The Austin Court of Appeals has rejected the State’s attempt to hold the manager of a limited liability company (“LLC”) liable for the failures of the LLC to comply with environmental rules. In Morello v. State, a civil enforcement case, the Austin Court rejected the State’s argument that Morello’s position as the LLC’s manager made him personally liable.
Before the trial court, the State alleged that the undisputed pre-trial evidence conclusively established that White Lion LLC failed to comply with numerous rules and permit provisions. The State also alleged that Morello, as manager of the LLC, was personally liable for these violations. The trial judge agreed with the State and granted summary judgment against the LLC and Morello.
Morello appealed the judgment, arguing that the State had not conclusively established his personal liability. The Austin Court of Appeals agreed with Morello that his position as manager of the LLC did not make him personally liable for the LLC’s failures to comply. In its reversal, the Austin Court determined that the State did not plead or prove that it could “pierce the veil” of the LLC, nor did the State prove that Morello had personally violated any permit or TCEQ rule.
What Must the State Prove to Establish Individual Liability?
This decision suggests that to establish individual liability, the State must prove:
(1) That the individual is personally liable based on a “piercing the veil” analysis. The decision suggests, but does not definitively hold, that the standard for piercing the veil of a LLC will be the same as for piercing a corporate veil, based on such doctrines as alter ego or fraud. Interestingly, the decision noted the lack of Texas cases analyzing veil piercing in the context of a LLC.
(2) Alternatively, that the individual personally committed acts that violated the permit or TCEQ rules. The decision did not precisely define the acts that could make an individual liable, but noted that Texas cases found individual liability when the individual committed fraud or an environmental tort. The Court discussed one particular case where an individual was personally liable, due to directing that waste be pumped into a pit that was prohibited from receiving waste, but noted that the State had no such evidence as to Morello.