California Court Uses Responsible Corporate Officer Doctrine to Impose Civil Penalties on Corporate Officers for Civil Administrative Liability Case

On December 26, 2008, a California court of appeals held that the “responsible corporate officer doctrine” could be used to impose joint and several civil liability on the officers, directors, and shareholders of a company that owned, operated, and failed to timely remediate petroleum contamination caused by a leaking underground storage tank (UST). The People v. Roscoe et al., C055801 (California Third Appellate District, December 26, 2008). The court held that John and Ned Roscoe, officers, directors, and shareholders of the family company that owned and operated the leaking UST, were jointly and severally liable for the civil penalties of $2,493,250, of which $449,500 was the result of failure to file required reports. Critical to the court’s decision were the trial court’s findings that the Roscoes failed to use their “overall” authority for company affairs to prevent or promptly remedy the contamination and submit required reports related to the noticed violations of state law that resulted from the leaking UST.

If applied broadly, this decision could expand the scope of liability in California for officers and directors of companies responsible for environmental contamination and related reporting.

The Roscoe Case
After notifying the Sacramento County Environmental Management Department (Department) of the leak, the Roscoe family company did not timely and adequately undertake cleanup efforts, including the preparation of cleanup plans and the filing of monthly reports, despite multiple notices of violations (NOVs) from the Department. The Roscoes claimed that they directed other employees to resolve the matter. The court found that the Roscoes did nothing other than pass along the NOVs to these employees.

The trial court held that the company was liable and, based on the responsible corporate officer doctrine, found John and Ned Roscoe jointly and severally liable for the nearly $2.5 million in penalties. In applying the responsible corporate officer doctrine, the trial court found that the Roscoes could have prevented or promptly remedied the noticed violations, but that they did not “exercise their responsibilities and power to use all objectively possible means” to do so.

The Roscoes appealed, contending that the responsible corporate officer doctrine should not be used to impose liability on them. The court of appeals denied the appeal.

United States. v. Dotterweich
The court of appeals relied on the United States Supreme Court decisions United States v. Dotterweich, 320 U.S. 277 (1943), and United States v. Park, 421 U.S. 658 (1975).¹ Although Dotterweich involved criminal liability, the Roscoe court applied the same analysis to civil liability, reasoning that California’s UST laws, like the laws considered in Dotterweich and Park, involve public welfare legislation that impose strict liability, i.e. liability without fault, for violations. Accordingly, the Roscoe decision holds that the responsible corporate officer doctrine may be used to impose liability on a corporate officer who failed to use the officer’s authority either to prevent or to promptly correct a violation.

Implications
Corporate officials have most often been held liable for violations of environmental laws when they had taken an active role in the decision that led to the violation or when they were actively involved in the day-to-day environmental management of the company. The Roscoe case serves as a warning that corporate officials may not be able to avoid personal environmental liability simply by delegating to others the responsibility for the company’s day-to-day environmental management. Under Roscoe, a corporate officer can be held liable for a violation of California’s UST laws or, if expanded more broadly, violations of other public welfare statutes, if the officer’s active management and oversight could have prevented the violation.

For example, if applied to California’s Water Code, the logic behind Roscoe could form the basis for joint and several civil liability for corporate officials if a company fails to file reports required by various discharge permits such as stormwater and dewatering permits. As with the Health and Safety Code, the Water Code provides for strict liability penalties when such reports are not filed timely.

¹ Following the Supreme Court’s lead, state and federal courts have applied the responsible officer doctrine to violations of the Clean Water Act, the Resource Conservation and Recovery Act, and state laws, including California’s Hazardous Waste Control Act (Health and Safety Code Section 25100, et seq.). 

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If you have any questions about this issue or would like to discuss these topics further, please contact your Foley attorney or:

S. Wayne Rosenbaum
San Diego, California
619.685.6413
[email protected]

Elizabeth A. Cason
San Diego, California
619.685.4634
[email protected]

Heidi K. Vonblum
San Diego, California
619.685.4637
[email protected]