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United States v. Kayser-Roth Corporation

United States Court of Appeals for the First Circuit · 1990 · Corporations
910 F.2d 24 (1st Cir. 1990)
Updated
CorporationsCERCLAParent-subsidiary liabilityOperator liabilityparent corporationsubsidiarystrict liabilityhazardous waste

Facts

The EPA incurred cleanup costs after a spill of trichloroethylene (TCE) at the Stamina Mills textile plant. Stamina was the nominal owner of the site and had been a wholly owned subsidiary of Kayser before Stamina dissolved in 1977. The district court found that Kayser exercised pervasive control over Stamina, including total monetary control, budget restrictions, required approval of real estate transactions and capital expenditures over $5,000, routing governmental and environmental contacts through Kayser, and staffing most Stamina director and officer positions with Kayser personnel. Kayser also approved installation of the cleaning system that used TCE and had the power to control or prevent the release.

Issue

May a parent corporation be held directly liable under CERCLA as an operator of a subsidiary's facility? If so, did the district court clearly err in finding that Kayser was an operator of the Stamina Mills site at the time of the TCE spill?

Rule

CERCLA's operator liability extends to parent corporations because operator status is not defeated by the legal structure of ownership. To be an operator, a parent must do more than merely own the subsidiary and possess the general authority that comes with ownership; at a minimum, operator status requires active involvement in the subsidiary's activities, and pervasive control is sufficient.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.
Blue Mesa Holdings owns 100% of Desert Solvents LLC, which operates a degreasing facility in Albuquerque, New Mexico. Blue Mesa appoints the subsidiary's directors and receives quarterly profits, but Desert Solvents sets its own budget, negotiates its own leases, handles all regulator communications, and makes all operating and environmental decisions without parental approval.

If hazardous chemicals are released from the facility during Desert Solvents' operations, is Blue Mesa most likely directly liable under CERCLA as an operator?

Explanation. The majority held that a parent may be directly liable as an operator, but not merely because it wholly owns the subsidiary. Operator status requires more than complete ownership and the general authority that comes with ownership; at a minimum it requires active involvement in the subsidiary's activities. Here, Blue Mesa's conduct reflects ordinary ownership, not active involvement or pervasive control.