Corporate Shell Games

• Author: Royal C. Gardner/Theresa Pulley Radwan
• Position: Professor of law and Director of the Institute for Biodiversity Law and Policy at Stetson University College of Law/Professor of law at Stetson. She teaches bankrupty and corporaterelated courses
• Pages: 48-54

Page 48 ❧ THE ENVIRONMENTAL FORUM Copyright © 2010, Environmental Law Institute®, Washington, D.C. www.eli.org.

Reprinted by permission from The Environmental Forum®, July/August 2010

We expect wetland regulators to be

renaissance men and women. ey

are supposed to be well-versed in

various sciences, such as hydrology,

botany, and biogeochemistry. ey

should have a full understanding of economics and

business realities. It is also important that they be

experts in the art of negotiation and mediation.

Furthermore, wetland regulators must be knowl-

edgeable in the law. Not only must they be familiar

with the intricacies of the rules that they adminis-

ter, but they need to appreciate the risks associated

with dif‌ferent types of legal entities, including tra-

ditional corporations, limited liability partnerships,

and limited liability companies. A person who pos-

sesses this knowledge and skill set would be akin to

the mythical beast that is a combination of a lion,

snake, and goat. But like the chimera, such a regu-

lator is not found in nature.

A real-life wetland regulator recently called us to

ask about LLCs and the corporate structure of a pro-

posed mitigation bank. In this of‌f‌icial’s experience,

LLCs involve many rotating players: owners would

change from time to time, as would the individu-

als who had primary responsibility for a site. e

regulator provided us a complicated of‌f‌icer’s certif‌i-

cate from a bank application on behalf of Mollusk

Creek, LLC.1 An excerpt of the certif‌icate, which

referred to a traditional corporation (listing its of-

f‌icers), an LLP, and two LLCs, is reprinted as f‌igure

1. e regulator wanted to know, in light of the

Matryoshka-like quality of the entities listed in the

document, who was ultimately responsible for the

site and whether the corporate structure was a cause

for concern. e answer requires an understanding

of the legal characteristics of LLPs and LLCs.

In explaining what LLPs and LLCs are, we show

why many mitigation bank operators opt for these

business forms. After reviewing the of‌f‌icer’s cer-

tif‌icate to unravel which entity actually would be

responsible for the site, we conclude with recom-

mendations that regulators should consider when

evaluating mitigation proposals involving LLPs and

LLCs, whether af‌f‌iliated with a mitigation bank

or not. While there is no particular reason to be

worried about LLPs and LLCs, as compared with

traditional corporations, regulators should consider

requiring notice for any changes in the ownership

and management of these entities. Of‌f‌icials should

also require that f‌inancial assurances such as letters

of credit and performance bonds expressly cover

the entity responsible for the site.

Corporate Shell

Games

Determining responsibility for wetland

mitigation is not always a straight-

forward process. A recent real-life

example highlights the need for regulators

to understand corporate structure in

dealing with the variety of legal entities

that can assume responsibility for a site

Royal C. gardner is a professor of law

and Director of the Institute for Biodiver-

sity Law and Policy a t Stetson Univer-

sit y Coll ege

of La w. H e

teaches wet-

land law a nd

other environ-

mental law cours es. Theresa Pulley

Radwan is a professor of law at Stetson.

She teaches bankr upty and corporate-

related course s.

na T i o n a l we T l a n d s ne w s l e T T e r