As those of us who have practiced in the Superfund arena for some time know, in the early years of Superfund litigation, such litigation was, from the defendant’s perspective, brutish and short, if not nasty and mean. The DOJ attorney would, in essence, march into court, state “I am from the government; I win,” and the case would be over.
In recent years, that approach has not proven quite so uniformly successful. The key case in the defendants’ arsenal is United States v. Bestfoods. In Bestfoods, the Supreme Court looked to traditional common law principles regarding corporate law to assess the potential liability of a parent corporation under CERCLA. The Court concluded that a parent corporation could not be held liable for the acts of its subsidiary unless the traditional test for piercing the corporate veil could be met.
In a recent decision, the Seventh Circuit Court of Appeals also looked to common law principles in assessing liability under CERCLA. Once more, reference to the common law spared the defendant – at least temporarily – from the Superfund gallows. In United States v. Capital Tax Corporation, the defendant had purchased tax certificates from Cook County with respect to certain contaminated property. After it found a buyer for the property, Capital Tax then actually obtained tax deeds to the property. Capital Tax had no written agreement with the buyer and did not transfer the tax deeds to the buyer, because the buyer never made full payment of the purchase price.
Eventually, EPA issued an administrative order to Capital Tax requiring it to clean up the property. When Capital Tax refused to do so, EPA performed the cleanup and sued Capital Tax, seeking recovery of response costs and penalties for failure to comply with the order. Capital Tax defended the case, arguing that, although it did hold legal title to the property, it did so only as security for the balance of the purchase price. In other words, Capital Tax asserted that it was entitled to the security interest defense under § 101 of CERCLA.
The Court found for Capital Tax, but took a slightly different approach. The Court concluded that Capital Tax should have an opportunity to establish that it is not the current owner of the property because, under the doctrine of equitable conversation, the true owner was the party to whom Capital Tax intended to sell the property.
Ultimately, the facts of the case are complicated, obscure, and not necessarily transferable to other cases. What is transferable is the Court’s insistence that state common law rules about ownership are important in determining whether a party is an owner under CERCLA. As the Court stated,
The understanding that state law governs property and the expectations built around that understanding strongly suggest that the federal standard should be rooted in an adoption of state property law. … To invent out of whole cloth a distinctly federal law of property would be inappropriate, if not impossible.
The lesson from Capital Tax is thus a simple one, even if its application may be complicated in specific cases. CERCLA does not mean that the government always wins. It does not mean that common law is irrelevant. If a party’s status is the determining issue for Superfund liability, then the party should carefully consider what applicable state common law says about that status. The government may still win most of the time, but the defendants now have at least a few arrows in their quiver.