Petition for Writ of Certiorari — Kayser-Roth Corp. v. United States

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OCTOBER TERM, 1990

KAYSER-ROTH CORPORATION, PETITIONER

Vv.

UNITED STATES OF AMERICA, RESPONDENT

Petition for a Writ of Certiorari to the

United States Court of Appeals

~- fer the First Circuit

PETITION FOR A WRIT OF CERTIORARI

ANDREW J. PINCUS

Counsel of Record

KATHERINE J. HENRY

Mayer, Brown & Platt

2000 Pennsylvania Ave., N.W.

Washington, D.C. 20006

(202) 778-0628

DEMING E. SHERMAN

Edwards & Angell

2700 Hospital Trust Tower

Providence, RI 02903

(401) 274-9200

Counsel for Petitioner

Kayser-Roth Corporation

WILSON - Erzs PRINTING Co., Inc. - 789-0096 - WASHINGTON, D.C. 20001

QUESTION PRESENTED

Section 107(a) (2) of the Comprehensive Environmen-

tal Response, Compensation and Liability Act, 42 U.S.C.

§ 9607(a) (2), provides that. « person who “at the time

of disposal of any hazardous substance owned or oper-

ated” the facility at which the hazardous substance was

disposed is liable for, among other things, the costs of

cleanup in the event the hazardous substance is released

into the environment.

The question presented is whether Congress intended

to hold a parent corporation directly liable as an “opera-

t{or]” of a facility owned and operated by one of its

subsidiaries when the corporate veil between the parent

and its subsidiary may not be pierced.

(i)

RULE 29.1 STATEMENT

Petitioner Kayser-Roth Corporation’s parent corpora-

tion is Wickes Companies, Inc., whose parent corporation

is WCI Holdings Corporation. The parent of the latter

corporation is WCI Holdings II Corporation. Kayser-

Roth Corporation has no subsidiaries other than wholly-

owned subsidiaries.

QUESTION PRESENTED

RULE 29.1 STATEMENT

OPINIONS BELOW

JURISDICTION

TABLE OF CONTENTS

STATUTORY PROVISIONS INVOLVED ................

STATEMENT

A. Statutory Background

B. The Stamina Millis Facility ..

C. The Proceedings Below

REASONS FOR GRANTING THE PETITION ..........

I. A CORPORATE PARENT MAY BE HELD

II.

CONCLUSION .....

DIRECTLY LIABLE AS THE “OPERA-

T[OR]” OF A FACILITY OWNED AND

OPERATED BY ONE OF ITS SUBSIDIAR-

IES ONLY IF THE CORPORATE VEIL BE-

TWEEN PARENT AND SUBSIDIARY MAY

BE PIERCED

THE FIRST CIRCUIT’S INTERPRETATION

OF CERCLA SQUARELY CONFLICTS WITH

THE FIFTH CIRCUIT’S DECISION IN JOS-

LYN MANUFACTURING CORP.

THE GROUNDS ON WHICH A PARENT

CORPORATION MAY BE HELD LIABLE

UNDER CERCLA FOR ACTS OF ITS SUB-

SIDIARY IS A QUESTION CF GREAT PRAC-

TICAL IMPORTANCE ooo. cceeeeneeceeceeenee

(iii)

a» © ©

TABLE OF AUTHORITIES

Cases: ~ Rage

In re Acushnet River & New Bedford Harbor Pro-

...ceeilings, 675. F..Supp..22 (DMMass\1087)....... 110

Alterio v. Biltmore Constr. Corp., 8377 A.2d 237

_£R.L_1977) 2.15

Bangor Punta Operations, Inc. Vv. Bangor &

Aroostook. Railroad. Co.,.417.U.S. 703 ){T9%4)_.. 9

Burnet v. Clark, 287 U.S. 410 (1932) 9

Joslyn..Maniefactiring: Cos vVI'T.LIdemesi&’Co.,

898 F.2d 80 (5th Cir. 1990), petitions for cert.

_ pending, 59 U.S.L.W. 3058 (U.S. July124)128a0)

(No. 89-1978) & 59 U.S.L.W. 3077 (U.S. Aug.

~7;1990)° (No: 90-69) passim

Joslyn Corp. V. T.L. James*& Coy 696° F.-Supp!'222

(W.D. La. 1988), aff’d,. 898 F.2d 80 (5th Cir.

1990), petitions for cert. peiiding; 59°U.S.L-W.

8058 (U.S. July.24, 1990). (No. 89-1973) .& 59

U.S.L:W: 8077 (U.S. Aug: '7,°1990) (No. 90-

‘8 ). 10

Midlentic National=Bank' ViNew Jersey) Dep't of

-\Buvironmental Protection] 474 US) 494 (1986) .. 12

Miller: Vi Dizon? Indiustriex Corp. TA3 442d (697

/{R.L2986). 15

New. Colonial kee. Co. vi Helvering, 292 TES! A385

(1984) 9

New-York _v. Shore. Realty. Corp.,.759. F.2d. 1082

_f2d Cir. 1985). 14

Pennsylvania v— Union-Gas"Co.; 109-S.-Ct_2278

(1989) 3, 18

Riverside Market’ Development “Corp: v. Interna-

vtionall Building “Psoddets, "No. 13885317, 151890

TULS.IDist[UGEXUS 6875° (E.D.1 La.oMay %23,

17990). 17

Russelio vo United States; 464 VU S.4A6 7983) __..... 12

United Savings Ass’n V. Timbers of inwodd Forest

Associates, Ltd., 484 U.S. 865 (1988) ................ 13-14

United. States v. Fleet. Factors_Corp.A90L' Hi2d

1550 (11th Cir. 1990), petition for cert. pend-

ing, 59 U.S.L.W. 3882° (U.S. Oct. 30, 1990) (No.

GID civ ciccsecenaicnveibccecseniibaionns 15

TABLE OF AUTHORITIES—Continued

Page

United States v. Monsanto, 109 S. Ct. 2657

(1989) 12

United States v. Naftaiin, 441 U.S. 768 (1979)... 12-18

United States v. Northeastern Pharmaceutical &

Chemical Co., 810 F.2d 726 (8th Cir. 1986),

cert. denied, 484 U.S. 848 (1987) 14

Statutes and Regulations:

12 U.S.C. § 1815 (e) (1) (A) 11

12 U.S.C. § 1841 (a) (2) (C) 11

28 U.S.C. § 1254(1) 1

Empioyee Retirement Income Security Act,

29 U.S.C. § 1801 et seq. 11

29 U.S.C. § 1801 (b) (1) 11

Comprehensive Environmental Response, Com-

pensation and Liability Act,

42U.S.C. § 9601 et seg. 8

42 U.S.C. § 9601 (9) 9

42 U.S.C. § 9601 (20) (A) 2

42 U.S.C. § 9601 (20) (A) (ii) ..... ... 98,18

42 U.S.C. § 9601 (20) (A) (iii)... 12, 18

42 U.S.C. § 9601 (28), (24) 8

42 U.S.C. § 9601 (82) 3

ee 3

42 U.S.C. § 9605 (a) (8) . 2 ER RS 18

. 8

42 U.S.C. § 9607 (a) 2,5

42 U.S.C. § 9607 (a) (2) 8

42 U.S.C. § 9607 (a) (8) 14

40 CF. 6 eee App. Bt 18

Miscellaneous:

P. Blumberg, The Law of Corporate Groups

aes A bch dhenicicnaancneniecnborsajienserecticanantons 18

54 Fed. Reg. 33846 (1989) 18

1 Fletcher Cyclopedia of the Law of Private Cor-

porations (1990) 9,10

Office of Technology Assessment, U.S. Congress,

Coming Clean: Superfund Problems Can Be

Solved (Oct. 1989) 18

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wl creat hi PEG FESBE 2

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No.

KAYSER-ROTH CORPORATION, PETITIONER

wv.

UNITED STATES OF AMERICA, RESPONDENT

Petition for a Writ of Certiorari to the

United States Court of Appeals

for the First Circuit

PETITION FOR A WRIT OF CERTIORARI

Kayser-Roth Corporation respectfully petitions this

Court for a writ of certiorari to review the judgment of

the United States Court of Appeals for the First Circuit

in this case.

‘OPINIONS BELOW

The opinion of the court of appeals (App., infra, 1a-

8a) is reported at 910 F.2d 24. The order of the court

of appeals denying the petition for rehearing (App.,

infra, 30a-31a) is not reported. The opinion of the dis-

trict court (App., infra, 9a-27a) is reported at 724 F.

Supp. 15.

JURISDICTION

The judgment of the court of appeals was entered on

August 2, 1990, and the petition for rehearing was denied

on August 24, 1990 (App., infra, 30a-3la). This Court’s

jurisdiction rests on 28 U.S.C. § 1254(1).

STATUTORY PROVISIONS INVOLVED

Section 101(20)(A) of the Comprehensive Environ-

mental Response, Compensation and Liability Act

(CERCLA), 42 U.S.C. § 9601(20) (A), provides:

The term “owner or operator” means (i) in the case

of a vessel, any person owning, operating, or charter-

ing Ae Sesion, Sees tie naan of on @-

shore facility or an offshore facility, any person

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

ease of any facility, title or control of which was

conveyed due to bankruptcy, foreclosure, tax delin-

quency, abandonment, or similar means to a unit

of State or local government, any person who owned,

operated or otherwise controlled activities at such

facility immediately beforehand. Such term does not

include a person, who, without participating in the

management of a vessel or facility holds indicia of

ownership primarily to protect his security interest

in the vessel or facility.

Section 107(a) of CERCLA, 42 U.S.C. § 9607(a),

provides in pertinent part:

Notwithstanding any other provision or rule of

law, and subject only to the defenses set forth in

subsection (b) of this section * * * (2) any per-

son who at the time of disposal of any hazardous

substance owned or operated any facility at which

such hazardous substances were disposed of, * * *

shall be liable for—

(A) all costs of remedial action incurred by the

United States Government or a State or an Indian

tribe not inconsistent with the national contingency

plan ;

(B) any other necessary costs of response incurred

by any other person consistent with the national con-

tingency plan ;

of natural resources, including the reasonable costs

of assessing such injury, destruction, or loss result-

ing from such a release; and

(D) the costs of any health assessment or health

effects study carried out under section 9604(i) of

this title.

STATEMENT

A. Statutory Backgrovad

Congress enacted the Comprehensive &nvironmental

Response, Compensation and Liability Act (CERCLA),

42 U.S.C. $9601 et seg., in response to concern about

improper disposal of hazardous substances. The statute

authorizes the federal government and the states to ar-

range for the removal of hazardous substances that have

been released into the environment and to take action to

remedy any harm to the environment. Governmental en-

tities may undertake these remedial actions themselves

or allow private parties to clean up sites for which they

are responsible. 42 U.S.C. § 9604; see also Pennsylvania

v. Union Gas Co., 109 S. Ct. 2278, 2277 (1989) (citation

omitted) (“CERCLA both prevides a mechanism for

cleaning up hazardous waste sites, and imposes the costs

of the cleanup on those responsible for the contamina-

tion”).

If the government performs the remedial action, it is

authorized to recover its expenditures from the private

parties who are responsible for such costs under the

liability scheme established by CERCLA. 42 U.S.C.

§ 9607. These parties include (1) present owners and

operators of the “facility” from which the hazardous sub-

stances were removed; (2) owners and operators of the

facility at the time of the disposal of the hazardous sub-

stanees; (3) persons who generated the hazardous sub-

stances disposed of at the facility; and (4) persons who

transported the hazardous substances to the facility.

Responsible parties are strictly liable for the cleanup

costs incurred by the government. See 42 U.S.C.

§§ 9601 (32), 9607.

B. The Stamina Mills Facility

Stamina Mills, Inc., owned and operated a textile plant

in the Village of Forestdale in the Town of North Smith-

field, Rhode Island, between 1952 and 1975.‘ The evi-

dence showed that in 1969 Stamina Mills installed a dry

cleaning system for use in cleaning newly-produced tex-

tiles; that system used trichloreethylene (TCE) as a

cleaning agent. When a delivery of TCE was being un-

loaded in or about November 1969, the truck driver ac-

cidentally spilled a quantity of TCE at the Stamina

Mills site. App., infra, 10a. The district court noted

“credible evidence” of other TCE discharges at the site.

Id. at 25a.

Three years earlier, in 1966, Stamina Mills had been

acquired by petitioner Kayser-Roth Corporation. From

that time until its dissolution in December 1977, Stamina

Mills was a wholly-owned subsidiary of Kayser-Roth.

App., infra, 1la-12a.? There is no dispute that Stamina

Mills and Kayser-Roth maintained separate corporate

identities. Stamina Mills at all times had its own officers

and directors and complied with other corporate formali-

ties. Title to the textile plant was held by Stamina Mills.

And the individuals who ran the plant on a day-to-day

basis were all employees of Stamina Mills. See, ¢.g.,

App., infra, 14a; C.A. App. 287-325, 838-839, 847, 990,

1401, 1563, 1614. é

During the time that it owned Stamina Mills, Kayser-

Roth had more than 100 separate subsidiaries. In order

‘to oversee its subsidiaries’ operations, Kayser-Roth organ-

ized them into between 20 and 25 divisions. A sub-

sidiary’s officers reported to the president of its division,

who in turn reported to one of the two vice-presidents

of Kayser-Roth. Stamina Mills was part of Kayser-

1A textile factory ‘had been located on the-site since 1824.

2The principal products manufactured during this period were

woolen interlinings, blankets, and melton cloth. C.A. App. 103-105.

Roth’s “Crown Division.” App., infra, 12a; C.A. App.

642, 644, 646-647.

The district court found that “Kayser-Roth and its

Crown Mfg. Division exerted practical total influence

and control over Stamina Mills’ operations. Kayser-Roth

required Stamina Mills, after obtaining Crown Mfg. Divi-

sion’s approval, to obtain Kayser-Roth’s approval in al-

most all its activities including purchase or movement of

capital assets; leasing, buying, or selling real estate;

borrowing money; and its budgets.” App., infra, 13a.

Thus, “Kayser-Roth essentially was in charge in prac-

tically all of Stamina’s operational decisions, including

those involving environmental concerns. * * * The only

autonomy given the officers of Stamina Mills was that

absolutely necessary to operate the facility on-site from

day to day such, as hiring and firing hourly employees

and ordering inventory.” Jd. at 13a-14a.

C. The Proceedings Below

In May 1988, the United States commenced this action

against Kayser-Roth in the United States District Court

for the District of Rhode Island pursuant to Section

107(a) of CERCLA, 42 U.S.C. §9607(a), seeking to

recover costs incurred in responding to the release of

trichloroethylene at Stamina Mills’ Forestdale site.*

The government also sought a declaratory judgment that

Kayser-Roth was liable for all future costs incurred in

responding to that release.*

8 The remedial measures performed by the Environmental Pro-

tection Agency included cleaning up the Stamina Mills site and

taking steps to protect the drinking water used by residents in

the area. App., infra, 11a.

4 The complaint also named Hydro-Manufacturing, Inc., the pres-

ent owner of the land on which the textile plant was located; and

George Mann and Co., Inc., which allegedly delivered trichloro-

ethylene to Stamina Mills. The government and Hydro-Manufac-

turing entered into a consent decree prior to trial and the claims

against George Mann and Co. were dismissed.

The district court entered judgment in favor of the

government. App., infra, 9a-27a. The court stated that

“Ta] parent corporation that controls the management

and operations of its wholly owned subsidiary can be held

responsible for its subsidiary’s CERCLA liability with-

out piercing the corporate veil.” Jd. at 17a. Kayser-Roth

could be held liable as the “operator” of the facility, the

court asserted, if Kayser-Roth “exercised controi over

Stamina Mills management and operations sufficient to

find that Kayser-Roth was a de facto operator.” Jd. at

21a. The court found this standard satisfied on the basis

of “Kayser-Roth’s practical total control over Stamina

Mills’ operations” together with ‘“Kayser-Roth’s partici-

pation in Stamina Mills’ environmental decision-making.”

Id. at 22a.°

The court of appeals affirmed. App., infra, 1a-8a.

It stated that “CERCLA allows a parent corporation to

be held liable as an operator of a subsidiary corpora-

tion.” Jd. at 5a. The court declined to “decid[e] the

exact standard necessary for a parent to be an opera-

tor.” Ibid. It stated that “[t]o be an operator requires

more than merely complete ownership and the concomi-

tant general authority or ability to control that comes

with ownership. At a minimum it requires active in-

volvement in the activities of the subsidiary.” Ibid. The

court concluded that the district court’s findings estab-

lished that Kayser-Roth exercised the requisite degree of

control over Stamina Mills. Jd. at 5a-7a.

6 The district court further concluded that Kayser-Roth could

be held liable as an “owner” under CERCLA on the ground that

the corporate veil between Stamina Mills and Kayser-Roth could be

pierced. The court again observed that “Kayser-Roth has exhibited

overwhelming pervasive control over Stamina Mills.” App., infra,

24a. It stated that “Stamina Mills’ veil should be pierced to hold

Kayser-Roth liable, not only because public convenience, fairness,

and equity dictate such a result, but also due to the all encompass-

ing control which Kayser-Roth had over Stamina Mills as, in fact

and deed, an owner.” Id. at 25a. The court of appeals declined to

address the correctness of that determination. Jd. at 8a n.11.

REASONS FOR GRANTING THE PETITION

There is no dispute that Stamina Mills would have been

strictly liable under CERCLA as both “owner” and

“operator” of the Rhode Island facility. The question

here is whether Stamina Mills’ corporate shareholder is

also subject to liability as an “operator’—even though

operational functions were performed by employees of

Stamina Mills—on the theory that the shareholder exer-

cised control over the operations of Stamina Mills. Ques-

tions regarding the liability of a parent corporation (or

other shareholder) for the acts of its subsidiary tradi-

tionally are decided by application of the doctrine of

“piercing the corporate veil.” The test—which may in-

clude as one (but only one) of several factors the extent

of the parent’s “control” of the subsidiary’s operations—

was not applied by the First Circuit in this case. The

court instead concluded that Congress had imposed “di-

rect” liability on parent corporations that “control” their

subsidiaries.

The First Circuit’s decision disrupts the well-settled

principle of limited shareholder liability and, more

importantly, is inconsistent with the very language of

CERCLA: Congress elsewhere in the statute expressly

imposed liability in limited circumstances on persons who

“controlled” activities at a facility. Congress’s failure to

include such a test in t’> definition of “operator” ap-

plicable here makes clear that Congress did not authorize

any “short-cut” for imposing liability on parent corpora-

tions; the applicable test is the traditional veil-piercing

standard.

Moreover, the First Circuit’s decision conflicts with the

Fifth Circuit’s recent decision in Joslyn Manufacturing

* The government argued in the district court that Kayser-Roth

should be held liable as the successor to the dissolved Stamina

Mills, Inc., but the district court declined to address that “thorny

issue.” App., infra, 2la. That question accordingly is not before

this Court.

Co. v. T.L. James & Co., 898. F.2d 80 (5th Cir. 1990),

petitions for cert. pending, 59 U.S.L.W. 3058 (U.S. July

24, 1990) (No. 89-1973) & 59 U.S.L.W. 3077 (U.S. Aug.

7, 1990) (No. 90-69), which squarely rejects the control

test adopted by the First Circuit (see 893 F.2d at 83)."

In addition, because of the vast scope of the CERCLA

program, and the uncertainty and disruption of settled

expectations in the business community that will result

from the First Circuit’s decision, the question presented

in this case is one of tremendous practical importance.

Review by this Court is therefore clearly warranted.

I. A. CORPORATE PARENT MAY BE HELD DI-

RECTLY LIABLE AS THE “OPERAT([OR]” OF A

FACILITY OWNED AND OPERATED: BY ONE OF

ITS SUBSIDIARIES ONLY IF THE CORPORATE

VEIL BETWEEN PARENT AND SUBSIDIARY

MAY BE PIERCED.

1. CERCLA: provides that any person who “owned”

or “operated” a facility when hazardous substances were

disposed of at the facility is liable for, among other

things, the costs of cleanup or removal in the event. the

hazardous substances are released into the environment.

42 U.S.C. § 9607(a) (2); see also 42 U.S.C. § 9601(23),

24. The statute defines “owner or operator” as follows:

in the case of an onshore facility or an oftshore

facility, any person owning or operating such facil-

ity. * * * Such term does not include a person, who,

without. participating. in the management of a vessel

or facility, holds indicia of ownership primarily to

protect his security interest in the vessel or facility.

42 U.S.C. § 9601 (20) (A) (ii).

The statutory definition leaves no doubt that the per-

son or entity that directly holds title to a “facility”’—

essentially a site on which any hazardous substance is

7™This Court on October 1, 1990, issued an order inviting the

Solicitor General to express the views of the United States in

Joslyn. See 111 S. Ct. 34.

located (see 42 U.S.C. § 9601(9))—and the person or

entity that directly operates the facility are subject to

liability. For example, assume the owner of an empty

building leases that building to another who operates

an auto repair shop on the premises. Both individuals

would be subject to liability under CERCLA in the event

hazardous substances were deposited on the site as a

result of the operation of the repair shop.

There is no claim here that Kayser-Roth itself held

title to the Stamina Mills facility. All indicia of owner-

ship were held by Stamina Mills, a different corporate

entity. Similarly, there is no claim that employees of

Kayser-Roth performed operational functions at the fa-

cility. All of the persons who worked at the facility were

employees of Stamina Mills and responsibility for day-to-

day operations was in the hands of Stamina Mills em-

ployees. See page 4, supra. Rather, the argument here

is that Kayser-Roth, by closely supervising the actions of

_ its subsidiary, controlled the operations of the facility.

The general rule, of course, is that “a corporation and

its stockholders are deemed separate entities.” New Colo-

nial Ice Co. v. Helvering, 292 U.S. 4385, 442 (1934); see

also Burnet v. Clark, 287 U.S. 410, 415 (1982); 1

Fletcher Cyclopedia of the Law of Private Corporations

§ 25 (1990). For that reason, the actions and liabilities

of a corporation generally may not be attributed to its

shareholders. 1 Fletcher Cyclopedia of the Law of Pri-

vate Corporations § 25. Under this general rule, Kayser-

Roth could not be held liable for the acts of Stamina Mills

and its employees.

There are exceptions to this principle of limited liabil-

ity, however. “[T]he corporate form may be disregarded

in the interests of justice where it is used to defeat an

overriding public policy.” Bangor Punta Operations, Inc.

v. Bangor & Aroostook Railroad Co., 417 U.S. 703, 713

(1974). The law has long recognized that a parent’s

involvement in its subsidiary’s activities may subject the

parent to liability for the subsidiary’s actions. The stand-

ards for “piercing the corporate veil” are designed to

identify those situations in which the line between parent

and subsidiary has become so blurred that the two com-

panies should be treated as one. See generally 1 Fletcher

Cyclopedia of the Law of Private Corporations § 43.

When those standards are satisfied, the subsidiary’s ac-

tions and liabilities may be imputed to the parent.

Indeed, courts have held that this is a permissible basis

for imputing a subsidiary’s CERCLA liability to its

parent corporation, although there is some disagreement

as to the appropriate veil-piercing standard. See, ¢.g.,

Joslyn Corp. Vv. T.L. James & Co., 696 F. Supp. 222, 226-

227, 232-233 (W.D. La. 1988), aff’d, 893 F.2d 80 (5th

Cir. 1990), petitions for cert. pending, 59 U.S.L.W. 3058

(U.S. July 24, 1990) (No. 89-1973) & 59 U.S.L.W. 3077

(U.S. Aug. 7, 1990) (No. 90-69) (holding veil piercing

improper on the facts of the case under both federal

common law and state law standard); Jn re Acushnet

River & New Bedford Harbor Proceedings, 675 F. Supp.

22 (D. Mass. 1987) (applying federal common law stand-

ard in concluding that corporate veil should not he

pierced).

The court of appeals did not hold Kayser-Roth liable

on a veil-piercing theory.* The court found it unneces-

sary to address that question (see App., infra, 8a n.11),

concluding instead that Kayser-Roth was “directly liable”

(id. at 3a) as “operator” of the Stamina Mills facility

because of its assertedly close relationship with its sub-

sidiary. As we have discussed, however, any involvement

by Kayser-Roth occurred in the course of routine over-

sight of the activities of its subsidiary. The court’s lin-

guistic sleight-of-hand cannot disguise what the court was

really doing: disregarding corporate formalities and

® The district court did find liability proper on this ground, but

the court of appeals did not address Kayser-Roth’s challenges to

that determination. See page 6 note 5, supra.

treating the two corporations as one. The question in

this case, therefore, is whether Congress intended to sup-

plement the traditional veil-piercing exception to the

principle of limited liability by creating an additional

ground for the imposition of liability on corporate share-

holders.

Congress may of course choose to expand a parent cor-

poration’s liability for its subsidiary’s acts by, for exam-

ple, imposing liability whenever a parent corporation

“controls” its subsidiary, without regard to whether lia-

bility would obtain under the applicable standard for

piercing the corporate veil. For example, a financial in-

stitution’s liability under certain federal banking laws

extends to all “commonly controlled” institutions. See

12 U.S.C. § 1815(e) (1) (A). The statutory definition of

“control” includes holding 25% of a company’s voting

stock, controlling the election of a majority of the board

of directors, or “directly or indirectly exercis[ing] a

controlling influence over the management or policies of

the bank or company.” 12 U.S.C. § 1841(a) (2) (C).

Similarly, the Employee Retirement Income Security Act,

29 U.S.C. § 1801 et seg., extends an individual employer’s

liability under the statute to all businesses under “com-

mon control” (29 U.S.C. § 1801(b)(1)), with control

defined as ownership of 80% or more of a company’s

stock. A wholly-owned subsidiary’s liability would there-

fore automatically be imputed to its parent corporation.

Congress’s failure to include a similar express “con-

trol” standard in the relevant portion of CERCLA weighs

strongly against expanding the liability of corporate

shareholders. As the Fifth Cireuit observed with respect

to this precise issue, “[t]o [hold parents directly liable

under CERCLA for their subsidiaries’ activities] would

dramatically alter traditional concepts of corporation

law. The ‘normal rule of statutory construction is that

if Congress intends for legislation to change the inter-

pretation of a judicially created concept, it makes that

intent specific.’ Any bold rewriting of corvoration law

in this area is best left to Congress.” Joslyn Manufac-

turing Co., 893 F.2d at 82-88 (quoting Midlantic Na-

tional Bank v. New Jersey Dep’t of Environmental Pro-

tection, 474 U.S. 494, 501 (1986)). The Fifth Circuit

concluded that “[wlithovt an express Congressional di-

rective to the contrary, common-law principles of corpora-

tion law, such as limited liability, govern our court’s

analysis.” 893 F.2d at 83.

More than Congress’s silence establishes that Congress

did not intend to create a new principle of shareholder

liability here, however. Congress included in another part

of CERCLA the “control” test that the court of appeals

read into the definition of “operator” and applied to

Kayser-Roth. In the very next subsection of the definition

of “owner or operator,” Congress specially defined that

term with respect to facilities conveyed to state or local

governments by bankruptcy, tax delinquency or abandon-

ment; the definition reads: “any person who owned, oper-

ated, or otherwise controlled activities at such facility

immediately” before its conveyance. 42 U.S.C. § 9601

(20) (A) (iii) (emphasis added).

“<*TW here Congress includes particular language in

one section of a statute but omits it in another section

of the same Act, it is generally presumed that Congress

acts intentionally and purposely in the disparate inclu-

sion or exclusion.” Had Congress intended to [subject

all shareholders of owners and operators to liability

under CERCLA on a ‘control’ theory], it presumably

would have done so expressly as it did in the immediately

following subsection * * *.” Russello v. United States,

464 U.S. 16, 23 (1988) (citations omitted). This Court

has repeatedly rejected the argument that “differing lan-

guage in * * * two subsections has the same meaning

in each,” refusing to “ascribe this difference to a simple

mistake in draftsmanship.” IJbid.; see also United States

v. Monsanto, 109 S. Ct. 2657, 2664 (1989) ; United States

v. Naftalin, 441 U.S. 768, 773-774 (1979). Congress’s

failure to include such an express control test in the gen-

eral definition of owner or operator thus weighs strongly

against the court of appeals’ construction of the statute.

Joslyn Manufacturing Co., 893 F.2d at 83.

Moreover, the express control test in Section 9601

(20) (A) (iii) would be unnecessary if, as the First Cir-

cuit concluded, such a standard was incorporated within

the general meaning of “operator.” The inclusion of this

language in the latter provision is thus “an express ac-

knowledgment of Congress’ background understanding”

that such a test is not included within the general defini-

tion of operator. Pennsylvania v. Union Gas Co., 109 S.

Ct. 2273, 2278 (1989) (applying this principle in inter-

preting CERCLA).

In sum, the very text of the statute, especially when

read against the background of the general legal prin-

ciples governing limited shareholder liability, establishes

that a parent corporation may not be held directly liable

as an owner or operator under Section 9601 (20) (A) (ii)

on the theory that the parent controlled the activities of

its subsidiary.

2. The court of appeals asserted that the plain lan-

guage of the statute supported its decision because

neither the statutory language nor the legislative history

indicated that Congress intended to exclude parent cor-

porations from the definition of “operator.” App., infra,

4a. But the court’s approach turns a settled principle of

statutory construction on its head. As we have discussed,

because of the long-established principle of limited liabil-

ity, the proper inquiry is whether Congress intended to

overturn that rule. “Such a major change in the existing

rules would not likely have been made without specific

provision in the text of the statute; it is most improbable

that it would have been made without even any mention

in the legislative history.” United Savings Ass’n v. Tim-

bers of Inwood Forest Associates, Lid., 484 U.S. 365,

380 (1988) (citation omitted). Moreover, the structure

and language of the statute make clear that Congress

did not intend to subject parent corporations to a new

category of liability.

The First Circuit also stated (App., infra, 4a) that its

interpretation of the statute is supported by decisions of

other courts. But most of the decisions that the court

cited involve the quite different issue of the personal

liability of a corporate officer for actions taken on behalf

of the corporation. Thus, in United States v. North-

eastern Pharmaceutical & Chemicai Co., 810 F.2d 726

(8th Cir. 1986), cert. denied, 484 U.S. 848 (1987), the

question was whether a plant supervisor could be held

liable for cleanup costs under the provision of CERCLA

imposing liability on “any person” who arranged for the

disposal or transportation for disposal of hazardous sub-

stances. See 42 U.S.C. § 9607(a) (3). The supervisor

(who was also a stockholder in the company) was the

corporate employee who arranged for the disposal of the

hazardous substances. The court stated that he could

“be held individually liable because he personally par-

ticipated in conduct that violated CERCLA; this per-

sonal liability is distinct from the derivative liability

that results from ‘piercing the corporate veil.’” 810 F.2d

at 744,

The supervisor argued that he could not be held liable

because he had acted solely as an employee of the corpova-

tion that owned the hazardous waste. The court rejected

the argument, applying the general rule that “‘[a] cor-

porate officer is individually liable for the torts he [or

she] personally commits [on behalf of the corporation].’ ”’

810 F.2d at 744 (citation omitted). New York v. Shore

Realty Corp., 759 F.2d 1082, 1052 (2d Cir. 1985), in-

volved precisely the same situation. Neither case in-

volved the liability of a separate corporation and neither

therefore involved the principle of limited liability and

the absence of a “control” test from the statutory defini-

tion of “owner or operator.” These decisions accordingly

provide no support for the decisions below.’

* * * *

We do nov argue that a parent corporation may never

be held liable for the acts of its subsidiary. Such liability

is entirely proper whenever the applicable standard for

piercing the corporate veil is satisfied. The court of ap-

peals’ error was in holding that Congress intended to

create a new type of shareholder liability in addition to

that long-settled exception to the principle of limited

liability. The decision below accordingly cannot stand.

On remand, the First Circuit will be free to consider

Kayser-Roth’s liability under the appropriate veil-pierc-

ing rule.’®

Il. THE FIRST CIRCUIT'S INTERPRETATION OF

CERCLA SQUARELY CONFLICTS WITH THE

FIFTH CIRCUIT'S DECISION IN JOSLYN MANU-

FACTURING CORP.

Joslyn Manufaciuring Corp. involved the very question

decided by the First Circuit in the present case: whether

a parent corporation may be an “owner or operator” of

a facility directly owned and operate. by its subsidiary.

Indeed, the Fifth Cireuit stated the question as whether

to “hold parents directly liable [under CERCLA] for

their subsidiaries’ activities.” 893 F.2d at 82.

® The other appellate decision cited by the First Circuit—United

States v. Fleet Factors Corp., 901 F.2d 1550 (11th Cir. 1990), peti-

tion for cert. pending, 59 U.S.L.W. 3382 (U.S. Oct. 30, 1990) (No.

90-504)—involved the entirely different question of the liability of

a mortgagee.

In our view state law supplies the governing veil-piercing

standard. We submit that the facts relied on by the district court

would not be sufficient to subject Kayser-Roth to liability under

Rhode Island law. Miller v. Dixon Industries Corp., 518 A.2d 597

(R.I. 1986); Alterio v. Biltmore Constr. Corp., 377 A.2d 237

(R.I. 1977).

The Fifth Circuit held in Joslyn that CERCLA does

not subject parent cerperations to liability on this basis.

The court observed that “CERCLA does not define

‘owners’ or ‘operators’ as including the parent company

of offending wholly-owned subsidiaries. Nor does the leg-

islative history indicate that Congress intended to alter

so substantially a basic tenet of corporation law.” 893

F.2d at 82. The court concluded that “Congress is quite

capable of creating statutes that hold shareholders or con-

trolling entities liable for the acts of valid corporations.

In fact, Congress adopted a ‘control’ test in the next sub-

section of [CERCLA]. * * * No such ‘control’ test ap-

pears in subsection (ii), the subsection at issue in this

case, and we will imply none.” Jd. at 83.

The First Cireuit acknowledged that “there is some

broad language in Joslyn that might support Kayser’s

position,” but asserted that the Fifth Circuit’s decision

was distinguishable on the ground that it was concerned

“primarily with owner rather than operator liability.”

App., infra, 5a. This distinction does not withstand

analysis.

Joslyn expressly addressed both “owner” and “opera-

tor” liability. The court consistentiy referred to both

categories of liability in describing the scope of its deci-

sion. See 893 F.2d at 82, 88. Indeed, the amicus brief

filed by the United States in Joslyn pressed the precise

theory of “direct” liability as an “operator” that the

First Circuit adopted in this case. U.S. Am. Br. 15-25."

The government “urge[d)” the Fifth Circuit to establish

a standard holding a parent corporation “directly liable”

under CERCLA if it “participat[ed] in * * * operating

a hazardous substance facility or vessel.” Br. at 22-23.

11 The government observed (Br. at 22) that the district court

in Joslyn had “apparently rejected this theory of direct liability,

because the court viewed it as significantly reducing the protection

that parent corporations otherwise are accorded by the doctrine

of the corporate veil.”

Under such a standard, “a parent corporation is directly

liable when its officers, directors, or employees, in the

ordinary course of their activities in these roles,” en-

gaged in “routine operational decisionmaking.” Jd. at 23,

24. The government argued that the case should be

remanded to allow the district court to apply that stand-

ard because the facts in Joslyn might be sufficient to es-

tablish the parent corporation’s direct liubility as an

operator. Jd. at 24-25. The Fifth Circu‘t expressly re-

jected the government’s theory as a basis of liability.”

In sum, the question presented here plainly would have

been decided the opposite way had this case arisen in the

Fifth Circuit. This Court should grant the certiorari

petition to resolve this clear conflict among the courts of

appeals.

12The First Circuit also relied (App., infra, 5a) on what it

characterized as the interpretation of Joslyn adopted by the dis-

trict court in Riverside Market Development Corp. v. International

Building Products, No. 88-5317, 1990 U.S. Dist. LEXIS 63875

(E.D. La. May 23, 1990). But that court did not distinguish

Joslyn on the ground suggested by the First Circuit. Riverside

Market presented a question about the personal liability of a cor-

porate officer for acts performed in his official! capacity. The dis-

trict court characterized Joslyn as a case in which “the Fifth Cir-

cuit refused to extend CERCLA liability to parent corporations

for the acts of their subsidiaries absent some evidence that the

corporate veil had been pierced. Mov[ants] would have this Court

extend Joslyn to cover corporate officers as well.” Slip op. at *9

(citation omitted). The court declined to take that step observing

that “even though the district court opinion in Joslyn contained

dicta about corporate officer liability, the Fifth Circuit confined

itself to the issue of parent/subsidiary liability. Accordingly,

Joslyn is clearly distinguishable; there is no parent/subsidiary

issue here.” Id. at *9-*10 (footnote omitted; emphasis added).

The district court’s distinction of Joslyn thus provides no support

whatsoever for the line drawn by the First Circuit: the district

court instead affirmed that Joslyn governs questions of parent/

subsidiary liability such as that decided by the irst Circuit in

this case.

Ill. THE GROUNDS ON WHICH A PARENT CORPORA-

TION MAY BE HELD LIABLE UNDER CERCLA

FOR ACTS OF ITS SUBSIDIARY IS A QUESTION

OF GREAT PRACTICAL IMPORTANCE.

The scope of a parent corporation’s liability under

CERCLA for its subsidiary’s acts is a question of tremen-

dous practical importance. The dimensions of the

CERCLA cleanup program are truly vast. The National

Priority List—which identifies those facilities posing the

greatest danger to public health and the environment

(see 42 U.S.C. § 9605(a) (8) )—now contains 1,200 sites.

40 C.F.R. § 300 App. B. The Office of Technology Assess-

ment has predicted that the Priority List will eventually

contain 10,000 sites.* The Environmental Protection

Agency has estimated that the average cleanup cost for

a site is almost $20 million. 54 Fed. Reg. 33846, 33850

(1989). The total cleanup cost for the Priority List sites

will therefore be more than $100 billion.

The government clearly will attempt to recover as much

of this expense as possible from the parties subject to

liability under CERCLA. The vast majority of the poten-

tially liable parties will be corporations and, because the

corporate structure of most companies includes several

subsidiaries,"* questions regarding the liability of parent

corporations under CERCLA are likely to continue to

arise with great <requency.

The conf''ct among the courts of appeals—and the

murky “control” standard adopted by the First Circuit

in this case—create considerable uncertainty regarding

the extent to which parent corporations may be held

liable under CERCLA. Most parent corporations exercise

18 Office of Technology Assessment, U.S. Congress, Coming Clean:

Superfund Problems Can Be Solved 125 (Oct. 1989).

14In one study, 120 American corporations were fovnd to have

a total of 5,894 subsidiaries; that is an average of 50 subsidiaries

per corporation. P. Blumberg, The Law of Corporate Groups 464-

470 (1983).

at least as much control over their subsidiaries’ opera-

tions as did Kayser-Roth here. The First Circuit’s stand-

ard would therefore impose liability on the parent cor-

poration in virtually every case, a revolutionary change

from the traditional principle of limited liability.

Furthermore, this question is not important just be-

cause it will continue to be the subject of litigation.

Given the enormous amount of potential liability under

CERCLA, the routine imposition of liability on the par-

ent corporation cannot help but have an adverse impact

on the way businesses operate. A parent corporation

would be foolish not to consider restructuring its opera-

tions to avoid liability for the actions of its subsidiaries,

even though inefficiencies might result from the decrease

in corporate coordination. Indeed, the First Circuit’s

emphasis on Kayser-Roth’s involvement in Stamina Mills’

environmental decisions (App., infra, 6a) might well en-

courage parent corporations to take a hands-off attitude

with respect to such issues, hardly the approach most

likely to foster strict compliance with environmental laws.

And, because the confusion over the governing rule makes

it impossible to quantify the level of risk, investors—be

they individuals or acquiring corporations—-cannot be

certain of the liabilities that they might be taking on

when they acquire new companies. That uncertainty can

only tend to deter otherwise-desirable commercial ven-

tures.

This Court should grant the petition in order to elimi-

nate the disruptive effects flowing from the confusion that

now plagues both the courts and the business community

with respect to this important question.

CONCLUSION

The petition for a writ of certiorari should be granted.

Respectfully submitted.

ANDREW J. PINCUS

Counsel of Record

KATHERINE J. HENRY

Mayer, Brown & Platt

2000 Pennsylvania Ave., N.W.

Washington, D.C. 20006

(202) 778-0628

DEMING E. SHERMAN

Edwards & Angeli

2700 Hospital Trust Tower

Providence, RI 02903

(401) 274-9200

Counsel for Petitioner

Kayser-Roth Corporation

APPENDICES

APPENDIX A

UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT

No. 90-1190

UNITED STATES OF AMERICA,

PLAINTIFF, APPELLEE

KAYSER-ROTH CorpP., INC.,

DEFENDANT, APPELLANT

Appeal from the United States District Court

for the District of Rhode Island

[Hon. Francis J. Boyle, U.S. District Judge}

Before Breyer, Chief Judge, Bownes, Senior Circuit

Judge, and Selya, Circuit Judge.

August 2, 1990

BOWNES, Senior Circuit Judge. Kayser-Roth Cor-

poration (Kayser) appeals from a decision by the dis-

trict court of Rhode Island holding it liable as both an

“owner” and “operator” for the cleanup costs incurred

by the Environmental Protection Agency in response to

a spill of trichloroethylene (TCE) at the Stamina Mills

textile plant (the site). Stamina Mills, Inc. (Stamina),

the nominal owner of the site, was a wholly owned sub-

sidiary of Kayser prior to Stamina’s dissolution in 1977."

The government has sought to recover its cleanup costs

from Kayser under the Comprehensive Environmental

Response, Compensation, and Liability Act, 42 U.S.C.

§ 9601 et seq. (CERCLA), based on direct liability

(Kayser as operator of the site) and indirect liability

(Kayser as owner by “piercing the corporate veil’’).

Kayser argues that the parent company of a dissolved

subsidiary cannot, as a matter of law, be held liable on

either ground. We disagree, and affirm on the basis that

Kayser is liable as an operator.

CERCLA was enacted in response to the increasing

concern about the vast problems of the disposal of and

contamination from hazardous waste throughout the

country. It is a remedial statute designed to protect and

preserve public health and the environment. Because

CERCLA is a remedial statute,

we . . . construe its provisions liberally to avoid

frustration of the beneficial legislative purpose.

With this in mind, we join the Second Circuit in

proclaiming that ‘we will not interpret section 9607

(a) in any way that apparently frustrates the stat-

ute’s goals.’

Dedham Water Co. v. Cumberland Farms Dairy, Inc.,

805 F.2d 1074, 1081 (1st Cir. 1986) (quoting New York

v. Shore Realty, 759 F.2d 1032, 1045 (2d Cir. 1985) )

(Dedham I).

The Act empowers the government to use money from

the “superfund” to clean up hazardous waste sites. 42

1A detailed description of the corporate structure can be found

in the district court opinion. United States v. Kayser-Roth Corpora-

tion, 724 F. Supp. 15 (D.R.I. 1990).

U.S.C. § 9604(a). Any “person” who is the “owner” or

“operator” of a facility at the time of the disposal® of

a hazardous substance shall be liable for, among other

things, all of the costs of removal or other remedial

action incurred by the United States. 42 U.S.C. § 9607

(a) (2). Liability for the cost incurred is strict*®* and

joint and several.*

We begin our discussion with the issue of whether a

parent corporation may be held directly liable as an

operator. “Operator” is defined circularly in the statute

as any person® operating a facility.* 42 U.S.C. § 9601

(20) (A) (ii).7 Congress, by including a liability cate-

2 At oral argument, Kayser argued that the spill was an accident

and thus not “disposal” under CERCLA; but spilling is explicitly

part of the statutory definition. See 42 U.S.C. §9601(29) (refer-

ring to 42 U.S.C. § 6903(3) ).

3 See, e.g., Dedham Water Company v. Cumberland Farms Dairy,

Ine., 889 F.2d 1146, 1150 (1st Cir. 1989) (Dedham II); New York

v. Shore Realty, 759 F.2d 1032, 1042 (2d Cir. 1985) (reviewing

cases and legislative history on liability).

4 See, e.g., O’Neil v. Picillo, 883 F.2d 176, 178-79 (1st Cir. 1989),

cert. denied, 110 S. Ct. 1135 (1989).

5 The statute defines “person” extremely broadly and certainly

includes a parent corporation. 42 U.S.C. § 9601(21). Kayser does

not seriously contest that it is a person within the meaning of the

statute.

* Owner liability is similarly circular with the additional explicit

limitation that when the ownership interest is primarily a security

interest without participation in the management of the facility

the owner is not liable for cleanup costs. 42 U.S.C. § 9601(20) (A)

(iii). That exclusion indicates that if limited owners participate in

management, they may be held liable. Shore, 759 F.2d at 1052; see

also United States v. Fleet Factors Corp., 901 F.2d 1550 (11th Cir.

1990) (owner through security interest can be held directly liable

if actively involved in management).

7 42 U.S.C. § 9601 (20) (A) provides:

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

an onshore facility or an offshore facility, any person owning

gory in addition to owner (“operators”) connected by

the conjunction “or,” impiied 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,” corpo-

rate status, while relevant to determine ownership, can-

not shield a person from operator liability. In addition,

the legislative history provides no indication that Con-

gress intended “all persons” who are “operators” to ex-

clude parent corporations. Shore, 759 F.2d at 1044 (re-

viewing congressional intent and determining that the

final version of the statute “imposed liability on classes

of persons without reference to whether they csused or

contributed to the release or threat of release’). Thus,

our analysis of the statute and its legislative purpose

and history reveals no reason why a parent corporation

cannot be held liable as an operator under CERCLA.

Our decision is supported by the interpretation given

“operator” by other courts. See, e.g., United States v.

Northeastern Pharmaceutical, 810 F.2d 726, 743-744

(8th Cir. 1986), cert. denied, 484 U.S. 848 (1987) (in-

dividual liability under § 9607(a) (3)); Idaho v. Bunker

Hill Co., 685 F. Supp. 665 (D. Idaho 1986) (parent cor-

poration liable as operator). For example, the majority

shareholder of a corporation has been held individually

liable as an operator under CERCLA. Shore, 759 F.2d

at 1052. In addition, a corporation that was an owner

through holding a security interest and became active in

the management of the corporation has been held liable.

United States v. Fleet Factors Corp., 901 F.2d 1550,

1557 (11th Cir. 1990).

We are unpersuaded by the case upon which Kayser

relies most heavily to support its position. Joslyn Mfg.

er operating such facility, and (iii) .... Such term does not

include a person, who, without participating in the management

of a vessel or facility, holds indicia of ownership primarily to

protect his security interest in the vessel or facility.

Co. v. T.L. James & Co., 893 F.2d 80 (5th Cir. 1990).

Although there is some broad language in Joslyn that

might support Kayser’s position, the opinion is concerned

primarily with owner rather than operator liability.

The Joslyn court framed its issue as whether to “impose

direct liability on parent corporations for the violations

of their wholly owned subsidiaries.” Joslyn, 893 F.2d at

81. On the theory of the case presently under considera-

tion, Kayser is being held liable for its activities as an

operator, not the activities of a subsidiary. Our reading

of the Joslyn case is bolstered by a fifth circuit district

court’s narrow interpretation of the Joslyn case. River-

side Market Devel. Corp. v. International Building Prod-

ucts, 1990 U.S. Dist. LEXIS 6375 (E.D. La. 1990) (dis-

tinguishing Joslyn and following Shore Reaity and

Northeastern Pharmaceutical in holding individual liable

as operator and noting that in Joslyn there was no par-

ticipation by parent in activities of subsidiary).

In sum, we believe that a fair reading of CERCLA

allows a parent corporation to be held liable as an opera-

tor of a subsidiary corporation.

II.

We now examine whether the district court correctly

held that Kayser was an operator. This determination

is reviewed only for clear error. See Lynch v. Dukakis,

719 F.2d 504, 513 (1st Cir. 1983). Without deciding the

exact standard necessary for a parent to be an operator,

we note that it is obviously not the usual case that the

parent of a wholly owned subsidiary is an operator of

the subsidiary. To be an operator requires more than

merely complete ownership and the concomitant general

authority or ability to control that comes with owner-

ship. At a minimum it requires active involvement in

the activities of the subsidiary.

The district court’s excellent opinion found that

“Kayser-Roth . . . exerted practical total influence and

pals i ~ - . + . halt?

NE ae te ey NE a Ao SR HL RG LN EO ae Te ee, a a a ee ee ee ee ee ee ee ee

control over Stamina Mills’ operations.” United States

v. Kayser-Roth Corp., 724 F. Supp. 15, 18 (D.R.I. 1989).

The court summarized the evidence as follows:

Kayser-Roth exercised pervasive control over Stam-

ina Mills through, among other things: 1) its total

monetary control including collection of accounts

payable; 2) its restriction on Stamina Mills’ finan-

cial budget; 3) its directive that subsidiary-govern-

mental contact, including environmental matters, be

funneled directly through Kayser-Roth; 4) its re-

quirement that Stamina Mills’ leasing, buying or

selling of real estate first be approved by Kayser-

Roth; 5) its policy that Kayser-Roth approve any

capital transfer or expenditures greater than $5000;

and finally, its placement of Kayser-Roth personnel

in almost all Stamina Mills’ director and officer posi-

tions, as a means of totally ensuring that Kayser-

Roth corporate policy was exactly implemented and

precisely carried out.

Id. at 22. Kayser’s control included environmental mat-

ters including the approval of the installation of the

cleaning system that used the TCE.* The district court

found

Kayser had the power to control the release or

threat of release of TCE, had the power to direct

the mechanisms causing the release, and had the

ultimate ability to prevent and abate damage.

Kayser-Roth knew that Stamina Mills employed a

scouring system that used TCE; indeed [it] ap-

proved the installation of that system... [and]

was able to direct Stamina Mills on how the TCE

should have been handled.

8 Although indicia of ability to control decisions about hazardous

waste are indicative of the type of control necessary to hold a

parent corporation liable as an operator, we do not think the pres-

ence of such indicia is essential, assuming there are other indicia of

the pervasive control necessary to prove operator status.

Id. Such control is more than sufficient to be liable as

an operator under CERCLA.

Kayser argues vehemently that it was blameless for

the spill, which was caused by a third party and was not

brought to Kayser’s attention until years later.° Kayser

misunderstands CERCLA. Under this strict liability

statute, all that it is necessary to prove is that Kayser

was an operator at the time of the spill. Although

CERCLA includes a limited affirmative defense that the

spill was caused by a third party, that defense does not

help Kayser because it only applies if the third party

was not in a contractual relationship with the operator,

which was not the case here. 42 U.S.C. § 9607(b) (3).

® The government contests Kayser’s statement that it didn’t know

of the spill for years. We do not iake 2 rosition on this factual

issue.

W 42 U.S.C. § 9607(b) provides that:

There shall be no liability under subsection (a) of this sec-

tion for a person otherwise liable whe can establish by a pre-

ponderance of the evidence that the release or threat of release

of a hazardous substance and the damages resulting therefrom

were caused solely by—

(8) an act or omission of a third party other than an em-

ployee or agent of the defendant, or than one whose act or

omission occurs in connection with a contractual relationship,

existing directly or indirectly, with the defendant (except

where the sole contractual arrangement arises from a pub-

lished tariff and acceptance for carriage by a common carrier

by rail), if the defendant establishes by a preponderance of the

evidence that (a) he exercised due care with respect to the

hazardous substance concerned, taking into consideration the

characteristics of such hazardous substance, in light of all rele-

vant facts and circumstances, 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.

Rn a A eee eee nn er

Based on the record, we find that the district court

did not err in finding that Kayser was an operator and

in holding it liable for the cost of the cleanup.”

AFFIRMED

11 Because we decide that the district court was not clearly

erroneous in finding that Kayser was an operator, we do not need

to consider the various arguments advanced regarding Kayser’s

liability as a owner.

“™® APPENDIX B

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF RHODE ISLAND

C. A. No, 88-0325B

UNITED STATES OF AMERICA, PLAINTIFF

KAYSER-ROTH CORPORATION, DEFENDANT

OPINION

BOYLE, Francis J., Chief Judge.

In the somnolent village of Forestdale, Rhode Island,

the ground waters run deep. Unfortunately, the waters

also contain pollutants. Having long been home to ma-

chining and textile manufacturing industries, Forest- |

dale found itself a victim of its own hospitality. Tri-

chloroethylene, sometimes a by-product of those indus-

tries, had filtered into Forestdale’s private and public

residential water wells. The Government alleges that

Stamina Mills, Inc., a defunct textile operation, was a

source of the contaminant.

In a slight twist on a biblical passage, the Court in

this case must also decide whether the sins of the son

should be visited upon the father. Cf. Exodus 20:5. Spe-

cifically, the issue is whether Kayser-Roth Corporation,

the parent corporation and sole shareholder of Stamina

Mills, Inc., is responsible for clean-up and response costs

generated at least in part by a spill of a hazardous sub-

10a

stance on its subsidiary’s property in 1969. The answer

to that query requires not only a journey through the

labyrinth of the Comprehensive Environmental Response,

Compensation and Liability Act (“CERCLA”), but thor-

ough examination of the relationship between the re-

lated corporations as well.

FACTS

Release and Response

Stamina Mills, Inc. was a textile manufacturing oper-

ation in North Smithfield, Rhode Island from approxi-

mately 1952 to 1975. The mill building had been on the

site since some time in the last century. It is located on

the north side of the Branch River. The Branch River

flows west to east at the site. The company employed a

soap scouring system to remove oil and dirt from newly-

woven fabric. Because of complaints involving discharge

into and pollution of the Branch River, Stamina Mills

replaced the soap scouring system with one that used

trichloroethylene (“TCE”) in March 1969. Tanker

trucks delivered the TCE which was pumped into a stor-

age tank. During one delivery before November 1969, a

mishap occurred; a tanker driver improperly attached

a hosing coupling and spilled an indeterminate number

of gallons of TCE. In addition to this accidental release

of TCE, there is evidence that Stamina Mills would

deposit used quantities of TCE bottoms in a landfill on

its property. One witness, a Rhode Island Department of

Health employee, testified that he saw a truck back up

to the landfill and dump a purplish fluid with oily tex-

ture. The same witness also stated that the odor of TCE

emanated from Stamina Mills’ building.

In August 1979, ten years after Stamina Mills began

to use TCE, the Rhode Island Department of Health con-

ducted a survey of drinking water supplies in the Forest-

dale area, which is generally north and northwest of the

Stamina property. The survey found that residential

EE EE ee ee ne ee ea ok

lla

wells north of the Stamina Mills site had elevated levels

of TCE. In September 1982, the Environmental Protec-

tion Agency (“EPA”) completed a hydrogeological study

of the area which concluded that the Stamina Mills site

was a source of the contaminant. The study found a

hydraulic connection between the Stamina Mills site and

the residential wells. Although the flow of water through

the bedrock aquifer was from north to south, normal

pumping of the residential wells would reverse the flow.

Consequently, the site was added to the National Priori-

ties List the following September, making Superfund

monies available for response actions.

There was evidence introduced that the residential

wells might have been contaminated by sources other

than Stamina Mills. The potential sources included Am-

perex and other companies that were located on the oppo-

site bank of the Branch River south of the Stamina

Mills site. There was no evidence that other sources did,

in fact, contribute to the pollution. The EPA did not

investigate potential sources of contamination other than

Stamina Mills.

The EPA conducted remedial measures at both the

Stamina Mills site and the residential wells. The parties

have stipulated that the EPA incurred $660,612.71 in

costs related to removal and enforcement activities. In

addition, the parties have agreed that the Department of

Justice (DOJ) spent $185,879.62 for enforcement activ-

ities. The record fails to reflect any distinction between

costs related to “on-site” clean-up (at the Stamina Mills

site) and “off-site” clean-up (at the residential wells).

Corporate Relationships

Stamina Mills, Inc. has expired. Its parent corpora-

tion, or more accurately, the parent’s successor,’ remains

1 Since the expiration of Stamina Mills, Inc., Kayser-Roth has

been involved in a merger; immediately after the merger, however,

the new entity was renamed Kayser-Roth Corporation.

12a

in the form of the Kayser-Roth Corporation. Before

Stamina Mills’ dissolution, the two corporations shared

a common history.

In 1961, Crown Textile Manufacturing Company

(“Crown”) and Samuel M. Staymen each owned 50%

of the shares of Stamina Mills. Three years later Crown

merged into Colonial Corporation of America (“Colon-

ial”), and a new subsidiary of Colonial, Crown Textile

Mfg. Co. (“Crown Mfg.’’), was incorporated and organ-

ized to run the business of Crown. Colonial retained the

50% stock interest in Stamina Mills.

In 1965, Colonial acquired Samuel M. Staymen’s

shares, thus becoming the sole stockholder of Stamina

Mills. The following year Colonial merged with Kayser-

Roth; Kayser-Roth was the surviving corporation. Kay-

ser-Roth was therefore the owner of all the capital stock

of both Crown Mfg. and Stamina Mills. Both subsidiar-

ies, along with many other corporations, were part of

Kayser-Roth’s “Crown Division”, a designation created

for internal organization purposes only. Kayser-Roth

remained the sole stockholder of Stamina Mills unti! its

dissolution on December 31, 1977. Pursuant to the dis-

solution plan, Kayser-Roth received Stamina Mills’ assets

and assumed “all liabilities and obligations” of Stamina

Mills. See Plaintiff’s Exhibit No. 53 (Resolution of

Stamina Mills’ shareholders) .

As might well be expected, the two corporations shared

common officers nominated and appointed by Kayser-

Roth. The common officers of Kayser-Roth and Stamina

Mills included:

KAYSER-ROTH STAMINA MILLS

Norman A. Jackson Financial Vice- Financia! Vice-

President 1966-75 President 1966-75

James I. Spiegel President 1976-83 Vice-President

1976-77

Harold L. Glasser Vice-President and Vice-President and

Secretary 1966-81 Secretary 1966-77

13a

P. J. MeNichol Treasurer 1966-71 Asst. Treasurer

1966-71

Robert Zimring Treasurer 1971-75 Asst. Treasurer

1971-77

Norman S. Beier Vice-President and Asst. Secretary

Asst. General 1976-77

Counsel 1975-83

Moreover, and probably of greater significance, Kayser-

Roth and Stamina Mills shared common directors, again

nominated and appointed by Kayser-Roth, including

Chester H. Roth, Alfred P. Slaner, Norman A. Jackson,

Harold L. Glasser, David J. Roth, and James I. Spiegel.

These individuals were officers of Kayser-oth at the time

they were also directors of Stamina Mills.

Kayser-Roth and its Crown Mfy. Division exerted prac-

tical total influence and control over Stamina Mills’ oper-

ations. Kayser-Roth required Stamina Mills, after ob-

taining Crown Mfg. Division’s approval, to obtain

Kayser-Roth’s approval in almost all its activities includ-

ing purchase or movement of capital assets; leasing, buy-

ing, or selling real estate; borrowing money; and its

budgets. The fiscal operations were completely in the

control of Kayser-Roth including accounting supervision,

payment of bills, collection of accounts receivable and

executive compensation. Stamina Mills’ officers did par-

ticipate in union negotiations but this was simply a bar-

gaining ploy since Kayser-Roth had to approve the ulti-

mate collective bargaining agreement. Three former

presidents of Stamina Mills each testified that they played

little or no role in major decisions affecting Stamina

Mills, except with respect to the local details of operating

the factory. Kayser-Roth essentially was in charge in

practically all of Stamina’s operational decisions, includ-

ing those involving environmental concerns. Kayser-Roth

made the ultimate decision to acquire the dry cleaning

process using TCE. Moreover, Kayser-Roth issued a di-

rective requiring Stamina Mills to notify the Kayser-

Roth Legal Department of any correspondence with

14a

courts or governmental agencies regarding environmental

matters. The only autonomy given the officers of Stamina

Mills was that absolutely necessary to operate the facility

on-site from day to day such as hiring and firing hourly

employees and ordering inventory. Stamina was in fact

and effect the serf of Kayser-Roth.

LAW

CERCLA, enacted in 1980, allocates responsibility for

the clean-up of releases and threatened releases of haz-

ardous materials into the environment. 42 U.S.C. § 9601-

9675.2 A responsible party is strictly, jointly and sever-

ally liable for costs incurred for removal or remedial ac-

tion as well as for damages for injury to or loss of

natural resources. Jd. at §9607(a). Cf. O’Neil v.

Picillo, No. 88-1551 slip op. at 5-6 (1st Cir. 1989) (dam-

ages apportioned only if defendant demonstrates harm

divisible). Because CERCLA liability is strict, a party

will be held responsible upon proof that: (1) a release

or threat of a release of a hazardous substance occurred;

(2) the government or other authorized party incurred

response costs as a result of the release, and (3) the

party falls into one of the four categories of responsible

parties. Id. The four categories are: (1) the current

owner or operator of the site; (2) any former owner or

operator of the site at the time of the release or threat-

ened release; (3) a transporter of hazardous materials

which are released; and (4) a generator of hazardous

waste. Jd. The Government claims that Kayser-Roth and

Crown Mfg. were owners and operators of Stamina Mills

at the time of the TCE release.

2 CERCLA as initially enacted encompassed 42 U.S.C. §§ 9601-

9657. In 1986, the Superfund Amendments and Reauthorization

Act (SARA) was passed, which provided additional funding and

repealed certain sections while adding certain other sections. See

95 Pub.L. No. 99-499, 100 Stat. 1613 (1986). The statute, as

amended, now comprises 42 U.S.C. §§ 9601-9675.

15a

CERCLA’s definition of “owner or operator” is not

especially illuminating. In terms ecu anh expanded defini-

tion, it states that “in the case of ap irr facility . .

any person owning or operating gudh facility” qualifies

as an owner or operator. 42 U.S.C, $9601(20) (A) (ii).

The term “person” expressly ineludes 4 Id.

at §9601(21). CERCLA does peevide that the term

“owner or operator” does not » “a person, who,

without participating in the of a .2,*. facil-

ity, holds indicia of ownership p to protect his

security interest in the . Id. at § 960) (20)

(A). Courts have generally concluded that these provi-

sions confer a subsidiary’s liability upon its parent in

two situations. The first occurs hie the parent domi-

nates the subsidiary to such an extent that the corporate

form ought to be ignored and the edtporate veil pierced.

The second situation takes place where a stockowner

participates directly in the management of a facility,

although not to the extent that allows a piercing of the

corporate veil.

CHOICE OF LAW

As a preliminary matter, the Court must resolve which

law to apply. It is firmly established “that when a fed-

eral statute is silent as to the choice of law to be applied,

but overriding federal interests exist, courts should

fashion uniform rules of decision.” United States v.

Nicolet, 712 F. Supp. 1193, 1201, (E.D. Pa. 1989) (citing

Clearfield Trust Co. v. United States, 318 U.S. 363, 366-

67 (1943)). CERCLA, by promoting environmental pro-

tection, certainly seeks to further an overriding federal

interest. One court has noted in terms that are logically

overwhelming that:

[ijn attempting to eliminate the dangers of hazard-

ous wastes, CERCLA presents a national solution

®The term “facility” is defined at 42 U.S.C. §9601(9). The

parties have stipulated that Stamina Mills was a facility.

16a

to a nationwide problem. One ean hardly imagine

a federal program more demanding of national uni-

formity than environmental protection. Congress did

not intend that the ability of the executive to fund

the clean up of hazardous waste sites should depend

om the attitudes of the several states toward parent-

subsidiary liability in general, or CERCLA in par-

tieular. The need for a uniform federal rule is espe-

cially great for questions of piercing the corporate

veil, since liability under the statute must not de-

pend on the particular state in which a defendant

happens to reside.

In re Acushnet River & New Bedford Harbor Proceed-

ings, 675 F. Supp. 22, 31 (D. Mass. 1987). Accordingly,

a uniform federal rule of decision should be applied in

CERCLA cases involving alter ego liability.

Courts framing a federal rule concerning the piercing

of the corporate veil in CERCLA cases have isolated a

number of factors. These factors include:

(1) inadequate capitalization in light of the pur-

poses for which the corporation was organized, (2)

extensive or pervasive control by the shareholder or

shareholders, (3) intermingling of the corporation’s

properties or accounts with those of its owner, (4)

faihure to observe corporate formalities and separate-

ness, (5) siphoning of funds from the corporation,

(6) absenee of corporate records, and (7) nonfunc-

tioning officers or directors.

Id. at 33. The presence or absence of any particular fac-

tor, however, is not dispositive. The general rule is that

“*a corporate entity may be disregarded in the interest

of public convenience, fairness and equity.’” Alman v.

Danin, 801 F.2d 1, 3 (1st Cir. 1986) (quoting Capital

Tel. Co. v. FCC, 498 F.2d 734, 738 (D.C. Cir. 1974) );

Town of Brookline v. Gorsueh, 667 F.2d 215, 221 (1st

Cir. 1981) (quoting Capital Tel. €o. v. FCC, 498 F.2d

17a

734, 738 (D.C. Cir. 1974)). The factors simply add

flesh to that proposition.

Not surprisingly, this federal common law borrows

heavily from state law. Hence, these considerations do

not radically differ from Rhode Island law. See, e.g., Mil-

ler v. Dizon Indus. Corp., —— R.I. > , 5138 A.2d

597, 604 (R.I. 1986) (to pierce the corporate veil “where

a parent-subsidiary relationship is involved, it must be

demonstrated that the parent dominated the finances, pol-

icies, and practices of the subsidiary”). Indeed, courts

confronting this choice of law issue have observed that

the distinction between state law and a federal rule of

decision is of little practical difference. In re Acushnet

River, 675 F. Supp. at 33.

Liability Without Piercing the Corporate Veil

A parent corporation that controls the management

and operations of its wholly owned subsidiary can be held

responsible for its subsidiary’s CERCLA liability with-

out piercing the corporate veil. E.g., idaho v. Bunker

Hill Co., 635 F. Supp. 665, 671-72 (D. Idaho 1986).

Cf. New York v. Shore Realty Corp., 759 F.2d 1032,

1052 (2d Cir. 1985) (individual stockholder liable as

operator) ; United States v. Northeastern Phramaceutical

& Chem. Co., 810 F.2d 726, 744 (8th Cir. 1986) (same).

But see Joslyn Corp. v. TL. James & Co., 696 F. Supp.

222, 224-25 (W.D. La. 1988) {parent corporation cannot

be held liable under CERCLA unless corporate veil is

pierced). While courts have reached this conclusion by

finding that the parent corporation was a de facto oper-

ator of the subsidiary, they have used two slightly dif-

ferent approaches.

One line of cases holds that a stockholder who manages

the corporation may incur CERCLA operator liability.

Eg., Shore Realty, 759 F.2d at 1052; United States v.

Northeastern Pharmaceutical and Chemical Co., 579 F.

_ a alata

18a

Supp. 823, 848 (W.D. Mo. 1984), aff'd, 810 F.2d 726 (8th

Cir. 1986). These cases note that the definition of opera-

tor or owner excludes “a person, who without participat-

ing in the management of a.. . facility, holds indicia of

ownership primarily to protect his securing interest in

the . . . facility.” 42 U.S.C. § 9601(20(A). Reasoning

that this exception implies that a person who holds indicia

of a corporation’s ownership and who participates in its

management can be an owner or operator, the courts

have concluded that stockholders participating in man-

agement can be liable. Shore Realty, 759 F.2d at 1052;

Northeastern Pharmaceutical, 579 F. Supp. at 848.

Other cases support a second theory. A stockholder,

parent corporation, or any person associated with a facil-

ity whether he or she has any ownership interest or not,

may be held liable if that person (including a corporate

entity) controls the management and operation of the

polluting corporation. This approach focuses primarily

on control.

Federal common law is emerging to determine whether

a parent corporation, individual stockholder, or sister

subsidiary for that matter, may be held directly liable as

an operator. See Northeastern Pharmaceutical, 810 F.2d

at 743-44 (individual stockholder); Shore Realty, 759

F.2d at 1052 (individual stockholder) ; Vermont v. Staco,

Inc., 684 F. Supp. 822, 831 (D. Vt. 1988) (sister subsid-

iary); Bunker Hill, 635 F. Supp. at 672 (parent cor-

poration). To be held directly liable as an operator,

courts have considered a number of factors including:

whether the person or corporation had the capacity to

discover in a timely fashion the release or threat of re-

lease of hazardous substances; whether the person or

corporation had the power to direct the mechanisms caus-

ing the release; and whether the person or corporation

had the capacity to prevent and abate damages. See

Bunker Hill, 635 F. Supp. at 671-72.

19a

THEORIES OF LIABILITY

Stamina Mills is not a party to this action although it

is clearly an owner and operator of a facility that re-

leased a hazardous substance into the environment. Cf.

Levin Metals Corp. v. Parr-Richmond Terminal Co., 817

F.2d 1448 (9th Cir. 1987) (affirming dismissal of

CERCLA action brought against dissolved corporation).

The United States, however, has proceeded against

Stamina Mills’ former parent corporation, Kayser-Roth.

The Government argues no less than six different theories

of liability.

First, the Government contends that Kayser-Roth, be-

cause of its control over Stamina Mills, was actually an

operator of the site at the time of release. Second, the

Government suggests that Crown Mfg. was an operator

of the Stamina Mills site and that Kayser-Roth has as-

sumed all ‘of Crown Mfg.’s liabilities. Third, the Gov-

ernment contends that Kayser-Roth succeeded to the lia-

bilities of Stamina Mills by continuing its operations.

Fourth, the Government argues that Kayser-Roth im-

plicitly and expressly assumed the liabilities of Stamina

Mills. Fifth, the Government suggests that the corporate

veil of Stamina Mills be pierced to find Kayser-Roth re-

sponsible for Stamina Mills’ obligations. Finally, the

Government contends that the same theory is available

to hold Crown Mfg. liable for Stamina Mills’ violations,

and that Kayser-Roth is ultimately responsible because it

assumed the liabilities of Crown Mfg.

Kayser-Roth denies that it should be held liable for

the acts of Stamina Mills. Defendant avers that it and

its subsidiary, Crown Mfg., did not own or operate the

Stamina Mills site within the scope of the statute. With

respect to Kayser-Roth’s assumption of Stamina Mills’

liabilities upem dissolution, Kayser-Roth posits that the

General Lawe ef Rhode Island, Section 7-1.1-98, which

provides that suits against dissolved corporations must be

20a

brought within two years of the corporation’s demise,

protects it against a suit brought more than ten years

after Stamina Mills’ dissolution.

Moreover, Defendant rejects the theory that the veil

of Stamina Mills ought to be pierced to pursue the real

culprit. Defendant also contends that Amperex and other

hazardous waste sites in the area were the actual sources

of TCE contamination in the Forestdale wells.

ISSUES

The parties have stipulated to a number of materiai

facts. Defendant has admitted that the 1969 spill of TCE

occurred and that this constitutes a release. Further-

more, Defendant also admits that TCE is a hazardous

material and that Stamina Mills qualifies as a facility

under CERCLA. Finally, the parties stipulate as to cer-

tain response costs, although the division between on-site

and off-site costs is disputed.

The parties disagree over two major issues. The first

is whether Kayser-Roth can be held responsible for

Stamina Mills’ actions. The second involves causation:

Defendant asserts that even if it is liable for Stamina

Mills’ release, the 1969 spill did not contaminate the resi-

dential wells. Rather, Defendant argues that other

sources, including a company known as Amperex, are the

actual polluters of the Forestdale wells and therefore

Stamina Mills’ release did not result in off-site response

costs. Each issue will be addressed in turn.

DISCUSSION

Parent Liability: Parent as Operator

Ordinarily, a parent corporation cannot be deemed an

operator based solely upon its status as a shareholder.

The fact that the subsidiary was a member of the classes

parent had a substantial ownership interest in the sub-

sidiary is insufficient to establish that the parent was an

21a

operator for CERCLA’s purposes. Cf. Bunker Hill, 635

F. Supp. at 672. The parent corporation’s control over

the subsidiary’s management and operations is an essen-

tial element of proving operator liability on the parent’s

part. See id. Cf. Shore Realty, 759 F.2d at 1052; North-

eastern Pharmaceuticai, 810 F.2d at 744.

Kayser-Roth’s liability as an operator turns on the

issue of control. It is uncontroverted that Stamina Mills

was within the class of those potentially liable under

CERCLA. Similarly, it is undisputed that Kayser-Roth,

as sole swner and shareholder of Stamina Mills, had a

substantial financial and ownership interest in Stamina

Mills. The question becomes whether Kayser-Roth exer-

cised control over Stamina Mills management and opera-

tions suffiicent to find that Kayser-Roth was a de facto

operator.

The evidence establishes that Kayser-Roth was indeed

an operator for purposes of CERCLA.* Kayser-Roth

exercised pervasive control over Stamina Mills through,

among other things: 1) its total monetary control in-

cluding collection of accounts payable; 2) its restrictions

on Stamina Mills’ financial budget; 3) its directive that

subsidiary-governmental contact, including environmental

matters, be funneled directly through Kayser-Roth; 4)

its requirement that Stamina Mills’ leasing, buying or

selling of real estate first be approved by Kayser-Roth;

4 Because the Court finds Kayser-Rcth responsible for any

CERCLA liability of Stamina Mills on an operator theory and, as

discussed later, a “piercing” theory, it need not address the thorny

issue of whether Kayser-Roth, or Crown Mfg. for that matter,

assumed, expressly or implicitly, the CERCLA liability of Stamina

Mills at the time of its dissolution. Having dissolved prior to the

statute’s enactment in 1980, Stamina Mills’ potential CERCLA lia-

bility was, of course, unknown at the time. Cf. Great Am. Ins. Co.

v. Byrd & Watkins Constr., Inc., 630 F.2d 460 (6th Cir. 1980)

(upon corporation’s dissolution, shareholders pledged to assume all

liability, known or unknown, of corporation).

22a

5) its policy that Kayser-Roth approve any capital trans-

fer or expenditures greater than $5,000; and finally, 6)

its placement of Kayser-Roth personne] in almost all

Stamina Mills’ director and officer positions, as a means

of totally ensuring that Kayser-Roth corporate policy

was exactly implemented and precisely carried out.

These are oily examples of Kayser-Roth’s practical total

control over Stamina Mills’ operations.

Illustrative of Kayser-Roth’s control are its actions

with regard to environmental matters affecting Stamina

Mills. Kayser-Roth had the power to control the release

or threat of release of TCE, had the power to direct the

mechanisms causing the release, and had the ultimate

ability to prevent and abate damage. Kayser-Roth knew

that Stamina Mills employed a scouring system that used

TCE; indeed, Kayser-Roth approved the installation of

that system after mandating that a cost-benefit study be

made by Stamina Mills. Kayser-Roth not only had the

capacity to determine the use of TCE but also was able

to direct Stamina Mills on how the TCE should have

been handled.* There are other examples of Kayser-

Roth’s participation in Stamina Mills’ environmental

decision-making. Evidence was introduced that Kayser-

Roth issued a directive to its subsidiaries, including

Stamina Mills, requiring that Kayser-Roth’s Legal De-

partment be notified of any governmental agency or

court contact regarding environmental matters. Further-

more, when Stamina Mills was sued in 1974 by the

United States for an illegal waste water discharge into

the Branch River, the final decision on settlement was

made by Kayser-Roth’s directors.

Although not singularly determinative on the issue of

operator liability, these factors along with Kayser-Roth’s

other acts of pervasive control over Stamina Mills, war-

5 Actual knowledge of the release is not required for CERCLA

liability; CERCLA is a strict liability scheme. O’Neil v. Picillo,

No. 88-1551, slip op. at 16 n.9 (1st Cir. Aug. 21, 1989).

28a

rant a finding that Kayser-Roth was an “operator” for

CERCLA purposes within the provisions of 42 U.S.C.

§ 9607 (a).

Parent Liability: Piercing the Corporate Veil

CERCLA liability based upon piercing the corporate

veil is a species of owner, rather than operator, liability.

While an owner may be, in most cases, an operator, the

converse is not necessarily true. Imputing CERCLA

liability upon a parent corporation by piercing the cor-

porate veil is, in essence, concluding that the parent is

an owner for CERCLA’s purposes. “ “The effect of pierc-

ing a corporate veil is to hold the owner .. . liable.

The rationale for piercing the corporate veil is that the

corporation is something less than a bona fide independ-

ent entity.’” Northeastern Pharmaceutical, 810 F.2d at

744 (quoting Donsco, Inc. v. Casper Corp., 587 F.2d 602,

606 (3d Cir. 1978)) (emphasis added). Upon analysis

of the factors relevant to piercing Stamina Mills’ veil,

and mindful of the liberal construction CERCLA must

be afforded so as not to frustrate probable legislative

intent, the Court concludes that Kayser-Roth is an owner

for CERCLA’s purposes.

An analysis of piercing Stamina Mills’ veil to hold

Kayser-Roth liable begins with the general proposition

that a corporate entity may be disregarded in the inter-

est of public convenience, fairness and equity. As the

First Circuit has stated:

. . . [FJederal courts will look closely at the pur-

pose of the federal statute to determine whether the

statute places importance on the corporate form

. an inquiry that usually gives less respect to

the ‘corporate form than does the strict common law

alter ego doctrine. .. .

Alman v. Danin, 801 F.2d 1, 3 (1st Cir. 1986) (quoting

Town of Brookline v. Gorsuch, 567 F.2d 215, 221 (1st

Cir. 1981) ).

24a

CERCLA’s language attempts to address nationwide

public health and. environmental problems. In fashioning

a remedial framework by which some of these problems

could be resolved, Congress had two basic purposes in

mind:

First, Congress intended that the federal govern-

ment be immediately given the tools necessary for

a prompt and effective response to the problems of

national magnitude resulting from hazardous waste

disposal. Second, Congress intended that those re-

sponsible for problems caused by the disposal of

chemical poisons bear the costs and responsibility

for remedying the harmful conditions they created.

Dedham Water Co. v. Cumberland Farms Dairy, Inc.,

805 F.2d 1074, 1081 (1st Cir: 1986) (quoting United

States v. Reilly Tar & Chemical Corp., 546 F. Supp.

1100 (D: Minn. 1982)). CERCLA’s provisions should

thus be viewed: expansively, so as not to frustrate these

“beneficial legislative purposes.”’* Id.; Shore Realty, 759

F.2d at 1045. It is against this backdrop that it is con-

cluded that CERCLA places no special importance upon

the corporate structure. See United States v. Mottolo,

695 F. Supp. 615, 624 (D.N.H. 1988).

Kayser-Roth has exhibited overwhelming pervasive

control over Stamina Mills. Many of the same factors

used in holding Kayser-Roth liable as an operator are

relevant. Kayser-Roth’s control over environmental] mat-

ters; its policy of approving all capital expenditures of

greater than $5,000; its stranglehold on income and ex-

penses; its practice of placing Kayser-Roth personnel in

Stamina Mills’ director positions, thereby precluding

other Stamina Mills executives from significant daily

interpret section 9607(a) in any way that apparently frustrates

the statute’s goals, in the absence of a specific congressional intent

otherwise.’” Dedham Water, 805 F.2d at 1081 (quoting New York

v. Shore Realty, 759 F.2d 1032, 1045 (2d Cir. 1985)).

decision-making; and its overwhelming ‘control ‘over

Stamina Mills’ financial and operational structure add

flesh to the skeletal proposition that Kayser-Roth’s .cor-

porate existence should be disregarded.’ Accordingly,

Stamina Mills’ veil should ‘be pierced to hold Kayser-Roth

liable, not only because public convenience, fairness, and

equity dictate such a result, but also due to ‘the all en-

cympassing control which Kayser-Roth had over Stamina

Mills as, in fact and deed, an owner. Any other result

would provide tco much solace to deliberate polluters,

who would use this device as an escape.

Causation

Kayser-Roth contends that even if it is liable for

Stamina Mills’ release of TCE, that release did not con-

taminate the Forestdale wells. Absent a causal connec-

tion between Stamina Mills’ release and the Forestdale

wells contamination, Kayser-Roth asserts it bears no

responsibility for the off-site response costs. While there

might be some doubt if the 1969 spill were the only re

lease, it ignores the credible evidence of TCE being con-

tinually dumped on Stamina Mills’ property. In the be-

ginning, there were inordinately high concentrations of

TCE on the Stamina Mills’ property. There was ample

evidenee to support the fact that onee dumped on

. Stamina Mills’ property the TCE migrated to the Forest-

dale wells. A hydrogeological study established a hy-

draulic connection between the Stamina Mills site and

the residential wells. The relationship between the con-

centration on the Stamina Mills’ property and the plume

overspreading the residestial area clearly established

that the Stamina Mills property is a source of pollution.

See 42 U.S.C. §9607(a). Thus, the releases from the

Stamina Mills site were the cause of both the on-site and

off-site response costs.

7 One version of the “Golden Rule” is that he who has the Gold

rules. The circumstances comport completely with this version of

the “Golden Rule.”

26a

Kayser-Roth also argues that other sources were re-

sponsible for the contamination of the residential wells.

Specifically, Kayser-Roth accuses Amperex, a southern

neighbor, of contributing to the pollution. This argu-

ment, however, ignores CERCLA’s joint and several

liability scheme. .““[D]amages should be apportioned only

if the defendant can demonstrate the harm is divisible.”

O’Neil v. Picillo, No. 88-1551, slip op. at 5-6 (1st Cir.

Aug. 21, 1989). Kayser-Roth did not introduce any evi-

dence concerning the divisibility of the TCE contamina-

s tion. Indeed, on this record it is sheer speculation to sug-

gest that there was any other source of TCE. There was

evidence that Amprex used TCE but no evidence that its

TCE migrated under the Branch River to the Stamina

site or the Forestdale wells. In the absence of that evi-

dence Kayser-Roth is itself liable for all on-site and off-

site damages the Government has proven.

Damages :

The parties stipulated to certain custs the Government

incurred in a document titled “First Joint Stipulation

As To Costs.” Specifically, the parties agreed that costs

incurred by the EPA totalling $660,612.71 were “ ‘costs

of removal or remedial action’ within the meaning of 42

U.S.C. § 9607(a).” First Joint Stipulation As To Costs

1-2. Moreover, it was stipulated that costs incurred by

the Department of Justice totalling $185,879.62 were also

‘costs of removal or remedial action’ within the mean-

ing of 42 U.S.C. § 9607(a).” Id. at 2. The total costs

the Government incurred and paid as a result of the

release was therefore $846,492.33. As noted earlier, the

record fails to reflect any distinction between on-site and

off-site costs. Because Kayser-Roth is liable for both

on-site and off-site costs, the distinction is immaterial.

Accordingly, Kayser-Roth is found liable for $846,-

492.33. In addition, the United States is entitled to re-

cover interest from the later of the date of the written

27a

demand for payment of a sum certain or the date of a

particular expenditure. 42 U.S.C. § 9607(a). Finally,

the Government shall within 10 days prepare and pre-

sent a form of declaratory judgment holding Kayser-

Roth liable for future response costs related to on-site

and off-site clean-up. Id. at § 9613(g) (2).

SO ORDERED.

/s/ Francis J. Boyle

FRANCIS J. BOYLE

Chief Judge

United States District Court

District of Rhode Island

October 11, 1989.

28a

APPENDIX C

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF RHODE ISLAND

C.A. No. 88-0325-B

UNITED STATES OF AMERICA. .

Vv.

KAYSER-ROTH CORPORATION and

HyYDRO-MANUFACTURING, INC.

DECLARATORY JUDGMENT

This matter, which was initiated under Section 107

of the Comprehensive Environmental Response Compen-

sation and Liability Act, as amended (“CERCLA”), 42

U.S.C. § 9607, was tried to the Court on July 17-21,

1989. The Court issued its Opinion and Order finding

defendant Kayser-Roth Corporation to be an owner and

operator of the Stamina Mills Site within the meaning

of 42 U.S.C. § 9607(a) (2), on October 11, 1989. As

part of that Opinion and Order, the Court found Kayser-

Roth liable to the United States for $846,492.33 in past

response costs incurred by the government related to the

Stamina Mills Site, plus pre-judgment interest on that

amount. Order at 27, 28. The Court also found Kayser-

Roth liable for response costs related to future on-site

and off-site cleanup. Order at 28; 42 U.S.C. § 9613

(g) (2).

ACCORDINGLY, IT IS HEREBY ORDERED AND

ADJUDGED, that the United States recover of defend-

‘29a

ant Kayser-Roth Corporation the sum of $846,492.33,

with interest thereon at the rate provided in 42 U.S.C.

§ 9607(a), and 26 U.S.C. § 9501 et seq., in the amount

of $11,927.76, totalling $958,420.09.

IT IS FURTHER ORDERED AND ADJUDGED,

that defendant Kayser-Roth Corporation is liable to the

United States, pursuant to 42 U.S.C. § 9607 (a) (2),

for all further response costs incurred by the United

States related to the Stamina Mills Site, which costs are

not inconsistent with the National Contingency Plan

(40 C.F.R. Part 300).

Entered this 18th day of January, 1990.

By Order,

/s/ Loriaine Kizior

Clerk

ENTER:

/s/ Francis J. Boyle

FRANCIS J. BOYLE

Chief Judge

80as"

i APPENDIX'D®

UNFTED STATES COURT OF APPEALS |

FOR THE FIRST CIRCUIT

No.. 90-1190 .

UNITED STATES:OF AMERICA,

PLAINTIFF, APPELLEE .

Vv...

KAYSER-ROTH CORPORATION, INC.,

DEFENDANT, APPELLANT

ORDER OF COURT

Entered August 24, 199%”

The petition for rehearing is denied.

Kayser continues to argue that liability under CER-

CLA should be hased on fault. It stresses the acci-

dental or uniztentionai nature of the spill (Petition for

Rehearing at, 1, 2, 3, 5) and the “fact” that Kayser

did not commit a “wrongful” act (Petition for Rehear-

ing at 3, 5). lt urges us to adopt a standard of operator

liability based on wrongful disposal.

Kayser completely misunderstands CERCLA. Under

the statute, if a peyson is an operator (Kayser was and

we so held), that person is liable for the clean-up costs

associated with any disposal of hazardous waste. It is

completely irrelevant that the disposal was an accident;

CERCLA is a strict liability statute.

S8la

Kayser takes issue avithidontmote 2 of the panel opin-

ion. Although the footnote might be a little cryptic, it

is correct-andshoulld remain. “In‘diseussing the footnote,

Kayser illustrates its misunderstanding of CERCLA by

conceding that there was “disposal” on the site. That

concession is fatal to Kayser because Kayser, as an

operator, is liable if:ithereowas disposal. (Under 42

U.S.C. § 9607 (2) “any person who at the time of dis-

posal of any hazardous substance owned or operated any

facility ...” is liable.)

’ By the Court:

/s/ Franeis P: Scigliano

Clerk |

1 The footnote was responding to a slightly more sophisticated

(but still wrong) argument that “disposal” does not include acci-

dental spills.

32a

APPENDIX E

UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT

No. 90-1190

UNITED STATES OF AMERICA,

PLAINTIFF, APPELLEE

Vv.

KAYSER-ROTH CORPORATION, INC.,

DEFENDANT, APPELLANT

Before Breyer, Chief Judge, Campbell, Torruella, Selya

and Cyr,*, Circuit Judges.

ORDER OF COURT

Entered: September 7, 1990

The panel of judges that rendered the decis »n in this

case having denied the petition for rehearing and the

suggestion for the holding of a rehearing en banc having

been carefully considered by the judges of the Court in

regular active service and a majority of said judges not

‘having voted to order that the appeal be heard or re-

heard by the Court en banc,

It is ordered that the petition for rehearing en banc

be denied.

By the Court:

/s/ Francis P. Scigliano

Clerk

* Circuit Judge David H. Souter did not participate.

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.