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Corporate Criminal Liability in Environmental Law

The Legal Intelligencer  - July 21, 2015

By: Christopher D. Carusone

Pennsylvania's energy community should take note that the line between criminal and civil enforcement is getting harder and harder to see. State and federal prosecutors in Pennsylvania appear to be signaling that companies operating in Pennsylvania's shale play may be subject to not only civil but criminal fines and penalties. This is significant because the criminal prosecution of energy companies in Pennsylvania for federal and state violations of environmental laws has historically been reserved for the rarest of environmental disasters. Several recent events in Pennsylvania evidence a trend toward the more frequent criminal prosecution of energy companies:

• In 2013, Pennsylvania Attorney General Kathleen Kane filed criminal charges against XTO Energy Inc., a subsidiary of ExxonMobil, for violations of the Pennsylvania Solid Waste Management Act and the Clean Streams Law. The prosecution, which is ongoing, is based on the discharge of less than 60,000 gallons of production water in Lycoming County. These charges prompted an outcry from the business community, in part because they were filed shortly after XTO Energy signed a consent agreement with the federal government resolving all federal environmental violations without the necessity of criminal charges.

• In 2014, the Attorney General's Office filed criminal charges against Reed Oil Co. in connection with the explosion of a storage tank that killed a welding contractor in Mercer County. Four years earlier, an explosion that killed two workers on an Allegheny County site operated by gas producer Huntley and Huntley was resolved through the imposition of a civil fine without the filing of criminal charges.

• On May 2, the Pittsburgh Post-Gazette reported that U.S. Attorney David Hickton of the Western District of Pennsylvania was in the midst of a "critical assessment" regarding enforcement of environmental laws in his district. The paper reported that Hickton's office had met with representatives of the FBI, U.S. Environmental Protection Agency, Pennsylvania Department of Environmental Protection, and the Pennsylvania Office of Attorney General to discuss "opportunities for improved environmental enforcement." While Hickton did not directly attribute his assessment to the proliferation of unconventional natural gas development in the region, the examples he provided to the paper—including wastewater spills and groundwater contamination—indicated that shale drilling operations were an important focus of his review.

The basic tenets of state corporate criminal liability are set forth in the Pennsylvania Crimes Code. Section 307 of the code provides that corporations may be convicted of a criminal offense if the "legislative purpose to impose liability on corporations plainly appears" from the statute, the offense "consists of an omission to discharge a specific duty of affirmative performance imposed on corporations by law," or when "commission of the offense was authorized, requested, commanded, performed or recklessly tolerated by the board of directors or by a high managerial agent acting on behalf of the corporation within the scope of his office or employment."

Under federal law, a corporation may be held liable for the criminal acts of its agents so long as those agents are acting within the scope of their employment. The general test under federal law is whether the agent is "performing acts of the kind which he is authorized to perform" and the acts are motivated in whole or in part by an intent to benefit the corporation. In addition to these basic tenets, individual environmental statutes often articulate with specificity the people or entities to which they apply. The Pennsylvania Solid Waste Management Act and Clean Streams Law are prime examples. Indeed, the express terms of these statutes make them applicable to both corporations and individuals alike.

The U.S. Attorney's Manual, published by the U.S. Department of Justice, describes a number of factors that federal prosecutors are required to take into consideration when determining whether to bring a corporate criminal prosecution. Those factors, set forth in Section 9-28, include the "nature and seriousness" of the crime, the involvement of corporate management in the offense, the corporation's prior record of criminal, civil or regulatory enforcement actions, the corporation's "timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation," the "existence and effectiveness of the corporation's pre-existing compliance programs," the corporation's remedial actions, and the collateral consequences of the conduct at issue.

While state prosecutors in Pennsylvania are not bound to consider a predetermined list of factors like their federal counterparts, it is clear that many of the same factors contained in the U.S. Attorney's Manual are often considered by state officials. Given that the decision whether to bring criminal charges against a corporation is subject to the wide discretion of the prosecutor, the best defense for Pennsylvania energy companies is to have a response and mitigation plan in place before an incident occurs.

There are a number of proactive steps that energy companies with operations in Pennsylvania can take to minimize the risk of corporate criminal liability. Employing best practices to minimize the chances of an accidental spill or other environmental disaster is the first line of defense. In the event of a spill or other accident, best practices dictate a strict chain of command designed to minimize the adverse environmental impact of the incident. In the hours following the accident, when emotions are high and facts are in short supply, employees should limit the use of electronic communications. Good working relationships with regional environmental regulators help to avoid misunderstandings and minimize the chances of a criminal referral. Significant spills, or other accidents, require a comprehensive internal investigation conducted under the auspices of legal counsel with an eye toward preventing or minimizing both civil and criminal liability. Companies should engage competent criminal defense counsel to work with the company's legal team and interact with investigators and prosecutors to address the government's concerns without the necessity of a corporate criminal prosecution.

The legal environment for energy companies operating in Pennsylvania is changing. While the attention of the energy industry has been focused in recent months on more stringent regulations for oil and gas operations proposed by Gov. Tom Wolf, the threat of corporate criminal prosecution for environmental accidents continues to grow. With billions invested in Pennsylvania's energy marketplace, companies must take steps now to reduce the risk of corporate criminal liability before it becomes a costly and highly publicized reality.

Chris Carusone is a Partner and the Chair of the Firm’s Energy & Utilities and Government Law & Regulatory Affairs Practice Groups. He can be reached at 717.234.5530 and ccarusone@cohenseglias.com.

Reprinted with permission from the July 21, 2015, issue of the Legal Intelligencer© 2015 ALM Media Properties, LLC.  Further duplication without permission is prohibited.  All rights reserved.

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