Opinion ID: 740512
Heading Depth: 2
Heading Rank: 1

Heading: State Law v. Federal Common Law

Text: 76 Several of the parties argue that Cordova/Michigan, the nominal owner of the site, is an alter ego of Cordova/California and Aerojet and that Cordova/California and Aerojet should thus be held liable as owners under the doctrine of piercing the corporate veil. Resolution of this issue first requires deciding whether the question is governed by state law or federal common law. 77 It is well-established that actions arising under nationwide federal programs are governed by federal law. United States v. Kimbell Foods, Inc., 440 U.S. 715, 726, 99 S.Ct. 1448, 1457, 59 L.Ed.2d 711 (1979). But federal law can incorporate applicable state law doctrines in appropriate circumstances. Id. at 727-28, 99 S.Ct. at 1457-59. In Kimbell Foods, the Supreme Court enumerated the factors a court must consider in deciding whether to apply state law or federal common law. [F]ederal programs that 'by their nature are and must be uniform in character throughout the Nation' necessitate formulation of controlling federal rules, id. at 728, 99 S.Ct. at 1458 (quoting United States v. Yazell, 382 U.S. 341, 354, 86 S.Ct. 500, 507, 15 L.Ed.2d 404 (1966)), but courts must also consider whether application of state law would frustrate specific objectives of the federal programs and the extent to which application of a federal rule would disrupt commercial relationships predicated on state law. Id. 78 Under the Kimbell Foods test, federal common law standards for piercing the corporate veil should be applied in CERCLA actions against parent corporations. All three of the Kimbell Foods factors support using a uniform federal standard. 79 In attempting to eliminate the dangers of hazardous wastes, CERCLA presents a national solution to a nationwide problem. One can hardly imagine a federal program more demanding of national uniformity than environmental protection. Congress did not intend that the ability of the executive to fund the clean up of hazardous waste sites should depend on the attitudes of the several states toward parent-subsidiary liability in general, or CERCLA in particular. The need for a uniform federal rule is especially great for questions of piercing the corporate veil, since liability under the statute must not depend on the particular state in which a defendant happens to reside. 80 In re Acushnet River & New Bedford Harbor Proceedings re Alleged PCB Pollution, 675 F.Supp. 22, 31 (D.Mass.1987). 81 Congress intended for CERCLA to cast a wide net of responsibility for the costs of environmental cleanup. Uniform national standards of liability are necessary to effectuate this goal. Following state law in this area would allow corporations to easily evade their environmental responsibilities under CERCLA by incorporating subsidiaries in states with stringent standards for piercing the corporate veil. See 126 Cong. Rec. H11787 (daily ed. Dec. 3, 1980) (statement of Rep. Florio, CERCLA House sponsor) ([t]o insure the development of a uniform rule of law, and to discourage business dealings in hazardous substances from locating primarily in States with more lenient laws, the bill will encourage the further development of a Federal common law in this area). In addition, states' interests in regulating corporations are strongest with respect to internal affairs of the corporation, and are less compelling with respect to external affairs such as shareholder liability to outside parties. See Henry Hansmann & Reinier Kraakman, A Procedural Focus on Unlimited Shareholder Liability, 106 Harv. L.Rev. 446, 450-53 (1992) (arguing that choice of law concerns do not bar unlimited shareholder liability in tort actions); Note, Piercing the Corporate Veil: The Alter Ego Doctrine Under Federal Common Law, 95 Harv. L.Rev. 853, 862-63 (1982) (arguing that piercing the corporate veil relates to external affairs and should be governed by the law of the forum); cf. First Nat'l City Bank v. Banco Para El Comercio Exterior De Cuba, 462 U.S. 611, 621, 103 S.Ct. 2591, 2597, 77 L.Ed.2d 46 (1983) (As a general matter, the law of the [country] of incorporation normally determines issues relating to the internal affairs of a corporation.... Different conflicts principles apply, however, where the rights of third parties external to the corporation are at issue. (citations omitted)). 82 Federal precedents support using a federal common law standard for piercing the corporate veil to determine parent corporation CERCLA liability. Although few circuit courts have considered the issue, compare Lansford-Coaldale Joint Water Authority v. Tonolli Corp., 4 F.3d 1209, 1225 (3d Cir.1993) (applying federal common law) with Joslyn Manufacturing Co. v. T.L. James & Co., 893 F.2d 80 (5th Cir.1990) (affirming a district court opinion that declined to address the choice of law question on the grounds that the standard for piercing the corporate veil are the same under state and federal law), district courts have overwhelmingly applied federal common law in this context. Idylwoods Assocs. v. Mader Capital, Inc., 915 F.Supp. 1290, 1305 (W.D.N.Y.1996); Atlantic Richfield Company v. Blosenski, 847 F.Supp. 1261, 1278 (E.D.Pa.1994); City of New York v. Exxon Corp., 112 B.R. 540, 552 (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); United States v. Nicolet, Inc., 712 F.Supp. 1193, 1201 (E.D.Pa.1989); In re Acushnet River & New Bedford Harbor Proceedings re Alleged PCB Pollution, 675 F.Supp. 22, 30-31 (D.Mass.1987); cf. Jacksonville Elec. Auth. v. Eppinger and Russell Co., 776 F.Supp. 1542, 1545-46 (M.D.Fla.1991) (applying Fifth Circuit standard without discussing the choice of law question), aff'd on other grounds sub nom Jacksonville Elec. Auth. v. Bernuth Corp., 996 F.2d 1107 (11th Cir.1993); United States v. Mottolo, 695 F.Supp. 615, 624 (D.N.H.1988) (holding parent corporation liable without piercing the corporate veil because CERCLA places no importance on the corporate form). 83 Additional support for using a federal common law standard comes from cases involving successor corporation liability under CERCLA. Although this Court has previously relied on state law in that context, see Anspec Co. v. Johnson Controls, Inc., 922 F.2d 1240 (6th Cir.1991), other circuits that have considered this issue have applied federal common law. See B.F. Goodrich v. Betkoski, 99 F.3d 505, 519 (2d Cir.1996); United States v. Carolina Transformer Co., 978 F.2d 832 (4th Cir.1992); Louisiana-Pacific Corp. v. Asarco, Inc., 909 F.2d 1260 (9th Cir.1990); Smith Land & Improvement Corp. v. Celotex Corp., 851 F.2d 86 (3d Cir.1988); see also United States v. Mexico Feed and Seed Co., 980 F.2d 478, 487 n. 9 (8th Cir.1992) (stating in dicta that federal common law should probably be applied). 1