Court Opinion

ID: 6947643
Source: CourtListenerOpinion
Date Created: 2022-07-24 01:27:29.109167+00
Date Added: 2024-06-11T16:07:57.881364
License: Public Domain

MERRITT, Circuit Judge,
concurring in part and dissenting in part.
I concur in part I of Judge Ryan’s opinion, which would hold CPC International directly liable as an operator. I also concur in part III.C.3. of Judge Norris’ opinion for the Court and support remanding the case for further findings regarding the Aerojet defendants’ assertion of the “third-party” defense, CERCLA § 107(b)(3), 42 U.S.C. § 9607(b)(3), and for further findings regarding whether or not disposal of hazardous substances occurred while the Aerojet defen*584dants owned the site. Unlike Judges Ryan and Norris, however, I believe that federal common law governs the question of whether Cordova/California and Aerojet are liable as current owners pursuant to CERCLA § 107(a)(1), 42 U.S.C. § 9607(a)(1), rather than Michigan’s doctrine of piercing the corporate veil. Since the district court improperly analyzed this question using Michigan state law, I would remand the case for further findings.
I. State Law v. Federal Common Law
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.
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. “[FJederal 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.
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.
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.
In re Acushnet River & New Bedford Harbor Proceedings re Alleged PCB Pollution, 675 F.Supp. 22, 31 (D.Mass.1987).
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 *585corporate 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)).
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), affd 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”).
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
II. The Proper Federal Standard
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 *586corporation 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).
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 eases 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).
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.
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), affd 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.
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.

. The Eleventh Circuit recently applied state law to determine the CERCLA liability of limited partners, see Redwing Carriers, Inc. v. Saraland Apartments, 94 F.3d 1489 (11th Cir.1996). That is not necessarily inconsistent with applying federal law in claims involving subsidiary corporations, however, since the danger of corporations creating subsidiary partnerships, as compared to subsidiary corporations, in order to evade CERCLA liability is fairly attenuated.