Shared Services Agreements and Operator Liability

A Michigan District Court found that shared services agreements and the parent companies' involvement could make parents liable for environmental claims against their subsidiaries. The court ruled these agreements, along with actual involvement, support a claim that parents operated the facilities and are responsible for violations.

The court held that, while a parent company is protected from liability for its subsidiary's acts under standard state corporate law, it may still be liable as an operator if it is actually and actively involved in decisions leading to the environmental liability.

The court noted that several employees of both parent companies had senior roles in the subsidiary’s air pollution operations and participated in decisions that led to the enforcement action. The court held that this level of active involvement subjected the parent companies to liability.

The court also based its decision on the shared services agreement under which the companies managed the subsidiary's environmental activities.

The shared service agreement said the parent company would provide all services as may be required to facilitate the proper management and administration of the subsidiaries’ activities at the facility and detailed the services to be provided. Since the agreement allowed the parent to exercise actual control over the subsidiary's air pollution control activities, it was subject to operator liability.

WHY THIS IS IMPORTANT… Maintaining a separation of liability between parent corporations and subsidiary corporations means more than simply having the entities. If the parent actually controls the subsidiary's actions, either in fact or by contract, the parent could inherit the subsidiary's liability.