U.S. v. Kayser-Roth Corp., Inc.

• Decision Date: 07 June 1990
• Docket Number: No. 90-1190,KAYSER-ROTH,90-1190
• Citation: 910 F.2d 24
• Parties: , 59 USLW 2093, 20 Envtl. L. Rep. 21,462 UNITED STATES of America, Plaintiff, Appellee, v.CORP., INC., Defendant, Appellant. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 24

910 F.2d 24

31 ERC 1932, 59 USLW 2093, 20 Envtl.

L. Rep. 21,462

UNITED STATES of America, Plaintiff, Appellee, v. KAYSER-ROTH CORP., INC., Defendant, Appellant.

No. 90-1190.

United States Court of Appeals First Circuit.

Heard June 7, 1990.

Decided Aug. 2, 1990.

Rehearing and Rehearing En Banc Denied Sept. 7, 1990.

Deming E. Sherman (argued), Providence, R.I., with whom Lynn Wright and Edwards & Angell, New York City, were on brief, for defendant, appellant.

J. Carol Williams, Atty., Dept. of Justice (argued), with whom Cynthia S. Huber and Jacques B. Gelin, Attys., Dept. of Justice, Washington, D.C., Lincoln C. Almond, U.S. Atty., Providence, R.I., Richard B. Stewart, Asst. Atty. Gen., Cambridge, Mass., and Michael Iannotti, Asst. U.S. Atty., Providence, R.I., were on brief, for plaintiff, appellee.

Before BREYER, Chief Judge, BOWNES, Senior Circuit Judge, and SELYA, Circuit Judge.

BOWNES, Senior Circuit Judge.

Kayser-Roth Corporation (Kayser) appeals from a decision by the district court of Rhode Island holding it liable as both an "owner" and "operator" for the cleanup costs incurred by the Environmental Protection Agency in response to a spill of trichloroethylene (TCE) at the Stamina Mills textile plant (the site). Stamina Mills, Inc. (Stamina), the nominal owner of the site, was a wholly owned subsidiary of Kayser prior to Stamina's dissolution in 1977. ¹ The government has sought to recover its cleanup costs from Kayser under the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. Sec. 9601 et seq. (CERCLA), based on direct liability (Kayser as operator of the site) and indirect liability (Kayser as owner by "piercing the corporate veil"). Kayser argues that the parent company of a dissolved subsidiary cannot, as a matter of law, be held liable on either ground. We disagree, and affirm on the basis that Kayser is liable as an operator.

CERCLA was enacted in response to the increasing concern about the vast problems of the disposal of and contamination from hazardous waste throughout the country. It is a remedial statute designed to protect and preserve public health and the environment. Because CERCLA is a remedial statute,

we.... construe its provisions liberally to avoid frustration of the beneficial legislative purpose. With this in mind, we join the Second Circuit in proclaiming that 'we will not interpret section 9607(a) in any way that apparently frustrates the statute's goals.'

Dedham Water Co. v. Cumberland Farms Dairy, Inc., 805 F.2d 1074, 1081 (1st Cir.1986) (quoting New York v. Shore Realty, 759 F.2d 1032, 1045 (2d Cir.1985)) (Dedham I ).

The Act empowers the government to use money from the "superfund" to clean up hazardous waste sites. 42 U.S.C. Sec. 9604(a). Any "person" who is the "owner" or "operator" of a facility at the time of the disposal ² of a hazardous substance shall be liable for, among other things, all of the costs of removal or other remedial action incurred by the United States. 42 U.S.C. Sec. 9607(a)(2). Liability for the cost incurred is strict ³ and joint and several. ⁴

I.

We begin our discussion with the issue of whether a parent corporation may be held directly liable as an operator. "Operator" is defined circularly in the statute as any person ⁵ operating a facility. ⁶ 42 U.S.C. Sec. 9601(20)(A)(ii). ⁷ Congress, by including a liability category in addition to owner ("operators") connected by the conjunction "or," implied that a person who is an operator of a facility is not protected from liability by the legal structure of ownership. Given this grammatical construction and the broad definition of "person," corporate status, while relevant to determine ownership, cannot shield a person from operator liability. In addition, the legislative history provides no indication that Congress intended "all persons" who are "operators" to exclude parent corporations. Shore, 759 F.2d at 1044 (reviewing congressional intent and determining that the final version of the statute "imposed liability on classes of persons without reference to whether they caused or contributed to the release or threat of release"). Thus, our analysis of the statute and its legislative purpose and history reveals no reason why a parent corporation cannot be held liable as an operator under CERCLA.

Our decision is supported by the interpretation given "operator" by other courts. See, e.g., United States v. Northeastern Pharmaceutical, 810 F.2d 726, 743-44 (8th Cir.1986), cert. denied, 484 U.S. 848, 108 S.Ct. 146, 98 L.Ed.2d 102 (1987) (individual liability under Sec. 9607(a)(3)); Idaho v. Bunker Hill Co., 635 F.Supp. 665 (D.Idaho 1986) (parent corporation liable as operator). For example, the majority shareholder of a corporation has been held individually liable as an operator under CERCLA. Shore, 759 F.2d at 1052. In addition, a corporation that was an owner through holding a security interest and became active in the management of the corporation has been held liable. United States v. Fleet Factors Corp., 901 F.2d 1550, 1557 (11th Cir.1990).

We are unpersuaded by the case upon which Kayser relies most heavily to support its position. Joslyn Mfg. Co. v. T.L. James & Co., 893 F.2d 80 (5th Cir.1990). Although there is some broad language in Joslyn that might support Kayser's position, the opinion is concerned primarily with owner rather than operator liability. The Joslyn court framed its issue as whether to "impose direct liability on parent corporations for the violations of their wholly owned subsidiaries." Joslyn, 893 F.2d at 81. On the theory of the case presently under consideration, Kayser is being held liable for its activities as an operator, not the activities of a subsidiary. Our reading of the Joslyn case is bolstered by a fifth circuit district court's narrow interpretation of the Joslyn case. Riverside Market Devel. Corp. v. International Building Products, 1990 WL 72249, 1990 U.S.Dist. LEXIS 6375 (E.D.La.1990) (distinguishing Joslyn and following Shore Realty and Northeastern Pharmaceutical in holding individual liable as operator and noting that in Joslyn there was no participation by parent in activities of subsidiary).

In sum, we believe that a fair reading of CERCLA allows a parent corporation to be held liable as an operator of a subsidiary corporation.

II.

We now examine whether the district court correctly held that Kayser was an operator. This determination is reviewed only for clear error. See Lynch v. Dukakis, 719 F.2d 504, 513 (1st Cir.1983). Without deciding the exact standard necessary for a parent to be an operator, we note that it is obviously not the usual case that the parent of a wholly owned subsidiary is an operator of the subsidiary. To 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.

The district court's excellent opinion found that "Kayser-Roth ... exerted practical total influence and control over Stamina Mills' operations." United States v. Kayser-Roth Corp., 724 F.Supp. 15, 18 (D.R.I.1989). The court summarized the evidence as follows:

Kayser-Roth exercised pervasive control over Stamina Mills through, among other things: 1) its total monetary control including collection of accounts payable; 2) its restriction on Stamina Mills' financial budget; 3) its directive that subsidiary--governmental contact, including environmental matters, be funneled directly through Kayser-Roth; 4) its requirement that Stamina Mills' leasing, buying or selling of real estate first be approved by Kayser-Roth; 5) its policy that Kayser-Roth approve any capital transfer or expenditures greater than $5000; and finally, its placement of Kayser-Roth personnel in almost all Stamina Mills' director and officer positions, as a means of totally ensuring that Kayser-Roth corporate policy was exactly implemented and precisely carried out.

Id. at 22. Kayser's control included environmental matters including the approval of the installation of the cleaning system that used the TCE. ⁸ The district court found Kayser had the power to control the release or threat of release of TCE, had the power to direct the mechanisms causing the release, and had the ultimate ability to prevent and abate damage. Kayser-Roth knew that Stamina Mills employed a scouring system that used TCE; indeed [it] approved the installation of that system ... [and] was able to direct Stamina Mills on how the TCE should have been handled.

Id. Such control is more than sufficient to be liable as an operator under CERCLA.

Kayser argues vehemently that it was blameless for the spill, which was caused by a third party and was not brought to Kayser's attention until years later. ⁹ Kayser misunderstands CERCLA. Under this strict liability statute, all that it is necessary to prove is that Kayser was an operator at the time of the spill. Although CERCLA...