Document ga912BZMK69GbE84xn6LQXkRQ

Environmental Liability: From Pinstripes to "Pen" Stripes By James V. Faulkner, Jr. Senior Vice President and General Counsel, USPCI, Inc. 7 thought it was okay! Hell, it's the way we... the company...had been doing itfor years. y} (Plant Manager) Sure, Fd heard about thepractices andproblemspf the facility: I told the* The casual attitude toward environ mental compliance illustrated by the two representative statements above indicates a potentially costly mistakea mistake which could be avoided. Astute corporate officers are now coming to realize that they can and will be held accountable for environ mental violations inwhich theydirectly or indirectlyparticipate or which occur in the business areas for which they are directly responsible. Ignorance of the law and regulations or willful blindness to the activities which re sulted in the violations is no excuse. Adoption ofcorporate environmental policies and delegation ofcompliance duties to subordinates will probably not suffice to protea senior manage ment from potential liability for noncompliance. There must also be con trol, oversight and follow-through. En vironmental audits are increasingly the approach taken by corporations to proteathemselves and their manage ment against the harsh liabilities that can beimposedUinderthe environmen tal laws*_ ftk i0o follow th'0l .company's Increased Enforcement Activity The Department of Justice (DOJ) and Environmental Protection Agency (EPA) have substantively and signifi cantly increased both their civil and criminal enforcement activities. With the help of the FBI and its own agents in the National Enforcement and In vestigation Center (NEIC), EPA has each year set newrecords for assessing penalties and gaining indictments for violations of the environmental laws. On the civil side, since 1984, EPA has imposed more than $110 million in penalties.435 million of which have been assessed only in the last year or so. As significant as this growth in civil penalties is, it pales in comparison to the rapid run-up in criminal prosecu tions. Traditionally, courts have been reluctant to sentence first-time white collar offenders to criminal penalties for environmental offenses. If not ac quitted, such defendantsweretypicaily sentenced to probation orcommunity service. No more. Corporate officers who violate the environmental laws are now feeling the full brunt of the criminal laws for these violations. 1 ........................-- *- " : --.. 11 "During fiscal 1988, defendants, most of whom were corporate officers, were sentenced to a total of 39 years of imprisonment and fined $7 million. " As was recently reported, since 1983, 520 indictments for violations of the environmental laws have been ob tained, resulting in more than 400 convictions. EPA and DOJ have increasingly fo cused on pursuing the "highest senior corporate officials responsible" for the specific activity which resulted in the violations. During fiscal 1988, defendants, most of whom were cor porate officers, were sentenced to a total of 39 years of imprisonment and fined $7 million. During the first half of fiscal 1989, that conviction and penalty rate increased to 31 years and 19 million, respectively. This trend is very likely to continue. DOJ's an nounced policy is "...to conduct en vironmental criminal investigations with an eye toward identifying, pro secuting, and convicting the highest ranking truly responsible corporate officers." This policy is in line with recent congressional policywhich has been to increase the severity of statutory penalties imposed under the environmental laws. Clearly the expectation ofCongress and the executive branch is that stiff criminal penalties against corporate officers will act as a majordeterrent to others and lead to more voluntary compliancewith the country's environ mental laws. Coupled with DOJs in creased enforcement activity and the Congress' willingness to legislate stiffer criminal and civil penalties for vio lations of the environmental laws, there have been a number of cases in which the government has chosen to prosecute corporate officers criminally instead ofcivilly. Moreover, the courts, with respect to the "knowing" element of criminal offenses, have permitted juries to infer such "knowledge" as to those individuals who hold the requi site responsible position with the cor porate defendant. Civil Liability As a general rule, any person who violates the environmental laws or regulations can be held strictly liable to pay civil penalties of up to $25,000 per day. "Stria liability" means that you can be penalized for a violation even if you exercised due care and made a good faith effort to comply. In addition, the statutes usually specify that responsible persons are liable for all costs of hazardous waste site clean ups, regardless of the faa that the person complied with all environmen tal laws. These penalties and cleanup costs can be very expensive civil li abilities. Since the laws impose civil liability on the "person who violates" the law, or the "person who arranges" for the disposal of the hazardous substance, the liable "persons" can include either the corporation (which is viewed as a legal person) or the human beings who were aaually involved in th^^^ relevant aaion. Usually, the agenq^^ sues the corporation, because it is the corporation which owns and operates the business, which benefited by the activity in question, and which has the assets to pay the penalties, clean up the site and otherwise correa the problem. However, in appropriate cir cumstances, it is clear that the govern ment can and will attempt to hold corporate officers and managers per sonally liable. The agencies have found that this is a very effeaive way of encouraging corporate compliance with environmental laws. Corporate officers, direaors and environmental managers have been held liable in cases which include some or all ofthe following circumstances: 1. The individual actively partic ipated in the activity in question; 2. The person had the ability or THE BUCK. STOPS HERE CTL027632 power to control the affairs of the corporation; 3- The person had the responsibility for the "day-to-day" operations of the corporation; or 4. The person had the power to correct or prevent a problem or threat and he or she failed to do so. The cases in which senior corporate management have been held individ ually and personally liable have gen erally involved smaller and more closely held corporations in which it is more likely that the top management would be aware of. and would have participated in. the corporation s dayto-dayactivities. Nevertheless, the same principles apply to largercorporations. In addition, it is clear that the courts can rely on circumstantial evidence, such as the fact that an officer was "copied" on key reports and memo randa. in order to prove that the officer was involved in. or participated in. the activity. Criminal Liability Criminal liability' under environ mental statutes usually requires the government to show that the person (corporate or individual) w+io violated the law did so "knowingly." Unfortu nately. recent criminal cases in the hazardous waste area seem to make it quite easy for the government to convict a person of a "knowing" vio lation. The government s position is quite simple. First, ignorance of the law and regulations is no excuse. Second, when you are dealing with chemicals or wastes "the probability of regulation is so great that anyone who is aware that he is in possession of [such materials] or dealing with them must be presumed to be aware of the regulation." This is true even though environmental regulations are extremely complex and are changing rapidly. Third, the government needs only to prove that the person had knowledge of the actions taken, and need not have actual knowledge of the law, regulations, or the possibility that the action constituted a violation. Under the government s approach, it is entirely possible that a corporate officer or director could be held crimi nally accountable for activities (vio lations) directly under his responsi bility and control which he knew of and acquiesced in. Participation, au thorization and acquiescence can be given (and proven) in many subtle wav's. As has been shown in some recent cases, overt statements are not necessary if less specific statements are made in compromising circum stances For example, when a facility has been found to have disposed of free liquids, the jury was correct in finding that statements to "keep me drum count down" bv the facility owner, who actively participated in the business, were sufficient to support a finding that the owner, while not clearly ordering the dumping of the liquids, had indirectly done so by insisting that "the waste be disposed ofquickly and inexpensively and with out regard to the legal niceties." Acquiescence, as opposed to tacit authorization, is another way corporate officers can be held liable. A corporate officer "acquiesces" in a crime when he is aware of the criminal activity by his associates or subordinates and willfully fails to take action to stop them. The difference between auth orizing a criminal act and acquiescing in one is the difference between "approval" and willful blindness. Generally a corporate officer will not be held liable for "acquiescence" unless he had the control and auth ority over the subordinate committing the violation. Obviously, as an officer ascends in the corporate hierarchy, it becomes increasingly difficult to de fend oneself on an allegation of ac quiescence by saying he didn't possess the "requisite authorin' to stop the proscribe! conduct." Finally, in a few but nonetheless troubling cases in voking public welfare-type statutes, corporate officers have been held criminally liable notwithstanding that they did not directly "participate or acquiesce in the criminal activity of their subordinates." The Supreme Court said it this wav: "The Govern ment establishes a prima facie case when it introduces evidence sufficient to warrant a finding by the trier of the facts that the defendant had. by reason "...recent criminal cases in the hazardous waste area seem to make it quite easy for the government to convict a person of a "knowing" violation. " CTL027633 4 of his position in the corporation, responsibility and authority either to prevent in the first instance, or prompt ly to correct, the violation complained of, and that he failed to do so." United States v. Park 421 U.S. 673-674 (1975) Generally, the criminal convictions in this area have come under federal health and safety statutes which do not require as an element of the offense a state ofmind or intent on the part of the defendant. In this area there is available to the defendant the delegation ofauthority defense. How ever, to be effective, the defendant must show the proper degree of con trol and oversight over the subordi nates' activities. Casual "follow-ups" of known environmental problems will not generally be sufficient. Management Response Audits As has been noted above, EPA and DOJ are increasingly bringing criminal charges against the highest ranking responsible corporate officers. This is not to say that the government looks upon all violations equally. DOJ policy cites violations which involve 1) the discharge or dumping of hazardous waste without a permit, or 2) the misuse of the environmental regu latory apparatus through the filing of misleading or false reports, as the violations most likely to lead to crimi nal prosecution. According to a former DOJ prosecutor: "The biggest mistakes made by executives who have cut comers or discovered environmental violations occur when the executivetakes action to conceal the violation. Actions to conceal or to mislead the government along with substantive violations of the pollution laws, will virtually guarantee felony indiaments and conviaions." (emphasis supplied) To protect their senior officers against unwitting participation in either criminal or civil violations, many cor porations have undertaken periodic environmental audits oftheir facilities and operations. These systematic, docu mented, objective reviews of a cor poration's operations can go a long way toward keeping senior manage ment advised of compliance activities as well as demonstrating to the EPA that management is committed to observance ofthe environmental lawtf Moreover, a company's statement oP policy on environmental condua is of little value unless it is accompanied by a systematic audit program which de monstratesthe company's commitment. That commitment by the company is demonstrated not only by conduaing the audits in the first place, but by correaing the problems, if any, that are identified in the audit. As one mature praaitioner in the area of environmental law has often stated: "An audit report which tells the cor porate president that his facility is m violation is like a loaded gun, waiting to be discovered and used against him, perhaps years later. It is critical that the audit report result in aaion which corrects the problem and which is clearly documented. Only in this way can the gun be `unloaded' and the audit program serve as proof of the company's commitment to environ mental compliance."