Parent Corporation Liability for Subsidiary Violations Under § 107 of CERCLA: Responding to United States v. Cordova Chemical Co.

Parent Corporation Liability for Subsidiary Violations Under (sec)107 of CERCLA: Responding to United States v. Cordova Chemical Co. I. INTRODUCTION In 1980 Congress enacted the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA or Superfund)1 to combat the emerging difficulties associated with the clean-up costs of hundreds of leaking hazardous waste disposal sites across the nation.2 In the complex world of environmental torts under CERCLA, the often overwhelming cost of liability has generated a new set of legal problems as government enforcement actions against hazardous waste sites have advanced. One particular area of CERCLA liability that has progressed over the past decade concerns parent corporation liability. Under CERCLA's liability scheme, courts have extended liability to the parent corporation of an immediately responsible subsidiary corporation.3 The issue of parent corporations' liability for the environmental violations of their subsidiaries has intensified as a result of the Sixth Circuit's recent ruling in United States v. Cordova Chemical Co.4 In an en banc decision, the court held that a parent corporation is liable for contamination caused by a subsidiary only if its control over the subsidiary warrants piercing the corporate veil under state law.5 The decision is favorable to shareholders and parent corporations that were banking on the time-honored concept of limited liability protection of the corporate form. However, the majority of circuits that have considered this issue have allowed imposition of liability under (sec) 107 of CERCLA on parent corporations and shareholders without first finding that the corporate veil can be pierced.6 The Sixth Circuit has thrown itself into the clear minority on the issue of parent corporation liability under CERCLA. With the federal circuits in direct conflict, the issue of what legal standard applies in determining whether a parent corporation can be liable under CERCLA is ripe for Supreme Court review. Although the Court has repeatedly denied government and industry petitions for certiorari, choosing in effect "to acquiesce in the lower courts' imposition of an expansive program of joint and several liability"7 the issue of parent corporation liability under (sec) 107 is "a core question"8 that warrants the Court's scrutiny. This Note examines the Cordova decision and the legal standards for holding parent corporations liable for the environmental violations of their subsidiaries. Part II discusses the common law doctrine of corporate limited liability and the enactment of CERCLA, summarizing the dichotomous background against which Cordova was decided. Part III contains a description of the facts in Cordova and the court's analysis. Part IV analyzes the problematic modes of analysis currently adopted by courts in determining parent corporation liability under CERCLA, recognizes the need for uniformity among the courts, and suggests a new approach. Part V concludes that determining parent corporation liability should be based on uniform factor-based standards that balance traditional notions of corporate limited liability with CERCLA's underlying purpose of efficient environmental clean-up. II. BACKGROUND A. Common Law Corporate Limited Liability Historically, corporate owners have been safeguarded by limited liability.9 The notion of limited liability was created to protect corporate owners from the risks inherent in owning a business, thus allowing commerce and free enterprise to thrive.10 Corporate shareholders-individuals and parent corporations-are generally viewed as entities separate from the corporation itself. Shareholders are therefore protected from the corporation's liabilities by the corporate veil "unless specific, unusual circumstances" dictate that the veil be pierced and that the corporate form be ignored.11 Common law principles prescribe that a parent corporation can be liable for the actions of its subsidiary under circumstances that justify "piercing the corporate veil. …