A Dilemma for Former Corporate Officers and Directors By: John Kolaga. The Risks of Default Under State or Federal Environmental Laws
The Risks of Default Under State or Federal Environmental Laws:
A Dilemma for Former Corporate Officers and Directors
Imagine this hypothetical: You are a former officer or director of a corporation which is
now defunct and essentially without assets. Through the corporation’s attorney, you receive a
notice that the corporation is being sued by a regulatory agency or private party, alleging that the
corporation is liable for the discharge of contaminants under a state or federal environmental
statute – such as CERCLA or Article 12 of the New York Navigation Law – and you are
considering what to do.
Your first inclination might be to ignore the lawsuit entirely and to default. After all, the
corporation is no longer operating and is insolvent. “You can’t get blood from a stone,” you say.
Secretly, you congratulate yourself that you and the corporation have dodged a bullet. “Thank
goodness,” you think, “we don’t have to deal with the expense and legal exposure that comes
with an environmental law suit.” Even though you believe the case is without merit, you know
that environmental cases are almost always protracted and costly. The potential legal exposure
can be difficult to quantify and potentially catastrophic.
“Whew,” you say, as you turn to relegate the summons and complaint to the circular file.
Not so fast.
You may recall that there are cases that stand for the proposition that a final judgment on
the merits of an action prevents the party or its privies from re-litigating issues that were or could
have been raised in that action.1
This concept is called res judicata, or claim preclusion.
Perhaps surprisingly, however, you may not know that the concept of res judicata has
been found to apply not only to cases resolved after hearing or at trial, but also where the case
has been resolved by default judgment.