Ohio’s Personal Participation Theory and its Effect on Shareholder Liability
In Ohio ex rel. DeWine v. Breen, 362 F.Supp.3d 420 (S.D. Ohio 2019), the Southern District of Ohio expanded the scope of the Ohio Environmental Protection Agency’s (OEPA) enforcement power when it held former corporate shareholders personally liable for the dissolved corporation’s environmental violations even though the corporation itself was off the hook.
The court explained that under Ohio statutory law, the state may only impose liability on a dissolved corporation for violating environmental enforcement orders within five years of the corporation’s dissolution date. For that reason, the state could not impose liability on the defunct corporation because the corporation was dissolved in 2007 and the state did not initiate administrative enforcement proceedings until nine years later in 2016. At the same time, however, the court determined that former corporate officers, directors and shareholders may be personally liable for their role in the environmental violations under the “personal participation theory.” Id. at 442.
When evaluating whether an individual is personally liable under the personal participation theory, Ohio courts consider whether “pursuant to an environmental enforcement action—the individual made decisions, gave orders, oversaw operations, served as the primary contact with administrative parties, and ‘importantly . . . failed to correct known violations even though [the individual] had the requisite authority to do so.’” Id. (quoting State ex rel. Dewine v. Sugar, 60 N.E.3d 735, 742 (Ohio Ct. App. 2016)). With those considerations in mind, the court found that the shareholders in Breen negotiated and agreed to the environmental enforcement order with OEPA, were aware of the order’s requirements, had the responsibility to oversee compliance with the order and were in communication with OEPA even after the corporation was formally dissolved. As a result, the court held the former shareholders personally liable for the dissolved corporation’s violations.
The court’s decision expanded OEPA’s enforcement power by allowing the agency to enforce orders against individuals previously insulated from personal liability. Still, the court did not give OEPA the power to enforce orders on any or all shareholders, officers or directors—the individual must have played an active role in the corporation’s violation to be at risk of personal liability.
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