Opinion ID: 652885
Heading Depth: 3
Heading Rank: 2

Heading: Operator Liability Under CERCLA

Text: 44 Although congressional intent may be particularly difficult to discern with precision in CERCLA, a statute notorious for its lack of clarity and poor draftsmanship, see Artesian Water Co., 851 F.2d at 649, it is at least clear that Congress has expanded the circumstances under which a corporation may be held liable for the acts of an affiliated corporation such that, when a corporation is determined to be the operator of a subsidiary or sister corporation, traditional rules of limited liability for corporations do not apply. 11 This expansion of liability is consistent with CERCLA's broad remedial purposes, most importantly its essential purpose of making those responsible for problems caused by the disposal of chemical poisons bear the costs and responsibility for remedying the harmful conditions they created. John S. Boyd Co., 992 F.2d at 405 (citing Dedham Water Co. v. Cumberland Farms Dairy, Inc., 805 F.2d 1074, 1081 (1st Cir.1986)). 45 Courts have fashioned two competing standards for the imposition of operator liability: what we term the actual control test and the authority-to-control test. Under the actual control standard, a corporation will only be held liable for the environmental violations of another corporation when there is evidence of substantial control exercised by one corporation over the activities of the other, Kayser-Roth Corp., 910 F.2d at 27. In contrast, under the authority-to-control test, operator liability is imposed as long as one corporation had the capability to control, even if it was never utilized. See Nurad, 966 F.2d at 842; Idaho v. Bunker Hill Co., 635 F.Supp. 665, 670-71 (D.Idaho 1986); United States v. Nicolet, Inc., 712 F.Supp. 1193 (E.D.Pa.1989). 46 We reject the Authority's contention that the authority-to-control standard should govern. We believe that test sweeps too broadly and we thus adopt the actual control standard, which appears to strike the appropriate middle ground, balancing the benefits of limited liability with CERCLA's remedial purposes. Under the actual control standard, while the longstanding rule of limited liability in the corporate context remains the background norm, a corporation cannot hide behind the corporate form to escape liability in those instances in which it played an active role in the management of a corporation responsible for environmental wrongdoing. In contrast, we believe that a rule which imposes liability on a corporation which never exercised its general authority over its subsidiary or sister corporation may unduly penalize the corporation for a decision by that corporation to benefit from one of the well-recognized and salutary purposes of the corporate form: specialization of management, see Frank H. Easterbrook & Daniel R. Fischel, Limited Liability and the Corporation, 52 U.Chi.L.Rev. 89, 90-94 (1985). 12 47 We follow the test adumbrated in Kayser-Roth, supra, and CPC Int'l, Inc. v. Aerojet-General Corp., 777 F.Supp. 549 (W.D.Mich.1991). As the Kayser-Roth court explained, [t]o be an operator requires more than merely complete ownership and the concomitant general authority or ability to control that comes with ownership. At a minimum, it requires active involvement in the activities of the subsidiary. 910 F.2d at 27. Whereas a corporation's mere oversight of the subsidiary or sister corporation's business in a manner appropriate and consistent with the investment relationship does not ordinarily result in operator liability, a corporation's actual participation and control over the other corporations's decision-making does. CPC Int'l, 777 F.Supp. at 573. 48 The determination whether a corporation has exerted sufficient control to warrant imposition of operator liability requires an inherently fact-intensive inquiry, see John S. Boyd Co., 992 F.2d at 408, involving consideration of the totality of the circumstances presented. The factors courts should consider focus on the extent of the corporation's involvement in the other corporation's day-to-day operations and its policy-making decisions. 13 See CPC Int'l, 777 F.Supp. at 573. We understand the actual control standard to hold accountable for environmental violations those corporations which are not mere investors in other corporations, but instead have actively and substantially participated in the corporation's management. 49 In addition, because the essential focus of the actual control test is the control of one corporation over another, not only may a parent corporation be deemed the operator of its subsidiary, but a corporation may also be considered the operator of its sister corporation. In other words, the test is concerned with control rather than ownership and there is no reason not to hold a corporation liable when it exercises substantial management control over an affiliated corporation. 50