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The Connecticut Supreme Court, in BEC Corporation v. Department of Environmental Protection (2001), a case of first impression, recently blasted a large hole in the wall of limited liability that corporate attorneys have tried so hard to erect. Now, especially for small businesses, there are certain areas of corporate activity that may not be protected by the shield of limited liability. In addition, officers and directors of businesses who are aware of contamination on corporately owned property, but who decide not to voluntarily take steps to remediate that contamination, may subsequently find themselves personally liable for the costs of doing so. The BEC case involved an oil tank farm located in West Haven, Conn., immediately adjacent to New Haven Harbor that had become contaminated due to numerous leaks and spills of oil over a period of more than 20 years. The land on which the tank farm was built was owned by the BEC Corporation; BEC was, in turn, owned by Irvin and Michael Shiner, a father-and-son team who were the president and vice president of the corporation, and apparently its sole shareholders. After a very long period of what can only be called benign neglect on the part of the DEP concerning previous spills at the property, the DEP finally issued an abatement order in 1997. The order alleged that the tank farm constituted a facility that was creating a source of pollution to the waters of the state in violation of the Connecticut Water Pollution Control Act, C.G.S. ��22a-416 et seq. (the “Water Act”). The order required that immediate steps be taken to prevent conditions at the property from causing further contamination, that a hydrogeologic study be performed to determine the scope and extent of any existing pollution, and that a plan be developed and implemented to bring the site into compliance with the applicable remediation standards. Given the fact that tens of thousands of gallons of oil had been spilled at the site during the time the Shiners owned the facility, the costs of complying with the order would be significant. Experienced environmental law practitioners will recognize that there was nothing particularly unusual about the issuance of such an administrative order by the DEP. However, what was very unusual was that the DEP order in this case was issued not only to BEC Corporation, the actual owner of the property, but also to the Shiners in their individual capacities. Thus, the order sought to make the corporation, and the Shiners, personally, jointly and severally liable for compliance with its terms. OFFICERS MAY BE PERSONALLY LIABLE FOR COMPLIANCE The Shiners timely appealed the issuance of the order, and a hearing was held before a DEP hearing officer. The hearing officer found that the DEP had established that BEC Corporation, as the owner of the property, was maintaining a facility that was causing, or could reasonably be expected to cause, pollution to the waters of the state. The hearing officer further found that Irvin and Michael Shiner, individually, were also maintaining such a facility, and therefore found that they were both personally liable for complying with the terms of the order. BEC and the Shiners appealed the hearing officer’s findings to the superior court, but the order was upheld and the appeal dismissed. BEC and the Shiners then appealed to the Appellate Court, and the supreme court thereafter transferred the case to its own docket. The issue, as framed by the supreme court, was whether the officers of a corporation could be held individually liable for violations of the Water Act. After reviewing the express language of C.G.S. �22a-432, and noting that the Water Act’s proscriptions applied to “any person,” the court concluded that the “mere fact that a ‘person’ who is polluting is a corporate officer does not automatically shield that officer from liability for his own actions or omissions.” The court then went on to consider the circumstances under which a corporate officer could be liable for violations of the Water Act, and expressly adopted a three-part formulation of what it called the “responsible corporate officer” doctrine. CORPORATE OFFICER DOCTRINE The three factors that must be present to establish personal liability on the part of a corporate officer are: (1) the officer is in a position of responsibility that permits him or her to influence corporate policies and activities; (2) there is a nexus between the officer’s acts or omissions in his corporate position and the violation of the Water Act such that the officer influenced the actions that violated the Water Act; and (3) the officer’s actions or inactions resulted in the violation. These three factors may be summarized as the ability to control, actual control, and an act or omission to act that results in a violation of the Water Act. The court also expressly held that a responsible corporate officer could be personally liable for omissions to act as well as affirmative acts, thus rejecting the Shiners’ contention that they could be held liable only if they had actually spilled the oil, or refused to obey an order to remediate the effects of a spill. The court analogized to the law of nuisance in support of this proposition. Furthermore, the court held that liability under this doctrine was separate and distinct from the derivative liability that arises when the corporate veil is pierced. Thus, in order to impose liability under the responsible corporate officer doctrine, it is not necessary to establish that the corporation was inadequately capitalized, that the corporate form was being used to perpetrate a fraud, or that corporate formalities had not been honored. Finally, the court noted that the Water Act should be liberally construed so as to effectuate its remedial purposes, and that adoption of the new doctrine was consistent with developing state and federal case law on the issue. Although the liability created by this new doctrine is far-reaching, the court was also careful to set limits on its holding. The responsible corporate officer doctrine is not one of general applicability, but applies only to violations of the Water Act. It also held that it was not adopting a rule of vicarious liability by which a corporate officer was personally liable simply because that person occupies the position of officer or director, but that the officer’s actual conduct must have a responsible relationship to a violation of the Water Act. APPLICATION OF DOCTRINE The court then went on to apply the new doctrine to the facts before it, and concluded that the imposition of personal liability on the Shiners by the hearing officer and the lower court had been justified. It stressed the fact that the Shiners, as senior corporate officers had, for many years, personally directed and/or supervised all of the day-to-day operations at the facility, and that they were often at the site five days a week or more. This satisfied the “ability to control” prong of the doctrine. One or both of the Shiners also participated in all decisions concerning the use, repair and maintenance of the facility, issues regarding spill prevention and control, and the remediation activities that took place (or didn’t take place) in the aftermath of each of the many spills that had occurred at the property during their period of ownership. This actual, day-to-day, hands-on control was sufficient to satisfy the “actual control” prong of the doctrine. Finally, the court noted that the Shiners’ “decision not to remediate fully the effects of their spills, caused conditions that are creating, and are likely to continue to create, a source of pollution to the waters of the … [state].” The Shiners’ decision not to remediate known contamination was an “act or failure to act” that led to a violation of the Water Act, and this omission to act satisfied the third prong of the newly created doctrine. What implications does the decision in the BEC case have for the officers of corporations operating in Connecticut? For the officers of large corporations it may not be of great concern. Large corporate entities usually have a staff to which environmental compliance functions are delegated. There are, however, thousands of smaller corporations in Connecticut in which many, if not most, of the employees are also corporate officers. In the conduct of these businesses, the officers/employees formulate and implement corporate policies, and actually do run operations on a daily basis. If, in the course of business operations, one of these officers causes a violation of the Water Act, he or she may be held personally liable for the consequences. It should be made clear that the ambit of the BEC case is not limited to situations involving oil or petroleum. The Water Act is the primary vehicle that the DEP uses to require remediation in almost all situations involving soil or groundwater contamination. Thus the decision by a corporate officer not to remediate known pollution of any type could subject that officer to personal liability under the responsible corporate officer doctrine. Practitioners should keep the existence of the responsible corporate officer doctrine in mind when counseling corporate clients any time a Water Act violation could be involved. Charles K. Campbell Jr. is a partner resident in Pullman & Comley’s Stamford, Conn., office. He practices in the area of environmental law, land use planning and real estate law.

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