Earlier this month, in B&R Resources, LLC v. DEP, No. 1234 C.D. 2017 (March 15, 2018), Pennsylvania’s Commonwealth Court held that the sole managing member of a limited liability company may be personally liable for his company’s failure to plug certain abandoned wells. In doing so, the Commonwealth Court clarified that the participation theory of liability, which essentially extends liability from a corporation to its officers who “participated” in corporate wrongdoing, may encompass not only intentional misconduct by an officer but also deliberate inaction.
The case concerned an enforcement action against Richard F. Campola ("Campola"), the sole and managing member of B&R Resources, LLC ("B&R"), a limited liability company engaged in oil and gas exploration activities. In December 2011, the Pennsylvania Department of Environmental Protection (the “Department” or “DEP”) first notified Campola that a number of B&R's wells appeared to be abandoned. In 2014, after B&R failed to address the issue, DEP issued a notice of violations with a list of wells that had been abandoned and requested that B&R take action to comply with the 2012 Oil and Gas Act. Section 3220(a) of the oil and gas statutes enacted by Act 13 of February 14, 2012, P.L. 72 (the "2012 Oil and Gas Act"), 58 Pa. C.S. § 3220(a), requires the owner or operator of a well to plug any abandoned well to stop vertical flow of fluids or gas within the well bore. Campola received the notice and informed the Department that B&R was "not in any position to plug any wells at this time," and requested that DEP "allow [B&R] to fix problems without DEP interference." DEP later followed up with additional notice of violations and repeatedly instructed B&R to bring the wells into compliance, but B&R did not plug any of the wells or return any of them to production. DEP then issued an administrative order against both B&R and Campola, requiring them to plug 47 wells that had allegedly been abandoned.
B&R and Campola appealed the administrative order to Pennsylvania’s Environmental Hearing Board. The principal matter before the Board was whether the Department could take enforcement action against Campola, who did not technically own or operate any of the wells in question. The Department found that Campola, as B&R's managing member, made all operational decisions for B&R, including decisions on which wells to produce and decisions on whether to plug wells. Further, it was undisputed that the 47 wells had been abandoned and that B&R was required to plug the wells under the 2012 Oil and Gas Act. Consequently, the Board held that Campola was responsible for plugging the wells in his individual capacity under the participation theory, a basis for liability whereby a corporate officer's actions and participation in corporate wrongdoing make the officer individually liable. The Board held that, even though the wrongdoing at issue here was inaction, Campola was still responsible for plugging the wells because his inaction was intentional.
B&R and Campola appealed again, this time to the Commonwealth Court. The Commonwealth Court affirmed in part and reversed in part the Board's decision. First, the Commonwealth Court affirmed the Board's holding that Campola could be liable under a participation theory even though his conduct consisted of inaction. The court noted that the participation theory extended to a corporate officer's wrongdoing when that wrongdoing was "intentional," and the court held that deliberate inaction could meet this standard. Specifically, the court raised concerns that, if there was an absolute rule barring participation theory liability for inaction, then corporate officers would essentially be shielded from individual liability if their corporation simply ignored statutory obligations. Thus, the court rejected the argument that intentional inaction could never support participation theory liability as a matter of public policy.
While the Commonwealth Court largely agreed with the Board's legal analysis, the court ultimately remanded the case back to the Board for additional factual determinations. Specifically, the court noted that participation theory liability can attach "only if there is a casual connection between [Campola's] wrongful conduct and the violation." Here, the record reflected that Campola did not have B&R plug its wells because Campola decided to direct B&R's financial resources to other business besides plugging the wells. The court found that there was a gap in the factual record as to whether B&R could have plugged all 47 of its wells had Campola channeled its financial resources to plugging the wells. Thus, in the court's view, there was not necessarily a causal link between Campola's decision to not plug the wells and B&R's failure to plug them. Accordingly, the case was remanded to the Board so that the record could be further developed on this matter.
Although the court ultimately remanded the matter back to the Board, its holding that deliberate inaction may be a foundation for participation theory liability arguably expands the scope of the participation theory in environmental matters in Pennsylvania. The participation theory remains an oft-forgotten but viable tool in the Department's enforcement belt.