Personal Liability of Officers for Corporate Obligations

In People v. Roscoe (2008) 169 Cal. App. 4th 829, two individuals (John F. Roscoe and Ned F. Roscoe) were officers, directors, and shareholders of a family company for an underground storage tank that leaked over 3,000 gallons of gasoline into the ground. The Sacramento County District Attorney filed a civil lawsuit against the company and the two Roscoes (among others) for violating laws governing underground storage of hazardous substances. The trial court found that the two officers (the Roscoes) could have prevented or remedied promptly the violations but that they did not “exercise their responsibilities and power to use all objectively possible means to discover, prevent, and remedy any and all violations.” Had a timely cleanup operation occurred, the court found, the cost likely would have been approximately $400,000 instead of the $ 1.5 million already paid by the State of California Underground Storage Cleanup Fund.

The trial court used the responsible corporate officer doctrine to impose $2,493,250 in monetary civil penalties on the two officers personally. The family company that “owned and operated” the tank was also held jointly and severally liable.

The responsible corporate officer doctrine was developed by the U.S. Supreme Court in criminal cases to hold corporate officers in responsible positions of authority personally
liable for violating strict liability statutes protecting the public welfare. It is a common law theory of liability separate from piercing the corporate veil or imposing personal liability for direct participation in tortious conduct. The decisions of the U.S. Supreme Court in construing federal legislation are not binding on the state courts in construing state legislation, but the court of appeal in this case analyzed the pertinent statute and found that it was consistent with the wording and intent of the statute to hold corporate officers personally liable for a corporation’s violation of the statute. The court rejected the argument that a distinction should be made between civil liability and criminal liability.

Lessons Learned

A corporation or limited liability company (LLC) is a limited liability entity, but that does not mean that the officers or managers of such an entity are immune from liability for not complying with regulatory regimes that apply to the entities that they manage. Although the alter ego doctrine (also known as piercing the corporate veil) did not apply here, that did not save the officers. There are a number of theories under which officers or shareholders of a corporation, or managers or members of an LLC, may be held liable for the actions or omissions of the entity. Therefore advice from knowledgeable counsel and careful attention to that advice can make the difference between being personally liable for the corporation’s or LLC’s obligations or not.

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