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27 ELR 10243 | Environmental Law Reporter | copyright © 1997 | All rights reserved EPA's Audit Policy and State Audit-Privilege Laws: Moving Beyond Command and Control?E. Lynn Grayson and Christina M. RiewerMs. Grayson is a partner at the Chicago office of Jenner & Block and a member of the firm's environmental practice group. She received her J.D. from Indiana University School of Law. Ms. Riewer is an associate at the Chicago office of Jenner & Block in the firm's environmental practice group. She is a 1994 graduate of DePaul University College of Law. The pursuit of environmental protection traditionally meant the imposition of command-and-control regulation and enforcement by federal and state environmental authorities. For at least 25 years, the protection of this country's air, water, and land resources relied on the development of complex, increasingly sophisticated environmental laws and regulations. Environmental officials ensured the success of these protective measures by establishing aggressive enforcement programs aimed at identifying and prosecuting violators. Over time, enforcement efforts increasingly consumed precious economic and human resources of overburdened, inadequately funded environmental agencies. While most agree that early command-and-control programs achieved positive results, they also concede that changing political, industrial, and regulatory climates are emerging that lessen the need for stringent command-and-control measures to achieve environmental compliance.1 Industry's own efforts to improve its environmental compliance record helped cause these changes. In particular, environmental auditing, which has expanded rapidly over the past decade, has advanced industry's ability to monitor operations to both detect and prevent environmental problems.2 The advent of formalized auditing procedures, including the creation of written audit reports that detail an operation's environmental compliance status and target key areas for improvement, further solidified the usefulness of industry-led self-audits. Environmental agencies quickly realized the value of these internal self-policing efforts. From the government's perspective, businesses committed to the goal of improving environmental compliance are easier to regulate than businesses which are not so committed. Encouraging self-audits provides one method by which government may move beyond traditional command-and-control methods of achieving environmental compliance. Although industry and environmental agencies have formed more cooperative alliances over the past several years, serious conflict continues in several key areas. One such area involves the U.S. Environmental Protection Agency's (EPA's) stance on environmental audit reports. EPA's current audit policy offers penalty mitigation for violations that are discovered during an audit, disclosed to EPA, and promptly corrected.3 Although the policy prohibits routine requests for audit reports, EPA has refused to grant audit reports the privileged status that would protect them from disclosure.4 Many entities fear that without greater assurances of protection and confidentiality from EPA, environmental audits will be used against them in litigation and enforcement actions. Although Congress and EPA have failed to grant industry the assurances it seeks, many states have passed laws granting audit reports privileged status and offering immunity from penalties for environmental violations so long as certain conditions are met. These state audit-privilege and immunity laws now are the focus of a heated debate between states and EPA. This Dialogue examines the controversy occurring between states and EPA over state audit-privilege and immunity laws. A full discussion of this topic requires some comparison between EPA's audit policy and the various state audit-privilege initiatives. Accordingly, this Dialogue evaluates EPA's current audit policy, discusses state audit-privilege and immunity laws and analyzes the impacts of these issues on state/EPA relationships. Finally, this Dialogue addresses the probable outcome of this state/federal controversy and suggests that EPA move beyond traditional command-and-control principles to provide states with the opportunity to demonstrate that audit-privilege and immunity laws will result in increased environmental compliance. On December 22, 1995, the EPA issued its final policy statement on "Incentives for Self-Policing: Discovery, Disclosure, Correction, and Prevention of Violations" (Policy). [27 ELR 10244]5 EPA designed the Policy, which became effective January 22, 1996, to promote a higher standard of self-policing and improve the frequency and quality of self-monitoring efforts by offering incentives that may reduce or, in some cases, even eliminate penalties for environmental violations that regulated entities discover through voluntary compliance evaluations, disclose to EPA, and correct.6 Given the cooperative effort between EPA and industry envisioned in the Policy, EPA anticipates that improved self-monitoring by regulated entities will permit EPA to allocate its limited enforcement resources to priority areas. Incentives EPA's Policy Offers to Industry EPA's Policy provides four incentives that are designed to encourage businesses to perform environmental audits. First, EPA will waive the "gravity-based component" of a penalty (as distinguished from the component based on recovery of economic benefits derived from noncompliance, which EPA generally will not waive) for violations that are found through auditing, promptly disclosed, and corrected.7 EPA will waive the entire gravity-based penalty component if a regulated entity satisfies each of the following nine conditions: 1. The entity discovers the violation in the course of either a voluntary environmental audit or a self-evaluation procedure that is part of an established due diligence program; 2. The entity voluntarily discloses the violation to EPA and the violation was not discovered as the result of monitoring or sampling required by law or by an order; 3. The entity discloses the violation to EPA in writing within ten days (or shorter period provided by law) of its discovery that the violation has occurred or may have occurred; 4. The company identifies and discloses the violation before any regulatory inspection, commencement of any investigation, issuance of an information request, or notice of citizen suit; 5. The company corrects the violation within 60 days of discovery or as soon as practicable, promptly remediates or remedies any harm caused by the violation, and certifies in writing to state, local, and EPA authorities that the violation has been corrected; 6. The company institutes measures to prevent recurrence of the violation, including improving environmental auditing or due diligence efforts; 7. The same (or closely related) violation has not occurred at the same facility in the past three years and the violation is not part of a pattern of federal, state, or local violations by the facility's parent, if any, which have occurred over the past five years; 8. The violation did not cause serious actual environmental harm, threaten imminent and substantial harm to human health or the environment, or violate the terms of a pending order or consent agreement; and 9. The company cooperates with EPA and provides EPA with all requested documentation and/or access to employees.8 Second, EPA will reduce gravity-based penalties by 75 percent for a violation that is voluntarily discovered, promptly disclosed, and expeditiously corrected—even if it was not found through an audit or company due-diligence initiative—if the entity has satisfied the other eight criteria.9 Third, EPA will not recommend to the U.S. Department of Justice (DOJ) that criminal enforcement be brought against a company that uncovers a violation through an audit or due diligence, promptly discloses and corrects the violation, and otherwise satisfies the nine enumerated conditions. However, EPA will not withhold such a recommendation if the violation shows either a corporate management philosophy of concealing environmental violations, or high level corporate officials' or managers' conscious involvement in or willful blindness to the violation.10 EPA also reserves its discretion to pursue any criminal liability of individuals.11 Finally, EPA will refrain from routinely requesting voluntary audit reports from regulated entities to trigger enforcement actions.12 Such audit reports provide detailed road maps of a company's compliance status. However, once EPA has independent evidence that a violation has been committed, it may, in an enforcement action, seek information relevant to the nature and extent of the violation as well as to the culpability of the violator.13 This last incentive reflects an attempt to address regulated entities' objections to EPA's prior audit policy, in which EPA refused to agree not to seek and act on an entity's voluntary environmental compliance audit.14 Potential Limitations of EPA's Policy The Policy is a step forward in EPA's enforcement and auditing program because it attempts to address the regulated community's concerns about the potential for increased vulnerability to penalties resulting from audits. However, for a number of reasons, the Policy may not reflect the optimum approach for encouraging corporate self-policing through audits. First, penalty mitigation is not easy to obtain. For example, credit for a voluntary disclosure is unavailable if regulators have begun an investigation (even if the facility has no knowledge of the investigation), a local agency has inspected the facility, or the company has received notice of a third-party suit.15 Second, the Policy specifically excludes protection for serious environmental violations which result in actual harm or pose an imminent and substantial endangerment to public [27 ELR 10245] health or the environment.16 However, such serious violations are the ones that most require investigation and prompt disclosure. Third, the Policy contains no privilege provisions that prevent the discovery of audit reports by authorities or third parties. Because environmental violations often carry significant penalties, industry is understandably quite cautious about making voluntary disclosures. EPA's refusal to allow audit reports to be kept confidential may make industry cautious about auditing. Finally, the Policy is vague. For example, the Policy does not define what EPA considers to be a "closely related" violation or a "pattern" of violations which might prevent penalties from being waived.17 Are two different types of violations "closely related" if they involve the same process? Are two violations of the same statute or regulation "closely related" even if they involve two different pieces of equipment? How many violations does it take to make a "pattern" over five years? Similarly, EPA may recommend to the DOJ that criminal enforcement be brought against a company that uncovers a violation through an audit and discloses it to EPA if a "high level" corporate official or manager is consciously involved in or willfully blind to the violation.18 But who qualifies as a "high level" corporate official or manager for purposes of the Policy? Does the phrase include plant managers, line supervisors, or other persons who may have some level of supervisory responsibility but are not senior officials within the company's organizational structure? The answers to questions like these will become clear only after EPA has applied the Policy to a number of specific cases. Companies that already have auditing programs that meet EPA's criteria in place may be in the best position to take advantage of the Policy's incentives. In some situations, companies may initiate auditing programs or improve existing programs to take advantage of the benefits that the Policy offers. All companies must realize, however, that despite the protections the Policy offers, EPA has the ultimate enforcement discretion concerning any environmental violation. Results of Audit Disclosures to EPA As of January 1997, EPA officials report that 105 companies have come forward and disclosed environmental violations to EPA under its Policy.19 Of the 105 companies disclosing environmental violations, EPA has settled cases with approximately 40 companies and is in the process of negotiating the remaining cases.20 In the 40 settled cases, EPA waived all penalties against many companies and greatly reduced the penalties for others.21 The types of environmental violations reported to EPA under the Policy seem routine. While the violations reported certainly could have resulted in EPA enforcement consideration, the facts underlying the violations at issue do not reflect serious transgressions on the part of any regulated entity or reveal circumstances posing any risk of imminent or substantial endangerment to human health or the environment. Many of the environmental violations reported to EPA concern reporting and paperwork errors under the Emergency Planning and Community Right-To-Know Act22 and the Resource Conservation and Recovery Act,23 respectively. Explanation of EPA/State Conflict EPA's Policy may be viewed in part as an attempt to divert the growing state and congressional sentiment in favor of creating audit-privilege laws. In its Policy, EPA expressed opposition to the move in Congress and many states to create a privilege for voluntary environmental audits, citing the following reasons: (1) any privilege invites secrecy; (2) no evidence exists that a privilege is needed; (3) privilege encourages parties to claim protections for any evidence required to establish a violation; (4) privilege breeds litigation concerning the scope of the protections; (5) reduction of civil penalties and criminal liability under the Policy eliminates any need for a privilege; and (6) the law enforcement community and public interest groups oppose the creation of a privilege.24 To date, 21 states have adopted audit-privilege laws or policies that appear, at least in part, to conflict with EPA's stated position.25 EPA's Policy also warned that EPA reserved its right to monitor enforcement in states that have audit-privilege laws and, if necessary, step in with increased federal enforcement.26 The state/EPA conflict primarily centers on the broad nature of the evidentiary privilege afforded audit reports by certain state laws. EPA also disagrees with the concept found in some state laws of a general immunity for all [27 ELR 10246] violations discovered through the completion of environmental audits. Steven Herman, EPA Assistant Administrator for Enforcement and Compliance Assurance, told attendees at the September 5, 1996 meeting of the Environmental Council of the States that "… . . there is a bottom line below which no state can go. The bottom line is set not by Agency policy but by the federal environmental statutes."27 While EPA officials assert that the Agency hopes to encourage states to be more innovative in managing regulatory programs, some state laws appear to exceed EPA's "bottom line" by appearing to be inconsistent with federal environmental statutes. EPA recently asked Michigan, Texas, and Idaho to make changes in their audit laws before the Agency will delegate authority to these states under certain Clean Air Act programs.28 According to EPA, these state laws create potential concern that statutory language or immunity may deprive a state of adequate authority to enforce federal requirements. In addition, EPA wants states to retain authority to collect appropriate penalties for any economic benefit a company retains because of noncompliance discovered through an audit. EPA also has expressed concern about the content of audit-privilege laws enacted in other states.29 Evaluation of Individual State Audit Laws As discussed above, thus far 21 states have ignored EPA's call for caution and have adopted some type of initiative designed to encourage industry to perform environmental audits. The vast majority of these state laws grant environmental audit reports legally privileged, confidential status. In addition, many of the state laws offer immunity for violations found during audits, if certain conditions are met. In general, three conditions must be met under most state audit-privilege laws in order to invoke the privilege or qualify for reduced peanalties or immunity: (1) the regulated entity must conduct an audit that uncovers environmental violations; (2) the entity must voluntarily report the violations to authorities within a certain amount of time; and (3) the entity must expeditiously correct the violation.30 The state laws are similar in that most have either a privilege provision, an immunity provision, or both. Examples of common privilege and immunity provisions are discussed below. However, not all states take the same approach, and some unique provisions of state audit-privilege laws also are discussed below. Oregon enacted the first state audit-privilege law (the "Oregon law") in 1993.31 The Oregon law provided the basis for many of the state audit laws that later were enacted, such as those in Indiana and Kentucky.32 The Oregon law grants an audit report privilege from disclosure, but not immunity from civil or criminal penalties. The law shields any "Environmental Audit Report" from disclosure in any Oregon state civil, criminal, or administrative proceeding. An Environmental Audit Report is defined as a report prepared as a result of an environmental audit, and may include documents such as field notes, memoranda, drawings, maps, charts, and other types of supporting information, provided that the information is collected or developed for the primary purpose and in the course of an environmental audit.33 The Oregon law protects only voluntary audit reports. Environmental reports that companies must prepare and file with regulatory agencies under state and federal laws are not protected from disclosure.34 In order to retain the privilege under the Oregon law, the company must promptly initiate and pursue with "reasonable diligence" actions to correct any violations uncovered during an audit.35 The Oregon law shields audit reports from both private plaintiffs and the government in administrative and civil cases, but is limited in criminal cases.36 In a criminal proceeding, the audit-privilege does not apply unless the party invoking the privilege can show that appropriate efforts to achieve compliance with the law were promptly initiated and pursued with reasonable diligence after the audit uncovered violations of applicable environmental law.37 If a prosecutor in a criminal case can demonstrate that a "compelling need" for the information in the report exists and that the information in the report is otherwise unavailable, then the court may allow the disclosure of the report.38 The privilege also does not apply to the facts of the case, but only to the audit report document.39 The Oregon law provides that the owner or operator of the facility that prepared or commissioned the audit report may waive the privilege.40 The privilege also does not apply to an environmental audit report if the privilege is asserted for a "fraudulent purpose."41 Although the Oregon law does not define this term, it likely would include instances where a company engaged in an environmental audit to commit activities that the company knew were criminal or fraudulent. The party seeking disclosure has the burden of proof in asserting that the privilege was asserted for a fraudulent purpose.42 In contrast, in 1994, Colorado (the second state to enact an audit-privilege law) adopted legislation that diverged widely from Oregon's approach.43 The most significant difference is that the Colorado audit-privilege statute offers not only privileged status for audit reports, but also immunity for violations discovered as a result of an environmental audit and then promptly disclosed to the proper authorities.44 A number of states, such as Michigan, Idaho, and Texas, have adopted immunity provisions similar to or broader than Colorado's.45 Under the Colorado law, if the company making the disclosure "initiates the appropriate effort to achieve compliance, pursues compliance with diligence, and corrects the noncompliance within two years after the completion" of the audit, and cooperates with the authorities regarding investigation of the issues identified in the disclosure, the entity is "immune from any administrative and civil penalties associated with the issues disclosed and is immune from any criminal penalties for negligent acts associated with the issues disclosed."46 The immunity does not apply if the company is required to make a disclosure to the Colorado Department of Health pursuant to a permit condition or under an order issued by that Department.47 Like the Oregon law, the Colorado law provides that the owner or operator of the facility that prepared or commissioned the audit report may waive the privilege.48 In a criminal proceeding, the audit-privilege does not apply unless the party invoking the privilege can show that efforts to achieve compliance were promptly initiated and pursued with reasonable diligence after the audit uncovered violations.49 Two states, South Dakota and California, do not grant environmental audit reports privilege status. In South Dakota, the results of audits are subject to discovery according to the rules of civil or criminal procedure, but state regulatory agencies may not request companies to submit their voluntary audit reports.50 Entities performing voluntary environmental audits receive a presumption against the imposition of civil or criminal penalties for violations found or disclosed. The state generally may not pursue penalties or prosecution for violations disclosed to it within 30 days of being uncovered through an environmental audit.51 California has adopted a policy that is largely based on EPA's Policy. Under the California policy, incentives to self-auditing, disclosure, and correction include the California Environmental Protection Agency's (Cal/EPA's) agreement that it: (a) will not seek gravity-based civil penalties or may reduce them by 75 percent; (b) will not refer companies that self-audit for criminal prosecution; and (c) will refrain from "routinely requesting" audit reports. However, Cal/EPA retains its full discretion to recover any economic benefit gained as a result of noncompliance.52 At a regulated entity's request, Cal/EPA will review (for a fee) an audit or due diligence program and certify it as satisfying the policy's requirement that violations be discovered through a "systematic" procedure. Thus, an entity would know in advance that when it discovers a violation through an audit, it has satisfied the requirement of "systematic discovery" in the policy.53 In general, within 10 working days (or a shorter period if provided by law), a regulated entity must fully disclose, in writing, to Cal/EPA and the relevant state or local agency, the specific violations uncovered by the audit. Disclosures made under this policy are made publicly available through the Public Records Act. Violations must be corrected "as expeditiously as possible," and the regulated entity must agree in writing to take steps to prevent recurrence of the violation. The violation must not have occurred previously within the past three years at the same facility under the same ownership, and violations resulting in actual harm to human health or the environment are not covered by this policy.54 Unique Provisions of State Audit-Privilege Laws Labeling Requirements. Many state audit-privilege laws require auditing entities to follow specific labeling and content requirements in order to assert the privilege. For example, the Illinois, Kentucky, Michigan, Oregon, and Wyoming audit-privilege statutes require regulated entities to label the audit report documents "Environmental Audit Report: Privileged Document."55 Other states, such as Colorado, Indiana, Mississippi, South Dakota, Utah, and Virginia appear to have no specific statutory labeling requirements.56 Penalties for Unauthorized Disclosure. A number of state audit-privilege laws, including those in Colorado and Utah, include provisions that mandate penalties for unauthorized disclosure of audit information.57 Such statutes generally provide the prosecuting agency with limited access to an audit report for purposes of preparing for an in camera hearing on the issue of whether the document is privileged from disclosure. Prosecutors and other persons may not divulge any information from the report except as specifically allowed by the court or administrative law judge. Under the Colorado and Utah statutes, prosecutorial personnel and others may face civil penalties of up to $ 10,000 and/or criminal class B misdemeanor charges for divulging any information from the report.58 Testimonial Privileges. Some state audit laws, such as those in New Hampshire and Utah, contain provisions offering a testimonial privilege.59 If all or a portion of the audit report is deemed to be privileged, then no person or entity participating in or performing the audit may testify regarding that audit without the consent of the audited party, unless ordered to do so by a court.60 The "Green Star" Emblem. Under Minnesota's privilege statute, a regulated entity may display a "Green Star" emblem at a facility if the regulated entity qualifies for participation in the environmental improvement program, certifies that all violations that were identified in the audit of the facility were corrected within 90 days or within the time specified in an approved performance schedule, or certifies that no violations were identified in the audit, and at least one year has elapsed since the final resolution of a notice of violation or enforcement action involving the facility. The emblem may be displayed for two years.61 Sunset Provisions. A number of state audit laws contain sunset provisions. The Idaho statute, for example, will expire on December 31, 1997, unless reauthorized by the 1997 Legislature.62 Idaho's Governor Batt recently stated that he would not endorse extension of the law in its current form, probably because EPA Region X contends that some immunity and disclosure portions of the Idaho law deprive the state of adequate authority to enforce the Clean Air Act's Title V program requirements.63 Summary of State Privilege Laws The following chart summarizes some of the information discussed above and lists the states that have enacted audit initiatives.
Impact of Audit Protection Provisions Limitations of Privilege Protections Even though passed to shield audit reports from routine discovery, the state audit-privilege laws contain myriad exceptions that jeopardize the confidentiality protections intended by the laws. The audit-privilege provisions typically give courts many opportunities to find that the privilege does not apply depending on the exact nature of circumstances present. In most states, the applicability of the privilege depends on the manner in which the audit report is managed after the completion of the assessment process. Accordingly, businesses continue to face great uncertainty in knowing whether or not the applicable state law will protect audit reports from discovery. Common exceptions found in state audit-privilege laws include no protection for audit reports completed for fraudulent purposes or in situations where noncompliance is not promptly reported to authorities although such disclosure is required. No protections extend to audit-related materials that do not meet the definitional requirements outlined under the state law. Businesses also must be mindful that even under new state privilege laws, protections may be waived by the actions of the company or its employees when the report is distributed or treated. Despite these exceptions, state privilege laws advance a concept that should become a basic, fundamental principle in all environmental regulatory programs: that regulated entities' voluntary, internal efforts to improve its environmental compliance and performance should be respected, recognized, and protected. In the case of environmental audit reports, an assurance of confidentiality is the most important protection. A review of traditional evidentiary privilege concepts reveals that they do not provide the assurance of confidentiality necessary to encourage auditing. Indeed, to a great extent, state privilege laws were passed to overcome exceptions to those evidentiary privileges, which are discussed below. Attorney-Client Privilege. Under certain circumstances, the attorney-client privilege can protect a company's environmental audit from discovery. In general, the attorney-client privilege protects communications between attorneys and their clients that were made in confidence and relate to seeking or giving legal advice or assistance. In most cases, however, the underlying facts of the communication are not protected and therefore the attorney-client privilege may not provide the type of confidentiality often needed for environmental audits.67 Work-Product Doctrine. The work-product doctrine is a second example of an evidentiary privilege that may protect an environmental audit from discovery. Under the work-product doctrine, materials collected and prepared by an attorney in "anticipation of litigation" are, with certain exceptions, shielded from disclosure. Specifically, documents or tangible things prepared in anticipation of litigation or trial by an attorney or for an attorney that reveal mental impressions, theories, conclusions, or opinions of the attorney are protected.68 In conducting an environmental audit, however, underlying documents may be as important as the audit report but might not be protected under this privilege. Self-Evaluative Privilege. The self-evaluative privilege is a relatively new, judicially created privilege. The primary advantage of the self-evaluative privilege is that it does not rely on an attorney's services to qualify a document for protection. The privilege recognizes that disclosure of information [27 ELR 10250] reflecting internal efforts to analyze compliance will deter socially useful investigations. While the privilege has been applied to environmental audits, it has not served to shield such audits from discovery by government authorities in all cases.69 The Federal Rules of Evidence. Other potential privileges arises under the Federal Rules of Evidence. Under Rule 501, privileges are "governed by the principles of the common law as they may be interpreted by the courts of the United States in the light of reason and experience." Given the uncertainty of courts' interpretations of this rule, however, its applicability to environmental audits is slight. Federal Rule of Evidence 407 also could provide limited protection for some environmental audit reports. Rule 407 provides that when measures are taken after an event which would have made the event less likely to occur if taken previously, evidence of the subsequent measures is not admissible to prove negligence or culpable conduct in connection with the event. The protections of Rule 407, however, are not enough to encourage regulated companies to perform audits. EPA's Opposition to the State Audit Laws EPA remains staunchly opposed to the privilege provisions, and in some instances, also the immunity provisions, found in certain state laws. EPA has stated its opposition to any state legislation that " … jeopardiz[es] the fundamental national interest in assuring that violations of federal law do not threaten the public health, the environment or make it profitable not to comply."70 EPA further stated that it "reserves its right to bring independent action against regulated entities for violations of federal law that threaten human health, the environment, reflect criminal conduct, repeated noncompliance or allow one company to make a substantial profit at the expense of its law-abiding competitors."71 Few state audit-privilege and immunity laws are inconsistent with EPA policy. Indeed, states with privilege and immunity laws retain ample authority to pursue aggressive enforcement programs and, under most state laws, may even obtain information from environmental audit reports under the appropriate circumstances. But even minor or perceived inconsistencies may prove costly to state environmental regulatory agencies, despite EPA's professed desire to "encourage states, to innovate, to try new things, to experiment …."72 EPA has requested that some states revise existing audit-privilege laws. Moreover, in the absence of voluntary compliance, EPA has informed offending states that failure to amend privilege and immunity laws may jeopardize federal delegated authority programs. Many view EPA's recent actions as an attempt to coerce states into rescinding, altering, or declining to enact audit-privilege legislation. At least two authors have referred to this type of opposition by EPA as "delegation blackmail."73 Examples of states threatened by EPA's so-called delegation blackmail include Michigan, Texas, and Idaho. In Michigan, EPA authorized interim approval of Michigan's Clean Air Act Title V permitting program but advised that the state's audit law must be revised as a condition of full approval.74 In Texas, EPA questioned the impact of the Texas audit law on the state's ability to administer Clean Air Act Title V, the Clean Water Act National Pollutant Discharge Elimination System, and the Safe Drinking Water Act Underground Injection Control programs.75 Similarly, EPA authorized interim approval of Idaho's Clean Air Act Title V permitting program but stated that the Idaho audit law must be revised as a condition of full approval.76 Moreover, in petitions filed with EPA, environmental groups have challenged the federal delegation of certain programs in Michigan, Texas, and Idaho.77 Some states, such as Texas, report that many companies have used the protections available under the new audit laws.78 Others, such as Illinois and Mississippi, report few or no instances of regulated entities seeking the protections available under the audit laws.79 Without question, the conflict between states and EPA will have a chilling effect on state regulatory programs as well as on regulated entities' use of the benefits afforded by such state laws. There is already evidence that state environmental agencies fear EPA retribution and have taken action to avoid adverse encounters. For example, Vermont adopted its environmental audit policy, which is consistent with EPA's Policy, about five months following defeat of an audit-privilege and immunity bill opposed by the Vermont Agency of Natural Resources and environmental groups.80 In Ohio, a privilege and immunity law recently passed, but in a less aggressive format than advocates had hoped.81 Other states may also adopt more conservative initiatives concerning audits in an effort to avoid EPA's so-called delegation blackmail. While many enforcement agencies and environmental groups support EPA's strong-handed approach with the [27 ELR 10251] states, it appears that most environmental agencies and stakeholder groups favor stronger, more independent state laws and programs relating to audits.82 There is also sentiment in Congress that EPA should assist states in implementing audit laws. For example, following a series of hearings a House Committee recently expressed disapproval of EPA's hostility about state audit-privilege laws: The greatest burden of environmental enforcement rests in the states, yet testimony received by the Committee suggests that the states may be threatened with the loss of delegation of this responsibility if they do not conform their self-audit laws in ways to meet the specific approval of EPA. The Committee would take a very dim view of such a response on the part of EPA. States should be encouraged to create and implement new, non-adversarial and cost effective alternatives to the traditional "command and control" approach for environmental enforcement, such as the self-audit. The Committee strongly urges EPA to allow states—indeed, even assist the states—to go forward in implementing their self-audit laws, giving states the opportunity to demonstrate whether greater flexibility and cooperation will in fact lead to lowering the overall cost of achieving a clean and healthy environment while assuring that legal action remains for those not willing to meet the law.83 For the same reasons that the traditional command-and-control techniques are often inappropriate for regulating private industry, they are also inappropriate tools for federal management of state environmental agencies. The tactics employed by EPA reduce the Agency's credibility with the states at a time when EPA needs state support to implement new initiatives and to manage delegated responsibilities. Moreover, these EPA tactics are impeding the development of innovative, progressive state programs that could help determine whether greater flexibility and cooperation with industry would lead to improved environmental compliance. EPA should cease its aggressive opposition to state laws and allow states to lead the way in moving beyond antiquated command-and-control principles and formulating more effective ways to achieve environmental compliance. 1. See Michael Ray Harris, Promoting Corporate Self-Compliance: An Examination of the Debate Over Legal Protection for Environmental Audits, 23 ECOLOGY L.Q. 663, 664 (1996). 2. See EPA, Final Policy Statement on Incentives for Self-Policing: Discovery, Disclosure, Correction, and Prevention of Violations, 60 Fed. Reg. 66706, 66710 (Dec. 22, 1995), ELR ADMIN. MAT. I 35639 [hereinafter Policy]. 3. Id. at 66711. 4. Id. at 66710. 5. Id. 6. Id. 7. Id. 8. Id. at 66711-12. 9. Id. at 66711. 10. Id. 11. Id. 12. Id. at 66706. 13. Id. 14. EPA, Environmental auditing Policy Statement, 51 Fed. Reg. 25004, 25005 (July 9, 1986), ELR ADMIN. MAT I 35001. 15. Policy, supra note 2, at 66711. 16. Id. at 66712. 17. See supra note 8 and accompanying text. 18. See supra note 8 and accompanying text. 19. Telephone Interview by Adrienne Henry with Brian P. Riedel, Deputy Special Counsel, EPA Office of Compliance (Jan. 3, 1997); Punitive Penalties Waived in Most Cases Involving Companies Using EPA Audit Policy, Daily Env't Rep. (BNA), Jan. 21, 1997, at A-10. 20. Id. 21. EPA, Audit Policy Update 1 (Apr. 1996). 22. 42 U.S.C. §§ 11001-11050, ELR STAT. EPCRA §§ 301-330. 23. Id. §§ 6901-6992k, ELR STAT. RCRA §§ 1001-11012. 24. Policy, supra note 2, at 66710. 25. These states are: Arkansas, California, Colorado, Idaho, Indiana, Illinois, Kansas, Kentucky, Michigan, Minnesota, Mississippi, New Hampshire, Ohio, Oregon, South Carolina, South Dakota, Texas, Utah, Vermont, Virginia, and Wyoming. See ARK. CODE ANN. §§ 8-1-101 to -312; COLO. REV. STAT. §§ 13-25-126.5 and 13-25-1-114.5; IDAHO CODE §§ 9-801 to -811; 415 ILCS 5/52.2; IND. CODE §§ 13-28-4-1 to -10; KAN. STAT. ANN. §§ 60-3332 to -3339; KY. REV. STAT. ANN. § 224.01-040; 1996 Mich. Pub. Acts 132; MINN. STAT. §§ 114c.20 to .31; MISS. CODE ANN. § 49-2-71; 1996 N.H. Laws 4; OR. REV. STAT. § 468.963; 1996 S.C. Acts 384; S.D. CODIFIED LAWS §§ 1-40-33 to -37; TEXAS CODE ANN. § 4447cc; UTAH CODE ANN. §§ 19-7-103 to -107; VA. CODE ANN. §§ 10.1-1198 to -1199 and WYO. STAT. § 35-11-1105. California adopted an audit policy on July 8, 1996 entitled "Cal/EPA on Incentives for Self-Evaluation." See Memorandum from Gerald G. Johnston, Assistant Secretary for Law Enforcement and Counsel to California Environmental Protection Agency Directors, Executive Officers, Chief Counsel and Enforcement Chiefs (July 8, 1996). Vermont also has adopted an audit policy. See Vermont Agency of Natural Resources Policy: Incentives for Self-Evaluation and Environmental Compliance (Dec. 14, 1996). In addition, New Jersey has enacted "grace period" legislation, which gives regulated entities 90 days to correct minor environmental violations, but the legislation does not directly affect audits. See State Immunity, Privilege Laws Examined for Conflicts Affecting Delegated Programs, Daily Env't Rep (BNA), Sept. 18, 1996, at AA-1, AA-7 [hereinafter State Immunity, Privilege Laws]. 26. Policy, supra note 2, at 66710. 27. State Audit-Privilege Laws Must Uphold Minimum Federal Standards, EPA Official Says, 27 Env't Rep. (BNA) 10434 (Sept. 13, 1996),. See also EPA, EFFECT OF AUDIT IMMUNITY/PRIVILEGE LAWS ON STATES' ABILITY TO ENFORCE TITLE V REQUIREMENTS (Apr. 5, 1996) (available forrom the ELR Document Service, ELR Order No. AD-3102). 28. See State Immunity, Privilege Laws, supra note 25, at AA-1. 29. Id. 30. See id. 31. OR. REV. STAT. § 468.963. 32. See IND. CODE ANN. §§ 13-28-4-1 to -10; KY. REV. STAT. ANN. § 224.01-040. See also Mia Anna Mazza, The New Evidentiary Privilege for Environmental Audit Reports: Making the Worst of a Bad Situation, 23 ECOLOGY L.Q. 79, 111 (1996). 33. Mazza, supra note 32, at 105. 34. Id. at 108. 35. OR. REV. STAT. § 36-468.963. 36. Id. 37. OR. REV. STAT. § 36-468.963(3)(c)(C). 38. Id. § 36-468.963(3). Similarly, under Colorado's audit law, the privilege does not apply if the court finds that "compelling circumstances" exist which favor the admission of the audit into evidence. This exception is available in both civil and criminal proceedings. COLO. REV. STAT. § 25-126.5(3)(c)(1994). In contrast, the Illinois audit-privilege law does not establish an exception recognizing a compelling interest on the part of the government for audit information in criminal prosecutions. 415 ILCS 5/52.2. 39. OR. REV. STAT. § 36-468.963. 40. Id. § 36-468.963(3)(a) (allowing the privilege to be waived also by "persons conducting an activity that prepared or caused to be prepared the [report]," in addition to the owner or operator of the facility). 41. Id. § 36-468.963(3)(c)(A). 42. Id. § 36-468.963(3)(d). 43. COLO. REV. STAT. ANN. §§ 13-25-126.5; 13-25-1-114.5 (1995). The Colorado legislation sunsets on June 30, 1999. 44. Id. 45. See 1996 Mich. Pub. Acts 132; IDAHO CODE §§ 9-801 to -811; TEXAS CODE ANN. § 4447cc. 46. COLO. REV. STAT. ANN. § 13-25-1-114.5(1)(c). 47. Id. 48. Id. § 13-25-126.5(3)(a). 49. Id. § 13-25-126.5(3)(b). 50. S.D. CODIFIED LAWS § 1-40-35 (1996). 51. Id. § 1-40-34. 52. See Cal/EPA Policy on Incentives for Self-Evaluation 3-4 (July 8, 1996). 53. Id. at 5. 54. Id. at 6-7. 55. See 415 ILCS 5/52.2; KY. REV. STAT. ANN. § 224.01-040; 1996 Mich. Pub. Acts 132; WYO. STAT. § 35-11-1105. 56. See 1996 S.C. Acts 384, TEXAS CODE ANN. § 4447cc. 57. COLO. REV. STAT. ANN. § 13-25-126.5(a); UTAH CODE ANN. § 19-7-104. 58. COLO. REV. STAT. ANN. § 13-25-126.5(5)(b); UTAH CODE ANN. § 19-7-104. 59. See 1995 N.H. H.B. 275, § 147-E:8; UTAH CODE ANN. § 19-7-107. 60. Id. 61. See 1995 Minn. Laws 168. 62. IDAHO CODE § 9-811. 63. Tom Alkire, Idaho's Privilege Law Likely to Sunset by Dec. 31, and Controversy, Daily Env't Rep. (BNA), Jan. 9, 1997, at A-5. 67. See United States v. Colton, 306 F.2d 633, 639 (2d Cir. 1962), cert. denied, 371 U.S. 951 (1963). See also Upjohn v. United States, 449 U.S. 383, 389 (1981). 68. Fed. R. Civ. P. 26(b)(3). 69. See Reichhold Chemicals Inc. v. Textron, Inc., 157 F.R.D. 522 (N.D. Fla. 1994); United States v. Baxter Corp., 132 F.R.D. 8 (D. Conn. 1990). 70. Policy, supra note 2, at 65710. 71. Id. 72. See State Audit-Privilege Laws Must Uphold Minimum Federal Standards, supra note 27, at 1043. 73. Timothy A. Wilkins & Cynthia A.M. Stroman, Delegation Blackmail: EPA's Use of Program Delegation to Combat State Audit Privilege Statutes 11, 16th Annual RCRA/CERCLA and Private Litigation Update, A.B.A. Sec. Nat. Resources, Energy & Envtl. L., 25th Annual Conference on Environmental Law (Dec. 12-13, 1996). 74. 61 Fed. Reg. 32391 (June 24, 1996). 75. See State Immunity, Privilege Laws, supra note 25, at AA-2. 76. 61 Fed. Reg. 30570 (June 17, 1996). 77. Bernard P. Bell, EPA's Use of Delegation Powers to Leverage Changes in State Audit Privilege and/or Immunity Laws, 16th Annual RCRA/CERCLA and Private Litigation Update, A.B.A. Sec. Nat. Resources, Energy & Envtl. L., 25th Annual Conference on Environmental Law (Dec. 12-13, 1996). 78. According to John Riley, director of the Texas Natural Resource Conservation Commission's litigation support division, as of September 1996, 289 audits had been performed in Texas. Privilege had not been requested. Immunity was sought 44 times and denied once. See State Immunity, Privilege Laws, supra note 25, at AA-4. 79. Id. at AA-7. 80. Vermont Issues Draft Policy; Approval Expected Later in October, 20 Chem. Reg. Rep. (BNA) 921 (Sept. 20, 1996). 81. Ohio Industries Conducting Voluntary Audits Will Not Have to Disclose Findings, Daily Env't Rep. (BNA), Dec. 23, 1996, at A-2. 82. Governor Seeks Congressional Hearings on EPA Actions Regarding Audit Statutes, 27 Env't Rep. (BNA) 2075 (Feb. 14, 1997). 83. Wilkins & Stroman, supra note 73. 27 ELR 10243 | Environmental Law Reporter | copyright © 1997 | All rights reserved |