Petition for Writ of Certiorari — Michigan Department of Environmental Quality v. Bestfoods
Supreme Court brief1998
Ask Donna
What actually matters in this document.
Text
CEES Cour, CC eEE—~—~—EeEeeEeEeEeEee—
FILED
|
97.296 AUG 8 1997
DEFGE-OF THE CLERK
No.
In the Supreme Court of the United States
October Term, 1996
MICHIGAN DEPARTMENT OF
ENVIRONMENTAL QUALITY,
Petitioner,
Vv.
CPC INTERNATIONAL, INC., et. al.,
Respondents.
ON PETITION FOR WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
PETITION FOR WRIT OF CERTIORARI
FRANK J. KELLEY
Attorney General
Thomas L. Casey
Solicitor General
Counsel of Record
P. O. Box 30212
Lansing, Michigan 48909
(517) 373-1124
Kathleen L. Cavanaugh
Robert P. Reichel
Assistant Attorneys General
Attorneys for Petitioner
Michigan Department of
Environmental Quality
August, 1997
QUESTION PRESENTED
Whether a parent corporation can be held directly liable under
the Comprehensive Environmental Response, Compensation,
and Liability Act (CERCLA), 42 U.S.C. 9607(a)(2), as an
operator of its wholly-owned subsidiary’s facility, based on
the parent corporation’s own actions in directing the operation
of the facility at the time of disposal of hazardous substances.
-ii-
LIST OF PARTIES
The Petitioner in this case was formerly known as the
Michigan Department of Natural Resources (MDNR) and is
now known as the Michigan Department of Environmental
Quality (MDEQ).' However, for consistency with the pro-
ceedings in the courts below, the petition will continue to refer
to the state agency as “MDNR.”
Respondent CPC International Inc. is the only
Respondent against whom Petitioner MDNR seeks relief in this
petition, although Petitioner believes that the other
Respondents continue to have an interest in the outcome of the
petition.
The other Respondents are the United States of America,
Cordova Chemical Company of Michigan, Cordova Chemical
Company of California, and Aerojet General Corporation.
Petitioner MDNR is informed that the United States is con-
sidering filing a petition for writ of certiorari seeking review of
the judgment of the Court of Appeals.
‘On August 1, 1995, Governor John Engler issued Executive
Order No. 1995-18, creating the Michigan Department of
Environmental Quality (MDEQ) and transferring specified
powers, authorities and duties from the MDNR to the MDEQ.
aia
-ili-
TABLE OF CONTENTS
Page
PME PAPE RMI © BE Pons coc nia cacdnvssieseesessnswevnxejcanipinsteaadech i
GN a rd chess vss vena spise esses oaeesivodiae Rckahcamisoel ii
PRO PT PURFE II ED sine. csc Sncsensetsvnessvenisissandenvseenssuee iv
NR NOY i sae dcdireon se sogeas ivseebacntosaexacnpadScomenn 1
DUP ee AI atc ceaicths cd taba stv neitcdidcl vecesh pang hi nadnpdaiivnleeues dastecbn desk 2
ESSE STE FF Gee IDR ones cescirevuvasnciventocesbestcarenns texsene 3
CONCISE STATEMENT OF THE CASE.................::::000- +
REASONS FOR GRANTING THE WRIT
I. THE DECISION BELOW INVOLVES AN
IMPORTANT QUESTION OF FEDERAL LAW
AND IT IS IN DIRECT CONFLICT WITH
DECISIONS IN THE FIRST, SECOND, THIRD,
EIGHTH AND ELEVENTH CIRCUITS.........0..0...00 8
ee ie sos acai cin giiedanneeadpsobencuvpehae’ 20
-1V-
TABLE OF AUTHORITIES
Pages
Cases
Amoco Oil Co. v. Borden, Inc.,
889 F.2d 664, 668 (Sth Cir. 1989)...................sssscsccessesseee 9
Anspec Co. Inc. v. Johnson Controls Inc.,
S22 FO TOD CO Ch Sa ities ends: 13
CPC Int'l, Inc. v. Aerojet General Corp.,
777 F. Supp. 549 (W.D. Mich. 1991)..............0.. 4,5,16-18
CPC Int'l, Inc. v. Aerojet General Corp., et. al.
(District Court Case No. 89-10503)..............0ececeeeeeeeeeees 5
Certain Underwriters at Lloyds, London v. St. Joe
Minerals Corp., 90 F.3d 671 (2d Cir. 1996)............ 2,8,10,16
Deadham Water Co. v. Cumberland Farms
Dairy, Inc., 805 F.2d 1074 (1st Cir. 1986)... 13
Dennis v. Higgins,
WG UES. AFR FETS. CE BG CEI nares caren esitcercseniie 13
Edward Hines Lumber Co. v. Vulcan Materials Co.,
UE Fak BSS Tie Cie. Sais sass cisierscicesnterrcens 10
FMC Corp. v. United States Dep't of Commerce,
29 F.3d 833 (3d Cir. 1994) (en DAnC)...........cccceccseereees 10,14
Idaho v. Bunker Hill Co.,
635 PF. Sapp. G65 (ld. Taino 19BG). none cnicccccssoevesecesens 16
Jacksonville Elec. Auth. v. Bernuth Corp.,
996 F.28- 1107 (iit Cie. 1993) .-.0 20.5... enini 2,8,10,16
John S. Boyd Co. v. Boston Gas Co.,
ew ee” 5 Ae: : Ree eenansmemenanes 2,8,10,16
Joslyn Mfg. Co. v. T. L. James & Co.,
OS Fe Oe Ce ei aac aac nrssersisececseinss 8,13
0 snes ORNS ARS Ne A Kn an hn
Kaiser Aluminum and Chem. Corp. v.
Catellus Dev. Corp., 976 F.2d 1338
OUR CO Ta ection ea eiccoadiaes 10,16
Kelley v. Thomas Solvent,
727 F. Supp. 1532 (W.D. Mich. 1989)...............csccssscsasess 16
Lansford-Coaldale Joint Water Authority
v. Tonolli Corp., 4 F.3d 1209 (3d Cir. 1993).....2,8,10,11,16
New York v. Shore Reality,
Zoe PAG: IGSE (26 Ce. 19GB). sick -nicink caiman 13
Nurad, Inc. v. William E. Hooper &
Sons Co., 966 F.2d 837 (4th Cir. 1992)... 10,16
Riverside Market Dev. v. Intern Bldg. Products,
93} Fld 327 Ger te: 100 0)..n ci 13
Schiavone v. Pearce,
7a Fae 20 Ce Gt. TOR itr eins 2,8,10-12
Sidney S. Arst Co. v. Pipefitters Welfare
Educ. Fund, 25 F.3d 417 (7th Cir. 1994).........:cccee 10,12
United States v. Aceto Agricultural Chemical
Corp... B72. F.2ee TSTE COR Cie. THIF ce essen ssnsneseceeosntnesvose 9
U.S. v. Alcan Aluminum Corp.,
964 F260 262 Be Ce Tieden 13
United States v. Cordova Chemical Co., et. al.
(District Court Case No. 89-0961.............:ccccccceeceeceeeeeeeees 5
United States v. Cordova Chemical Co.,
59 F.3d 584, 590 (6th Cir. 1995);
vacated, 67 F.3d 586 (6th Cir. 1995)... eeeesseeeeeees 6
United States v. Cordova Chemical Co.,
G7 F.3d SOG ti Ce: TO oc ncn 6
-Vi-
United States v. Cordova Chemical Co.,
193 F.3a S72 160 Cee. FIR cnet passim
U.S. v. Gurley,
43 £94. 1398 0h Cle. 1900)... 11
United States v. Kayser-Roth Corp.,
ie we & Se 2 Be.) Cyrene en passim
United States v. Nicolet, Inc.,
712 F. Supp. 1193 (E.D. Pern. 1989)..........-.-secsccerseserees 16
United States v. R.W. Meyer, Inc.,
889 F.2d 1497 (6th Cir. 1989) cert. denied,
B94 US. TO57; VIO B.C Bai aiosarscsivcivnes eecccssenverenechivs 13
United States v. TIC Investment Corp.,
68 F.3d 1082 (8th Cir. 1995), cert. denied,
Peete Were ies Se F6 | Mela Rene eae 2,8,10
Statutes
28 USC... © BIB ocsccnttiicsneniontenciotinbenmmn 2
2 UE S.C. G DUBE IE DIG ae rsiicicctniicscccrssimintineneiiairtnaiony 2,4
RE U.S.C. BPR cic ratoce aiensesiktemadictediwenaies 3
42 USC. § SORIA MD... .ncsctssecicsetrtcntcsiticnteatisncenias 10
42 U.S.C. § 9601(21).....-..-ceccecsesssesesecsseneeesensenseeneenneenees 3,12
G2 UES. BO sew cherenintcechtrvcciceenitreenientenaels a
42 US... & DEBT)... sincctasscnesticrcirrsteeaenctenminesinenaa Be
USC CNN 5
="
OPINIONS BELOW
1. The published en banc decision of the Court of Appeals
for the Sixth Circuit was filed on May 13, 1997 and is
reported at 113 F.3d 572 (6th Cir. 1997); it is also reprinted in
the Appendix. App. to Pet. la.
2. The published Order of the Court of Appeals for the
Sixth Circuit granting rehearing en banc and vacating the Sixth
Circuit panel decision was filed on October 19, 1995 and is
reported at 67 F.3d 586 (6th Cir. 1995); it is also reprinted in
the Appendix. App. to Pet. 43a.
3. The published decision of the panel of the Court of
Appeals for the Sixth Circuit was filed on July 14, 1995 and is
reported at 59 F.3d 584 (6th Cir. 1995); it is also reprinted in
the Appendix. App. to Pet. 45a.
4. The published Opinion of the United States District
Court for the Western District of Michigan was filed on
August 27, 1991 and is reported at 777 F. Supp. 549 (W.D.
Mich. 1991); it is also reprinted in the Appendix. App. to Pet.
85a.
xm
JURISDICTION
Petitioner seeks review of a published en banc Opinion of
the United States Court of Appeals for the Sixth Circuit in a
case involving the interpretation of the Comprehensive
Environmental Response, Compensation, and Liability Act
(“CERCLA”), 42 U.S.C. § 9601 et seq. The decision was filed
on May 13, 1997. This Petition for Certiorari is filed within
the 90 days of that May 13, 1997 Order.
The Opinion of the Sixth Court is in direct conflict with
Certain Underwriters at Lloyds, London v. St. Joe Minerals Corp.,
90 F.3d 671 (2d Cir. 1996); Schiavone v. Pearce, 70 F.3d 248
(2d Cir. 1996); United States v. TIC Investment Corp., 68 F.3d
1082 (8th Cir. 1995), cert. denied, __. U.S. __; 117 S. Ct. 50
(1996); Lansford-Coaldale Joint Water Authority v. Tonolli Corp.,
4 F.3d 1209 (3d Cir. 1993); Jacksonville Elec. Auth. v. Bernuth
Corp., 996 F.2d 1107 (11th Cir. 1993); John S. Boyd Co. v.
Boston Gas Co., 992 F.2d 401 (1st Cir. 1993), and United States
v. Kayser-Roth Corp., 910 F.2d 24 (1st Cir. 1990).
This Court has jurisdiction under 28 U.S.C. § 1254(1) to
review the final judgment or decree of the Court of Appeals
for the Sixth Circuit.
ts eee re,
at.
STATUTORY PROVISIONS
This case concerns the interpretation and application of
the following statutory provisions, which are reproduced in
the Appendix:
1. Section 101(20)(A) of the Comprehensive Environmental
Response, Compensation, and Liability Act, 42 U.S.C.
§ 9601(20)(A). App. to Pet. 146a.
2. Section 101(21) of the Comprehensive Environmental
Response, Compensation, and Liability Act, 42 U.S.C.
§ 9601(21). App. to Pet. 147a.
3. Section 107(a) of the Comprehensive Environmental
Response, Compensation, and Liability Act, 42 U.S.C.
§ 9607(a). App. to Pet. 148a.
lke
CONCISE STATEMENT OF THE CASE
This case involves actions by the United States
Environmental Protection Agency (“EPA”) and by the
Michigan Department of Natural Resources (“MDNR”) to
recover environmental response costs for cleanup at one of the
most severely contaminated sites in the country. This petition
seeks review of the Sixth Circuit en banc decision only as it
pertains to the liability of CPC International, Inc. (“CPC”). Of
relevance here, MDNR and EPA sought to recover their costs
from CPC, a parent corporation that, through a wholly owned
subsidiary, actively participated in the operation of a chemical
manufacturing facility located near Muskegon, Michigan, at the
time hazardous substances were improperly disposed of at
the site. The operative facts relevant to CPC’s conduct are not
in dispute. What is at issue is whether these facts support a
finding of liability under the proper legal standards.
Ott Chemical Company (“Ott I”) operated a chemical
manufacturing facility on the site from 1959 to 1965. From
1965 to 1972 the site was owned and operated by a wholly
owned subsidiary of CPC, known as the Ott Chemical
Company (“Ott II”). In 1972 Ott II/CPC sold the facility to
Story Chemical Company. CPC’s liability arises from its
operation at the site from 1965 to 1972. Extensive contami-
nation occurred during this time period.
During the Ott I and Ott II eras, chemical wastes were
disposed of in unlined lagoons and hundreds of drums
containing hazardous wastes were buried in a sandy pit.
Hundreds of gallons of chemicals were spilled from train cars
onto railroad tracks, hazardous substances were dumped in
the woods, and there were frequent overflows of chemical
wastes at a cement lined equalization basin. CPC Int'l, Inc. v.
Aerojet General Corp., 777 F. Supp. 549, 556 (W.D. Mich.
1991); App. to Pet. 89a. As a result of these disposal
practices, the soil, surface water, and groundwater at the site
became contaminated with a variety of hazardous substances.
This case was filed in the U.S. District Court for the
Western District of Michigan pursuant to the Comprehensive
Environmental Response, Compensation, and Liability Act
(“CERCLA”), 42 U.S.C. § 9601 et seq. CPC initiated this
|
ARR ig FP RK § ithe wt oe
Sn
lawsuit by filing claims against MDNR, Aerojet General
Corporation and its subsidiaries, Cordova Chemical Company
of California and Cordova Chemical Company of Michigan
(the “ Aerojet entities”), for contribution under CERCLA. CPC
Int'l, Inc. v. Aerojet General Corp., et. al. (District Court Case
No. 89-10503). MDNR filed a counter claim against CPC and
a cross claim against Aerojet and its subsidiaries for cost
recovery and contribution. The Aerojet entities also filed
counter claims against CPC and cross claims against MDNR.
The United States, on behalf of the EPA, filed a separate
action asserting CERCLA cost recovery claims against CPC,
the Aerojet entities and Arnold Ott. United States v. Cordova
Chemical Co., et. al. (District Court Case No. 89-0961). The
two actions were consolidated for discovery, trial and appeal.
The district court had jurisdiction pursuant to section 113(b)
of CERCLA, 42 U.S.C. § 9613(b).
After a fifteen-day bench trial, in which twenty-nine wit-
nesses presented live testimony and more than 2,300 exhibits
were admitted into evidence, the district court made extensive
factual findings. CPC Int'l, Inc., 777 F. Supp. at 555-70; App.
to Pet. 91a-102a.
Based upon the factual findings, the district court found
CPC directly liable as an operator of the facility at the time of
disposal, under section 107(a)(2) of CERCLA, 42 U.S.C.
§ 9607(a)(2):
Liability attaches here because the evidence
shows active participation and control by CPC
in Ott Il affairs both internally through the
subsidiary’s board and management and exter-
nally through the policies of the development
company and the actions of individual CPC
officials. The evidence shows a level of par-
ticipation and control by CPC that exceeds the
bounds of an interested investor and enters the
realm of an active operator. When a parent
corporation permeates the board, management
and decision-making of a wholly owned sub-
sidiary that was disposing of hazardous waste,
operator liability directly attaches under
CERCLA.
Id. at 575; App. to Pet. 126a.
On appeal, a divided panel of the Sixth Circuit reversed
the district court’s determination that CPC is liable as an
operator. United States v. Cordova Chemical Co., 59 F.3d 584,
590 (6th Cir. 1995); App. to Pet. 45a, vacated, 67 F.3d 586
(6th Cir. 1995); App. to Pet. 44a. The panel majority
concluded that, as a matter of law, “a parent corporation
incurs operator liability pursuant to subsection 107(a)(2) of
CERCLA, for the conduct of its subsidiary corporation, only
when the requirements necessary to pierce the corporate veil
are met.” Id. at 590; App. to Pet. 55a.
Judge Ryan, dissenting, concluded that a parent cor-
poration, like any other “person” as defined in CERCLA,
could be held liable as an “operator” under section 107(a)(2)
of the act and the question as to whether CPC was an
operator of the facility is simply a question of fact; ie.,
whether the parent corporation was an operator-in-fact of the
facility.
Petitions by the United States and the MDNR for
rehearing en banc were granted and the panel decision was
vacated. United States v. Cordova Chemical Co., 67 F.3d 586
(6th Cir. 1995); App. to Pet. 45a. An en banc Opinion was
issued on May 13, 1997. United States v. Cordova Chemical Co.,
113 F.3d 572 (6th Cir. 1997); App. to Pet. la. In a seven-to-
five split decision, the en banc majority held that a parent
corporation will be liable only when the requirements to pierce
the corporate veil under state law are met.
[W]e .. . hold that where a parent corporation
is sought to be held liable as an operator pur-
suant to 42 U.S.C. 9607(a)(2) based upon the
extent of its control of its subsidiary which
owns the facility, the parent will be liable only
when the requirements necessary to pierce the
corporate veil are met. In other words, under
the circumstances of this case, whether the
parent will be liable as an operator depends
upon whether the degree to which it controls its
subsidiary and the extent and manner of its
pik net lata
reel dancin hee OE YAM NS ole
a.
involvement with the facility, amount to the
abuse of the corporate form that will warrant
piercing the corporate veil and disregarding the
separate corporate entities of the parent and
subsidiary.
... Michigan appears to follow the general rule
that requires demonstration of patent abuse of
the corporate form in order to pierce the cor-
porate veil. There must be such a unity of
interest and ownership that the separate
personalities of the corporation and its owner
cease to exist, and the circumstances must be
such that adherence to the fiction of separate
corporate existence would sanction a fraud or
promote injustice.
Cordova Chemical Co., 113 F.3d at 580; App. to Pet. 11a-12a.
The dissenting opinion of Judge Ryan, in which four other
judges joined, would have affirmed the district court decision
finding CPC liable. It emphasized that the district court’s
findings concerning CPC’s pervasive control of Ott II's
activities at the facility were not found clearly erroneous, and
based upon the findings of actual control, CPC was directly
liable as an “operator” under section 107(a)(2) of CERCLA,
42 U.S.C. § 9607(a)(2).
-8-
REASONS FOR GRANTING THE WRIT
I.
THE DECISION BELOW INVOLVES AN
IMPORTANT QUESTION OF FEDERAL LAW
AND IT IS IN DIRECT CONFLICT WITH
DECISIONS IN THE FIRST, SECOND, THIRD,
EIGHTH AND ELEVENTH CIRCUITS.
The Sixth Circuit decision presents an important
question of federal law. CERCLA was designed to foster
remediation of the numerous sites of environmental contami-
nation in this country. It has engendered a great deal of
litigation as to the appropriate allocation between potentially
liable parties of the cost of environmental remediation at
countless sites across the nation. The issue at hand, whether a
parent corporation can be held directly liable as an operator
under section 107(a)(2) of CERCLA, concerns the interpre-
tation of the critical terms “operator” and “person” under
CERCLA. This petition seeks review of the fundamental
principles of liability under CERCLA; specifically what does it
mean to be an “operator” under CERCLA and how should
courts interpret CERCLA’s broad definition of “person”.
There is currently a conflict among the circuit courts of appeal
as to how to interpret and apply these terms.
The Sixth Circuit’s interpretation of CERCLA is in direct
conflict with five other Circuit Courts that have found parent
corporations directly liable as operators under CERCLA. See:
Certain Underwriters at Lloyds, London v. St. Joe Minerals Corp.,
90 F.3d 671 (2d Cir. 1996); Schiavone v. Pearce, 70 F.3d 248
(2d Cir. 1996); United States v. TIC Investment Corp., 68 F.3d
1082 (8th Cir. 1995), cert. denied, __U.S.___; 117 S. Ct. 50
(1996); Lansford-Coaldale Joint Water Authority v. Tonolli Corp.,
4 F.3d 1209 (3d Cir. 1993); Jacksonville Elec. Auth. v. Bernuth
Corp., 996 F.2d 1107 (11th Cir. 1993); John S. Boyd Co. v.
Boston Gas Co., 992 F.2d 401 (1st Cir. 1993), and United States
v. Kayser-Roth Corp., 910 F.2d 24 (1st Cir. 1990); but see Joslyn
Mfg. Co. v. T. L. James & Co., 893 F.2d 80 (5th Cir. 1990).
In order to establish liability under CERCLA one must
prove that: 1) a release of a hazardous substance has
-9-
occurred, 2) at a facility, 3) causing a plaintiff to incur
response costs, 4) and the defendant is a responsible party as
defined under section 107(a) of CERCLA, 42 U.S.C.
§ 9607(a). Amoco Oil Co. v. Borden, Inc., 889 F.2d 664, 668
(5th Cir. 1989); United States v. Aceto Agricultural Chemical
Corp., 872 F.2d 1373 (8th Cir. 1989).
The parties have stipulated to the first three elements set
forth above. This petition involves the interpretation of the
fourth element, or whether CPC is a responsible party under
42 U.S.C. § 9607(a). Section 107(a) reads, in part, as follows:
Notwithstanding any other provision or
rule of law, and subject only to the defenses set
forth in subsection (b) of this section --
(1) the owner and operator of a ves-
sel or a facility,
(2) any person who at the time of dis-
posal of any hazardous substance owned or
operated any facility at which such hazardous
substances were disposed of,
(3) any person who by contract,
agreement, or otherwise arranged for dis-
posal or treatment, or arranged with a
transporter for transport for disposal or
treatment, of hazardous substances owned
or possessed by such person, by any other
party or entity, at any facility or incinera-
tion vessel owned or operated by another
party or entity and containing such haz-
ardous substances, and
(4) any person who accepts or
accepted any hazardous substances for
transport to disposal or treatment facili-
ties, incineration vessels or sites selected by
such person, from which there is a release,
or a threatened release which causes the
incurrence of response costs, of a haz-
ardous substance, shall be liable for --
-10-
(A) all costs of removal or remedial
action incurred by the United States
Government ora State....
42 U.S.C. § 9607(a) (emphasis added); App. to Pet. 148a.
The term “owner or operator” is defined by sec. on
101(20)(A){ii) of CERCLA, 42 U.S.C. § 9601(20)(A)(ii); App.
to Pet. 146a, as any person owning or operating such facility.
One court has found that the circularity of the definition
“strongly implies .. . that the statutory terms have their
ordinary meanings rather than unusual or technical meanings”.
Edward Hines Lumber Co. v. Vulcan Materials Co., 861 F.2d 155
(7th Cir. 1988). As the dissenting opinion in the case at hand
noted, the definition of owner explicitly excludes one whose
ownership interests is merely that of a stockholder who does
not participate in the management of a facility, “suggesting
that one who does participate in management is accordingly
susceptible to liability”. Cordova Chemical Co., 113 F.3d at 587
(Judge Ryan, dissenting) (citing Kayser-Roth Corp., 910 F.2d at
26, n. 6; App. to Pet. 27a.
The definition of “owner or operator” indicates that
Congress intended to impose liability on any entity actually
operating a facility at the time of a release of hazardous
substances. The form of the operator, be it a parent
corporation, individual or other entity, is irrelevant.
Numerous courts have imposed liability on the entity actually
operating the facility, without regard to the entity’s interest in
the facility or its corporate form. Certain Underwriters at
Lloyds, London, 90 F.3d 671 (parent corporation); Schiavone, 70
F.3d 248 (parent corporation); FMC Corp. v. United States
Dep't of Commerce, 29 F.3d 833 (3d Cir. 1994) (en banc)
(federal government); Lansford-Coaldale Joint Water Authority, 4
F.3d 1209 (parent corporation); Jacksonville Elec. Auth., 996
F.2d 1107 (parent corporation); John S. Boyd Co., 992 F.2d 401
(parent corporation); Kaiser Aluminum and Chem. Corp. v.
Catellus Dev. Corp., 976 F.2d 1338 (9th Cir. 1992)
(contractor/excavator); Kayser-Roth Corp., 910 F.2d 24 (paren:
corporation); TIC Investment Corp., 68 F.3d 1082 (parent
corporation); Nurad, Inc. v. William E. Hooper & Sons Co., 966
F.2d 837 (4th Cir. 1992) (tenant); Sidney S. Arst Co. v.
ronan deal eat
Pee Ce Abd a Le wesw Sibi Sot ow res Lda A
ct
Pipefitters Welfare Educ. Fund, 25 F.3d 417 (7th Cir. 1994)
(corporate officer); U.S. v. Gurley, 43 F.3d 1188 (8th Cir.
1994) (employee).
The Sixth Circuit’s decision, holding that a parent cor-
poration can only be held liable as an operator when the
standards for piercing the corporate veil are met, is not
supported by the plain language of section 107(a) of
CERCLA. Under the Sixth Circuit’s decision, the standard for
determining whether a parent corporation is liable as either an
owner or operator would be the same: the facts must support
piercing the corporate veil. This interpretation ignores the
disjunctive character of CERCLA liability, holding both an
“owner” and “operator” liable. Owner liability and operator
liability, however, denvie two separate and distinct concepts.
The Schiavone court explained the importance of the
distinction:
This distinction has particular relevance in
the context of parent and subsidiary corpora-
tions where the theory of liability selected
mandates different bases of proof. A finding of
owner liability invokes the parent-subsidiary
relationship and can be made only in circum-
stances that permit corporate veil piercing.
USX Corp., 68 F.3d at 823 (“[T]raditional
principles of corporate_law would not permit
‘owner’ liability to be extended to a corporate
parent unless piercing the corporate veil were
warranted.”); John S. Boyd Co., 992 F.2d at 408;
Lansford-Coaldale, 4 F.3d at 1220; Solvent Chem.,
875 F. Supp. at 1019. Such owner liability is
entirely distinct from parent operator liability,
proof of which looks to the independent actions
of the parent corporation, evidenced through its
control over the polluting site. John S. Boyd Co.,
992 F.2d at 408; Lansford-Coaldale, 4 F.3d at
1220; Solvent Chem., 875 F.Supp. 1019. As the
Third Circuit has explained:
Under CERCLA, a corporation may be
held liable as an owner for the actions of
142-
its subsidiary corporation in situations in
which it is determined that piercing the
corporate veil is warranted. ... Operator
liability, in contrast, is generally reserved
for those situations in which a parent or
sister corporation is deemed, due to the
specifics of its relationship with its affili-
ated corporation, to have had substantive
control over the facility in question.
Lansford-Coaldale, 4 F.3d at 1220 (citation
omitted).
Schiavone, 79 F.3d at 254. Also see: Sidney S. Anst. Co., 25
F.3d at 420; Kayser-Roth, 910 F.2d at 26; Cordova Chemical Co.,
113 F.3d at 588 (dissenting opinion).
The interpretation that a parent corporation can be held
liable as an operator is also supported by the definition of
“person”:
The term “person” means an individual, firm,
corporation, association, partnership, consor-
tium, joint venture, commercial entity, United
States Government, State, municipality, com-
mission, political subdivision of a State, or any
interstate body.
42 U.S.C. § 9601(21); App. to Pet. 147a. This definition
clearly encompasses a parent corporation.
“[P]erson” is defined broadly to include a firm,
corporation, or commercial entity, among other
things. CERCLA’s language, therefore, indi-
cates an intent to hold a corporation liable for
the environmental violations of its subsidiaries
and sister corporations, if it is otherwise deter-
mined to have operated the facility in question.
Lansford-Coaldale, 4 F.3d at 1221,n. 11. Also see: Schiavone, 79
F.3d at 255; Kayser-Roth, 910 F.2d at 26, n. 5.
The Sixth Circuit majority found that nothing in the
statute warrants disregard of the “time honored limited
Lars San Pride de prima etal
Gh palais! WALA te call parame |
wake
42
liability protections afforded by the corporate form”, and
adopted language from the Fifth Circuit: “[I]f Congress
wanted to extend liability to parent corporations it could have
done so and remains free to do so.” Cordova Chemical Co., 113
F.3d at 579-80; App. to Pet. 10a; citing Joslyn Mfg. Co., 893
F.2d at 83. Both the Sixth Circuit and Fifth Circuit decision in
Joslyn Mfg. Co. ignore the broad definition of “person” which
clearly encompasses any corporation, including a parent
corporation.’ The plain language of CERCLA supports the
district court’s decision that a parent corporation can be held
directly liable as an operator under CERCLA.
The Sixth Circuit’s opinion is also highly critical of the
numerous courts that have relied on CERCLA’s remedial goals
as justification for interpreting the statute broadly because the
legislative history of the statute is sparse. Cordova Chemical
Co., 113 F.3d at 577-78; App. to Pet. 7a. The rule that
remedial statutes should be liberally construed is firmly
established. Dennis v. Higgins, 498 U.S. 439, 443; 111 S. Ct.
865, 868 (1991). Although the legislative history of CERCLA
may be sparse on specific provisions, the remedial intent of
the statute is clear from both the statute itself and its
legislative history. See: Anspec Co. Inc. v. Johnson Controls Inc.,
922 F.2d 1240, 1241 (6th Cir. 1991); United States v. R.W.
Meyer, Inc., 889 F.2d 1497, 1500 (6th Cir. 1989) cert. denied,
494 U.S. 1057; 110 S. Ct. 1527; Kayser-Roth, 910 F.2d at 26;
Deadham Water Co. v. Cumberland Farms Dairy, Inc., 805 F.2d
1074, 1081 (1st Cir. 1986); New York v. Shore Reality, 759 F.2d
1032, 1045 (2d Cir. 1985); U.S. v. Alcan Aluminum Corp., 964
F.2d 252 (3d Cir. 1992).
The Sixth Circuit concludes that CERCLA should be
narrowly construed:
Thus, while the liability provisions concerning
facility operators should be construed so that
the financial responsibility falls upon those
entities that contributed to the environmental
problem, the widest net possible ought not be
“In Riverside Market Dev. v. Intern Bldg. Products, 931 F.2d 327 (5th Cir.
1991), the Fifth Circuit recognized that an individual corporate officer could
be found liable as an operator under CERCLA, if the officer actively
articipated in the wrongful activities. The court noted that this personal
iability as an operator is distinct from liability imposed through piercing the
corporate veil.
-14-
cast in order to snare those who are either
innocently or tangentially tied to the facility at
issue. ...
In turning to the specific facts now before
us, we adhere to the tenet that liability attaches
only to those parties who are culpable in a
sense that, they by some realistic measure,
helped to create the harmful conditions.
Cordova Chemical Co., 113 F.2d at 578; App. to Pet. 7a.
This proposed “tenet” ignores the text of the statute and
the well established principle that liability under CERCLA is
both strict and joint and several. FMC Corp., 29 F.3d at 835;
Kayser-Roth, 910 F.2d at 26. Moreover, as pointed out in the
dissenting opinion, the district court decision holding CPC
directly liable as an operator does not, in fact, rest exclusively
or even primarily on the so-called remedial legislation “litany”
denigrated by the majority opinion. Cordova Chemical Co., 113
F.3d at 588 (dissenting opinion); App. to Pet. 28a.
The Sixth Circuit’s two other main criticisms of the dis-
trict court’s decision regarding CPC’s liability are @qually
untenable. First, the majority suggests that the district court
improperly “replaces the relatively bright line provided by the
traditional doctrine of piercing the corporate veil with a nebu-
lous ‘control’ test.” Cordova Chemical Co., 113 F.3d at 580;
App. to Pet. 54a. As discussed, infra, however, the actual
control test of direct operator liability under CERCLA
adopted by the district court and a majority of other Courts of
Appeal is both workable and consistent with the statute. The
majority opinion’s observation that this standard is being used
to “replace” the veil-piercing doctrine simply begs the question
and confuses two alternative, independent bases of liability:
direct statutory liability and common law vicarious liability.
Cordova Chemical Co., 113 F.3d at 588 (dissenting opinion);
App. to Pet. 29a.
Second, the majority expresses concern that “the threat
of unlimited liability will likely deter private sector partici-
pation in the cleanup of existing sites.” Cordova Chemical Co.,
113 F.3d at 580; App. to Pet. 1la. That stated concern is
A 8
‘ me eer Se
<mteh- >
ee a ee
15.
misplaced. To begin with, operator liability under the actual
control standard is not, in fact, “unlimited”. Furthermore, any
deterrent effect on the acquisition of contaminated property
stems from section 107(a)(1) of CERCLA, which imposes
strict liability on current owners and operators of contami-
nated sites, not from the construction of the term “operator”
adopted by the district court. Any such deterrent effect
would be felt by all prospective owners and operators, not
just parent corporations and is entirely distinct from the issue
of CPC’s operator liability under section 107(a)(2).
The courts which have considered the liability of parent
corporations have developed various approaches for deter-
mining whether a parent corporation is an operator of a
facility. The district court in the case at hand followed the
approach set forth in Kayser-Roth, 910 F.2d at 27:
In this court’s view, then, a parent corpora-
tion is directly liable under section 107(a)(2) as
an operator only when it has exerted power or
influence over its subsidiary by actively par-
ticipating in and exercising control over the
subsidiary’s business during a period of dis-
posal of hazardous waste. A parent’s actual
participation in and control over a subsidiary’s
functions and decision-making creates
“operator” liability under CERCLA; a parent’s
mere oversight of a subsidiary’s business in a
manner appropriate and consistent with the
investment relationship between a parent and
its wholly owned subsidiary does not.
Factors to consider in assessing whether a
parent corporation operated its subsidiary
include the parent’s participation in the
subsidiary’s board of directors, management,
day-to-day operations, and specific policy
matters, including areas such as manufacturing,
finances, personnel and waste disposal. In
addition, determining the origin and business
function of the subsidiary in the context of the
parent corporation’s business may be helpful in
determining whether the parent has operated a
-16-
wholly owned subsidiary. Other evidence may
be less probative if it is simply indicative of the
actions of a prudent investor, rather than an
active operator, including monitoring of a
subsidiary’s financial performance, consolida-
tion of corporate business matters such as
accounting and legal work, and cooperation
between the subsidiary and the parent in
research. In the final analysis, each case must
be decided on its own unique facts and
circumstances.
CPC Int'l, Inc., 777 F. Supp. at 573; App. to Pet. 123a.
The standard set forth by the district court in the case at
hand is in accordance with the majority of other courts who
have considered the issue. See John S. Boyd, 992 F.2d at 408;
Certain Underwriters, 90 F.3d at 674; Lansford-Coaldale, 4 F.3d
1209; Jacksonville Electric, 996 F.2d 1197.
Although most of the courts considering the issue have
found that actual control and active involvement with the
activities of its subsidiary is necessary to establish operator
liability, other courts have held that the authority to control is
sufficient for establishing operator liability. See Nurad, 966
F.2d at 842; Kaiser Aluminum, 976 F.2d at 1344. Idaho v.
Bunker Hill Co., 635 F. Supp. 665, 670-71 (D. Idaho 1986);
United States v. Nicolet, Inc., 712 F. Supp. 1193 (E.D. Penn.
1989); Kelley v. Thomas Solvent, 727 F. Supp. 1532 (W.D.
Mich. 1989). In adopting this standard the Nurad court
reasoned it “placed accountability in the hands of those
ws
capable of abating further environmental harm”.
At trial MDNR and EPA proved that CPC had the
ability to control and did, in fact, control the facility. The
district court found that contamination occurred during the
time period Ott II/CPC operated the site:
The principal source of contamination at the
site was the use of engineered, unlined lagoons
at the northwestern edge of the site for chemical
"This petition should be granted to resolve the conflicts between the circuit
courts of appeal as to the appropriate standard to be applied when
determining whether a parent corporation is liable as an operator.
-17-
waste disposal. From 1959 to at least 1968,
during the Ott I and Ott Il periods of
ownership, wastewaters and other chemical
waste used in the manufacturing process were
| discharged into the lagoons, where much of the
F contaminants seeped into the ground and
| water. No disposal into the lagoons occurred
:
i
during the Story and Cordova periods.
During the Ott I and Ott II era, chemical waste
also entered the ground through the burial and
| slitting of hundreds of drums in a sandy pit;
numerous spills of hundreds of gallons of
chemicals from train cars onto railroad tracks;
frequent overflows of chemical waste at a
cement-lined equalization basin; and the dump-
ing into the woods of buckets of hazardous
chemicals that had spilled during the manufac-
turing process. Some spills of hazardous waste
also occurred during the Story and Cordova
periods of ownership.
ee ee ee
Contamination entering the ground from dis-
posal in the lagoons or through spills then
seeped into the ground and migrated away
from the site via the aquifer to the southeast,
ultimately reaching two waterways, Little Bear
Creek and the Unnamed Tributary.
CPC Int'l, Inc., 777 F. Supp. at 556; App. to Pet. 89a.
The district court also found that the environmental
. problems at the site were exacerbated by CPC’s involvement
at the site:
i Following (CPC’s) acquisition, Ott II production
capacity significantly increased as CPC con-
tributed millions of dollars to expansion efforts.
This increase in production, in turn, created
substantially greater amounts of wastewater
and chemical waste in need of disposal in the
unlined lagoons, which were expanded to
accommodate increased wastes.
-18-
CPC Int'l, Inc., 777 F. Supp. at 558; App. to Pet. 93a.*
During the Ott Il era, CPC was directly involved in the
operation at the facility. The district court made extensive
findings of fact as to CPC’s pervasive control of the site. CPC
Int'l, Inc., 777 F. Supp. at 557-562, 575; App. to Pet. 93a-
102a, 125a-126a. The district court found that CPC actively
participated in and at times controlled the policy-making
decisions of its subsidiary through its representation on the
Ott II Board of Directors. CPC had majority control of the Ott
Il board for three years. CPC directors serving on the Ott II
board reported back to CPC about Ott II programs and gave
approval on behalf of CPC for appropriation requests. During
CPC’s entire period of ownership of Ott II, the chairman of the
Ott II board was always a top ranking CPC executive. CPC
matters were discussed at board meetings, and Ott II board
members recognized the need to consider CPC’s interest and
seek strong guidance from the parent company during these
sessions. Id. at 558-59; App. to Pet. 94a-95a.
CPC also actively participated in and exerted control
over day-to-day decision making at Ott II. CPC actively
participated in the decision making because high-ranking CPC
officers served in Ott II management positions. The president
of Ott II reported directly to the president of CPC. Id. at 559;
App. to Pet. 95a. CPC officials played decisive roles in Ott
Il’s policy-making structure. “CPC officials exerted significant
control and bore ultimate responsibility over decision-making
at the subsidiary in areas including waste disposal, sales,
marketing, manufacturing, purchasing and personnel.” [d.;
App. to Pet. 96a.
The district court also found that CPC was directly and
extensively involved with environmental matters at Ott II.
CPC’s governmental and environmental affairs director,
G.R.D. Williams, coordinated all pollution activities for CPC
and its divisions and subsidiaries, including Ott II. G.R.D.
Williams became actively involved in environmental affairs at
“The Sixth Circuit ignores its own tenet in exonerating CPC from liability.
The district found that CPC did, in fact, control environmental matters at the
site, including waste disposal. CPC Int'l, Inc., 777 F. Supp. at 561-562; App.
to Pet. 99a-100a. Thus, although it is not necessary to establish culpability
under CERCLA, CPC was, in fact, culpable or responsible for the waste
problems at the site.
2 hat a I DIONE DONNA S. ACRE Goan lia San Ly
eras iis bi Aaa NN hg ed 6 Met Nd es
OP Big Wee Lint i NLL ta NARI AI ied alt
-19-
Ott II, including participating in negotiations with state
regulators on waste disposal issues, suggesting stall tactics in
dealing with state regulators, and directing Ott II on how to
respond to inquiries from state and federal regulators. He
actively participated and exerted control over Ott II environ-
mental matters. Id. at 561; App. to Pet. 99a-100a.
CPC also exerted significant control over Ott II's
finances and participated in labor negotiations at Ott II. Id. at
562; App. to Pet. 100a-101la. CPC provided staff services
and employee benefit programs to Ott II; filed patents;
developed, in a cooperative effort between Ott II and another
CPC research facility, chemicals for use by CPC; and
coordinated outside and accounting services. CPC provided
these services without charge to Ott Il. /d.; App. to Pet. 101a.
Based upon these extensive factual findings the district
court found that CPC was liable as an operator. The court
found that CPC’s active participation and control of Ott II
went beyond the bounds of an interested investor and that
CPC had permeated the board, management, and decision-
making of Ott II. Id. at 575; App. to Pet. 126a.
The Sixth Circuit en banc majority did not find any of the
district court’s findings of fact clearly erroneous. Instead it
created a new legal standard that is not supported by the
plain language of the statute and is in conflict with decisions
in the First, Second, Third, Eighth and Eleventh Circuits.
Under CERCLA, the term operator clearly encompasses a
parent corporation such as CPC, who actively participated in
and controlled the activities of its wholly owned subsidiary at
the facility. CPC should be held liable as an operator of the
facility.
-20-
CONCLUSION
For these reasons, Petitioner asks this Court to grant
certiorari to resolve the conflict between the circuit courts of
appeal and resolve an important dispute concerning the
interpretation of CERCLA.
August, 1997
Respectfully submitted,
FRANK J. KELLEY
Attorney General
Thomas L. Casey
Solicitor General
Counsel of Record
P. O. Box 30212
Lansing, Michigan 48909
(517) 373-1124
Kathleen L. Cavanaugh
Robert P. Reichel
Assistant Attorneys General
Attorneys for Petitioner
Michigan Department of
Environmental Quality
APPENDIX
Table of Contents
Sixth Circuit Court of Appeals Opinion
I NS BE aiaircsvccgisd<ssvenncsvcsssccsancrscecoousece
Sixth Circuit Court of Appeals Order
Granting Rehearing Dated October 19, 1995...........
Sixth Circuit Court of Appeals Opinion
reacted cucedeiseeneserssarecsvensces sense
Final Judgment of the United States District
Court dated September 10, 1992..............cee
Stipulation and Order dated April 15, 1992......00.00......
United States District Court Findings of Fact and
Conclusions of Law on Liability dated
RE SI Us ilsstncvacscspvterssecovecssevsssessossseeeoees
United States District Court Order Determining
Liability dated August 27, 1991...........0..00..c.
SSS
irae eee... ......................... i 0 ee
0 SSS
-la-
RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 24
ELECTRONIC CITATION: 1997 FED App. 0154P (6th Cir.)
File Name: 97a0154p.06
Nos. 92-2288 /2326
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
United States of America,
Plaintiff-Appellee,
Vv. On Appeal from the
United States District
Cordova Chemical Company Court for the Western
of Michigan; Cordova District of Michigan
Chemical Company; Aerojet-
Genera! Corporation
(92-2288),
Defendants-Appellants,
CPC International Inc.
(92-2326),
Defendant-Appellant,
Michigan Department of
Natural Resources,
Defendant-Appellee.
Decided and Filed May 13, 1997
(2] Before: MARTIN, Chief Judge; MERRITT, KENNEDY,
MILBURN, NELSON, RYAN, BOGGS, NORRIS, SILER,
BATCHELDER, DAUGHTREY, and MOORE, Circuit Judges.
-2a-
NORRIS, J., delivered the opinion of the court, in which
KENNEDY, MILBURN, NELSON, BOGGS, SILER, and
BATCHELDER, JJ., joined and in which MERRITT, J., joined
as to Part III.C.3. MERRITT, J. (pp. 22-28), delivered a
separate opinion concurring in part and dissenting in part.
RYAN, J. (pp. 29-47), delivered a separate dissenting opinion
in which MARTIN, C. J., DAUGHTREY, and MOORE, JJ.,
joined and in which MERRITT, J., joined as to Part I.
OPINION
ALAN E. NORRIS, Circuit Judge. This appeal highlights
the difficulty that often attends the apportionment of liability
for the clean-up costs of sites that have been subjected to long-
term environmental degradation. In the present case, brought
pursuant to the Comprehensive Environmental Response,
Compensation, and Liability Act ("CERCLA"), 42 U.S.C. §§
9601-9675 (1988 & Supp. V 1993), the environmental damage
occurred over a period of decades and during the watch of
several owners.
A central concern on appeal is the criteria required under
CERCLA before a parent corporation can be held financially
liable for pollution that occurred on a site owned by a
subsidiary. Because we adopt a stricter standard than did the
district court for imposition of such liability, we reverse certain
of its determinations and remand for further proceedings.
I. PROCEEDINGS BELOW
In May and June 1991, the district court conducted a
fifteen-day bench trial to determine which parties were
responsible for clean-up costs related to pollution of a site
located in Dalton Township, Michigan. In addition to the [3]
live testimony of twenty-nine witnesses, the court received
more than 2,300 exhibits and reviewed dozens of deposition
transcripts. Given the complexity of the proceedings below,
the factual findings contained in the district court's published
opinion are extensive. CPC Int'l, Inc. v. Aerojet-General Corp.,
777 F. Supp. 549, 555-70 (W.D. Mich. 1991). We summarize
them here by way of background.
Beginning in 1957, a series of owners used the Dalton
iat he,
-3a-
Township site to manufacture chemicals. The initial owner,
the Ott Chemical Company ("Ott I"), controlled the site from
1957 until 1965. During this time, the groundwater flowing
underneath the site became contaminated, a development
confirmed by tests conducted in 1964.
Pollution of soil, surface water, and groundwater
continued after the Ott Chemical Company ("Ott II"), a wholly
owned subsidiary of CPC International, Inc. ("CPC"), took
over ownership of the site in 1965. The use of unlined lagoons
as a means of chemical waste disposal was the principal
cause of the contamination. According to the district court,
this practice spanned the period from 1959 until at least 1968.
Seepage from these lagoons did not, however, constitute
the sole source of pollution that occurred during the ownership
of Ott I and Ott Il. Further contamination emanated from
chemical spills from train cars, from chemical drums, from
overflows of chemicals contained in a cement-lined
equalization basin, and from other sources. Groundwater
pollution did not go completely untreated during this time;
from 1965 until 1974, purge wells were operated intermittently
in an attempt to alleviate the problem.
In 1972, the Story Chemical Company ("Story") acquired
the site from Ott II and continued to operate it until 1977,
when bankruptcy ended operations. At that point, the [4]
trustee in bankruptcy assumed title to the site and attempted
to find a buyer.
Active governmental response to the pollution problems
at the site began in 1977, after Story's bankruptcy, when the
Michigan Department of Natural Resources ("MDNR") visited
the site to assess the situation. In view of the severity of the
environmental problems and the lack of resources to pay fora
cleanup, the MDNR became active in an effort to attract a
purchaser who would participate financially in clean-up
efforts. This search led to the signing of a document on
October 13, 1977, by the Cordova Chemical Company
("Cordova/California"), a wholly owned subsidiary of
Aerojet-General Corporation ("Aerojet"), and the MDNR. The
district court described the agreement and its aftermath:
-4a-
It addressed the problem of environmental con-
tamination at the property and set forth obli-
gations with respect to cleanup activities. . . .
.. . MDNR agreed to remedy the waste
container and sludge problems, and
Cordova/California agreed to eliminate the
phosgene gas and give MDNR $600,000 to
defray the costs of the agency's cleanup of the
waste containers, sludge and residential wells.
With respect to Cordova/California's
$600,000 payment and the company's
responsibility or liability for the contamination
at the site it was acquiring, the [agreement]
stated:
Cordova Chemical Company shall not have
any responsibility or liability in connection
with any [5] other corrective actions which the
Department of Natural Resources or any other
governmental agency may hereafter deem
necessary ....
However, the agreement did not provide for
a total cleanup of the site's severe
environmental problems. . . .
In particular, MDNR and Cordova/
California did not reach an agreement regarding
a remedy for the groundwater contamination
problem. Instead, the fate of the groundwater
problems was not resolved, with MDNR le*t to
tackle the problem as part of its overall
regulatory responsibility for the site.
-Sa-
, Cordova/California and MDNR
fulfilled their cleanup obligations under the
[agreement].
CPC Int'l v. Aerojet-General, 777 F. Supp. at 564-67.
Having executed this document, Cordova/California
purchased the site the following day from the Story
bankruptcy trustee. Cordova Chemical Company of Michigan
("Cordova/Michigan"), a wholly owned subsidiary of
Cordova/California, acquired ownership of the site in 1978.
Cordova/ Michigan retains ownership, although manufacturing
operations at the site ceased in 1986.
The district court made the following observations
regarding conditions at the site during the ownership of the
Cordova companies:
During their period of operations, [the
companies] neither buried waste nor dumped it
[6] onto the ground. No chemical waste was
disposed into the unlined lagoons that had been
used during the Ott I and Ott Il eras. Before
beginning chemical manufacturing,
Cordova/ Michigan repaired the equalization
basin and chemical sewer system. When
operating, Cordova/Michigan discharged
chemical waste through off-site disposal or to a
sewer that flowed to the Muskegon County
treatment facility.
Id. at 556. In short, although the preexisting groundwater
contamination problem was not remedied during their
ownership, the trial court concluded that neither
Cordova/California nor Cordova/ Michigan exacerbated the
condition. |
The federal Environmental Protection Agency became
involved in cleanup of the site in 1981. Since then, the EPA
has formulated a long-term response to the environmental
damage that has occurred at the site; the cost of this effort will
-6a-
run into the millions of dollars.
Il CERCLA LIABILITY
Section 107(a) of CERCLA lists the parties who are
potentially liable for the clean-up costs of a polluted site.2 [7]
42 U.S.C. § 9607(a). For the purposes of this action, those
parties include the present owner and operator of a facility
from which there is a release of a hazardous substance, any
prior owner or operator of a facility whose involvement
coincided with disposal of a hazardous substance, and any
person who arranged for the disposal or transport of
hazardous waste from a facility. 42 UC. § 9607(a)(1)-(3).
“" > parties stipulated that the site is a "facility" as defined by
CERCLA, that it contains "hazardous substances,” that
"releases" of hazardous substances have —urred and threaten
to continue, and that CPC, the “{DNR, Aerojet,
Cordova/California, and Cordova/ Michigan are "persons" as
defined by the statute. Id. at 556.
Because courts that have been asked to render liability
decisions in CERCLA actions frequently invoke the remedial
purpose of the act, e.g., United States v. Kayser-Roth Corp., Inc.,
910 F.2d 24, 26 (1st Cir. 1990), cert. [8] denied, 498 U.S. 1084
(1991), we will review that subject before considering the
liability of those parties now before us.
Congress enacted CERCLA as a "remedial statute
designed _to protect and preserve public health and the
environment." Kayser-Roth, 910 F.2d at 26; accord Schiavone v.
Pearce, 79 F.3d 248, 253-54 (2d Cir. 1996); Lansford-Coaldale
Joint Water Auth. v. Tonolli Corp., 4 F.3d 1209, 1221 (3d Cir.
1993); Anspec Co., Inc. v. Johnson Controls, Inc., 922 F.2d 1240,
1241-42 (6th Cir. 1991) (reviewing this circuit's approach to
CERCLA liability). Accordingly, courts generally will not
interpret § 9607(a) in a way that apparently frustrates the
statute's goals in the absence of specific congressional intent to
the contrary. Anspec, 922 F.2d at 1247 (citing New York v.
Shore Realty Corp., 759 F.2d 1032, 1045 (2d Cir. 1985)).
It must be recognized, however, that it is difficult to
divine the specific, as opposed to the general, goals of
Congress with respect to CERCLA liability since the statute
-7a-
represents an eleventh hour compromise. See generally Shore
Realty Corp., 759 F.2d at 1039-42 (discussing legislative
history). As the district court recognized, "some of CERCLA's
provisions are vague and its legislative history sparse.” CPC
Int'l v. Aerojet-General, 777 F. Supp. at 571; accord Anspec, 922
F.2d at 1247 (characterizing the legislative history as "scant’);
Lansford-Coaldale Joint Water Auth., 4 F.3d at 1221
("[C]ongressional intent may be particularly difficult to discern
with precision in CERCLA, a statute notorious for its lack of
clarity and poor draftsmanship.").
Courts would not be warranted, therefore, in pointing to
the "remedial legislation" litany, see generally Norman J. Singer,
3 Southerland Statutory Construction § 60.01 (5th ed. 1992)
(the rule that remedial statutes should be liberally construed is
"firmly established"); Dennis v. Higgins, 498 U.S. 439, 443
(1991) (noting that 42 U.S.C. § 1983, as a remedial statute,
should be liberally construed), as a reason [9] for filling in the
blanks left by this sketchy legislative history to impose liability
under nearly every conceivable scenario. Thus, while the
liability provisions concerning facility operators should be
construed so that financial responsibility for clean-up
operations falls upon those entities that contributed to the
environmental problem, the widest net possible ought not be
cast in order to snare those who are either innocently or
tangentially tied to the facility at issue. In fact, this court has
pointed out that, "Congress intended that those responsible
for disposal of chemical poisons bear the cost and
responsibility for remedying the harmful conditions they
created." Anspec, 922 F.2d at 1247 (emphasis added).
In turning to the specific facts now before us, we adhere
to the tenet that liability attaches only to those parties who
are culpable in the sense that they, by some realistic measure,
helped to create the harmful conditions.
In its effort to discern the sweep of CERCLA liability,
the district court concluded that:
CERCLA broadens the potential for liability of
parent corporations without discarding entirely
the traditional concept of limited liability that
is central to corporate law. . . .
-8a-
Accordingly, it seems tnat CERCLA's
"owned or operated" language forges a new,
middle ground. It is a ground that at once
accommodates the generai principle of limited
liability and the broader principle of liability
attaching for operative activity. To permit
these principles to coexist under CERCLA, the
liability of a parent corporation cannot attach
simply because a parent has had involvement
with its subsidiary in a manner merely
consistent with their investment relationship.
Rather, a parent must have actually operated
the business of its subsidiary.[10]
In this court's view, then, a parent
corporation is directly liable under section
107(a)(2) as an operator only when it has
exerted power or influence over its subsidiary
by actively participating in and exercising
control over the subsidiary's business during a
period of disposal of hazardous waste. A
parent's actual participation in and cuntrol over
a subsidiary's functions and decision-making
creates “operator” liability under CERCLA; a
parent's mere oversight of a subsidiary's
business in a manner appropriate and
consistent with the investment relationship
between a parent and its wholly owned
subsidiary does not.
CPC Int'l v. Aerojet-General, 777 F. Supp. at 573 (emphasis
added).
On the basis of this "new, middle ground," the district
court found both CPC and Aerojet liable as operators for the
disposal of hazardous substances that occurred while their
subsidiaries operated the site.
Ill. DISCUSSION
A. CPC
The district court reasoned that liability potentially
en
-9a-
could attach to CPC as a parent corporation in two ways:
direct liability under CERCLA's "operator" language or by
common law veil-piercing. Clearly, since the facility was titled
in the subsidiary’s name, CPC could be found liable as an
owner only through veil piercing. The court determined that
CPC was liable as an operator of the site for environmental
damage that occurred during the ownership of Ott II; this
liability was grounded in section 107(a)(2) of CERCLA, which
renders “any person [liable] who at the time of disposal of any
hazardous substance owned or operated any facility at which
such hazardous substances were disposed of.” 42 U.S.C. §
9607(a)(2). To reach this conclusion, the court necessarily had
to hold [11] CPC, as a parent corporation, accountable for the
environmental conduct of its wholly owned subsidiary
corporation, Ott II. And, because the court held CPC directly
liable as an operator, it did not reach the question of whether
CPC was liable as an owner pursuant to the traditional
common law doctrine of veil-piercing.
It is not at all clear from the district court's opinion
whether the basis for finding parental liability as an operator
under its "new, middle ground" is the actual operation of the
subsidiary's business or, on the other hand, the exertion of
power or influence through active participation in the
subsidiary's business. Although they are used interchangeably
in the district court's opinion, the two concepts are not
interchangeable. If anything, the facts recited by the district
court support liability under the latter standard but not under
the former. This confusion underscores the inevitable
difficulty that arises when courts attempt to erect new
concepts of corporate liability within the framework of
CERCLA in the absence of direction from Congress. We are
not persuaded that, in enacting CERCLA, Congress
contemplated the abandonment of traditional concepts of
limited liability associated with the corporate form in favor of
an undefined "new, middle ground."
Actually, another scenario occurs to us under which one
could argue that a parent corporation should be deemed to
have directly operated a facility owned by its subsidiary. At
least conceivably, a parent might independently operate the
facility in the stead of its subsidiary; or, as a sort of joint
venturer, actually operate the facility alongside its subsidiary.
-10a-
However, this is not a theory of operator liability relied upon
by the district court, or alluded to in its opinion.
CERCLA defines the "owner or operator" of an onshore
facility as "any person owning or operating such facility.” 42
U.S.C. § 9601(20)(A)(ii). When the facility has been conveyed
to a unit of state or local government, the [12] definition
differs. It then includes “any person who owned, operated or
otherwise controlled activities at such facility immediately
[before the transfer to the governmental authority].” 42 U.S.C.
§ 9601(20)(A)(iii). It thus appears that the drafters of the
statute distinguished an operator from a person who
"otherwise controlled" a facility. When the owner of a facility
contracts out the daily running of the operation to a third
party, that party presumably attains operator status (and its
attendant liability). However, when a parent corporation
actively participates in the affairs of its subsidiary consistent
with the restrictions imposed by traditional corporations law,
nothing in the definition just cited or in the rest of the statute
indicates that the parent has assumed the role of operator.
Despite the definition of “owner or operator," several
circuits, like the district court below, have determined that
parent corporations can attain operator status by exerting
significant control over the operations of their subsidiaries.
See, e.g., Kayser-Roth, 910 F.2d at 26-27; Schiavone, 79 F.3d at
255; Lansford-Coaldale Joint Water Auth., 4 F.3d at 1221; Nurad,
Inc. v. William E. Hooper & Sons Co., 966 F.2d 837, 842 (4th
Cir.), cert. denied, 113 S. Ct. 377 (1992); CPC Int'l v. Aerojet-
General, 777 F. Supp. at 572-73.
While some may wish to extend the reach of CERCLA to
maximize the impact of its remedies, nothing in the statute or
its legislative history warrants the invocation by courts of
vague, expansive concepts, such as the district court's "new,
middle ground,” which threaten the efficacy of time-honored
limited liability protections afforded by the corporate form.
As the Court of Appeals for the Fifth Circuit has noted in this
context, "[i]f Congress wanted to extend liability to parent
corporations it could have done so, and it remains free to do
so." Joslyn Mfg. Co. v. T.L. James & Co., Inc., 893 F.2d 80, 83
(5th Cir. 1990).
-lla-
The district court's approach presents a number of
problems. First, it replaces the relatively bright line [13]
provided by the traditional doctrine of piercing the corporate
veil with a nebulous "control" test. When, precisely, is a
parent acting in a manner consistent with its investment
relationship as opposed to a manner that triggers operator
liability? The indicia enumerated by the district court, such as
participation in the subsidiary's board of directors and
involvement in specific policy decisions, offer little guidance.
Certainly, these activities are not grounds traditionally relied
upon as warranting the disregard of separate corporate
existences.
Second, the threat of unlimited liability will likely deter
private sector participation in the cleanup of existing sites.
The case before us illustrates this point. There is no dispute
that the MDNR actively sought a private sector partner to
take over and assist in the remediation of the site. Aerojet
indicated an interest on the condition that it could cap its
potential liability for environmental cleanup, which it sought
to accomplish through the negotiation of the agreement with
the MDNR and the use of subsidiaries.3 To scuttle such
sensible and legitimate precautions in favor of an
unpredictable "control" test would actually contravene the
public interest by discouraging businesses from being involved
in such projects.
Accordingly, we reject the district court's "new, middle
ground" as the basis for fixing operator liability and hold that
where a parent corporation is sought to be held liable as an
operator pursuant to 42 U.S.C. § 9607(a)(2) based upon the
extent of its control of its subsidiary which owns the facility,
the parent will be liable only when the requirements necessary
to pierce the corporate veil are met. In other words, under the
circumstances of this case, whether the parent will be liable as
an operator depends upon whether the degree to which it
controls its subsidiary and the extent and manner of its
involvement with the [14] facility, amount to the abuse of the
corporate form that will warrant piercing the corporate veil
and disregarding the separate corporate entities of the parent
and subsidiary.
Whether the circumstances in this case warrant a
-12a-
piercing of the corporate veil will be determined by state law.
See Anspec, 922 F.2d at 1248. Michigan appears to follow the
general rule that requires demonstration of patent abuse of the
corporate form in order to pierce the corporate veil. There
must be such a unity of interest and ownership that the
separate personalities of the corporation and its owner cease
to exist, and the circumstances must be such that adherence to
the fiction of separate corporate existence would sanction a
fraud or promote injustice. 1 William M. Fletcher, Fletcher
Cyclopedia of the Law of Private Corporations § 41.30 (perm.
ed. rev. vol. 1990); Stephen H. Schulman et al., Michigan
Corporation Law & Practice § 3.9(c) (1991 Supp.); Seasword v.
Hiltt, Inc., 449 Mich. 542, 548, 537 N.W.2d 221, 224 (1995)
(corporate veil may be pierced where the subsidiary is a "mere
instrumentality” of the parent and the separate corporate
existence is used to subvert justice or cause result contrary to
clearly overriding public policy); see also Bodenhamer Bldg.
Corp. v. Architectural Research Corp., 873 F.2d 109, 111-12 (6th
Cir. 1989) (surveying Michigan corporate veil-piercing
decisions). Organization of a corporation for the avowed
purpose of avoiding personal responsibility does not in itself
constitute fraud or reprehensible conduct justifying a disregard
of the corporate form. Gledhill v. Fisher & Co., 272 Mich. 353,
359, 262 N.W. 371, 373 (Mich. 1935).4 [15]
The district court relied upon a number of factors in
determining that CPC "actively participated in and exerted
significant control over Ott II's business and decision-making"
and was therefore directly liable under 42 U.S.C. § 9607(a)(2)
as an operator: 100% ownership of Ott II; participation on Ott
II's board of directors; a cross-pollination of officers who were
involved in decision-making and daily operations; active
participation by CPC officials in environmental matters; and
financial control of Ott II through approval of budgets and
capital expenditures. CPC Int'l v. Aerojet-General, 777 F.
Supp. at 575. While these factors reveal a parent that took an
active interest in the affairs of its subsidiary, they do not
indicate such a degree of control that the separate
personalities of the two corporations ceased to exist and that
CPC utilized the corporate form to perpetrate the kind of
fraud or other culpable conduct required before a court can
pierce the veil. While CERCLA contemplates allocating
financial responsibility to those corporations that cause
ss oie
—————— ol OO
-13a-
environmental degradation, it does not authorize assignment
of liability to parent corporations that abide by the proper use
of the corporate form.
In summary, then, it seems to us that under the "owned
or operated" language of 42 U.S.C. § 9607(a)(2), there are
three scenarios under which a parent corporation could be
held liable for the disposal of hazardous substances at a
facility whose owner of record was the parent's subsidiary
corporation. First, as an owner, by piercing the corporate veil.
Second, as an operator, where the parent directly operates the
facility itself, either independently of its subsidiary, or as an
actual co-operator alongside the subsidiary.> Although a
parent conceivably could be held liable under this theory, it is
not the one relied upon by the [16] district court, and, in any
event, is not supported by the facts in the record before us.
Finally, operator liability may be based upon the
conduct of the parent in the course of its affiliation with its
subsidiary, including the degree of control exerted by the
parent over its subsidiary. This is the scenario utilized by the
district court, relying upon its "new, middle ground" standard
to define the circumstances under which the parent will be
liable. As pointed out above, we conclude that this "new,
middle ground" is unworkable, and that traditional veil
piercing is the only standard under which this scenario for
liability can be assessed reliably.
Accordingly, the district court's finding of operator
liability with respect to CPC must be reversed.
B. MDNR Liability
The district court rejected liability claims that were
advanced against the MDNR on two fronts: as an operator
and as an “arranger.” Only the district court's decision
regarding arranger liability is appealed.
CERCLA imposes liability on
any person who by contract, agreement, or
otherwise arranged for disposal or treatment, or
arranged with a transporter for transport for
-l4a-
disposal or treatment of hazardous substances
owned or possessed by such person, by any
other party or entity, at any facility .. . owned
or operated by another party or entity and
containing such hazardous substances.
42 U.S.C. § 9607(a)(3).
It is contended that the MDNR incurred arranger liability
when it negotiated with Cordova/California for the
acquisition of the site and agreed with Cordova/California on
a plan to clean up the groundwater contamination.[{17]
We agree with the district court's conclusion that the
MDNR escapes liability because its actions were taken in
response to the Act's environmental emergency provision:
No state or local government shall be liable
under this subchapter for costs or damages as a
result of actions taken in response to an
emergency created by the release or threatened
release of a hazardous substance generated by
or from a facility owned by another person.
This paragraph shall not preclude liability for
costs or damages as a result of gross negligence
or intentional misconduct by the State or local
government. For the purpose of the preceding
sentence, reckless, willful, or wanton
misconduct shall constitute gross negligence.
42 U.S.C. § 9607(d)(2). Our reading of the record indicates
that the MDNR acted in good faith when attempting to
address the groundwater contamination of the site. That its
efforts proved to be less than entirely successful is
unfortunate, but does not subject the agency to liability.®
C. Liability of Aerojet and its Subsidiaries
1. Owner Liability
The district court held both Aerojet and
Cordova/ Michigan liable as present owners of the site under
CERCLA'S section 107(a)(1) which assigns liability to "the
-15a-
owner and operator of a. . . facility." 42 U.S.C. [18] §
9607(a)(1). Cordova/Michigan does not challenge this
decision on appeal and we therefore express no opinion with
respect to its liability.
As for the parent corporation, Aerojet could be found
liable as an owner only through veil piercing, since
Cordova/Michigan was the owner of record. The district
cqgurt appropriately looked to Michigan law to determine
whether to pierce the corporate veil and, in its view, the
evidence supported a conclusion that Aerojet had "totally
dominated Cordova/Michigan, creating a complete identity of
interests between the parent and its wholly owned
subsidiary.” CPC Int'l v. Aerojet-Genéral, 777 F. Supp. at 578.
Accordingly, the court determined that it was appropriate to
pierce the corporate veil. Among the grounds cited for its
decision, the court highlighted the total ownership by the
parent, Aerojet's active participation in the acquisition of the
site, the timing of the incorporation o¢ the subsidiaries, cross-
pollination of corporate officers, financial control, and the
integration of the businesses. Id. at 577.
These facts, however, fall somewhat short of what is
required to pierce the corporate veil under Michigan law. They
do not establish that Cordova/Michigan was a mere
instrumentality of Aerojet in the sense that the separate
corporate personalities of the parent and subsidiary ceased to
exist. More tellingly, they do not reveal activity by Aerojet
that approaches the level of culpable conduct contemplated
by Michigan law as a predicate to disregarding the separate
corporate form. Bodenhamer Bldg. Corp., 873 F.2d at 112.
While Aerojet obviously sought to limit its liability for existing
environmental problems through good faith negotiation with
the MDNR and prudent use of the corporate form, there is
nothing to suggest that the company acted to subvert justice or
with fraudulent intent or otherwise sought to distort the
legitimate purposes of the corporate form. Although Aerojet
took an active interest in its subsidiaries, the record does not
support a conclusion that Cordova/ Michigan was [19] not a
viable corporate entity. Accordingly, the district court erred
when it pierced the corporate veil to assign liability to Aerojet
as an owner.
-l6a-
The district court also noted that Cordova/California
actually owned the site from October 1977 until November
1978. Although the company began clean-up operations as
required by its agreement with the MDNR, the district court
found that additional releases of hazardous substances
occurred during this period. CPC Int'l v. Aerojet-General, 777
F. Supp. at 579. It thus imposed liability on Cordova/
California as a former owner pursuant to section 107(a)(2).
This conclusion, however, conflicts with the district
court's summary of activity at the site during the ownership of
the Cordova companies. Id. at 556. On remand, therefore, we
ask the district court to indicate with greater specificity
precisely which portions of the record it relies upon to support
a finding that additional releases of hazardous substances
occurred during Cordova/California's brief ownership.
Absent such evidence, liability cannot attach to
Cordova/California as a former owner of the site.
2. Operator Liability
Finally, we turn to the district court's alternative
imposition of liability on Aerojet pursuant to section
107(a)(2), precisely the same basis for liability that we have
already discussed, and rejected, with respect to CPC. Since
we decline to adopt the "new, middle ground" control test
utilized by the district court, no liability attaches unless the
corporate veil can be pierced. And because the record does
not support veil piercing, Aerojet cannot be held liable as an
operator pursuant to section 107(a)(2).
3. Defenses
Upon remand, the district court should also revisit its
treatment of the defense raised by Aerojet, [20] Cordova/
California, and Cordova/ Michigan under section 107(b)(3).
The pertinent part of the statute follows:
[A] person otherwise liable who can establish
by a preponderance of the evidence that the
release or threat of release of a hazardous
substance and the damages resulting therefrom
were caused solely by--
-17a-
(3) an act or omission of a third party other
than . . . one whose act or omission occurs in
connection with a contractual relationship,
existing directly or indirectly, with the
defendant .. . if the defendant establishes by a
preponderance of the evidence that (a) he
exercised due care with respect to the
hazardous substance concerned, . . . and (b) he
took precautions against foreseeable acts or
omissions of any such third party and the
consequences that could foreseeably result from
such acts or omissions... .
42 U.S.C. § 9607(b) (emphasis added).
In parsing the exceptions to the defense, the district
court noted that under 42 U.S.C. § 9601(35)(A), the term
“contractual relationship" includes deeds transferring title.
Thus, the district court concluded that a defense would be
unavailable to a defendant who had a direct or indirect
contractual relationship with the parties responsible for
contaminating the site. CPC Int'l v. Aerojet-General. 777 F.
Supp. at 581. Under this view, the defense could not be
invoked by any defendant who was a party to a deed witha
polluter. The district court, however, ignored the requirement
that, in order to render the defense inapplicable, the
hazardous substance release must have resulted from the act
of a third party "in connection with" the contractual
relationship with the defendant. The "in connection with"
language of the defense appears to have [21] been designed to
preclude a person from escaping liability by contracting for a
third party to do his dirty work for him.
As we pointed out above, from what we glean from the
district court's recitation of facts, the release of hazardous
substances appears to have been caused solely by the
predecessors of these three defendants.
IV. CONCLUSION
-18a-
For the foregoing reasons, the district court is reversed in
part and affirmed in part and this cause is remanded to the
district court for further proceedings consistent with this
opinion.
IThe district court noted that two hazardous chemicals --
benzene and 1,2 dichloroethane -- were found at the site and
used during the Cordova period of ownership. Id. at 556, 579
n.11. Although Cordova/Michigan, in an April 5, 1984 letter
to the federal EPA, acknowledges generating small quantities
of these materials for disposal, we find nothing in the record
to support a finding that any additional release of hazardous
substances occurred at the site during the Cordova period.
242 U.S.C. § 9607(a) states, in part:
Notwithstanding any other provision or
rule of law, and subject only to the defenses set
forth in subsection (b) of this section-
(1) the owner and operator of a. . . facility,
(2) any person who at the time of disposal of
any hazardous substance owned or operated
any facility at which such hazardous
substances were disposed of,
(3) any person who by contract, agreement, or
otherwise arranged for disposal or treatment,
or arranged with a transporter for transport
for disposal or treatment, of hazardous
substances . . .
(4) any person who accepts or accepted any
hazardous substances for transport to dis-
posal or treatment facilities, . . . from which
there is a release, or a threatened release which
causes the incurrence of response costs, of a
hazardous substance, shall be liable for—
(A) all costs of removal or remedial action... .
-19a-
3Although it does not affect our resolution of the liability
issue, we note that these negotiations occurred before the
enactment of CERCLA.
4We do not conclude, as suggested by the dissent, “[t]hat
piercing the corporate veil under Michigan law requires
showing that the corporate form was used to ‘subvert justice.”
Rather, it requires that the subsidiary be a “mere
instrumentality” of the parent which is used either to subvert
justice or to circumvent overriding public policy. In our view,
none of these factors fairly characterize the relationship
between CPC and Ott II.
Thus, the dissent's characterization of our opinion as holding
"that a parent cannot, as a matter of law, be held directly
liable under 42 U.S.C. § 9607(a)(2) as an ‘operator’ of a
facility owned by its subsidiary corporation” is mistaken.
6We note that, since this case was briefed and argued, the
Supreme Court decided Seminole Tribe of Fla. v. Florida, 116 S.
Ct. 1114 (1996), which potentially provides the MDNR with
an Eleventh Amendment defense. Because this issue has not
been raised by the parties through supplemental briefs and the
resolution of the case with respect to the MDNR is not
affected, we choose not to consider the impact of Seminole
Tribe at this point in the proceedings.
-20a-
MERRITT, Circuit Judge, concurring in part and
dissenting in part. | concur in part I of Judge Ryan's opinion,
which would hold CPC International directly liable as an
operator. | also concur in part III-C.3. of Judge Norris’ opinion
for the Court and support remanding the case for further
findings regarding the Aerojet defendants’ assertion of the
"third-party" defense, CERCLA § 107(b)(3), 42 U.S.C. §
9607(b)(3), and for further findings regarding whether or not
disposal of hazardous substances occurred while the Aerojet
defendants owned the site. Unlike Judges Ryan and Norris,
however, I believe that federal common daw governs the
question of whether Cordova/California and Aerojet are liable
as current owners pursuant to CERCLA § 107(a)(1), 42 U.S.C.
§ 9607(a)(1), rather than Michigan's doctrine of piercing the
corporate veil. Since the district court improperly analyzed
this question using Michigan state law, | would remand the
case for further findings.
I. State Law v. Federal Common Law
Several of the parties argue that Cordova/ Michigan, the
nominal owner of the site, is an alter ego of Cordova/
California and Aerojet and that Cordova/California and
Aerojet should thus be held liable as owners under the
doctrine of piercing the corporate veil. Resolution of this issue
first requires deciding whether the question is governed by
state law or federal common law.
It is well-established that actions arising under
nationwide federal programs are governed by federal law.
United States v. Kimbell Foods, Inc., 440 U.S. 715, 726 (1979).
But federal law can incorporate applicable state law doctrines
in appropriate circumstances. Id. at 727-28. In Kimbell Foods,
the Supreme Court enumerated the factors a court must
consider in deciding whether to apply state law or federal
common law. "[FJederal programs that ‘by their nature are
and must be uniform in character throughout the Nation’
necessitate formulation of controlling federal rules," id. at 728
(quoting United States [23] v. Yazell, 382 U.S. 341, 354 (1966)),
but courts must also consider "whether application of state
law would frustrate specific objectives of the federal
programs” and “the extent to which application of a federal
rule would disrupt commercial relationships predicated on
-2la-
state law." Id.
Under the Kimbell Foods test, federal common law
standards for piercing the corporate veil should be applied in
CERCLA actions against parent corporations. All three of the
Kimbell Foods factors support using a uniform federal
standard.
In attempting to eliminate the dangers of
hazardous wastes, CERCLA presents a
national solution to a nationwide problem. One
can hardly imagine a federal program more
demanding of national uniformity than
environmental protection. Congress did not
intend that the ability of the executive to fund
the clean up of hazardous waste sites should
depend on the attitudes of the several states
toward parent-subsidiary liability in general, or
CERCLA in particular. The need for a uniform
federal rule is especially great for questions of
piercing the corporate veil, since liability under
the statute must not depend on the particular
state in which a defendant happens to reside.
In re Acushnet River & New Bedford Harbor Proceedings re Alleged
PCB Pollution, 675 F. Supp. 22, 31 (D. Mass. 1987).
Congress intended for CERCLA to cast a wide net of
responsibility for the costs of environmental cleanup. Uniform
national standards of liability are necessary to effectuate this
goal. Following state law in this area would allow corpora-
tions to easily evade their environmental responsibilities under
CERCLA by incorporating subsidiaries in states with stringent
standards for piercing the corporate veil. See 126 Cong. Rec.
H11787 (daily ed. Dec. 3, 1980) (statement of Rep. Florio,
CERCLA House sponsor) ("[t]o insure the development of a
uniform rule [24] of law, and to discourage business dealings
in hazardous substances from locating primarily in States with
more lenient laws, the bill will encourage the further
development of a Federal common law in this area"). In
addition, states’ interests in regulating corporations are
strongest with respect to internal affairs of the corporation,
and are less compelling with respect to external affairs such as
-22a-
shareholder liability to outside parties. See Henry Hansmann
& Reinier Kraakman, A Procedural Focus on Unlimited
Shareholder Liability, 106 Harv. L. Rev. 446, 450-53 (1992)
(arguing that choice of law concerns do not bar unlimited
shareholder liability in tort actions); Note, Piercing the
Corporate Veil: The Alter Ego Doctrine Under Federal Common
Law, 95 Harv. L. Rev. 853, 862-63 (1982) (arguing that
piercing the corporate veil relates to external affairs and
should be governed by the law of the forum); cf. First Nat'l City
Bank v. Banco Para El Comercio Exterior De Cuba, 462 U.S. 611,
621 (1983) ("As a general matter, the law of the [country] of
incorporation normally determines issues relating to the
internal affairs of a corporation. . . . Different conflicts
principles apply, however, where the rights of third parties
external to the corporation are at issue." (citations omitted)).
Federal precedents support using a federal common law
standard for piercing the corporate veil to determine parent
corporation CERCLA liability. Although few circuit courts
have considered the issue, compare Lansford-Coaldale Joint Water
Authority v. Tonolli Corp., 4 F.3d 1209, 1225 (3d Cir. 1993)
(applying federal common law) with Joslyn Manufacturing Co.
v. T.L. James & Co., 893 F.2d 80 (5th Cir. 1990) (affirming a
district court opinion that declined to address the choice of
law question on the grounds that the standard for piercing the
corporate veil are the same under state and federal law),
district courts have overwhelmingly applied federal common
law in this context. ldylwoods Assocs. v. Mader Capital, Inc.,
915 F. Supp. 1290, 1305 (W.D.N.Y. 1996); Atlantic Richfield
Company v. Blosenski, 847 F. Supp. 1261, 1278 (E.D. Pa. [25]
1994); City of New York v. Exxon Corp., 112 B.R. 540, 552
(S.D.N.Y. 1990), aff'd on other grounds, 932 F.2d 1020 (2d Cir.
1991); United States v. Kayser-Roth Corp., 724 F. Supp. 15, 20
(D.R.1. 1989), affd on other grounds, 910 F.2d 24 (1st Cir.
1990); United States v. Nicolet, Inc., 712 F. Supp. 1193, 1201
(E.D. Pa. 1989); In re Acushnet River & New Bedford Harbor
Proceedings re Alleged PCB Pollution, 675 F. Supp. 22, 30-31 (D.
Mass. 1987); cf. Jacksonville Elec. Auth. v. Eppinger and Russell
Co., 776 F. Supp. 1542, 1545-46 (M.D. Fla. 1991) (applying
Fifth Circuit standard without discussing the choice of law
question), affd on other grounds sub nom jacksonville Elec. Auth.
v. Bernuth Corp., 996 F.2d 1107 (11th Cir. 1993); United States
v. Mottolo, 695 F. Supp. 615, 624 (D.N.H. 1988) (holding
-23a-
parent corporation liable without piercing the corporate veil
because "CERCLA places no importance on the corporate
form").
Additional support for using a federal common law
standard comes from cases involving successor corporation
liability under CERCLA. Although this Court has previously
relied on state law in that context, see Anspec Co. v. Johnson
Controls, Inc., 922 F.2d 1240 (6th Cir. 1991), other circuits that
have considered this issue have applied federal common law.
See B.F. Goodrich v. Betkoski, 99 F.3d 505, 519 (2d Cir. 1996);
United States v. Carolina Transformer Co., 978 F.2d 832 (4th Cir.
1992); Louisiana-Pacific Corp. v. Asarco, Inc., 909 F.2d 1260 (9th
Cir. 1990); Smith Land & Improvement Corp. v. Celotex Corp.,
851 F.2d 86 (3d Cir. 1988); see also United States v. Mexico Feed
and Seed Co., 980 F.2d 478, 487 n.9 (8th Cir. 1992) (stating in
dicta that federal common law should probably be applied). !
[26]
Il. The Proper Federal Standard
Piercing the corporate veil is an equitable doctrine. “The
federal common law in this area emerges from the general
principle that ‘a corporate entity may be disregarded in the
interests of public convenience, fairness and equity.” In re
Acushnet River & New Bedford Harbor Proceedings re Alleged PCB
Pollution, 675 F. Supp. 22, 33 (D. Mass. 1987) (quoting Town
of Brookline v. Gorsuch, 667 F.2d 215, 221 (1st Cir. 1981)); see
also American Bell Inc. v. Federation of Tel. Workers, 736 F.2d
879, 886 (3d Cir. 1984) ("the appropriate occasion for
disregarding the corporate existence occurs when the court
must prevent fraud, illegality or injustice, or when recognition
of the corporate entity would defeat public policy or shield
someone from liability for a crime"). Two elements are
generally regarded to be essential to pierce the corporate veil:
"First, the dominant corporation must have controiled the
subservient corporation, and second, the dominant corpora-
tion must have proximately caused plaintiff harm through
misuse of this control." Krivo Indus. Supply Co. v. National
Distillers & Chem. Corp., 483 F.2d 1098, 1103 (5th Cir. 1973).
Although some cases require a showing of fraud, see, e.¢.,
Edwards Co. v. Monogram Indus., 730 F.2d 977, 980-81 (Sth
-24a-
Cir. 1984), even jurisdictions that require such a showing in
some circumstances often recognize that fraud is not always
required. See, e.g., United States v. Jon-T Chems., Inc., 768 F.2d
686, 692-93 (5th Cir. 1985) (finding that fraud is not required
to pierce the veil in tort cases even though fraud is required in
contract cases). Courts applying federal_common law have
found that fraud is not required to pierce the corporate veil.
See, e.g., Valley Fin., Inc. v. United States, 629 F.2d 162, 172
(D.C. Cir. 1980). Requiring a showing of fraud would be [27]
particularly inappropriate in CERCLA cases. The fraud
requirement appears to arise from the equitable nature of the
piercing doctrine. The public policy considerations underlying
CERCLA, however, provide a sufficient equitable basis for
piercing the corporate veil whether or not fraud has been
shown. This conclusion is further supported by CERCLA's
limited deference to corporate form. See United States v.
Mottolo, 695 F. Supp. 615, 624 (D.N.H. 1988); United States v.
Kayser-Roth Corp., 724 F. Supp. 15, 23-24 (D.R.I. 1989), affd
on other grounds, 910 F.2d 24 (1st Cir. 1990).
Similarly, the proximate cause element should not be
required in CERCLA cases, because Congress has provided
statutory liability criteria. If a CERCLA defendant is a
potentially responsible party under CERCLA § 107, 42 U.S.C.
§ 9607, then no further finding of proximate causation should
be required.
The test for piercing the corporate veil under federal
common law in CERCLA cases thus should be simply whether
the parent corporation "controls or at the relevant time
controlled the management and operations of the subsidiary.”
United States v. Nicolet, Inc., 712 F. Supp. 1193, 1202 (E.D. Pa.
1989). Federal courts applying this standard in CERCLA
cases have relied on one of two tests: a twelve-factor test set
out in United States v. Jon-T Chems., Inc., 768 F.2d 686, 691-92
(Sth Cir. 1985); see Jacksonville Elec. Auth. v. Eppinger and
Russell Co., 776 F. Supp. 1542, 1545 (M.D. Fla. 1991), aff'd on
other grounds sub nom Jacksonville Elec. Auth. v. Bernuth Corp.,
996 F.2d 1107 (11th Cir. 1993); Joslyn Corp. v. T.L. James &
Co., 696 F. Supp. 222, 227 (W.D. La. 1988), aff'd, 893 F.2d 80
(5th Cir. 1990); or a seven-factor test set out in In re Acushnet
River & New Bedford Harbor Proceedings re Alleged PCB
Pollution, 675 F. Supp. 22, 33 (D. Mass. 1987); see Idylwoods
-25a-
Assocs. v. Mader Capital, Inc., 915 F. Supp. 1290, 1305
(W.D.N.Y. 1996); City of New York v. Exxon Corp., 112 B.R.
540, 553 (S.D.N.Y. 1990), aff'd on other grounds, 932 F.2d 1020
[28] (2d Cir. 1991); United States v. Kayser-Roth Corp., 724 F.
Supp. 15, 20 (D.R.I. 1989), aff'd on other grounds, 910 F.2d 24
(1st Cir. 1990). These tests overlap, and neither list of factors
is exhaustive. Piercing the corporate veil requires a fact-
specific inquiry taking into account all of these factors and any
other pertinent circumstances. The trier of fact must consider
the totality of the circumstances to determine whether the
parent controls or controlled the management and operations
of the subsidiary.
Because the district court applied Michigan law rather
than the proper federal common law standard for piercing the
corporate veil, | would remand the case for further review
under the proper standard.
1 The Eleventh Circuit recently applied state law to determine
the CERCLA liability of limited partners, see Redwing Carriers,
Inc. v. Saraland Apartments, 94 F.3d 1489 (11th Cir. 1996).
That is not necessarily inconsistent with applying federal law
in claims involving subsidiary corporations, however, since the
danger of corporations creating subsidiary partnerships, as
compared to subsidiary corporations, in order to evade
CERCLA liability is fairly attenuated.
|
-26a-
[29] RYAN, Circuit Judge, dissenting. My colleagues’ opinion
today reaches three important and dispositive conclusions:
That a parent corporation cannot, as a matter
of law, be held directly liable under 42 U.S.C. §
9607(a)(2) as an "operator" of a facility owned
by its subsidiary corporation, but may face only
vicarious liability under state-law corporation-
veil-piercing principles;
That piercing the corporate veil under Michigan
law requires circumstances showing that the
corporate form was used to "subvert justice”;
and
That the district court erred in finding that the
defendants failed to prove their entitlement to
the so-called third-party defense under 42
U.S.C. § 9607(b)(3).
In my judgment, the court is mistaken on all three
grounds, and | therefore respectfully dissent.
a
Direct Liability of a CPC Under Section 107(a)(2)
A.
Parent Corporations as "Operators"
CERCLA identifies two distinct categories of individuals
or entities that may be held directly liable, as responsible
parties, for the costs of cleanup of an environmentally con-
taminated facility:
(1) the owner and operator of a vessel or a
facility, [or]
(2) any person who at the time of disposal of
any hazardous substance owned or operated
any facility at which such hazardous sub-
stances were disposed of{.]
42 U.S.C. § 9607(a) (emphasis added). The parties have
-27a-
stipulated that the site is a "facility" as defined by [30]
CERCLA, and that the site contains "hazardous substances."
The terms “owner” and ' “operator,” as used in section
107(a)(2), are defined in the statute as "any person owning or
operating such facility," 42 U.S.C. § 9601(20)(A)(ii), a defi-
nition that is, at best, circular and unhelpful. At least one
court has observed that "[t]he circularity strongly implies . . .
that the statutory terms have their ordinary meanings rather
than unusual or technical meanings." Edward Hines Lumber Co.
v. Vulcan Materials Co., 861 F.2d 155, 156 (7th Cir. 1988).
Further, it is noteworthy that the definition of “owner”
explicitly excludes one whose ownership interest is merely that
of a stockholder and who does not participate in management
of the facility, 42 U.S.C. § 9601(20)(A (iii), suggesting that one
who does participate in management is accordingly susceptible
to liability, see United States v. Kayser-Roth Corp., 910 F.2d 24,
26 n.6 (1st Cir. 1990). Finally, "person" is defined expansively
as "an individual, firm, corporation, association, partnership,
consortium, joint venture, commercial entity, United States
Government, State, municipality, commission, political sub-
division of a State, or any interstate body.” 42 U.S.C. §
9601(21). The breadth of this definition plainly leaves room
for a parent corporation. See Kayser-Roth, 910 F.2d at 25 n.5.
The first question presented by this appeal is whether a
parent corporation may be considered an “operator” under
section 107(a)(2) when its subsidiary is the “owner.” The
district court determined that a parent corporation may face
potential liability as an operator of a contaminating facility
because the plain language of section 107(a)(2) indicates that
Congress intended to impose liability on any entity actually
operating a facility, regardless of the nature of the entity's
ostensible interest in the facility. It is a conclusion with which
| agree; indeed, it is a conclusion that the vast majority of
circuits--eight out of nine considering the question--have
reached as well. Certain Underwriters at Lloyd's, London v. St.
Joe Minerals Corp., 90 F.3d 671, [31] 673-74 (2d Cir. 1996);
Schiavone v. Pearce, 79 F.3d 248, 253-55 (2d Cir. 1996); FMC
Corp. v. United States Dep’t of Commerce, 29 F.3d 833, 842 (3d
Cir. 1994) (en banc); Lansford-Coaldale Joint Water Authority v.
Tonolli Corp., 4 F.3d 1209, 1221-22 (3d Cir. 1993); Jacksonville
Elec. Auth. v. Bernuth Corp., 996 F.2d 1107, 1110 (11th Cir.
-28a-
1993); John S. Boyd Co. v. Boston Gas Co., 992 F.2d 401, 408
(1st Cir. 1993); see Kaiser Aluminum and Chem. Corp. v. Catellus
Dev. Corp., 976 F.2d 1338, 1341-42 (9th Cir. 1992); Kayser-
Roth Corp., 910 F.2d at 27; see also United States v. TIC
Investment Corp., 68 F.3d 1082, 1091-92 (8th Cir. 1995), cert.
denied, 117 S. Ct. 50 (1996); Nurad, Inc. v. William E. Hooper &
Sons Co., 966 F.2d 837, 842 (4th Cir. 1992); cf. Sidney S. Arst
Co. v. Pipefitters Welfare Educ. Fund, 25 F.3d 417, 420 (7th Cir.
1994). But see Joslyn Mfg. Co. v. T.L. James & Co., 893 F.2d 80
(Sth Cir. 1990).
My colleagues offer several reasons for parting company
with this impressive wealth of authority. First, they argue that
courts have relied on the so-called remedial purpose of
CERCLA to justify their conclusion that CERCLA should be
given an expansive meaning, including a a that admits
of liability for parent corporations as operators. Certainly, the
shibboleth "remedial purpose” is a weak basis for legal
analysis and I do not find it necessary to resort to it. But
what the majority sees as the logical second step to a rejection
of the remedial-purpose litany, namely, its "adhere[nce] to the
tenet that liability attaches only to those parties who are
culpable in the sense that they, by some realistic measure,
helped to create the harmful conditions,” is, to put it mildly, a
non sequitur. (Slip op. at 9.) Implicit in the majority's chosen
"tenet" is rejection of the universally accepted principle that
liability under CERCLA is both strict, as well as joint and
several. See, e.g., Kayser-Roth, 910 F.2d at 26; FMC Corp., 29
F.3d at 835. Whether CERCLA's purpose is "remedial" or not,
the sounder proposition, I think, is that liability attaches only
to those entities whom Congress has singled out for liability.
For the reasons set forth below, the [32] statutory language
leaves no room to doubt that Congress has singled out
operators for liability, irrespective of their corporate form.
The majority is also critical of the district court's
language that liability should be predicated on a "new, middle
ground," and contends that this choice of language makes it
_ unclear "whether the [district court's] basis for finding parental
liability as an operator . . . is the actual operation of the
subsidiary's business or . . . the exertion of power or influence
through active participation in the subsidiary's business."
(Slip op. at 11.) It may be that trial courts’ inventive "new,
|
|
|
|
|
|
dD te in hm al i it a lei i Sac kt
ow recta!
— ee ee
ee ee Le ee
-29a-
middle ground" expression is more conferring than clarifying,
but my colleagues’ conclusion that the district court's holding
“threaten[s] the efficacy of time-honored liability protections
afforded by the corporate form,” simply does not follow. And
my colleagues’ ultimate conclusion, that a parent can only be
found liable "when the requirements necessary to pierce the
corporate veil are met,” contradicts the plain language of
section 107(a)(2). Moreover, it is a conclusion that begs the
question this case presents, which, under subsection (a)(2), is
not whether a parent corporation may be held vicariously
liable for abuse of its subsidiary's corporate form--clearly it
may--but whether Congress has created direct liability if the
facts show that the parent corporation was the actor actually
operating a contaminating facility. Stated differently, the
issue is whether Congress has excused a parent corporation
that is in fact operating a contaminating facility from direct
liability, simply because it is doing so in the name of a
corporate subsidiary. The majority's belief that such an excuse
may be found in the statute does not, for me, withstand close
scrutiny.
The structure of the statute, on its face, requires a
recognition that "‘owner'’ liability and ‘operator’ liability denote
two separate concepts and hence require two separate
standards for determining whether they apply.” Lansford-
Coaldale, 4 F.3d at 1220. ""CERCLA's language . . . indicates
an intent to hold a corporation [33] liable for the environ-
mental violations of its subsidiaries and sister corporations, if
it is otherwise determined to have operated the facility in
question.” Schiavone, 79 F.3d at 255 (quoting Lansford-Coaldale,
4 F.3d at 1221 n.11). As the Kayser-Roth court observed,
Congress, by including a liability category in
addition to owner ("operators") connected by
the conjunction “or,” implied that a person who
is an operator of a facility is not protected from
liability by the legal structure of ownership.
Given this grammatical construction and the
broad definition of “person,” corporate status,
while relevant to determine ownership, cannot
shield a person from operator liability.
Kayser-Roth, 910 F.2d at 26; see Schiavone, 79 F.3d at 254. In
-30a-
short, direct CERCLA liability under subsection (a)(2) may be
predicated on one's status as an owner or on one's status as an
operator.
Alternatively, of course, a parent corporation may also
be derivatively liable if circumstances warrant piercing the
corporate veil in order to treat that parent corporation as an
owner, when its subsidiary is in fact the owner. The majority
opinion conflates and confounds the two types of liability,
which are analytically distinct, and erroneously concludes that
the latter is the exclusive basis for liability. See Sidney S. Arst
Co., 25 F.3d at 420; cf. Schiavone, 79 F.3d at 253. As a result,
the majority's analysis founders on a perceived tension
between the standard of a derivative liability arising out of
common-law principles of corporate law and the standard of
direct liability arising out of an application of the statutory
language of CERCLA. The tension is chimerical. The statute
explicitly provides for distinct, direct operator liability, and
"the basis for such operator liability is wholly independent of
any liability on the part of" the subsidiary, Schiavone, 79 F.3d
at 254; it is a direct liability that "stem[s] directly from [the
parent's] control over the plant,” that is, its own actions as an
[34] operator, id. The mere fact that derivative owner liability
requires a veil-piercing analysis simply does not speak to the
appropriate analysis of direct operator liability.
As previously alluded to, many courts have analyzed
the issue of direct operator liability of a parent corporation.
Most have followed the approach of Kayser-Roth, in which the
court declared that "[t]o be an operator requires more than
merely complete ownership and the concomitant general
authority or ability to control that comes with ownership. At
a minimum it requires active involvement in the activities of
the subsidiary.” 910 F.2d at 27. "This standard requires an
investigation into the relationship between the parent and
subsidiary, in order to reveal the requisite level of corporate
involvement.” Join S. Boyd, 992 F.2d at 408. Thus, the degree
of control required is "more . . . than simple ownership and the
general authority or control that comes with it." Certain
Underwriters, 90 F.3d at 674. In Lansford-Coaldale, 4 F.3d 1209,
the court embraced the Kayser-Roth standard, emphasizing
that “operator liability may be established even without
evidence that a [parent] corporation controlled the
-3la-
environmental decisions of an affiliated corporation as long as
there exist other factors which sufficiently demonstrate
pervasive control." /d. at 1222 n.13. Similarly, in Jacksonville
Electric, 996 F.2d 1107, the court agreed that the test for direct
parent corporation liability as an operator was whether the
parent “exercises actual and pervasive control of the
subsidiary to the extent of actually involving itself in the daily
operations of the subsidiary. Actual involvement in decisions
regarding the disposal of hazardous substances is a sufficier
but not a necessary, condition to the imposition of operator
liability." Id. at 1110 (citation omitted). As is clear from the
language of these cases, and as the Kayser-Roth court
emphasized, it would “obviously not [be] the usual case that
the parent of a wholly owned subsidiary is an operator of the
subsidiary.” Kayser-Roth, 910 F.2d at 27; see John S. Boyd, 992
F.2d at 408. [35]
Among the many courts that have recognized that a
parent corporation may be directly liable as an operator under
section 107(a)(2), there has been a difference of opinion “as to
whether operator liability should be predicated on the actual
control one corporation has over the other, or whether the
corporation's capacity or authority to control is sufficient.”
Lansford-Coaldale, 4 F.3d at 1220. The minority view has been
adopted by the Fourth and Ninth Circuits, which would hold
a parent corporation directly liable as an operator not because
the parent corporation actually controlled the subsidiary, but
rather because it had the authority to do so. See, e.g., Nurad,
966 F.2d at 842; Kaiser Aluminum, 976 F.2d at 1341. Those
courts have justified their test as "one which properly declines
to absolve from CERCLA liability a party who possessed the
authority to abate the damage caused by the disposal of
hazardous substances but who declined to actually exercise
that authority by undertaking efforts at a cleanup.” Nurad,
966 F.2d at 842.
This view, | think, goes too far, because it assigns
liability to the parent corporations beyond that intended by
Congress. But in holding, as the majority of circuits have, that
a parent corporation may be liable when it actually operates
the facility in question, a court simply faithfully interprets
plain statutory language.
-32a-
Only the Fifth Circuit has adopted the limited view of
operator liability described in the majority opinion here, in
which the corporate form of the alleged operator is
dispositive. The Joslyn court framed its inquiry as being
whether to “impose direct liability on parent corporation for
the violations of their wholly owned subsidiaries." Joslyn, 893
F.2d at 81. This somewhat disingenuous framing of the
question ignores the direct link contemplated by the majority
of other courts that have discussed operator liability, and
suggests that operator liability for parent corporations, like
owner liability, would simply be another type of derivative
liability, albeit of a less demanding nature than corporate-veil-
piercing. The Joslyn court [36] reasoned that because
"CERCLA does not [explicitly] define ‘owners’ or ‘operators’
as including the parent company of offending wholly-owned
subsidiaries,” id. at 82, there can be no operator liability for
parents in the absence of veil-piercing. This analysis com-
pletely misses the point, which is that since a parent corpora-
tion is certainly within the statutory definition of “person,” the
relevant question is simply whether the particular corporation
was, in fact, an operator of the facility in question. Thus, the
Joslyn court's invitation to Congress to “extend liability to
parent corporations” if it wishes to do so, id. at 83, is simply
meaningless. It is obvious that CERCLA does extend liability
to all corporations, including parent corporations, so long as
they satisfy the statutory prerequisite that they be operators. |
note, too, that another panel of the Fifth Circuit, in a case
decided after Joslyn, observed in dicta that individual
shareholders or officers could be held directly liable as an
operator, when “they themselves actually participate in the
wrongful conduct prohibited by the Act,” and recognized that
"this personal liability is distinct from the derivative liability
that results from ‘piercing the corporate veil." Riverside Mkt.
Dev. Corp. v. International Bldg. Prods., Inc., 931 F.2d 327, 330
(5th Cir. 1991). The Riverside holding indicates, at a minimum,
a reluctance within the Fifth Circuit to broadly apply Joslyn.
In sum, I conclude, as the district court did, that a parent
corporation may be held directly liable as an operator of a
contaminating facility under section 107(a)(2) if the facts of
the case show that its domination and control of the
subsidiary corporation ostensibly operating the facility is so
pervasive that the parent is the operator in fact.
-33a-
B.
CPC's Liability Under Section 107(a)(2)
In addition to generally repudiating the possibility of
direct operator liability for parent corporations, which has
been adopted in a majority of circuits considering the [37]
question, my colleagues have a factual dispute with the
district court. That is, given my conclusion that CERCLA
plainly contemplates the possibility of direct operator liability
for parent corporations, the analysis necessarily turns to
whether such liability is appropriately imposed here: whether
CPC, as a factual matter, operated the facility. My colleagues
acknowledge that, arguendo, “where the parent directly
operates the facility itself, either independently of its
subsidiary, or as an actual co-operator alongside the
subsidiary,” liability would be appropriate, but they assert
that this theory “is not the one relied upon by the district court
and, in any event, is not supported by the facts in the record
before us.” (Slip op. at 16.) This assertion simply belies the
record and the district court's opinion, and further, it fails to
recognize that our review on this point is limited to review for
clear error. Lansford-Coaldale, 4 F.3d at 1219; John S. Boyd, 992
F.2d at 408; Kayser-Roth, 910 F.2d at 27.
The district court found that CPC, Ott II's parent
corporation, so totally and completely controlled Ott II that
CPC was the actual operator of the contaminating facility in
Dalton Township, Michigan. There is an abundance of evi-
dence in the record to support this factual finding, and in all
events, not even my colleagues claim it is clearly erroneous. It
follows, therefore, as the district court found, that CPC is
directly liable under section 107(a)(2) as the operator of the
site. I agree.
Section 107(a)(2) provides that a parent corporation is
liable if it is the operator-in-fact of the facility as indicated by
the extent of its domination and control of the subsidiary, the
ostensible operator. The district court pointed out that some
of the factors relevant to deciding whether the parent is the
operator-in-fact include considerations such as the parent
corporation's involvement in the subsidiary'’s board of
directors and daily operations, and the parent corporation's
-34a-
control over the subsidiary’s policy making in areas such as
personnel, finance, and waste disposal. Also relevant are the
facts leading up to [38] the subsidiary's origin and the reasons
for its existence, and the parent's level of financial monitoring
and its cooperation or consolidation with the subsidiary’'s
accounting, legal, and research functions.
The specific facts with regard to CPC, as found by the
district court, are these:
From CPC's acquisition of Ott Il in October 1965 through
April 1966, all four directors on Ott II's board were CPC
officers. Over the next three and one-half years, at least three
of the eight board members were officers of CPC, and for the
following two and one-half years, until CPC sold Ott II, CPC
officials comprised the majority of the then eleven-director
board. At all times during Ott II's existence, the chairman of
its board was a high-level CPC executive, appointed by CPC's
president. In addition, the managers of Ott II who exerted
active control over the subsidiary's day-to-day activities also
were officers of CPC. Arnold Ott, who had been chief
executive officer of Ott I, continued as Ott II's chief executive
officer until 1969, during which time he also was CPC's vice
president for scientific research and president of CPC's
development company, a subsidiary with oversight respon-
sibility for several CPC subsidiaries including Ott II. In
addition, James Eiszner, who had been Ott I's vice president of
marketing, served as Ott II's president from 1967 to 1970.
During Eiszner's tenure with Ott II, he also served as vice
president of CPC's development company, and eventually
became CPC's chief executive officer. Moreover, Eiszner, in
particular, was criticized during his tenure as an Ott II official
for paying too much attention to his CPC responsibilities and
not enough attention to Ott II. Beverly Warner served as Ott
II's chief executive officer from 1970 until it was sold in 1972,
at the same time serving as president of CPC's development
company.
Not only did CPC participate in Ott II's environmental
matters via the CPC's environmental affairs director, [39]
G.R.D. Williams, but it was instrumental in setting Ott II's
environmental policies. For example, because Williams did
not believe Ott II needed a biological waste treatment facility,
-35a-
Ott Il officers abandoned presenting plans for such a facility
at a meeting with the state of Michigan. Moreover, Williams
repeatedly controlled the interaction between Ott II officials
and state and federal regulators, and instructed Ott II's
officers "to consult with CPC before responding to regulatory
questionnaires or other inquiries.” PC Int'l, Inc. v. Aerojet-
General Corp., 777 F. Supp. 549, 561 (W.D. Mich. 1991).
Finally, as the district court found, CPC's involvement in Ott
II's financial affairs involved more than mere review and
oversight. For example, CPC made loans to Ott II in excess of
$5 million, while assuming many of Ott II's existing loans. In
addition, CPC commingled its funds with Ott II's funds. CPC
also limited the amount of capital expenditures that Ott Il
could approve without further approval by CPC's board of
directors. As to personnel matters, CPC repeatedly
participated in Ott II's labor negotiations with local unions.
Based on these and many other findings, the district
court concluded that "[t]he evidence shows a level of partici-
pation and control by CPC that exceeds the bounds of an
interested investor and enters the realm of an active operator.”
Id. at 575. These findings are amply supported in the record.
As I have said, my colleagues do not claim they are clearly
erroneous. Accordingly, the district court's conclusion that
CPC was directly liable under section 107(a)(2) as an operator
should be affirmed.
Il.
Aerojet's Liability Under Section 107(a)(1)
The district court found Aerojet liable as a present
“owner” of a contaminated facility under section 107(a)(1). It
did so after finding that the facts justified piercing the cor-
porate veil that thinly shielded Cordova/Michigan from
Aerojet. My colleagues hold that [40] the district court erred
because it misapplied Michigan law: "[The district court's
findings do] not suggest that the company acted to subvert
justice or with fraudulent intent or otherwise sought to distort
the legitimate purposes of the corporate form." (Slip op. at
20.)
While there is no question that fraudulent intent or a
subversion of justice justifies piercing the corporate veil, there
is ample authority under Michigan law for finding parent
-36a-
corporation liability through veil piercing for a less egregious
reason, such as unjustified use of the corporate form. Indeed,
the Michigan Supreme Court has only recently restated the
applic ole rule:
Michigan law presumes that, absent some abuse
of corporate form, parent and subsidiary cor-
porations are separate and distinct entities.
This presumption, often referred to as a
"corporate veil,” may be pierced only where an
otherwise separate corporate existence has been
used to “subvert justice or cause a result that
[is] contrary to some other clearly overriding
public policy.” More specifically, Michigan courts
have generally required that a subsidiary must
“become ‘a mere instrumentality’ of the parent”
before its separate corporate existence will be
disregarded.
Seasword v. Hilti, Inc., 537 N.W.2d 221, 224 (Mich. 1995)
(emphasis added) (citations omitted); see Wells v. Firestone Tire
and Rubber Co., 364 N.W.2d 670, 675 (Mich. 1984); Herman v.
Mobile Homes Corp., 26 N.W.2d 757, 762-63 (Mich. 1947);
Potter v. Michigan Bell Tel. Co., 224 N.W. 438, 439 (Mich.
1929). But the most instructive language of Seasword, for
purposes of this case, is in the court's illustrative listing of
"relevant factors ... showing that a subsidiary is a ‘mere
instrumentality’ of its parent”: |
[T]he parent and subsidiary shared principal
offices, or had interlocking boards of directors
or frequent interchanges of employees, that the
subsidiary is the [41] parent's exclusive distri-
buting arm, or the parent's revenues are entirely
derived from sales by the subsidiary.
Seasword, 537 N.W.2d at 224 n.10.
The coincidence between these hypothetical factors and
the reality of Aerojet's relationship with its subsidiaries is, to
put it mildly, striking. The district court found that Aerojet
was the 100% shareholder of Cordova/California; that
Cordova/California, in turn, was the sole shareholder of
-37a-
Cordova/Michigan; and that the boards of directors of
Cordova/California and Cordova/ Michigan were titular only,
not even convening for meetings. At least twenty Aerojet
officers simultaneously held the same or nearly identical
positions in Cordova/California and Cordova/ Michigan.
Aerojet so completely controlled the finances of all companies
that neither Cordova/California nor Cordova/ Michigan were
permitted to maintain separate bank accounts. In addition,
there was evidence that Aerojet used Cordova/Michigan by
transferring to Cordova/California millions in worthless debt
owed to Aerojet by Cordova/Michigan, effectively canceling
debt owed by Aerojet to Cordova/California. These findings
are supported by the record and are not clearly erroneous.
The evidence established that Cordova/Michigan operated as
a "mere instrumentality" of Aerojet.
Even more compelling are the findings of the district
court regarding Cordova/Michigan's corporate purpose.
When Aerojet began negotiations with MDNR for the Dalton
Township property, Aerojet negotiated side-by-side with its
then-unincorporated division, Cordova. After Aerojet entered
two short-term stipulations with MDNR, and merely eleven
days before the sale was concluded, Aerojet incorporated
Cordova as a wholly-owned subsidiary. Although Aerojet
had initially drafted the stipulation and consent order with
MDNR, it was "Cordova Chemical Company” that actually
signed the agreement. Then, in November 1978, with the
remodeling of the [42] facility complete and manufacturing
about to begin, Cordova/California incorporated Cordova/
Michigan, transferring to it Cordova/California's ownership of
the facility. Despite the separate corporate form of Cordova/
Michigan, throughout operations, Aerojet actively participated
in negotiations with prospective buyers for the possible sale of
the facility. Once Cordova/Michigan ceased operations at the
site, it was Aerojet that took responsibility for leasing portions
of the site to third parties. It is clear that Aerojet took pains
to insulate itself from environmental liability for the situation
they knew existed at the site. Aerojet admits as much in its
brief:
By using well-capitalized, non-fraudulent,
separate corporate subsidiaries, such as
Cordova/California and then Cordova/
-38a-
Michigan, Aerojet could justify an attempt to
reclaim and make the waste Site productive
without risking all of its corporate assets. A
rule of law imposing enormous environmental
liability on parent corporations whose sub-
sidiary neither perpetrated a fraud nor con-
tributed to actual contamination would result in
contaminated waste sites being permanently
abandoned as unproductive, orphan properties,
because no rational corporate officer could
support a decision to rehabilitate a contami-
nated site if such liability were unavoidable.
Thus, Aerojet admits that Cordova/Michigan was
established solely as a facade, to avoid any legal obligation to
pay for further environmental cleanup at the site. Under
Michigan law, its admission is sufficient to justify piercing the
corporate veil. See Potter, 224 N.W. at 440. As Aerojet points
out, it is possible that a refusal to allow a prospective
purchaser of a contaminated site to avoid liability will result
in a scarcity of willing buyers. Certainly, both EPA and
MDNR have a substantial interest in locating conscientious
purchasers, who are willing to reclaim environmentally corrupt
facilities. However, there is no evidence that the Michigan
courts would view this interest as an exception to the state's
veil-piercing standard, [43] especially in light of the competing
interest in imposing environmental cleanup costs on private
industry rather than on taxpayers. Congress certainly was not
deterred by this argument, given its balancing of interests in
favor of imposing liability on new owners. Moreover, Aerojet
and the Cordovas are not blameless, as they would have the
court believe. The district court found that the entities actively
contributed to the contamination and then failed to take
remedial action, despite knowledge that contamination was
continuing to migrate.
Accordingly, the district court's conclusion that, by
piercing the corporate veil, Aerojet may be held liable as an
owner under 42 U.S.C. § 9607(a)(1) should be affirmed.
I further agree with the district court that Aerojet was
directly liable as an operator under section 107(a)(2):
-39a-
In light of the same facts that were probative in
concluding Aerojet is liable under section
107(a)(1), the court concludes that Aerojet
operated the site through active participation
and pervasive control over the businesses of
both Cordova/California and Cordova/
Michigan.
As with CPC's involvement with Ott II,
Aerojet's participation and control over the
board, management and decision-making at
Cordova/California and Cordova/Michigan
shows that the parent operated the facility.
Aerojet’s conduct toward its subsidiaries
extended well beyond the activities that are
merely indicative of a parent's general oversight
of a wholly owned subsidiary.
Accordingly, the court concludes the [sic]
Aerojet is directly liable as an operator under
section 107(a)(2).
CPC Int'l, Inc., 777 F. Supp. at 580.[44]
Ill.
Third-Party Defense Under Section 107(b)(3)
Finally, | do not agree that the district court should be
required, upon remand, to "revisit its treatment of the [third-
party] defense raised by Aerojet, Cordova/California, and
Cordova/ Michigan" under section 107(b)(3). (Slip op. at 21.)
To succeed under section 107(b)(3), the defendants are
required to prove all four elements of a third-party defense,
which are:
1. That they did not contribute to the
contamination;
2. That they were not in a direct or indirect
contractual relationship with any person who,
in connection with the contractual relationship,
caused the contamination;
-40a-
3. That they exercised due care throughout
their ownership or operation of the contami-
nating facility; and
4. That they protected against those acts and
omissions of the polluting persons, and the
consequences of those acts and omissions, that
were foreseeable.
See 42 U.S.C. § 9607(b)(3); see also Kerr-McGee Chem. Corp. v.
Lefton Iron & Metal Co., 14 F.3d 321, 325 (7th Cir.1994).
The district court found that the defendants failed to
carry their burden on all four elements of the section (b)(3)
defense. My colleagues, in desiring that the district court
"revisit its treatment of the defense" raised by the defendants,
address only the "contractual relationship" ground. Even if the
district court erred in its treatment of that element of the
defense, its findings that the defendants have not carried their
burden of proving the remaining three elements of the section
107(b)(3) defense, which my [45] colleagues do not question,
is amply supported in the record.
The district court committed no clear error in finding that
the defendants demonstrated neither the exercise of due care
nor the use of appropriate precautions. For example, ina May
1980 environmental risk report covering Aerojet and several
subsidiaries including Cordova/Michigan, the defendants
repeatedly stated their intent to take a head-in-the-sand
approach with respect to the contamination problem:
The most significant environmental prob-
lems associated with the facility are those
relating to the residues of past industrial
occupants of the site. Management has
adopted the position that any injury to others
arising out of contamination from these residues
is the responsibility of the State of Michigan
Department of Natural Resources and that,
accordingly, Cordova should insulate itself
from any knowledge of, or involvement in
monitoring these wastes.
-4la-
The report went on to acknowledge that waste drums
remained buried, despite completion of MDNR's removal
efforts. Moreover, the report acknowledged that the stipu-
lation entered into by Cordova and MDNR was never
intended to resolve the contamination problem. In describing
the responsibilities assumed by the parties under the
stipulation, the report admitted that MDNR's duties were
limited to removing 8700 drums and a portion of the
contaminated soil and sludge, and that the stipulation’s hold-
harmless clause relieved the defendants only of liability arising
out of these specified removal efforts. In addition, as the
report acknowledged, the MDNR absolved the defendants of
liability relating to procurement of an alternative community
water source.
As the district court pointed out, and as the report
confirms, the stipulation did not resolve responsibility for the
remaining drums and contaminated soil and sludge, as [46]
well as responsibility for groundwater contamination. In this
regard, the report specifically opined:
Between 65 and 100 monitoring wells for testing
groundwater were either installed by Story or
have been installed more recently under a
State/ Federal study of groundwater contami-
nation at the site. The study is being carried
out by several consulting organizations under
contract to the state. Cordova management
believes the studies show little or no contami-
nation but has avoided any participation or
liaison with the study teams .... Because of
the possibility that Cordova's potential liability
for groundwater contamination may have
survived the Consent Order, it would appear
desirable for Cordova management to keep ©
abreast of current monitoring results. In addi-
tion, although a high chloride content would
show continuation of problems from the old
Story wastes, a high sulphate concentration
would indicate seepage problems arising out of
Cordova's current operations.
Fully aware that waste drums remained buried beneath the
-42a-
site and that the majority of the contaminated soil had not
been removed, and cognizant of groundwater contamination to
which they may have been contributing, the defendants
believed the solution to these problems was to don blinders.
Their willful blindness can hardly be characterized as the
exercise of due care.
For the same reasons, it cannot be said that the
defendants took adequate precautions to protect against the
consequences of Ott II's and Story's omissions and acts. While
the parties, in their briefs, debate whether reimplementation of
the purge wells would have been an adequate precaution, they
overlook the big picture. The defendants, fully aware that
contamination problems on their property were not being
addressed, chose to take no precautions to protect against the
foreseeable consequences of these problems--namely, further
migration. [47]
Accordingly, because the defendants have failed to
prove at least two of the requisite elements of the third-party
defense, the district court properly held that they were not
entitled to invoke it. It is simply unnecessary to consider
whether they sustained their burden regarding the remaining
two elements, including whether any of the pollution was the
act of a third party "in connection with" the contractual
relationship with the defendants.
IV.
The judgment of the district court should be affirmed.
en ee ee ee eer ee eee
-43a-
Nos. 92-2288 /2326
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
UNITED STATES OF AMERICA, ) AMENDED
)
Plaintiff-Appellee, )
v. ) ORDER
)
CORDOVA CHEMICAL CO. OF )
MICHIGAN, ET AL., )
) FILED
Defendants-Appellants, ) OCT 19 1995
)
CPC INTERNATIONAL, INC., ) LEONARD
) GREEN, Clerk
Defendant-Appellee, )
)
ARNOLD C. OTT, ET AL., )
)
Defendants, )
)
MICHIGAN DEPARTMENT OF NATURAL )
RESOURCES, )
)
Defendant-Appellee. )
BEFORE: MERRITT, Chief Judge; KENNEDY, MARTIN,
MILBURN, NELSON, RYAN, BOGGS, NORRIS,
SUHRHEINRICH, SILER, BATCHELDER,
DAUGHTREY, and MOORE, Circuit Judges.
A majority of the Judges of this Court in regular active
service have voted for rehearing of this case en banc. Sixth
Circuit Rule 14 provides as follows:
The effect of the granting of a hearing en banc
shall be to vacate the previous opinion and
judgment of this court, to stay the mandate and
to restore the case on the docket sheet as a
-44a-
pending appeal.
Accordingly, it is ORDERED that the previous decision
and judgment of this court is vacated, the mandate is stayed
and this case is restored to the docket as a pending appeal.
The Clerk will direct the parties to file supplemental
briefs and will schedule this case for oral argument as soon as
possible.
ENTERED BY ORDER OF THE COURT
/s/
Leonard Green, Clerk
NE LT Se
-45a-
RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 24
ELECTRONIC CITATION: 1995 FED App. 0211P (6th Cir.)
File Name: 95a0211p.06
Nos. 92-2288/2326
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
United States of America,
Plaintiff-Appellee, On Appeal from the
United States District
v. Court for the Western
District of Michigan
Cordova Chemical Company
of Michigan; Cordova
Chemical Company; Aerojet-General Corporation,
Defendants-Appellants (92-2288),
Defendants-Appellees,
CPC International Inc.,
Defendant-Appellee,
Defendant-Appellant (92-2326),
Arnold C. Ott; Commercial
Union Insurance Company,
et al.,
Defendants,
Michigan Department of
Natural Resources,
Defendant-Appellee.
(2]
Decided and Filed July 14, 1995
-46a-
Before: CELEBREZZE, RYAN, and NORRIS, Circuit
Judges.
NORRIS, J., delivered the opinion of the court, in which
CELEBREZZE, J., joined. RYAN, J. (pp. 19-35), delivered a
separate dissenting opinion.
ALAN E. NORRIS, Circuit Judge. This appeal highlights
the difficulty that often attends the apportionment of liability
for clean-up costs of sites that have been subjected to long-
term environmental degradation. In the present case, brought
pursuant to the Comprehensive Environmental Response,
Compensation, and Liability Act ("CERCLA"), 42 U.S.C. §§
9601-9674 (1988 & Supp. V 1993), the environmental damage
occurred over a period of decades and during the watch of
several owners.
A central concern on appeal is the criteria required under
CERCLA before a parent corporation can be held financially
liable for pollution that occurred during the ownership of a
subsidiary. Because we adopt a stricter standard than did the
district court for imposition of such liability, we reverse certain
of its determinations and remand for further proceedings.
I. PROCEEDINGS BELOW _
In May and June 1991, the district court conducted a
fifteen-day bench trial to determine which parties were
responsible for clean-up costs related to pollution of a site
located in Dalton Township, Michigan. In addition to the live
testimony of twenty-nine witnesses, the court received more
than 2,300 exhibits and reviewed dozens of deposition
transcripts. Given the complexity of the [3] proceedings
below, the factual findings contained in the district court's
published opinion are extensive. CPC Int'l, Inc. v. Aerojet-
General Corp., 777 F. Supp. 549, 555-70 (W.D. Mich. 1991).
We summarize them here by way of background.
Beginning in 1957, a series of owners used the Dalton
Township site to manufacture chemicals. The initial owner,
the Ott Chemical Company ("Ott I"), controlled the site from
1957 until 1965. During this time, the groundwater flowing
underneath the site became contaminated, a development
-47a-
confirmed by tests conducted in 1964.
Pollution of soil, surface water, and groundwater
continued after the Ott Chemical Company ("Ott II"), a wholly
owned subsidiary of CPC International, Inc. ("CPC"), took
over ownership of the site in 1965. The use of unlined lagoons
as a means of chemical waste disposal was the principal
cause of the contamination. According to the district court,
this practice spanned the period from 1959 until at least 1968.
Seepage from these lagoons did not, however, constitute
the sole source of pollution that occurred during the ownership
of Ott I and Ott Il. Further contamination emanated from
chemical spills from train cars, from chemical drums, from
overflows of chemicals contained in a cement-lined
equalization basin, and from other sources. Groundwater
pollution did not go completely untreated during this time;
from 1965 until 1974, purge wells were operated intermittently
in an attempt to alleviate the problem.
In 1972, the Story Chemical Company ("Story") acquired
the site from Ott Il and continued to operate it until 1977,
when bankruptcy ended operations. At that point, a trustee
in bankruptcy assumed title to the site and attempted to find
a buyer.[4]
Active governmental response to the pollution problems
at the site began in 1977, after Story's bankruptcy, when the
Michigan Department of Natural Resources ("MDNR") visited
the site to assess the situation. In view of the severity of the
environmental problems and the lack of resources to pay fora
cleanup, the MDNR became active in efforts to attract a
purchaser who would participate financially in clean-up
efforts. This search led to the signing of a document on
October 13, 1977, by the Cordova Chemical Company
("Cordova/California"), a wholly owned subsidiary of
Aerojet-General Corporation ("Aerojet"), and the MDNR. The
district court described the agreement and its aftermath:
It addressed the problem of environmental
contamination at the property and set forth
obligations with respect to cleanup activities
-48a-
.. . MDNR agreed to remedy the waste
container and sludge problems, and
Cordova/California agreed to eliminate the
phosgene gas and give MDNR $600,000 to
defray the costs of the agency's cleanup of the
waste containers, sludge and residential wells.
With respect to Cordova/California's
$600,000 payment and the company’s respon-
sibility or liability for the contamination at the
site it was acquiring, the [agreement] stated:
Cordova Chemical Company shall not have
any responsibility or liability in connection
with any other corrective actions which the
Department of Natural Resources or any other
governmental agency may hereafter deem
necessary... .[5]
However, the agreement did not provide for
a total cleanup of the site's severe environ-
mental problems. . . .
In particular, MDNR and Cordova/
California did not reach an agreement regarding
a remedy for the groundwater contamination
problem. Instead, the fate of the ground-water
problems was not resolved, with MDNR left to
tackle the problem as part of its overall
regulatory responsibility for the site.
. Cordova/California and MDNR
fulfilled their cleanup obligations under the
-49a-
[agreement] ....
CPC Int'l v. Aerojet-General, 777 F. Supp. at 564-67.
Having executed this document, Cordova/California
purchased the site the following day from the Story
bankruptcy trustee. Cordova Chemical Company of Michigan
("Cordova/Michigan"), a wholly owned subsidiary of
Cordova/California, acquired ownership of the site in 1978.
Cordova/ Michigan retains ownership, although manufacturing
operations at the site ceased in 1986.
The district court made the following observations
regarding conditions at the site during the ownership of the
Cordova companies:
During their period of operations, [the
companies] neither buried waste nor dumped it
onto the ground. No chemical waste was
disposed into the unlined lagoons that had been
used during the Ott I and Ott II eras. Before
beginning chemical manufacturing, Cordova/
Michigan [6] repaired the equalization basin
and chemical sewer system. When operating,
Cordova/Michigan discharged chemical waste
through off-site disposal or to a sewer that
flowed to the Muskegon County treatment
facility.
Id. at 556. In short, although the preexisting groundwater
contamination problem was not remedied during their
ownership, the trial court concluded that neither
Cordova/California nor Cordova/Michigan exacerbated the
condition. !
The federal Environmental Protection Agency became
involved in cleanup of the site in 1981. Since then, the EPA
has formulated a long-term response to the environmental
damage that has occurred at the site; the cost of this effort will
run into the millions of dollars.
-50a-
Il. CERCLA LIABILITY
Section 107(a) of CERCLA lists the parties who are
potentially liable for the clean-up costs of a polluted site.2 [7]
42 U.S.C. § 9607(a). For the purposes of this action, those
parties include the present owner and operator of a facility
from which there is a release of a hazardous substance, any
prior owner or operator of a facility whose involvement
coincided with disposal of a hazardous substance, and any
person who arranged for the disposal or transport of
hazardous waste from a facility. 42 U.S.C. § 9607(a)(1)-(3).
The parties stipulated that the site is a “facility” as defined by
CERCLA, that it contains "hazardous substances," that
"releases" of hazardous substances have occurred and threaten
to continue, and that CPC, the MDNR, Aerojet,
Cordova/California, and Cordova/Michigan are “persons” as
defined by the statute. Id at 556.
Because courts that have been asked to render liability
decisions in CERCLA actions frequently invoke the remedial
purpose of the act, e.g., United States v. Kayser-Roth Corp., Inc.,
910 F.2d 24, 26 (1st Cir. 1990), cert. denied, 498 U.S. 1084
(1991), we will review that subject [8] before considering the
liability of those parties now before us.
Congress did enact CERCLA as a "remedial statute
designed to protect and preserve public health and-the
environment.” Kayser-Roth, 910 F.2d at 26; accord Lansford-
Coaldale Joint Water Auth. v. Tonolli Corp., 4 F.3d 1209, 1221
(3d Cir. 1993); Anspec Co., Inc. v. Johnson Controls, Inc., 922
F.2d 1290, 1241-42 (6th Cir. 1991) (reviewing this circuit's
approach to CERCLA liability). Accordingly, courts generally
will nov .nterpret § 9607(a) in a way that apparently
frustrates the statute's goals in the absence of specific
congressional intent otherwise. Anspec, 922 F.2d at 1247
(citing New York v. Shore Realty Corp., 759 F.2d 1032, 1045 (2d
Cir. 1985)).
It must be recognized, however, that it is difficult to
divine the specific, as opposed to the general, goals of
Congress with respect to CERCLA liability since the statute
represents an eleventh hour compromise. See generally Shore
Realty Corp., 759 F.2d at 1039-42 (discussing legislative
-5la-
history). As the district court recognized, “some of CERCLA's
provisions are vague and its legislative history sparse." CPC
Int'l v. Aerojet-General, 777 F. Supp. at 571; accord Anspec, 922
F.2d at 1247 (characterizing the legislative history as "scant”);
Lansford-Coaldale Joint Water Auth., 4 F.3d at 1221
("[C]ongressional intent may be particularly difficult to discern
with precision in CERCLA, a statute notorious for its lack of
clarity and poor draftsmanship.").
Courts would not be warranted, therefore, in pointing to
the "remedial legislation" litany, see generally Norman J. Singer,
3 Sutherland Statutory Construction § 60.01 (5th ed. 1992)
(the rule that remedial statutes should be liberally construed is
"firmly established"); Dennis v. Higgins, 498 U.S. 439, 443
(1991) (noting that 42 U.S.C. § 1983, as a remedial statue,
should be liberally construed), as a means for filling in the
blanks so as to discern a congressional intent to impose
liability under nearly every conceivable [9] scenario. Thus,
while the liability provisions concerning facility operators
should be construed so that financial responsibility for clean-
up operations falls upon those entities who contributed to the
environmental problem, the widest net possible ought not be
cast in order to snare those who are either innocently or
tangentially tied to the facility at issue. In fact, this court has
said, "Congress intended that those responsible for disposal of
chemical poisons bear the cost and responsibility for
remedying the harmful conditions they created." Anspec, 922
F.2d at 1247 (emphasis added).
In turning to the specific facts now before us, we adhere
to the tenet that liability attaches only to those parties who
are culpable in the sense that they, by some realistic measure,
helped to create the harmful conditions.
In its effort to discern the sweep of CERCLA liability,
the district court concluded that:
CERCLA broadens the potential for liability of
parent corporations without discarding entirely
the traditional concept of limited liability that
is central to corporate law... .
-52a-
Accordingly, it seems that CERCLA's
“owned or operated" language forges a new,
middle ground. It is a ground that at once
accommodates the general principle of limited
liability and the broader principle of liability
attaching for operative activity. To permit
these principles to coexist under CERCLA, the
liability of a parent corporation cannot attach
simply because a parent has had involvement
with its subsidiary in a manner merely
consistent with their investment relation-ship.
Rather, a parent must have actually operated
the business of its subsidiary.
In this court's view, then, a parent
corporation is directly liable under section
107(a)(2) as an operator only when it has
exerted power or [10] influence over its
subsidiary by actively participating in and
exercising control over the subsidiary's business
during a period of disposal of hazardous
waste. A parent's actual participation in and
control over a subsidiary's functions and
decision-making creates “operator” liability
under CERCLA; a parent's mere oversight of a
subsidiary's business in a manner appropriate
and consistent with the investment relationship
between a parent and its wholly owned
subsidiary does not.
CPC Int'l v. Aerojet-General, 777 F. Supp. at 573 (emphasis
added).
On the basis of this "new, middle ground,” the district
court found both CPC and Aerojet liable as operators for the
disposal of hazardous substances that occurred while their
subsidiaries operated the site.
Il. DISCUSSION
A. Ce
The district court reasoned that liability potentially
me _—ow ee ss
ll oe is i lr eet De te AE i
-53a-
could attach to CPC as a parent corporation in two ways:
direct liability under CERCLA's "operator" language or by
common law veil-piercing. It determined that CPC was liable
as an operator of the site for environmental damage that
occurred during the ownership of Ott II; this liability was
grounded in section 107(a)(2) of CERCLA, which renders "any
person [liable] who at the time of disposal of any hazardous
substance owned or operated any facil.ty at which such
hazardous substances were disposed of." 42 U.S.C. §
9607(a)(2). To reach this conclusion, the court had to find
CPC, as a parent corporation, responsible for the conduct of
its wholly owned subsidiary corporation, Ott II. Because the
court held CPC directly liable as an operator, it did not reach
the question of whether CPC was vicariously liable through the
traditional common law theory of veil-piercing.[11]
It is not at all clear from the district court's opinion
whether the standard for finding parental liability under its
"new, middle ground” is the actual operation of the
subsidiary's business or, on the other hand, the exertion of
power or influence through active participation in the
subsidiary's business. Although they are used interchangeably
in the district court's opinion, the two concepts are not
interchangeable. In fact, the facts recited by the district court
appear to support liability under the latter standard but not
under the former. This confusion underscores the inevitable
difficulty that arises when courts attempt to erect new
concepts of corporate liability within the framework of
CERCLA in the absence of direction from Congress. We are
not persuaded that, in enacting CERCLA, Congress
contemplated the abandonment of traditional concepts of
limited liability associated with the corporate form in favor of
a "new, middle ground."
CERCLA defines the "owner or operator” of an onshore
facility as "any person owning or operating such facility.” 42
U.S.C. § 9601(20)(A)(ii). When the facility has been conveyed
to a unit of state or local government, the definition differs. It
then includes "any person who owned, operated or otherwise
controlled activities at such facility immediately [before the
transfer to the governmental authority]." 42 U.S.C.
§ 9601(20)(A)(iii). It thus appears that the drafters of the
statute distinguished an operator from a person who
-54a-
"otherwise controlled” a facility. When the owner of a facility
contracts out the daily running of the operation to a third
party, that party presumably attains operator status (and its
attendant liability). However, when a parent corporation
actively participates in the affairs of its subsidiary consistent
with the restrictions imposed by traditional corporate law,
nothing in the definition just cited or in the rest of the statute
indicates that the parent has assumed the role of operator.
Despite the definition of "owner or operator," several
circuits and the district court below have determined that
parent corporations can attain operator status by exerting [12]
significant control over the operations of their subsidiaries.
See, e.g., Kayser-Roth, 910 F.2d at 26-27; Lansford-Coaldale Joint
Water Auth., 4 F.3d at 1221; Nurad, Inc. v. William E. Hooper &
Sons Co., 966 F.2d 837, 842 (4th Cir), cert. denied, 113 S. Ct.
377 (1992); CPC Int'l v. Aerojet-General, 777 F. Supp. at 572-
73.
While we understand the district court's desire to extend
the reach of CERCLA so that its remedial purpose is given
maximum impact, the "new, middle ground” threatens to
sweep away the protections long afforded by the corporate
form with respect to limited liability. In our view, nothing in
the statute or its legislative history supports such a reading.
As the fifth circuit has noted in this context, "[i]f Congress
wanted to extend liability to parent corporations it could have
done so, and it remains free to do so." Joslyn Mfg. Co. v. T.L.
James & Co., Inc., 893 F.2d 80, 83 (5th Cir. 1990).
The district court's approach presents a number of
problems. First, it replaces the relatively bright line provided
by the doctrine of piercing the corporate veil, which typically
requires a fraudulent purpose, with a nebulous "control" test.
When, precisely, is a parent acting in a manner consistent with
its investment relationship as opposed to a manner tat
triggers operator liability? The indicia enumerated by .e
district court, such as participation in the subsidiary's bow rd
of directors and involvement in specific policy decisions, offer
little guidance. Certainly, these activities are not grounds
traditionally relied upon to pierce the corporate veil.
Second, the threat of unlimited liability will likely deter
-55a-
private sector participation in the cleanup of existing sites.
The case before us illustrates this point. There is no dispute
that the MDNR actively sought a private sector partner to
take over and assist in the remediation of the site. Aerojet
indicated an interest on the condition that it could cap its
potential liability for environmental cleanup, which it sought
to accomplish through the negotiation of [13] the agreement
with the MDNR and the use of subsidiaries. To scuttle such
sensible and legitimate precautions in favor of an
unpredictable "control" test would actually contravene the
public interest by discouraging businesses from becoming
involved in such projects.3
In view of its flaws, we reject the district court's "new,
middle ground" for defining liability. We conclude that a
parent corporation incurs operator liability pursuant to section
107(a)(2) of CERCLA, for the conduct of its subsidiary
corporation, only when the requirements necessary to pierce
the corporate veil are met.
In determining whether the circumstances in this case
warrant a piercing of the corporate veil in order to disregard
“the separateness of the corporate entities, we look to state
law. See Anspec, 922 F.2d at 1248. Michigan appears to
follow the general rule that at least two definitive requirements
must be met in order to pierce the corporate veil. First, there
must be such a wnity of interest and ownership that the
separate personalities of the corporation and its owner cease
to exist; second, the circumstances must be such that
adherence to the fiction of separate corporate existence would
sanction a fraud or promote injustice. 1 William M. Fletcher,
Fletcher Cyclopedia of the Law of Private Corporations §
41.30 (perm. ed. rev. vol. 1990); Stephen H. Schulman et al.,
Michigan Corporation Law & Practice § 3.9(c) (1991 Supp.);
see also Bodenhamer Bldg. Corp. v. Architectural Research Corp.,
873 F.2d 109, 111-12 (6th Cir. 1989) (citing cases).
Organization of a corporation for the avowed purpose of
avoiding personal responsibility does not in itself constitute
fraud or reprehensible conduct justifying a disregard of the
corporate form. Gledhill v. [14] Fisher & Co., 272 Mich. 353,
359, 262 N.W. 371, 373 (Mich. 1935).
The district court relied upon the following factors in
-56a-
determining that CPC was an "active operator" of its
subsidiary and therefore directly liable under section
107(a)(2): 100% ownership of Ott II; participation on Ott II's
board of directors; a cross-pollination of officers who were
involved in decision-making and daily operations; active
participation by CPC officials in environmental matters; and
financial control of Ott II through approval of budgets and
capital expenditures. CPC Int'l v. Aerojet-General, 777 F.
Supp. at 575. While these factors reveal a parent that took an
active interest in the affairs of its subsidiary, none of them
indicate that CPC utilized the corporate form to perpetrate a
"fraud or wrong” as required before a court can pierce the veil.
Accordingly, the district court's finding of liability with
respect to CPC must be reversed.
B. MDNR Liability
The district court rejected liability claims that were
advanced against the MDNR on two fronts: as an operator
and as an “arranger.” Only the district court's decision
regarding arranger liability is appealed.
Section 107(a)(3) of CERCLA imposes liability on:
any person who by contract, agreement, or
otherwise arranged for disposal or treatment, or
arranged with a transporter for transport for
disposal or treatment, of hazardous substances
owned or possessed by such person, by any
other party or entity, at any facility . . . owned
or operated by another party or entity and
containing such hazardous substances.
42 U.S.C. § 9607(a)(3).{15]
It is contended that the MDNR incurred arranger liability
when it negotiated with Cordova/California for the
acquisition of the site and agreed with Cordova/California on
a plan to clean up the groundwater contamination.
We agree with the district court's conclusion that the
MDNR escapes liability because its actions were taken in
-57a-
response to an environmental emergency as provided in
section 107(d)(2):
No state or local government shall be liable
under this subchapter for costs or damages as a .
result of actions taken in response to an
emergency created by the release or threatened
release of a hazardous substance generated by
or from a facility owned by another person.
This paragraph shall not preclude liability for
costs or damages as a result of gross negligence
or intentional misconduct by the State or local
government. For the purpose of the preceding
sentence, reckless, willful, or wanton miscon-
duct shall constitute gross negligence.
42 U.S.C. § 9607(d)(2). Our reading of the record indicates
that the MDNR acted in good faith when attempting to
address the groundwater contamination of the site. That its
efforts proved to be less than entirely successful is
unfortunate, but does not subject the agency to liability.
C. Liability of Aerojet and its Subsidiaries
1. Owner Liability
The district court held both Aerojet and Cordova/
Michigan liable as present owners of the site under section
107(a)(1) which assigns liability to "the owner and operator of
a vessel or a facility." 42 U.S.C. § 9607(a)(1). Cordova/
Michigan does not challenge this decision on appeal and we
therefore express no opinion with respect to its liability.[16]
As to the parent corporation, the district court
appropriately looked to Michigan law in determining whether
to pierce the corporate veil. The court, however, misapplied
that law. The court determined that Aerojet had "totally
dominated Cordova/Michigan, creating a complete identity of
interests between the parent and its wholly owned
subsidiary.” CPC Int'l v. Aerojet-General, 777 F. Supp. at 578.
Accordingly, the court determined that it was appropriate to
pierce the corporate veil and impose vicarious liability.
Among the grounds cited for its decision, the court highlighted
-58a-
the total ownership by the parent, Aerojet's active
participation in the acquisition of the site, the timing of the
incorporation of the subsidiaries, cross-pollination of
corporate officers, financial control, and the integration of the
businesses. Id. at 577.
These actions, however, do not approach the level of
culpable conduct necessary to pierce the corporate veil under
Michigan law. Bodenhamer Bldg. Corp., 873 F.2d at 112. While
Aerojet obviously sought to limit its liability for existing
environmental problems through good faith negotiation with
the MDNR and prudent use of the corporate form, there is
nothing to suggest that the company acted with fraudulent
intent or otherwise sought to distort the legitimate purposes of
the corporate forms. Although Aerojet took an active interest
in its subsidiaries, we are not persuaded that
Cordova/ Michigan was anything but a viable corporate entity.
Accordingly, the district court erred when it pierced the
corporate veil to assign liability to Aerojet as an owner.
The district court also noted that Cordova/California
actually owned the site from October 1977 until November
1978. Although the company began clean-up operations as
required by its agreement with the MDNR, the district court
found that additional releases of hazardous substances
occurred during this period. CPC Int'l v. Aerojet-General, 777
F. Supp. at 579. It thus imposed liability on
Cordova/California as a former owner pursuant to section
107(a)(2).[17]
This conclusion, however, conflicts with the district
court's summary of activity at the site during the ownership of
the Cordova companies. Id. at 556. On remand, therefore, we
ask the district court to indicate with greater specificity
precisely which portions of the record it relies upon to support
a finding that additional releases of hazardous substances
occurred during Cordova/California's brief ownership.
Absent such evidence, liability will not attach to
Cordova/California as a former owner of the site.
2. Operator Liability
Finally, we turn to the district court's alternative
-59a-
imposition of liability on Aerojet pursuant to section
107(a)(2), precisely the same basis for liability that we have
already discussed, and rejected, with respect to CPC. Since
we reject the “control” test, no liability attaches unless the
corporate veil can be pierced. We therefore conclude that
Aerojet cannot be held liable as an operator pursuant to
section 107(a)(2).
3. Defenses
Upon remand, the district court should also revisit its
treatment of the defense raised by Aerojet, Cordova/
California, and Cordova/Michigan under section 107(b)(3).
The pertinent part of the statute follows:
[A] person otherwise liable who can establish
by a preponderance of the evidence that the
release or threat of release of a hazardous
substance and the damages resulting therefrom
were caused solely by--
(3) an act or omission of a third party
other than . . . one whose act or omission
occurs in connection with a contractual
relationship, existing directly or indirectly,
with the defendant . . . if the defendant
establishes by a [18] preponderance of the
evidence that (a) he exercised due care with
respect to the hazardous substance
concerned, . . . and (b) he took precautions
against foreseeable acts or omissions of any
such third party and the consequences that
could foreseeably result from such acts or
omissions... .
42 U.S.C. § 9607 (b) (emphasis added).
In parsing the exceptions to the defense, the district
court noted that under 42 U.S.C. § 9601(35)(A), the term
“contractual relationship" includes deeds transferring title.
Thus, the district court concluded that a defense would be
-60a-
unavailable to a defendant who had a direct or indirect
contractual relationship with the parties responsible for
contaminating the site. CPC Int'l v. Aerojet-General, 777 F.
Supp. at 581. Under this view, the defense could not be
invoked by any defendant w .o was a party to a deed witha
polluter. The district court, however, ignored the requirement
that, in order to render the defense inapplicable, the
hazardous substance release must have resulted from the act
of a third party “in connection with" the contractual
relationship with the defendant. The “in connection with"
language of the defense appears to have been designed to
preclude a person from escaping liability by contracting for a
third party to do his dirty work for him.
As we pointed out above, from what we glean from the
district court's recitation of facts, t
This text is long and has been trimmed here. Open the source document for the complete record.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.