In Morello v. State,[1] White Lion Holdings, L.L.C. (“White Lion”), a company owned by Morello, bought a piece of real property that was previously used as a pipe-manufacturing facility. The previous owner of the property had a state-issued compliance plan to clean up groundwater contamination at the facility, which was also transferred to White Lion after the purchase. A few years later, the State of Texas sued White Lion for failure to adhere to the requirements of the compliance plan and sought to hold Morello individually liable as the manager and operator of the company. According to the state, neither Morello nor White Lion “ever performed” the requirements of the compliance plan and Morello ensured that nothing would be done to comply with the terms and conditions of the compliance plan. The lower court agreed with the state and found Morello individually liable.
On appeal, Morello argued that he could not be held individually liable because White Lion was a limited liability company and the state did not attempt to pierce the LLC’s veil or advance other legal theories to hold him personally liable. The court acknowledged that, under Texas law, a member or manager is generally not liable for the debts, obligations or liabilities of a limited liability company. The court noted that the state did not attempt to pierce the LLC’s veil but instead relied on the legal principle allowing for a corporate officer to be held individually liable when he knowingly participates in tortious or fraudulent acts, even though he performed the act as an agent of the company. The state argued that the applicable statute, which provided that “a person may not cause, suffer, allow, or permit a violation of a statute,” provided for individual liability and, thus, an individual corporate officer may be held liable for his own violations. Additionally, the state argued that Morello “as the sole member, owner, and decision-maker of White Lion, is a person that caused, allowed and/or permitted White Lion to violate the Compliance Plan and related rules.” The court disagreed. The court said that the failure to comply with the environmental compliance plan did not fall under environmental tort because there was no allegation that Morello deposited or discharged any hazardous substances. Accordingly, the court held that the state failed to establish that Morello could be held individually liable and reversed the lower court’s judgment.
While Morello narrowly avoided personal liability, courts may be more willing to impose personal liability on corporate officers for environmental violations when other factors justifying veil piercing are present.
This post was part of a multi-part series on personal liability for environmental violations. You can find the other post by searching our blogs at www.mcbrideattorneys.com. In our next post, we will discuss State v. Pure Tech Systems, Inc., in which an Ohio appellate court found a corporate officer personally liable for environmental violations.
This posting is intended to be a planning tool to familiarize readers with some of the high-level issues discussed herein. This is not meant to be a comprehensive discussion and additional details should be discussed with your transaction planners including attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances. This article should not be treated as legal advice to any person or entity.
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[1] Morello v. State, No. 03-15-00428-CV (Tex. App.–Austin May 6, 2016, no pet. h.) (mem. op.). Unless otherwise noted, all references to the case are to this citation.