Environmental Advisory: Massachusetts Supreme Judicial Court Holds Parent Corporation Not Liable under Massachusetts Superfund Law for Contamination Caused by Subsidiary

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The Massachusetts Supreme Judicial Court (SJC) has held that a parent corporation is not liable under M.G.L. c. 21E, the Massachusetts Superfund law, for the liability of a subsidiary that the parent did not own or control at the time the subsidiary released hazardous materials and sold a contaminated site. The SJC has also held that a plaintiff is liable for a defendant’s attorney’s fees in a Chapter 21E lawsuit if there is no “reasonable basis” for the claim against defendants. Scott v. NG U.S. 1, Inc. (March 7, 2008).

In Scott, the plaintiff had discovered contamination allegedly coming from property owned and operated as a gas works by Salem Gas from 1850 to 1890. Salem Gas was dissolved in 1998, but, starting in 1926, a series of stock purchases had led to Salem Gas becoming a subsidiary of NEES, the corporate predecessor to defendant NG U.S. 1, in 1947. NEES consolidated the operations of Salem Gas with those of two other gas companies and later sold the stock and assets of the consolidated corporation.

The SJC followed the U.S. Supreme Court’s decision in United States v. Bestfoods, 524 U.S. 51 (1998), which held that CERCLA, the federal Superfund law, does not override the fundamental rule of corporate law that a parent corporation is not directly or indirectly liable for the acts of its subsidiaries except in limited circumstances.

Now, under both Bestfoods and Scott, a parent corporation may be liable under CERCLA, or Chapter 21E, for its subsidiary’s contamination only when:

the parent “manage[s], direct[s], or conduct[s] operations specifically related to pollution”; or

the subsidiary’s “corporate veil” may be pierced.

The SJC held that the corporate veil may be pierced to hold a parent responsible for a subsidiary’s actions only if the parent exercises “pervasive control” and there is some “fraudulent or injurious consequence” or there is “confused intermingling with ‘substantial disregard of the separate nature of the corporate entities.'"

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