Texas Supreme Court Holds Manager Personally Liable for Environmental Penalties

Texas Supreme Court Holds Manager Personally Liable for Environmental Penalties
This is a guest post from my good friend Jim Smith at Crain Caton.

In State of Texas v. Morello, the Texas Supreme Court reversed a mid-level appellate court and reinstated a trial court’s judgment making Bernard Morello personally liable for approximately $400,000 in civil penalties for environmental violations.

The Company’s History of Permit Violations

Morello had been the sole member and manager of White Lion Holdings, a limited liability company.  The State alleged that White Lion consistently violated its hazardous waste permit.  Based on these violations, the State received a judgement of a similar penalty amount against White Lion, which was affirmed in a separate appeal.

Morello’s Personal Involvement

The State also sued Morello, individually.  The State alleged, and the courts agreed, that Morello was the sole decision-maker for the limited liability company. Moreover, Mr. Morello personally removed water treatment equipment from the facility, and was responsible for having monitor well protective housing caps discarded. The trial court determined that this involvement was enough to make Morello personally liable for the civil penalties.

Neither “Fraud” nor “Tortious” Acts Required

The mid-level appellate court had reversed the civil penalty award as to Morello.  That court reasoned that Mr. Morello did not individually participate in tortious or fraudulent acts, and therefore, as an agent of the limited liability company that owned the facility, he could not be held individually liable.

The Texas Supreme Court rejected that argument and reversed the mid-level court. The Supreme Court examined the Texas environmental statutes and determined that the State could hold an individual liable without proving fraudulent or tortious acts by that individual.  Morello was the sole decision-maker.  He personally removed water treatment equipment and had monitoring well protective housing caps discarded.  These circumstances were enough to make Morello personally liable for the civil penalties.

Decision Makers Can Be Liable for Allowing Violations

The Supreme Court’s discussion of personal liability suggests that an individual who is the sole decision-maker for a corporation or limited liability company will generally have civil liability for the environmental violations of the entity, because Texas law states that no person shall “cause” or “allow” environmental violations.

At least as to civil penalties, individual managers should expect that they can be held liable if their decisions constitute causing or allowing violations of Texas environmental laws, even if the entity owning the facility or holding the permit is a corporation or limited liability company.
For a copy of the Supreme Court’s opinion http://www.txcourts.gov/media/1440618/160457.pdf

Thanks Jim!

More later.

As always, feel free to contact me at walter.james@jamespllc.com


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