Lead Opinion
ALAN E. NORRIS, J., delivered the opinion of the court, in which MERRITT, KENNEDY, MILBURN, DAVIDA. NELSON, BOGGS, SILER, and BATCHELDER, JJ., joined. RYAN, J. (p. 844), delivered a separate concurring opinion, in which MOORE, J., joined. BOYCE F. MARTIN, Jr., C.J. (pp. 844-46), delivered a separate dissenting opinion, in which DAUGHTREY, J., joined.
Like so many actions brought pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (“CERCLA”), 42 U.S.C. §§ 9601-9675 (1988 & Supp. V 1993), this case illustrates the difficulties that often attend the apportionment of financial liability for the environmental damage done to an industrial site. Sitting en bane, this court recently held that, under CERCLA, a parent corporation is liable for the environmental harms done by its subsidiary only if the elements necessary to pierce the corporate veil are present. United States v. Cordova Chem. Co. of Michigan,
I.
This case involves an industrial site located in Marysville, Michigan. On October 31, 1962, defendant Helen L. Bogle acquired title to the property. That same day she entered into a ten-year lease with the St. Clair Rubber Company, also a named defendant. At its expiration, the lease was renewed for a second ten-year term.
In its post-trial Memorandum Opinion and Order filed October 1, 1991, the district court made extensive findings of fact, including the following description of the use to which St. Clair put the property in question:
St. Clair’s manufacturing processes utilized various organic compounds, including aromatic compounds such as, but not limited to, methyl-ethyl-ketone (“MEK”), benzene, xylene, hexane,' toluene and various other compounds such as resins and rubber raw materials.
One of St. Clair’s manufacturing processes involved the blending of resins, solvents ... and other raw materials to produce various rubber products and adhesives ....
The blending' process left a waste product on the churns that St. Clair removed by treating the churns with additional solvent. The waste product combined with the additional solvent, and the resulting “sludge” was drained off into 55 gallon drums....
Typically, St. Clair employees transported 12 to 20 barrels or drums of sludge from the adhesive plant to the property every six month[s] for disposal. The employees allowed the sludge to drain from the barrels for approximately one week, after which they returned to burn the sludge. At the behest of the City of Marysville, St. Clair stopped its dumping and burning at the property in the 1970s.
Mem. Op. at 4-5. In short, the district court concluded that this and other .manufacturing activities conducted by St. Clair resulted in significant environmental harm to the property.
Throughout the time period relevant to this case, Bogle’s brother, defendant Seab-ourn S. Livingstone, owned 100% of St. Clair’s stock. He also served as chairman of the board of directors and as treasurer. With respect to his direct involvement in the pollution caused by St. Clair, however, the district court made the following factual finding:
[Tjhere is no credible evidence that Livingstone personally participated in the waste disposal practices of St. Clair. No witness testified that Livingstone gave explicit or implicit instructions to dispose of wastes in a specific manner. The testimony at trial clearly indicated that Livingstone personally participated in only the financial aspects of St. Clair’s operations, and that the day to day affairs, including waste disposal practices, were handled by managers and supervisors who did not need approval from Livingstone to execute their duties. While it is true that Livingstone had the authority to control waste disposal practices, he never exercised such authority; it was delegated to others....
There is also no evidence that Livingstone personally arranged for the disposal of St. Clair’s industrial waste products.
Mem. Op. at 28-29 (footnote omitted).
In the fall of 1981, plaintiff Richard Dona-hey considered purchasing the property be
On January’ 6, 1982, Donahey purchased the property from Bogle for $115,000, putting $28,750 down and agreeing to pay the remainder in monthly installments at 11% interest. Donahey deeded the property to himself and to his wife, plaintiff Patricia Do-nahey, on January 28. They then leased the site to Daca Manufacturing.
Not long after acquiring the property, Do-nahey had reason to question his purchase. First, former St. Clair employees detailed the extent of the company’s disposal practices to the Michigan Department of Natural Resources (“MDNR”). Then, in 1985, a newspaper article described the pollution of the property.
Richard Donahey responded to these developments by hiring Lawrence Halfen, an environmental consultant, to devise a remediation plan. Halfen proposed and carried out a plan at a cost of between $30,000 and $35,000. While overseeing the clean-up, however, Halfen noticed additional problems in the form of a “swath of gelatinous material.” When the ground began to sink under the weight of a backhoe, further investigation revealed buried pits ranging from six to ten feet in depth. He undertook additional efforts at remediation in light of this discovery. However, this initial effort was a temporary solution at best. Consequently, Halfen proposed a second plan in late 1987 with an estimated price-tag of $450,000.
Given the fact that release of solvents into the soil occurred before his ownership,
In a clear demonstration of how the value of the property had plummeted as the extent of the environmental damage became clear, plaintiffs attempted to surrender their interest in the property in August of 1990 by tendering quitclaim deeds to Bogle, an overture that she refused. Shortly thereafter, Richard Donahey ceased making payments on the land contract all together and effectively abandoned the property.
The Donaheys filed an eleven-count complaint on November 6, 1987, which included a CERCLA claim and also sought to rescind the land contract. Bogle responded by filing a counterclaim, as well as a, cross-claim against St. Clair and her brother, Seaboúrn Livingstone. The district court conducted a bench trial in 1991, and issued the Memorandum Opinion and Order cited above on October 1, 1991.
Among other things, the district court held that 1) none of the parties had incurred any recoverable response costs under CERCLA; 2) Richard Donahey is the current owner of the property; 3) Richard Donahey is obliged
On appeal, this court affirmed in part and reversed in part. Donahey v. Bogle,
With respect to the CERCLA issues, however, we reasoned that, “the [trial] court erred in concluding that Seabourn Livingstone was not liable as an owner under CERCLA. The evidence clearly established that Livingstone had the authority to prevent the contamination of the property by his corporation; thus, as a matter of law, Livingstone was a responsible party.”
Finally, this court' granted plaintiffs’ request for attorney’s fees and response costs and remanded the matter to the district court for determination of the appropriate amount due plaintiffs. Id. at 1255-56.
The Supreme Court subsequently granted certiorari in light of Key Tronic Corp. v. United States,
II.
Before the trial court, plaintiffs sought an award of $279,000 for attorney’s fees incurred as necessary expenses in their attempt to clean up the property. Reversing the trial court, this court adopted the reasoning of Bolin v. Cessna Aircraft Co.,
In Key Tronic, the Supreme Court explicitly considered whether attorney’s fees are “necessary costs of response” within the meaning of § 107(a)(4)(B) of CERCLA, which would make them recoverable. Key Tronic,
The conclusion we reach with respect to litigation-rélated fees does not signify that all payments that happen to be made to a lawyer are unrecoverable expenses under CERCLA. On the contrary, some lawyers’ work that is closely tied to the actual cleanup may constitute a necessary cost of response in and of itself under the terms of § 107(a)(4)(B). The component of Key Tronic’s claim that covers the work performed in identifying other potentially responsible parties falls in. this category....
This reasoning does not extend, however, to the legal services performed in connection with the negotiations between Key Tronic and the EPA that culminated in the consent decree. Studies that Key Tronic’s counsel prepared or supervised during those negotiations may indeed have aided the EPA and may also have affected the ultimate scope and form of the cleanup. We nevertheless view such work as primarily protecting Key Tronic’s interests as a defendant in the proceedings that established the extent of its liability. As such, these services do not constitute “necessary costs of response” and are not recoverable under CERCLA.
Id. at 819-21,
We disagree. In our view, Key Tronic contemplates a narrow exception to the general rule prohibiting the recovery of attorney’s fees. That exception is limited to steps taken to finger previously unidentified parties that might bear some legal responsibility under the terms of CERCLA for pollution of the site. In this ease, St. Clair had already been identified; indeed, it was a named defendant: Its insurers, although perhaps contractually liable for some of the costs related to the clean-up, are not potentially responsible parties under § 107(a) of CERCLA and thus any attorney’s fees related to their identification fall outside the exception and are not recoverable.
Accordingly, we affirm the district court’s denial of attorney’s fees.
III.
In Cordova, this court held that “where a parent corporation is sought to be held liable as an operator pursuant to 42 U.S.C. § 9607(a)(2) based upon the extent of its control of its subsidiary which owns the facility, the parent will be hable only when the requirements necessary to pierce the corporate veil are met.” Cordova,
Michigan appears to follow the general rule that requires demonstration of patent abuse of the corporate form in order to pierce the corporate veil. There must be such a unity of interest and ownership that the separate personalities of the corporation and its owner cease to exist, and the circumstances must be such that adherence to the fiction of separate corporate existence would sanction a fraud or promote injustice. Organization of a corporation for the avowed purpose of avoiding personal responsibility does not in itself constitute fraud or reprehensible conduct justifying a disregard of the corporate form.
Cordova at 580 (citations and footnote omitted).
Michigan courts recognize that stockholders, like parent corporations, are shielded from liability unless the requirements necessary to pierce the corporate veil are satisfied: “The corporate form is valid and will be protected by courts even when there is a single stockholder who is entitled to dominate the company and receive all of its profits.” Allstate Ins. Co. v. Citizens Ins. Co. of America,
Accordingly, the decision of the district court holding that Seabourn Livingstone is
IV.
Finally, Donahey asks us to revisit certain issues decided by the original panel in addition to those already discussed. While our “law of the case” doctrine does not require an en banc court to adhere to the decision of a prior panel, see 6th Cir. Rule 14(a) (“[T]he effect of the granting of a rehearing en bane shall be to vacate the previous opinion and judgment of this court”), we believe that the reasoning of the prior panel was correct on all issues not otherwise discussed in this opinion. Accordingly, we reinstate and reaffirm Donahey v. Bogle,
V.
This action is remanded to the district court for proceedings consistent with this opinion.
Notes
. The value of this agreement was of limited duration. As the district court found, "St. Clair’s Michigan Annual Reports for Profit Corporations for the period spanning 1979-1983 repeatedly and consistently indicate that its term of existence was to expire on March 18, 1983. In the early 1980s, St. Clair Rubber dissolved and ceased to exist as a corporation.” Mem. Op. at 7-8.
. Although all environmental degradation is arguably a matter of public concern, the pollution present at this particular property was of particular interest because of its proximity to the local water supply.
. The current cost of such a plan is approximately $1,000,000.
. The district court made an explicit finding on this point. Mem. Op. at 9.
. Although the opinion refers to Livingstone's liability as an owner, it is clear from the discussion that liability was premised upon his status as an "operator.” 42 U.S.C. § 9607(a)(2).
. We note in passing that plaintiffs seek reimbursement of attorney's fees incurred in deposing Seaboum Livingstone. Yet that is precisely the type of task that can only be performed by an attorney, one of the considerations listed by Key Tronic that would support a denial of fees.
Furthermore, like the environmental studies disallowed in Key Tronic, the identification of St. Clair's insurers primarily protected plaintiffs’ interests since they sought monetary compensation from, the company.
. Although Cordova also provided for § 107(a)(2) liability for parent corporations that directly operate the facility,
Dissenting Opinion
dissenting.
According to the en banc majority opinion, the sole shareholder of a corporation will escape liability under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. §§ 9601-9675, for environmental damage unless there are grounds for piercing the corporate veil. The majority has extended United States v. Cordova Chem. Co. of Michigan,
The majority opinion relieves defendant Seabourn Livingstone of CERCLA responsibility, but the larger problem is the blueprint it provides for future environmental malfea-sors. Facility owners and operators are liable for pollution under 42 U.S.C. § 9607(a)(1) and (2), but the ruling of the en banc majority provides the savvy polluter with a way to avoid that liability. The savvy polluter can form a closely held corporation of which he holds 100 percent of the shares. He can play an.active role in the company but follow a “don’t ask, don’t tell” policy regarding the disposal of environmental toxins. This savvy polluter, although he manages the company and owns all the shares, nonetheless will not be considered an “owner” or “operator” under the majority’s reading of CERCLA. The only way to reach the savvy polluter is to pierce the corporate veil and hold him derivatively hable. Of course, the hypothetical polluter posited herein is savvy enough to realize that in some states it is easier to pierce the veil than it is in others. He therefore will incorporate where he has the greatest
The majority gives the savvy polluter an opportunity to play state law off against federal law. A corporation is a product of state law. As such it should not provide a shield behind which an individual can flaunt federal law. “[T]he Court has consistently refused to give effect to the corporate form where it is interposed to defeat legislative policies.” First Nat’l City Bank v. Banco Para El Comercio Exterior de Cuba,
Federal-state issues aside, this case is not about imposing liability on the average shareholder. In discussing “shareholder” liability in this context, I limit my comments specifically to sole shareholders who are active in the corporation. I reserve the question of the liability of people who own less than 100 percent of a corporation’s shares or who are not active in management. I do so because CERCLA specifically excludes shareholders who are not involved in the management of companies from the definition of “owners” and “operators.” 42 U.S.C. § 9601(20)(A)(iii). The explicit exclusion of one class of shareholders from the class of owners or operators “implies that an owning stockholder who manages the corporation ... is hable under CERCLA as an ‘owner or operator.’ ” New York v. Shore Realty Corp.,
Livingstone does not fall into the class of shareholders excluded by 42 U.S.C. § 9601(20)(A)(iii) because he exercised the requisite control. Livingstone owned 100 percent of the St. Clair Rubber Company’s stock. By definition, anyone who owns all the stock has plenary power to run a company, but Livingstone’s formal role in the company is also well recorded. Livingstone was active in managing the financial aspects of the business. He was the treasurer and chairman of the board. The district court found that although “Livingstone had the authority to control waste disposal practices, he never exercised such authority.” Mem. Op. at 28-29. Simply ignoring environmental misdeeds, however, should not be a way of avoiding CERCLA liability. United States v. TIC Inv. Corp.,
Livingstone, however, should bear responsibility as a “covered person” under 42 U.S.C. § 9607. In light of his role as owner and manager, Livingstone is an “operator” under CERCLA. TIC Inv. Corp.,
Given that Livingstone can be considered an “operator” of the company in the parlance of CERCLA, the en banc majority is speaking in the wrong idiom when it talks of piercing the corporate veil in order to hold him derivatively liable. Under derivative liability, a shareholder would be held responsible for the environmental sins of his corporation if the corporate veil could be pierced. There is no reason to discuss piercing the corporate veil when a 100 percent shareholder can be held directly liable as an operator under 42 U.S.C. § 9607(a)(2). As the district court stated in an unreviewed opinion in Kelley: “I believe that CERCLA’s statutory scheme varies the configuration of traditional corporate principles which prevent individual liability absent a conclusion that an individual engaged in procedural irregularities justifying a court in ‘piercing the corporate veil’...."
I am not advocating the total disregard of limited liability for shareholders. Limited liability is too important to capital formation to be readily dismissed. My dissent covers a far more restricted class of persons than the average shareholder. A holder of one share of stock in a Fortune 500 company need not fear personal liability for the company’s potential environmental liabilities. When, however, a person owns all the shares in a corporation and plays a management role, that person should be considered an operator under 42 U.S.C. § 9607(a)(2) and subjected to the corresponding liability under CERCLA. I therefore respectfully dissent from the majority opinion.
Concurrence Opinion
concurring.
I concur in the majority opinion solely because I think I am obligated to do so by reason of the precedential^ binding decision of this court in United States v. Cordova Chemical Co.,
Now, the court extends that rather obvious misreading of CERCLA to protect a 100% shareholder of an ostensible operator corporation from direct section 107(1)(2) liability no matter what the evidence, shows as to his activities. The principle of ,law governing the two cases is indistinguishable, and therefore I am constrained to concur in the judgment.