United States v. Bestfoods et al.
524 U.S. 51 (1998)
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Rule of Law:
A parent corporation is not liable for the acts of its subsidiary unless the corporate veil can be pierced. However, a parent may be held directly liable as an 'operator' under CERCLA if it manages, directs, or conducts operations at the subsidiary’s facility, specifically those related to pollution, as distinct from exercising normal oversight of the subsidiary's business.
Facts:
- In 1957, Ott Chemical Co. (Ott I) began manufacturing chemicals and polluting a site near Muskegon, Michigan.
- In 1965, CPC International Inc. created a wholly owned subsidiary, also named Ott Chemical Co. (Ott II), which purchased the assets of Ott I and continued the same manufacturing and polluting activities.
- CPC selected Ott II’s board of directors and placed CPC officials in executive roles at Ott II, with some individuals holding positions at both corporations simultaneously.
- A CPC official, G. R. D. Williams, who was not an officer or director of Ott II, became heavily involved in managing Ott II's environmental and regulatory matters.
- In 1972, CPC sold Ott II to Story Chemical Company, which operated the plant until its bankruptcy in 1977.
- After Story's bankruptcy, Aerojet-General Corp. created subsidiaries that purchased and operated the site until 1986.
- Federal and state environmental agencies later discovered extensive contamination at the site, including leaking drums of waste and saturated soil and groundwater.
Procedural Posture:
- The United States sued CPC International Inc. and Aerojet-General Corp. in the U.S. District Court for the Western District of Michigan to recover environmental cleanup costs under CERCLA.
- Following a bench trial, the District Court held that CPC was liable as an 'operator' because it actively participated in and exercised control over its subsidiary, Ott II.
- CPC appealed to the U.S. Court of Appeals for the Sixth Circuit.
- A Sixth Circuit panel initially reversed, and after a rehearing en banc, the full court of appeals held that a parent corporation could be liable as an operator only when the circumstances warranted piercing the corporate veil under state law.
- The United States Supreme Court granted certiorari to resolve a conflict among the circuits.
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Issue:
Does a parent corporation's active participation in and control over its subsidiary's business operations, without more, render it liable as an 'operator' of a polluting facility owned by the subsidiary under CERCLA?
Opinions:
Majority - Justice Souter
No. A parent corporation that actively participated in and exercised control over the operations of a subsidiary may not, without more, be held liable as an operator of a polluting facility owned or operated by the subsidiary. Such liability attaches only when the corporate veil may be pierced or when the parent corporation directly participated in and exercised control over the operations of the facility itself. The Court reasoned that under bedrock principles of corporate law, a parent corporation is not liable for the acts of its subsidiary. CERCLA does not explicitly overturn this principle, so indirect liability can only be established through traditional veil-piercing. However, CERCLA also imposes direct liability on any 'operator' of a facility. The relevant inquiry for direct liability is not whether the parent controls the subsidiary, but whether the parent itself operates the facility. This is determined by the parent's involvement in activities at the facility, particularly those related to pollution, not by its general oversight of the subsidiary. The actions of dual officers and directors are presumed to be taken on behalf of the subsidiary, and this presumption must be overcome to attribute their actions to the parent. A parent's actions must be 'eccentric' under the norms of parental oversight to constitute direct operation.
Analysis:
This decision clarifies the scope of parent corporation liability under CERCLA by establishing a crucial distinction between indirect (derivative) liability and direct liability. It firmly rejects any special, relaxed CERCLA-specific rule for piercing the corporate veil, tethering indirect liability to traditional common law principles. More significantly, it defines a separate path for direct liability, focusing the inquiry on the parent's actual control over the facility's environmental operations, not just its general control over the subsidiary. This prevents parents from being held liable for normal investment and oversight activities while ensuring accountability when they step beyond that role to manage the specific operations that cause pollution.
