Posted on March 23, 2016 by Gregory Sharp
The limited liability form of corporate organization generally offers small businesses the favorable tax treatment of a sole proprietorship or partnership, along with protection from personal liability, up to a point. That protection in Connecticut is far from bullet-proof when it comes to liability for environmental harms. Business people acquiring potentially contaminated property should ask: If I create a Limited Liability Company to take title to the property, will I be protected from personal liability for a clean-up? In Connecticut, the answer ranges from “no” to, at best, “it depends.” This is counter-intuitive to clients who believe they are protected by Connecticut’s Limited Liability Company statute which provides generally that a member of an LLC is not liable for the obligations of the LLC. See Conn. Gen. Stat. § 34-133 & 134.
The core of the conflict lies in language in the environmental statutes and case law from the state’s courts. Contrary to the tenor of the LLC enabling statutes, Connecticut’s pollution control statutes were amended in 1995 to include specifically a member of an LLC in the definition of a “person” subject to the issuance of a pollution abatement order. See Conn. Gen. Stat. § 22a-123.
In addition, the Connecticut Supreme Court in 2001 adopted the “responsible corporate officer doctrine” holding that a corporate officer whose conduct has a responsible relationship to a violation may be held liable for abatement of the violation through an order from the state environmental agency. See BEC Corp. v. Dept. of Environmental Protection.
In December, 2015, the Connecticut Appellate Court applied the responsible corporate officer doctrine to the sole member of an LLC finding her personally liable for pre-existing contamination at property acquired by the LLC which she created knowing the contamination was present. See Vorlon Holding, LLC, et al. v. Commissioner of Energy and Environmental Protection.
The risk of personal liability for owners of small businesses contemplating acquisition of environmentally challenged property increases the likelihood that these properties will become, or remain, unproductive “brownfields.” Fortunately, the legislature has created mechanisms within the last few years to provide funding for site assessments without liability attaching and tools to limit liability to potential purchasers who can meet the legislative requirements.
A more detailed discussion of the evolution of the responsible corporate officer doctrine in the federal courts and its application in Connecticut courts in environmental cases is available in an article by John R. Bashaw and Mary Mintel Miller.