U.S. parent corporations should be held liable for environmental pollution caused by their foreign subsidiaries. The Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) already holds parent corporations liable in some ways for pollution caused by domestic subsidiaries. Regulations similar to CERCLA's could be applied extraterritorially and would be facilitated by abrogation of two common law principles: limited liability and forum non conveniens. Extraterritorial application of U.S. environmental regulations would greatly enhance transnational corporations' environmental behavior and facilitate just adjudication of plaintiffs' claims against irresponsible companies. Establishing the corporate parent's liability and upholding U.S. environmental standards in such cases would end many current hazardous practices that create pollution in developing countries.
Get full access to this article
View all access options for this article.
References
1.
42 U.S.C. §§9601–9657.
2.
NeffAlan, Not in Their Backyards, Either: A Proposal for a Foreign Environmental Practices Act, 17Ecology L. Q.477, 477 (1990), citing Want, Hazardous Waste: A Business Primer, 34Bus. & Econ. Rev.3,8 (1988).
3.
PardinasClaudia, The Enigma of the Legal Liability of Transnational Corporations, 14Suffolk Transnat'l L. J.405, 455 (1991). Pardinas, Counsel for the Legal Department of the World Bank, notes, “It seems repugnant to justice and ethics that a TNC constituent can open activities in a country without having the necessary assets to meet liabilities arising from its operation therein.” Pardinas recommends that limited liability be abrogated in such instances, so that TNC parents can be held liable for their subsidiaries. P. 454.
4.
Environmentalists argue that the environmental threat posed by weak regimes is never purely local because of the global nature of the environment (i.e., the global commons), and that the “operation of competitive international markets means that the existence of weak environmental regimes undermines the willingness of any state to enact stricter environmental standards.” Harvard Law Review Association, Extraterritorial Environmental Regulation, 104Harv. L. Rev.1609, 1617 (1991).
5.
Neff, supra note 2, 480. Toxic industrial pollution can cross national borders in the form of acid rain, downstream pollution, and the export of hazardous waste for disposal. Neff writes, “The atmospheric currents and watersheds that determine the extent of a particular environmental harm may not correspond to given political boundaries.”
6.
Id.
7.
Id.
8.
Id. at 480.
9.
FowlerRobert J., International Environmental Standards for Transnational Corporations, 25Envtl. L.1, 9 (1995).
10.
On December 2, 1984, toxic methyl isocyanate gas leaked from a chemical plant owned by Union Carbide India Limited, a subsidiary of the Union Carbide Corporation, incorporated in New York. An estimated 2,100 people were killed, and more than 200,000 others were injured. See ChinenMark A., Jurisdiction: Foreign Plaintiffs, Forum Non Conveniens, and Litigation Against Multinational Corporations—In Re Union Carbide Corp. Gas Plant Disaster at Bhopal, India in December, 1984, 28Harv. Int'l L. J.202, 202 (1987) (summarizing the litigation).
11.
Gabriel Ashanga Jota, et. Al v. Texaco, Inc., 157 F.3d 153, 155–156 (2d Cir. 1998). Jota involved the consolidated appeals of indigenous residents of the Oriente region of Ecuador and Peruvian residents living downstream from them who sued Texaco for environmental and personal injuries resulting from a Texaco subsidiary's oil drilling in the region. Both suits alleged that between 1964 and 1992 Texaco dumped large quantities of toxic byproducts from the petroleum drilling process, which lead to the devastation of the plaintiffs' environment—for which they are reliant upon for their subsistence—poisoning tribe members and causing pre-cancerous growths.
12.
KalasPeggy Rodgers, The Implications of Jota v. Texaco and the Accountability of Transnational Corporations, 12Pace Int'l. L. Rev.47, 52 (2000). For an interesting theory on the potential restitution and unjust enrichment claims that indigenous people may have against such companies, see FaganDavid, Achieving Restitution: the Potential Unjust Enrichment Claims of Indigenous Peoples Against Multinational Corporations, 76N.Y.U. L. Rev.626 (2001).
13.
Fowler, supra note 9, directs readers to David McFadden, A Selected Bibliography on Hazardous Activities, Technology and the Law: Bhopal and Beyond, 19Int'l Law1459 (1985). Undoubtedly, there have been several more accidents stemming from global expansion of corporations since then. The Exxon Valdez oil spill is just one example that comes to mind.
14.
Both the Union Carbide Corporation and Texaco are headquartered in New York.
15.
Neff, supra note 2, 477.
16.
See generally, Fowler, supra, note 9 at 1–6; also see, Neff, supra note 2 at 483–484.
17.
Dow Chem. Co. v. Castro Alfaro, 786 S.W.2d 674, 689 (1990) (discussing the reasons why the state of Texas has eliminated the defense of forum non conveniens).
18.
42 U.S.C. §§9601–9657. Parent corporations of polluting subsidiaries have primarily been affected by judicial decisions on CERCLA, rather than the other environmental statute governing hazardous waste, the Resource Conservation and Recovery Act (RCRA), because RCRA's liability provision only applies to “hazardous waste” which is defined narrowly, whereas CERCLA provides liability for a hazardous “release.” Alicia Stone, Parent Corporate Liability for Hazardous Substance Release from On-shore Facilities in the International Market: Legal Approaches of the United States, the European Community and Germany, 12 In Pub. Interest 57, 59 (1992).
19.
Kamie Frischknecht Brown, Parent Corporation Liability for Subsidiary Violations Under §107 of CERCLA: Responding to United States v. Cordova Chemical Co., 1998B.Y.U. L. Rev.265, 268 (quoting Nurad, Inc. v. William E. Hooper & Sons Co., 966 F.2d 837, 841 (4th Cir. 1992) (1998).
20.
U.S. v. Bestfoods, 524 U.S. 51, 55–56, 118 S.Ct. 1876, 1882 141 L.Ed.2d 43 (1998).
21.
Stone, supra note 18, 60 (referring to 42 U.S.C. 9606 (a).).
22.
The government must show: 1) that the contaminated property or site is a “facility” or “vessel;” 2) a “release” or “threatened release” of a “hazardous substance” has occurred from the facility/vessel; 3) remediation costs have been incurred as a result of such release; and 4) the party to be held responsible falls within one of four potentially responsible parties (PRPs). Brown, supra note 19, 268–269.
23.
US v. Bestfoods, 524 U.S. 51, 55, 118 S.Ct. 1876, 1881, 141 L.Ed.2d 43 (1998).
24.
42 U.S.C. §9607(a)(1–4).
25.
42 U.S.C. §9601 (21).
26.
Mary Elliot Role, United States v. Bestfoods: Clarifying Parent Corporation Liability Under CERCLA, 6Wis. Envtl. L. J.145, 148 (1999).
27.
U.S. v. Bestfoods, 524U.S.51, 63–64, 70 (1998).
28.
See note 25, infra.
29.
The 5th & 6th Circuits held that the limited liability doctrine protects the parent corporation (U.S. v. Cordova Chem. Co. 113 f.3d 572 (6th Cir. 1997), rev'd Bestfoods, 118 S.Ct. 1876 (1998); Joslyn Mfg. Co. v. T.L. James & Co., 893 F.2d 80 (5th Cir. 1990), cert. denied, 498 U.S. 1108 (1991); the 1st, 2nd, 3rd and 11th Circuits adopted a middle ground approach where the parent corporation could be held liable without piercing the corporate veil if “actual control” of the subsidiary or facility could be shown (Kayser Roth, 910 F.2d 24 (1st Cir. 1990); Schiavone v. Pearce, 79 F.3d 248 (2d Cir. 1996); Lansford Coaldale Joint Water Auth. V. Tonolli Corp., 4 F.3d 1209 (3d Cir. 1993); Jacksonville Elec. Auth. V. Bernuth Corp., 996 F.2d 1107 (11th Cir. 1993); and the 4th & 9th Circuits went the farthest by adopting a capacity to control or “prevention test”. (Nurad Inc. v. William E. Hooper & Sons Co., 966 F.2d 837 (4th Cir. 1991), cert denied, 506 U.S. 940 (1992); Kaiser Aluminum & Chem. Corp. v. Catellus Dev. Corp., 976 F.2d 1338 (9th Cir. 1992) (stating in dicta that the proper test is the “prevention” test). The courts disregarded the corporate form and the limited liability principles that protect it by holding parent corporations liable for their failure to exercise their inherent power or control to prevent a potential hazardous release; this test forces parent corporations to impose environmentally safe policies. For a more thorough discussion of the nuances and circumstances of the tests applied in these cases, see BookmanAron M., Transcending Common Law Principles of Limited Liability of Parent Corporations for the Environment, 18Va. Envtl. L. J.555, 573–587 (1999).
30.
US v. Bestfoods, 524 U.S. at 55, 118 S.Ct. at 1881.
31.
Id. at 55.
32.
Id.
33.
Id.
34.
Id. at 51, 72: “The critical question is whether, in degree and detail, actions directed to the facility by an agent of the parent alone are eccentric under parental norms of parental oversight of a subsidiary's facility.”
35.
Brown, supra note 19 at 267.
36.
The common law test to pierce the corporate veil requires that two elements be present. First, there must be such a unity of interest and ownership that the separate personalities no longer exist (i.e., that the subsidiary is simply an “alter ego” of the parent). Second, the circumstances must be such that failure to pierce the corporate veil would perpetrate a fraud or promote injustice. A “totality of the circumstances” test is used to determine if the subsidiary may be the alter ego of the parent, and while states differ, all states require a showing of substantial domination. See In re Silicone Gel Breast Implants Products Liability Litigation, 887 F. Supp. 1447 (1995) (discussing factors relevant to corporate control claims).
37.
For both sides of the argument, compare U.S. v. Cordova Chemical Co., 113 F.3d 572, 580 (3d Cir. 1997), with 113 F.3d 572, 584–586 (Merritt, J. dissenting).
38.
524 U.S. at, 69.
39.
Id. at 63–64.
40.
At least one law review article has recommended strategies to avoid liability. See Gregory O'Hara, Minimizing Exposure to Environmental Liabilities for Corporate Officers, Directors, Shareholders and Successors, 6 Santa Clara Computer & High Tech. L. J.1, 12.
41.
Bookman, supra note 29 at 606 writes: “Under [the Bestfoods'] analysis parent corporations would be compelled either to approve environmentally protective programs of their subsidiaries to protect themselves from unlimited liability as operators or to remain completely uninvolved.” He was discussing the parent corporation's prospective behavior in a domestic context, but the same outcomes would be equally—if not more—applicable in the international setting.
42.
Bookman, supra note 29 at 568.
43.
Id. at 569.
44.
Id.
45.
Id., 569–570.
46.
Bookman, supra note 29, 569.
47.
Id., 570.
48.
Id.
49.
See generally, BlumbergPhillip I., Limited Liability and Corporate Groups, 11J. Corp. L.573, 575–577; 623–630 (1986) (arguing that limited liability was extended to the corporate group without regard to the implications, since the principle developed and was applied automatically to the corporate form before it was legal for corporations to buy shares in other companies. He writes, “A fundamental principle [limited liability] had been accepted in the corporation law apparently without consideration whether such acceptance was sound.”) 611.
50.
Blumberg summarizes these arguments: encouraging investment and risk (i.e., protecting absentee investors from dangerous risk), increased development of large enterprises, diversification of portfolios, avoiding increased agency costs, avoiding impairing capital market efficiency, avoiding problems of collecting costs for creditors (they cannot bring suit against numerous shareholders); and avoiding increased transaction costs that result from trying to contract around liability. Id., 612–616. See also, HansmannHenry and KraakmanRenier, Toward Unlimited Shareholder Liability for Corporate Torts, 100Yale L. J.1879, 1933 (1991) (citing arguments in favor of limited liability which include the fact that shareholders may hide assets to avoid liability if limited liability didn't protect them, and the difficulty of implementing unlimited liability in one jurisdiction if others didn't apply the same rule).
51.
HansmannHenry and KraakmanRenier, supra, note 50, 1896.
52.
HansmannHenry and KraakmanRenier, supra, note 50, 1879.
53.
HansmannHenry and KraakmanRenier, supra, note 50, 1933.
54.
The Polluter Pays Principle “ensures that the price of goods reflects the complete cost of production, including costs associated with pollution, resource degradation, and environmental harm. Because the environmental costs are internalized in the price of the goods produced, goods that pollute less will cost less, and then consumers might switch to less polluting substitutes.” Santiago Cueto, Note: Oil's Not Well in Latin America: Curing the Shortcomings of the Current International Environmental Law Regime in Dealing with Industrial Oil Pollution in Latin America Through Codes of Conduct, 11 Fla. J. Int'l L. 585, 602 (1997).
55.
The United Nations advocates the implementation of the Polluter Pays Principle. Cueto, supra note 54, 602.
56.
Id.
57.
Blumberg, supra note 49, 574–575.
58.
Blumberg, supra note 49, 575–577; 623–630.
59.
Blumberg, supra note 49, 610.
60.
Blumberg, supra note 49, 576; 605 (Blumberg writes, “limited liability for corporate groups … appears to have emerged as an historical accident”); 610.
61.
Blumberg, supra note 49, 575.
62.
Blumberg, supra note 49, 575.
63.
Pardinas, supra note 3, 454.
64.
The Securities and Exchange Act of 1934 is one example: see Glenn Sarno, Haling Foreign Subsidiaries Into Court Under the 1934 Act: Jurisdictional Bases and Forum Non Conveniens, 550A UT Law & Contemp. Probs. 379 (1992). Trade embargoes against nations are one extraordinary instance where the U.S. will exercise extraterritorial jurisdiction over a national parent company's subsidiary. See ThompsonRobert B., United States Jurisdiction over Foreign Subsidiaries: Corporate and International Law Aspects, 15Law & Pol'y Int'l Bus. 319 (1983).
65.
RankinJennifer K., U.S. Laws in the Rainforest: Can A U.S. Court Find Liability for Extraterritorial Pollution Caused by a U.S. Corporation? An Analysis of Aguinda v. Texaco, Inc., 18B.C. Int'l & Comp. L. Rev.221, 226–227 (1995).
66.
Cueto, supra note 54, 599.
67.
Dow Chem. Co. v Alfaro, 786 S.W.2d 674 (1990) (holding that Section 71.031 of Texas's Civil Practice and Remedies Code statutorily abolished the forum non conveniens doctrine in suits to enforce a personal injury or wrongful death claim in Texas state courts). Tex. Civ. Prac. & Rem. Code Ann (Vernon 1986) Section 71.031 (a) provides “An action for damages for personal injury of a citizen of this state, of the United States, or of a foreign country may be enforced in the courts of this state, although the wrongful act, neglect or default causing the death or injury takes place in a foreign country” provided that: 1) the laws of the foreign state provide for a right to maintain an action for damages for such death or injury, 2) the action is commenced within the applicable statute of limitations, and 3) the foreign country has equal treaty rights with the U.S. (Statute quoted from 786 S.W.2d 674, 675.)
68.
786 S.W.2d 674, 682.
69.
GonzalezDaniel I. Basurto & RodrigeuzElaine Flud, Environmental Aspects of Maquiladora Operations: A Note of Caution for U.S. Parent Corporations, 22St. Mary's L. J.659, 696 (1991).
70.
GonzalezDaniel I. Basurto & RodrigeuzElaine Flud, Environmental Aspects of Maquiladora Operations: A Note of Caution for U.S. Parent Corporations, 22St. Mary's L. J.692.
71.
786 S.W.2d 674, 683.
72.
786 S.W.2d at 687.
73.
Id. (quoting Note, Hazardous Exports from a Human Rights Perspective, 14 Sw. U. L. Rev.81, 101 (1983), which was quoting Hon. Michael D. Barnes, a Maryland Congressional representative).
74.
ChinenMark A., Jurisdiction: Foreign Plaintiffs, Forum Non Conveniens, and Litigation Against Multinational Corporations—In Re Union Carbide Corp. Gas Plant Disaster at Bhopal, India in December, 1984, 28Harv. Int'l L. J.202, 203 (1987).
75.
Chinen, supra note 10, 209.
76.
Neff, supra note 2, 481.
77.
Neff, supra note 2, 482.
78.
Fowler, supra note 9, 19.
79.
Fowler, supra note 9, 20.
80.
Fowler, supra note 9, 19–20.
81.
Fowler, supra note 9, 20.
82.
Developing countries may not be able to impose the same restrictions on TNCs that their parent countries can: “Latin American countries, saddled with massive national debt loads, may have no alternative but to pursue environmentally harmful development strategies.” Cueto, supra note 54, 593–595.
83.
Fowler, supra note 9, 21.
84.
Host countries often lack effective regulatory agencies to enforce such requirements, or the importation of investment, jobs, and other benefits warrants a relaxation in enforcement. Neff, supra note 2, 485.
85.
A Tufts University survey revealed that 40% of American TNC respondents agreed that U.S. companies located in foreign countries because environmental regulatory systems there were weak. Fowler, 17 (citing the summary of the survey from RappaportAnn and FlahertyMargaret F., Multinational Corporations and the Environment: Context and Challenges, 14Int'l Env't Rep. (BNA), at 262 (May 8, 1991). See also Neff, supra note 2, 483–485.
86.
Fowler, supra note 9, 25–28.
87.
Fowler, supra note 9, 16.
88.
Neff, supra note 2, 478 (referencing S. 1089, 101st Cong., 1st Sess. (1989).
89.
BradleyC.Karkkainen argues that the Environmental Protection Agency's (EPA) Toxics Release Inventory (TRI) is a “watershed, pioneering the systematic use of performance monitoring and benchmarking as regulatory tools.” Bradley C. Karkkainen, Information as Environmental Regulation: TRI and Performance Benchmarking, Precursor to a New Paradigm?, 89Geo. L. J.257, 260 (2001).
90.
Fowler, supra note 9, 26 (quoting U.N. Centre for Transnat'l Corp. and Econ. & Soc. Commission for Asia and the Pacific, Environmental Aspects of Transnational Corporations Activities in Pollution-Intensive Industries in Selected Asian and Pacific Developing Countries, ESCAP/UNCTC Publication SERIES B, NO. 15 (1990) AT 75–76).
91.
Fowler, supra note 9, 26.
92.
Fowler, supra note 9, 26.
93.
Fowler, supra note 9, 27.
94.
Neff, supra note 2, 477.
95.
Neff, supra note 2, 509–537.
96.
Fowler, supra note 9, 6. In 1995, the G5 countries accounted for one half of the total number of parent TNCs.
97.
Fowler refers to how in return for easing their debt burden, developing countries have agreed to “structural adjustment” mechanisms, which encourage foreign investment by corporations. Id., 2–3.
