In re Stauffer Chemical Co.

No. M80-017 (D. Wyo. June 24, 1980)

The court issues a preliminary injunction restraining the Environmental Protection Agency (EPA) from conducting an inspection of an emission source with non-Agency personnel, ruling that under § 114(a)(2) of the Clean Air Act only EPA employees have a right of entry to make inspections. In support of this conclusion the court notes that (1) the text of § 114(a)(2) indicates that the term "authorized representative" applies only to EPA employees, (2) EPA has adopted inconsistent interpretations of this section of the Act, (3) § 114(a)(2) should be interpreted to parallel the restrictive entry provision in § 208(a), (4) inspections of this type are normally viewed as a governmental function performed only by government employees, (5) non-Agency employees cannot be held to the same standards of confidentiality as governmental employees, (6) if non-Agency inspectors disclose trade secrets gleaned on inspections, the source owner would have great difficulty in obtaining legal remedies, (7) the legislative history of the Federal Water Pollution Control Act (FWPCA) indicates that Congress intended inspections under the Clean Air Act to be conducted by Agency employees only, (8) § 114(a)(2) should be interpreted to parallel the restrictive entry provision in § 308 of the FWPCA, and (9) EPA interpretations of § 114(c) of the Clean Air Act indicate that the term "authorized representative" in § 114(a)(2) applies to EPA personnel only. The court adds that it was unreasonable for EPA to seek an ex parte warrant to conduct the search and states that bringing non-EPA employees into the plant constituted an excessive use of force.

Counsel are listed at 11 ELR 20555

[11 ELR 20560]

Findings of Fact, Conclusions of Law and Order Enjoining the Environmental Protection Agency

This matter having come before the Court upon Stauffer Chemical Company's Motion to Quash the Administrative Warrant and Motion in the Alternative for Preliminary Injunction, Stauffer Chemical Company being represented by Charles Lettow, Esq., Eric Jeffrey, Esq. and Blair J. Trautwein, Esq., and the Environmental Protection Agency being represented by Peter Beeson, Esq. and Charles E. Graves, Esq., United States Attorney for the District of Wyoming, and the Court, having heard evidence and arguments by both parties, having reviewed the pleadings and being otherwise fully advised in the premises, makes the following Findings of Fact and Conclusions of Law.

Findings of Fact

1. Stauffer Chemical Company ("Stauffer") is a chemical manufacturer whose facilities include a Phosphate Ore Processing Plant located in Leefe, Wyoming ("Leefe Plant"). Many of the processes used at the Leefe Plant are highly proprietary and involve the application of trade secrets or confidential "know-how" and information developed by Stauffer during its years of operation. Among these secret processes is a method for providing fuel for use in calcining (i.e., roasting) the phosphate ore, which method is believed by Stauffer to be unique in the industry. Information regarding this process was supplied to this Court under seal. Some of these trade secrets, including those related to the process modifications of the calciner involving its fuel supply, could be noted by an inspector merely by visual observation of equipment in the facility.

2. Since the modifications were made to the calciners in relation to their fuel supply, no outside private party, including Dorr-Oliver, the manufacturer and installer of the calciners, has been permitted to inspect or examine the calciners. It has been Stauffer's general policy to deny access to non-Stauffer private parties to plant areas which contain confidential processes or use trade secret information.

3. Stauffer has adopted a procedure to be followed by its employees when requests to enter plant premises are made by outside private parties. The plant manager at Leefe must refer and review any request for access with his immediate supervisor, the General Manager-Phosphate Rock Operations, who then normally seeks the advice of Stauffer's headquarters staff before determining what response should be made to a request.

4. However, Stauffer has always cooperated with both the Environmental Protection agency ("EPA") and the Department of Environmental Quality of the State of Wyoming with respect to entry and inspection by EPA and State employees carrying out their statutory responsibilities. It has not refused entry to any of their employees.

5. On April 10, 1980, as part of an EPA compliance evaluation oversight plan for Region VIII, Dr. Charles J. O'Boyle, an employee of EPA, appeared without prior notice at the Leefe Plant and requested entry for purposes of conducting an oversight inspection. Dr. O'Boyle was accompanied by a representative of the Department of Environmental Quality of the State of Wyoming, and two employees of GCA Corporation ("GCA") of Chappel Hill, North Carolina, private consultant under contract to EPA to aid in carrying out oversight inspections. It was intended that the GCA employees would carry out the actual inspection, with supervision by Dr. O'Boyle, who was to be present at all times.

6. Reed Christensen, Plant Manager of the Leefe Plant, was not present at the plant on that day. Pursuant to Stauffer's trade-secret policy, the maintenance manager at the Leefe Plant telephoned Mr. Christensen in Twin Falls, Idaho to inform him that Dr. O'Boyle and the GCA employees were at the plant. mr. Christensen and his supervisor, Duncan King, then telephoned Stauffer headquarters for a decision as to the entry request. Shortly thereafter, Mr. Christensen was informed by a Stauffer attorney that the EPA and State officials should be permitted to enter and conduct the inspection but that access should be refused to GCA employees unless and until a suitable nondisclosure and hold-harmless agreement was signed. Such an agreement was not available at the plant that day. Mr. Christensen communicated this information to Dr. O'Boyle, and then Dr. O'Boyle and the rest of the inspection team departed.

7. Thereafter, Mr. Christensen was informed by Stauffer attorneys that Stauffer was attempting to negotiate a mutually satisfactory agreement with EPA, and that GCA employees should not be permitted to gain access to the plant until specific approval for their entry was communicated to him.

8. Several telephone discussions were held between Paul Jacobi, an attorney for Stauffer, and Rex Callaway, an EPA attorney for Region VIII, during which Mr. Jacobi stated that Stauffer would extend its customary assistance to EPA regarding an entry and inspection by full-time EPA employees and that employees of GCA would also be permitted to enter if they signed a nondisclosure and hold-harmless agreement.Mr. Jacobi explained to Mr. Callaway that this requirement was based upon considerations of protecting proprietary information and preventing avoidable private litigation. Mr. Callaway was also informed that Stauffer and EPA had arrived at mutually acceptable agreements with respect to previous requests by EPA that its contractors be given access to other Stauffer plants.

9. On April 14, 1980, Mr. Jacobi sent to Mr. Callaway a copy of a nondisclosure and hold-harmless agreement which had been accepted by EPA regarding a visit by a contractor to a different [11 ELR 20561] Stauffer plant. That agreement reserved the right to Stauffer to exclude from the plant visit any plant areas except emission sources, which of course would contain the ability of the GCA Corporation men to make a thorough inspection of the plant but which because of the presence of Dr. O'Boyle would not have prevented EPA from making a thorough inspection of it. After subsequent additional conversation, Mr. Jacobi wrote a letter to Mr. Callaway, again expressing Stauffer's willingness to cooperate with an inspection and to negotiate satisfactory safeguards and asking Mr. Callaway to contact him if further discussion was necessary.

10. On May 8, 1980, pursuant to the application of Lance C. Vinson, EPA Enforcement Division Director for Region VIII, and upon the Affidavits of Christine M. Phillips and Charles J. O'Boyle, an Administrative Warrant was issued by United States Magistrate Beaman authorizing entry onto the Leefe Plant. This Administrative warrant was issued ex parte without any notice to Stauffer. It authorized entry by Mr. Vinson, and by "any duly designated enforcement officers of the Environmental Protection Agency, and authorized employees of EPA's contractor, GCA Corporation . . . ." These persons were empowered to inspect the "facilities, processes, records, files and papers associated with the processing of phosphate ore" and the following activities were specified: "receiving, washing, roasting, drying, pulverizing, classifying (screening), packaging, storage, loading in bulk, shipping and related activities."

11. On May 13, 1980, representatives of EPA (Dr. O'Boyle and Mr. Callaway) appeared without prior notice at the Leefe, Plant accompanied by a State Department of Environmental Quality official, Mr. Lee Gribb, and two employees of GCA, Mr. Timothy L. Curtin and Mr. Samuel A. Duletsky, environmental engineers in the Technology Division of GCA Corporation. Mr. Callaway and Dr. O'Boyle presented their credentials to Mr. Christensen, and Dr. O'Boyle served the warrant upon Mr. Christensen and demanded entry. Mr. Christensen asked for, and received, permission to read the warrant and telephone his supervisor. The visitors were invited into the plant's conference room. Because Mr. Christensen's immediate supervisor, Mr. King, was temporarily unavailable and due to Mr. Callaway's demand for prompt action, Mr. Christensen communicated directly to Mr. Jacobi and Mr. John Ronan and Mr. Roger Zehntner, two other attorneys, at Stauffer's headquarters, who then asked to speak to Mr. Callaway, informing him that EPA and State representatives were welcome to conduct the inspection but that GCA personnel would not granted entry unless a secrecy agreement was signed. While Mr. Callaway and Stauffer's attorneys were conversing, Mr. Christensen returned to the conference room. There, the GCA employees handed Mr. Christensen authorization forms (Applicants' Exhibits 1 and 3), signed by the Region VIII Acting Enforcement Director, bearing the names and descriptions of the GCA employees and certifying their authorization by EPA to conduct inspections. Mr. Christensen was also given the business cards of the GCA employees (Applicants' Exhibit 2). Mr. Callaway then returned to the conference room and the inspection team departed.

12.Stauffer immediately sought a Temporary Restraining Order enjoining entry under the Administrative Warrant, and this Court granted a Temporary Restraining Order on the same day, May 13, 1980.

13. At all times herein mentioned Stauffer has maintained its willingness to allow entry by EPA and State officials without any conditions, as well as its willingness to provide access to employees of GCA if safeguards acceptable to Stauffer respecting confidential process and trade secret information were provided, along with an acceptable hold-harmless agreement.

14. The purpose of the intended plant visit was to conduct an inspection pursuant to EPA's compliance evaluation oversight program for Region VIII. The primary function of this program is to monitor the effectiveness of state enforcement and inspection procedures. The entry and inspection of plants under this oversight program generally consists of a walk-through inspection of the plant processes. Dr. O'Boyle estimated that between two to three hours were necessary to complete an inspection of a plant such as the Stauffer facility at Leefe. Limited sampling or opacity measurement may occur. As noted in the warrant, however, "information collected by EPA (during the inspection) may lead to further investigation and EPA enforcement actions."

15. Under the oversight plan for Region VIII, inspections are to be handled largely by private contractors such as GCA, both with and without the presence and supervision of a full-time EPA employee. The asserted purpose for using independent contractors in conducting these inspections is to supplement the EPA technical staff and free EPA employees for other tasks. EPA's Region VIII has only recently (calendar year 1980) begun using private contractors in carrying out its oversight program.

16. The Leefe Plant was chosen for inspection on the basis of general oversight selection criteria. EPA was not aware of any problems regarding the Leefe Plant nor did the EPA have any specific criticisms regarding the State's enforcement program. A review of the State's file on the Leefe facility has revealed no formal facility inspection by the State during approximately the past three years.

17. No consideration was given by Dr. O'Boyle to requesting the assistance of the National Environmental Information Center ("NEIC"), a branch of EPA whose function is to supply expert inspection teams to the EPA regions for use in conducting their inspections because Dr. O'Boyle was directed by his immediate supervisor, Ms. Christine M. Phillips, to employ contractors to make the oversight inspections.

18. Dr. O'Boyle and other technical staff members with EPA's Region VIII, as well as the State's representative, Mr. Lee Gribb, were personally competent to perform such inspections.

19. EPA's counsel, Mr. Callaway, was aware when it sought the ex parte warrant issued in this case that Stauffer was unwilling to permit private contractors to enter the premises without signing secrecy agreements and that the company considered such persons not to be statutorily empowered to force entry onto plant premises under § 114(a)(2) of the Clean Air Act, 42 U.S.C. § 7414(a)(2). No exigent circumstances existed which necessitated the use of an ex parte warrant procedure in this case. However, surprise could be a useful element for an inspection by EPA.

20. EPA has issued conflicting memoranda and advisory opinions regarding the Agency's statutory authority to use private contractors to enter plant premises. Cassandra Dunn, Regional Counsel for Region IX, in 1973, stated:

It appears that the term "authorized representative" is used synonymously with officers and employees of EPA for purposes of entering only and cannot be delegated to contractors because "authorized representative" is the only enumeration used in 42 U.S.C. 1857c-9(a)(2).

21. The legislative history of the Federal Water Pollution Control Act Amendments of 1972, which added § 308 to the Clean Water Act, 33 U.S.C. § 1318, states that "the authority to enter, as under the Clean Air Act, is reserved to the Administrator and his authorized representatives which such representatives must be full-time employees of the Environmental Protection Agency" and "is not extended to contractors with the EPA in pursuit of research and development" S. REP. NO. 42-414, 92nd Cong., 1st Sess. 63 (October 23, 1971) reprinted in A LEGISLATIVE HISTORY OF THE WATER POLLUTION CONTROL ACT AMENDMENTS IN 1972, ("LEG. HIST.") 1481 (1973).

Conclusions of Law

1. An employee of an independent contractor is not an "authorized representative" of the Administrator for purposes of entry under § 114 of the Clean Air Act because:

(a) the text of § 114(a)(2), stating that the right of access is accorded to "the Administrator or his authorized representative," indicates that the power to force entry is reserved to the Administrator himself or to EPA employees whom the Administrator has specifically designated.

(b) EPA has not espoused consistent views regarding the authority of its contractors to be clothed with power to exercise the Agency's right of entry.

(c) Section 208(a) of the Clean Air Act, relating to manufacturers of motor vehicles, provides for access only by an EPA officer or employee designated by the Administrator. Entry under [11 ELR 20562] § 114(a)(2) should be interpreted so as to correspond to the similar right created by § 208(a).

(d) Entry for inspection is an administrative enforcement function which normally is reserved to government employees.

(e) Private contractors are not subject to the same constraints against the divulgence of confidential information as are government employees, nor are equivalent remedies available against private contractors. Private contractors are not subject to either the criminal sanctions or the substantive confidentiality standards provided by the Trade Secrets Act, 18 U.S.C. § 1905. The substantive confidentiality standards established by 18 U.S.C. § 1905 for government employees are enforceable in certain circumstances also by the owners of the confidential information. See, Chrysler v. Brown, 441 U.S. 281 (1979). Nor are private contractors subject to the Federal Reports Act, 44 U.S.C. §§ 3501-3511, which governs interagency transfers of confidential information. Also, independent contractors are not government employees for purposes of civil suit under the Federal Tort Claims Act, 28 U.S.C. §§ 1346(b), 2671 et seq., nor are they government employees subject to the damage remedy for violation of constitutional rights recognized in Bivens v. Six Unknown Named Agents of Federal Bureau of Narcotics, 403 U.S. 388 (1971). Disclosure of proprietary trade secrets by government employees arguably could be a taking of private property in violation of the Fifth Amendment.

(f) If disclosure of trade secrets of Stauffer were to take place, civil remedies against private contractors would at best be uncertain, costly, and time-consuming. Such remedies apparently would depend upon third-party-beneficiary theories of unclear validity, arising out of the terms of EPA's contract with the private consultant or engineering firm involved. In any event, it generally would be time-consuming for an injured possessor of trade secrets to pursue litigation against a private contractor under such theories, and the remedies would be difficult to enforce.

(g) The legislative history of the Clean Water Act makes manifest Congress' intention to limit the entry power under both the Clean Water Act and the Clean Air Act to full-time EPA employees and to preclude forced entry by EPA's private contractors. Section 308 of the Clean Water Act was modeled upon § 114 of the Clean Air Act. Section 114 of the Clean Air Act and § 308 of the Clean Water Act were intended to be construed similarly in all relevant respects. See LEG. HIST. at 1480.That statement in the Legislative Report is in fact the only indication the Court has of the intent of Congress concerning § 114 of the Clean Air Act.

(h) Congress intended § 308 of the Clean Water Act and § 114 of the Clean Air Act to be construed in a similar fashion. The relevant provisions of the two sections in these Acts are virtually identical.

(i) EPA has taken the position that § 114(c) of the Clean Air Act, which provides for the disclosure of confidential information by EPA to "officers, employees or authorized representatives," uses the term authorized representatives "in a different context and in a semantically different manner" than it is used with respect to entry in § 114(a)(2). See, 41 Fed. Reg. 36923 (September 1, 1976). The two subsections do serve different purposes. Whether or not the term "authorized representative" as used with respect to disclosure of information includes private contractors, its use for purposes of forced entry is limited to EPA employees.

(f) For these reasons, the issuance of an Administrative Warrant providing for forced entry onto the premises of Stauffer's Wyoming plants by employees of GCA was improper.

2. The use of EPA of an ex parte proceeding to obtain the Administrative Warrant was, under the circumstances of this case, improper and violated principles of fundamental fairness. This is a case of first impression. EPA's counsel, Mr. Callaway, was at all times fully aware that Stauffer would challenge the Agency's authority to force entry by private contractors onto plant premises. For the reason, fundamental principles of justice and fair play dictated that Stauffer be allowed to contest the issue before a warrant was issued and the entry effectuated. However, instead an ex parte procedure was used by EPA in this case, without notice of any kind to Stauffer. Except for fortuitous circumstances and at the risk of a possible citation for contempt, Stauffer could have been denied the determination of this legal issue before the entry was effectuated. Although ex parte warrants may be proper under other circumstances, we feel that in viewof the novel aspects of this case, notice and an opportunity to be heard should have been provided by the EPA's attorney.

3. Finally, and most important, the EPA had Dr. O'Boyle and Mr. Gribb, both of whom were competent to have performed the inspection and both of whom were not denied entry, present, ready, and able to make the two or three hour inspection, but instead of letting them do it while the contract inspectors waited outside the plant, EPA's counsel apparently wanted to make this a test case. The force of federal governmental authority should not be applied to invade a private party's liberty to retain its trade secrets inviolate in any greater degree than absolutely necessary. The amount of force used here by the EPA was excessive and intrusive. Such tactics are more characteristic of a police state than of our Constitutional Republic.

Based upon the above stated Findings of Fact and Conclusions of Law, it is

HEREBY ORDERED that the Environmental Protection Agency, the Wyoming Department of Environmental Quality, GCA and their agents, officers, servants, employees, attorneys and any other persons in active concert and participation with them be, and they are, restrained from directly or indirectly taking any action which would allow GCA, its officers and employees, or any other private contractors and its employees, to enter upon the premises of any of Stauffer Chemical Company's plants in Wyoming, including, but not limited to, the plants near or at Leefe and Green River, Wyoming, without the permission of Stauffer Chemical Company, for the purpose of performing an oversight evaluation compliance inspection on behalf of the EPA. Nothing herein, however, shall be construed in any way to prohibit a qualified employee of the Environmental Protection Agency, its Director or his authorized representative who is such an employee, or an employee of the State of Wyoming Department of Environmental Quality, from entering upon said premises for such purposes. Dated this 20th day of June, 1980.