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In re B.J. Carney Industries, Inc.

Case Number:CWA Appeal No. 96-2
ELR Citation:27 ELR 40667

Between 1982 and 1990, B.J. Carney owned and operated a nonpressure wood pole treating facility subject to 40 C.F.R. § 429.75, a pretreatment requirement promulgated pursuant to Clean Water Act § 307(b), 33 U.S.C. § 1317(b). Section 429.75 provides that nonpressure woodpreserving facilities shall not discharge process wastewater pollutants into a publicly owned treatment works (POTW). B.J. Carney’s treatment tanks were situated in a depression below ground level. Pentachlorophenol (PCP) from the treatment process found its way into the soil in the depression, where it came into contact with groundwater and/or precipitation. A sump pump pumped the PCP-contaminated water away from the treatment tanks. The water eventually flowed into a POTW owned and operated by the City of Sandpoint, Idaho.

Under its NPDES permit for the POTW, Sandpoint was required to enforce the pretreatment requirements applicable to the industrial users of Sandpoint’s POTW. Nevertheless, the Agency also had the authority to enforce those requirements. Further, under its NPDES permit, Sandpoint was directed to issue “industrial waste acceptance” forms, or “IWAs,” to the industrial users of its POTW.

In 1985, U.S. EPA Region X informed B.J. Carney, in writing, that B.J. Carney’s discharge violated § 429.75. Soon thereafter, B.J. Carney hired a consultant to evaluate methods by which B.J. Carney could achieve compliance with the pretreatment regulation. The consultant’s report, prepared in 1986, indicated that the least expensive method for B.J. Carney to achieve compliance was to purchase an evaporator at a cost of $62,000 and operate it at an annual cost of $1,550. Instead of following this recommendation, B.J. Carney claims to have spent $240,000 on soil removal, general repairs, maintenance and housekeeping, and on some improvements intended to reduce but not eliminate the discharge to the POTW.

In 1987, Sandpoint issued an IWA to B.J. Carney, purporting to allow B.J. Carney to discharge lawfully the PCP-contaminated water to the Sandpoint POTW. The Region considered the IWA invalid as it contravened § 429.75, but did not tell Sandpoint the IWA was invalid until 1990. However, in 1987, after the IWA was issued, the Region again advised B.J. Carney in writing that B.J. Carney’s discharge was prohibited by 40 C.F.R. § 429.75.

On many occasions between 1985 and 1990, the Region expressed its concern to Sandpoint that Sandpoint was not exercising its responsibility to enforce the pretreatment regulation that B.J. Carney was violating. In late 1989, the Region directed Sandpoint to initiate enforcement proceedings against B.J. Carney. As a result, in April 1990, Sandpoint revised B.J. Carney’s IWA to allow for no discharge of process wastewater pollutants, and gave B.J. Carney thirty days to come into compliance. Just before the expiration of this deadline, B.J. Carney closed its facility. B.J. Carney claims it spent $450,000 to $500,000 closing down its operations, most of which was for soil and equipment removal. Compliance with the pretreatment regulation occurred when B.J. Carney plugged the pipe to the POTW during closure, at a cost of “nickels and dimes.” Tr. at 752.

Convinced that Sandpoint was not committed to pursuing an enforcement action against B.J. Carney, the Region filed the complaint in this matter in 1990, seeking a penalty of $125,000 for B.J. Carney’s alleged violation of 40 C.F.R. § 429.75. After a four-day hearing on this matter, the presiding officer found B.J. Carney liable for discharging process wastewater pollutants into a POTW on eighteen different occasions between 1985 and 1990 in violation of Clean Water Act § 301, 33 U.S.C. § 1311, and 40 C.F.R. § 429.75. The presiding officer rejected the Region’s argument, which was based upon expert testimony, that as a result of its failure to purchase and install an evaporator, B.J. Carney enjoyed an economic benefit of $167,000. Instead, the presiding officer concluded that no determination of economic benefit could be made from this record, and assessed a gravity-based penalty only, in the amount of $9,000.

Both parties appealed.

HELD: The presiding officer did not err in finding B.J. Carney liable for violating 40 C.F.R. § 429.75. That regulation prohibits the discharge of “process wastewater pollutants.” As part of B.J. Carney’s process, PCP came to rest in the soil in the depression around the treatment tanks, where it came into contact with precipitation and/or groundwater. The collection and removal of this PCP-contaminated water from the depression was an essential part of B.J. Carney’s process; if the PCP-contaminated water remained in the depression, the treatment tanks would float, and thereby separate from the pipes that fed the PCP into the treatment tanks. Therefore, the PCP-contaminated water that was removed from the depression around the treatment tanks was “process wastewater” as that term is defined in 40 C.F.R. § 401.11(q). B.J. Carney’s discharge does not fit into any exceptions to the “process wastewater” definition applicable to the timber products processing industry set forth in 40 C.F.R. § 429.11(c).

There is a strong presumption against entertaining challenges to the validity of a regulation in an administrative enforcement proceeding. The definition of “process wastewater” is sufficiently clear to give a person of ordinary intelligence a reasonable opportunity to know what conduct is prohibited. Moreover, B.J. Carney was twice advised, in writing, that the Region considered B.J. Carney to be violating the regulation. Therefore, constitutional principles of due process do not prohibit finding B.J. Carney liable for violating 40 C.F.R. § 429.75.

The presiding officer did not err in rejecting B.J. Carney’s claim that the Region was equitably estopped from bringing this action. B.J. Carney failed to demonstrate that the Region’s conduct rises to the level of “affirmative misconduct” necessary to estop the government. There is no factual support for B.J. Carney’s claim that the Region “acquiesced” in Sandpoint’s gradual approach to obtaining compliance. Further, the Region’s silence with respect to the IWA does not amount to “affirmative misconduct.” Nor does the Region’s failure to initiate an enforcement action against B.J. Carney until five years after the Region learned of the violation amount to “affirmative misconduct.” Also, fatal to B.J. Carney’s estoppel claim is the fact that rather than suffering a detriment, B.J. Carney benefitted from the Region’s conduct in that it operated for five years without making the expenditures necessary to comply with the law.

While properly finding liability, the presiding officer erred in concluding that no economic benefit can be assessed on this record, and by injecting the statute of limitations into this case on his own initiative after the hearing had closed without giving the parties an opportunity to show how the statute of limitations impacts the economic benefit calculation. Accordingly, a remand is warranted for the limited purpose of determining how much of the economic benefit occurred within the limitations period and recalculating the penalty accordingly.

A complainant need not demonstrate the exact amount of economic benefit a violator enjoyed from a violation; a reasonable approximation will suffice. If the record supports a partial economic benefit and the only choice is between finding a partial economic benefit or none at all, it is error to find none. If the full benefit can be reasonably approximated, such benefit should be recovered as part of the penalty assessment. The presiding officer erred in concluding that no approximation of the economic benefit could be made in this case — at least a partial benefit could be reasonably approximated on the record. However, a full economic benefit can reasonably be approximated on remand by starting with the Region’s calculation of $167,000 and subtracting from it that portion of the benefit that accrued outside the five-year limitations period.

Contrary to the conclusions of the presiding officer, it was not error for the Region not to use the BEN model. The BEN model is intended for settlement purposes, and the Agency is not required to use it at a hearing.

The presiding officer erroneously concluded that, in effect, it is per se unreasonable to use a discount rate outside the limitations period. Despite the statute of limitations, the point in time at which compliance was initially required may nonetheless be an appropriate time for setting the discount rate. Here, the record contains an unrefuted, reasoned explanation for the selection of a 1984 discount rate (which was outside the limitations period), namely, expert testimony that a 1984 discount rate was used because 1984 is when a company that complied on time would have had to borrow the money to purchase the necessary pollution control equipment.

The Region calculated the economic benefit as continuing through the hearing date in 1993. The presiding officer erroneously concluded that the economic benefit calculation should have ended in 1990, when compliance was achieved through closure. A violator’s economic benefit ends when the benefit is disgorged, even if that occurs well after compliance is achieved. The Region’s economic benefit calculation used a 16.0% discount rate, calculated using a weighted average cost of capital (WACC) formula.

The Region’s expert applied this discount rate for each of the ten years covered by the Region’s calculation (1984-1993). The record in any given matter must contain a reasoned explanation and supportable rationale for the selection and use of the discount rate. In general, the propriety of the discount rate used by the complainant can always be raised as an issue by a respondent. Here, the Region’s expert explained that she used a single 16.0% rate over a ten-year period because the rate represented the cost of financing pollution control equipment in 1984, and that the financing would not have been renegotiated over the useful life of the equipment. Significantly, this testimony was not refuted. The presiding officer, however, rejected the expert’s rationale as “unrealistic since it assumes Carney could have secured an investment that would yield a 16.01% return over close to a ten year period. This is an unreasonable assumption, in light of the varying economic conditions during the relevant period.” Even assuming economic conditions varied during this period, there is no evidence in the record supporting the presiding officer’s rejection of the expert’s assumption that B.J. Carney would not have renegotiated its cost of capital. Therefore, the presiding officer’s conclusion rested on an erroneous assumption of fact not supported by evidence in the record.

The presiding officer stated that the economic benefit calculation should have “offset” $240,000 in compliance costs purportedly spent by B.J. Carney to reduce but not eliminate the discharge. The record is full of gaps and inconsistencies concerning exactly what sums were spent by B.J. Carney prior to 1990 and for what purpose they were spent. Because B.J. Carney did not quantify its so-called compliance costs, the presiding officer erred in concluding that had the alleged compliance costs been considered, the economic benefit of noncompliance would have been eliminated. Further, B.J. Carney’s compliance efforts were factored into the penalty assessed, in the presiding officer’s determination that the violations resulted in minor harm to the environment, and his decision to reduce the gravity-based penalty by 50% to reflect B.J. Carney’s “good faith efforts at compliance.” No further downward adjustment in the economic benefit is appropriate in this case based on any past expenditures on compliance costs.