August
2003 Case Study
Hansen v. United States
Background
In 1991, the financially troubled Hanlin Group, Inc. was forced into Chapter
11 bankruptcy. The following year, the founder and president Christian
Hansen convinced his son Randall, who lived with his family in New Jersey
to temporarily serve as Executive Vice President of LCP Chemicals, a division
of Hamlin, because the post had become vacant. Randall Hansen’s
mission was to develop the business and financial plans necessary to turn
around the financial condition of the chemicals business.
One of LPC’s assets, its Brunswick, Georgia facility, which produced a variety of commercial chemicals, had already experienced several environmental problems when Randall Hansen was hired. The facility was equipped with a wastewater treatment system and was authorized to discharge wastewater to a nearby creek after they had treated it. Because the treatment system could not always keep up with the facility’s production of wastewater, LPC’s discharge permit authorized the facility to temporarily hold wastewater on the floors of two large “cellrooms” until it could be treated.
With Hanlin in bankruptcy, there was almost no money available for maintenance and repair on the facility’s wastewater treatment system, which, consequently, began to break down frequently. Occasionally, when the treatment system was down, the accumulated wastewater in the cellrooms reached excessive levels and the facility had to discharge some untreated water into the environment. As this discharge was in violation of their Clean Water Act (CWA) permit, LPC reported such unpermitted discharges to the Georgia Environmental Protection Division.
When Randall Hansen heard of the unpermitted discharges from the plant manager, he attempted to find the money for the necessary repairs by selling excess equipment and reducing payroll. When that proved insufficient, he requested the Hanlin Board of Directors, the bankruptcy creditor’s committee, and the courts for money to address the wastewater problem, but was denied. He even made attempts to sell the plant to a company with enough resources to correct the problems. But those efforts also failed and the plant closed in February 1994.
Litigation
Over four years later, Randall Hansen was indicted along with his father
and two other plant managers and charged with: (1) knowingly discharging
pollutants in violation of the Clean Water Act permit; (2) knowingly storing,
treating, or disposing of hazardous waste without a Resource Conservation
and Recovery Act (RCRA) permit; (3) through the RCRA violations, knowingly
endangering employees at the plant, such that they were placed in imminent
danger of death or substantial harm; and (4) conspiring with other officers
of Hanlin to violate these environmental laws.
Outcome
Several aspects of the Hansen case are especially troubling: By the time
he was charged, Randall Hansen had left the company, thus he was a former
officer. Moreover, some of the acts involved in the criminal charges were
acts that occurred after he left the company.
But more significantly, whether occurring before or after Hansen’s tenure, the acts were substantially ones over which he exercised no meaningful control – if the concept of responsibility is to mean anything, it must mean that an officer not only has “legal” authority to exercise control of certain corporate activities, but that he also have real, “practical” authority. In the absence of funds and authorization from the bankruptcy committee Hansen, in effect, lacked practical control over LPC’s operations. Nonetheless, the federal court said that he could be held criminally liable for the wastewater discharges. Why? Because, in the court’s view 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.” In other words, practical considerations are irrelevant – all that is necessary is proof of an individual’s “status” as a manager.
Hansen was sentenced to a term of imprisonment of 46 months. When the courts developed the doctrine of a “responsible corporate officer” in Dotterweich and Park the crimes were misdemeanors and the punishments trivial – Park paid a $50 fine, much like a parking ticket. Now however, the doctrine has expanded such that it will actually have the perverse effect of undermining regulatory protection.
By setting the threshold
for criminal conduct so low, the law will chill or discourage educated
and capable people from serving in responsible corporate positions. As
Judge Kleinfeld said in United States v. Weitzenhoff,,
35 F.3d 1275, 1293 (9th Cir. 1993) (Kleinfeld, J. dissenting from denial
of rehearing en banc): “If we are fortunate, sewer plant workers
. . . will continue to perform their vitally important work despite our
decision. If they knew they risk three years in prison, some might decide
that their pay . . . is not enough to risk prison for doing their jobs.”
The same dynamic is, sadly, true in any regulated industry.
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