It is a general principle of corporate law deeply ingrained in the U.S. economic and legal systems that a parent corporation (so-called because of control through ownership of another corporation's stock) is not liable for the acts of its subsidiaries. Neither does the mere fact that there exists a parent-subsidiary relationship between two corporations make the one liable for the torts of its affiliate.
The United States brought this action under § 107(a)(2) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) against respondent CPC International Inc., the parent corporation of the defunct Ott Chemical Co., for the costs of cleaning up industrial waste generated by Ott II's 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 II's plant within the meaning of § 107(a)(2). The District Court said that operator liability may attach to a parent 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 subsidiary's business during a period of hazardous waste disposal. Applying that test, the court held CPC liable because CPC had selected Ott II's board of directors and populated its executive ranks with CPC officials, and another CPC official had played a significant role in shaping Ott II's environmental compliance policy. On appeal, the Sixth Circuit reversed, asserting that CPC International Inc. and Ott Chemical maintained separate personalities and did not improperly utilize the subsidiary corporate form.
Can succeeding parent corporations be liable for the clean-up of a hazardous waste site generated by its subsidiary?
The Court held that under 107(a)(2), a parent corporation that actively participated in, and exercised control over, the operations of the facility itself may be held directly liable in its own right as operator of the facility, as Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) does not bar a parent from direct liability for its own actions in operating a facility owned by its subsidiary.