# Amicus Curiae Brief — United States v. Bestfoods

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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385014_0121%3A23

## Record

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

## Text

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| No. 97-454
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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

Vv

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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PAGE
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

il
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

iV

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 “

Vv

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

vi

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

iX

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

X

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.

2

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.

“
J

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):

4

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

5

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).

6

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.

7

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.

© Cf Morissette v. United States, 342 U.S. 246, 263 (1952) (Jackson, J.):

[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 ”).

9

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

© Eg, Depository Institution Management Interlocks Act, 12 USC.
§§ 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.

10

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.

11

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).

12

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

13

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”).

14

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....”).

15

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)

16

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

© It has been observed that Kimbell Foods “effectively establishes a ...
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).

17

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.

18

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”).

19

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.

20

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

21

“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.

7
os

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 —

23

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

24

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.

25

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.

26

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).

© Eg, United States v. Carolina Transformer Co., 978% F.2d 832, 838 (4th
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

27

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

28

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.

29

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).

30

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.*

JOHN C. CHAMBERS

LAUREL A. BEDIG

ARENT FOX KINTNER
PLOTKIN & KAHN

1050 Connecticut Avenue, N.W.

Washington, D.C. 20036-5339

Counsel for Amicus Curiae

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385014_0121%3A23. Public record. Not legal advice.