods but

usually exhibiting a lack of fealty and deference to governing

state law principles. Correctly, one recent decision adopted the

reasoning of Kimbell Foods, O'Melveny, and Atherton and

applied state law to resolve a successor liability question. See

subject of the claim,” a test based on “an individual’s authority to control.”

Test averred to be “consistent with CERCLA’s goals” and “wil! encourage

increased responsibility” which, the district judge wrote, “I take ... to be a

positive result...."); accord Donahey v. Bogle, 129 F.3d at 845-46 (Martin,

C.J., dissenting, urging adoption of Kelley's “prevention” test as law of

Sixth Circuit). See also Riverside Market Dev. Corp. v. International Bidg.

Products, Inc., 93\ F.2d 327 (Sth Cir.) (per curiam), cert. denied. $02 US.

1004 (1991), and Sidney S. Arst Co. v. Pipefitters Welfare Educ. Fund, 25

F.3d 417 (7th Cir. 1994) (applying a legal standard — improperly derived

directly from CERCLA, but essentially identical to the common law test —

asking whether corporate officer was “directly and personally eng xged in

conduct that led to the specific environmental damage at issue in the case,”

€.g., Arst, 25 F.3d at 421 (emphasis in original)).

» E.g., Redwing Carriers, Inc. v. Saraland Apts., 94 F.3d 1489, 1503-05

(11th Cir. 1996). Because the Eleventh Circuit had previously adopted a

rule like the one Petitioner urges here that extends “operator” liability to

parent companies under a “control” standard, Jacksonville Elec. Auth. v

Bernuth Corp., 996 F.2d 1107, 1109-11 (11th Cir. 1993), the court applied

that same rule to evaluate the liability of limited partners as CERCLA

“operators.” Under that rule a limited partner would be liable if it:

either (1) actually participated in operating the Site ... or (2) actually

exercised control over or [3] [were] otherwise intimately involved in the

operations of, the Partnership.

94 F.3d at 1505. Such a test, of course, rewrites the Uniform Limited

Partnership Act in force in almost every state.

Atchison, Topeka & Santa Fe Ry. Co. v. Brown & Bryant, Inc.,

supra, (“ATSF”) As shown above, however, other courts

have improperly developed federal common law tests they

unilaterally deemed “superior to the older and more inflexible”

state law rules to answer these questions. E.g., BF. Goodrich

v. Betkoski, 99 F.3d 505, 519, reh. denied, 112 F.3d 88 (2d Cir.

1997), pet. for cert. pending sub nom. Zollo Drum Co., Inc. v.

B.F. Goodrich Co., U.S. No. 97-241. The resulting chaos in

the CERCLA law is predictable. See Sisk and Anderson,

supra, The Sun Sets on Federal Common Law, 16 Va. Envil.

L.J. at 565-67.

The recently decided Atchison, Topeka & Santa Fe Ry. Co.

case correctly analyzed the appropriate rule to use under

CERCLA. There, the Ninth Circuit rejected the argument that

a special federal rule under CERCLA should displace state law

to address the successor liability of asset purchasers. The Ninth

Circuit recognized the reach of O'Melveny and Atherton:

Although O'Melveny and Atherton involve a different

federal statute, the underlying analysis is applicable in

any situation in which it is necessary to determine

whether state law should be supplanted by judicially

created federal rules of decision.

132 F.3d at 1299. The court specifically noted O'’Melveny’s

teaching that Congress’ silence indicates nor that the federal

2 A few other federal courts, even before this Court decided O'Melveny

and Atherton, \otaedae tecnica th stharcdtpcemonle direst

traditional corporations law as the federal rule of decision to answer ity

questions under CERCLA. Joslyn v. T.L. James & Co., 696 F. Supp. 222,

226-27 (W.D. La. 1988), aff'd, 893 F.2d 80, 83 (Sth Cir. 1990) (parent-

subsidiary question); Anspec Co. v. Johnson Controls, 922 F.2d at 1248-51

(Kennedy, J., concurring) (successor liability).

courts should develop their own rules of law but, instead. that

they should rely on state law unless the test set forth in Kimbell

Foods is met. Jd. Examining the three Kimbeil factors. the

ATSF court found, first, that “there has been no real explanation

of the need for uniformity” and that “‘the law in the fifty states

on corporate dissolution and successor liability is largely

uniform.’” Jd at 1300, quoting Anspec, 922 F.2d at 1249.

Finding that “the argued ‘need’ for uniformity ... stem[{med] not

from disarray among the various states, but from the alleged

need for a more expansive view” of liability, the court found

“no evidence that the application of state corporation law will

frustrate” CERCLA’s objectives. /d at 1300-01. “‘[MlJore

money arguments,” it found, “are unavailing.” /d at 1301.

State law was thus applied.

CONCLUSION

The breadth of the damage done by the federal courts in the

name of CERCLA’s “intended” purpose but in derogation of

state law is virtually unlimited. The simple solution — and one

consistent with constitutional principles of separation of powers

and federalism — is to adhere to long-standing state law

precepts of limited liability, which Congress nowhere

evidenced any intent to supplant. The decision of the Sixth

Circuit should be affirmed.

DONALD B. MITCHELL, Jr.*