Jerry Worsham Scores Win for Small Business Officers/Directors

Phoenix Member Jerry D. Worsham II successfully represented two officers/directors of Tombstone Gold & Silver, Inc. (“TGSI”) in an environmental case against the Arizona Attorney General/Arizona Department of Environmental Quality (“ADEQ”) before the Superior Court of Arizona in Maricopa County. TGSI purchased the Contention Mine in 2011 without obtaining permits to own or operate a closed mine property near Tombstone, Arizona. On Jan. 28, 2015, TGSI signed a Consent Order with ADEQ to obtain an Aquifer Protection Permit (“APP”) for the closed mine.

Complaint

On April 13, 2021, the State filed a complaint against TGSI and their officers/directors for failure to comply with the terms and conditions of the Consent Order. The civil fine demanded in the Complaint by the State under the Arizona APP Penalty Statute was $85 million based upon a $25,000 per day penalty provision.

First Motion for Summary Judgment

On Jan. 25, 2023, the State of Arizona and ADEQ secured a ruling against TGSI that found TGSI liable for more than five years of civil penalty for noncompliance with the Consent Order issued in 2015. The court ruling stemmed from the State alleging that TGSI missed certain deadlines in the Consent Order for obtaining the APP permit. The court ruling also left undecided a decision relating to the personal liability of TGSI’s Officers/Directors to be determined in a future Motion for Summary Judgment. The possibility of a civil penalty and personal liability of an $85 million civil penalty was disturbing. Due to the exorbitant civil fine amount and issue of personal liability, two of those officers/directors requested that Worsham represent them in the environmental litigation matter. 

Worsham began working the case on May 30, 2023.

“I went to work in the middle of the case when a huge amount of discovery had already been exchanged and the window for depositions and further discovery was about to close under the existing Case Management Order (“CMO”). The January 25, 2023, ruling was also a serious concern. I got the court to extend the CMO and allow for additional discovery,” Worsham said.

Motion for Reconsideration

After deposing three members of the ADEQ staff and the three TGSI officers/directors, Worsham filed a Motion for Reconsideration of the previous court ruling to reduce TGSI’s period of noncompliance from five years to 14 months. On Feb. 13, 2024, the Court granted Worsham’s Motion. This Reconsideration decision reduced the civil penalties that TGSI and the Officers/Directors faced by more than $70 million to a civil penalty of $10.5 million.

Second Motion/Cross Motion for Summary Judgment

On Dec. 8, 2023, the State filed a second Motion for Summary Judgment for personal liability for the three officers/directors concerning the potential civil penalty. Worsham filed a cross-motion against the State on Jan. 3, 2024.

For the officers/directors named in the complaint, the court ruled on April 1 that they were not parties to the Consent Order since they did not personally own the mine or sign any documents in their personal capacity. In denying the State’s MSJ  and granting the cross-motion MSJ by Worsham, the court also determined that the officers/directors were not liable under other potential theories of personal liability. The potential for a small civil penalty remains for TGSI in the future, but the individual officers/directors can now sleep well at night. The court also allowed Worsham to file for attorneys’ fees and costs. 

“This is a big win for Arizona companies to avoid personal liability for officers and directors of established legal entities as it relates to environmental compliance,” Worsham said. “I also need to credit Charles Berry for his assistance and knowledge of Arizona law as it relates to piercing the corporate veil to find officers and directors personally liable for a corporation’s actions. His help went a long way in securing the positive ruling.”