Takeaways From Michigan Decision Imposing Over $120 Million in Clean Air Act Penalties Against Coke Plant Parent

In United States v. EES Coke Battery, LLC, Judge Gershwin A. Drain of the Eastern District of Michigan found three parent corporations directly liable as “operators” under the Clean Air Act (CAA) for violations committed at a coke battery facility owned by their subsidiary, EES Coke Battery, LLC. 

The case resulted in penalties exceeding $100 million, mandatory New Source Review permitting, and $20 million in funding to address impacts — underscoring that federal environmental enforcement continues and that regulated entities should scrutinize corporate structures to assure that their design can withstand judicial scrutiny.

Key Takeaways

First, parent corporations cannot avoid environmental liabilities through contractual arrangements or corporate formalities when parent company employees actually control operations and environmental decision-making. The EES Coke Battery court emphasized that management services agreements do not shield parents from “operator” status when they exercise “actual, sustained control over the Facility’s environmental and emissions-related activities.”

Second, corporate subsidiaries with no employees are red flags. EES Coke had no employees of its own; all management and operations personnel were employed by parent companies. When the parent’s employees make environmental decisions, sign permits, and direct daily operations, the parent may become a facility’s legal operator regardless of the formal ownership structure.

What Makes a Parent Corporation an ‘Operator’?

The EES Coke decision applies United States v. Bestfoods, 524 US 51 (1998), the seminal US Supreme Court decision interpreting the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, which established that a parent company can be directly liable when it “actively participated in, and exercised control over, the operations of the facility itself.” Critically, when confronted with environmental compliance, this control must “specifically relate[] to pollution, that is, operations having to do with the leakage or disposal of hazardous waste, or decisions about compliance with environmental regulations.”

Applying the Sixth Circuit’s “actual control” test, requiring affirmative acts, not merely authority, the EES Coke court found substantial evidence of control. The court analyzed the ultimate parent and two intermediate parent entities. 

DTE Energy Services, Inc. (DTEES) operated the facility through a management services agreement granting authority over management, environmental compliance, and permitting. DTEES employees pursued the permits enabling emissions and developed the coal blend used to control sulfur dioxide emissions.

DTE Energy Resources, LLC (DTEES) employees led the permitting process and served as the US Environmental Protection Agency’s point of contact for CAA compliance — conduct the court found “amounts to actual, sustained control over the Facility’s emissions-related activities.”

DTE Energy Company (DTEEC) controlled EES Coke’s cash and capital expenditures, including all environmental expenditures. EES Coke had no bank account; all funds flowed through DTEEC’s centralized treasury. Because installing desulfurization equipment required DTEEC approval, the court found this financial control sufficiently “eccentric” to establish operator liability.

The EES Coke decision hinges on the subsidiary corporation’s lack of substance. The court rejected any suggestion that contractual arrangements alone could insulate parents from liability: “To hold otherwise would allow companies to structure their affairs in a manner that allows them to skirt Clean Air Act liability under the guise of arm’s length agreements.”

The court concluded that “the Facility cannot function without the DTE Defendants exercising control, and in this way, they operate the Facility ‘in the stead’ of EES Coke.” The message from this court is clear: Corporate separateness requires genuine operational independence, not merely formal documentation.

Environmental Enforcement Continues

A US Department of Justice press release issued after the decision emphasizes that “the Department of Justice will seek relief against companies that fail to comply with the nation’s environmental laws” to “ensure[] a level playing field for all businesses and advance[] the Administration’s initiative to Make America Healthy Again.” 

The firm’s Energy & Cleantech and Environmental teams monitor legal developments of interest to the regulated community. Stay tuned for further updates.