Legal Briefing Personal and Corporate Liability/Environmental Stewart Leeth August 4, 2011

1. Legal Briefing Personal and Corporate Liability/Environmental Stewart Leeth August 4, 2011

2. Background: Administrative, Civil, Criminal Enforcement Distinction • Administrative action => taken by a state or federal agency without resorting to a court; smaller fines, generally • Civil action => lawsuit against the company or an individual seeking penalties and/or an injunction • Criminal action => prosecution of a company or an individual to impose fines or imprisonment

3. Background: Civil/Criminal Distinction • CWA, CAA, RCRA are strict liability for civil purposes • $37,500/day/violation • Felony liability for “knowing violations” – aware of nature of your acts; not that acts violated the statute • CWA criminalizes negligent conduct involving discharges to waters of the U.S. • Sec. 309(c)(1) • Includes NPDES permit requirements, etc. • CAA criminalizes negligent conduct involving releases of hazardous pollutants or extremely haz. subtances • Sec. 113(c)(4) • But also requires imminent danger of death or serious injury • Line between civil and criminal is hazy

4. Sample Cases: Felony Criminal • United States v. United Technologies Corp., D.Conn. • Solvents routinely dropped to facility floor; during cleaning shifts, maintenance hosed off floor/out the door • Result: Felony RCRA violations $3M fine • EPA Press Release: "criminal sanctions are not reserved only for the flagrant and deliberate violations of environmental laws, but also for violations that result from a company's plain or institutional indifference to meet its legal responsibility"

5. United States v. Hayes International, 11th Cir. • Engineer responsible for haz. waste disposal contracted for disposal of hazardous wastes • Wastes dumped illegally by contractor • The judge said: defendant acted "knowingly" where he failed to determine that the disposal company was not legitimate and rec’g facility did not have a permit

6. United States v. Unisea • Dec, 2007 – 2 large ammonia releases (17k lbs) • No report until January 2008 • Plant Chief Engineer plead guilty to criminal charge of failing to report • 2m/$8k fine.

7. Sample Cases: Negligence and What Makes an Action “Go Criminal”? • “Enforcement discretion” • Reported cases suggest: • Prior problem that might lead to a serious impact and failed fix it • No prior problem but failure to take reasonable precautions – e.g., failure to maintain • Injuries and/or environmental impacts • Target perceived as a “bad actor”

8. Example 1 • Day 1 – small oil leak from boiler • Small amount went into a floor drain • Maintenance staff became aware that floor drain connected to the storm water system • Day 7 – boiler seal rupture and 6,000G spill • Same floor drain => storm water system => river • Environmental impact • Neighbor reported

9. Result: • EPA and state agency civil inspection • Immediate criminal referral • Indicted (1) company and (2) supervising engineer • Both convicted of misdemeanor CWA violations • Fines and suspended jail terms • Discovered a prior problem that might lead to a serious impact and failed to address

10. Example 2 • Lagoon storage system for storm water • 1994 • Company converted to tank system • 1998 • Company engineers/consultants advised inadequate capacity - needed a 3d tank • CARs delayed over the years until 2005 • 2006 • Heavy rain and tanks overflowed • 53,000G accumulated wastewater + petroleum to river • Environmental impact – wildlife and commercial traffic impacted

11. Result: • Federal criminal investigators on-scene (no civil referral) • Gov’t theory - negligent failure to maintain storm water system and failing to maintain adequate storm water storage capacity • $13 million fine • Largest criminal misdemeanor fine in history • No prior problem but failure to take reasonable precautions

12. Example 3 • 2 facilities @ w/10,000 lbs Ammonia • Had RMP/PSM program • But self-audit revealed: • RMP as written not followed (despite certification by company officers) • Other deficiencies – lack of mgmt, insufficient process haz analysis, no emergency evac. plan, etc.

13. OSHA PSM inspections • Then, EPA information request and inspection • EPA initiated criminal investigation against company and supervising employees • Company pleaded to a misdemeanor for RMP deficiencies/$100,000 fine. U.S. v. Hershey, Sept., 2008 • Knew about problems/”bad actor.”

14. Take Away: • Line between civil and criminal is hazy • Take action • Prior issue and potential serious impact if you do not fix it • No prior problem but reasonable precautions to avoid a problem before it occurs • If you have audit results and WOs, address them

15. Responsible Corporate Officer Doctrine • Criminal liability, regardless of participation, where person is in a position with power to prevent and correct the violation. • United States v. Park, 421 U.S. 658 (1975): • Government establishes a prima facie case when it introduces evidence sufficient to warrant a finding that the defendant had, by reason of his position in the corporation, responsibility and authority either to prevent in the first instance, or promptly to correct, the violation complained of, and that he failed to do so.

16. Enforcement - Trends and Challenges Voluntary Programs and Collaboration Diminished More Inspections and Enforcement Referrals DOJ referrals: => focus on EPA NEPs (stormwater, CAFOs), CAA and CWA permit noncompliance, Worker Endangerment Initiative with OSHA More severe penalties than in the past Federal enforcement for items not previously considered Actions not limited to fines against the corporate entity : => agencies increasingly are choosing to prosecute individuals, the officers and managers of the corporation, for environmental mistakes Gov’t wants to send a strong message and make headlines 16

17. Challenges, cont’d… • EPA Targeting Potential, Future Violations • EPA information requests about future plans, not just present or past actions • EPA's authority to request information about future projects upheld after a power company refused to provide future planning docs. United States v. Excel Energy Inc., D. Minn., No. 10-cv-2275, order issued 9/27/10 • Focus on Environmental Justice • Environmental justice review for all negotiated settlements • Toughest controls in communities that are most “overburdened.” E.g., Northeast Ohio Regional Sewer District consent settlement included injunctive relief required a priority on green investments to help create green spaces in disadvantaged community

18. Recent Civil Cases •  Unisea (Seattle-based seafood processing company), $1.9 million civil penalty (CWA, CERCLA, EPCRA – ammonia discharges, etc.) - March 9, 2011 • Orval Kent Food Company Inc., $390,000 civil penalty (CWA) - Jan. 31, 2010 • World's Finest Chocolate, $20,000 penalty (CERCLA) (ammonia release) - Dec. 2010 • Peterson Farms CAFO, $183,000 penalty (EPCRA) (chemical inventory and MSDS reporting) - January 2011