civil and criminal environmental enforcement
TRANSCRIPT
Civil and Criminal Environmental Enforcement
Eighteenth Annual ELI Boot CampCourse on Environmental LawNovember 11, 2009
Barry M. Hartman, [email protected]
Christopher R. Tate, [email protected]
www.klgates.com
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Why Worry About Environmental Enforcement?
ProfitsPublicityPrison/Penalties
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Profits
$$$$$$$$$$
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Profits
Criminal Sentencing: Disgorgement of Profits
Civil Enforcement: Economic Benefit of Noncompliance
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Publicity
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Publicity10/05/09 Southern Union Co. Fine $18 Million For Illegal
Mercury Storage in Rhode Island
09/03/09 President of Pesticide Firm Sentenced to Prison for Illegal Discharges to Sewers
08/17/09 Ship Operator to Pay $10 Million to Settle Criminal Charges in San Francisco Bay Spill
07/28/09 Court Orders Spanish Company to Pay $2 Million Fine in Ocean Dumping Case
07/16/09 San Francisco Area Tank Farm Must Pay $2.5 Million in Settlement for False Reports
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Publicity02/20/07 Rhode Island Freight Firm Pleads Guilty To
Illegal Transportation of Chemicals
04/07/06 California Charges Central Valley Firm, EmployeesWith Faking Air Quality Tests
05/08/06 Texas Gambling Ship Owner Fined $300,000 For Obstructing Pollution Investigation
07/27/06 Worker Endangerment Initiative Survives FirstTest in Environmental Crimes Trial
12/1/06 Electric Utility Agrees to Pay $9.25 Million InSettlement Over Clean Air Act Charges
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Publicity11/17/05 N.C. Surveyor Pleads Guilty to Charges Of
Falsifying Wetlands Delineation Maps
12/07/05 Gulf Coast Developer, Others Sentenced To Prison, Fined $5.3 Million in Wetlands Case
01/17/06 Grand Jury Indicts San Diego Energy Utility For Improper Asbestos Removal From Pipes
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Prison
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EPA Criminal Enforcement ProgramFY 2004 – FY 2008
0
5 0
1 0 0
1 5 0
2 0 0
2 5 0
3 0 0
3 5 0
4 0 0
4 5 0
N u m b e r O fC a s e s
In it ia te d
N u m b e r o fD e fe n d a n ts
C h a rg e d
S e n te n c e s(Y e a rs )
F in e s ($ M il ,In f la t io n
A d ju s te d )
2 0 0 42 0 0 52 0 0 62 0 0 72 0 0 8
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Kinds of Criminal Offenses
Misdemeanors < 1 yr
Felonies > 1 yr
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Kinds of Criminal Offenses
1984 RCRA felonies1986 CERCLA felonies1987 Clean Water Act misdemeanors and
felonies1990 Clean Air Act felonies20?? TSCA felonies20?? OSHA felonies
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Criminal Offenses = Knowledge
What statute is being used?
Is the charge a misdemeanor or a felony?
What specific standard is alleged to be violated?
What court are you in?
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Factors Shaping the “Knowledge” Element
Public Welfare Doctrine
Responsible Corporate Officer Doctrine
“Knowing” vs “Willful”
Due Process Concerns
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Public Welfare Doctrine
U.S. v. Balint, 258 U.S. 250 (1922)Narcotics Act contained no “knowledge” elementMisdemeanorAchieving social betterment rather than punishing ‘mala in se’ conduct allows elimination of common law ‘knowledge’ element without offending due process
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Public Welfare Doctrine
U.S. v. International Minerals and Chemicals Corp., 402 U.S. 558 (1971)
Transporting hazardous chemicals without classifying on shipping papersStatute contained ‘knowledge element” (knowingly violates regulations….”)MisdemeanorPresumption (vs. elimination) of knowledge from character of materials
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Public Welfare Doctrine
U.S. v. International Minerals and Chemicals Corp.,402 U.S. 558 (1971)
“…where dangerous or deleterious devices or products or obnoxious waste materials are involved, the probability of regulation is so great that anyone who is aware that he is in possession of them or dealing with them must be presumed to be aware of the regulation.”402 U.S. 558,at 565.
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Public Welfare Doctrine
Guns
United States v. Staples, 511 U.S. 600 (1994)guns in general are not "deleterious devices or products or obnoxious waste materials… that put their owners on notice that they stand in responsible relation to a public danger…”“In contrast to the selling of dangerous drugs or the possession of hand grenades, private ownership of guns in this country has enjoyed a long tradition of being entirely lawful conduct.”defendant had to know that it was an automatic gun before being subject to possibly 10 years in prison.
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Public Welfare Doctrine
Asbestos
United States v. Weintraub, 273 F.3d 139 (2nd Cir. 2001)Real estate developer convicted of knowingly violating the CAA (asbestos handling).Held: need only prove defendant knew substance involved was asbestos; need not know it was ‘friable’.“no reasonable person at this late date could claim to be unaware that asbestos is severely regulated and its handling is fraught with legal risk.” Id. at 151.
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Public Welfare Doctrine
Asbestos was first used legally for its fire retardant properties for over a century and when used properly is no danger at all
It was first regulated due to dangers of removal in the late 1970’s
Same as guns?
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Public Welfare DoctrineEvolution of relaxation of “Knowledge” element
inherently dangerous product/activity regardless ofregulatory history allows inference of knowledge
long history of non regulation regardless of danger of product/activity precludes inference of knowledge
short history of regulation regardless of danger of product/activity allows inference of knowledge
public welfare legislation without more allows inference of knowledge
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“Responsible Corporate Officer” Doctrine
Officers strictly and vicariously liable for environmental violations caused by employee of corporation- what must they know?United States v. Dotterweich, 320 U.S. 277 (1943)
person who was otherwise innocent, but who stood in “responsible relation to the public danger” is responsible Premised on “public welfare” character of legislationNo knowledge requirement in statute (FFDCA) Misdemeanor
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The “Knowledge” Element andThe “Responsible Corporate Officer” Doctrine
United States v. Dipentino, 242 F.3d 1090 (9th Cir. 2001)
on-site representative of company hired to oversee removal of asbestos knowingly violated CAA when he was:(1) present at site on daily basis; (2) performed inspections of relevant areas; (3) prepared/signed final inspection reports certifying abatement complete; and (4) had power to stop the contractor’s work for improper performance.
United States v. Self, 2 F.3d 1071, 1088 (10th Cir. 1993)
conviction of president sustained evidence sufficient to allow jury to infer that defendant knew of illegal storage of hazardous waste.
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The “Knowledge” Element andThe “Responsible Corporate Officer” Doctrine
United States v. McDonald & Watson, 933 F.2d 35 (1st Cir. 1991)
Defendant (president) must have actual knowledge of some factsNo mandatory presumption of knowledge from position
United States v. Hansen, 262 F.3d 1217 (11th Cir. 2001)
Defendant has responsible relationship to violation-under his authorityPower or capacity to prevent violationActed knowingly in failing to prevent, detect or correct violation
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What must you “know” to knowingly violate the law”?
Must you know what your permit requires?
Must you know what the law is?
Must you know the acts that constitute the violation of law?
Must you know the conditions that constitute the violation of law?
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Language of the Statute
Knowingly violate a provision
v.
Knowingly engage in conduct inviolation of a provision
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Language of the Statute
Clean Air Act (42 U.S.C. § 7413(c):(i) Any person who knowingly violates a requirement … of … 42 U.S.C. §7413(c)(1);
Clean Water Act, 33 U.S.C. § 1319(c):(1) Any person who negligently violates sections …, 33 U.S.C. § 1319(c)(1)(A);(2) Any person who knowingly violates sections …, 33 U.S.C. § 1319(c)(2)(A);
RCRA, 42 U.S.C. § 6928(d)(1) Any person who knowingly transports … hazardous waste, listed under this
subchapter to a facility which does not have a permit …, 42 U.S.C. § 6928(d)(1);(2) Any person who knowingly treats, stores, or disposes of any hazardous waste identified or listed …, 42 U.S.C. § 6928(c)(2)
(a) without a permit, or(b) In knowing violation of material condition.
CERCLA, 42 U.S.C. § 9603(b)(i) Any person who fails to notify immediately the appropriate agency….
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RCRA: How far does ‘Knowing” travel?
United States v. Johnson & Towers, Inc.,741 F.2d 662 (3d Cir.1984).
“it is unlikely that Congress could have intended to subject to criminal prosecution those persons who acted when no permit had been obtained irrespective of their knowledge under subsection (A), but not those persons who acted in violation of the terms of a permit unless that action was knowing (subsection (B)). Thus, we are led to conclude that the omission of the word “knowing” in (A) was inadvertent or that “knowingly” which introduces subsection (2) applies to subsection (A).”
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RCRA: How far does ‘Knowing” travel?On the other hand….
United States v. Hoflin, 880 F.2d 1033 (9th Cir. 1989)
“Had Congress intended knowledge of the lack of a permit under subsection (A) it could have easily said so. It specifically inserted a knowledge element in subsection (b) and did so notwithstanding the “knowingly” modifier which introduces subsection (2) In the face of such obvious Congressional action we will not write something into the statute that Congress so plainly left out.”
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RCRA: “Knowledge” jury instructionThat Defendant knowingly disposed of or commanded and caused others to dispose of chemical wastes on or about …;That Defendant knew that the chemical wastes had the potential to be harmful to others or to the environment, or in other words, it was not an innocuous substance like water;The wastes were listed or identified by the United States Environmental Protection Agency ("EPA") as a hazardous waste pursuant to RCRA;The defendant had not obtained a permit from either EPA or the State authorizing the disposal under RCRA.
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RCRA: “Knowledge”
United States v. Dee, 912 F.2d 741 (4th Cir. 1990) [RCRA]
“… the knowledge element does extend to knowledge of the general hazardous character of the wastes. But the government does not have to show that Defendants knew the chemicals were characterized as hazardous under the law…”“ You need only to find that the defendant knew (1) the waste had potential to be harmful to the environment (2) the defendant knew the waste was not an innocuous substance.” Id. at 1181.
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Conscious Disregard – (Jury Instruction)
“deliberately closed his eyes to what would otherwise have been obvious to him”
“failing to investigate if he is in possession of facts which cry out for investigation”
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Bad Facts Make Bad Law
United States v. Dean, 969 F.2d 187 (6th Cir. 1992) [RCRA]
said that he had read the RCRAwaste code “but thought it was a bunch of bullshit.”
Defendant
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RCRA: “Knowledge”
United States v. Jo Miller, 484 F. Supp.2d 154 (D. Me. 2007)
Government did not have to show that the defendant knew of the requirements of RCRA or even that the materials being transported were regulated hazardous waste.Even if the defendant relied on another’s representation that the company was in compliance with the law, she can still be found in violation of RCRA.
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RCRA: “Knowledge”
United States v. Elias, 1999 U.S. Dist. LEXIS 21372 (D. Idaho)
If defendant thought the substance disposed of was benign, he did not “knowingly dispose of a hazardous substance” (mistake of fact)
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Summary of RCRA “knowledge”
Aware of facts/conduct that are the basis for the violation (the storage, discharge or emission);
Knowledge that the material is a pollutant/waste might be harmful;
Mistake of fact defense.
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Clean Water Act “Knowledge”
United States v. Hopkins, 53 F.3d 533 (2nd Cir. 1995)
Congress intended to punish the defendant who knowingly commits a proscribed act, "even if the defendant was not aware of the proscription." The court also considered International Minerals as well as other public welfare offense cases.
The government was only required to prove that the defendant knew the nature of his acts and performed them intentionally; not that he knew his acts violated the statute or permit.
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Clean Water Act “Knowledge”
United States v. Wilson, 133 F.3d 251 (4th Cir. 1997)
“…does not require the government to show that the defendant knew that permits were available or required. …it…, preserves the availability of a mistake of defense if the defendant has something he mistakenly believed to be a permit to make the discharges for which he is being prosecuted.”
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Clean Water Act “Knowledge”
United States v. Ahmad, 101 F.3d 386 (5th Cir. 1996)
Government has to prove that the defendant knew he was discharging gasoline.gasoline vs. guns: What about “public welfare”exception?
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Clean Water Act “Knowledge”
United States v. Weitzenhoff, 35 F.3d 1275 (9th Cir.1993)
does not require the polluter to know of the existence of the permit but only that the polluter knowingly engaged in conduct that results in a permit violation.
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Corporate “Knowledge”
CORPORATION
FACT F FACT H FACT G
VP ENVIRONMENT
FACT D
FACT C
FACT B FACT A
VP OPERATIONSGENERAL COUNSEL
PLANT MANAGERREGIONAL MANAGER
EMPLOYEEEMPLOYEE
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Clean Water Act “Negligence”
United States v. Hanousek, 176 F.3d 1116 (9th Cir.1999), cert denied, 528 U.S. 1102 (2000)
Clean Water Act requires only “ordinary” negligence (i.e., civil definition), not “gross” or “criminal” negligence (i.e., involuntary manslaughter definition)Criminal sanctions for ordinary negligence do not violate Due Process where statute is a public welfare statuteThomas, J., dissent from denial of certiorari
Concern that Hanousek will affect ordinary industrial activities
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Clean Water Act “Negligence”: U.S. v. Cota
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Clean Water Act “Negligence”
United States v. Cota, 2008 U.S. Dist. LEXIS 65911District Court applied Hanousek to an oil spill from a containership in the San Francisco BayHeld that CWA is a “public welfare” statute, and therefore criminalizes ordinary civil negligenceRejected argument that heightened or gross negligence should apply to defendant’s conductDefendant pled guilty pursuant to an agreement
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The Double Standard for KnowledgeUnder the Clean Air Act
Senior ManagementLiable for
Knowing Violations
Rank and File EmployeesLiable for
Knowing and WillfulViolations
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The Double Standard for KnowledgeUnder the Clean Air Act (cont.)
United States v. Metalite, 51 ERC 1950 (D. Ind. 2000)
“The generally accepted understanding of "willful" versus "knowing" in the criminal law context is that "willfulness" requires an act in conscious disregard of a known duty, whereas "knowingly" designates a lack of mistake or accident and an awareness of actions that make up a violation of the law, without knowing that one's acts were prohibited by law.
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Conscious Disregard – (Jury Instruction) (cont.)
“circumstantial evidence may be used, including evidence that the defendant took affirmative steps to shield himself from relevant information”
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Due Process and “Knowledge”
United States v. Engler, 806 F.2d 425 (3rd Cir. 1986)
Felony statute is not necessarily rendered unconstitutional because it lacks a knowledge element.The due process clause may set some limits on the imposition of strict criminal liability, but it has not set forth definite guidelines as to what those limits might be.
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Due Process and “Knowledge”
Lambert v. California, 355 U.S. 225, 228, (1957)"We do not go with Blackstone in saying that a 'vicious will' is necessary to constitute a crime . . . for conduct alone without regard to the intent of the doer is often sufficient. There is wide latitude in the lawmakers to declare an offense and to exclude elements of knowledge and diligence from its definition."
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Due Process and “Knowledge”
United States v. Wulff, 758 F.2d 1121 (6th Cir. 1985)
Applying the Migratory Bird Treaty Act without a scienter requirement would be unconstitutional, because the crime is not one known to the common law, and because the felony penalty provision is severe and would result in irreparable damage to one's reputation.
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Factors Shaping the “Knowledge” Element
Public Welfare Doctrine
Responsible Corporate Officer Doctrine
“Knowing” vs “Willful”
Due Process Concerns
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Two More Thoughts
Audits;
“Independent counsel” investigations
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EPA Voluntary Disclosure Programs FY 2002 – FY 2006
Number of Companies Disclosing & Correcting Violations
Voluntary Disclosures Initiated Voluntary Disclosures Resolved
500
379
491
627541
927
614
1,223
1,487
1,032
FY02
FY03
FY04
FY05
FY06
0
200
400
600
800
1,000
1,200
1,400
1,600
Tota
l Cou
nt
CompaniesFacilities
252
511460
512551
1,467
848
969 1,002
1,475
FY02
FY03
FY04
FY05
FY06
0
200
400
600
800
1,000
1,200
1,400
1,600
Tota
l Cou
nt
CompaniesFacilities
Source: Data Source: Integrated Compliance Information System (ICIS), October 28, 2006; data source for previous fiscal years: annual ICIS data
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Title 18 Offenses
False Statements
Obstruction of Justice
Conspiracy
Conspiracy to Defraud an Agency of the United States
Aiding and abetting
Accessory after the fact
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Conspiracy
Existence of agreement to achieve unlawful objective
Knowing and voluntary participation
Overt act in furtherance
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Conspiracy (cont.)
Agreement to operate a plant
Knowledge that there are environmental issues at the plant subject to regulations
United States v. Hansen (11th Cir).
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Federal Sentencing Guidelines
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Base Level Offenses Factors
Offenses involving “knowing endangerment” of others;
Offenses involving mishandling of hazardous or toxic substances or pesticides (including related recordkeeping offenses);
Offenses involving mishandling of “other” (nontoxic) pollutants (including related recordkeeping offenses);
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Base Level Offenses Factors (cont.)
Offenses involving public water systems;
Offenses involving hazardous or injurious devices on federal lands; and
Offenses involving specially protected fish, wildlife, and plants
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Base Level Offenses Factors (cont.)
Base Level for an Environmental Violation: 8
Possession of 250 grams of marijuana: 8
Murder: 43
Robbery: 20
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Enhancements to Base Level
6 level enhancement of continuous and ongoing violation, USSG §2Q1.2(b)(1)(A); Lack of harm mitigates against finding that a violation is continuous. United States v. Van Loben Sels, 198 F.3d 1161 (9th Cir. 1999)Number of days a defendant violated the CWA could be a sentencing factor. United States v. Chemetco, Inc., 274 F.3d 1154 (7th Cir. 2001)
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Enhancements to Base Level (cont.)
Proof of actual contamination IS required. United States v. Ferrin, 994 F.2d 658 (9th Cir. 1993)
Harm can be presumed from continuous discharge. United States v. Hoffman, 2000 U.S. App. Lexis 5185 (4th Cir. 2000)
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Enhancements to Base Level (cont.)
Proof of Actual Contamination NOT required
United States v. Cunningham, 194 F.3d 1186 (11th Cir. 1999)
United States v. Liebman, 40 F.3d 544 (2d Cir. 1994)
United States v. Goldfaden, 959 F.2d 1324 (5th Cir. 1992)
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Enhancements to Base Level (cont.)
Whether the person has committed prior crimes, USSG 4A1.1
A prior unrelated DUI charge outstanding when offense environmental offense is committed is a prior crime. United States v. Kyle, 2001 WL 1580232 (6th Cir. 2001) [unpublished]
Whether the violation created the threat of death or bodily injury, USSG §2Q1.2(b)2);
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Enhancements to Base Level (cont.)
4 level increase if the violation involved permit requirements, USSG §2Q1.2(b)(4);
Notice to State is not a permit requirement. United States v. Weintraub, 96 F.Supp.2d 135 (D.Conn 2000); United States v. Chau, 293 F.3d 96 (3rd Cir. 2002)
67
Enhancements to Base Level (cont.)
Whether the defendant was the supervisor4 levels if more than five person involved.USSG §3B1.1;2 levels for 2 personsUnited States v. Okoli, 20 F.3d 615 (5th Cir. 1994) defendant must have been the “organizer, leader, manager, or supervisor of one or more other participants.” Need not demonstrate was personally in charge of five or more participants.
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Enhancements to Base Level (cont.)
Vulnerable victim enhancementsUSSG §3A1.1(b);United States v. Bragg, 207 F.3d 394 (7th Cir. 2000)
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Enhancements to Base Level (cont.)
4 levels for substantial expenditures for clean up; USSG §2Q1.2(b)(3);$200,000 is substantial. United States v. Chau, 293 F.3d 96 (3rd Cir. 2002)
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Enhancements to Base Level (cont.)
Whether the violation created the threat of death or bodily injury, USSG §2Q1.2(b)2);
Not appropriate unless conviction is for offense that causes the injury. United States v. Elias, 32 ELR 20,218, 269 F.3d 1003 (9th Cir. 2001)
Special Skills contributed to violation United States v. Ellen, 961 F.2d 462 (4th Cir. 1992).
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Reductions to Enhanced Level
This base level can also be decreasedbased on a number of factors, such as,
Whether the offense involved recordkeeping only, USSG §2Q1.2(b)(6); or
Whether the defendant cooperated in the investigation, USSG §3E1.1
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Downward Departures
Is the case outside the ‘heartland of environmental cases.” USSG §5K2.0.United States v. Elias, 32 ELR 20,218, 269 F.3d 1003 (9th Cir. 2001)
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Other factors
Standing in community not normally relevant.Committing crime to avoid a greater harm not normally relevant.
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74 © 2002 K&L Gates
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Applying the Guidelines
14Total value assigned to offense
-2Decrease because defendant pled guilty/cooperated
+4Increase based on permit violation
+4Increase based on noncontinuous violation
8Offense involving a toxic waste
Increase/Decrease Offense Level
Nature of Offense
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76 © 2002 K&L Gates
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Applying the Guidelines (cont.)
Cooperate by pleading guilty -2
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Applying the Guidelines (cont.)
Downward Adjustment: -2Criminal History 1
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79 © 2006 K&L Gates
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Why Worry About Civil Environmental Enforcement?
Profits: Economic Benefit of Noncompliance
Compliance Programs
81
EPA Civil Judicial Referrals to DOJ FY 2002 – FY 2006
Source: Data Source: Integrated Compliance Information System (ICIS), October 28, 2006; data source for previous fiscal years: annual ICIS data
82
Potentially Responsible Party Commitments for Superfund Site Cleanup, Oversight and Cost Recovery
FY 2002 – FY 2006
FY02 FY03 FY04 FY05 FY06$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
Tota
l Val
ue ($
mill
ion )
CleanupOversightCost Recovery
Source: Data Source: Integrated Compliance Information System (ICIS), October 28, 2006; data source for previous fiscal years: annual ICIS data
83
Source: http://www.epa.gov/compliance/resources/reports/endofyear/eoy2003/fy2003enforcementandcomplianceendofyearcharts.pdf
84
EPA Dollar Value of Concluded Enforcement ActionsFY 2002 – FY 2006
Criminal Penalties ($ Mil) Total Civil Penalties ($ Mil)
$43
$100
$47
$71$62
FY06 FY05 FY04 FY03 FY02$0
$50
$100
FY06 FY05 FY04 FY03 FY02
$124
$154 $149
$96$80
$0
$50
$100
$150
JudicialAdministrative
Injunctive Relief ($ Bil) Supplemental Environmental Projects ($ Mil)
$43$43$43
$43$43
FY06 FY05 FY04 FY03 FY02$0
$2
$4
$6
$8
$10
$4.9 $4.8
$10
$2.8$3.9
$78
$57$48
$65$56
FY06 FY05 FY04 FY03 FY02$0
$25
$50
$75
$100
Source: http://www.epa.gov/compliance/resources/reports/endofyear/eoy2006/2006numbers.html
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“Clean Water Laws Are Neglected, at a Cost in Suffering”
N.Y. Times, September 12, 2009
86
Civil Enforcement Actions
Two types
Administrative
Civil Judicial
87
Civil Enforcement Actions
Differences between civil and administrative:
Amount
Injunctive Relief
Tribunal
88
Civil v. Administrative Enforcement Actions
Amount- higher amounts go to court
Injunctive Relief – goes to court
TribunalALJ
Environmental Appeals Board (40 C.F.R. § 22.4)
89
Administrative Enforcement Actions
Hearing Officers work for EPA
Regional counsel prosecutes – works for EPA
Hearing OfficersBound by regulations
Bound by EAB decisions
Injunctive Relief not Self-enforcing
90
Administrative Enforcement Actions
Environmental Appeals Board
Delegated Functions for Administrator in reviewing administrative enforcement actions- final agency action
Three membersAll former EPA enforcement officials
No statutory basis
Bound by EAB decisions
91
Civil Judicial Enforcement Actions
Liability
Penalty
Injunctive Relief
92
Liability
Strict/Vicarious
Individual →Company
Subsidiary ≈Injunctive Relief(“Bestfoods” analysis)
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Liability Common Issues
Validity of test resultsSelf v. agency
Applicability of agency “interpretation of regulation”
Validity of regulation
Interpretation of permit
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Allegheny Ludlum v. United States366 F.3d 164 (3rd Cir. 2004)
“Invalid test” defense
30 day violation presumption
Interest rate
95
Liability
Invalid Test defense:
Evidence of inaccurate laboratory reporting is relevant to show that no violation occurred.Liability attaches to an unlawful discharge, rather
than the reporting of faulty results.
96
Liability - Calculating Days of Violation“per day of violation”
Should violation of a monthly average count as a violation of the regulation on each day?
The Allegheny Court advised lower courts to exercise discretion in calculating how many days were out of compliance, considering:
Whether the polluter's conduct already had already been punished by penalties for daily violations by using the maximum daily penalty as a basis for comparison. Whether the site operated on all days during that monthly period.
97
Statutory Criteria Governs Assessmentof Civil Penalties – CWA
Seriousness of violations;
Economic Benefit of noncompliance;
History of violations;
Good Faith efforts to comply;
Economic impact on violator;
Other factors as justice may require
98
Clean Water Act: Penalty Policy
Penalty = Economic Benefit + Gravity +/- Gravity Adjustment Factors - Litigation Considerations - Ability to Pay -Supplemental Environmental Projects Gravity= $1000 x (a + b + c + d)
A—Significance: the degree of exceedance of effluent limits (scale of 0 to 20)B—Environmental and Health: real or potential harm to humans or environment (scale of 0 to 50)C—Number of violations: how many limits in the permit were violated (scale of 0 to 5, based on percentage)D—Significance of non-limit violations
99
Clean Air Act
Size of business;
Economic Impact on the business;
History of violations;
Good Faith efforts to comply;
Duration of evidence (CRE);
Payment of penalties previously assessed;
Economic benefit of noncompliance;
Seriousness of the violation
100
Clean Air Act—Penalty Policy
EPA will take at least the economic benefit of noncompliance unless:
Benefit is trivial and will not affect the violatorCompelling public concernsConcurrent enforcement actions seeking the same penalty
The larger the net assets, the bigger the penalty surcharge
Beware—large cap companies can see larger surcharges of up to $70,000
101
RCRA
Seriousness of the violation
Good faith efforts to comply
102
RCRA: Penalty Policy
Governed by a matrix
103
FIFRA
Size of business;
Effect on ability to continue in business;
Gravity of violations;
Good Faith/due care – warning in lieu of penalty.
104
FIFRA: Penalty Policy
Uses separate matrices for Sections 14(a)(1) and 14(a)(2)Based on size of business and level of violationValue is assigned for gravity of offenseRemedy is adjusted based on gravity value
From 3-8: Reduce matrix valueFrom 8-12: Assess matrix value12 and above: Increase matrix value
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TSCA
The nature, extent, and circumstances of the violation; The gravity of the violation; Ability to pay;Effect on ability to continue to do business;History of noncompliance;The degree of culpability;Other matters as justice may require
106
TSCA: Penalty Policy
Calculates penalty based on four factorsPotential or actual harm to human health or environmentPotential exposure of the public or environment to an unregulated new chemical substanceImpact on the validity of the InventoryDeterrent effect of penalty
107
Penalty Assessment – Common Issues
Top down v. bottom up
Economic Benefit of Noncompliance
Ability to Pay (parent control)
108
Penalty Assessment: Top Down
Sierra Club v. Cedar Point Oil Co., 73 F.3d 546 (5th Cir. 1996)Citizen suit for civil penalties under Clean Water Act809 days of unpermitted dischargeCourt first calculated maximum penalty (809 x $25,000 = $ 20,225,000)Court then adjusted “downward” based on findings of fact on statutory factorsUltimately, court assessed penalty of $186,070 (based mostly on economic benefit of noncompliance)
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Penalty Assessment: Bottom Up
United States v. Smithfield Foods, 191 F.3d 516 (4th Cir. 1999)
Citizen suit for civil penalties under Clean Water ActDistrict court began with the economic benefit of noncompliance ($4.2 M)Added from other six factors to reach a final penalty of $12.6 MMoral—while “top down” seems for defendant-friendly than “bottom up,” that may not always be the case
110
Allegheny Ludlum v. United States366 F.3d 164 (3rd Cir. 2004)
Interest Rate
111
Economic Benefit of Noncompliance
What should have been done to avoid noncompliance and when should it have been done?
Cost of money
Level the playing field
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Economic Benefit of Noncompliance
the expenditures made and included in the economic benefit calculation must relate directly to the violations; the least costly method of compliance should be used in calculating economic benefit (Ford v. Lexus?); economic benefit calculations must be based only on periods of noncompliance
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Economic Benefit of Noncompliance Methodologies
Costs avoided method
Wrongful profits method
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Economic Benefit of NoncomplianceCosts Avoided Method
Return on funds not spent for compliance
Avoided operational and maintenance costs and return on them
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Economic Benefit of NoncomplianceCost Avoided Methods (con’t)
Measuring Return on Capital Funds
Cost to obtain capital elsewhereWeighted average cost of capital – BEN modelOn what date should company’s capital structure be used?Stability of industry
Actual rates of return
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Economic Benefit of NoncomplianceWrongful Profits Method
Would violator have had to shut down to avoid noncompliance?
Potential massive penalties
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Economic Benefit of Noncompliance Resources
EPA Enforcement Economic Models:http://www.epa.gov/compliance/civil/econmodels/index.html
BEN Model: calculates violator’s economic savings in delaying or avoiding pollution control measures
EPA Policy and Guidance Documentshttp://www.epa.gov/Compliance/resources/policies
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Numquam debes purgamentum dare rustico cui nomen
Bubbarum et qui carrum utilem invehit.
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Never Give Your Waste to a ManNamed Bubba Driving a Pick-Up Truck.