OFFSHORE ASSET PROTECTION - ENVIRONMENTAL LIABILITY

Asset Protection for Those at Risk for Environmental Liability

Anyone who has any potential liability for environmental contamination and clean up should be worried about protecting his or her assets. Further, this potential liability extends much further than many believe.

Individuals who think they are not connected at all to environmental contamination and resulting liability can be sadly mistaken. For example, the managers, officers, or directors of a company discovered to have polluted the environment in some way may be held personally liable. Even a shareholder involved in the day-to-day business of a company may be found personally liable.

Recently under federal law the shareholders of a company were found personally liable under a pervasive control test-that is, the shareholders were controlling the activities of the company, so that it acted as their alter ego.¹

A landlord is held liable for the contamination of property by a tenant. This liability is absolute to the landlord, who is left without a defence. It does not matter that the landlord had no knowledge of the tenant's activities.

The purchaser of a business may even be liable for contamination caused by the previous business owner. Innocent actions such as continuing the name of the prior business (a rather common practice for goodwill reasons) is enough to loop the new purchaser into liability for the predecessor's contamination.

And as a last example of innocence caught in great liability, think twice before you become the trustee of a trust. If that trust operates or is involved in activity that has any link to a contamination, then the trustee can be personally liable if trust assets are not sufficient to cover cleanup costs.²

The Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) is the heart of the federal environmental enforcement arsenal. It is also known as the "Superfund," and establishes a complex regulatory scheme for investigating and handling property contaminated with hazardous waste.

What few people understand is the extent to which this Superfund statute imposes the potential for great personal liability merely by the acquisition, ownership, or operation of contaminated property. Even if you are not responsible for the contamination, you may still be liable! In addition, those involved with disposal or transport of hazardous waste can be held strictly liable.

A Liability under Superfund is strict,³ retroactive, and joint and several⁴ for costs incurred in a cleanup. These costs include federal, state, and private party costs. Ouch!⁵ As a further problem, there are very few defences under CERCLA. An act of God, war, and an act or omission of a third party with no relationship to the current individual are the only defences. In order to be able to use the latter defence, the current owner or operator must have made an extensive review of the property for contamination at the time of acquisition and been unable to find the contamination.

In other words, the act or omission of the third party, who caused the contamination, must be one that makes the contamination very difficult to discover upon a review or inspection. This puts a very heavy burden on the current owner to establish that their inspection was thorough, and is consequently a very difficult defence.

Further discussion of the extent of the environmental statutes and their reach is beyond the scope of this book, but in summary it should be sufficient to warn that the federal statutes alone can create great liability, without even taking into account state and local laws. And sometimes more than one statute applies. On federal, state, and local levels, there can be cleanup costs, penalties, third-party claims, as well as potential criminal liability. Environmental regulation is growing rapidly, and not going away. Beware!

In all such high-risk companies, the best course of action is first, to do everything possible to operate the business safely, and second, to ensure that at least some of the assets are protected against claims you cannot avoid.

¹ Atlantic Richfield Co. v. Blosenski, 847 F. Supp. 1261 (ED Pa. 1994).
² "Real Estate Ownership in the United States," Asset Review. (June/July 1993). Part II Chapter 1.
³ Strict liability means there are no excuses or defences allowed.
⁴ Joint and several liability means that the liability can be imposed 100 percent on one party involved, rather than shared among several potential parties, or the liability may be spread among the responsible parties by the court. You may be the unlucky one and be saddled with 100 percent of the liability, even though others are involved. Ouch!
⁵ "Environmental Liability in the 90's," Trusts & Trustees, (April/May 1993).

 

Part 1:  Offshore Asset Protection - ASSET PROTECTION MAIN PAGE
Part 2:  Offshore Asset Protection - for Environmental Liability
Part 3:  Offshore Asset Protection - for High Profile and Celebrity Individuals
Part 4:  Offshore Asset Protection - for Officers and Directors
Part 5:  Offshore Asset Protection - for Professionals
Part 6:  Offshore Asset Protection - for Property Owners