McBride Law Blog

Personal Liability for Environmental Violations (Part III)

McBride Law Blog

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In State v. Pure Tech Systems, Inc.,[1] the property at issue had been used for petroleum and hazardous substance operations dating back to the 1880s and was already subject to the state’s closure order by the time it was transferred to Pure Tech Systems, Inc. (“Pure Tech”).  Subsequently, the City of Cleveland issued a citation to close the facility for the city and state fire code violations, followed by a consent order to address the violations.  The state’s environmental agency also began regulatory compliance actions against Pure Tech, which resulted in two additional consent orders.  Meanwhile, Pure Tech and various closely held companies, all under the common ownership of Robert Kattula, entered into a series of transactions among themselves to finance the environmental remediation, guarantee the same, and transfer or assign the property at issue.  Ultimately, the state sued Kattula and his various companies for violations of numerous Ohio hazardous waste and water pollution control laws, and after a hearing, the trial court pierced the corporate veil to find Kattula personally liable and assessed approximately $6.1 million in civil penalties against Kattula and his companies.

On appeal, Kattula challenged the trial court’s imposition of personal liability, among other things, arguing that there was no evidence that he personally participated in the violations.  The court disagreed.  The court found that Kattula was in complete control of Pure Tech and the affiliated companies as either the sole shareholder or part of his family’s business and that Kattula used these companies to conduct his personal dealings such that they had no separate mind, will, or existence of their own.  The court also found that Kattula diverted or commingled the companies’ corporate assets for personal use by, for example, conveying corporate property to his wife’s business and back without a corporate resolution.  Additionally, the court found that Kattula assumed personal liability for the corporate liabilities of these companies by personally paying $1.5 million to one of the companies for environmental corrective actions.  In other words, the court said that Kattula exercised control over the companies and the companies existed at the will of Kattula in such a manner that it would be fraudulent not to hold him personally accountable for the companies’ failure to address the ongoing hazardous waste violations.

We don’t have many readers in Ohio, but we wanted to highlight this case as an example of a situation where courts may impose personal liability for environmental violations.  While environmental violations may not rise to the level of tortious or fraudulent conduct, this case shows that courts won’t hesitate to find a corporate officer/manager/shareholder individually liable where factors justifying piercing the corporate veil 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.  If you have any questions about the content of this blog or other business law issues not discussed here, please contact us.

If you have any suggestions for blog topics, please send them to info@mcbrideattorneys.com.

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.

Steps have been taken to verify the contents of this article prior to publication.  However, readers should not, and may not, rely on this article.  Please consult with counsel to verify all contents and do not rely solely on this article in planning your legal transactions.

[1] State v. Pure Tech Sys., Inc., No. 101447 (Ohio Ct. App. Apr. 30, 2015).  Unless otherwise noted, all references to the case are to this citation.

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