United States v. Coastal Refining and Marketing, Inc.

No. H-87-2356 (S.D. Tex. June 7, 1989)

The court holds that Clean Air Act § 211(d)'s penalties for violations of the Environmental Protection Agency's (EPA's) lead phase-down rule are unconstitutional. Section 211(d) violates the separation of powers doctrine by subjecting the judgment of an Article III court to review by the executive branch. Section 211(d) calls for a fixed $ 10,000 per day penalty; while the court can only determine the number of days of violation and then impose the mandatory penalty, EPA can remit or mitigate the penalty. Moreover, by predetermining the amount of penalty, the statute violates Fifth Amendment rights to due process by denying rights to present equitable defenses and discretion in the court's imposition of penalties.

Counsel for Plaintiff
Robert Derden, Ass't U.S. Attorney
U.S. Courthouse, 515 Rusk St., P.O. Box 61129, Houston TX 77002
(713) 229-2602

Counsel for Defendant
Louis S. Zimmerman
Fulbright & Jaworski
600 Congress Ave., Ste. 2400, Austin TX 78701
(512) 474-5201

Debra B. Norris
Fulbright & Jaworski
1301 McKinney St., Houston TX 77010
(713) 651-5151

[20 ELR 20001]

Hoyt, J.:

Order

On January 17, 1989, the Court, in deciding on the parties' cross-motions for summary judgment, determined that four of five cargos of fuel reported by Coastal in its Lead Additive Reports as gasoline were, in fact, not gasoline under the law. The question which remains in this case is the applicability of Section 211(d) of the Clean Air Act, 42 U.S.C. § 7545(d) and 40 C.F.R. § 80.5, to Coastal's reporting violations.

Defendant Coastal Refining and Marketing Inc. ("Coastal") reported and banked nonexistent lead usage rights in violation of section 211(c)of the Clean Air Act, 42 U.S.C. § 7545(c) and 40 C.F.R. § 80.20. Section 211(d) of the Clean Air Act, 42 U.S.C. § 7545(d), provides:

Any person who violates . . . regulations prescribed under . . . this section . . . shall forfeit and pay to the United States a civil penalty of $ 10,000 for each and every day of the continuance of such violation, which shall accrue to the United States and be recovered in a civil suit in the name of the United States. . . . The Administrator may, upon application therefor, remit or mitigate any forfeiture provided for in this subsection and he shall have authority to determine the facts upon all such applications.

In the first calendar quarter of 1985, Coastal imported three cargos of imported Mexican petroleum products — the Pacific Hunter cargo imported February 15, 1985, the Pacific Hunter cargo imported February 25, 1985, and the Potomac Trader cargo imported March 1, 1985. In the second calendar quarter of 1985, Coastal imported two cargos of imported Mexican petroleum products — the St. Michaelis cargo imported June 9, 1985 and the Scottish Lion cargo imported June 21, 1985. In order to legally generate lead usage rights under the lead banking regulations, these cargos had to be gasoline as defined by the EPA's regulations. Coastal claimed lead usage rights of 29,947,710 grams on these five cargos. The Court has previously held that the fuel imported aboard the Pacific Hunter on February 15, 1985 was gasoline. The two Lead Additive Reports for Importers for the first and second quarters of 1985 state that Coastal had generated 22,539,000 grams of lead usage rights from theimportation of the remaining four cargos. The 22,539,000 grams of lead usage rights claimed by Coastal did not legally exist since the four cargos were not gasoline and therefore could not generate lead usage rights.

Plaintiff, the United States of America, on behalf of the United States Environmental Protection Agency ("EPA") contends that Coastal has been in violation of the Clean Air Act and the lead phase-down regulations from July 15, 1985 until December 31, 1987, a period of 900 days. Pursuant to 42 U.S.C. § 7545(d), Coastal has forfeited to the United States a mandatory civil penalty of $ 10,000 for each and every day of the continuance of the violation, and the United States contends that it is therefore entitled to a judgment of $ 9,000,000.

The EPA further argues that, pursuant to 42 U.S.C. § 7545(d), the authority to remit or mitigate this penalty rests with the Administrator of the EPA. Therefore, any evidence pertaining to remission or mitigation should be presented to the EPA and is not relevant to this proceeding. Additionally, the government asserts that the constitutional challenges which Coastal asserted in the pretrial order are affirmative defenses which Coastal should have raised in its answer; thus, Coastal's constitutional challenges to 42 U.S.C. § 7545(d) are untimely and have been waived pursuant to Fed. R. Civ. Proc. 8 and 12. Alternatively, if the constitutional challenge is considered by the Court, the statute does not violate the constitution and should be enforced as written.

The United States also has a contingent claim that Coastal has violated the average per gallon lead content standard for the third quarter of 1986 by the use of nonexistent lead usage rights. The Government argues that this violation of the quarterly lead content standard constitutes 92 days of violation of the Act for which Coastal has forfeited a civil penalty of $ 920,000. Coastal has filed with the EPA amended lead additive reports which correct accounting errors in Coastal's previous lead additive reports. If the accounting error is substantiated to EPA, Coastal will have additional lead usage rights available for the third quarter of 1986. If the credits from the accounting error are valid, then there is no violation of the lead content standard for the third quarter of 1986.

Coastal's contentions are as follows:

1. Section 211(d) is unconstitutional as violating the Separation of Powers Doctrine.

2. Section 211(d) is unconstitutional as violating the Excessive Fines Clause of the Eighth Amendment.

3. Section 211(d) is unconstitutional as violating the Due Process Clause of the Fifth Amendment.

4. If Section 211(d) is not unconstitutional, then because Coastal has no actual lead usage violations, no penalty can be assessed for misreporting violations.

5. Alternatively, if Section 211(d) is not unconstitutional and a penalty can be assessed for a misreporting violation, then

a. Coastal can only be liable for two days of violation, the final days of the First and Second Quarters of 1985, in accord with U.S. v. Hill Petroleum, CA NO. 85-1084 "L" (W.D. La., July 29, 1986); and

b. The $ 10,000 per day penalty must be mitigated because (i) there was no environmental harm, (ii) Coastal made a good faith effort to cure at great cost, and (iii) the violation was not serious or flagrant since the regulations were difficult to interpret, there was a lack of complete market information to help in determining what was and what was not gasoline, and the dividing line between gasoline and non-gasoline proved to be very narrow.

The essence of Coastal's unconstitutionality argument is that it is unconstitutional for a statute to call for a fixed penalty or forfeiture which can only be mitigated or remitted by an officer of the executive branch. Coastal argues that the provision allowing the EPA Administrator to mitigate penalties intrudes upon the power of Article III judges.

The Court finds Coastal's unconstitutionality argument to be well-reasoned. Section 211(d) violates the Separation of Powers Doctrine because it subjects the judgment of an Article III Court to review by the Executive Branch. The Article III judge is, in essence, performing an administrative task by determining only the number of days of violation and imposing a mandated penalty. No discretion remains. It is this Court's opinion that Congress cannot vest jurisdiction in the Judicial Branch while granting quasi-judicial appellate review to the Executive Branch. The ability of the executive [20 ELR 20002] agency to modify or nullify a judicial decision encroaches upon the territory of the Article III judges, and is therefore unconstitutional.

Furthermore, the obligatory penalty provision is predetermined. By denying a defendant the right to present an equitable defense and the Court the right to use its discretion in imposing a penalty, the provision violates the established procedures and guaranteed rights of due process, and therefore violates the Fifth Amendment.

Likewise, the imposition of a $ 10,000 fine may be reasonable and justifiable in many circumstances; in others it may not be. Not allowing the Court jurisdiction to hear equitable defenses when assessing a penalty deprives the Court of inherent discretion and may result in a penalty with no rational relationship between the violation and the penalty imposed. The opportunity for a defendant to petition the EPA for mitigation of the penalty is not sufficient. The inequity of the statute is exacerbated by the possibility that a denial of mitigation by the EPA is not reviewable in the courts.

Accordingly, in resolution of the final issue in this case, the Court holds that Section 211(d) of the Clean Air Act, 42 U.S.C. § 7545(d) is unconstitutional. No penalty is imposed.