Parent Company Liability Under the Clean Air Act: Federal District Court Applies Bestfoods and Imposes $100 Million Penalty and $20 Million in Mitigation

In a February 17, 2026 decision with significant implications for corporate parents, the U.S. District Court for the Eastern District of Michigan held in United States v. EES Coke Battery, LLC that parent company DTE Energy Company and two affiliates were liable as “operators” under the Clean Air Act (CAA) for New Source Review (NSR) violations at a subsidiary’s coke battery facility. In a case of first impression, the court applied the standard for direct parent company liability established in United States v. Bestfoods to a source under the CAA. Moreover, the ruling includes a $100 million civil penalty, one of the largest CAA penalties issued by a court to a stationary source. The court ordered an additional $20 million in community mitigation, and also ordered EES Coke to obtain an NSR permit that may require the source to install costly new pollution controls.

Background

In June 2022, the United States filed suit against EES Coke. The complaint alleged EES Coke had made physical and operational changes at its River Rouge, Michigan facility that resulted in increased sulfur dioxide (SO₂) emissions in violation of the CAA. EES Coke had sought and received a revised state air permit in 2014 that allowed the changes, including removing restrictions on how much coke oven gas it could burn at the facility. The United States claimed those changes were unlawful and should have gone through NSR.

In 2024, the court granted the government’s request to amend its complaint to add DTE Energy and two affiliates (collectively, “DTE”) as additional defendants. After discovery, the parties filed cross-motions for summary judgment on liability. In August 2025, the court granted the government’s motion in part, finding EES Coke liable under the CAA for making a “major modification” of its facility that resulted in a significant net increase in SO₂ emissions without first obtaining an NSR permit. However, the court declined to address the question of parent liability because of genuine issues of material fact. A bench trial on the parent liability of DTE and potential remedies followed in September 2025.

When Is a Parent Corporation an Operator?

In a 52-page ruling, the court found DTE liable under the CAA. The court based its decision largely on the framework established in Bestfoods — a case under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). There, the Supreme Court held that a corporate parent may be held liable if it “actively participated in, and exercised control over, the operations of a subsidiary.” United States v. Bestfoods, 524 U.S. 51, 55 (1998). Like CERCLA, the CAA’s liability provisions target “owner[s] or operator[s].” And while the CAA defines those terms broadly to include “any person who owns, leases, operates, controls, or supervises a stationary source” (42 U.S.C. § 7411(a)(5)), the statute explicitly does not include parents or affiliates as owners or operators. In EES Coke, the court relied on Bestfoods to find parents and affiliates can be operators, holding DTE liable for CAA violations at its subsidiary EES Coke Battery.

Bestfoods distinguished between ordinary oversight of a corporate parent (e.g., monitoring performance, approving budgets, setting general policies) and direct participation in facility operations, particularly environmental compliance and pollution-related decisions. Under Bestfoods, only the latter supports direct operator liability.

In EES Coke, the court concluded that the DTE companies crossed that line from mere parent company to active participant. The court found that the parent companies “exhibit a high degree of control over the Facility, including over environmental decision-making and operations” and that this control was embedded in the corporate structure. United States v. EES Coke Battery, LLC, No. 2:22-cv-11191-GAD-CI, at *24–25 (E.D. Mich., Feb. 17, 2026). Notably, the court held that EES Coke had no employees of its own, finding all individuals involved in the management and operations of the facility were employed by DTE. Id. at 9. Moreover, the court found that DTE personnel led NSR permitting strategy, signed permit applications, managed environmental compliance, and made decisions not to install desulfurization technology that could have reduced SO₂ emissions. Id. at 21. The court determined the EES Coke Battery facility “cannot function” without the high degree of involvement of DTE, which amounted to operating the facility “in the stead” of the subsidiary. Id. at 25.

In doing so, the court held that contractual management agreements and properly observing the corporate form would not shield a parent from direct liability where it exercises sustained control over emissions-related operations.

A Nine-Figure Penalty Anchored in Economic Benefit

To arrive at the striking civil penalty, the court adopted a “bottom-up” approach, starting with the economic benefit it found had resulted from noncompliance  ― and then made a modest adjustment based on mitigation factors. Id. at 28.

The court credited testimony of the government’s expert averring that DTE and EES gained an economic benefit of approximately $70 million by delaying or avoiding pollution control costs. Id. at 30. It then exercised its discretion to impose a 1.5 multiplier to “ensure the civil penalty levels the economic playing field and adequately deters future” violations, resulting in a $105 million benchmark before a $5 million reduction for good faith, because DTE and EES “earnestly believed their excess emissions were lawful under” the facility’s 2014 state permit. Id. at 30–31. The final civil penalty for violating NSR was set at $100 million, with an additional $1 penalty for reporting violations. Id. at 31. While the final total is remarkable, the court noted that the final penalty is “well below the statutory maximum” penalty of $304.8 million that the court found it could have assessed. Id. at 25.

Beyond monetary relief, the court ordered the defendants to apply for and obtain the required NSR permit and to establish a Community Quality Action Committee funded with $20 million for air quality improvement projects. Id. at 47.

DTE and its affiliates have announced their intention to appeal.

Practical Takeaways

1. Government Enforcement Is Still Active. Regulated parties should not assume that changes in federal administration will insulate them from environmental enforcement, especially in cases where the court finds there was significant non-compliance and impacts to local communities. The Department of Justice even framed this outcome as a victory for the movement to “Make America Healthy Again.”
2. Reassess Corporate Oversight Structures. Parent involvement in environmental compliance, permitting strategy, or pollution control decisions may create risk of direct operator liability under the CAA — not just derivative liability that would require piercing the corporate veil.
3. Document Separation Carefully. Management services agreements, shared employees, and centralized decision-making can erode corporate separateness if not structured and implemented carefully.
4. Evaluate NSR Risk Holistically. Operational changes affecting emissions — even those perceived as efficiency or fuel-use adjustments that are accepted by state regulators — need to be evaluated carefully for potential federal NSR implications.
5. Economic Benefit Drives Penalties. Courts may use expert estimates of avoided costs as an anchor for penalties and apply multipliers for deterrence. Attempts to achieve compliance and cooperation with investigators can mitigate final amounts.

This post is as of the posting date stated above. Sidley Austin LLP assumes no duty to update this post or post about any subsequent developments having a bearing on this post.