Appellate Court Further Defines Corporate Officer Liability for Environmental Violations
- Charles J. Northrup

One of the more interesting and increasingly important issues in environmental law is the extent to which corporate officers can be held individually liable for their corporation’s environmental violations. Under corporate law principles, corporate officers are generally not liable for the bad acts of their corporations. However, with the advent of such sweeping environmental legislation as Superfund, general corporate law principles often have not been sufficient to shield a corporate officer from individual liability. In 1995, the Illinois Appellate Court signaled that corporate officers could be held individually liable for violations of the Illinois Environmental Protection Act (“Act”) committed by the corporations which employ them. However, the circumstances under which such liability could be found were ill-defined. Recently, in a significant opinion, the Appellate Court has again weighed in on the issue and provided additional guidance to the regulated community. Early in February, 2004, the Illinois Appellate Court issued an opinion in People v. Cyrus Tang, No. 1-02-3337 (1st Dist.). According to the State’s Second Amended Complaint, Mr. Tang was the chairman and chief executive officer and had a controlling interest in an auto disposal company. This company shredded automobiles which in turn generated certain wastes that the State contended were improperly stored and disposed of in violation of the Act. Specifically, the State sought to hold Mr. Tang individually liable on two legal theories. First, the State alleged that Mr. Tang conducted the business that generated the waste at issue, and that he “caused or allowed” violations of the Act by his “performance of, and as a direct result of” his duties as a corporate officer. The particular duties at issue, as alleged by the State, were Mr. Tang’s failure to take any action with respect to the proper disposal of the waste and his failure to authorize the expenditure of funds for the proper disposal of those wastes. Second, relying on these same facts, the State argued that Mr. Tang was individually liable under the so-called “responsible corporate officer doctrine.” Mr. Tang filed a Motion to Dismiss the State’s Second Amended Complaint with respect to the these claims on the grounds that the State had not met its burden of stating a cause of action against him. The trial court agreed and dismissed the lawsuit. The State appealed, and in its opinion, the Appellate Court affirmed the dismissal. The Appellate Court began its analysis by noting that both parties conceded that corporate officers can, in certain circumstances, be held individually liable for corporate wrongs under the Act. The Court referenced the only Illinois case addressing individual corporate officer liability under the Act, People v. CJR Processing, 207 Ill.Dec. 542 (1st Dist. 1995), and its holding that such liability can be alleged where a corporate officer has “actively participated or was personally involved in violations.” However, because the CJR Processing case was the only Illinois case to discuss individual corporate liability, the Appellate Court then reviewed a number of cases from other jurisdictions, both federal and state, in an effort to give some meaning to the “active participation or personal involvement” standard. In ultimately rejecting the State’s first legal theory, the Appellate Court concluded that the State must allege more than just corporate bad acts, and that an individual held a particular position, had general corporate authority, or even that the individual served in a supervisory capacity. Conversely, the Appellate Court found that the level of active participation and personal involvement to impose individual liability upon a corporate officer must be demonstrated with respect to the specific acts resulting in liability. Merely being actively participating or personally involved in the management of the corporation was not enough. The Appellate Court rejected, on the same grounds, the State’s reliance on the “responsible corporate officer doctrine.” The Cyrus Tang case is significant. It interprets the language of the CJR Processing case, particularly with respect to making clear that there must be some nexus between the suspect corporate act and the environmental violation alleged. It also is an impediment on the State’s increasing use of the threat of individual liability in the environmental field. Finally, it aligns Illinois law with more recent federal precedent. For more information regarding this article, please contact the author or any Sorling attorney who practices environmental law by clicking: Charles J. Northrup www.sorlinglaw.com/practice-environment.htm Click here to review the Sorling disclaimer: http://www.sorlinglaw.com/About-Disclaimers.htm

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