ELR Citation: ELR 21321
No(s). 85 Civ. 1939 (EW) (S.D.N.Y. Mar 30, 1990)

The court holds that a corporation is liable under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) for the activities of its wholly owned subsidiary. The court initially declines to withdraw the reference of the case to the bankruptcy court. The federal District Court for the Central District of California referred the parent corporation's Chapter 11 proceeding to its own bankruptcy court. The court concludes that only the California district court can withdraw the reference, although the court observes in a footnote that it believes withdrawal would be appropriate. The court holds that the Bankruptcy Code's automatic stay provision does not apply when a governmental plaintiff in a CERCLA action is attempting to fix damages. The court holds that New York City has standing as a governmental plaintiff under CERCLA §107(a)(4)(A) and (C).

The court holds that the parent corporation is directly liable under CERCLA §107. Numerous courts have held that shareholder or parent corporations are personally and directly liable under CERCLA. While most of these cases consider the liability of shareholders or parent corporations as owners or operators under §107(a)(2), the analysis is similar to determining whether the parent corporation is liable under §107(a)(3) and (4) as a person who arranged for disposal and transport of hazardous wastes. The key factors are the degree of control over and actual participation by the parent corporation in the affairs of the subsidiary. The court holds that the parent corporation was sufficiently involved in the affairs of the subsidiary to be held directly liable under CERCLA §107(a)(3) and (4). The parent corporation was fully aware when it acquired the subsidiary that that company's business involved exclusively the handling of hazardous wastes. The parent corporation routinely scrutinized the standards and controls under which the waste removal activities were performed. Further, the parent corporation had an affirmative duty to ensure that its subsidiary was properly protecting the public from the environmental hazards inherent in its business. Having concluded that the parent corporation is directly liable under CERLCA, the court need not consider whether it is indirectly liable under traditional standards for piercing the corporate veil. The court notes, however, that it would hold the company liable under this theory as well. The court retains jurisdiction for further proceedings on apportioning damages and enjoins the parties from litigating issues relating to damages in the California bankruptcy proceeding.

[Prior decisions in this litigation are published at 16 ELR 20850 and 19 ELR 20332.]

Counsel for Plaintiff
Christopher A. Amato, Ass't Corporate Counsel
Affirmative Litigation Division
100 Church St., New York NY 10007
(212) 566-1259

Counsel for Defendants
Joseph DiBenedetto
Winston & Strawn
175 Water St., New York NY 10038
(212) 269-2500