VICARIOUS LIABILITY-CORPORATE LAW-PARTICIPATION THEORY-CORPORATE OFFICERS

May 11th, 2018 by Rieders Travis in Miscellaneous

B&R Resources v. Department of Environmental Protection, No. 1234 C.D. 2017 (Pa. Cmwlth. March 15, 2018) Colins, S.J. 
This case involves environmental violations.  Under Pennsylvania law, a corporate officer can be liable in tort for his own wrongful conduct on behalf of the corporation, even though the corporation is not a sham and there is no basis for piercing the corporate veil. Wicks v. Milzoco Builders, Inc., 503 Pa. 614, 470 A.2d 86, 89–90 (1983); Francis J. Bernhardt, III, P.C. v. Needleman, 705 A.2d 875, 878 (Pa. Super. 1997); Bank of Landisburg v. Burruss, 362 Pa.Super. 317, 524 A.2d 896, 901 (1987). This basis of individual liability, known as the participation theory, is predicated on the corporate officer’s own actions and participation in the corporation’s wrongful conduct, rather than the corporation’s status and his relationship to the corporation.

The participation theory applies to officers of limited liability companies. Commonwealth ex rel. Corbett v. Manson, 903 A.2d 69, 71, 73 (Pa. Cmwlth. 2006). Although it was initially adopted in tort actions, this Court has held that the participation theory applies to statutory violations and is a basis for imposition of individual liability on company officers in DEP administrative orders. Id. (limited liability company officer held liable for civil penalties for company’s violations of consumer protection statute under participation theory); Herzog v. Department of Environmental Resources, 166 Pa.Cmwlth. 114, 645 A.2d 1381, 1392–93 (1994) (corporate representative was liable for environmental violations and was subject to DEP compliance order under participation theory); see also Kaites, 529 A.2d at 1151–52 (analyzing corporate officer liability for environmental violation under participation theory but holding that requirements were not satisfied).

The law is clear that a defendant is not liable under the participation theory merely because of his status and responsibilities as a company officer or because he is the sole individual directing the company’s actions. Longenecker v. Commonwealth, 142 Pa.Cmwlth. 130, 596 A.2d 1261, 1263 (1991); Kaites, 529 A.2d at 1151–52. The law is also clear that a company officer is not liable on the participation theory for failure to stop or correct conduct of other company employees where he had no actual knowledge of that conduct. Wicks, 470 A.2d at 90; Shay v. Flight C Helicopter Services, Inc., 822 A.2d 1, 19–20 (Pa. Super. 2003).

These principles do not, however, require that the courts exempt intentional and knowing wrongdoing of corporate officers from liability simply because their conduct consists of deliberate inaction. In Wicks, the Supreme Court did not hold that inaction can never be sufficient to support participation theory liability. Rather, the Court held that “mere nonfeasance” is not sufficient. 470 A.2d at 90 (emphasis added). The Court, moreover, gave as an example of “mere nonfeasance” a claim based on the fact that the corporate officer “should have known” of the wrongful act. Id. The conduct that the Court held sufficient to support participation theory liability in Wicks consisted of directing that work on a development proceed with knowledge that construction of the development created an unreasonable risk of damage to the plaintiffs’ property. Id.

This Court has held that intentional and knowing inaction can be sufficient to support participation theory liability for a statutory violation. In Kaites, this Court analyzed the participation theory in the context of an environmental violation and held it requires proof that the corporate officer committed “intentional neglect or misconduct” that contributed to the violation. 529 A.2d at 1152.

Rather, the EHB based its conclusion that Campola was liable on the participation theory on its factual determinations that he knew of B & R’s obligation to plug the Wells, that he made a decision that B & R would not plug any of the Wells, and that he had B & R spend its financial resources for purposes other than complying with DEP’s directions to plug the Wells.

Accordingly, we reverse the EHB’s dismissal of Campola’s appeal and its holding that Campola is liable for B & R’s statutory obligation to plug all 47 of the Wells. Because the EHB’s findings are insufficient, we remand this matter to the EHB for additional findings of fact as to how many, if any, of the Wells could have been plugged if Campola had caused B & R to make reasonable efforts to plug the Wells and for an adjudication of Campola’s liability in accordance with those findings.