Amicus Curiae Brief — United States v. Bestfoods

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Supreme Court, U.S.

mS rie" FIL & D

\F FEB 20 096

CLERK

No. 97-454

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1997

UNITED STATES OF AMERICA,

Petitioner,

BESTFOODS (FORMERLY

CPC INTERNATIONAL INC.), et al.,

Respondents.

ON WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

BRIEF AMICUS CURIAE OF

THE UNITED STATES

BUSINESS & INDUSTRIAL COUNCIL

IN SUPPORT OF RESPONDENTS

{Counsel listed inside front cover]

TS

Washington, U.C. ¢ THIEL PRESS «+ (202) 328-3286

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is ae ‘ ee .

? :

DAvip G. PALMER MICHAEL J. WILSON

(Counsel of Record) ZEVNIK HORTON

Joun D. FoGNANI GUIBORD McGOVERN

CHRISTOPHER L. THORNE PALMER & FOGNANI, L.L.P.

CRAIG V. RICHARDSON 1299 Pennsylvania

JONATHAN M., FINGERET Avenue, N.W.

ZEVNIK HORTON Ninth Floor

GUIBORD McGOVERN Washington, D.C. 20004

PALMER & FOGNANI, L.L.P. (202) 824-0950

555 Seventeenth Street

Twenty-Sixth Floor

Denver, Colorado 80202 gh renee

(303) 382-6200

GUIBORD McGOVERN

PALMER & FOGNANI, L.L.P.

77 West Wacker Drive

Chicago, Illinois 60601

(312) 977-2500

— Attorneys for Amicus Curiae —

a _e —

CBEST AVAILABLE COPY

(1)

Page

TABLE OF CONTENTS

Interest of Amicus Curiae... .. 6.6... 00 cc cece eeeees l

SI GE CITI c coc cccccccccesesccscccess 2

PETIGES oo cc ccc cceseetccsesecvesccccccceses 6

A. The Sixth Circuit Correctly Applied

the Plain Language of CERCLA to

Hold that Direct Liability is Appli-

cable Only to the Entity Which

Actually Operated the Facility ............. 6

B. The Sixth Circuit Correctly Held that

Vicarious Liability Under CERCLA

Should be Determined According to

Traditional Principles of Corporate

1. The District Court’s Decision has the

Effect of Imposing Vicarious Liability

on Parent Corporations................ 10

2. The District Court Improperly Pre-

empted Traditional Principles of

WEED EAE cod ccceeeeesecceces 12

3. Petitioner’s Novel Theory of “Direct”

Parent Corporate Liability for Sub-

sidiary Corporate Agents is Without

Pn eGb Cech ecereccceceevcevceecess 14

C. The Sixth Circuit Properly Concluded

that State Veil-Piercing Law Applies

in Determining Whether a Parent Cor-

poration Should be Held Liable Under

CERCLA Section 107(a)(2) ..........45.5. 16

1. Plain Language of CERCLA and

SEED GREENE ccc ce cccsececccccvees 16

(it)

2. Kimbell Foods Supports Defer- —

ence to and Adoption of State

Corporations Law. ........ 66-0 e enue 17

a. No Substantial Need Exists for a

Uniform Body of Law on Parent

Corporate Liability Under

b. Application of State Law Would

Not Frustrate CERCLA’s

c. Application of Petitioner’s Uni-

form Rule Would Substantially

Disrupt Commercial Relation-

ships Predicated on State Law......... 22

D. The Sixth Circuit Correctly Applied

State Law and Upheld Traditional

Concepts of Limited Liability Asso-

ciated With the Corporate Form........... 23

1. Limited Corporate Liability Has

Been Long Recognized and

Approved by This Court............+-. 24

2. The Sixth Circuit’s Decision Affirms

and Continues the Broadly Shared

Benefits of Limited Liability............ 25

3. Any Decision to Change Funda-

mentally Corporate Limited

Liability Is Properly a Matter

Only for Congress ...... 6... 66 eee eens 27

a. Petitioner’s Standard is Funda-

mentally Unfair............0+-0000- 27

(itt)

Page

b. Acceptance of Petitioner’s Stand-

ard Would Have Adverse Environ-

mental Consequences ............... 28

c. Acceptance of Petitioner’s Stand

ard Would Have Adverse Econo-

GS GIOOOED . oc cccccccvesesces 29

SD ce udcandscauwecd sNenebeabedcaucénes 30

TABLE OF AUTHORITIES

Cases:

Anderson v. Abbott, 321 U.S. 349 (1944) ......... 24

Anspec Co. v. Johnson Controls, Inc., 922 F.3d

Se eee Gas Pe vac encnddddcdesdas 17, 21, 22

Atherton v. Federal Deposit Ins. Corp., 117 S.Ct.

PE wtthGs ating si dé6edensksbaws vat 18, 20

Camps Newfound/Owatonna, Inc. v. Town of

Harrison, Maine, 117 S.Ct. 1590 (1997).......... 18

City Management Corp. v. U.S. Chemical Co.,

Inc., 43 F.Sd 244 (Gth Cir. 1994) ...........06.. 17

City of Milwaukee v. Illinois, 451 U.S. 304

SE ROS 0G Geek Ob He Odb ee hebeee saps pucwens 13

CPC International, Inc. v. Aerojet General Corp.,

777 F. Supp. 549 (W.D. Mich. 1991) ......... 3,11

In re Chicago, Milwaukee, St. Paul & Pac. R.R.,

eis Ri | 6G a 12

Jacksonville Elec. Auth. v. Bernuth Corp., 996

Fae Be GRP Gy BEN ks Sov edccvecd sce ce 3

Johnson v. Flowers Industries, Inc., 814 F.2d

SP SE So enccbunbaseeeecdsanen< 15

(iv)

Cases, continued: Page

Johnson v. Railway Express Agency, 421 U.S.

OBS (IDTB) 2. wc cccccccccccesscevcssccccess 21

Joslyn Mfg. Co. v. T.L. James & Co., 893 F.2d

80 (5th Cir. 1990), cert. dented, 498 U.S.

DIGS (IODA) 0. ww ccccccccccccccccscvees 8, 16, 27

Krivo Indus. Supply Co. v. Nat'l. Distillers &

Chem. Corp., 483 F.2d 1098 (5th Cir.

1973), modified per curiam, 490 F.2d

DEG COs GE, BBR Gs ccc ccccccctesesecesicees 24

Lansford-Coaldale Joint Water Auth. v. Tonolli

Corp., 4 F.3d 1209 (3d Cir. 1993) ............ 3,10

Mardan Corp. v. C.G.C. Music, Ltd., 804 F.2d

BOBS COG Gir. BDDS). 2 ccc cc ccccccessscteseess 18

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

4B4 (IDOE) ... cc ccncvccccccccccsccesccveces 16

National Labor Relations Board v. Greater

Kansas City Roofing, 2 F.3d 1047

(Gale Cle. 1998) . cc ccccccsccvccsccccccccses 28

O'Melveny & Myers v. Federal Deposit Ins. Corp.,

512 U.S. 79 (1994)... 2... ee eee ener 19, 20, 22, 29

Pennsylvania v. Union Gas Co., 491 U.S. 1

(7) |) eo 6, 21

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

1DDG) wc ccesccccccvecveccncccsovecsess 3,10

United States v. Colorado & Eastern R.R. Co.,

50 F.3d 1530 (10th Cir. 1995) .........---5-- 3, 6

United States v. Cordova Chem. Co. of Mich.,

113 F.3d 572 (6th Cir. 1997)........- 10, 17, 21, 28

United States v. Dart Industries, Inc., 847 F.2d

144 (4th Cir. 1988)... 2.2... cece eee eee eee ees 8

(v)

Cases, continued: Page

United States v. Jon-T Chemicals, Inc., 768 F.2d

686 (5th Cir. 1985), cert. denied, 475 U.S.

SE EE 44 66nd 0d BensaWaaneednce secant 15

United States v. Kayser-Roth Corp., 910 F.2d

24 (1st Cir. 1990), cert. denied, 498 U.S.

PEED Shb%6G CAS es kee eubes) be deeee we 3,10

United States v. Kimbell Foods, Inc., 440 U.S.

FO EEE 4b iRS bn sw ckedcedus peas enntes passim

United States v. Standard Oil Co., 332 U.S.

ee ED 0b 6 dé.oee becvees te seuaenbbensGuks 18

United States v. TIC Investment Corp., 68 F.3d

1082 (8th Cir. 1995), cert. denied, 117 S.Ct.

SORO SCcb ee cdceauacsevbuneWeddeseces 3,15

United States v. USX Corp., 68 F.3d 811 (3rd

See aah hb osn Suv uke eaeenseessveascee cs 17

United Technologies Corp. v. EPA, 821

Pe CO ey ee Ess Cd acobune sc ceeds 12

Weinberger v. Hynson, Westcott & Dunning,

ee tg er ee 8

Wisconsin Public Intervenor v. Mortier, 501 U.S.

Pe CONOED opentbvenssipvedebesenceveseswdl 13

Statutes and Regulations:

Se ob ours ced tckaecboukeawewkeses 17

Ce Ts Bs a 6 ccc wccddpicsbescs 8,13

CE UG, BPD 6 cc vedi cess svevscecen 7

42 U.S.C. §9601(20)(A)(iii)... 2... eee eee eee 8

GE UBL, GOSSEIOM EID cc ccccccescccccveceesss 9

Ss CEE ne Os Kane nacusacepeudtuos 12

Cases, continued: Page

42 U.S.C. $9GO7(a)... wr ccccccccccscces 3, 4, 6, 10

42 U.S.C. §9607(a)(2) 0... eee ee eee eee eee passim

42 U.S.C. $OG14(a). .. cc ccecccccevecccvevecs 12

42 U.B.C. GOGE2(d) .. ccc cncccccevccesesscns 12

Miscellaneous:

Phillip I. Blumberg, The Law of Corporate

Groups: Tort, Contract and Other Com-

mon Law Problems in the Substantive

Law of Parent and Subsidiary Corpora-

tioms (1987)... .cccvcnccscccesvscvecess 25, 26

William O. Douglas & Carrol M. Shanks, /nsul-

ation from Liability Through Subsidiary

Corporations, 39 Yale L.J. 193 (1929).......... 24

Frank H. Easterbrook & Daniel R. Fischel,

Limited Liability and the Corporation,

52 U. Chi. L. Rev. 89 (1985)... .........0545- 24, 26

H.R. Rep. No. 253, 99th Cong., Ist Sess.

(1DGS). cccccccescccaresevnseccoseesvecs 14, 28

The United States Business & Industrial Council

(“USBIC”), as amicus curiae, respectfully submits this

brief in support of Respondents CPC International

Inc.,' Aerojet-General Corporation, Cordova Chemi-

cal Company, and Cordova Chemical Company of Mich-

igan, pursuant to Rule 37.3 of the Supreme Court Rules.

By letters filed with the Clerk of the Court, the parties

have consented to the filing of this brief.

INTEREST OF AMICUS CURIAE

USBIC is a 65-year-old nonprofit business league

and policy center headquatered in Washington, D.C.

USBIC’s approximately 1,100-firm membership spans

44 states and ranges from Fortune 500 corporations to

small entrepreneurial enterprises. Drawn from the man-

ufacturing, energy, real estate and financial services sec-

tors of the national economy, these companies are gen-

erally major employers in their communities and main-

stays of local economies. USBIC has consistently pro-

moted a less intrusive government, adoption of market-

oriented regulatory solutions, and fiscal responsibility.

The issues presented in this case arising under the

Comprehensive Environmental Response, Compensation,

and Liability Act of 1980, as amended (“CERCLA”),

are of particular concern to USBIC’s members and dir-

ectly affect USBIC’s longstanding mission. The con-

tinuing success of the American free enterprise system

depends closely on the innovation, drive, vision, and

hard work of entrepreneurs and incorporators. The lim-

ited liability corporate form has created more jobs,

l While USBIC understands that CPC International Inc. may

now be known as “Bestfoods’’, throughout this brief the company

will be referred to as “CPC."’

l

*No counsel for a party authored this brief in whole or in part, and

no person or entity other than amicus curiae or its members made a

monetary contribution to the preparation or submission of this brief.

2

income, wealth, economic growth and opportunity than

any other organizational form in history.

The decision of the United States Court of Appeals

for the Sixth Circuit now before this Court supports

the well-established concept of limited corporate lia-

bility, on which USBIC’s members have long relied. The

Sixth Circuit’s opinion provides a sense of balance, integ-

rity and legitimacy to environmental statutory and reg-

ulatory enforcement, by rejecting the government’s

nearly boundless views on the scope of environmental

liability. The decision of the Sixth Circuit also respects

the indispensable role of state law, under which many of

USBIC’s members have been incorporated, in determining

what is — and what is not — a corporation and the circum-

stances under which a corporate form may be disregarded.

The Sixth Circuit’s opinion promotes good corporate

citizenship, by encouraging parent corporations to

become and remain involved in subsidiary corporations

and not to distance themselves from the environmental

compliance activities of related corporations. Finally,

USBIC strongly believes that the standard of liability

under CERCLA urged by Petitioner United States of

America (‘Petitioner’) represents such a dramatic

departure from current economic realities and business

expectations that such a standard should not be judicially

imposed. |

SUMMARY OF ARGUMENT

Since CERCLA’s enactment, the courts have cast an

exceedingly confused web of interpretation over the stat-

utory text. Particularly in the area of corporate liability,

and as was the case with the district court below, judges

have interwoven concepts of direct liability with selected

3

principles of vicarious liability to create “new, middle

ground” for finding CERCLA liability. CPC Interna-

tional, Inc. v. Aerojet General Corp., 777 F. Supp. 549,

573 (W.D. Mich. 1991) (Petitioner’s Appendix (Pet.

App.”) at 107a).2 The result is a judge-made, con-

ceptual “grab-bag” that dramatically expands the scope

of CERCLA liability, taking it even further out of bal-

ance with the exceedingly powerful remedies Congress

created for those who successfully invoke the statute.

Thus, USBIC urges the Court to affirm the Sixth Cir-

cuit’s decision, and hold that a parent corporation may

not be held liable under CERCLA section 107(a)(2) as

an “operator” of a facility owned or operated by a sub-

sidiary corporation absent the existence of circum-

stances warranting piercing the corporate veil under

applicable state law.°

A. When it enacted CERCLA, Congress identified four

bounded categories of potentially liable persons and no

others. 42 U.S.C. §9607(a). The legislative determina-

tion to restrict liability to these discrete categories of

persons was well founded, because the courts later held

it was Congress’ intent to make liability under the statute

strict, as well as joint and several. See, e.g., Untted States

v. Colorado & Eastern R.R. Co., 50 F.3d 1530, 1535

2 See also, United States v. Kayser-Roth Corp., 910 F.2d

24, 26-27 (Ist Cir. 1990), cert. denied, 498 U.S. 1084 (1991';

Schiavone v. Pearce, 79 F.3d 248, 253-54 (2d Cir. 1996); Lans-

ford-Coaldale Joint Water Auth. v. Tonolli Corp., 4 F.3d 1209,

1221-23 & n.13 (3d Cir. 1993); United States v. TIC Investment

Corp., 68 F.3d 1082, 1089-91 (8th Cir. 1995), cert. denied, 117

S.Ct. 50 (1996); Jacksonville Elec. Auth. v. Bernuth Corp., 996

F.2d 1107, 1110 (11th Cir. 1993).

S USBIC supports the Sixth Circuit’s decision that parent

corporations may not be liable under CERCLA section 107(a)(2)

unless circumstances requiring piercing of the corporate veil exist

as applied by the Sixth Circuit to CPC and Aerojet-General Corpor-

ation, and as a general rule.

4

(10th Cir. 1995). The liability of “owners,” “‘operators,”

“arrangers,” and “transporters” arises from their direct

and actual relationship with a facility where hazardous

substances have been released into the environment. 42

U.S.C. §9607(a).

In this case involving the contours of “operator”’ lia-

bility under CERCLA, the en banc opinion of the Sixth

Circuit acknowledges that any “operator” with such dir-

ect involvement with the facility in question may be

liable. Pet. App. at 17a-18a. Contrary to Petition-

er’s contention that the Sixth Circuit’s opinion “‘absolves

parent corporations of liability,” Brief of Petitioner

United States (“Pet. Br.”) at 16, the decision main-

tains full liability under CERCLA for parent corpor-

ations that effectively operate, through sham subsid-

iaries, facilities where hazardous substances have been

released into the environment. Pet. App. at 17a-18a.

The Sixth Circuit’s opinion merely reaffirms Congress’

intention — expressed in the plain words of the statute —

that parent corporations are not liable as operators under

CERCLA merely because they may exercise “control”

over viable subsidiary corporations. The object of

“operator” conduct triggering liability is a facility, not

another firm.

B. The courts imposing “direct’”’ operator liability in

disregard of the corporate form have typically engaged

in a truncated vicarious liability analysis sub stlentio.

Relying on factual conclusions about the percentage of

subsidiary stock owned by the parent, involvement with

the subsidiary’s board of directors, and inter-corporate

policy-setting arrangements, the district court’s opinion

in this case is representative of this abbreviated derivative

liability analysis masquerading as a test for “direct”

liability.

5

Because corporations are creatures of state law, issues

conceming a corporation’s formation, organization, con-

stitution, governance, viability, and formal existence turn

on the law of the incorporating jurisdiction. CERCLA’s

structure and text reflect Congress’ intent to look to state

law in determining whether, and under what circum-

stances, a state law-created corporation may nonetheless

be disregarded in favor of holding another party, with

no direct ties to the facility in question, vicariously

liable for the disregarded corporation’s actions.

Petitioner argues that the Court effectively should read

into CERCLA’s text phrases like “active participation”

and “control.” The transparent objective of such addi-

tions to the legislated words is to supplant the well devel-

oped body of state law that routinely guides the courts in

determining when the corporate veil is to be pierced.

Similarly, by giving the label “direct liability” to conduct

that is normally one of many factors weighed to deter-

mine vicarious liability, Petitioner plainly seeks to avoid

the common law factors historically applied to deter-

mine whether the separate existence of a corporation

should be recognized or disregarded.

C. Nowhere in CERCLA’s structure or text did Con-

gress manifest a clear intention to ignore or preempt

state law on the scope of parent corporate liability. Nor

does the statute suggest it was Congress’ aim to commis-

sion federal courts to develop a body of federal common

law on the subject of what is, and what is not, a viable

corporation for purposes of imposing liability under

CERCLA. Under this Court’s decision in United States

v. Kimbell Foods, Inc., 440 U.S. 715 (1979), this deter-

mination is not a matter of federal common law. This is

so because the federal interest in a uniform federal rule of

parent corporate liability under CERCLA is weak, appli-

cation of state law-based limited liability would not frus-

6

trate CERCLA’s purpose, and derogation of well-estab-

lished state veil-piercing standards would disrupt every-

day commercial relationships founded on those stand-

ards.

D. The inescapable effect of Petitioner’s argument is

that, at least for the special purpose of imposing liability

under CERCLA, the liability limits that customarily

insulate owners of valid corporations are not so limited

after all. It is the province of Congress only to consider

and undertake such a dramatic change in fundamental

principles of corporate law, organization and governance.

Because the wholesale expansion of parent corporate lia-

bility urged by Petitioner would carry a substantial envi-

ronmental and economic price, the legislature is better

suited than the courts to weigh those costs against the

purported benefits Petitioner asserts will accrue if its con-

struction of the statute is adopted.

ARGUMENT

A. The Sixth Circuit Correctly Applied the Plain

Language of CERCLA to Hold that Direct Lia-

bility is Applicable Only to the Entity Which

Actually Operated the Facility.

CERCLA establishes four specific categories of “covered

persons” and imposes liability only on persons who fall

within those categories. 42 U.S.C. §9607(a). That Con-

gress elected to limit CERCLA’s reach to these discrete

categories makes sense because liability under the statute

has been held to be strict, as well as joint and several.

See, e.g., United States v. Colorado & Eastern R.R. Co.,

50 F.3d 1530, 1535 (10th Cir. 1995). Indeed, CERCLA

affords exceedingly powerful remedies to parties who

successfully invoke it. Pennsylvania v. Union Gas Co.,

491 U.S. 1, 11, 21, (1989). Petitioner now seeks to

7

expand the already broad and powerful liability pro-

visions of CERCLA far beyond reason and Congress’

intent.

At issue in this case is the category that establishes

CERCLA liability for “person[s] who at the time of

disposal of any hazardous substance owned or operated

any facility at which such hazardous substances were dis-

posed of.”” 42 U.S.C. §9607(a)(2). With respect to so-

called “operator” liability, the statute imposes liability

only on a party that can be shown to have operated the

facility itself. Stated differently, the putative operator’s

ties to the facility must be actual and direct. Nothing in

the statute remotely suggests liability attaches merely

because one firm operates another firm which, in turn,

operates a facility. Indeed, the statute elsewhere defines

an “‘owner or operator” as the person “owning or operat-

ing such facility.” 42 U.S.C. §9601(20)(A)(ii)(emphasis

added). CERCLA’s plain language confirms Congress’

design that the object of an operator’s conduct giving rise

to liability under CERCLA must be the facility, not

merely another alleged operator.

Petitioner’s attempt to shift the inquiry from actual

“operation” of a contaminated facility to “control” or

“management” of a related firm is not supported by the

statute. In the primary liability provision of the statute,

Congress used the word “operated,” not “controlled” or

“managed.” 42 U.S.C. §9607(a)(2). In the definition

of “owner or operator,”’ Congress used the terms “other-

wise control” and “participate in management” to

address very specific situations not applicable here. If the

terms were at all synonymous, Congress simply could

have continued to use “operate” to capture all forms

of activity giving rise to potential liability.

“Control” is only relevant where a facility has been

conveyed to a governmental authority through abandon-

ment, bankruptcy or the like. 42 U.S.C. §9601(20)(A)-

(iii). Congress provided that in such situations, an owner

or operator is anyone “who owned, operated, or other-

wise controlled activities at such facility” immediately

before the conveyance. If “control’’ were synonymous

with “operate,” the language “or otherwise controlled”

would be superfluous, an interpretive result to be avoided.

See, e.g., Weinberger v. Hynson, Westcott & Dunning,

Inc., 412 U.S. 609, 683 (1973). The fact that Congress

used the term “otherwise controlled” in this context, but

omitted it from the more generally applicable subsection

of the definition (42 U.S.C. §9601(20)(A)(ii)), indicates

that control is irrelevant to operator determinations in

general. Joslyn Mfg. Co. v. T.L. James & Co., 893 F.2d

80, 83 (5th Cir. 1990), cert. denied, 498 U.S. 1108

(1991); United States v. Dart Industries, Inc., 847 F.2d

144, 146 (4th Cir. 1988).

Likewise, ‘“‘management’”’ is relevant only in one lim-

ited situation, not present in this case. In defining “owner

or operator,” Congress expressly provided that “such

term does not include a person, who, without partici-

pating in the management of a vessel or facility, holds

indicia of ownership primarily to protect his security

interest in the vessel or facility.” 42 U.S.C. §9601(20)-

(A). Stated differently, a person who is the title owner

of a facility (and so would be liable as an owner) is

exempted from liability provided he does not “‘partici-

pate in management” of the facility.

Contrary to Petitioner’s contention, the CERCLA

liability of lenders who “participate in management” of

a facility is not analogous to the operator liability of a

parent who participates in the management of its sub-

sidiary. Pet. Br. at 23. Lenders are liable for partici-

pation in the management of a facility, not in the man-

-

9

agement of borrower firms. 42 U.S.C. §9601(20)(F)-

(i).

If “operate” were synonymous with “participate in

management,” as Petitioner contends, Congress could

simply have again used the word operate. Yet Con-

gress chose to use different language and to set a dif-

ferent standard for the exemption of certain lenders.

“Participation in management” determines whether

one who is already liable as an owner is nonetheless en-

titled to an exemption from the liability. The term at

issue here — “operate” — governs whether liability

attaches at all. The question, then, is not whether an

otherwise liable person is entitled to an exemption but

whether a parent corporation, which does not own the

facility, is liable in the first place as an operator. Con-

gress intended different standards as evinced by its use

of different language even within the same definitional

section.*

The Sixth Circuit properly rejected Petitioner’s effort

to use “control” or “management” as a proxy for “oper-

ate.” The term “operate,” with its connotations of phys-

ical presence and participation in the day-to-day mechan-

ics of a process, is the word chosen by Congress to

trigger liability. For a parent corporation, shareholder,

or anyone else to be held directly liable under CERCLA

* Petitioner attempts to equate the standards by assuming

precisely what is at issue, namely whether a parent corporation

is an operator. Petitioner assumes that CPC is an operator and

then suggests that parent corporations should not be permitted

to escape liability by hiding behind its lack of ownership of the

facility. In this vein, Petitioner correctly points out that CERCLA

imposes liability, in the disjunctive, on owners or operators. Pet.

Br. at 21. Of course, the real question is not whether a parent

corporation is exempted from CERCLA liability, by virtue either

of its non-ownership or based on state law-inspired limited liability

principles, but whether it is liable in the first place.

10

it must actually operate the facility. 42 U.S.C. §9607(a).

As noted by the Sixth Circuit, a parent corporation could

thus be liable if it operated the facility “in the stead of its

subsidiary; or, as a sort of joint venturer....” United

States v. Cordova Chem. Co. of Mich., 113 F.3d 572,

579 (6th Cir. 1997) (Pet. App. at 12a). Absent such

actual, physical and direct operation of a contaminated

facility, the plain language of the statute precludes a par-

ent corporation from being held directly liable as a

CERCLA operator.

B. The Sixth Circuit Correctly Held that Vicarious

Liability Under CERCLA Should Be Determined

According to Traditional Principles of Corporate

Law.

1. The District Court's Decision Has the Effect

of Imposing Vicarious Liability on Parent

Corporations.

Even as they insist that parent corporations and share-

holders can be “directly” liable under CERCLA, the

courts imposing liability in disregard of the corporate

form actually have engaged in a derivative liability anal-

ysis.” Such courts typically have engaged in at least some

examination of the relationship between the target cor-

poration or shareholder and the actual owner of the

facility.© Indeed, the district court in this case held that

a parent corporation is directly liable under section

107(a)(2) as an operator only when it has exerted

power or influence over its subsidiary by actively

>See, e.g., United States v. Kayser-Roth Corp., 910 F.2d 24,

26-27 (ist Cir. 1990); Schiavone v. Pearce, 79 F.3d 248, 255

(2d Cir. 1996); Lansford-Coaldale Joint Water Auth. v. Tonolli

Corp., 4 F.3d 1209, 1221 (3d Cir. 1993).

S14.

a

ll

participating in and exercising control over the sub-

sidiary's business during a period of disposal of haz-

ardous waste. A parent’s actual participation in

and control over a subsidiary’s functions and

decision-making creates ‘operator’ liability under

CERCLA... .”

Pet. App. at 107a (emphasis added).

Thus, the district court held CPC liable not because the

corporation itself was operating the facility, but because

it actively managed its subsidiary. This is classic vicarious

liability. The district court deemed the parent corpora-

tion to be the operator of the facility through its subsid-

iary, and charged the parent with legal responsibility for

the acts or omissions of the subsidiary.

That the district court was actually imposing vicarious

liability rather than direct liability is further reflected

in the factors cited as relevant by the court. In impos-

ing liability, the court pointed to its findings that the

parent owned 100% of its subsidiary’s stock, partici-

pated in its subsidiary’s board of directors, set polli-

cies for the subsidiary, and controlled the subsid-

iary’s budget. Pet. App. at 16a-17a. These factors all

focus on the relationship between the parent and its

subsidiary, rather than on the parent corporation’s direct

involvement in or relationship with the facility itself.

These factors are aimed at determining whether the par-

ent exercised an excessive amount of control over the

subsidiary, such that it should be charged with vicarious

liability for the conduct of its subsidiary.

In sum, the district court incorrectly concluded that

a parent corporation in merely overseeing its subsidiary’s

activities acts directly, rather than vicariously, vis-a-vis

a facility. The mistaken assumption led to the misappli-

cation of selected factors for establishing vicarious liabil-

ity, all under the guise of imposing direct liability.

12

2. The District Court Improperly Preempted

Traditional Principles of Vicarious Liability.

As discussed above, the common law has developed

principles of limited corporate liability, as well as stand-

ards for imposing vicarious liability in factual circum-

stances that warrant disregarding the corporate form. By

labeling the parent’s oversight activities as “direct,” the

district court sidestepped those traditional standards and

created a self-proclaimed “new, middle ground” test for

determining when liability attaches under CERCLA.

Whai the district court did in creating this new test was

to borrow selectively from a few of the traditional

standards for imposing vicarious corporate liability and

ignore others altogether. The result is a substantial

lowering of the common law threshold for imposing

vicarious liability.

Such selective preemption of established state corpora-

tions law lacks any support or justification, and cer-

tainly was not authorized by Congress when it enacted

CERCLA. In fact, in several provisions in the stat-

ute Congress indicated its express intent that CERCLA

not preempt established state law. See 42 U.S.C.

§ §9614(a) and 9652(d). One indication of Congress’

intent to adopt, not supplant, state corporations law was

its inclusion of the very term “corporation” within

CERCLA’s definition of “person.” See 42 U.S.C.

§9601(21). Congress did so without altering, explain-

ing or defining what it means to be a “corporation.”

This is further evidence that Congress plainly adopted the

body of state law which creates, authorizes and governs

corporations in fashioning the contours of liability under

CERCLA. The strained reading of CERCLA urged by

Petitioner depends entirely on the implausible notion

that Congress looked to state law to determine what a

oe

13

“corporation” is, only to ignore state law in determining

whether a “corporation” should be disregarded.’

Federal law cannot preempt state law unless it is the

“clear and manifest” purpose of Congress to do so.

See, e.g., City of Milwaukee v. Illinois, 451 U.S. 304,

316 (1981); Wisconsin Public Intervenor v. Mortier,

501 U.S. 597, 605 (1991). Certainly Congress mani-

fested no such purpose to supplant state corporations

law in enacting CERCLA.

Indeed, to preempt state corporations law by impos-

ing CERCLA liability without regard to state limited

liability principles would be inconsistent with the poli-

cies and objectives of the statute. Petitioner contends in

effect that CERCLA’s core purpose is to preserve and

replenish the “Superfund” by reaching the broadest

possible swath of potentially responsible parties capa-

ble of reimbursing the government for clean-up expenses.

The courts have given some recognition to this statutory

purpose. Jn re Chicago, Milwaukee, St. Paul & Pac.

R.R., 974 F.2d 775, 779 (7th Cir. 1992); United Tech-

nologies Corp. v. EPA, 821 F.2d 714, 722 (D.C. Cir.

1987). There is more to CERCLA, however, than replen-

ishment of the Superfund. In enacting the statute,

it was equally important to encourage private par-

"That Congress knew how to preempt state law where it

wanted to is seen in its modification of the term “owner.” Like

“corporation,”’ the term “owner’’ is defined by state, rather than

federal law — who holds title and, therefore, ownership is a matter

of state law. But Congress expressly altered state property law to

provide that if a person holds indicia of ownership primarily to

protect its security interest, it is not an “owner” under CERCLA,

even though it would otherwise be an “owner” as defined by state

property law. See 42 U.S.C. §9601(20)(A). No such express pre-

emption of state corporations law appears anywhere in the statute

or its legislative history.

14

ties voluntarily to cleanup sites where hazardous sub-

stances have been released. H.R. Rep. No. 253, 99th

Cong., Ist Sess. (1985) (“It is the intent of this Commit-

tee to encourage private party cleanup at all sites.”). If

parent corporations are deemed liable merely because

they “actively participate in” or “directly control” the

subsidiary companies through ordinary conduct aimed

at safeguarding their investments, the inevitable result

will be to discourage inter-corporate investment in

firms facing environmental exposure, to raise the costs of

capital for such firms, and thus to constrain the availabil-

ity of resources for voluntary environmental remediation.

Pet. App. at 14a.

Indeed, the distortion of CERCLA urged by Petitioner

would result in passive investing becoming the norm.

Parent corporations would abstain from setting environ-

mental compliance policies and from overseeing the envi-

ronmental remediation activities of their subsidiaries, pre-

cisely to avoid the types of inter-corporate involvement

that could trigger CERCLA liability. Thus, the statutory

construction advanced by Petitioner would, at once, per-

versely place additional strains on scarce Superfund

resources, as well as undermine the goal of encouraging

private parties to take affirmative steps to cleanup haz-

ardous waste sites.

3. Petitioner’s Novel Theory of “Direct” Parent

Corporate Liability for Subsidiary Corporate

Agents is Without Merit.

Petitioner carelessly suggests that “direct’” CERCLA

operator liability attaches to a parent corporation under

common law principles of respondeat superior, when a

parent’s officers and directors also serve in the manage-

ment and on the board of the subsidiary enterprise actu-

ally operating a CERCLA facility. Pet. Br. at 33-34 and

15

n.19. Because “[a] corporation is responsible for the

wrongs committed by its agents in the course of its busi-

ness,”’ Petitioner contends the parent is “directly” liable

for the acts or omissions of such “dual-hatted” agents.

As Petitioner would have it, commonality of officers

and directors between parent and subsidiary corpora.

tions would ipso facto result in liability for the parent,

because the parent is always vicariously liable for the

acts of its employees. Pet. Br. at 33-34.

The law does not support Petitioner’s mixture of dir-

ect and vicarious liability principles. First, such a rule

would effectively eviscerate the common law of veil-

piercing. The courts have consistently acknowledged,

both in CERCLA and non-CERCLA contexts, that com-

monality of officers and directors is itself insufficient to

attribute to a corporate parent the liabilities of its sub-

sidiary.* Second, such a rule would gloss over entirely

the facts of each case. Precisely when parent corporate

officers, who also serve in subsidiary management, are

acting within or without the scope of their duties to the

parent corporation is a necessarily fact-bound, case-

specific inquiry. Petitioner’s novel per se rule is with-

out any legal reason or support, and would result in grave

injustices.

8 See, e.g., United States v. TIC Investment Corp., 68 F.3d

1082, 1092 (8th Cir. 1995), cert. denied, 117 S.Ct. 50 (1996)

(“The mere fact that. . . individuals who were officers and direc-

tors of [parent corporations] concurrently served as officers and

directors for [subsidiary corporation] does not, in and of itself,

tend to establish the [parent corporation's] liability.”); Johnson

v. Flowers Industries, Inc., 814 F.2d 978, 982 (4th Cir. 1987);

United States v. Jon-T Chemicals, Inc., 768 F.2d 686, 691 (5th

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

16

C. The Sixth Circuit Properly Concluded that

State Veil-Piercing Law Applies in Determining

Whether a Parent Corporation Should be Held

Liable Under CERCLA Section 107(a)(2).

The Sixth Circuit correctly applied state law prin-

ciples of veil piercing in determining the liability of

parent corporations as “operators” under CERCLA

section 107(a)(2). In so doing, the Sixth Circuit appro-

priately rejected any suggestion that Congress intended

to empower federal courts to develop a body of federal

common law on this subject. The Sixth Circuit's deci-

sion is also consistent with the plain language of

CERCLA and the three-factor test pronounced by this

Court in Kimbell Foods, concerning the circumstances

under which state law should be applied under federal

programs.

1. Plain Language of CERCLA and Congress’

Intent.

The “normal rule of statutory construction is that if

Congress intends for legislation to change the interpre-

tation of a judicially created concept, it makes that

intent specific.” Midlantic Nat'l Bank v. New Jersey,

474 U.S. 494, 501 (1986). In the case of CERCLA,

nothing in the text of the statute or in its legislative his-

tory provides any indication that Congress intended to

supplant traditional state corporate laws governing par-

ent liability. “CERCLA does not define . . . ‘operators’

as including the parent company of offending wholly

owned subsidiaries. Nor does the statute’s legislative his-

tory indicate that Congress intended to alter so sub-

stantially a basic tenet of corporation law.” Joslyn Mfg.

17

Co., 893 F.2d at 82. As the Sixth Circuit concluded in

this case, “if Congress wanted to extend liability to par-

ent corporations it could have done so, and it remains

free to do so.”” Pet. App. at 14a.

2. Kimbell Foods Supports Deference to and

Adoption of State Corporations Law.

It is well established that “[c] ontroversies directly

affecting the operations of federal programs, although

governed by federal law, do not inevitably require resort

to uniform federal rules.” Kimbell Foods, 440 U.S. at

727-28); see also Anspec Co. v. Johnson Controls, Inc.

922 F.3d 1240, 1250 (6th Cir. 1991) (Kennedy, J., com

curring)."° On the contrary, federal law can and appro-

priately should adopt and incorporate state law rules

under certain circumstances. As this Court has observed,

the decision to “adopt state law or to fashion a nation-

wide federal rule is a matter of judicial policy ‘dependent

upon a variety of considerations always relevant to the

nature of the specific governmental interests and to the

effects upon them of applying state law.’ ” Kimbeil

*Several courts have held that, in considering whether to

apply state law in similar contexts under CERCLA, the statute ~

does not override traditional principles of state law. See, e.g.

United States v. USX Corp., 68 F.3d 811, 824 (3rd Cir. 1995)

(CERCLA’s language “fails to indicate that traditional concepts

of limited liability are to be disregarded’’); City Management

mabey a, Chem. Co., 43 F.3d 244, 250 (6th Cir. 1994) (the

of a successor corporation for CERCL igati

determined by reference ante law). obeaeectesads

10-4; : :

This conclusion is also supported by the Rules of Deci-

sion Act: ‘The laws of the several states, except where Consti-

tution or treaties of the United States or Acts of Congress other-

pr a or B ype ge pho: regarded as rules of decision in

ctions in the courts e United States, in cases where th

apply.” 28 U.S.C. §1652. pciaglenys

18

Foods, 440 U.S. at 728 (quoting United States v. Stand-

ard Oil Co., 332 U.S. 301, 310 (1947)).

The first step in evaluating whether to apply state

law or to fashion a federal common law rule of decision

is to look to the language of the federal statute to deter-

mine Congress’ intent. Mardan Corp. v. C.G.C. Music,

Ltd., 804 F.2d 1454, 1458 (9th Cir. 1986) (citing Kim-

bell~Foods, 440 U.S. at 740). “Whether latent federal

power should be exercised to displace state law is pri-

marily a decis‘on for Congress... .” Atherton v. Federal

Deposit Ins. Corp., 117 S.Ct. 666, 670 (1997). In the

case of CERCLA, nothing in the statute’s text or legis-

lative history provides any indication that Congress

intended to supplant traditional state corporations law

with a new, uniform federal common law rule for oper-

ator liability.

“It is precisely when Congress has not spoken,” that

it is up to the federal courts to fill in the gaps of fed-

eral legislation “according to their own standards.”

Kimbell Foods, 440 U.S. at 727. This does not mean,

however, that the federal courts are free to formulate a

uniform federal common law rule to fill those gaps. /d.

at 727-28; Camps Newfound/Owatonna, Inc. v. Town of

Harrison, Maine, 117 S.Ct. 1590, 1617-18 & n.9 (1997)

(Thomas, J., dissenting). Rather, resort must be made_to

the stringent choice-of-law inquiry set forth in Kimbell

Foods, to determine whether the courts are permitted to

develop a uniform federal common law rule or, instead,

are to adopt state law as the applicable federal rule of

decision.

Kimbell Foods establishes the following three factors

to guide the courts in determining whether federal com-

mon law or applicable state law should bridge the choice

of law gap in a federal statute: (1) whether the matter

Be et ta Nl

19

requires a nationally uniform body otf law; (2) whether

the application of state law would frustrate special objec-

tives of the federal program; and (3) whether application

of a federal rule would disrupt commercial relationships

predicated on state law. 440 U.S. at 728-29. This test

should be applied against the backdrop of this Court’s

determination that the circumstances justifying judicial

creation of a special federal rule are “few and restricted,”

and are limited to situations where there is a “significant

conflict between some federal policy or interest and the

use of state law.”” O'Melveny & Myers v. Federal Deposit

Ins. Corp., 512 U.S. 79, 87 (1994).

Application of the three-part Kimbell Foods inquiry

to the present controversy compels the conclusion that

state law is to provide the controlling rule of decision for

determining when parent corporations should be held

liable as operators under section 107(a)(2) of CERCLA.

All three of the Kimbell Foods factors support the appli-

cation of state law in this context.

a. No Substantial Need Exists for a Uniform

Body of Law on Parent Corporate Liability

Under CERCLA.

Any need for a nationally uniform body of law to

determine parent corporation liability under section

107(a)(2) is not substantial enough to warrant the judi-

cial, rather than legislative, creation of such a body of

law. Initially, as this Court has recognized, the federal

interest in uniformity is the “most generic and lightly

evoked” of all potentially alleged federal interests.

O'Melveny & Myers, 512 U.S. at 88. In any event, how-

ever, the vicarious liability of parent corporations under

CERCLA can properly be decided under state law with-

out resort to a uniform federal common law rule. State

law already provides for imposition of liability on cor-

20

porate owners through the well-established and often-

applied doctrine of piercing the corporate veil. Under

this doctrine, state law provides no refuge for parent cor-

porations, especially when their subsidiaries are nothing

more than the “alter ego” or “mere instrumentality” of

the parent, or the corporate form has been used to per-

petuate a fraud or injustice.

The federal interest in a uniform rule of decision is

especially weak where, as here, the federal remedial

statute has been interpreted to provide for strict, as well

as joint and several liability. Since liability is joint and

several under CERCLA, governmental and private liti-

gants can recover fully on their claims, provided there is

one solvent defendant. Therefore, this is not an instance

where the undisputed federal interest in full recovery of

remediation costs will be prejudiced by any slight varia-

tions in state corporations law and corporate veil-pierc-

ing tests. See Atherton, 117 S.Ct. at 671 (“[t]o invoke

the concept of ‘uniformity’ . . . is not to prove its need”’).

In short, the interest in uniformity factor of the Kimbell

Foods test supports adoption of state law as the federal

rule for parent corporation liability as an operator under

CERCLA section 107 (a)(2).

b. Application of State Law Would Not Frus-

trate CERCLA’s Objectives

The second factor in the Kimbell Foods test also mili-

tates in favor of adopting state law in this instance,

because the application of state corporations law would

not frustrate CERCLA’s objectives. An actual conflict

between a “specific, concrete federal policy or interest”

and state law is a “precondition” to fashioning a federal

common law rule. O'Melveny & Myers, 512 U.S. at 88.

“Generalized pleas for uniformity” may not serve as a

substitute for “concrete evidence that adopting state law

Oe OR NE oe nee a we

ii iii

21

would adversely affect [federal interests].” Kimbell

Foods, 440 U.S. at 730. Petitioner has failed to carry its

heavy burden in proving a “significant conflict” between

use of state corporations law as the proper federal rule of

decision and CERCLA’s dual objectives of promptly

cleaning up hazardous waste sites and imposing the costs

of cleanup on those responsible for the contamination.

Pennsylvania v. Union Gas Co., 491 U.S. 1, 7 (1989).

Congress “intended for CERCLA to cast a wide net of

responsibility for the costs of environmental cleanup.”

Pet. App. at 26a. CERCLA does not require that federal

law displace state laws governing the liability of corporate

owners, however, unless such laws permit action prohibi-

ted by the statute or unless “their application would be

inconsistent with the federal policy underlying the cause

of action.” Anspec, 922 F.2d at 1249-50 (Kennedy, J.,

concurring) (quoting Johnson v. Railway Express Agency,

421 U.S. 454, 465 (1975)). Petitioner cites as evidence,

the blanket assertion by one of the dissenters from the

Sixth Circuit’s decision that “following state law in this

area would allow corporations to easily evade their envi-

ronmental responsibilities under CERCLA by incorpor-

ating subsidiaries in states with stringent standards for

piercing the corporate veil.” Pet. App. at 26a. This

concern is ill founded, illusory and misplaced. The appli-

cation of state corporate law in this context “poses no

significant threat to any identifiable federal policy or

interest.” Anspec, 922 F.3d at 1250 (Kennedy, J.,

concurring).

As then-Circuit Judge Kennedy observed with respect

to CERCLA, state law more than adequately addresses

the abuse of the corporate form as a means of attempt-

ing to avoid liability:

22

Any fears that states will engage in a “race to the

bottom” in their effort to attract corporate busi-

ness and enact laws that will limit vicarious liability

are in my opinion groundless. States have a sub-

stantial interest in protecting their citizens and

state resources. Most states have their own counter-

parts to CERCLA and the EPA and they share a

complementary interest with the United States in

enforcement of those laws like CERCLA that are

used to remedy environmental contamination. |

see no necessity to create federal common law in

this area to guard against the risk that states will

create safe havens for polluters.

Id.

Every state has clear and effective rules that permit

government agencies and/or injured citizens to hold par-

ent corporations liable as operators under CERCLA sec-

tion 107(a)(2) when those corporations have abused the

prerogatives of the corporate form. It cannot be said

that these state laws operate to defeat CERCLA’s goals."!

c. Application of Petitioner’s Uniform Rule

Would Substantially Disrupt Commercial

Relationships Predicated on State Law.

The third factor identified by this Court in Kimbell

Foods also calls for adopting state law for determining

corporate owner liability under CERCLA section 107(a)-

(2). This final prong of the choice of law inquiry “must

1! Another potential justification for the invocation of a fed-

eral common law rule of decision regarding parent liability under

CERCLA is to “enrich the fund’’ by imposing a more expansive

approach to CERCLA liability that would permit the United States

to “pick and choose” as to whether it wanted to proceed directly

against corporate shareholders. Cf. O'Melveny & Myers, 512 U.S.

at 88. This Court repeatedly has found such “more money” argu-

ments to be unavailing. /d.; Kimbell Foods, 440 U.S. at 737-38.

23

consider the extent to which application of a federal

rule would disrupt commercial relationships predicated

on state law.” Kimbell Foods, 440 U.S. at 728-29.

Implementing a federal common law rule that discards

traditional principles of corporate limited liability would

have an enormous impact on commercial relationships

predicated on state law. The corporation is a mainstay of

the country’s economy. The limited liability protection

the corporate form provides materially motivates invest-

ment and business decisions every day. Existing state

laws provide ample government regulation of parent-sub-

sidiary corporate relationships and strike the appropriate

balance between limited liability and protection for those

injured by corporate abuse. Moreover, corporate owners

rely on these state laws. Because it strikes at the heart of

the corporate form, applying the federal common law

rule urged by Petitioner would disrupt “commercial rela-

tionships predicated on state law.” In Kimbell Foods,

this Court declined to “override intricate state laws of

general applicability on which private creditors base their

daily commercial transactions.” 440 U.S. at 729. A sim-

ilar result is warranted here.

D. The Sixth Circuit Correctly Applied State Law

and Upheld Traditional Concepts of Limited

Liability Associated with the Corporate Form.

The Sixth Circuit’s decision was necessary to allow

continued reliance on the fundamental principle of lim-

ited liability, which has been long recognized as a bene-

ficial feature of corporations law in the United States.

Additionally, it is for Congress, not the courts, to deter-

mine whether the far-reaching scope of liability urged by _

24

Petitioner sufficiently advances the goals of CERCLA to

warrant such a dramatic disruption of business and cor-

porate relationships.

1. Limited Corporate Liability Has Been Long

Recognized and Approved by This Court.

It is a long established, central feature of corporations

law that the liability of corporate owners is limited to

their stake in the venture, absent abuse of the corporate

form. As one federal court commented, it is basic to the

theory of corporations law that “a corporation is a sep-

arate entity, a legal being having an existence separate

and distinct from that of its owners. This attribute . . .

enables the corporation’s stockholders to limit their per-

sonal liability to the extent of their investment.” Krivo

Indus. Supply Co. v. National Distillers & Chem. Corp.,

483 F.2d 1098, 1102 (5th Cir. 1973), modified per

cunam, 490 F.2d 916 (5th Cir. 1974). Equally basic is

the notion that the corporate form should not be lightly

discarded, because “limited liability is one of the princi-

ple purposes for which the law has created the corpora-

tion.” Jd. '*

In Anderson v. Abbott, 321 U.S. 349, 361 (1944), this

Court recognized that: ‘“‘[n] ormally the corporation is an

l2as stated by future Justice William Douglas in 1929,

“[1] imited liability . . . is ingrained in our economic and legal sys-

tems. The social and economic order is arranged accordingly. Our

rhilosopiay accepts it. It is legitimate for a man or group of men

i stake only a part of their fortune on an enterprise. Legislatures,

courts, and businesses have made it so.” William O. Douglas &

Carrol M. Shanks, /nsulation from Liability Through Subsidiary

Corporations, 39 Yale L.J. 193 (1929). Commentators today

continue to express such views. See, e.g., Frank H. Easterbrook

& Daniel R. Fischel, Limited Liability and the Corporation, 52

Chi. L. Rev. 89 (1985) (“[l]imited liability is a fundamental

principle of corporate law’).

ee

25

insulator from liability on claims of creditors.” The

Court affirmed the legitimacy of this feature of the cor-

porate form, acknowledging that “the fact that incorpor-

ation was desired in order to obtain limited liability does

not defeat this purpose.” Jd. The Court then proceeded

to discuss the applicability of limited liability and the

considerable benefits the doctrine provides, noting,

[1] imited liability is the rule not the exception; and on

that assumption large undertakings are rested, vast enter-

prises are launched, and huge sums of capital attracted.”

Id. at 362.

2. The Sixth Circuit’s Decision Affirms and Con-

tinues the Broadly Shared Benefits of Limited

Liability. |

The decision of the Sixth Circuit appropriately pre-

serves the concept of limited liability for corporations

and the associated benefits to this nation’s economy.

Business and the modem economy rely on and use

the corporate form and _ the accompanying funda-

mental principle of limited liability in shaping everyday

transactions. The economic benefits transmitted through

a corporate law regime featuring limited liability are num-

erous and far-reaching. Extensive scholarly work has

thoroughly compiled and analyzed the advantages pro-

vided by limited liability. See generally, Phillip I. Blum-

berg, The Law of Corporate Groups: Tort, Contract, and

Other Common Law Problems in the Substantive Law of

Parent and Subsidiary Corporations (1987); Easterbrook

and Fischel, supra.

Limited liability has been termed “indispensable for

am organized securities market,” as it contributes to

the creation of efficient capital markets in several differ-

ent ways. See Blumberg, at §4.02. Limited liability

26

allows investors to participate in an organized liquid

market without concern for the relative wealth of other

investors. This lowers information costs and conse-

quently improves efficiency of capital development. /d.

at §4.02.5.

Limited liability provides many additional advantages.

First, limited liability facilitates the operation of very

large scale enterprises. Without limited liability, the

exposure to the risk levels inherently present in such

enterprises would discourage investment. /d. at § 4.02.2.

Second, limited liability encourages diversification by

protecting investors. Under a system which does not fea-

ture limited liability, an investor could lose all assets

upon the failure of a single investment. The rational

business strategy under unlimited liability “would be

to minimize the number of securities [or companies]

held.” Easterbrook, at 97. Limited liability removes the

disincentive to diversify. Blumberg, at §4.02.3. Third,

limited liability facilitates optimal investment decisions

by encouraging investments in risky but beneficial ven-

tures. Limited liability reduces inefficient behavior by

ensuring that projects are not rejected where prospects

for long term profitability exist. Blumberg, at §4.02.8.

Finally, the extension of limited liability to parent

corporations prevents organizations whose sharehold-

ers are other corporations from operating at a competi-

tive disadvantage compared to organizations comprised

of individual shareholders. Easterbrook, at 111.

Limited corporate liability is essential to the man-

agement and operation of corporations, the efficient

operation of capital markets, and the profitable func-

tioning of the modern economy. The Sixth Circuit was

correct to weigh this essential, fundamental principle, in

determining that Congress did not intend to dramatically

ee

ee ee et el a

27.

change the rules with regard to recognition of the cor-

porate form when it enacted CERCLA.

3. Any Decision to Change Fundamentally Cor-

porate Limited Liability is Properly a Matter

Only for Congress.

Overturning the decision of the Sixth Circuit and tam-

pering with the traditional concept of limited liability, as

urged by Petitioner, would have many adverse and

widely-felt consequences. In addition to being funda-

mentally wrong and unfair for corporate owners, Peti-

tioner’s standard would have dramatic effects on both

the environment and the economy. Accepting Petition-

er’s argument that this Court hold parent corporations

directly liable for the acts of subsidiaries would mark “a

dramatic departure from traditional corporation law.”

Joslyn Mfg. Co., 893 F.2d at 82. Such a significant

change of course can only be sanctioned by Congress. As

the Joslyn court held, “[a] ny bold rewriting of corporate

law in this area is best left to Congress.” Jd. at 83.

a. Petitioner's Standard is Fundamentally

Unfair.

Adoption of the standard of liability proposed by Peti-

tioner would be fundamentally unfair to parent corpora-

tions. Traditional rules of limited liability influence

countless business decisions every day, including deci-

sions of parent corporations related to the level and

nature of their involvement in subsidiary companies.

Petitioner would impose liability on parent corporations

for conduct that was lawful at the time it occurred and

that falls far short of the behavior necessary to disregard

the corporate form of subsidiary companies. Imposition

of such liability would improperly and completely frus-

trate parent corporate reliance on the principle of lim-

28

ited liability and is, therefore, unfair. National Labor

Relations Bd. v. Greater Kansas City Roofing, 2 F.3d

1047, 1052 (10th Cir. 1993) (“[w]here stockholders

follow the technical rules that govern the corporate

structure, they are entitled to rely on the protections

of limited liability that the corporation affords’’).

b. Acceptance of Petitioner’s Standard Would

Have Adverse Environmental Consequences.

Adopting Petitioner’s suggested standard of liability

would also have adverse environmental consequences. A

fundamental goal of CERCLA is to encourage voluntary

cleanup of hazardous ~vaste sites. H.R. Rep. No. 253,

99th Cong., Ist Sess. 1985) (“[i]t is the intent of this

Committee to encourage private party cleanup at all

sites’). Petitioner’s proposed standard would have the

opposite effect. Instead of encouraging voluntary partici-

pation in hazardous waste management and remediation,

Petitioner’s approach would encourage parent companies

to adopt a “hands off” approach and to separate or dis-

tance themselves completely from any involvement with

subsidiary companies facing potential environmental lia-

bilities. As the Sixth Circuit concluded, “the threat of

unlimited liability will likely deter private sector partici-

pation in the cleanup of existing sites.”” Pet. App. at 14a.

In the absence of direct Congressional intent, this Court

should not discard the “sensible and legitimate precau-

tions” provided by traditional common law rules, since

doing so would “actually contravene the public interest

by discouraging businesses from being involved in” pol-

lution prevention and remediation. /d. at 15a.

}

29

c. Acceptance of Petitioner’s Standard Would

Have Adverse Economic Consequences.

Adopting Petitioner’s standard would also have adverse

economic consequences in a broader sense, as well. First,

exposing corporate owners of viable subsidiary compan-

ies to CERCLA liability would reduce, at the margin, any

incentives to invest in industyies which generate, either

directly or indirectly, even small amounts of hazardous

substances or wastes, no matter how beneficial the final

product. Similarly, the virtually automatic extension

of liability to parent corporations urged by Petitioner

would negatively affect the efficiency of capital forma-

tion by imposing information gathering costs entirely out

of Jine with investment risks and rewards. The conse-

quent blurring of pareni and subsidiary corporate forms

would reduce investment transparency and create addi-

tional information asymmetries in financial markets.

These forces would merely serve to raise the cost of cap-

ital with no discernible net environemntal benefit.

Each of the above-described consequences of the pro-

posed discarding of traditional rules of limited corporate

liability would be far-reaching and dramatic. As a result,

any decision to impose the expanded standard of CERCLA

operator liability proposed by the Petitioner invokes

national policy implications which are a matter for Con-

gress, rather than the Court, to decide. As this Court has

previously stated, the function of weighing and apprais-

ing the costs of imposing new liability standards “‘is more

appropriately for those who write the laws, rather than

for those who interpret them.” O'Melveny & Myers, 512

U.S. at 89.

30

CONCLUSION

For the foregoing reasons, USBIC urges the Court to

affirm the Sixth Circuit’s decision, and affirm that a par

ent corporation may not be held liable under CERCLA

section 107(a)(2) as an “operator” of a facility owned or

operated by a subsidiary corporation absent the exist

ence of circumstances warranting pler¢ ing the corporate

veil under applicable state law

Respectfully submitted,

DAVID G. PALMER

(Counsel of Record)

JOHN D. FOGNANI

ZEVNIK HORTON

GUIBORD McGOVERN

PALMER & FOGNANI, L.L.P.

555 Seventeenth Street

['wenty-Sixth Floor

Denver, Colorado 80202

(303) 382-6200

Attorneys for Amicus Curtae

February 20, 1998