CEO Liable, It's Undeniable

Even when a corporate officer carefully observes all formalities in conducting company business, he still can be held personally liable for the company's violations of state environmental laws, according to the Supreme Court of Indiana. [Comm'r, Indiana Dept. of Envtl. Mgmt. v. RLG Inc., No. 27S02-0102-CV-101, Sept. 24, 2001]

In 1993, the Indiana Department of Environmental Management (IDEM) filed suit against RLG for violating state environmental laws at the company's landfill. RLG signed a consent order, agreeing to remedy the problems, close the landfill and provide a post-closure plan. In return, IDEM dropped its claim for an injunction and civil penalties.

After an IDEM inspector discovered evidence that the company had ignored its commitments, the trial judge found RLG in contempt of court. Among other things, he ordered the company to pay $5,000 per day as a civil penalty until it complied with the agreement. Later, when RLG was found to be insolvent, IDEM amended its lawsuit, targeting RLG's sole shareholder and officer, Lawrence Roseman, for personal liability.

After RLG failed to answer the amended complaint, the trial court entered a default judgment against the company for accumulated daily civil penalties totaling $3,175,000, and granted IDEM access to the landfill for remediation.

Thereafter, the Grant Circuit Court held a hearing on Roseman's personal liability for the civil penalties. “There is no evidence … Roseman ever acted in an individual capacity … with respect to … the management and operation of RLG,” the judge found. “As a matter of law … Roseman [is not] personally liable for the corporate debts,” he concluded. The Indiana Court of Appeals agreed with the trial court, noting the importance of the corporate structure and no evidence of Roseman's direct involvement in the violations.

Undaunted, IDEM took the case to the state's highest court where, at last, the state's theory of liability was vindicated. In a unanimous opinion, the justices ruled that under the “responsible corporate officer” doctrine, a corporate officer, director or employee may be held personally liable for company misdeeds.

Although corporate officials generally bear no individual responsibility for company actions, they can lose this immunity in three situations: (1) Where they are able to prevent or correct a health, safety or environmental violation, and fail to do so; (2) Where they directly participate in a civil or criminal infraction; and (3) Where state or federal law creates individual civil or criminal liability.

The Indiana justices strongly disagreed with the lower courts, finding that Roseman dominated RLG's activities and directly participated in the violations. The opinion cited testimony from a landfill employee that Roseman visited the site approximately five days each month and personally ordered garbage to be buried “outside of the permitted landfill contours.” Moreover, Roseman named himself in the solid waste permit application as the party responsible for the landfill's operations, citing his own experience as a landfill manager as proof of RLG's fitness.

The legal editor welcomes comments from readers. Contact Barry Shanoff via e-mail:

The columnist is a Washington, D.C., attorney and serves as general counsel of the Solid Waste Association of North America.