1. In what ways can operator liability attach to a parent corporation? How did the Sixth Circuit Court disagree with the district courts analysis? 2. Is direct liability for a parent companys operation of the facility distinct from derivative liability for the subsidiarys operation of the facility? Should the focus be on parent and subsidiary or on parent and facility? 3. What norms of corporate behavior does the court look to in determining whether an officer or a director is involved in the operation of a facility?

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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 IIs 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 IIs plant within the meaning of 107(a)(2). The District Court said that operator liability may attach to a parent Chapter 23 Corporation: General Characteristics and Formation 23.7 Cases 924 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 subsidiarys business during a period of hazardous waste disposal. Applying that test, the court held CPC liable because CPC had selected Ott IIs board of directors and populated its executive ranks with CPC officials, and another CPC official had played a significant role in shaping Ott IIs 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 subsidiarys facility in the stead of the subsidiary, or alongside of it as a joint venturer, that court refused to go further. Rejecting the District Courts analysis, the Sixth Circuit explained that a parent corporations 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 IIs 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 subsidiarys 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 corporations 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 corporations conduct when, inter alia, the corporate form would otherwise be misused to accomplish certain wrongful purposes, most notably fraud, on the shareholders 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. Edmonds v. Compagnie Generale Transatlantique, 443 U.S. 256, 266-267. CERCLAs 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. Chapter 23 Corporation: General Characteristics and Formation 23.7 Cases 925 2. A corporate parent that actively participated in, and exercised control over, the operations of its subsidiarys facility may be held directly liable in its own right under 107(a)(2) as an operator of the facility. (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 facilitys 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 CERCLAs 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. (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 CPCs ownership of Ott II and its majority control over Ott IIs board of directors. Because direct liability for the parents operation of the facility must be kept distinct from derivative liability for the subsidiarys 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 facilitys activities. That error was compounded by the District Courts 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 Courts 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 Courts analysis created what is in essence a relaxed, CERCLAspecific 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 CERCLAs silence is dispositive. (c) Nonetheless, the Sixth Circuit erred in limiting direct liability under CERCLA to a parents 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 Chapter 23 Corporation: General Characteristics and Formation 23.7 Cases 926 with no position in the subsidiary manage or direct activities at the subsidiarys 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 officers oversight of a subsidiary from his control over the operation of the subsidiarys facility. There is, in fact, some evidence that an agent of CPC alone engaged in activities at Ott IIs plant that were eccentric under accepted norms of parental oversight of a subsidiarys facility: The District Courts opinion speaks of such an agent who played a conspicuous part in dealing with the toxic risks emanating from the plants operation. The findings in this regard are enough to raise an issue of CPCs 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.