OCTOBER TERM, 1997
Syllabus
UNITED STATES
v. BESTFOODS ET AL.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SIXTH
CIRCUIT
No. 97-454. Argued March 24, 1998-Decided June 8,1998
The United States brought this action under § 107(a)(2) of the
Comprehensive Environmental Response, Compensation, and Liability
Act of 1980 (CERCLA) against, among others, respondent CPC
International Inc., the parent corporation of the defunct Ott
Chemical Co. (Ott II), for the costs of cleaning up industrial
waste generated by Ott II's chemical plant. Section 107(a)(2)
authorizes suits against, among others, "any person who at the time
of disposal of any hazardous substance owned or operated any
facility." The trial focused on whether CPC, as a parent
corporation, had "owned or operated" Ott II's plant within the
meaning of § 107(a)(2). The District Court said that operator
liability may attach to a parent corporation both indirectly, when
the corporate veil can be pierced under state law, and directly,
when the parent has exerted power or influence over its subsidiary
by actively participating in, and exercising control over, the
subsidiary's business during a period of hazardous waste disposal.
Applying that test, the court held CPC liable because CPC had
selected Ott II's board of directors and populated its executive
ranks with CPC officials, and another CPC official had played a
significant role in shaping Ott II's environmental compliance
policy. The Sixth Circuit reversed. Although recognizing that a
parent company might be held directly liable under § 107(a)(2) if
it actually operated its subsidiary's facility in the stead of the
subsidiary, or alongside of it as a joint venturer, that court
refused to go further. Rejecting the District Court's analysis, the
Sixth Circuit explained that a parent corporation's liability for
operating a facility ostensibly operated by its subsidiary depends
on whether the degree to which the parent controls the subsidiary
and the extent and manner of its involvement with the facility
amount to the abuse of the corporate form that will warrant
piercing the corporate veil and disregarding the separate corporate
entities of the parent and subsidiary. Applying Michigan
veil-piercing law, the court decided that CPC was not liable for
controlling Ott II's actions, since the two corporations maintained
separate personalities and CPC did not utilize the subsidiary form
to perpetrate fraud or subvert justice.
Held:
1. When (but only when) the corporate veil may be pierced, a
parent corporation may be charged with derivative CERCLA liability
for its
52
Syllabus
subsidiary's actions in operating a polluting facility. It is a
general principle of corporate law that a parent corporation
(so-called because of control through ownership of another
corporation's stock) is not liable for the acts of its
subsidiaries. CERCLA does not purport to reject this bedrock
principle, and the Government has indeed made no claim that a
corporate parent is liable as an owner or an operator under §
107(a)(2) simply because its subsidiary owns or operates a
polluting facility. But there is an equally fundamental principle
of corporate law, applicable to the parent-subsidiary relationship
as well as generally, that the corporate veil may be pierced and
the shareholder held liable for the corporation's conduct when,
inter alia, the corporate form would otherwise be misused to
accomplish certain wrongful purposes, most notably fraud, on the
shareholder's behalf. CERCLA does not purport to rewrite this
well-settled rule, either, and against this venerable common-law
backdrop, the congressional silence is audible. Cf. Ed
monds
v.
Compagnie Generale Transatlantique, 443 U. S. 256, 266-267.
CERCLA's failure to speak to a matter as fundamental as the
liability implications of corporate ownership demands application
of the rule that, to abrogate a common-law principle, a statute
must speak directly to the question addressed by the common law.
United States v.
Texas, 507 U. S. 529, 534. Pp.
61-64.
2. A corporate parent that actively participated in, and
exercised control over, the operations of its subsidiary's facility
may be held directly liable in its own right under § 107(a)(2) as
an operator of the facility. pp.64-73.
(a) Derivative liability aside, CERCLA does not bar a parent
corporation from direct liability for its own actions. Under the
plain language of § 107(a)(2), any person who operates a polluting
facility is directly liable for the costs of cleaning up the
pollution, and this is so even if that person is the parent
corporation of the facility's owner. Because the statute does not
define the term "operate," however, it is difficult to define
actions sufficient to constitute direct parental "operation." In
the organizational sense obviously intended by CERCLA, to "operate"
a facility ordinarily means to direct the workings of, manage, or
conduct the affairs of the facility. To sharpen the definition for
purposes of CERCLA's concern with environmental contamination, an
operator must manage, direct, or conduct operations specifically
related to the leakage or disposal of hazardous waste, or decisions
about compliance with environmental regulations. Pp. 64-67.
(b) The Sixth Circuit correctly rejected the direct liability
analysis of the District Court, which mistakenly focused on the
relationship between parent and subsidiary, and premised liability
on little more than CPC's ownership of Ott II and its majority
control over Ott II's board
53
of directors. Because direct liability for the parent's
operation of the facility must be kept distinct from derivative
liability for the subsidiary's operation of the facility, the
analysis should instead have focused on the relationship between
CPC and the facility itself, i.
e., on whether CPC
"operated" the facility, as evidenced by its direct participation
in the facility's activities. That error was compounded by the
District Court's erroneous assumption that actions of the joint
officers and directors were necessarily attributable to CPC, rather
than Ott II, contrary to time-honored common-law principles. The
District Court's focus on the relationship between parent and
subsidiary (rather than parent and facility), combined with its
automatic attribution of the actions of dual officers and directors
to CPC, erroneously, even if unintentionally, treated CERCLA as
though it displaced or fundamentally altered common-law standards
of limited liability. The District Court's analysis created what is
in essence a relaxed, CERCLA-specific rule of derivative liability
that would banish traditional standards and expectations from the
law of CERCLA liability. Such a rule does not arise from
congressional silence, and CERCLA's silence is dispositive. Pp.
67-70.
(c) Nonetheless, the Sixth Circuit erred in limiting direct
liability under CERCLA to a parent's sole or joint venture
operation, so as to eliminate any possible finding that CPC is
liable as an operator on the facts of this case. The ordinary
meaning of the word "operate" in the organizational sense is not
limited to those two parental actions, but extends also to
situations in which,
e. g., joint officers or directors
conduct the affairs of the facility on behalf of the parent, or
agents of the parent with no position in the subsidiary manage or
direct activities at the subsidiary's facility. Norms of corporate
behavior (undisturbed by any CERCLA provision) are crucial
reference points, both for determining whether a dual officer or
director has served the parent in conducting operations at the
facility, and for distinguishing a parental officer's oversight of
a subsidiary from his control over the operation of the
subsidiary's facility. There is, in fact, some evidence that an
agent of CPC alone engaged in activities at Ott II's plant that
were eccentric under accepted norms of parental oversight of a
subsidiary's facility: The District Court's opinion speaks of such
an agent who played a conspicuous part in dealing with the toxic
risks emanating from the plant's operation. The findings in this
regard are enough to raise an issue of CPC's operation of the
facility, though this Court draws no ultimate conclusion, leaving
the issue for the lower courts to reevaluate and resolve in the
first instance. Pp. 70-73.
113 F.3d
572, vacated and remanded.
SOUTER, J., delivered the opinion for a unanimous Court.
54
Counsel
Assistant Attorney General Schiffer argued the cause for
the United States. With her on the briefs were
Solicitor General
Waxman, Deputy Solicitor General Wallace, Jeffrey P. Minear, Martin
W Matzen, Michael J.
McNulty, and
Evelyn S.
Ying. Frank J.
Kelley, Attorney General of Michigan,
Thomas L. Casey, Solicitor General, and
Kathleen L.
Cavanaugh and
Robert P. Reichel, Assistant Attorneys
General, filed a brief for the Michigan Department of Environmental
Quality, respondent under this Court's Rule 12.6, urging
reversal.
Kenneth S.
Geller argued the cause for
respondents.
With him on the briefs for respondent Bestfoods were
Donald
M. Falk and J.
Michael Smith. John D. Tully, John v:
Byl, and
Robert J.
Jonker filed briefs for
respondents Aerojet-General Corp. et al. *
* A brief of
amici curiae urging reversal was filed for
the State of Minnesota et al. by
Hubert H. Humphrey III,
Attorney General of Minnesota, and
Jocelyn F.
Olson,
Paschal Q Nwokocha, and
Alan C.
Williams,
Assistant Attorneys General, and by the Attorneys General for their
respective States as follows:
Bruce M. Botelho of Alaska,
Grant Woods of Arizona,
Winston Bryant of Arkansas,
Richard Blumenthal of Connecticut,
Robert A.
Butterworth of Florida,
Thurbert E. Baker of Georgia,
Margery S.
Bronster of Hawaii,
Alan G.
Lance of Idaho,
James E. Ryan of Illinois,
Drew
Ketterer of Maine, J.
Joseph Curran, Jr., of Maryland,
Scott Harshbarger of Massachusetts,
Joseph P. Mazurek
of Montana,
Frankie Sue Del Papa of Nevada,
Peter
Verniero of New Jersey,
Tom Udall of New Mexico,
Dennis C.
Vacco of New York,
Michael F.
Easley of North Carolina,
Hardy Myers of Oregon,
Jeffrey B. Pine of Rhode Island,
John Knox Walkup of
Tennessee,
Dan Morales of Texas,
Jan Graham of Utah,
William H. Sorrell of Vermont,
Christine O.
Gregoire of Washington,
Darrell V. McGraw of West
Virginia,
James E. Doyle of Wisconsin, and
William U.
Hill of Wyoming.
Briefs of
amici curiae urging affirmance were filed for
the Atlantic Legal Foundation by
Martin S.
Kaufman
and
Douglas Foster; for the American Forest & Paper
Association et al. by
Donald B. Mitchell, Jr., and
John C.
Chambers; for Atlantic Richfield Co. et al.
by
Michael J.
Gallagher, Andrew M. Low, and
Karl
M. Tilleman; for the National Association of Manufacturers et
al. by
Bruce J.
Ennis, Jr., Paul M. Smith, Ann M.
Kappler, Jan S.
Amundson, Quentin Riegel, Robin S.
Conrad, and
55
JUSTICE SOUTER delivered the opinion of the Court.
The United States brought this action for the costs of cleaning
up industrial waste generated by a chemical plant. The issue before
us, under the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980 (CERCLA), 94 Stat. 2767, as amended, 42
U. S. C. § 9601
et seq., is whether a parent corporation
that actively participated in, and exercised control over, the
operations of a subsidiary may, without more, be held liable as an
operator of a polluting facility owned or operated by the
subsidiary. We answer no, unless the corporate veil may be pierced.
But a corporate parent that actively participated in, and exercised
control over, the operations of the facility itself may be held
directly liable in its own right as an operator of the
facility.
I
In 1980, CERCLA was enacted in response to the serious
environmental and health risks posed by industrial pollution. See
Exxon Corp. v.
Hunt, 475 U. S. 355, 358-359
(1986). "As its name implies, CERCLA is a comprehensive statute
that grants the President broad power to command government
agencies and private parties to clean up hazardous waste sites."
Key Tronic Corp. v.
United States, 511 U. S. 809, 814
(1994). If it satisfies certain statutory conditions, the United
States may, for instance, use the "Hazardous Substance Superfund"
to finance cleanup efforts, see 42 U. S. C. §§ 9601(11),9604; 26 u.
S. C. § 9507, which it may then replenish by suits brought under §
107 of the Act against, among others, "any person who at the time
of disposal of any hazardous substance owned or operated any
facility." 42 U. S. C. § 9607(a)(2). So, those actually
"responsible for any damage, environmental harm, or injury from
chemical poi-
Robert L. Graham; for the United States Business &
Industrial Council by
David G.
Palmer; and for the
Washington Legal Foundation et al. by
Daniel J.
Popeo,
Paul D. Kamenar, and
Thomas R. Mounteer.
56
sons [may be tagged with] the cost of their actions," S. Rep.
No. 96-848, p. 13 (1980).1 The term "person" is defined in CERCLA
to include corporations and other business organizations, see 42 U.
S. C. § 9601(21), and the term "facility" enjoys a broad and
detailed definition as well, see § 9601(9).2 The phrase "owner or
operator" is defined only by tautology, however, as "any person
owning or operating" a facility, § 9601(20)(A)(ii), and it is this
bit of circularity that prompts our review. Cf.
Exxon Corp.
v.
Hunt, supra, at 363 (CERCLA, "unfortunately, is not a
model of legislative draftsmanship").
II
In 1957, Ott Chemical Co. (Ott 1) began manufacturing chemicals
at a plant near Muskegon, Michigan, and its intentional and
unintentional dumping of hazardous substances significantly
polluted the soil and ground water at the site. In 1965, respondent
CPC International Inc.3 incorporated a wholly owned subsidiary to
buy Ott 1's assets in exchange for CPC stock. The new company, also
dubbed Ott Chemical Co. (Ott II), continued chemical manufacturing
at the site, and continued to pollute its surroundings. CPC kept
the
1 "CERCLA ... imposes the costs of the cleanup on those
responsible for the contamination."
Pennsylvania v.
Union
Gas Co., 491 U. S.
1, 7 (1989). "The remedy that Congress felt it needed in CERCLA
is sweeping:
everyone who is potentially responsible for
hazardous-waste contamination may be forced to contribute to the
costs of cleanup."
Id., at 21 (plurality opinion of Brennan,
J.).
2 "The term 'facility' means (A) any building, structure,
installation, equipment, pipe or pipeline (including any pipe into
a sewer or publicly owned treatment works), well, pit, pond,
lagoon, impoundment, ditch, landfill, storage container, motor
vehicle, rolling stock, or aircraft, or (B) any site or area where
a hazardous substance has been deposited, stored, disposed of, or
placed, or otherwise come to be located; but does not include any
consumer product in consumer use or any vessel."
3 CPC has recently changed its name to Bestfoods. Consistently
with the briefs and the opinions below, we use the name CPC
herein.
57
managers of Ott I, including its founder, president, and
principal shareholder, Arnold Ott, on board as officers of Ott II.
Arnold Ott and several other Ott II officers and directors were
also given positions at CPC, and they performed duties for both
corporations.
In 1972, CPC sold Ott II to Story Chemical Company, which
operated the Muskegon plant until its bankruptcy in 1977. Shortly
thereafter, when respondent Michigan Department of Natural
Resources (MDNR)4 examined the site for environmental damage, it
found the land littered with thousands of leaking and even
exploding drums of waste, and the soil and water saturated with
noxious chemicals. MDNR sought a buyer for the property who would
be willing to contribute toward its cleanup, and after extensive
negotiations, respondent Aerojet-General Corp. arranged for
transfer of the site from the Story bankruptcy trustee in 1977.
Aerojet created a wholly owned California subsidiary, Cordova
Chemical Company (Cordova/California), to purchase the property,
and Cordova/California in turn created a wholly owned Michigan
subsidiary, Cordova Chemical Company of Michigan
(Cordova/Michigan), which manufactured chemicals at the site until
1986.5
By 1981, the federal Environmental Protection Agency had
undertaken to see the site cleaned up, and its long-term remedial
plan called for expenditures well into the tens of millions of
dollars. To recover some of that money, the
4 The powers and responsibilities of MDNR have since been
transferred to the Michigan Department of Environmental
Quality.
5 Cordova/California and MDNR entered into a contract under
which Cordova/California agreed to undertake certain cleanup
actions, and MDNR agreed to share in the funding of those actions
and to indemnify Cordova/California for various expenses. The
Michigan Court of Appeals has held that this agreement requires
MDNR to indemnify Aerojet and its Cordova subsidiaries for any
CERCLA liability that they may incur in connection with their
activities at the Muskegon facility. See
Cordova Chemical
Co. v.
MDNR, 212 Mich. App. 144, 536 N. W. 2d 860
(1995), leave to appeal denied, 453 Mich. 901, 554 N. W. 2d 319
(1996).
58
United States filed this action under § 107 in 1989, naming five
defendants as responsible parties: CPC, Aerojet,
Cordova/California, Cordova/Michigan, and Arnold Ott.6 (By that
time, Ott I and Ott II were defunct.) After the parties (and MDNR)
had launched a flurry of contribution claims, counterclaims, and
cross-claims, the District Court consolidated the cases for trial
in three phases: liability, remedy, and insurance coverage. So far,
only the first phase has been completed; in 1991, the District
Court held a 15-day bench trial on the issue of liability. Because
the parties stipulated that the Muskegon plant was a "facility"
within the meaning of 42 U. S. C. § 9601(9), that hazardous
substances had been released at the facility, and that the United
States had incurred reimbursable response costs to clean up the
site, the trial focused on the issues of whether CPC and Aerojet,
as the parent corporations of Ott II and the Cordova companies, had
"owned or operated" the facility within the meaning of §
107(a)(2).
The District 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. See
CPC Int'l, Inc. v.
Aerojet-General Corp., 777 F. Supp. 549, 572 (WD Mich.
1991). The court explained that, while CERCLA imposes direct
liability in situations in which the corporate veil cannot be
pierced under traditional concepts of corporate law, "the statute
and its legislative history do not suggest that CERCLA rejects
entirely the crucial limits to liability that are inherent to
corporate law."
Id., at 573. As the District Court put
it:
"a parent corporation is directly liable under section 107(a)(2)
as an operator only when it has exerted power or influence over its
subsidiary by actively participating in and exercising control over
the subsidiary's business
6 Arnold Ott settled out of court with the Government on the eve
of trial.
59
during a period of disposal of hazardous waste. A parent's
actual participation in and control over a subsidiary's functions
and decision-making creates 'operator' liability under CERCLA; a
parent's mere oversight of a subsidiary's business in a manner
appropriate and consistent with the investment relationship between
a parent and its wholly owned subsidiary does not."
Ibid.
Applying that test to the facts of this case, the District Court
held both CPC and Aerojet liable under § 107(a)(2) as operators. As
to CPC, the court found it particularly telling that CPC selected
Ott II's board of directors and populated its executive ranks with
CPC officials, and that a CPC official, G. R. D. Williams, played a
significant role in shaping Ott II's environmental compliance
policy.
After a divided panel of the Court of Appeals for the Sixth
Circuit reversed in part,
United States v.
Cordova/Michigan, 59 F.3d
584, that court granted rehearing en banc and vacated the panel
decision,
67 F.3d
586 (1995). This time, 7 judges to 6, the court again reversed
the District Court in part.
113 F.3d
572 (1997). The majority remarked on the possibility that a
parent company might be held directly liable as an operator of a
facility owned by its subsidiary:
"At least conceivably, a parent might independently operate the
facility in the stead of its subsidiary; or, as a sort of joint
venturer, actually operate the facility alongside its subsidiary."
Id., at 579. But the court refused to go any further and
rejected the District Court's analysis with the explanation:
"[W]here a parent corporation is sought to be held liable as an
operator pursuant to 42 U. S. C. § 9607(a)(2) based upon the extent
of its control of its subsidiary which owns the facility, the
parent will be liable only when the requirements necessary to
pierce the corporate veil [under state law] are met. In other
words, ... whether the parent will be liable as an operator
depends
60
upon whether the degree to which it controls its subsidiary and
the extent and manner of its involvement with the facility, amount
to the abuse of the corporate form that will warrant piercing the
corporate veil and disregarding the separate corporate entities of
the parent and subsidiary." Id., at 580.
Applying Michigan veil-piercing law, the Court of Appeals
decided that neither CPC nor Aerojet 7 was liable for controlling
the actions of its subsidiaries, since the parent and subsidiary
corporations maintained separate personalities and the parents did
not utilize the subsidiary corporate form to perpetrate fraud or
subvert justice.
We granted certiorari, 522 U. S. 1024 (1997), to resolve a
conflict among the Circuits over the extent to which parent
corporations may be held liable under CERCLA for operating
facilities ostensibly under the control of their subsidiaries.8 We
now vacate and remand.
7Unlike CPC, Aerojet does not base its defense in this Court on
a claim that, absent unusual circumstances, a parent company can be
held liable as an operator of a facility only by piercing the
corporate veil. Rather, Aerojet denies liability by claiming that
(1) neither it nor its subsidiaries disposed of hazardous
substances during their operation of the facility, see Brief for
Respondents Aerojet-General Corp. et al. 27-36, and (2) it is
entitled to a third-party defense under § 107(b)(3) of CERCLA, 42
U. S. C. § 9607(b)(3), see Brief for Respondents Aerojet-General
Corp. et al. 38-46. The Court of Appeals expressed some measure of
agreement with Aerojet on these points and instructed the District
Court to consider them on remand. See 113 F. 3d, at 577, 583. These
issues are not before this Court.
S Compare
United States v.
Cordova/Michigan,
113 F.3d
572, 580
(CA6 1997) (case below) (parent may be held
liable for controlling affairs of subsidiary only when the
corporate veil can be pierced), and
Joslyn Mfg. Co. v.
T.
L. James &
Co., 893 F.2d
80, 82-83
(CA5 1990) (same), cert. denied, 498 U. S.
1108 (1991) (but cf.
Riverside Market Dev. Corp. v.
International Bldg. Prods., Inc., 931
F.2d 327, 330
(CA5) (parent companies that actually
participate in the wrongful conduct cannot hide behind the
corporate veil, and can be held directly liable without veil
piercing), cert. denied, 502 U. S. 1004 (1991)), with
United
States v.
Kayser-Roth Corp., 910 F.2d
24, 27
61
III
It is a general principle of corporate law deeply "ingrained in
our economic and legal systems" that a parent corporation
(so-called because of control through ownership of another
corporation's stock) is not liable for the acts of its
subsidiaries. Douglas & Shanks, Insulation from Liability
Through Subsidiary Corporations, 39 Yale L. J. 193 (1929)
(hereinafter Douglas); see also,
e. g., Buechner v.
Farbenfabriken Bayer Aktiengesellschaft, 38 Del. Ch. 490,
494, 154 A. 2d 684, 687
(1959); Berkey v.
Third Ave. R.
Co., 244 N. Y. 84, 85, 155 N. E. 58 (1926) (Cardozo, J.); 1 W.
Fletcher, Cyclopedia of Law of Private Corporations § 33, p. 568
(rev. ed. 1990) ("Neither does the mere fact that there exists a
parent-subsidiary relationship between two corporations make the
one liable for the torts of its affiliate"); Horton, Liability of
Corporation for Torts of Subsidiary, 7 A. L. R. 3d 1343, 1349
(1966) ("Ordinarily, a corporation which chooses to facilitate the
operation of its business by employment of another corporation as a
subsidiary will not be penalized by a judicial determination of
liability for the legal obligations of the subsidiary"); cf.
Anderson v.
Abbott, 321 U. S. 349, 362 (1944)
("Limited liability is the rule, not the exception");
Burnet
v.
Clark, 287
U. S. 410, 415 (1932) ("A corporation and its stockholders are
generally to be treated as separate entities"). Thus it is hornbook
law that "the exercise of the 'control' which stock ownership gives
to the stockholders ... will not create liability
(CA1 1990) (parent actively involved in the affairs of its
subsidiary may be held directly liable as an operator of the
facility, regardless of whether the corporate veil can be pierced),
cert. denied, 498 U. S. 1084 (1991),
Schiavone v.
Pearce, 79 F.3d
248, 254-255
(CA2 1996) (same),
LansfordCoaldale
Joint Water Auth. v.
Tonolli Corp., 4 F.3d
1209, 1220-1225
(CA3 1993) (same),
Jacksonville Elec.
Auth. v.
Bernuth Corp., 996 F.2d
1107, 1110 (CAll 1993) (same), and
Nurad, Inc. v.
William E. Hooper &
Sons Co.,
966 F.2d
837, 842 (CA4) (parent having authority to control subsidiary
is liable as an operator, even if it did not exercise that
authority), cert. denied, 506 U. S. 940 (1992).
62
beyond the assets of the subsidiary. That 'control' includes the
election of directors, the making of by-laws ... and the doing of
all other acts incident to the legal status of stockholders. Nor
will a duplication of some or all of the directors or executive
officers be fatal." Douglas 196 (footnotes omitted). Although this
respect for corporate distinctions when the subsidiary is a
polluter has been severely criticized in the literature, see,
e. g., Note, Liability of Parent Corporations for Hazardous
Waste Cleanup and Damages, 99 Harv. L. Rev. 986 (1986), nothing in
CERCLA purports to reject this bedrock principle, and against this
venerable commonlaw backdrop, the congressional silence is audible.
Cf. Ed
monds v.
Compagnie Generale Transatlantique,
443 U. S. 256,
266-267 (1979) ("[S]ilence is most eloquent, for such reticence
while contemplating an important and controversial change in
existing law is unlikely"). The Government has indeed made no claim
that a corporate parent is liable as an owner or an operator under
§ 107 simply because its subsidiary is subject to liability for
owning or operating a polluting facility.
But there is an equally fundamental principle of corporate law,
applicable to the parent-subsidiary relationship as well as
generally, that the corporate veil may be pierced and the
shareholder held liable for the corporation's conduct when,
inter alia, the corporate form would otherwise be misused to
accomplish certain wrongful purposes, most notably fraud, on the
shareholder's behalf. See,
e. g., Anderson v.
Abbott,
supra, at 362 ("[T]here are occasions when the limited
liability sought to be obtained through the corporation will be
qualified or denied");
Chicago, M. &
St. P. R.
Co. v.
Minneapolis Civic and Commerce Assn., 247 U. S. 490, 501 (1918)
(principles of corporate separateness "have been plainly and
repeatedly held not applicable where stock ownership has been
resorted to, not for the purpose of participating in the affairs of
a corporation in the normal and usual manner, but for the purpose
... of controlling a subsidiary company so
63
that it may be used as a mere agency or instrumentality of the
owning company"); P. Blumberg, Law of Corporate Groups: Tort,
Contract, and Other Common Law Problems in the Substantive Law of
Parent and Subsidiary Corporations §§ 6.01-6.06 (1987 and 1996
Supp.) (discussing the law of veil piercing in the
parent-subsidiary context). Nothing in CERCLA purports to rewrite
this well-settled rule, either. CERCLA is thus like many another
congressional enactment in giving no indication that "the entire
corpus of state corporation law is to be replaced simply because a
plaintiff's cause of action is based upon a federal statute,"
Burks v.
Lasker, 441 U. S. 471, 478
(1979), and the failure of the statute to speak to a matter as
fundamental as the liability implications of corporate ownership
demands application of the rule that "[i]n order to abrogate a
common-law principle, the statute must speak directly to the
question addressed by the common law,"
United States v.
Texas, 507 U.
S. 529, 534 (1993) (internal quotation marks omitted). The
Court of Appeals was accordingly correct in holding that when (but
only when) the corporate veil may be pierced,9 may a parent
corporation
9 There is significant disagreement among courts and
commentators over whether, in enforcing CERCLA's indirect
liability, courts should borrow state law, or instead apply a
federal common law of veil piercing. Compare,
e. g., 113 F.
3d, at 584-585 (Merritt, J., concurring in part and dissenting in
part) (arguing that federal common law should apply),
LansfordCoaldale Joint Water Auth. v.
Tonolli Corp.,
4 F. 3d, at 1225 ("[G]iven the federal interest in uniformity in
the application of CERCLA, it is federal common law, and not state
law, which governs when corporate veilpiercing is justified under
CERCLA"), and Aronovsky & Fuller, Liability of Parent
Corporations for Hazardous Substance Releases under CERCLA, 24 U.
S. F. L. Rev. 421, 455 (1990) ("CERCLA enforcement should not be
hampered by subordination of its goals to varying state law rules
of alter ego theory"), with,
e. g., 113 F. 3d, at 580
("Whether the circumstances in this case warrant a piercing of the
corporate veil will be determined by state law"), and Dennis,
Liability of Officers, Directors and Stockholders under CERCLA: The
Case for Adopting State Law, 36 Vill. L. Rev. 1367 (1991) (arguing
that state law should apply). Cf.
In re Acushnet River &
New Bedford Harbor Proceedings, 675 F. Supp. 22, 33
64
be charged with derivative CERCLA liability for its subsidiary's
actions.10
IV A
If the Act rested liability entirely on ownership of a polluting
facility, this opinion might end here; but CERCLA liability may
turn on operation as well as ownership, and nothing in the
statute's terms bars a parent corporation from direct liability for
its own actions in operating a facility owned by its subsidiary. As
Justice (then-Professor) Douglas noted almost 70 years ago,
derivative liability cases are to be distinguished from those in
which "the alleged wrong can seemingly be traced to the parent
through the conduit of its own personnel and management" and "the
parent is directly a participant in the wrong complained of."
Douglas 207, 208.11
(Mass. 1987) (noting that, since "federal common law draws upon
state law for guidance, ... the choice between state and federal
[veil-piercing law] may in many cases present questions of academic
interest, but little practical significance"). But cf. Note,
Piercing the Corporate Law Veil: The Alter Ego Doctrine Under
Federal Common Law, 95 Harv. L. Rev. 853 (1982) (arguing that
federal common law need not mirror state law, because "federal
common law should look to federal statutory policy rather than to
state corporate law when deciding whether to pierce the corporate
veil"). Since none of the parties challenges the Sixth Circuit's
holding that CPC and Aerojet incurred no derivative liability, the
question is not presented in this case, and we do not address it
further.
10 Some courts and commentators have suggested that this
indirect, veil-piercing approach can subject a parent corporation
to liability only as an owner, and not as an operator. See,
e.
g., Lansford-Coaldale Joint Water Auth. v.
Tonolli Corp.,
supra, at 1220; Oswald, Bifurcation of the Owner and Operator
Analysis under CERCLA, 72 Wash. U. L. Q. 223, 281282 (1994)
(hereinafter Oswald). We think it is otherwise, however. If a
subsidiary that operates, but does not own, a facility is so
pervasively controlled by its parent for a sufficiently improper
purpose to warrant veil piercing, the parent may be held
derivatively liable for the subsidiary's acts as an operator.
11 While this article was written together with Professor
Shanks, the passages quoted in this opinion were written solely by
Justice Douglas. See Douglas 193, n. *.
65
In such instances, the parent is directly liable for its own
actions. See H. Henn & J. Alexander, Laws of Corporations 347
(3d ed. 1983) (hereinafter Henn & Alexander) ("Apart from
corporation law principles, a shareholder, whether a natural person
or a corporation, may be liable on the ground that such
shareholder's activity resulted in the liability"). The fact that a
corporate subsidiary happens to own a polluting facility operated
by its parent does nothing, then, to displace the rule that the
parent "corporation is [itself] responsible for the wrongs
committed by its agents in the course of its business,"
Mine
Workers v.
Coronado Coal Co., 259 U. S. 344, 395
(1922), and whereas the rules of veil piercing limit derivative
liability for the actions of another corporation, CERCLA's
"operator" provision is concerned primarily with direct liability
for one's own actions. See,
e. g., Sidney S.
Arst Co.
v.
Pipe fitters Welfare Ed. Fund, 25
F.3d 417,
420 (CA7 1994) ("[T]he direct, personal
liability provided by CERCLA is distinct from the derivative
liability that results from piercing the corporate veil" (internal
quotation marks omitted)). It is this direct liability that is
properly seen as being at issue here.
Under the plain language of the statute, any person who operates
a polluting facility is directly liable for the costs of cleaning
up the pollution. See 42 U. S. C. § 9607(a)(2). This is so
regardless of whether that person is the facility's owner, the
owner's parent corporation or business partner, or even a saboteur
who sneaks into the facility at night to discharge its poisons out
of malice. If any such act of operating a corporate subsidiary's
facility is done on behalf of a parent corporation, the existence
of the parent-subsidiary relationship under state corporate law is
simply irrelevant to the issue of direct liability. See
Riverside Market Dev. Corp. v.
International Bldg.
Prods., Inc., 931 F.2d
327, 330
(CA5) ("CERCLA prevents individuals from hiding
behind the corporate shield when, as 'operators,' they themselves
actually participate in the wrongful conduct prohibited by the
Act"),
66
cert. denied, 502 U. S. 1004 (1991);
United States v.
KayserRoth Corp., 910 F.2d
24, 26
(CA1 1990) ("[A] person who is an operator of a
facility is not protected from liability by the legal structure of
ownership").12
This much is easy to say: the difficulty comes in defining
actions sufficient to constitute direct parental "operation." Here
of course we may again rue the uselessness of CERCLA's definition
of a facility's "operator" as "any person ... operating" the
facility, 42 U. S. C. § 9601(20)(A)(ii), which leaves us to do the
best we can to give the term its "ordinary or natural meaning."
Bailey v.
United States, 516 U. S. 137, 145 (1995)
(internal quotation marks omitted). In a mechanical sense, to
"operate" ordinarily means "[t]o control the functioning of; run:
operate a sewing machine." American Heritage Dictionary 1268
(3d ed. 1992); see also Webster's New International Dictionary 1707
(2d ed. 1958) ("to work; as, to
operate a machine"). And in
the organizational sense more obviously intended by CERCLA, the
word ordinarily means "[t]o conduct the affairs of; manage:
operate a business." American Heritage Dictionary,
supra, at 1268; see also Webster's New International
Dictionary,
supra, at 1707 ("to manage"). So, under CERCLA,
an operator is simply someone who directs the workings of, manages,
or conducts the affairs of a facility. To sharpen the definition
for purposes of CERCLA's concern with environmental contamination,
an operator must manage, direct, or conduct operations specifically
related to pollution, that is, operations having
12 See Oswald 257 ("There are ... instances ... in which the
parent has not sufficiently overstepped the bounds of corporate
separateness to warrant piercing, yet is involved enough in the
facility's activities that it should be held liable as an operator.
Imagine, for example, a parent who strictly observed corporate
formalities, avoided intertwining officers and directors, and
adequately capitalized its subsidiary, yet provided active, daily
supervision and control over hazardous waste disposal activities of
the subsidiary. Such a parent should not escape liability just
because its activities do not justify a piercing of the
subsidiary's veil").
67
to do with the leakage or disposal of hazardous waste, or
decisions about compliance with environmental regulations.
B
With this understanding, we are satisfied that the Court of
Appeals correctly rejected the District Court's analysis of direct
liability. But we also think that the appeals court erred in
limiting direct liability under the statute to a parent's sole or
joint venture operation, so as to eliminate any possible finding
that CPC is liable as an operator on the facts of this case.
1
By emphasizing that "CPC is directly liable under section
107(a)(2) as an operator because CPC actively participated in and
exerted significant control over Ott II's business and
decision-making," 777 F. Supp., at 574, the District Court applied
the "actual control" test of whether the parent "actually operated
the business of its subsidiary," id., at 573, as several Circuits
have employed it, see,
e. g., United States v.
Kayser-Roth Corp., supra, at 27 (operator liability
"requires active involvement in the affairs of the subsidiary");
Jacksonville Elec. Auth. v.
Bernuth Corp., 996 F.2d
1107, 1110 (CAll 1993) (parent is liable if it "actually
exercised control over, or was otherwise intimately involved in the
operations of, the [subsidiary] corporation immediately responsible
for the operation of the facility" (internal quotation marks
omitted)).
The well-taken objection to the actual control test, however, is
its fusion of direct and indirect liability; the test is
administered by asking a question about the relationship between
the two corporations (an issue going to indirect liability) instead
of a question about the parent's interaction with the subsidiary's
facility (the source of any direct liability). If, however, direct
liability for the parent's operation of the facility is to be kept
distinct from derivative liability for the subsidiary's own
operation, the focus of the enquiry must
68
necessarily be different under the two tests. "The question is
not whether the parent operates the subsidiary, but rather whether
it operates the facility, and that operation is evidenced by
participation in the activities of the facility, not the
subsidiary. Control of the subsidiary, if extensive enough, gives
rise to indirect liability under piercing doctrine, not direct
liability under the statutory language." Oswald 269; see also
Schiavone v.
Pearce, 79 F.3d
248, 254
(CA2 1996) ("Any liabilities [the parent] may
have as an
operator, then, stem directly from its control
over the plant"). The District Court was therefore mistaken to rest
its analysis on CPC's relationship with Ott II, premising liability
on little more than "CPC's 100-percent ownership of Ott II" and
"CPC's active participation in, and at times majority control over,
Ott II's board of directors." 777 F. Supp., at 575. The analysis
should instead have rested on the relationship between CPC and the
Muskegon facility itself.
In addition to (and perhaps as a reflection of) the erroneous
focus on the relationship between CPC and Ott II, even those
findings of the District Court that might be taken to speak to the
extent of CPC's activity at the facility itself are flawed, for the
District Court wrongly assumed that the actions of the joint
officers and directors are necessarily attributable to CPC. The
District Court emphasized the facts that CPC placed its own
high-level officials on Ott II's board of directors and in key
management positions at Ott II, and that those individuals made
major policy decisions and conducted day-to-day operations at the
facility: "Although Ott II corporate officers set the day-to-day
operating policies for the company without any need to obtain
formal approval from CPC, CPC actively participated in this
decision-making because high-ranking CPC officers served in Ott II
management positions."
Id., at 559; see also
id., at
575 (relying on "CPC's involvement in major decision-making and
day-today operations through CPC officials who served within Ott II
management, including the positions of president and chief
69
executive officer," and on "the conduct of CPC officials with
respect to Ott II affairs, particularly Arnold Ott"); id., at 558
("CPC actively participated in, and at times controlled, the
policy-making decisions of its subsidiary through its
representation on the Ott II board of directors"); id., at 559
("CPC also actively participated in and exerted control over
dayto-day decision-making at Ott II through representation in the
highest levels of the subsidiary's management").
In imposing direct liability on these grounds, the District
Court failed to recognize that "it is entirely appropriate for
directors of a parent corporation to serve as directors of its
subsidiary, and that fact alone may not serve to expose the parent
corporation to liability for its subsidiary's acts."
American
Protein Corp. v.
AB Volvo, 844 F.2d
56, 57
(CA2), cert. denied, 488 U. S. 852 (1988); see
also
Kingston Dry Dock Co. v.
Lake Champlain Transp.
Co., 31 F.2d 265, 267
(CA2 1929) (L. Hand, J.) ("Control
through the ownership of shares does not fuse the corporations,
even when the directors are common to each"); Henn & Alexander
355 (noting that it is "normal" for a parent and subsidiary to
"have identical directors and officers").
This recognition that the corporate personalities remain
distinct has its corollary in the "well established principle [of
corporate law] that directors and officers holding positions with a
parent and its subsidiary can and do 'change hats' to represent the
two corporations separately, despite their common ownership."
Lusk v.
Foxmeyer Health Corp., 129 F. 3d 773, 779
(CA5 1997); see also
Fisser v.
International
Bank, 282 F.2d
231, 238
(CA2 1960). Since courts generally presume
"that the directors are wearing their 'subsidiary hats' and not
their 'parent hats' when acting for the subsidiary," P. Blumberg,
Law of Corporate Groups: Procedural Problems in the Law of Parent
and Subsidiary Corporations § 1.02.1, p. 12 (1983); see,
e. g.,
United States v.
Jon-T Chemicals, Inc., 768 F.2d
686, 691
(CA5 1985), cert. denied, 475 U. S. 1014
(1986), it cannot be enough to establish liability
70
here that dual officers and directors made policy decisions and
supervised activities at the facility. The Government would have to
show that, despite the general presumption to the contrary, the
officers and directors were acting in their capacities as CPC
officers and directors, and not as Ott II officers and directors,
when they committed those acts.13 The District Court made no such
enquiry here, however, disregarding entirely this time-honored
common-law rule.
In sum, the District Court's focus on the relationship between
parent and subsidiary (rather than parent and facility), combined
with its automatic attribution of the actions of dual officers and
directors to the corporate parent, erroneously, even if
unintentionally, treated CERCLA as though it displaced or
fundamentally altered common-law standards of limited liability.
Indeed, if the evidence of common corporate personnel acting at
management and directorial levels were enough to support a finding
of a parent corporation's direct operator liability under CERCLA,
then the possibility of resort to veil piercing to establish
indirect, derivative liability for the subsidiary's violations
would be academic. There would in essence be a relaxed,
CERCLA-specific rule of derivative liability that would banish
traditional standards and expectations from the law of CERCLA
liability. But, as we have said, such a rule does not arise from
congressional silence, and CERCLA's silence is dispositive.
2
We accordingly agree with the Court of Appeals that a
participation-and-control test looking to the parent's supervi-
13 We do not attempt to recite the ways in which the Government
could show that dual officers or directors were in fact acting on
behalf of the parent. Here, it is prudent to say only that the
presumption that an act is taken on behalf of the corporation for
whom the officer claims to act is strongest when the act is
perfectly consistent with the norms of corporate behavior, but
wanes as the distance from those accepted norms approaches the
point of action by a dual officer plainly contrary to the interests
of the subsidiary yet nonetheless advantageous to the parent.
71
sion over the subsidiary, especially one that assumes that dual
officers always act on behalf of the parent, cannot be used to
identify operation of a facility resulting in direct parental
liability. Nonetheless, a return to the ordinary meaning of the
word "operate" in the organizational sense will indicate why we
think that the Sixth Circuit stopped short when it confined its
examples of direct parental operation to exclusive or joint
ventures, and declined to find at least the possibility of direct
operation by CPC in this case.
In our enquiry into the meaning Congress presumably had in mind
when it used the verb "to operate," we recognized that the statute
obviously meant something more than mere mechanical activation of
pumps and valves, and must be read to contemplate "operation" as
including the exercise of direction over the facility's activities.
See
supra, at 66-67. The Court of Appeals recognized this by
indicating that a parent can be held directly liable when the
parent operates the facility in the stead of its subsidiary or
alongside the subsidiary in some sort of a joint venture. See 113
F. 3d, at 579. We anticipated a further possibility above, however,
when we observed that a dual officer or director might depart so
far from the norms of parental influence exercised through dual
officeholding as to serve the parent, even when ostensibly acting
on behalf of the subsidiary in operating the facility. See n. 13,
supra. Yet another possibility, suggested by the facts of
this case, is that an agent of the parent with no hat to wear but
the parent's hat might manage or direct activities at the
facility.
Identifying such an occurrence calls for line-drawing yet again,
since the acts of direct operation that give rise to parental
liability must necessarily be distinguished from the interference
that stems from the normal relationship between parent and
subsidiary. Again norms of corporate behavior (undisturbed by any
CERCLA provision) are crucial reference points. Just as we may look
to such norms in identifying the limits of the presumption that a
dual office-
72
holder acts in his ostensible capacity, so here we may refer to
them in distinguishing a parental officer's oversight of a
subsidiary from such an officer's control over the operation of the
subsidiary's facility. "[A]ctivities that involve the facility but
which are consistent with the parent's investor status, such as
monitoring of the subsidiary's performance, supervision of the
subsidiary's finance and capital budget decisions, and articulation
of general policies and procedures, should not give rise to direct
liability." Oswald 282. The critical question is whether, in degree
and detail, actions directed to the facility by an agent of the
parent alone are eccentric under accepted norms of parental
oversight of a subsidiary's facility.
There is, in fact, some evidence that CPC engaged in just this
type and degree of activity at the Muskegon plant. The District
Court's opinion speaks of an agent of CPC alone who played a
conspicuous part in dealing with the toxic risks emanating from the
operation of the plant. G. R. D. Williams worked only for CPC; he
was not an employee, officer, or director of Ott II, see Tr. of
Oral Arg. 7, and thus, his actions were of necessity taken only on
behalf of CPC. The District Court found that "CPC became directly
involved in environmental and regulatory matters through the work
of ... Williams, CPC's governmental and environmental affairs
director. Williams ... became heavily involved in environmental
issues at Ott II." 777 F. Supp., at 561. He "actively participated
in and exerted control over a variety of Ott II environmental
matters," ibid., and he "issued directives regarding Ott II's
responses to regulatory inquiries," id., at 575.
We think that these findings are enough to raise an issue of
CPC's operation of the facility through Williams's actions, though
we would draw no ultimate conclusion from these findings at this
point. Not only would we be deciding in the first instance an issue
on which the trial and appellate courts did not focus, but the very
fact that the District Court did not see the case as we do suggests
that there may be still
73
more to be known about Williams's activities. Indeed, even as
the factual findings stand, the trial court offered little in the
way of concrete detail for its conclusions about Williams's role in
Ott II's environmental affairs, and the parties vigorously dispute
the extent of Williams's involvement. Prudence thus counsels us to
remand, on the theory of direct operation set out here, for
reevaluation of Williams's role, and of the role of any other CPC
agent who might be said to have had a part in operating the
Muskegon facility.14
V
The judgment of the Court of Appeals for the Sixth Circuit is
vacated, and the case is remanded with instructions to return it to
the District Court for further proceedings consistent with this
opinion.
It is so ordered.
14 There are some passages in the District Court's opinion that
might suggest that, without reference to Williams, some of Ott II's
actions in operating the facility were in fact dictated by, and
thus taken on behalf of, CPC. See,
e. g., 777 F. Supp., at
561 ("CPC officials engaged in ... missions to Ott II in which Ott
II officials received instructions on how to improve and change");
id., at 559 ("CPC executives who were not Ott II board members also
occasionally attended Ott II board meetings"). But nothing in the
District Court's findings of fact, as written, even comes close to
overcoming the presumption that Ott II officials made their
decisions and performed their acts as agents of Ott II. Indeed, the
finding that "Ott II corporate officers set the day-to-day
operating policies for the company without any need to obtain
formal approval from CPC," ibid., indicates just the opposite.
Still, the Government is, of course, free on remand to point to any
additional evidence, not cited by the District Court, that would
tend to establish that Ott II's decisionmakers acted on specific
orders from CPC.
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