United States v. Bestfoods

PETITIONER: United States
RESPONDENT: Bestfoods
LOCATION: National Endowment for the Arts

DOCKET NO.: 97-454
DECIDED BY: Rehnquist Court (1986-2005)
LOWER COURT: United States Court of Appeals for the Sixth Circuit

CITATION: 524 US 51 (1998)
ARGUED: Mar 24, 1998
DECIDED: Jun 08, 1998

ADVOCATES:
Kenneth Steven Geller - Argued the cause for the respondents
Lois J. Schiffer - Argued the cause for the petitioner

Facts of the case

The site of a chemical manufacturing plant was polluted over many years. During much of the time, the companies running the plant were wholly owned subsidiaries of, first, CPC International Inc. (CPC), and later Aerojet- General Corp (Aerojet). By 1981, the federal Environmental Protection Agency had undertaken to have the site cleaned up. To recover some of the money spent, the U.S. filed an action under Section 107 of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), 42 U.S.C. Section 9607(a)(2). Section 107 allows the U.S. to seek reimbursement for cleanup costs from, among others, "any person who at the time of disposal of any hazardous substance owned or operated any facility." The first phase of the trial concerned only liability, and focused on whether CPC and Aerojet had "owned or operated" the facility.

Question

May a parent corporation that actively participated in, and exercised control over, the operations of a subsidiary, without more, be held liable under CERCLA Section 107(a)(2) as an operator of a polluting facility owned or operated by the subsidiary?

Media for United States v. Bestfoods

Audio Transcription for Oral Argument - March 24, 1998 in United States v. Bestfoods

William H. Rehnquist:

We'll hear argument first this morning in Number 97-454, the United States v. Bestfoods, et al.--

Ms. Schiffer.

Lois J. Schiffer:

Mr. Chief Justice, and may it please the Court:

At issue in this case is under what circumstances is a parent corporation directly liable through its own acts as an operator of a facility under CERCLA?

This is a case of statutory construction.

Congress, to carry out its intent to have those responsible for causing pollution at a facility responsible to remediate it created a system that holds, among others,

"any person who owned or operated. "

a facility liable for cleanup of that facility.

It is a direct liability standard.

Owner or operator is a defined term in the statute.

A pertinent part of the definition, any person who operates the facility, is circular, and so according to the teachings of this Court must be given its common and ordinary meaning.

The dictionary definition of operate is in the context of an industrial facility any person who exercises managerial control over that industrial plant, and we think that this is the appropriate test to apply here.

Under CERCLA, the term any person is given a broad definition and includes any corporation, whether a parent or a subsidiary.

Thus--

Sandra Day O'Connor:

Well, Ms. Schiffer, surely you would agree that under the statute not every parent is liable under this statute for the operation of a facility by a subsidiary.

Lois J. Schiffer:

--We would absolutely agree with that.

Sandra Day O'Connor:

And there mere fact that there are interlocking directorships, or perhaps managers who serve both corporations, wouldn't determine that, would it?

Lois J. Schiffer:

That is exactly correct, Justice O'Connor.

It would not determine it.

The fact that there are interlocking directorships may be an evidentiary factor in determining whether the parent corporation is operating the facility.

Sandra Day O'Connor:

Well, I'm not sure it should even do that, I mean, if our ordinary understanding of the corporate structure and reasonable investment-backed expectations is that we recognize the corporate separate entities, and we recognize that a parent can have a subsidiary and that a parent isn't liable for what the subsidiary does in normal circumstances.

Lois J. Schiffer:

Justice O'Connor, what we're talking about here, and which is consistent with the common law, is what the action of the parents are as a company toward the facility, not what the actions of the parent are toward the subsidiary, and while there may be useful evidence in how the parent acts toward the subsidiary, the real question is, how did the parent company directly affect or actively participate in the management of the facility.

David H. Souter:

I think that's helpful, and I don't think the district court did that.

It seemed to me that the district court focused on the relation of the parent to the subsidiary, and a corporate veil-piercing type of analysis, and certainly the Sixth Circuit did.

Lois J. Schiffer:

Well, let me start first with the district court, Justice Kennedy.

What the district court did is make very detailed and extensive factual findings that included information about the activities of the parent toward the subsidiary, but was in no way limited to that.

For example, there were specific factual findings made about Mr. Williams, who was a... an employee of the parent company, and the actions he had toward pollution-related activities at the facility that was operated by the subsidiary.

The... it's easy to confuse here, because, in fact, for much of the time at issue the subsidiary companies operated only a single facility.

Ott II operated the facility at Muskegon, Michigan.

For 3 years it was its only activity.