Module V Corporate Externalities Chapter 13 Corporate Environmental

Module V – Corporate Externalities Chapter 13 Corporate Environmental Liability • Corporation as polluter Bar exam – Respondeat superior liability – But pollution pays! • CERCLA liability (beyond corporate polluter) Corporate practice Law profession – Parent corporation liability (1) owner: only under PCV (derivative liability) (2) operator: manage polluting facilities (direct liability) – Factors in direct liability: parent personnel ~ polluting facility (1) dual officers/directors not enough (2) beyond “norms” of parental oversight • Corporate officers’ liability Citizen of world Corporations: A Contemporary Approach • • Criminal (environmental statutes): no convictions! Civil: beyond normal PCV Chapter 13 Corporate Environmental Liability Slide 1 of 10

When is corporation liable as polluter? Civil liability Criminal liability Does pollution pay? Corporations: A Contemporary Approach Chapter 13 Corporate Environmental Liability Slide 2 of 10

United States v. Bestfoods (US 1998) • Superfund? • How funded? • Who liable? Why BF? • Rules on parent liability? • Overlapping managers? • Supervision of environ compliance? • CERCLA policy? • “owner” liability? • “operator” liability? Corporations: A Contemporary Approach Chapter 13 Corporate Environmental Liability Slide 3 of 10

CERCLA § 107(a)(1) Any person who at the time of disposal of any hazardous substance owned or operated any facility at which such hazardous substances were disposed of shall be liable for all costs of removal or remedial action incurred by the United States Government or a State. Corporations: A Contemporary Approach Chapter 13 Corporate Environmental Liability Slide 4 of 10

Nothing in CERCLA purports to reject this bedrock principle of corporate law: parent is not liable for acts of subsidiary. … Only when the corporate veil may be pierced may parent face derivative liability. Under CERCLA “operator” [direct liability] must manage, direct or conduct operations specifically related pollution…. Analysis of relationship between CPC and Muskegon facility. Common D/Os acting in their capacities as CPC D/Os – beyond “normal relationship. ” Justice David Souter

Gov’t regulator Direct liability Parent “operator” De riv liab ative ility PCV Subsidiary “owner/operator” Corporations: A Contemporary Approach Chapter 13 Corporate Environmental Liability Slide 6 of 10

Unanswered questions: • Derivative liability: Why does Supreme Court adopt “state” PCV standards – isn’t CERCLA federal law? – Which state: If federal “derivative liability” standards depend on state law, which state? • Direct liability: Compare to PCV - different? “Corporate form misused” vs. “beyond norms of parental influence”? – Reward laxity: Which parent corporation is better off – one that oversees its sub’s polluting activities or not? • Corporate awe: Why is the Supreme Court so in awe of state-based corporate limited liability – “bedrock principle”? Corporations: A Contemporary Approach Chapter 13 Corporate Environmental Liability Slide 7 of 10

Data on PCV in environmental cases … Thompson (until 1985) Wake I (1986 -1995) Wake II (1996 -2005) PCV (K / tort cases) 1005 cases PCV = 39. 5% 118 cases PCV = 32. 2% 154 cases PCV = 26. 6% PCV (environ cases) 6 cases PCV = 83. 3% 5 cases PCV = 60. 0% 6 cases PCV = 67. 7% Corporations: A Contemporary Approach Chapter 13 Corporate Environmental Liability Slide 8 of 10

Data on PCV in environmental cases … Thompson (until 1985) Wake I (1986 -1995) Wake II (1996 -2005) PCV (K / tort cases) 1005 cases PCV = 39. 5% 118 cases PCV = 32. 2% 154 cases PCV = 26. 6% PCV (environ cases) 6 cases PCV = 83. 3% 5 cases PCV = 60. 0% 6 cases PCV = 67. 7% Corporations: A Contemporary Approach Chapter 13 Corporate Environmental Liability Slide 9 of 10

More questions: • Special PCV: Should there be different piercing standards in environmental cases? • Officer civil liability: why should “could have prevented” be the standard? Too lax? • Officer criminal liability: if statutes specifically contemplate this, why no convictions? Corporations: A Contemporary Approach Chapter 13 Corporate Environmental Liability Slide 10 of 10

Gov’t regulator Direct liability Parent “operator” De riv liab ative ility PCV Subsidiary “owner/operator” Corporations: A Contemporary Approach Chapter 13 Corporate Environmental Liability Slide 11 of 10

Unanswered questions: • Derivative liability: Why does Supreme Court adopt “state” PCV standards – isn’t CERCLA federal law? – Which state: If federal “derivative liability” standards depend on state law, which state? • Direct liability: Compare to PCV - different? “Corporate form misused” vs. “beyond norms of parental influence”? – Reward laxity: Which parent corporation is better off – one that oversees its sub’s polluting activities or not? • Corporate awe: Why is the Supreme Court so in awe of state-based corporate limited liability – “bedrock principle”? Corporations: A Contemporary Approach Chapter 13 Corporate Environmental Liability Slide 12 of 10

l a ic t e : Corporations: A Contemporary Approach A e l ib h t o h p y t r r e Chapter 13 Corporate Environmental Liability Slide 13 of 10

BP plc BP America Inc BP Corp North Am BP Co. North Am BP Am Production BP Exploration, Inc Corporations: A Contemporary Approach BP Oil Spill Victim Compensation Fund * Chapter 13 Corporate Environmental Liability Slide 14 of 10

You are the general counsel of Global. Petroleum. There’s been a terrible accident. An oil rig leased to GP North America - a company in the GP group -- has gone down in flames with loss of life, and the uncapped underwater well is spewing oil into the Gulf of Mexico. It may become the biggest man-made oil spill in history. It turns out the rig was actually operated not by GP, but its wholly-owned US sub, GP Exploration – which held the lease to the offshore oil field. And liability of GP Exploration (as “holder” of the offshore mineral rights) is capped under the Oil Pollution Act of 1990 at removal costs plus $75 million in environmental damages, unless there was “gross negligence. ” [See Act] The GP board has met in emergency session. You have been asked to address GP’s liability. What do you advise the board? Corporations: A Contemporary Approach Chapter 13 Corporate Environmental Liability Slide 15 of 12

OIL POLLUTION ACT OF 1990 SEC. 1001. DEFINITIONS. (27) ‘‘person’’ means an individual, corporation, … (32) ‘‘responsible party’’ means the following: … (C) OFFSHORE FACILITIES. —In the case of an offshore facility … the lessee or permittee of the area in which the facility is located or the holder of a right of use and easement granted under applicable State law or the Outer Continental Shelf Lands Act…. SEC. 1002. ELEMENTS OF LIABILITY. (a) IN GENERAL. —Notwithstanding any other provision or rule of law, … each responsible party for … a facility from which oil is discharged. . into or upon the navigable waters … is liable for the removal costs and damages specified in subsection (b) that result from such incident. … SEC. 1004. LIMITS ON LIABILITY. (a) GENERAL RULE. —Except as otherwise provided in this section, the total of the liability of a responsible party under section 1002 … with respect to each incident shall not exceed— (b) … (3) for an offshore facility …, the total of all removal costs plus $75, 000 … (c) EXCEPTIONS. — (1) … Subsection (a) does not apply if the incident was proximately caused by— (A) gross negligence or willful misconduct of, or (B) the violation of an applicable Federal safety, construction, or operating regulation by, the responsible party, an agent or employee of the responsible party …. Corporations: A Contemporary Approach Chapter 13 Corporate Environmental Liability Slide 16 of 12

The end Corporations: A Contemporary Approach Chapter 13 Corporate Environmental Liability Slide 17 of 10