Taking it Personally: Shareholder Liability for Corporate Environmental Hazards

Abstract

The tremendous costs involved in environmental liability and the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) have created concern as to whether corporations will continue to offer limited liability in regards to environmental hazards. The U.S. Supreme Court held in United States v. Bestfoods that a parent corporation will be liable for the clean-up costs of its subsidiary only where corporate law permits or when the parent operated the offending facility. This Article analyzes Bestfoods and how the decision affects the liability of a shareholder of a closely held corporation.

Bestfoods makes clear that corporate law doctrine is still controlling, that CERCLA liability may attach when it is appropriate to pierce the corporate veil, and that a parent corporation may be held liable under CERCLA if the parent participates and controls the polluting activities at the offending cite. In the case of an individually owned corporation, liability may be found when the individual owner participated in the pollution. Additionally, the author argues that liability should be found when a corporate official failed to act and knew, or had a corporate duty to know, of the hazardous activity of its subsidiary. A corporate official should not be allowed to raise a "hear no evil, see no evil" defense. Instead the official's failure to act should be analyzed under either the corporate duty of care or tort law. By holding a corporate official liable when the official knew or show have known of the pollution or effectively controlled the manner in which the facility polluted, the requirements of Bestfoods will be met and active shareholders will not be encouraged to "turn a blind eye toward environmental harms."

Keywords: CERCLA, Bestfoods, closely held corporations, environmental liability