Ninth Circuit Rejects Narrow Interpretation of "Responsible Corporate Officer"

from South Carolina Environmental Law Journal;
Volume Eight • Summer 1999 • Number One

I. Introduction

In United States v. Iverson, ¹ the Ninth Circuit Court of Appeals, as a matter of first impression, broadly defined "responsible corporate officer" under the criminal penalties section of the Clean Water Act ² ("CWA"). Rejecting a narrow interpretation, the court determined that a person is a " 'responsible corporate officer' if the person has authority to exercise control over the corporation's activity that is causing the discharges. There is no requirement that the officer in fact exercise such authority or that the corporation expressly vest a duty in the officer to oversee the activity." ³

II. Case Background

The defendant, Thomas Iverson, founded CH2O, Inc. ("CH2O"), a chemical products company. He also served as the company's President and Chairman of the Board. ⁴ The company shipped its various chemical products in the drums that it later reused. However, prior to reuse, the drums had to be cleaned which produced contaminated wastewater. ⁵ On three different occasions, the local sewer authority denied Iverson's company access to the local sewer system because of the wastewater's high metal content. ⁶

About 1985, the defendant and employees of CH2O began impermissibly discharging wastewater on the plant's property, into a sewer drain at an apartment complex owned by Iverson, and through a sewer drain at Iverson's home. ⁷ Between 1988 and 1991, the company paid a waste disposal company to dispose of the wastewater. From late 1991 to early 1992, the company shipped the drums to a third party contractor for cleaning. ⁸

In 1992, CH2O bought a warehouse with sewer access and resumed its own drum cleaning at that site. CH2O discharged wastewater into the warehouse's sewer drains but did not obtain any permits to do so. ⁹ Just prior to the purchase of the warehouse, Iverson announced an "official" retirement from the company, but continued to receive pay and to give instructions to employees. He also continued to be listed as President in the official documents and was sometimes present in the warehouse as drums were cleaned. ¹⁰ On some occasions he informed employees that the company had a permit to discharge the wastewater, and on other occasions, he "told employees that, if they got caught, the company would receive only a slap on the wrist." ¹¹

In 1997, after indictment by a grand jury, the defendant was tried and convicted of violating the CWA ¹², the Washington Administrative Code ¹³ ("WAC"), and the Olympia Municipal Code ¹⁴ ("OMC"). The Federal District court sentenced Iverson to one year in confinement, a $75,000 fine, and three years of supervised release. ¹⁵

III. The Interaction Between Federal, State, and Local Codes

Iverson's appeal primarily rested on the proposition that the WAC and the Olympia Code "allow discharges of waste that do not affect the water." ¹⁶ The court showed that:

(1) The CWA incorporates by reference state and local codes approved by the Environmental Protection Agency (EPA) making violations of those codes a federal offence; ¹⁷

(2) The CWA does not permit a state or local subdivision from adopting standards less stringent than those enacted under the CWA; ¹⁸

(3) That pursuant to the Federal Water Pollution Control Act and the CWA, the EPA has prohibited discharge or "any trucked or hauled pollutants, except at discharged points designated by the [publicly owned treatment works, or] POTW; ¹⁹

(4) That the WAC and the Olympia Code incorporate the federal standards, therefore, they also prohibit discharge of "any trucked or hauled industrial waste except at discharge points designated by the POTW." ²⁰

Thus, when read together, the CWA, WAC, and the Olympia Code prohibit the discharge of any trucked or hauled waste other than at designated points, regardless of the waste's affect on the water. ²¹

The court went on to show that the CWA, WAC, and Olympia Code were not unconstitutionally vague as applied to Iverson because "[a] reasonable person of ordinary intelligence would understand from reading the CWA, the WAC, and the Olympia Code that all three prohibit the discharge or 'any trucked or hauled industrial waste except at discharge points designated by the POTW.'" ²²

IV. "Responsible Corporate Officer" and the Clean Water Act

A. Applied to the Clean Water Act by the Ninth Circuit

Iverson also argued that the district court misinterpreted the scope of the "responsible corporate officer" ²³ ("RCO") by not confining "responsible" to those who "in fact [exercise] control over the activity causing the discharge or [have] an express corporate duty to oversee the activity." ²⁴ The CWA does not include a definition of "responsible corporate officer." The court, however, in the absence of a definition, applied the plain meaning of "responsible" as "answerable" or "involving a degree of accountability." ²⁵ Thus, the court concluded that, under the CWA, one is responsible if they have authority to exercise control. Moreover, this interpretation of the statute does not require a showing that the officer actually exercised control. ²⁶

B. Development of the "Responsible Corporate Officer" Doctrine

The court further determined that this broader reading of "responsible corporate officer" is in keeping with an overall responsible corporate officer doctrine found in other criminal cases involving federal public health and welfare legislation. ²⁷ This doctrine was first given voice in United States v. Dotterweich. ²⁸ Dotterweich, as president of a pharmaceutical firm, was prosecuted for his company's violation of the Federal Food, Drug, and Cosmetic Act (FFDCA). ²⁹ Justice Frankfurter, writing for the majority noted: "The offense is committed...by all who do have such a responsible share in the furtherance of the transaction which the statute outlaws..." ³⁰

The Supreme Court extended the doctrine in United States v. Park. ³¹ Park, president of a large food store chain, was criminally prosecuted for his company's violations of the FFDCA. ³² Justice Burger, writing for the majority, concluded: It is...clear that the Government establishes a prima facie case when it introduces evidence sufficient to warrant a finding by the trier of the facts that the defendant had, by reason of his position in the corporation, responsibility and authority either to prevent in the first instance, or promptly to correct, the violation complained of, and that he failed to do so. ³³

Actual knowledge of the alleged violations does not seem to be a factor in determining if a particular corporate officer is eligible for prosecution. The government also does not have to show willful or negligent actions on the part of the corporate officer himself. In dicta, the Tenth Circuit Court of Appeals stated the addition of "responsible corporate officer" did not limit but expanded the scope of the meaning of "persons" under the CWA. ³⁴ "Under this interpretation, a 'responsible corporate officer,' to be held criminally liable would not have to 'willfully or negligently' cause a permit violation. Instead, " the willfulness or negligence of the actor would be imputed to him by virtue of his position of responsibility." ³⁵ The functional equivalent of a criminal respondeat superior.

The federal government's own employees are not immune from prosecution under Brittain's broadened definition of "persons." In United States v. Curtis, ³⁶ the government prosecuted a civil service fuels division director employed by the Department of the Navy at Adak, Alaska, for pumping fuel through a pipeline known to leak. The fuel eventually flowed into the Bearing Sea. ³⁷ The court noted, under the CWA, "the term 'individual' includes federal employees prosecuted in their individual capacities." ³⁸

The justifications underlying such burdensome criminal liability are rooted in a policy analogous to strict liability in tort for hazardous undertakings. The public should expect those in a position of authority over enterprises and activities that deal with potentially dangerous substances to act when the law requires them to do so. ³⁹ This serves to protect "the lives and health of people which, in the circumstances of modern industrialism, are largely beyond self-protection." ⁴⁰ However, unlike the civil penalties levied against one found guilty under the tort doctrine of respondeat superior, the criminal liabilities ⁴¹ imposed by the CWA coupled with this interpretation of "responsible corporate officer," have the potential to put an otherwise innocent corporate manager or small business owner in jail with a felony conviction for what amounted to an act of omission.

Such exacting criminal liability flouts modern corporate practices of delegation of authority to achieve less hierarchical (i.e., more efficient) management structures. Furthermore, it may dissuade able and competent managers from assuming positions of responsibility for environmental oversight of their corporation's activities. However, this interpretation of the "responsible corporate officer" does support policy considerations that mandate an affirmative responsibility and assure accountability for acts which endanger the health and safety of the public." ⁴²

C. Rule of Lenity

The Iverson court also determined that the "rule of lenity" did not apply to Iverson. Under the rule of lenity, ambiguity in a criminal statute is resolved in favor of the defendant. ⁴³ However, the court determined that the rule of lenity should only be given effect "when there is 'grievous ambiguity or uncertainty in the statute' and when, 'after seizing everything from which aid can be derived, we can make no more than a guess as to what Congress intended.'" ⁴⁴ Thus, using "recognized interpretive aids", the court was able to derive clearly Congress's intent regarding criminal liability within the context of "responsible corporate officer" and found the rule inapplicable. ⁴⁵

V. Conclusion

The Ninth Circuit's Iverson decision could have far reaching consequences. If this decision is followed, many executives and officials in both business and government face possible criminal liability for their corporations' or government departments' intentional or negligent violations of the Clean Water Act without regard to their actual knowledge or fault. Furthermore, if viewed in a larger picture of environmental regulations - and the public policies those regulations support - the responsible corporate officer doctrine could bring many otherwise innocent persons within its broad ambit. Under this doctrine, an act of omission is a potentially criminal act.

Thomas A. Shook

¹ 162 F.3d 1015 (9th Cir. 1998).

² 33 U.S.C. § 1319(c) (1994).

³ Iverson, 162 F.3d at 1025 (emphasis added).

⁴ Id. At 1018.

⁵ Id.

⁶ Id.

⁷ Id.

⁸ Iverson, 162 F.3d at 1018.

⁹ Id. at 1019.

¹⁰ Id.

¹¹ Id.

¹² See 33 U.S.C.§ 1319(c) (1994)

¹³ See Wash. Admin. Code §§ 173-216-050(1)(d), (2), & 173-216-060(2)(a) (1998).

¹⁴ See Olympia Municipal Code § 13.20.20 (1994).

¹⁵ Iverson, 162 F.3d at 1019.

¹⁶ Id.

¹⁷ See id: see also 33 U.S.C. § 1319(c)(2) (1994).

¹⁸ See id: see also 33 U.S.C. § 1370 (1994).

¹⁹ 40 C.F.R. § 403.5(b)(8).

²⁰ Iverson, 162 F.3d at 1020.

²¹ Id. at 1021.

²² Id. (citing Easyriders Freedom F.I.G.H.T. v. Hannigan, 92 F.3d 1486, 1493 (1996) (holding "[a] criminal statute is not vague if it provides adequate notice in terms that a reasonable person of ordinary intelligence would understand that her conduct is prohibited")).

²³ See 33 U.S.C. § 1319(c)(6) (1994) ("For the purpose of this subsection, the term 'person' means in addition to the definition contained in section 1362(5) of this title, any responsible corporate officer.")

²⁴ Iverson, 162 F.3d at 1022.

²⁵ Id. at 1023 (citing WEBSTER'S THIRD NEW INTERNATIONAL DICTIONARY 1935 (unabridged ed. 1993)).

²⁶ See id. at 1025 (citing Muck v. United States, 3 F.3d 1378, 1380-1381 (10th Cir. 1993) ("The existence of such authority, irrespective of whether that authority is actually exercised, is determinative.")).

²⁷ Iverson, 162 F.3d at 1023.

²⁸ 320 U.S. 277 (1943).

²⁹ 21 U.S.C. §§ 301-392 (1938).

³⁰ Dotterweich, 320 U.S. at 284.

³¹ 421 U.S.C. §§ 658 (1975)

³² 21 U.S.C. §§ 301-392 (1938).

³³ Park, 421 U.S. at 673.

³⁴ See United States v. Brittain, 931 F.3d 1413, 1419 (10th Cir. 1991) (holding that a public utilities director fell under the definition of "persons" as defined by the CWA); see also 33 U.S.C. §§ 1319(c)(6) & 1362(5) (1994).

³⁵ United States v. Brittian, 931 F.3d 1413, 1419 (10th Cir. 1991) (emphasis added).

³⁶ 988 F.2d 946 (9th Cir. 1993).

³⁷ Id. at 947.

³⁸ Id. at 948 (citing United States v. Dee, 912 F.2d 741, 744 (4th Cir. 1990) (holding that federal employees acting within the scope of their employment are not immune from prosecution under the Resource Conservation and Recovery Act, 42 U.S.C. §§ 6901 et seq.)).

³⁹ See Kevin A. Gaynor & Thomas R. Bartman, Criminal Enforcement of Environmental Laws, 10 COLO. J. INT'L ENVTL. L. & POL'Y 39, 55 (1999).

⁴⁰ Dotterweich, 320 U.S. at 280.

⁴¹ See 33 U.S.C. § 1319(c)(1) (1994) (specifying criminal penalties for negligent violations).

⁴² See Joseph G. Block & Nancy A. Voisin, The Responsible Corporate Officer Doctrine-Can You Go To Jail for What You Don't Know?, 22 ENVTL. L. 1347, 1372 (1992).

⁴³ Iverson, 162 F.3d at 1025 (citing United States v. Gonzalez-Mendez, 150 F.3d 1059, 1061 (9th Cir. 1998) cert. denied, 119 S.Ct. 528 (1998)).

⁴⁴ Id. at 1025 (quoting Muscarello v. United States, 118 S.Ct. 1911, 1919 (1998)).