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United States v. Municipal Auth. of Union Township

ELR Citation: 28 ELR 21415
Nos. No. 97-7115, 150 F.3d 259/(3d Cir., 07/20/1998)

The court holds that a district court properly imposed a $4.031 million civil penalty against a dairy based on the wrongful profits realized by the dairy during the period it violated its Federal Water Pollution Control Act (FWPCA) permits. The court calculated wrongful profits by measuring the economic benefit received by the dairy from producing at a volume that caused it to exceed permit levels. The court first holds that the district court's method of penalty calculation was within its discretion. It does not conflict with the FWPCA or basic economic principles. Requiring a company to reduce the amount of pollution it creates to comply with its permit is not unreasonable. There is no legally significant difference in measuring economic benefit achieved by avoiding the costs of antipollution equipment, and the economic benefits achieved by failing to reduce the volume of pollution created. Both methods aim to recoup any benefits a violator gained by breaking the law and that gave the violator an advantage over its competitors. In addition, the use of the wrongful profits method to calculate economic benefit does not contravene U.S. Environmental Protection Agency (EPA) policy. Although the EPA guideline, on which the dairy relies, is receptive to a wrongful profits analysis where appropriate, it is not applicable because, by its own express terms, it is not intended for use by EPA, violators, courts, or administrative judges in determining penalties at a hearing or trial. Furthermore, in the government's brief, EPA argues in support of the wrongful profits approach to economic benefit.

The court next rejects the dairy's claim that it was unfairly surprised by the government's reliance on the wrongful profits theory of economic benefit. If the dairy was content to allow the figures on which the government based its penalty calculation to go to the fact finder without cross-examining the plant manager or the comptroller, it cannot now reasonably argue after the district court's opinion that the figures do not mean what they say. Furthermore, the record establishes that the government gave the dairy ample notice that it was pursuing this theory of economic benefit.

The court also holds that the district court's consideration of the finances of the dairy's parent company was neither clear error nor an abuse of discretion. The district court's reference to the parent's financial statement merely assured that the penalty would not be set at a level above the dairy's ability to pay. Moreover, the penalty was assessed against the subsidiary alone. And the district court only considered the parent's assets as one factor among others; they were not dispositive.

Counsel for Appellant
Steven C. Kohl, Gary A. Peters
Howard & Howard
The Pinehurst Office Ctr.
1400 N. Woodward Ave., Ste. 101, Bloomfield Hills MI 48304
(248) 645-1483

Counsel for Appellee
Lynn P. Dodge
Environment and Natural Resources Division
U.S. Department of Justice, Washington DC 20530
(202) 514-2000

Before Rendell and Heaney,* JJ.