Federal and state courts are using the "responsible corporate officer" doctrine to impose civil liability on corporate officers for their acts performed on behalf of the corporation that lead to the violation of certain environmental laws. Recently, the Supreme Court of the State of Indiana judicially imposed greater corporate responsibility by holding an individual associated with a corporation personally liable under the "responsible corporate officer" doctrine for the corporation's violations of the Indiana Environmental Management Act. Although the Court interpreted the language in the Indiana Environmental Management Act, there is language in the opinion that may be used to support the argument that the Court's reasoning may be applied to other types of civil or criminal violations.

In Commissioner, Indiana Dep't of Envtl. Mgmt. v. RLG, Inc., 2001 WL 1121940 (Ind. Sept. 24, 2001), the Indiana Supreme Court held that a director, officer, or employee can be held personally liable for a corporation's civil liability for commission of a "public welfare offense" in certain situations. In order to have personal liability attach, the entity seeking to impose personal liability must demonstrate that the director, officer, or employee is the "responsible corporate officer." Id. At *2. This liability is not dependent upon piercing the corporate veil, direct participation, or specific statutory liability.

Lawrence Roseman was the sole corporate officer of RLG, Inc., the owner-operator of the Spring Valley Landfill in Wabash, Indiana, from 1988 until 1991. In 1993 the Indiana Department of Environmental Management ("IDEM") filed suit against RLG, seeking injunctive relief and civil penalties for violations of state environmental laws at Spring Valley. In response, RLG negotiated two agreements to settle the lawsuit, but failed to comply. The company was then cited for contempt and fined. IDEM filed a second amended complaint with an additional count seeking to impose personal liability on Mr. Roseman based on his status as the sole corporate officer of RLG.

The Indiana Court of Appeals found the responsible corporate-officer doctrine inapplicable under the circumstances. Even if Roseman had been in a position to influence corporate policy, the court said that there was no proof of the necessary nexus between his position and the violations. Sole Corporate Officer can be Held Liable for Violations, Ind. Sup. Ct. Rules, Andrews Hazardous Waste Litig. Rep., (Andrews) 22 No. 1, at 10 (Oct. 26, 2001). Even though Mr. Roseman was the sole shareholder, director and officer, the court declined to hold him individually liable positing that the responsible corporate officer doctrine required a showing that: (1) the individual defendant was in a position of responsibility allowing him or her to influence corporate policies or activities; (2) there was a nexus between the officer's position and the violation in question such that the officer could have influenced the unlawful corporate actions; and (3) the officer's actions or inactions facilitated the violations before liability will be imposed.

The Court of Appeals did not decide if Indiana would adopt the responsible corporate policy doctrine because IDEM had shown only that the defendant had signed certain documents in his capacity as president of the corporation. The court was unwilling to depart from the established principle that personal liability may not be imposed solely upon a corporate officer's title. 19 Ind. Prac. Business Organizations Section 37.3.

Using the same three part test, the Indiana Supreme Court reversed, holding Mr. Roseman personally liable for civil penalties in the amount of $3.175 million.

Mr. Roseman's status as officer, director and sole shareholder was not determinative. In this case, Mr. Roseman's direction of and involvement in operating the landfill, his representation to IDEM that he was the responsible party, and his actual role in the corporation's activities were critical to establishing individual liability. Mr. Roseman had both the "responsibility" and "authority" to prevent the environmental violations in the first instance and to correct the violations once they were brought to his attention.

Mr. Roseman argued that Indiana has long held relatively impenetrable the corporate form, and that in order to find him personally liable, the plaintiffs would have to demonstrate that the defendant had disregarded the corporate form in operating the corporation. The Court found that corporate status was not Mr. Roseman's only involvement in the environmental violations. There was evidence of his direct participation in the environmental violations. In addition, Mr. Roseman represented himself as being an individual responsible party by his descriptions and signature on the Waste Facility Characterization Statement. His active involvement in the violations was also sufficient to impose personal liability.

The Court did not agree that Mr. Roseman's liability depended on piercing the corporate veil. The Court noted that, unlike the "responsible corporate officer" doctrine or specific statutory liability, veil-piercing is not dependent on the nature of the liability. "In contrast, Roseman's liability here is essentially based on his individual participation in the violations, their character as violations of laws affecting public health and specific statutory liability." 755 N.E. 2d at 563. Mr. Roseman was entitled to the benefit of corporate limited liability even if he owned all the shares of RLG and was its only officer and director. The court concluded that the veil is pierced only where there it is clear that the corporation is merely a shell for conducting the defendant's own business, and where the misuse of the corporate form constitutes a fraud or promotes an injustice. 755 N.E.2d 556, 563, citing Aronson v. Price, 644 N.E.2d 864, 867.

While not addressed in RLG, corporate managers may unwittingly be subject to criminal liability if they qualify as responsible corporate officers and may face monetary penalties and jail time, not only for acts of subordinates, but also for failing to prevent or correct such acts. DEAN C. MILLER, HAZARDOUS ACTS: AWARENESS OF PITFALLS IS ESSENTIAL FOR CORPORATE OFFICERS TO AVOID JAIL TIME, COLORADO JOURNAL (NOV. 15, 2000). Both the Clean Water Act and the Clean Air Act include "any responsible corporate officer" in their definition of "person" while not defining "responsible corporate officer." Both acts impose criminal liability on a "person" for negligent and knowing violations. The Resource Conservation and Recovery Act ("RCRA") does not contain an express responsible corporate officer provision, but some courts have applied the doctrine in RCRA cases. The language of the Clean Air Act and the Clean Water Act indicate that a person may be subject to liability for negligence without specifying whether ordinary or criminal negligence is sufficient.

Traditionally, the shareholders, directors, and officers of a corporation cannot be held individually liable for liabilities of the corporation - this is one of the preeminent advantages of the corporation as a vehicle for conducting business. However, in the case of public welfare offenses, the court decided that it is appropriate to hold responsible corporate officers liable for their corporation's activities. This decision is basically an incentive for those individuals who are in positions of authority in corporations whose actions could affect public health, safety, and welfare to be especially vigilant with respect to the operations of the corporation that could affect the public welfare.

For additional information on this case or other individual liability matters, please contact Ice Miller (Harry L. Gonso, of the Corporate Section at 317-236-2325 or Phillip R. Scaletta of the Environmental Group at 317-236-2330).

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This Case Law Update was prepared by Ian D. Arnold and Kristina M. Tridico, associates in the Ice Miller Corporate Practice Group, with support from the entire Ice Miller Environmental Group. The statements contained in this Case Law Update are intended for general information and do not constitute legal advise.

Date Added: January 14, 2002