Environmental attorney John Kolaga discusses personal liability for corporate officers.
Corporate officers and directors carry an exorbitant amount of responsibilities. Given these challenges, it is sometimes easy to forget that environmental issues involved with running a corporation can loom large, if overlooked. Solving environmental problems – complying with detailed regulations and addressing spills into the environment – can be frustrating, expensive, and time-consuming. Still, environmental compliance cannot be ignored, and here’s why.
One question I am often asked by corporate leaders is: Should I be worried about personal liability for environmental problems caused while I am managing the corporation? Often corporate officers and directors assume that their risk of personal liability is non-existent or small, given that they are working in service of the corporation itself. They assume that the corporate structure will protect them. After all, that is one of the reasons why corporations exist, right?
Not so fast. In the last 50 years, the courts on the federal and state levels have made clear that, under certain circumstances, corporate officers and directors can be held personally liable for environmental violations which occur during their management of a corporation.
By way of example, many courts in New York have wrestled with the question of the possible personal liability of corporate officers and directors for petroleum spills caused during a person’s management of a corporation. Assuming that the corporation is not a “sham” entity, the courts have generally determined that legal liability cannot be imposed on an individual based solely on the individual’s leadership position with the corporation. So far, so good.
However, corporate officers and directors should understand that the protections of the corporate form are not unlimited. Generally, a corporate officer or director cannot be held liable for a petroleum spill unless he or she is “directly, actively and knowingly involved” in the actions or inactions that lead to a spill or which allows a spill to continue unabated.
So then, what do these words mean? What does it mean to be “directly, actively and knowingly involved” in a spill? Although the judicial decisions are not entirely consistent, I think it is fair to say that the courts strive to apply this test in a common sensical fashion that does not expose all corporate officers and directors to environmental liability. Unfortunately, however, because of the high financial stakes sometimes involved, this is a question that often cannot be resolved without legal proceedings.