Opinion ID: 740512
Heading Depth: 2
Heading Rank: 2

Heading: The Proper Federal Standard

Text: 84 Piercing the corporate veil is an equitable doctrine. The federal common law in this area emerges from the general principle that 'a corporate entity may be disregarded in the interests of public convenience, fairness and equity.'  In re Acushnet River & New Bedford Harbor Proceedings re Alleged PCB Pollution, 675 F.Supp. 22, 33 (D.Mass.1987) (quoting Town of Brookline v. Gorsuch, 667 F.2d 215, 221 (1st Cir.1981)); see also American Bell Inc. v. Federation of Tel. Workers, 736 F.2d 879, 886 (3d Cir.1984) (the appropriate occasion for disregarding the corporate existence occurs when the court must prevent fraud, illegality or injustice, or when recognition of the corporate entity would defeat public policy or shield someone from liability for a crime). Two elements are generally regarded to be essential to pierce the corporate veil: First, the dominant corporation must have controlled the subservient corporation, and second, the dominant corporation must have proximately caused plaintiff harm through misuse of this control. Krivo Indus. Supply Co. v. National Distillers & Chem. Corp., 483 F.2d 1098, 1103 (5th Cir.1973). 85 Although some cases require a showing of fraud, see, e.g., Edwards Co. v. Monogram Indus., 730 F.2d 977, 980-81 (5th Cir.1984), even jurisdictions that require such a showing in some circumstances often recognize that fraud is not always required. See, e.g., United States v. Jon-T Chems., Inc., 768 F.2d 686, 692-93 (5th Cir.1985) (finding that fraud is not required to pierce the veil in tort cases even though fraud is required in contract cases). Courts applying federal common law have found that fraud is not required to pierce the corporate veil. See, e.g., Valley Fin., Inc. v. United States, 629 F.2d 162, 172 (D.C.Cir.1980). Requiring a showing of fraud would be particularly inappropriate in CERCLA cases. The fraud requirement appears to arise from the equitable nature of the piercing doctrine. The public policy considerations underlying CERCLA, however, provide a sufficient equitable basis for piercing the corporate veil whether or not fraud has been shown. This conclusion is further supported by CERCLA's limited deference to corporate form. See United States v. Mottolo, 695 F.Supp. 615, 624 (D.N.H.1988); United States v. Kayser-Roth Corp., 724 F.Supp. 15, 23-24 (D.R.I.1989), aff'd on other grounds, 910 F.2d 24 (1st Cir.1990). 86 Similarly, the proximate cause element should not be required in CERCLA cases, because Congress has provided statutory liability criteria. If a CERCLA defendant is a potentially responsible party under CERCLA § 107, 42 U.S.C. § 9607, then no further finding of proximate causation should be required. 87 The test for piercing the corporate veil under federal common law in CERCLA cases thus should be simply whether the parent corporation controls or at the relevant time controlled the management and operations of the subsidiary. United States v. Nicolet, Inc., 712 F.Supp. 1193, 1202 (E.D.Pa.1989). Federal courts applying this standard in CERCLA cases have relied on one of two tests: a twelve-factor test set out in United States v. Jon-T Chems., Inc., 768 F.2d 686, 691-92 (5th Cir.1985); see Jacksonville Elec. Auth. v. Eppinger and Russell Co., 776 F.Supp. 1542, 1545 (M.D.Fla.1991), aff'd on other grounds sub nom Jacksonville Elec. Auth. v. Bernuth Corp., 996 F.2d 1107 (11th Cir.1993); Joslyn Corp. v. T.L. James & Co., 696 F.Supp. 222, 227 (W.D.La.1988), aff'd, 893 F.2d 80 (5th Cir.1990); or a seven-factor test set out in In re Acushnet River & New Bedford Harbor Proceedings re Alleged PCB Pollution, 675 F.Supp. 22, 33 (D.Mass.1987); see Idylwoods Assocs. v. Mader Capital, Inc., 915 F.Supp. 1290, 1305 (W.D.N.Y.1996); City of New York v. Exxon Corp., 112 B.R. 540, 553 (S.D.N.Y.1990), aff'd on other grounds, 932 F.2d 1020 (2d Cir.1991); United States v. Kayser-Roth Corp., 724 F.Supp. 15, 20 (D.R.I.1989), aff'd on other grounds, 910 F.2d 24 (1st Cir.1990). These tests overlap, and neither list of factors is exhaustive. Piercing the corporate veil requires a fact-specific inquiry taking into account all of these factors and any other pertinent circumstances. The trier of fact must consider the totality of the circumstances to determine whether the parent controls or controlled the management and operations of the subsidiary. 88 Because the district court applied Michigan law rather than the proper federal common law standard for piercing the corporate veil, I would remand the case for further review under the proper standard. 89