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
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
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
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
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