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19 ELR 20903 | Environmental Law Reporter | copyright © 1989 | All rights reserved Student Public Interest Research Group of New Jersey, Inc. v. Hercules, Inc.No. 83-3262 (D.N.J. April 6, 1989)The court holds that Federal Water Pollution Control Act (FWPCA) § 309(d)'s list of factors to be considered in assessing civil penalties, added by the 1987 FWPCA amendments, may be applied in assessing penalties for violations before 1987, and the court assesses the maximum penalty of $ 10,000 each for 168 violations of a National Pollutant Discharge Elimination System (NPDES) permit. The maximum penalty for pre-amendment violations, however, remains $ 10,000 rather than the increased limit of $ 25,000 added by the 1987 FWPCA amendments. The court first observes that the 1987 FWPCA amendments' list of factors to be considered summarizes the policies set out in more detail in the Environmental Protection Agency's Civil Penalty Policy, and involves two components: the economic benefit gained by violator because of the violation, and an additional amount depending on the gravity of the violations to deter future violations. The court first finds that the economic benefit from the violation was just under $ 500,000. This amount will not cause any undue economic hardship, based on the violator's assets, net earnings, and sales. The court next holds that in determining what additional amount to assess according to the gravity of the violations, it looks to the degree of harm to the environment, the history of violations, and the severity of the deviation from the NPDES permit. In light of these factors, the court holds that the appropriate penalty is the maximum allowed by law. Counsel for Plaintiffs Counsel for Defendant Bissell, J.: Opinion* On April 7, 1986, the Court awarded summary judgment to plaintiff Student Public Interest Research Group (SPIRG) on the question of defendant Hercules Corporation's (Hercules) liability for 168 violations of its permit limitations under provisions of the Federal Water Pollution Control Act (the Act), 33 U.S.C. § 1251 et seq. (The facts of this matter may be found in the transcript of February 28, 1986). The parties have negotiated a protocol and a consent decree which were approved by the Court on June 9, 1988. Inter alia, these documents established the following ground rules which the Court will apply to determine the defendant's financial liability for discharge violations that occurred from January 1978 to November 1984 at a facility in Kenvil, New Jersey: 1. The Court will resolve this issue on the basis of facts stipulated by the parties and on the briefs and proposed findings of fact and conclusions of law submitted by the parties; 2. In determining the proper sum to assess against Hercules, the Court will be governed by the penalty provisions of the Act, as set forth in 33 U.S.C. § 1319(d); 3. Hercules' actual liability shall be not less than $ 1,450,0001 nor more than $ 2,000,000.00; 4. The parties have waived their rights to any appeal or collateral attack of any kind against the Court's decision as to the sum to be assessed against Hercules. A provision of the Act sets out the civil penalties that may be assessed: Any person who violates . . . any permit condition or limitation implementing [certain sections of the Act] . . . in a permit issued under . . . 33 U.S.C. section 1342 by the Administrator, or by a State, or in a permit issued under . . . [33 U.S.C. § 1344] by a State, and any person who violates any order issued by the Administrator under subsection (a) of this section, shall be subject to a civil penalty not to exceed $ 10,000 per day of violation. 33 U.S.C. § 1319(d) (prior to 1987 amendments). Hercules' liability for 168 violations of its permits was adjudicated in 1986. In 1987, the subsection above was amended to permit fines not exceeding $ 25,000 per day for each violation. In determining the amount of a civil penalty the court shall consider the seriousness of the violation or violations, the economic benefit (if any) resulting from the violation, any history of such violations, any good-faith efforts to comply with the applicable requirements, the economic impact of the penalty on the violator, and such other matters as justice may require. Because the violations that are subject to penalties here occurred before 1987, the maximum penalty the Court can levy against Hercules is $ 10,000.00 per day for all violations on that day. See Chesapeake Bay Foundation v. Gwaltney of Smithfield,Ltd., 611 F. Supp. 1542, 1554-55 [15 ELR 20663] (E.D. Va. 1985), Aff'd, 791 F.2d 304 [16 ELR 20636] (4th Cir. 1986), vacated and remanded on other grounds, #|W{__ U.S. __|L|608391|}, 108 S. Ct. 376 [18 ELR 20142] (1987), reaff'd and remanded in part on other grounds, 844 F.2d 170 [18 ELR 20941] (4th Cir. 1988) (citing United States v. Detrex Chemical Industries, Inc., 393 F. Supp. 735, 736-38 [5 ELR 20585] (N.D. Ohio 1975)). However, the Court will use factors set forth in the 1987 amendments to the civil penalty subsection as a guide in its determination of appropriate penalties. The Court will also rely in part on the framework established in Gwaltney. After rigorous judicial scrutiny, the trial court's opinion in that case has emerged with its penalty provisions intact. Finally, the Court will also make use of the Environmental Protection Agency Civil Penalty Policy (EPA Penalty Policy) (Federal Laws) Env't Rep. (BNA) 41:2991 (June 1, 1984). Although the EPA Penalty Policy does not have the force of law, it is consistent with the congressional policy behind the Act. That policy is expressed in Tull v. United States: 481 U.S. 412 [17 ELR 20667] (1987): The legislative history of the Act reveals that Congress wanted the district court to consider the need for retribution and deterence [sic], in addition to restitution, when it imposed civil penalties. 123 Cong. Rec. 39191 (1977), (Sen. Muskie citing EPA memorandum outlining enforcement policy). A court can require retribution based on the seriousness of the violations, the number of prior violations, and the lack of good faith efforts to comply with the relevant requirements. Id. at 422 (footnote omitted). As the Gwaltney trial court suggested, although the EPA's penalty policy is not binding on the court, it provides a helpful analytical framework for arriving at a civil penalty. It is especially useful in the light of the substantial maximum penalty that the statute authorizes, on the one hand, and the absence of guidance Congress provided (at that time) in assessing penalties pursuant to Section 1319(d) on the other hand. Gwaltney, 611 F. Supp. at 1557. This Court finds that the 1987 amendments, while not incorporating the language and detail expressed in the EPA Penalty Policy, serve as a reasonable summary of that policy. [The EPA Penalty Policy] aims at two general goals: (i) deterrence; and (ii) "fair and equitable treatment of the regulated community." See EPA Penalty Policy, 41:2992-92. As for deterrence, the policy recognizes that both deterrence of future violations by the violator (specific deterrence) and by other regulated firms (general deterrence) is important. Id. at 41:2992. For deterrence purposes the policy recommends a penalty that includes two components. First, it should include the "economic benefit of noncompliance"; otherwise the violator and potential violators would perceive that it pays to violate the law, creating an obvious disincentive for compliance. See id. Second, the penalty should include an additional amount, which the policy characterizes as a "gravity component." If the penalty were limited to the economical benefit of noncompliance, regulated firms would find that they have nothing to lose by non-compliance because a penalty for their violations would make them no worse off than if they had complied in a timely way. See id. The policy suggests that the gravity component reflect both the seriousness of the violation and — where extensive non-compliance with a regulatory program exists in an area — an additional amount to promote general deterrence purposes. See id. . . . The policy identifies a variety of factors that ought to be accounted for in arriving at a final civil penalty. Such factors include the degree of willfulness or negligence involved, the degree of cooperation involved, the violator's history of noncompliance, and whether the penalty would force the violator out of business. See EPA Penalty Policy at 41:3000-02. Gwaltney, 611 F. Supp. at 1557. In other words, the trial court in Gwaltney set forth a rationale for civil penalties under the Act (and this Court subscribes to that philosophy), holding that an entity liable for violations of the relevant effluent limitation permit should derive no benefit from its failure to comply. The penalty should include, up to the $ 10,000.00 daily maximum, the Court's assessment of what the company has saved by not purchasing, installing and maintaining the appropriate equipment to abate its discharge of pollutants. Furthermore, the civil penalty assessed against the offending company should include an additional sum (reduced in instances where the company would be severely damaged by the assessment) that will inflict punishment in furtherance of congressional policy to deter and exact retribution from polluters. The degree of severity of that punishment or retribution should be determined by a court's evaluation of the willfulness of the polluter's violations over time and its degree of compliance with the orders of state and federal agencies. Of course, as stated earlier, the Court's assessment of actual penalties against Hercules is limited by the parties' consent decree. Therefore, the Court's ensuing analysis will reflect the "window" between the $ 1,450,000.00 minimum and the $ 2,000,000.00 maximum penalty stipulated in numbered paragraph 4 of the protocol to the consent decree. The Court also determines that the violations by Hercules for which civil penalties are to be assessed shall include only the 168 violations actually adjudicated by this Court in April 1986. The parties have briefed at length the issue of Hercules' 71 other reported violations. (Stip. of Facts P15). Both have submitted affidavits as to the understanding each had in negotiating the consent decree and stipulation of facts. In light of the controversy over whether those 71 violations (or any of them) would bear their own penalties, this Court has determined that they should not, for liability as to them has not been adjudicated. The Court will, however, consider the evidence of continuing violations of the NPDES permit in selecting the penalties to be assessed based upon the 168 adjudicated violations. Therefore, while the Court will examine the entire undisputed history of Hercules' recorded effluent amounts, the Court finds that the maximum statutory penalty that could be assessed in this matter is $ 1,680,000.000, an amount equal to the $ 10,000.00 maximum for each violation multipled by 168 adjudicated violations of the [19 ELR 20905] defendant's NPDES permit between January 1978 and November 1984. Congress has specifically stated that violators should not be allowed to profit from delays in compliance with the Act's standards. The Gwaltney trial court proposed a detailed framework for judicial determination of a violator's economic benefit. The Court feels compelled to ensure that Gwaltney receives no economic benefit whatever for its delay in having a properly operating chlorination system. Determining with precision a firm's economic benefit from noncompliance is not a simple matter. As EPA's penalty policy points out, there are at least three distinct types of economic benefits that a violator may enjoy as a result of its violation. See EPA Penalty Policy at 41:1996-97. First, by delaying the expenditure of funds on compliance, a violator obtains the use of the money for other purposes in the meantime. Second, a violator may also avoid some costs altogether — for example, the costs of maintaining and operating the pollution control system until it is implemented. Third, a violator may, in addition, obtain a competitive advantage as a result of its violation — for example, it may be able to offer goods at a lower price, thereby possibly increasing its sales and profits. While these different types of benefit are not difficult to understand in the abstract, determining their amounts is more complicated. Indeed, providing the extent of some of these types of economic benefits will often be impossible; thus, any objective formulation of economic benefit is likely to underestimate that benefit. The Court need not painstakingly determine such an amount, however. The purposes behind including an economic benefit component in a penalty assessment are to ensure that the violator disgorges at least its economic benefit, while also providing some objective basis for at least part of the penalty assessment. In light of these purposes and the difficulty of demonstrating all elements of economic benefit, the Court shall incorporate any objective evidence to arrive at what it hopes is a rational estimate of Gwaltney's ecnomic benefit, resolving uncertainties in favor of a higher estimate. Gwaltney, 611 F. Supp. at 1558. Hercules has suggested a figure of $ 500,000.00 as its economic benefit, so as to avoid resorting to complicated calculations of interest rates over the years it failed to construct the wastewater treatment facility required to bring its effluent problem under control. (Defendant's Br. at 40). By contrast, SPIRG states that $ 1.1 million is appropriate based on application of the complex so-called BEN model. However, the Court will adopt, with modification, the method and amounts presented in plaintiff's Exhibit 26 because they appear to reflect a reasonable approach to determining the economic benefits derived by Hercules from avoiding costs associated with the operation of a wastewater treatment plant from April 1978 to 1986, when the plant came on line. The court finds that by the end of April 1978, at the latest, Hercules should have known that a wastewater treatment plant would be required to control its discharge of pollutants. See Defendant's Br. at 8).
The Court finds that the above table conveys a rational assessment of the economic benefit of delay to Hercules. It omits the cost of borrowing the $ 995,000.00 (Defendant's Facts, P36) (which would raise the benefit to be penalized) because a corporation of Hercules' size would probably not be required to borrow that amount of money. Also the Court will not attempt to assess the advantages of delay to Hercules' competitive position in its industry. See Gwaltney, 611 F. Supp. at 1558. The net benefit is derived from deflation of the value of 1986 dollars during the preceding eight years and a conservative (beneficial to Hercules) application of a 50% corporate tax rate. (A lower rate would have yielded higher after tax costs and a higher economic benefit amount.) Accordingly, the Court finds that Hercules' economic benefit from avoiding the operational costs of appropriate wastewater treatment facilities is $ 496,870.91. C. Impact of the Penalty on the Violator The amended statute, 33 U.S.C. § 1319(d), suggests another factor that under certain circumstances may be used to lower the penalty incurred by a violator of the permit limitations established pursuant to the Act. If the penalty derived from calculating the economic benefit and gravity components would work an undue hardship in the business involved or would interfere with its continuing in business, the Court has discretion to reduce the penalty accordingly. However, the Court finds no significant economic impact problem here. The Court has determined that as of December 31, 1987, Hercules had assets of $ 3,492,000,000.00. Its net earnings for the year 1988 were $ 142,700,000.00 from sales of $ 2,800,000,000.00. (Statistics from William Viall of Paine Webber). Thus, the Court determines that the impact even of the maximum permissible statutory penalty would work no serious hardship on thedefendant's ability to conduct business in its industry. The Court will not reduce on the basis of hardship the civil penalty to be assessed against Hercules. D. The Gravity of Hercules' Violations Another appropriate consideration reflected in the 1987 amendments to 33 U.S.C. § 1319(d) is the Court's assessment of the seriousness of the defendant's violations of the effluent limitations of its NPDES permit or permits. This component is parallel to the EPA Penalty Policy's gravity component, which was promulgated to punish the violator in proportion to the willfulness, severity and duration of his violations. However, while the Court will be guided by the EPA's ingredients of the gravity of violations, it will not employ the EPA's technical methodology. The Court will discuss three elements of the gravity component: the degree of immediate or potential harm to the affected environment, the history of Hercules' violations, and the severity of Hercules' deviation from its permit limitations. Gwaltney, 611 F. Supp. at 1559. 1. Immediate Harm to the Environment The parties have urged the Court to evaluate the degree of toxicity of the pollutants discharged by Hercules into the Black River. The parties have also briefed the question of Hercules' good or bad faith during the events since 1968 which led to this litigation and the degree to which Hercules exceeded its permit limitations during the nearly seven years for which the Court has adjudicated violations. The Court is unimpressed by Hercules' contention that it is different from other offending companies because it has not discharged any real poisons or affected drinking water. In arguing its case for a low assessment, defendant cites judicially assessed penalties of only $ 3,000.00 per violation in PIRG v. Ferro Merchandising Equipment Corp., 680 F. Supp. 692 [18 ELR 21368] (D.N.J. 1987), for concededly toxic discharges. Defendant also mentions what it considers the very low penalty assessed in United States v. Velsicol Chemical Corp., 12 ERC 1417 [8 ELR 20745] (W.D. Tenn. 1978), even though the polluter in that case discharged immediately [19 ELR 20906] dangerous pesticides with well known hazardous effects. Further, defendants states that again in State ex rel. Brown v. K and S Circuits, 15 ELR 20162 (Ohio. Comm. Pl. 21984), the court assessed a relatively small penalty despite severely toxic discharges which devastated a "community for a distance of at least five (5) miles along the course of the creek." Id. at 3. (See Defendant's Exh. 1). Defendant also calls the Court's attention to the parallels between its violations and those of the defendant in Ohio ex rel. Brown v. Dayton Malleable, Inc., 13 ERC 2195 (1979). There, the court assessed a penalty of only $ 50.00 per day for violation of the gravity component of the offense because the discharges were not toxic. The Court is unwilling to involve itself in a battle over relative toxicity. While the Court recognizes that the discharges of pollutants with an immediate propensity for harm to humankind or for irreversible destruction of an ecosystem may demand special penalties, it finds that the pollutants (mostly nitrates and phosphates) discharged by Hercules have a deleterious effect on the oxygen available in a body of water and affect "[t]he life and death of any body of water." EPA Primer for Wastewater Treatment, p. 3 (1980). Further, because the Court is not privy to the long-term effects of the pollutants discharged by Hercules on the ecosystems in the Kenvil plant area, it will not attempt to evaluate the difference in degree of wrongfulness between discharges with acknowledged immediate toxic effects and discharges with apparently less acute degrees of poison. The EPA Penalty Policy assesses potential as well as actual harm. Id. at 41:2999. Further, the congressional declaration of goals and policy set forth in 33 U.S.C. § 1251 seeks the restoration and maintenance of the chemical, physical and biological integrity of the nation's water. Hercules' violations have produced at least a potentially destructive impact on the waterways in its area. Therefore, the Court does not agree with Hercules that a relatively low penalty factor should be assigned to this aspect of its violations. The appropriate penalty for immediate harm will be included in the analysis in the next section of this opinion. 2. Seriousness of Individual Violations of Permit Limitations With regard to the seriousness of the 168 individual violations of the NPDES permits, the Court determines that the parties themselves have in effect stipulated to their proper penalties in a negotiated evaluation. (Consent Decree, P11). In their consent decree at paragraph 11, the parties stipulated to Hercules' penalty for future violations of the following magnitudes: A) For each violation which is equal to or less than 1.4 times the limit set forth in the Permit, the sum shall be $ 3,000; B) For any violation which is more than 1.4 times the limit set forth in the Permit, but equal to or less than 3 times the limit set forth in the permit, the sum shall be $ 4,000; C) For any violation more than 3 times the limit set for [sic] in the Permit, the sum shall be $ 5,000. The Court finds that a similar approach to Hercules' adjudicated violations is reasonable. Therefore, the Court will apply the same factors to the 168 violations for which it is determining the appropriate civil penalty at this time. (See Plaintiff Exh. 26). The Court finds that the 168 adjudicated violations of permit pollutant discharge limitations by Hercules can be divided as follows:
In its assessment of the gravity of Hercules' actions, the Court will also consider the length of the history of violations and defendant's good faith efforts, if any, to comply with the Act's requirements as stated in its NPDES permits. (See 33 U.S.C. § 1319(d) as amended in 1987). It is in this aspect of the gravity component that the Court finds that the record condemns Hercules most strongly. Even a review of the defendant's own proposed findings of ultimate facts reveals a long siege of environmental vandalism and a record of unsatisfactory response to repeated EPA and DEP complaints and orders to show cause. According to the defendant itself, Hercules was first notified in 1966 by the New Jersey Department of Health of its pollution of the Black River. (Defendant's Facts, P3). For five years after the first complaint Hercules did nothing concrete to alleviate the problem, but relied chiefly on studies and experts and considerations. (Id. at PP4-9). When Hercules finally acted, it constructed a spray irrigation system (id. at P10) which was permitted but not encouraged by the DEP officials who visited Hercules' site at that time (Id. at P11). Hercules indicates it had mixed results with the spray irrigation system, but concedes that the DEP had expressed "concern" during its inspections. After the EPA issued Hercules a permit and set up monitoring and reporting schedules in October 1974, there was only one notice of violation by the EPA. (Id. at P16). However, Hercules acknowledges that in the spring of 1978 serious problems with its irrigation system had begun (id. at P17) and that DEP officials found they were not in good working order. (Id. at P18). DEP then issued an order to show cause in August 1978. (Id.). What ensued appears to this Court to be a jousting match between Hercules and DEP. (Id. at PP19-25). Hercules speaks of plans and an administrative reorganization and recycling programs, but defendant makes no claims to progress towards a wastewater treatment plant. Another EPA order to show cause issued in October 1981. Despite Hercules' contention that it was studying the problem and that it was improving its discharges, it entered into a consent order with DEP in May 1984 to design and construct a wastewater treatment plant, which was completed in January 1986. The overall picture presented by Hercules' own statement of facts is one of avoidance of a real confrontation with its severe pollution problem. The Court agrees with plaintiff SPIRG's assessment that Hercules had clear warning through the EPA's actions by April 1978 that a radical change in its approach would be necessary before it could meet the standards enumerated in its NPDES permit. The Court finds that the steps taken by Hercules were not reasonably calculated to conquer its pollution problem. The fact that Hercules violated its permits for at least eight years, (as witness the data which gave rise to this action), before it finally built the wastewater treatment facility required to control its effluent pollutants, does not speak highly of its commitment to the goals of the Act. Moreover, the duration of violations by Hercules is nearly staggering. The 168 violations analyzed here are predated and postdated by many other apparently conceded but not adjudicated permit violations. (See Plaintiff's Exh. 15). Hercules' recurring confrontations with the EPA and DEP are well documented. However, none of the orders to show cause or administrative actions taken by various governmental agencies carried the threat of monetary penalties. The Court finds that for all practical purposes, they were ignored by Hercules until 1984. The Court is not persuaded by Hercules' efforts to portray itself as less culpable than the recalcitrant or openly defiant violators in the cases it cites.2 Also, Hercules' assets are far larger than any other violator it mentions. Furthermore, Hercules' violations apparently continue. (See Plaintiff's Exh. 15). Based on this long history of avoidance and delay in installing appropriate antipollution systems, the Court will exact a further penalty over and above confiscation of its economic benefit for delay and the assessment for the severity of its violations. In light of the Court's analysis of all the foregoing factors, the economic benefit accruing to Hercules from its delay in installing the wastewater treatment plant, the actual and potential harm to the environment caused by Hercules' discharges, the seriousness of the 168 specific permit violations, and a history studded with non-compliance with the Act, the Court determines that the appropriate penalty is the maximum allowed by law. The Gwaltney court took a similar approach: Contrary to Gwaltney's contentions, the Court believes that Gwaltney's penalty ought to be increased, not reduced, because of willfulness. Gwaltney's lackadaisical approach [19 ELR 20907] in correcting a problem that posed risks — albeit not "imminent" ones — to both human health and aquatic life should not be countenanced. Even for a relatively small company the Gwaltney court assessed a total penalty of $ 1,285,322.00, nearly the statutory maximum. Based on an unwarranted and culpable delay by a major United States corporation in remedying a discharge problem of which it had clear and repeated notice, and in accordance with this Court's statutorily imposed mandate to deter both repeated violations by this defendant and like conduct by other similarly situated businesses, this Court determines that, within the limits stated in the court-sanctioned consent decree, the appropriate penalty is the maximum allowed by statute. Accordingly, the Court rules that Hercules will be assessed a civil penalty of $ 1,680,000.00 for the 168 violations of its NPDES permit limitations. Pursuant to the parties' consent decree, Hercules is penalized $ 230,000.00 more than what it has already been assessed, to be paid in equal amounts to the United States Treasury and the American Littoral Society. For the reasons set forth in the Court's Opinion filed herewith, It is on this 6th day of April, 1989, ORDERED that defendant Hercules Incorporated be assessed a civil penalty of $ 1,680,000.00 for the 168 violations of its NPDES permit limitations; and it is further ORDERED that, said defendant, having already paid $ 1,450,000.00 pursuant to the consent decree herein, the balance of $ 230,000.00 shall be paid by said defendant in equal amounts to the United States Treasury and the American Littoral Society. * The court designated this opinion as "not for publication." 1. This sum has already been paid pursuant to the parties' consent decree, PP6 and 7, in the following manner: $ 483,333.00 to the United States Treasury; $ 241,667.00 to the Department of Environmental Resources, Cook College, Rutgers University; $ 241,667.00 to the American Littoral Society, Inc., Highlands, New Jersey; and $ 483,333.00 to the University of Medicine and Dentistry of New Jersey for graduate programs in environmental research. 1. The figures in this column represent the annual operation and maintenance costs of $ 161,600, (1986 dollars) deflated by a 7.6% rate of deflation. Pl. Ex. 25. 2. The figures in this column represent the figures in the column to the left multiplied by a conservative tax rate of 50 percent. 3. This represents the percentage of the year in which Hercules avoided operation and maintenance expenditures. 2. The other pollutants delayed compliance for far briefer periods of time than the eight years consumed by Hercules. See United States v. Velsicol Chemical Corp., 12 ERC at 1420, and Ohio ex rel. Brown v. K and S Circuits, 15 ELR at 20162. 19 ELR 20903 | Environmental Law Reporter | copyright © 1989 | All rights reserved |