United States v. Bestfoods

524 U.S. 51 (1998)

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Nature of the Case

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Facts

Bestfoods (D) a.k.a. CPC International incorporated a wholly owned subsidiary to buy Ott Chemical Co (Ott I) in exchange for D stock. The new company, also called Ott (Ott II), continued chemical manufacturing at the site and continued to pollute its surroundings. D kept the same management of Ott I on the board of Ott II and one member even served on D's board. In fact, several of the Ott II officers and managers were given positions at D and performed duties for both corporate entities. In 1972, D sold Ott II to Story Chemical Company, which operated the plant until 1977 when it declared bankruptcy. Michigan then examined the site and found a serious pollution problem. The state wanted to find a buyer for the site that would also contribute to the cleanup of the site. It found Aerojet, which created a wholly owned California sub called Cordova Chemical Company to purchase the property. It, in turn, created Cordova Michigan to manufacture chemicals at the site until 1986. By 1981, the EPA had undertaken to clean up the site, and that called for tens of millions of dollars. To recover some of that money, EPA filed under section 107 naming five defendants; D, Aerojet, Codova California, Cordova Michigan and Arnold Ott. There was massive legal finger-pointing and a flurry of contribution claims, counterclaims, and cross-claims. The District Court then consolidated the cases for trial in three phases, liability, remedy, and insurance coverage. Only the first phase has been completed. The trial focused on whether D and Aerojet as parent corporations of Ott II and the Cordovas had owned or operated the facility under section 107(a)(2) meaning. The court said that operator liability may attach to a parent corporation both directly, when the parent itself operates the facility, and indirectly when the corporate veil can be pierced under state law. A parent’s actual participation in and control over a subsidiary’s functions and decision-making creates ‘operator’ liability under CERCLA; a parent’s mere oversight of a subsidiary’s business in a manner appropriate and consistent with the investment relationship between a parent and its wholly owned subsidiary does not. The court held both D and Aerojet liable as an operator as opposed to indirect liability under veil piercing. The Sixth Circuit limited liability based on parental control to situations wherein state law piercing requirements were met. It said conceivably, a parent might independently operate the facility in the stead of its subsidiary; or, as a sort of joint venturer, actually operate the facility alongside its subsidiary. But, where a parent corporation is sought to be held liable as an operator, the parent will be liable only when the requirements necessary to pierce the corporate veil [under state law] are met. Because the parent and subsidiary corporations maintained separate personalities and the parents did not utilize the subsidiary corporate form to perpetrate fraud or subvert justice, it was not liable.