Court rejects State of Arizona’s novel legal theory that creates uncertainty for businesses

In an effort recently brought to light by the Phoenix-based law firm Snell & Wilmer, the State of Arizona has been trying to advance a novel and troubling concept through a recent “test case”: holding corporate leaders personally liable when their company violates the law, even if they did not participate, know about, or approve of the underlying actions. This idea, known as the “responsible corporate officer doctrine,” is a judge-made theory of liability similar to piercing the corporate veil. Adopting this doctrine would upend traditional legal protections and create uncertainty for business leaders across the state.  

In State v. Tombstone Gold & Silver, Inc., the State of Arizona sued a mining company and three of its individual officers for violating a consent order. In its complaint, the State sought liability and damages against the officers under the responsible corporate officer doctrine even though the State had no evidence that the officers directed—or knew about—environmental law violations. In fact, the officers were not even parties to the consent order that the State accused them of violating. In other words, the State sought to establish a form of strict liability, where officers of the company were automatically personally liable for a company’s actions. 

Fortunately, the court quickly rejected the State’s argument, recognizing the State was trying to vastly expand liability for corporate officers. It noted that no published Arizona case has ever adopted the responsible corporate officer doctrine and declined to take the State’s invitation to expand officer liability beyond what the environmental law statutes already provide. It dismissed the officers from the case and invited a petition for their attorney fees and costs.  

The court was right to do so. The responsible corporate officer doctrine would not only erode the corporate structure’s safeguards but also deter investment and innovation in Arizona.   

Business leaders already make difficult decisions every day to manage risk, meet client needs, and deliver returns to shareholders. These tasks are difficult enough without having to worry about things outside their control resulting in personal liability. Introducing a blanket liability standard for actions beyond their control would only add unnecessary burdens and hinder economic growth. 

Arizona has worked hard to develop a reputation as a business-friendly state. Threatening corporate officers with personal liability for actions the officers did not direct risks this reputation. Further, it signals that Arizona may not be the predictable, stable, and reasonable policy environment to which businesses have grown accustomed.  

For now, corporate officers remain safe from the State’s attempts to erode the corporate form. Hopefully, Arizona’s courts keep it that way. 

Nate Curtisi is chief counsel for the Arizona Chamber of Commerce & Industry.

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