The state of Michigan has asked the United States Supreme Court to review a lower court's ruling that a parent company is liable for cleaning up contamination at a subsidiary company's property only if fraud or the need to prevent injustice warrants piercing the corporate veil between the two companies.
In United States v. Cordova Chemical Company (in which past newsletter was this case discussed?), the United States Court of Appeals for the Sixth Circuit held that a parent company could be liable as an "operator" under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) for the conduct of its subsidiary only if a basis existed for disregarding the separate corporate forms of the two companies. Whether the corporate veil between two companies may be pierced depends on the degree to which the parent corporation involved itself in the affairs of the subsidiary, the control that the parent exercised over its subsidiary, and whether the way the parent involved itself in the subsidiary resulted in an abuse of the corporate form. Thus, the corporate veil would be pierced only if: (1) there is such a unity of interest and ownership that the subsidiary and parent have no separate personalities; and (2) recognizing the separate corporate existence would support fraud or promote injustice. The Cordova Chemical decision concerned whether CPC International Inc. would be liable under CERCLA for the conduct of its subsidiary, Ott Chemical Company, in a suit regarding the cleanup of a site in Dalton Township. In its petition for certiorari filed with the Supreme Court seeking review of the Sixth Court decision, the State argues that CERCLA's definition of "operator" encompasses a parent corporation, such as CPC, that actively participated in and controlled the activities of its wholly owned subsidiary at the facility. The State argues that the district court had found that CPC was directly involved in the operation of the facility and made extensive findings of fact as to CPC's pervasive control of the site. The State also argues that the district court found that the environmental problems at the site were exacerbated by CPC's involvement at the site. The Sixth Circuit "did not find any of the district court's findings of fact clearly erroneous. Instead, [the Sixth Circuit] created a new legal standard that is not supported by the plain language of the statute and is in conflict with decisions in the First, Second, Third, Eighth, and Eleventh Circuits."
The United States has also filed a petition for certiorari asking the Supreme Court to review the Sixth Circuit's decision.
This article was prepared by Christopher J. Dunsky, a partner in our Environmental Department, and previously appeared in the October 1997 edition of Michigan Environmental Compliance, a monthly newsletter written by Honigman Miller Schwartz and Cohn on environmental regulatory developments in Michigan and published by M. Lee Smith Publishers. To subscribe, contact the publisher by either phone at 1-800-274-6675; email at custserv@mleesmith.com; the internet at http://www.mleesmith.com; or by mail at M. Lee Smith Publishers LLC, 5201 Virginia Way, P.O. Box 5094, Brentwood, TN 37024-5094.