United States v. Bestfoods

Background

The United States sued to recover costs of cleaning up a heavily polluted chemical plant near Muskegon, Michigan. The site had been operated and contaminated over decades by a series of companies, including a subsidiary originally formed to buy the old plant’s assets. The federal Environmental Protection Agency led a major remediation effort, and the Government named the parent corporations that once controlled the subsidiary among those potentially responsible for cleanup expenses.

Reasoning

The Court addressed whether a parent corporation is automatically liable for cleanup costs simply because it controlled or participated in its subsidiary’s business. The Justices said no. Longstanding corporate law presumes a parent and its subsidiary are separate, and a parent is not liable for a subsidiary’s wrongs unless the corporate veil is pierced — that is, the court treats the two companies as one because the parent used the subsidiary to do something wrongful, like commit fraud. But the Court also held that a parent can be directly liable if it itself operated the polluting facility — meaning it managed or directed pollution-related activities or compliance decisions at the plant. The opinion explained that asking whether a parent “operated” a facility focuses on actions at the plant, not simply the parent’s control of the subsidiary.

Real world impact

The decision narrows automatic parent-company exposure for hazardous-waste cleanup, while preserving two routes to liability: (1) traditional piercing of corporate separateness under state law; and (2) direct liability when the parent itself ran or directed the facility’s pollution-related operations. The Court remanded the case for the trial court to reexamine specific facts, including the role of a parent company official who may have acted on behalf of the parent at the plant.