United States v. Bestfoods
524 U.S. 51 (1998)

  • Ott Chemical Co. was manufacturing chemicals at a facility in Michigan. They intentionally and unintentionally dumped hazardous chemicals all over the place.
  • 8 years later, Ott was bought by another company called CPC (who later became Bestfoods). While Ott was part of CPC they continued to dump hazardous wastes.
  • 7 years after that, CPC sold Ott to Story Chemical Co., which went out of business 5 years later.
  • After Story went out of business, the Ott site was surveyed by the Michigan Dept. of Natural Resources (MDNR). MDNR and EPA undertook actions to remediate the site, and then sued CPC to recover their cleanup costs under Comprehensive Environmental Response, Compensation, and Recovery Act (CERCLA).
    • CPC argued that they were just the parent corporation of Ott, and therefore had not "owned or operated" the facility as required for liability under CERCLA 107(a)(2).
  • The Trial Court found CPC liable for cleanup costs incurred under CERCLA.
    • The Trial Court found that a corporate parent may be liable either directly, or indirectly, when "the corporate veil can be pierced under state law."
      • Basically, if CPC operated the facility by "exerting power or influence over its subsidiary by actively participating in and exercising control over the subsidiary's business during a period of disposal of hazardous waste," then they would be liable.
      • In this case, since CPC selected Ott's board of directors, and since a CPC employee played a significant role in Ott's environmental compliance policy, CPC was exercising control and was therefore liable.
  • The Appellate Court reversed.
    • The Appellate Court found that a participation and control test looking to the parent's supervision over the subsidiary cannot be used to identify operation of a facility resulting in direct parental liability.
    • The Court found that CPC never directly operated the facility, because they had "maintained separate personalities, and the parents did not utilize the subsidiary corporate form to perpetrate fraud or subvert justice."
  • The US Supreme Court affirmed the Appellate Court.
    • The US Supreme Court held that only "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).
    • The Court found that derivative liability can be established only when the "corporate veil" has been "pierced."
      • That means that the subsidiary is acting only as a proxy for the parent.
    • Basically, the Court found that parental responsibility does not follow from just owning a subsidiary; rather, it must be shown that the parent acted as an operator in the subsidiary's facility.
    • The Court remanded the case to determine if CPC operated Ott, or just owned it.
  • The main point of this case is that in order for a parent company to be held liable for the acts of a subsidiary, it isn't enough to just show that the parent company had control over the subsidiary, it has to be shown that the parent company actually directly operated the subsidiary's facility.