When is a Corporation Like the Emperor’s New Clothes?

Sometimes folks might take an investment risk as shareholders in a corporation or members of an LLC in situations where they wouldn’t risk their personal assets. People may think that forming a limited liability entity to hold contaminated properties or manage businesses with environmental risks protects them from liability beyond their investment. In environmental law under the United States v. Bestfoods decision by the U.S. Supreme Court, a corporation may be ignored and personal assets may be reached in generally the same situations that they can be reached for other non-environmental claims.  This is called “piercing the corporate veil” and it can happen if the corporation was formed for a “wrongful purpose.” Each state may put a slightly different spin on where the line is drawn, but if you are thinking of limiting liability because of a known environmental risk, then there is a risk a court might find you are attempting to intentionally violate or evade a duty.  But many states are extremely reluctant to pierce the corporate veil. However, if the member of the corporation or LLC goes beyond “corporate norms” and controls the activity which results in contamination, then they may be held liable as “operators” under the Superfund statute.

So avoiding environmental liability takes more than just setting up a corporation or LLC. You might think you are protected, but in certain cases someone might point out that your assets are showing.