Are You Protected as a Corporate Officer
Posted by Garrett Sutton on March 13, 2009 in Business Management, Incorporation [ 0 Comments ]
n a recent case, California’s Appellate Court used the Responsible Corporate Officer Doctrine (“RCOD”) to hold officers personally liable for $2.5 million in environmental penalties. In People v. Roscoe (Cal. Ct. App. 2008, WL 5378254) the court held the corporate officers personally liable, without piercing the corporate veil, for civil violations.
This is a significant departure. The RCOD has been used before in California to hold responsible corporate officers personally liable for their company’s violations of strict liability public welfare statutes. In the past the doctrine was only used for criminal violations of state statutes. But now, as this new case indicates, California will use the RCOD for civil violations.
In the Roscoe case, Ned and John Roscoe owned and operated an underground storage tank in Galt, California through a corporation called the Customer Company. When their tank leaked 3,000 gallons of gasoline into the ground the Roscoe’s notified the Sacramento County authorities and hired an environmental consultant to take care of the remediation. When the cleanup did not happen quickly enough the county sued the Customer Company and the Roscoes. While the court did not find enough evidence to pierce the corporate veil, (the Roscoes had followed corporate formalities) it did use RCOD to hold the Roscoes personally liable for $2.5 million in civil penalties.
The Roscoe case illustrates the hazards of doing any sort of environmental related business in California. Regulators in California are free to seek huge cumulative penalties using their per-day and per-violation fine system. (Note that the Roscoes identified the problem to the county and hired someone to clean it up but it wasn’t fast enough for the regulators, thus the run up in fines.) And now the California courts are backing up the regulators by assessing personal liability against officers – even when the corporate formalities have been followed.
If you must do business in California involving any sort of environmental regulations be certain to have the systems in place to deal with such risks. More broadly, if you do any sort of business in California whereby administrative penalties may be assessed, be aware that California regulators and courts may someday seek to hold you personally liable as a responsible corporate officer. As if there weren’t already enough reasons to leave California…
Contact me to make sure you are protected.