COALEX STATE INQUIRY REPORT - 131
November 13, 1989

Stella B. House, Esquire
Natural Resources and Environmental Protection Cabinet
Department of Law
Capital Plaza Tower; 5th Floor
Frankfort, Kentucky 40601

TOPIC: INDIVIDUAL LIABILITY OF CORPORATE OFFICER, DIRECTOR OR AGENT

INQUIRY: Is the "participation theory" a viable alternative to "piercing the corporate veil" when a
regulatory agency is attempting to hold a corporate officer, director and/or agent individually or
personally liable for reclaiming a mine site and/or civil penalties assessed against the corporation
for its violations of the surface mining laws? Please locate Interior Board of Land Appeals (IBLA)
and Administrative Law Judge (ALJ) decisions, state administrative decisions, and/or state and
federal court decisions which are relevant to this issue.

SEARCH RESULTS: Research was conducted using the COALEX Library and the state and federal
decisions available in LEXIS. The majority of the state and federal court decisions retrieved
involve Pennsylvania cases. Pennsylvania is the only state identified which "officially" recognizes
the "participation theory". Copies of the materials discussed below are attached.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

STATUTES AND REGULATIONS
SMCRA Sec. 518(f), 30 U.S.C. Sec. 1268(f).
"Whenever a corporate permittee violates a condition of a permit issued pursuant to a Federal
program...or Federal enforcement of a State program...or fails or refuses to comply with any
order...any director, officer, or agent of such corporation who willfully and knowingly authorized,
ordered, or carried out such violation, failure or refusal shall be subject to the same civil
penalties, fines, and imprisonment that may be imposed upon a person under subsections (a) and
(e) of this section."


KY. REV. STAT. ANN. Sec. 350.990(9) (Michie/Bobbs-Merrill 1988).
"Whenever a corporate permittee violates any provision of this chapter or regulation issued
pursuant thereto or fails to or refuses to comply with any final order issued by the secretary, any
director, officer, or agent of such corporation who willfully and knowingly authorized, ordered or
carried out such violation, failure or refusal shall be subject to the same civil penalties, fines, and
imprisonment as may be imposed upon a person pursuant to this section."


25 PA. CODE Sec. 86.1 (1982). Protection of Natural Resourses. Definitions.
"Person" -- Any natural person, partnership, association or corporation, or any agency,
instrumentality or entity of Federal or State Government. Whenever used in any clause
prescribing and imposing a penalty, or imposing a fine or imprisonment, or both, the term
"person" shall not exclude the members of an association and the directors, officers, or agents of
a corporation.

Policy Statement of the Dept. of Environmental Resources: Civil Penalty Program (1985).
Introduction.
"Corporation officers, directors and agents may be subject to individual civil penalties in all cases
in which violations of the corporate permittee lead to the issuance of a failure to abate cessation
order. Individual civil penalties against corporate officers, directors and agents will be assessed in
accordance with provisions contained herein for violations which were willfully and knowingly
authorized, ordered or carried out.:

 
ALJ DECISIONS [NOTE: No relevant IBLA decisions were identified]
ALJ's have held directors, officers or agents liable for civil penalties when the following conditions
have been demonstrated:

"(a) a corporate permittee violated a condition of its permit, or failed or refused to comply with
any order contained in any section 521 NOV [Notice of Violation] or CO [Cessation Order], (b)
that petitioner was a director, officer, or agent of such corporation, and that (c) petitioner will
fully and knowingly authorized, ordered, or carried out such violation, failure or refusal."
RUDALPH WILLIAMS (LAKE COAL CO., INC.) v OSM, Docket No. NX 5-12-P (Sept. 23, 1986).


FAILURE OR REFUSAL TO COMPLY WITH AN ORDER. 
WILLIAMS v OSM. 
   Lake, the corporate permittee, was correctly cited for "delinquent reclamation efforts" and
failure to "comply with abatement provisions" of the Act. Williams held the position of Vice
President and General Manager and was determined to be Lake's "agent" and "the person within
Lake's corporate organization who was responsible for all or part of [the minesite's] operation and
the attendant reclamation activities."  


BERT BANKS (LAKE COAL CO.) v OSM, Docket No. NX 5-14-P (Oct. 31, 1986). 
   Lake's violations, here, were for improperly constructing a hollow fill and failing to install proper
drainage systems. In a ruling similar to WILLIAMS, above, the ALJ found that Banks, as Vice
President of Engineering at the time the NOV was issued "was a director, officer or agent for
Lake, for the purposes of satisfying section 518(f) of the Act."  


GRUNDY MINING CO. AND TENNESSEE CONSOLIDATED COAL CO. v OSM, Docket No. NX 1-146-P (June 14, 1985). 
   NOVs were properly issued for lack of sediment control and an improperly constructed bench.
"The record show[ed]" that "Tennessee Consolidated was very actively involved in the actual
operation of [the minesite]. From the time the notice of violation was issued, Tennessee
Consolidated acted as the party responsible."


BERNOS COAL CO. AND EXCELLO LAND MINERAL CORP. v OSM, Docket Nos. NX 1-118-R and NX
3-10-P (July 26, 1985). 
   A cessation order (CO) was issued to Bernos and Excello. The ALJ affirmed the violation
underlying the CO, failure to "establish final graded slopes which do not exceed the approximate
premining slopes".  Although Bernos was the permittee, the record showed that "Excello was in
complete charge of the operation of the subject mine...Excello leased the mine site from
Bernos...extracted coal from the site...and performed all the reclamation work on the site...."


DIRECTOR, OFFICER OR AGENT OF A CORPORATION.
   All of the ALJ decisions included here cite to U.S. v DIX FORK COAL CO., 692 F. 2d 436 (6th
Cir., 1982) in defining "agent". 

   In DIX FORK, "the Court found that Section 521(c) of the Act, 30 U.S.C. Section 1271(c)
authorized the issuance of an order against both a permittee and its agent. In order to reach this
conclusion, the Court first had to define 'agent.' As the Act contained no definition of agent, the
Court used what it considered to be an appropriate definition taken from the Coal Mine Safety
and Health Act, 30 U.S.C. Section 801 et seq. There, agent is defined at 30 U.S.C. Section 802(e)
as follows: 'Agent means any person charged with the responsibility for the operation of all or a
part of a coal mine, or of the supervision of the miners in a coal mine.'"

   Using this definition the Court found that an agent had been delegated the responsibility of
insuring the permittee's compliance with the Surface Mining Act." GRUNDY MINING v OSM.

   In GRUNDY, the ALJ held the "agent", another corporation, liable. He concluded: "[T]his case
should not be construed to say that in an appropriate case the corporate veil of a particular
permittee could not be pierced and some other person held liable for a civil penalty...The Act
made no change in corporate law or corporate immunity, other than it did set its own criteria as
to when an agent, director or officer of such corporation could be assessed a civil penalty in what
is perhaps a contradiction of the general agency law."


THE DEFINITION OF "WILLFULLY AND KNOWINGLY".
   The ALJ in BERNOS COAL v OSM utilized Black's Law Dictionary definition of the phrase:
"consciously and intentionally." [NOTE: In BERNOS COAL, like GRUNDY, the "agent" was a
corporation.] 
   
   In BANKS v OSM, the ALJ employed the "careless disregard" standard in ruling that OSM had
successfully shown that Banks "knew that his conduct was prohibited by the Act or has
demonstrated that [Banks] either intentionally disregarded the statute (Act) or was plainly
indifferent to its requirements."

   "Knowingly" was defined as "equivalent, for purposes of assessing civil penalties, to "knew or
should have known.'"


STATE COURT AND STATE ADMINISTRATIVE DECISIONS
COLLEGE WATERCOLOR GROUP, INC. v WILLIAM H. NEWBAUER, INC. AND WILLIAM H.
NEWBAUER, 468 Pa. 103, 360 A.2d 200 (Pa., 1976). 
"The accepted rule in Pennsylvania is that a corporation is an entity distinct from its shareholders
even if the stock is held entirely by one person." 


ZUBIK v ZUBIK, 384 F.2d 267 (3rd Cir., 1967), cert. denied, 390 U.S. 988 (1968). 
   The court affirmed the judgments against the corporation and reversed those against the
individual defendant. The court determined "that the corporation had a separate existence."
Although much of the defendant's finances and activities were "intertwined with that of the
corporation", the corporation was not found to be the "alter ego" of the defendant. 


CHESTER-CAMBRIDGE BANK AND TRUST CO. v Rhodes, 346 Pa. 427, 31 A.2d 128 (Pa., 1943).    
The officers of the trust company "at the most" could be "charged with nonfeasance, and not with
misfeasance or malfeasance" in the "technical breach of trust by the corporate fiduciary". The
court ruled "in this case...with nonfeasance, no individual liability attaches."


DONSCO, INC. v CASPER CORP., 587 F.2d 602 (3rd Cir., 1978). 
   The Casper Corporation was found liable for unfair competition and false advertising. Casper
Pinsker, acting as agent for the corporation, authorized and approved the acts of unfair
competition. "This is sufficient actual participation in the wrongful acts to make Pinsker
individually liable."

"The fact that an officer is acting for a corporation also may make the corporation vicariously or
secondarily liable under the doctrine of respondeat superior; it does not however relieve the
individual of his responsibility." 

"A corporate officer is individually liable for the torts he personally commits and cannot shield
himself behind a corporation when he is an actual participant in the tort."

"This liability is distinct from the liability resulting from the 'piercing of the corporate veil' as that
term is commonly used. The effect of piercing a corporate veil is to hold the owner liable. The
rationale for piercing the corporate veil is that the corporation is something less than a bona fide
independent entity. Pinsker is liable here as an actor rather than as an owner. His liability is in no
way dependent on a finding that Casper Corporation is inadequately capitalized, that the
corporation is a mere alter ego of Pinsker, that the corporate form is being used to perpetrate a
fraud, or that corporate formalities have not been properly complied with."


WICKS v MILZOCO BUILDERS, INC., 503 Pa 614, 470 A.2d 86 (Pa., 1983). 
   The court held that a cause of action had been stated against the corporate officers of Milzoco
Builders, Inc., the developers of Monroe Acres, "on the theory that they personally participated in
the alleged tortious acts committed on behalf of the corporations." 

"[T]he individual appellees actually knew that the location of the proposed Monroe Acres
Development created, at least, an unreasonable risk of the drainage problems which occurred
and that, having the power to do so, they deliberately ordered the work to proceed."  

"Pennsylvania law recognizes the participation theory as a basis of liability.

"The general, if not universal, rule is that an officer of a corporation who takes part in the
commission of a tort by the corporation is personally liable therefor; but that an officer of a
corporation who takes no part in the commission of the tort committed by the corporation is not
personally liable to third persons for such a tort, nor for the acts of other agents, officers or
employees of the corporation in committing it, unless he specifically directed the particular act to
be done or participated, or cooperated therein...Liability under this theory attaches only where
the corporate officer is an actor who participates in the wrongful acts. Therefore, corporate
officers may be held liable for misfeasance...[C]orporate officers and directors may not be liable
for mere nonfeasance."


U.S. v PARK, 421 U.S. 658 (1975). 
   This case involves the criminal prosecution of the President of Acme Markets, Inc. for violation
of section 301(k) of the Federal Food, Drug, and Cosmetic Act (Act). Food shipments being held
in Acme's Baltimore warehouse were exposed to rodent contamination.

"The Act imposes upon persons exercising authority and supervisory responsibility
reposed in them by a business organization not only a positive duty to seek out and
remedy violations but also and primarily, a duty to implement measures that will
insure that violations will not occur."  [This is labelled "statutory duty" in LUCKY
STRIKE v DER, see below.]

"[T]he trial court's instructions were not misleading and provided a proper guide for
the jury's determination. The charge adequately focused on the issue of respondent's
authority respecting the conditions that formed the basis of the alleged violations,
fairly advising the jury that to find guilt it must find that respondent "had a responsible
relation to the situation"; that the "situation" was the condition of the warehouse; and
that by virtue of his position he had "authority and responsibility" to deal therewith."  


LUCKY STRIKE COAL CO. AND LOUIS J. BELTRAMI v COMMONWEALTH OF PA., DEPT.
OF ENVIRONMENTAL RESOURCES (DER), 119 Pa. Commw. 440, 547 A.2d 447 (Pa.
Commw. Ct., 1988). DER v LUCKY STRIKE COAL CO. AND LOUIS J. BELTRAMI, EHB
Docket No. 80-211-CP-W, slip op. (Pa. EHB, 1987). 
   The Commonwealth Court upheld the Pennsylvania Environmental Hearing Board's
(EHB) determination that Beltrami, President of Lucky Strike, was individually liable for
civil penalties under the "common law theory of participation." Beltrami was "in charge
of the day-to-day operations of the sizing plant" and knew that the plant was
discharging industrial waste, due to an inoperative pump, in violation of Pennsylvania's
Clean Streams Law. The EHB found Beltrami "made a business decision to continue to
operate the sizing plant, regardless of the pollutional consequences." 

"This degree of activity is sufficient to hold Beltrami personally liable for all 23
discharges under common law. In any event, because of his relation to the situation,
and by virtue of his authority as President and Chairman, the Board also would not
hesitate to find Beltrami personally liable under the statutory-duty participation
theory."


JOHN E. KAITES AND JOHNSTOWN COAL AND COKE, INC. v DER, 108 Pa. Commw.
269, 529 A.2d 1148 (Pa. Commw. Ct., 1987). JOHN E. KAITES  et al. v DER, Docket
No. 84-104-G, slip op. (Pa. EHB, 1986). JOHN E. KAITES et al. v DER, Docket No. 84-104-G, 1985 E.H.B. 625 (1985).
   The Commonwealth Court reversed an EHB finding that Kaites, "as president and
chief executive officer of Johnstown" was "individually responsible for complying with
an abatement order issued by DER." Kaites and Johnstown Coal were cited for acid
discharges in violation of the Pennsylvania Clean Streams Law (CSL) and the Coal
Refuse Disposal Control Act (CRDCA). 

"[W]e do not believe that [Kaites] may be held personally liable for violating the
statutes absent some positive proof of wrongful conduct...Aside from inference and
[Kaites'] status as a corporate officer, however, these is no specific evidence
demonstrating [Kaites'] intentional neglect or misconduct which would support
imposing individual liability on him for violating the CSL and CRDCA."

"[S]everal distinguishing factors exist between [U.S. v PARK] and the matter sub
judice including the special nature of the public interest involved under the [Federal
Food, Drug and Cosmetic Act (FFDCA)]. Though we recognize the high public interest
which justifiably exists in abating acid mining discharges into the waters of this
Commonwealth, we do not believe that Pennsylvania law supports application of the
type if individual liability which the United States Supreme Court has interpreted the
FFDCA, through a long line of cases, as requiring in the federal criminal law context.
We conclude that, under Pennsylvania law, the public interest will not be violated by
requiring specific evidence of acts of intentional neglect or misconduct before imposing
individual liability on a corporate officer for abating a public nuisance under the CSL or
CRDCA."


DER V BLACK CARBON FUEL, 86 C.D. 1987 (July 14, 1989). 
   The equity holding corporate officer was held personally liable for reclaiming an
abandoned strip mine site based on the finding that the officer had "participated" in
the violation: the individual had participated in establishing the mine. The individual
"knew or should have known" that the mine had to be reclaimed. (Unpublished
opinion.) 


ATTACHMENTS
A.   KY. REV. STAT. ANN. Sec. 350.990(9) (Michie/Bobbs-Merrill 1988).
B.   25 PA. CODE Sec. 86.1 (1982). Protection of Natural Resources. Definitions.
C.   Policy Statement of the Dept. of Environmental Resources: Civil Penalty
     Program (1985). Introduction.
D.   RUDOLPH WILLIAMS (LAKE COAL CO., INC.) v OSM, Docket No. NX 5-12-P
     (Sept. 23, 1986).
E.   BERT BANKS (LAKE COAL CO.) v OSM, Docket No. NX 5-14-P (Oct. 31, 1986).
F.   GRUNDY MINING CO. AND TENNESSEE CONSOLIDATED COAL CO. v OSM,
     Docket No. NX 1-146-P (June 14, 1985). 
G.   BERNOS COAL CO. AND EXCELLO LAND MINERAL CORP. v OSM, Docket Nos.
     NX 1-118-R and NX 3-10-P (July 26, 1985).
H.   U.S. v DIX FORK COAL CO., 692 F.2d 436 (6th Cir., 1982).
I.   WILFORD NIECE v OSM, Docket No. NX 5-2-P (Oct. 27, 1986).
J.   COLLEGE WATERCOLOR GROUP, INC. v WILLIAM H. NEWBAUER, INC. AND
     WILLIAM H. NEWBAUER, 468 Pa. 103, 360 A.2d 200 (Pa., 1976).
K.   ZUBIK v ZUBIK, 384 F.2d 267 (3rd Cir., 1967), cert. denied, 390 U.S. 988
     (1968).
L.   CHESTER-CAMBRIDGE BANK AND TRUST CO. v RHODES, 346 Pa. 427, 31
     A.2d 128 (Pa., 1943).
M.   DONSCO, INC. v CASPER CORP., 587 F.2d 602 (3rd Cir., 1978).
N.   WICKS v MILZOCO BUILDERS, INC., 503 Pa 614, 470 A.2d 86 (Pa., 1983).
O.   U.S. v PARK, 421 U.S. 658 (1975).
P.   LUCKY STRIKE COAL CO. AND LOUIS J. BELTRAMI v COMMONWEALTH OF
     PA., DEPT. OF ENVIRONMENTAL RESOURCES, 119 Pa. Commw. 440, 547
     A.2d 447 (Pa. Commw. Ct., 1988). 
Q.   DER v LUCKY STRIKE COAL CO. AND LOUIS J. BELTRAMI, EHB Docket No. 80-211-CP-W, slip op. (Pa. EHB, 1987).
R.   JOHN E. KAITES AND JOHNSTOWN COAL AND COKE, INC. v DER, 108 Pa.
     Commw. 269, 529 A.2d 1148 (Pa. Commw. Ct., 1987). 
S.   JOHN E. KAITES et al. v DER, Docket No. 84-104-G, slip op. (Pa. EHB, 1986). 
T.   JOHN E. KAITES et al. v DER, Docket No. 84-104-G, 1985 E.H.B. 625 (1985). 
U.   DER v BLACK CARBON FUEL, 86 C.D. 1987 (July 14, 1989). 


Research conducted by: Joyce Zweben Scall