United States v. Bestfoods

Since 1957, the numerous owners of the site where Cordova Michigan (Cordova MI) now sits have polluted. In 1965, CPC International Incorporated’s (CPC) wholly owned subsidiary bought Ott Chemical Company (Ott). The new company kept Ott’s name, managers and former founder, president and principal shareholder, Arnold Ott, as officers of Ott. In 1972, CPC sold Ott to Story Chemical Company (Story). Story then sold the plant to Aeroject General Corporation (Aeroject), which created a wholly owned California subsidiary, Cardova Chemical Company (Cardova CA), to purchase the property, who in turn created a wholly owned Michigan subsidiary, Cardova Chemical Company of Michigan (Cardova MI), which manufactured chemicals at the site until 1986. In 1981, the federal Environmental Protection Agency (EPA) undertook to clean up the site. Subsequently, the United States filed a claim against CPC, Aeroject, Cordova CA, Cordova MI, and Arnold Ott. The parties launched claims against one another. Consequently, the District Court consolidated the cases for trial in three phases: liability, remedy, and insurance coverage. After completion of the liability phase in favor of the United States, the District Court determined that CPC and Aeroject were liable as the parent corporations of Ott and the Cordova companies because they had “owned or operated” the facility within the meaning of Section:107(a)(2). The District Court held that CPC and Aeroject were directly liable as operators under Section:107(a)(2) because they actively participated in and controlled the subsidiary’s functions and decision-making. The Court of Appeals for the Sixth Circuit reversed in part. Later, that court granted a rehearing en banc and vacated the panel decision. This time, the court again reversed the District Court in part. The court held that a parent company might be held directly liable as an operator of a facility owned by its subsidiary, but only “when the requirements necessary to pierce the corporate veil [under state law] are met.” Finding that the corporate veil could not be pierced because the subsidiary corporations “maintained separate personalities “and “did not utilize the corporate form to perpetrate fraud or subvert justice,” the court did not extend direct liability to CPC or Aeroject. The United States Supreme Court granted certiorari “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.”