Civil and Criminal Environmental Enforcement

Eighteenth Annual ELI Boot CampCourse on Environmental LawNovember 11, 2009

Barry M. Hartman, Esq.barry.hartman@klgates.com

Christopher R. Tate, Esq.christopher.tate@klgates.com

www.klgates.com

Why Worry About Environmental Enforcement?

ProfitsPublicityPrison/Penalties

Profits

$$$$$$$$$$

Profits

Criminal Sentencing: Disgorgement of Profits

Civil Enforcement: Economic Benefit of Noncompliance

Publicity

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

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

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

Prison

EPA Criminal Enforcement ProgramFY 2004 – FY 2008

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

Kinds of Criminal Offenses

Misdemeanors < 1 yr

Felonies > 1 yr

Kinds of Criminal Offenses

1984 RCRA felonies1986 CERCLA felonies1987 Clean Water Act misdemeanors and

felonies1990 Clean Air Act felonies20?? TSCA felonies20?? OSHA felonies

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?

Factors Shaping the “Knowledge” Element

Public Welfare Doctrine

Responsible Corporate Officer Doctrine

“Knowing” vs “Willful”

Due Process Concerns

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

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

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.

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.

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.

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?

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

“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

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.

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

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?

Language of the Statute

Knowingly violate a provision

Knowingly engage in conduct inviolation of a provision

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….

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).”

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.”

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.

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.

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”

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

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.

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)

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.

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.

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.”

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?

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.

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

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

Clean Water Act “Negligence”: U.S. v. Cota

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

The Double Standard for KnowledgeUnder the Clean Air Act

Senior ManagementLiable for

Knowing Violations

Rank and File EmployeesLiable for

Knowing and WillfulViolations

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.

Conscious Disregard – (Jury Instruction) (cont.)

“circumstantial evidence may be used, including evidence that the defendant took affirmative steps to shield himself from relevant information”

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.

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."

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.

Factors Shaping the “Knowledge” Element

Responsible Corporate Officer Doctrine

“Knowing” vs “Willful”

Due Process Concerns

Two More Thoughts

Audits;

“Independent counsel” investigations

EPA Voluntary Disclosure Programs FY 2002 – FY 2006

Number of Companies Disclosing & Correcting Violations

Voluntary Disclosures Initiated Voluntary Disclosures Resolved

627541

CompaniesFacilities

511460

512551

969 1,002

CompaniesFacilities

Source: Data Source: Integrated Compliance Information System (ICIS), October 28, 2006; data source for previous fiscal years: annual ICIS data

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

Conspiracy

Existence of agreement to achieve unlawful objective

Knowing and voluntary participation

Overt act in furtherance

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).

Federal Sentencing Guidelines

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);

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

Base Level Offenses Factors (cont.)

Base Level for an Environmental Violation: 8

Possession of 250 grams of marijuana: 8

Murder: 43

Robbery: 20

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)

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)

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)

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);

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)

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.

Vulnerable victim enhancementsUSSG §3A1.1(b);United States v. Bragg, 207 F.3d 394 (7th Cir. 2000)

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)

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).

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

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)

Other factors

Standing in community not normally relevant.Committing crime to avoid a greater harm not normally relevant.

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

Applying the Guidelines (cont.)

Cooperate by pleading guilty -2

Applying the Guidelines (cont.)

Downward Adjustment: -2Criminal History 1

Why Worry About Civil Environmental Enforcement?

Profits: Economic Benefit of Noncompliance

Compliance Programs

EPA Civil Judicial Referrals to DOJ FY 2002 – FY 2006

Potentially Responsible Party Commitments for Superfund Site Cleanup, Oversight and Cost Recovery

FY 2002 – FY 2006

FY02 FY03 FY04 FY05 FY06$0

$1,000

CleanupOversightCost Recovery

Source: http://www.epa.gov/compliance/resources/reports/endofyear/eoy2003/fy2003enforcementandcomplianceendofyearcharts.pdf

EPA Dollar Value of Concluded Enforcement ActionsFY 2002 – FY 2006

Criminal Penalties ($ Mil) Total Civil Penalties ($ Mil)

$71$62

FY06 FY05 FY04 FY03 FY02$0

FY06 FY05 FY04 FY03 FY02

$154 $149

$96$80

JudicialAdministrative

Injunctive Relief ($ Bil) Supplemental Environmental Projects ($ Mil)

$43$43$43

$43$43

FY06 FY05 FY04 FY03 FY02$0

$4.9 $4.8

$2.8$3.9

$57$48

$65$56

FY06 FY05 FY04 FY03 FY02$0

Source: http://www.epa.gov/compliance/resources/reports/endofyear/eoy2006/2006numbers.html

“Clean Water Laws Are Neglected, at a Cost in Suffering”

N.Y. Times, September 12, 2009

Civil Enforcement Actions

Two types

Administrative

Civil Judicial

Civil Enforcement Actions

Differences between civil and administrative:

Amount

Injunctive Relief

Tribunal

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)

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

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

Civil Judicial Enforcement Actions

Liability

Penalty

Injunctive Relief

Liability

Strict/Vicarious

Individual →Company

Subsidiary ≈Injunctive Relief(“Bestfoods” analysis)

Liability Common Issues

Validity of test resultsSelf v. agency

Applicability of agency “interpretation of regulation”

Validity of regulation

Interpretation of permit

Allegheny Ludlum v. United States366 F.3d 164 (3rd Cir. 2004)

“Invalid test” defense

30 day violation presumption

Interest rate

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.

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.

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

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

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

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

Seriousness of the violation

Good faith efforts to comply

RCRA: Penalty Policy

Governed by a matrix

Size of business;

Effect on ability to continue in business;

Gravity of violations;

Good Faith/due care – warning in lieu of penalty.

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

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

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

Penalty Assessment – Common Issues

Top down v. bottom up

Economic Benefit of Noncompliance

Ability to Pay (parent control)

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)

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

Allegheny Ludlum v. United States366 F.3d 164 (3rd Cir. 2004)

Interest Rate

What should have been done to avoid noncompliance and when should it have been done?

Cost of money

Level the playing field

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

Economic Benefit of Noncompliance Methodologies

Costs avoided method

Wrongful profits method

Economic Benefit of NoncomplianceCosts Avoided Method

Return on funds not spent for compliance

Avoided operational and maintenance costs and return on them

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

Economic Benefit of NoncomplianceWrongful Profits Method

Would violator have had to shut down to avoid noncompliance?

Potential massive penalties

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

Numquam debes purgamentum dare rustico cui nomen

Bubbarum et qui carrum utilem invehit.

Never Give Your Waste to a ManNamed Bubba Driving a Pick-Up Truck.

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