United States v. Vineland Chemical Co.

No. 86-1936 (JFG) (D.N.J. April 30, 1990)

The court holds that owners of a chemical company are liable for a $ 1.223 million civil penalty for violations of the Resource Conservation and Recovery Act (RCRA) because they operated two surface impoundments with neither interim status nor a final permit and failed to submit a closure plan. Since 1980, the company had interim status under RCRA to operate a lined lagoon and a concrete pit. In 1985, the Environmental Protection Agency (EPA) terminated the company's interim status for failure to comply with RCRA's financial assurance requirements. Having lost interim status and lacking a final permit to operate the two impoundments, the company had no legal alternative but to cease using them and to submit a closure plan within 15 days of the loss of interim status. The company continued to operate the impoundments and sought review of EPA's decision. In 1987, the Third Circuit upheld EPA's decision to terminate the company's interim status, and the district court granted summary judgment in 1988 for the United States. At trial to assess penalties, the court first finds that the company placed arsenic-contaminated groundwater in the lined lagoon and concrete pit for 708 days after loss of interim status and failed for 515 days to submit a closure plan. The company also failed to modify its management practices to prevent runoff of contaminated stormwater and used the impoundments to avoid the expense of preventing contamination of noncontact cooling water. The court next finds that compliance with state groundwater treatment regulations did not preclude compliance with concurrent federal regulations and the EPA order. Any confusion about compliance obligations was clarified in 1986 when the state notified the company that it was not authorized to operate the two impoundments in violation of the EPA order. Moreover, the company could have complied with the EPA order and federal regulations without using the impoundments.

The court holds that the company's past behavior was in bad faith and exacerbated the risk of arsenic leaching into groundwater. RCRA does not provide guidance for determining penalties in a judicial proceeding, but RCRA § 3008(a)(3) provides factors to be considered in fixing a civil penalty in an administrative action, including seriousness of the violation and evidence of good-faith efforts to comply. The company's removal of the liner from the lagoon, designed to prevent liquids in the impoundment from entering the soil and groundwater, was improper without obtaining a closure plan or notifying state or federal authorities. The company's attorney was aware of the need for an approved closure plan at the time the decision was made to remove the liner, would have informed the company of the requirement, and knowingly failed to disclose the liner's removal to the state and to the court. The removal of the liner increased the likelihood that arsenic would leach out of the soil as a result of accumulated rainfall and parking lot runoff. The company had no intention of installing a cover once the liner had been removed, despite its knowledge that a pending state administrative order required immediate installation of a cover over the impoundment after the liner's removal. The court declines to rule on the merits of placing a cover over the impoundments, because the state and EPA are entrusted to determine how the impoundments should be closed. Additionally, delays in the submission and approval of a final closure order enabled the company to defer substantial cleanup costs, which will now be underwritten by the public as part of EPA's cleanup process. The company's efforts to avoid closure have prolonged the threatened release of hazardous waste into the environment.

The court holds that the company owners are jointly and severally liable for the $ 1.223 million penalty. Although the owners do not have the financial resources to pay the maximum penalty under RCRA § 3008(g) of $ 30.575 million, or $ 25,000 per day for [20 ELR 21399] their 1,223 days of violation, they unquestionably have the capability to pay a significant penalty. The owners' financial information demonstrates that they have a net worth of $ 3.1 million, including unencumbered personal and corporate assets of $ 1.6 million. Evidence also indicates that the owners are attempting to shield some of their assets by creating foreign trusts. Thus, consistent with the goal of deterrence and case law precedent, the court imposes a civil penalty of $ 1,000 per day of violation. The court notes that it must exact a penalty that makes the cost of polluting as unacceptable a business cost as the arsenic contamination at the company's facility is an unacceptable social cost.

[The district court's previous decision is published at 19 ELR 20160.]

Counsel for Plaintiff
Carrick Brooke-Davidson
Environment and Natural Resources Division
U.S. Department of Justice, Washington DC 20530
(202) 514-2000

Counsel for Defendant
Antoinette R. Stone
Fox, Rothschild, O'Brien & Frankel
2000 Market St., 10th Fl., Philadelphia PA 19103
(215) 299-2000

Gerry, J.:

Findings of Fact and Conclusions of Law

Dear Litigants:

Plaintiff United States brought this action under section 3008(a) and (g) of the Resource Conservation and Recovery Act (RCRA), 42 U.S.C. §§ 6928(a) and (g), for injunctive relief and civil penalties against the Vineland Chemical Company (Vineland) and its co-owners, Arthur and Miriam Schwerdtle, for RCRA violations at defendants' facility in Vineland, New Jersey.

On July 29, 1988 the court granted summary judgment on liability for plaintiff on Count I and Count IV of the complaint. See United States v. Vineland Chemical Co., Inc., 692 F. Supp. 415 [19 ELR 20160] (D.N.J. 1988). Defendants are liable under Count I for continuing to treat, store or dispose of hazardous wastes in their two surface impoundments after their loss of interim status on November 8, 1985. They are liable under Count IV for failing to file within fifteen days of loss of interim status both a closure and post-closure plan for their surface impoundments. Civil penalties are available in the amount of $ 25,000 for every day of violation, pursuant to section 3008(g) of RCRA, 42 U.S.C. § 6928(g).

The court held a bench trial on September 26, 27 and 29, 1989 to resolve imposition of penalties and injunctive relief for defendants' RCRA violations, for which we now issue the following findings of fact and conclusions of law.

I. Factual Background

Defendants have two surface impoundments, a lined lagoon and a concrete pit, which are classified as "land disposal facilities" for hazardous waste under 42 U.S.C. § 6924(k) and are subject to the requirements of section 3005(a) of RCRA, 42 U.S.C. § 6925(a). Pursuant to RCRA's provisions, in August 1980, defendants notified the Environmental Protection Agency (EPA) that they were engaged in hazardous waste activities. In November 1980, defendants submitted the first part of a permit application for the authority to continue those activities. Making the application entitled them to "interim status" to continue their operations pending full review of their application. Id., at 416-417. Defendants submitted the final part of their permit application in January 1984. Amendments and additions were submitted later. Id., at 417.

In early 1984, Congress amended RCRA to provide that all existing hazardous waste land disposal facilities would automatically lose "interim status (and thus their authorization to operate) unless they certified by November 8, 1985 that they were in compliance with all applicable groundwater monitoring and financial responsibility requirements. See Hazardous and Waste Amendments of 1984, Section 3005(e) (2) of RCRA, 42 U.S.C. § 6925(e)(2), as amended. This provision is called the 'loss of interim status' or LOIS'." Id.

"[O]n November 8, 1985 defendants submitted to the EPA a document certifying compliance with groundwater monitoring and incorporating a statement about liability insurance. The EPA determined, however, that the certification failed to comply with the specific requirements of 42 U.S.C. § 6925(e)(2)(B). Consequently, on December 2, 1985 the EPA notified defendants that their interim status had terminated as a matter of law on November 8, 1985, that they could no longer continue to operate their two RCRA-regulated surface impoundments, that they were required to submit a closure and post-closure plan for the impoundments, and that continued operation could subject them to both civil and criminal penalties." Id.

Defendants continued to use the impoundments after November 8, 1985. In February 1986, they sought review by the Court of Appeals for the Third Circuit of the EPA's decision to terminate Vineland's interim status. A year later the court held that there was "no error in the EPA's decision to terminate interim status in this case." Vineland Chemical Co. v. U.S. Environmental Protection Agency, 810 F.2d 402, 410 [17 ELR 20555] (3d Cir. 1987).

II. Findings of Fact

a) Period of Liability

The total of 1223 days for which defendants are liable for RCRA violations under Count I and Count IV was not disputed at trial. The total is 1223 days. Trial Transcript (T.T.) at p. 10, line 25 to p. 12, line 6. That total was arrived at by adding the number of days after defendants lost interim status on November 8, 1985 in which they placed hazardous waste in the surface compounds, and the number of days after November 8, 1985 until they submitted a closure plan.

Defendants placed hazardous waste, arsenic contaminated groundwater, in the lined lagoon until July 28, 1986, and in the concrete pit until January 30, 1987, periods of 261 days and 447 days, respectively, from the date Vineland lost interim status on November 8, 1985. Plaintiff's Exhibit (P.E.) 25 at p. 1. Mr. James Nicholas, who had worked at Vineland since 1957 and had been in charge of Vineland's environmental management effort for five years, testified that the lined lagoon and concrete pit were interchangeable for the mechanical pumping part of the groundwater treatment process. T.T. at p. 235, lines 6-8.

Defendants failed to submit their closure plan to the EPA within 15 days after November 8, 1985 and did not submit their plan until April 23, 1987, a period of 515 days. T.T. at p. 11, line 7 to p. 12, line 10.

b) The Vineland Facility

1. Arsenic Contamination of Soil at the Facility

The soil under the impoundments is contaminated with arsenic. Defendants' Exhibit (D.E.) 17. Plaintiff's expert James Tracy testified that the data from the remedial investigation conducted by EBASCO for the EPA showed "that there is arsenic contamination in various areas of the facility that includes [under] the impoundments. The sources of the contamination [under and around] the impoundments, however, could have been from past practices of stockpiling or could in part be due to the lagoons, the operation of [the] lagoons system. It could be very difficult to ascertain which." T.T. at p. 141, lines 15-21. Mr. Tracy did not think it possible to distinguish between stockpiling and leakage from the impoundments as sources of contamination. T.T. at p. 142, lines 1-3.

2. Groundwater Monitoring

The Vineland roundwater monitoring system was incapable of determining if the impoundments were leaking arsenic contamination into the environment, according to plaintiff's expert James Tracy. T.T. at p. 132, line 1 to p. 135, line 25.

3. Stormwater Runoff Into Impoundments

Stormwater runoff and plant washdown water were also placed in the impoundments, according to Mr. Nicholas. T.T. at p. 234, lines 8-15, P.E. 25 at p. 6. Defendants continue to place stormwater runoff into the lined lagoon, even though they have ceased pumping arsenic contaminated groundwater into it. T.T. at p. 209, line 25 to p. 210, line 5; P.E. 26 at p. 17, lines 17 to p. 18, line 3. Stormwater becomes contaminated when it runs across the paved areas at the facility. The arsenic that contaminates the runoff results from defendants' manufacturing activities. P.E. 24 at p. 126, line 19 to p. 128, line 10; P.E. 25 at p. 7-8, P.E. 26 at p. 21, line 20 to p. 25, line 19. The DEP asked defendants to modify their manage- [20 ELR 21400] ment practices to prevent contamination of stormwater with arsenic, and defendants could have done so. T.T. at p. 280, line 5 to p. 281, line 5. The modifications could have included resealing of paved areas, addition of loading docks, and more careful handling of materials containing arsenic. T.T. at p. 170, lines 5-21. Contamination of stormwater would have been less likely had these practices been adopted.

4. Non-Contact Cooling Water

Until August 1989, Vineland's facility was designed such that, should non-contact cooling water used in the process become contaminated, it would be diverted to the lined lagoon. By using the impoundments to store that water, defendants avoided the expense of implementing other means to deal with potential contamination of non-contact cooling water. T.T. at p. 230, line 12 to p. 232, line 19; P.E. 26 at p. 17, lines 13-18, and p. 28, line 20 to p. 33, line 18. Spills of noncontact cooling water due to ruptures in the water line "occasionally" flowed over the paved areas into the lined lagoon. T.T. at p. 231, line 22 to p. 232, line 8; P.E. 25 at p. 6.

5. Insurance

Mr. Schwerdtle testified that Vineland was unable to obtain environmental impairment insurance in November 1985 when they were required to certify compliance with RCRA's insurance requirements. He testified that no insurance companies were then issuing such policies. T.T. at p. 285, line 6 to p. 286, line 1.

6. Environmental Expenses Paid by Defendants

During the past six years, defendants have spent $ 3 million on what they describe as environmental expenses. Of these expenses, 48 per cent have been for shipping and disposing of hazardous waste from production to off-site, 28 per cent for legal expenses, and 21 per cent for consulting and research for managing and treating arsenic waste. T.T. at p. 37, line 2 to p. 38, line 22.

c) Inconsistent Regulatory Obligations on Vineland

1. Groundwater Pumping

Defendants contend that they have suffered under inconsistent obligations from the state and federal governments. In particular, defendants assert a conflict between the requirement that they pump and treat groundwater pursuant to the 1981 Administrative Consent Order (ACO) entered into with the New Jersey Department of Environmental Protection (DEP), and the EPA's termination of their interim status and order to cease using the two surface impoundments. We reject defendants' assertion.

On December 21, 1981 defendants and the DEP entered into an ACO which required defendants to pump and treat groundwater contaminated with arsenic due to Vineland's operations. D.E. 14. The ACO required that Vineland pump the wells with the highest arsenic concentrations, but defendants instead pumped the wells that were convenient, depending on weather conditions. T.T. at p. 237, lines 11-12; p. 238, lines 14-16; p. 239, lines 12-14. Paragraph 9 of the ACO specified that Vineland "shall from this date forward utilize Well No. 6 [and other wells] as . . . ground water contamination well[s], pumping continuously into the lined lagoon." Id. Defendants argue that by the terms of the ACO they were bound to pump groundwater into the lined lagoon. Thus, when four years later defendants lost interim status to use the lined lagoon for storing contaminated groundwater, defendants allege that they were confronted by inconsistent obligations to both pump and treat groundwater pursuant to the ACO with the DEP — and to avoid use of the lined lagoon on the orders of the EPA. Defendants argue that they could not comply with both requirements.

But Mr. Nicholas testified that Vineland could have pumped the amount of groundwater required by the ACO without using either the concrete pit or lined lagoon. Pumped groundwater could have gone directly to the treatment system without the need for storage in either impoundment. T.T. at p. 210, lines 14-21. The ACO did not mention the concrete pit, only the lined lagoon, yet the system was designed so that the two were used interchangeably for storing pumped groundwater. Alternatives to storage in the impoundments included off-site disposal or storage in a tank. T.T. at p. 273, line 13 to p. 274, line 14. But since the ACO could be complied with by pumping 25 gallons per minute, the capacity of the treatment system, no storage was necessary. T.T. at p. 209, lines 4-8. Despite these alternatives, Mr. Nicholas testified that Vineland routinely stored pumped contaminated groundwater in the impoundments before pumping it to the treatment facility, where it was treated to remove arsenic and then discharged either onto the ground or into the unlined lagoon. T.T. at p. 206, lines 3-12.

The intention of the ACO was the treatment of arsenic contaminated groundwater, not storage of such water. T.T. at p. 274, lines 4-6. The DEP notified defendants in October 1986 that the the 1981 ACO did not authorize them to operate the two surface impoundments in violation of federal law. T.T. at p. 262, lines 15-17. Clearly, if there had ever been any confusion about defendants' obligations to comply with both the ACO and their loss of interim status, no further confusion could have existed then.

Further, the DEP notified Vineland on July 7, 1987 that it was relieved of the ACO's requirement that it pump groundwater. T.T. at p. 261, lines 13-24 and at p. 251, lines 22-25; D.E. 15. Despite this notice, on advice from counsel, defendants continued to pump groundwater until September 1987. T.T. at p. 278, lines 9-20.

The groundwater pumping undertaken by Vineland was not responsible for diminishing arsenic levels in the soil, according to plaintiff's expert, James Tracy, a hydrogeologist. The reductions in concentrations of arsenic observed in some wells was not due to Vineland's groundwater pumping, but rather due to natural groundwater flow. T.T. at p. 365, line 13 to p. 370, line 13. An estimated five to seven metric tons of arsenic flow off the site each year. T.T. at p. 368, lines 18-22.

As we have noted, defendants could have pumped sufficient groundwater to comply with the ACO without using the impoundments. On that ground, then, there was no conflict between defendants' concurrent obligations to the DEP and EPA.

2. Off-Site Transportation of Contaminated Soil

Defendants allege a further conflict between a DEP administrative order and RCRA regulations. During redirect examination of Melinda Dower, bureau chief of federal case management at the DEP, defendants' counsel sought to show that paragraph 50 of the DEP's September 13, 1988 administrative order, which required that Vineland transport arsenic contaminated soil off-site, conflicted with RCRA's land ban regulations restricting movement of such hazardous wastes. T.T. at p. 281, line 14 to p. 284, line 6. However, Ms. Dower testified that while she was not certain of how the land ban regulations would apply to the arsenic contaminated soil at the Vineland facility, paragraph 50 provides that Vineland could submit plans for an "alternate disposal and/or treatment method to remediate soil contamination." D.E. 8, P50; T.T. at p. 283, lines 18-24. Thus, Vineland was free to recommend alternatives that would avoid any perceived conflict with RCRA's land ban regulations.

d) Closure of the Impoundments

Defendants made three Part B RCRA permit applications to the DEP to obtain approval to continue to operate the impoundments. The DEP found them all to be deficient, with the first application having 130 deficiencies, and the second attempt still having 111 deficiencies. Joint Exhibit (J.E.) 1. Therefore, the DEP determined that the impoundments should be closed. J.E. 1.

The DEP and the EPA met on April 15, 1987 to coordinate closure of Vineland's impoundments. The agencies were seeking to avoid subjecting Vineland to inconsistent obligations which might arise from the DEP's closure efforts under RCRA and the EPA's Superfund activities at the Vineland facility. T.T. at p. 275, line 10 to p. 276, line 12. The DEP decided then to delay review of any closure plan that might be forthcoming from Vineland until the EPA's Superfund Remedial Investigation and Feasibility Study (RI/FS) of the Vineland property was complete. D.E. at p. 128-130.

Defendants submitted their first closure plan to the DEP on April 23, 1987. J.E. 1 at P18. Defendants withdrew that plan on November 16, 1987. P.E. 27.

The DEP issued a closure order for the two surface impoundments on September 18, 1988, D.E. 8, which it withdrew and replaced with a revised draft Administrative Order on August 23, 1989. The earlier order was withdrawn because of the issuance of the RI/FS. T.T. at p. 61, line 12 to p. 64, line 12 and p. 266, lines 2-3; J.E. 1 at PP28-29.

The delays in the submission and approval of a final closure order or plan have benefitted defendants, because the current revised order of August 1989 relieves defendants of some of the closure activities that were required by the September 1988 order, which [20 ELR 21401] will now be performed by the EPA under Superfund. T.T. at p. 98, line 22 to p. 99, line 8; p. 96, lines 3-11.

e) Removal of the Liner From the Lined Lagoon

On August 21, 1989 defendants' counsel, Mark First, met with defendant Arthur Schwerdtle and James Nicholas, the environmental manager at Vineland, to plan the removal of the liner from the lined lagoon. Mr. Nicholas was told then to remove the liner. T.T. at p. 241, lines 16-21.

Two days later, defendants removed the liner from the lined lagoon, finishing the job on August 24. T.T. at p. 241, line 16 to p. 246, line 14. The rubber-type liner had served to prevent liquids in the impoundment from entering the soil and groundwater. T.T. at p. 77, lines 12-25. Defendants did not notify the DEP or the EPA that they intended to remove the liner. T.T. at p. 185, lines 4-5. As a result, neither agency had an opportunity to observe the integrity of the liner prior to its removal. T.T. at 79, lines 9-25.

Defendant Arthur Schwerdtle testified that defendants were not aware of any requirement that they notify the DEP before removing the liner from the impoundment. T.T. at p. 289, lines 9-11. Steven J. Anderson, section chief with the DEP's bureau of federal case management, who now supervises the case manager on the Vineland case and was himself case manager on the case, testified that "[y]ou cannot conduct closure activities without an approved closure plan" or closure order, and Vineland had neither. T.T. at p. 99, lines 14-22. The extensive experience of defendants' counsel Mark First as an attorney for the DEP for six years, T.T. at p. 185, lines 22-25, leads the court to believe that Mr. First was aware of the need for an approved closure plan or order at the time he participated in the decision to remove the liner, and would have informed Mr. Schwerdtle of that requirement. We therefore find incredible Mr. Schwerdtle's testimony that he was unaware he could not remove the liner without prior approval from the DEP.

1. The Testimony of Mark First

On September 5, 1989 defendants met with the DEP to discuss closure of the impoundments. T.T. at p. 55, line 19 to p. 56, line 6. Mark First, who attended that meeting on behalf of defendants, did not inform the DEP that the liner had been removed. T.T. at p. 66, lines 18-23; p. 184, line 19 to p. 187, line 2. Rather, he gave the DEP information that suggested the liner was still in place. In particular, he gave the DEP the results of analysis of soil samples taken from under the liner by defendants. Mr. First told the DEP that holes had been cut in the liner to take the samples and that the liner had been resealed after the sampling. This would lead a reasonable person to conclude that the liner was intact, when in fact it had been removed almost two weeks before the meeting. T.T. at p. 190, line 18, to p. 191, line 17; p. 193, line 15 to p. 194, line 12.

When asked at trial why he had not told the DEP at the September 5, 1989 meeting that the liner had been removed, Mr. First testified that he "felt that the major issue at the particular meeting was to demonstrate to the DEP that the cover idea was . . . not a valid one," and the DEP's knowledge of "the removal of the liner in my view was not something that would aid them in making that determination and probably would cloud their judgment with respect to what had happened. . . . [M]y feeling was that the DEP would without thinking it through probably react adversely to [the removal of the liner] and that what were attempting to do to move the settlement along to resolve the problem would be adversely impacted by telling the DEP at that moment that the liner had been removed. Now, as well, I had just learned the liner had been removed several days before." T.T. at p. 185, line 7 to p. 186, line 6. Mr. First knew from his own experience of "having been a Deputy Attorney General for six years in New Jersey representing the Department of Environmental Protection," T.T. at p. 185, lines 22-25, that the DEP would be concerned to know that the liner had been removed, but he chose instead to mislead them into thinking the liner was intact by telling them that the liner had been resealed after the soil samples were taken.

Mr. First was no more candid with the court during trial than he had been with the DEP at that meeting. His testimony that he "had just learned the liner had been removed several days before" the September 5 meeting attempted to lead the court to believe he had played no role in planning the removal of the liner, that he only learned of its removal afterwards. But we know from the testimony of Mr. Nicholas that Mr. First was at the meeting with Arthur Schwerdtle on August 21, 1989 when the order was given to remove the liner. T.T. at p. 241, lines 16-21. Mr. First's lack of candor with the court is inappropriate. Despite his role as advocate a lawyer remains an officer of the court and is bound not to mislead the finder of fact. R.P.C. 3.3(a)(5) ("A lawyer shall not knowingly . . . fail to disclose to the tribunal a material fact with knowledge that the tribunal may tend to be misled by such failure.") We strongly disapprove of Mr. First's attempts to mislead both the DEP and the court.

2. Environmental Impact of the Liner's Removal

As noted above, the soil under the impoundments is contaminated with arsenic. D.E. 17. Plaintiff's expert James Tracy testified that the removal of the liner has increased the risk of environmental contamination from the arsenic located under the non-unlined lagoon, since the arsenic in the soil under the lagoon is now more likely to leach out of the soil into the groundwater as a result of the accumulation in the now-unlined lagoon of parking lot runoff and rainfall on the lagoon. T.T. at p. 384, line 1 to p. 388, line 24.

Mr. Tracy did not believe it possible to quantify how much arsenic might have accumulated in the soil under the now-unlined lagoon as a result of parking lot runoff and rainfall since the liner was removed in August 1989. T.T. at p. 142, line 21 to p. 143, line 7. He testified that, "[i]t's just an ongoing problem. As long as the impoundment exists in that condition then it's susceptible to that mode of contamination." T.T. at p. 143, lines 1-3.

Defendants' expert Kenneth Mann testified that it is environmentally more helpful to have the liner removed, with or without a cover, than to have the liner intact. T.T. at p. 331, line 12 to p. 332, line 6. However, Mr. Mann, who is not a hydrogeologist, has no prior experience in the closure of impoundments under RCRA and has never reviewed the State's draft closure order. T.T. at p. 348, lines 13-16 and at p. 351, lines 6-11. And Mr. Mann was consulted primarily on the cost of covering the impoundments, not the removal of the liner. T.T. at p. 187, lines 12-16; p. 327, lines 24 to p. 328, line 5.

Mr. Mann's opinion on this issue is at odds with that of Mr. Tracy. We find Mr. Tracy's opinion more credible due to his extensive experience with RCRA and knowledge as a hydrogeologist. We thus reject Mr. Mann's opinion in favor of Mr. Tracy's explanation of the dangers inherent in having the now-unlined lagoon exposed to the accumulation of rainfall and parking lot runoff.

f) Installation of a Cover Over the Impoundments

Paragraphs 36 and 37 of the August 1989 draft order (should that order become final and enforceable) would require defendants to cover the impoundments with an impermeable material immediately after removal of the liners in the impoundments. J.E. 1. The September 1988 order had a similar provision. T.T. at p. 64, lines 14-24. Defendants did not put a cover on the lined lagoon after removing its liner. T.T. at p. 82, lines 10-23. Based on Mr. First's testimony cited above, it is apparent that defendants had no intention to put a cover over the impoundment at the time they removed the liner from the lined lagoon. And while there was no order in effect requiring Vineland to put a cover on the lagoon, the August 1989 draft order put defendants on notice that the DEP continued to believe a cover was essential to the proper closing to the impoundment.

Mr. Tracy testified that a cover over the lagoon, now that the liner has been removed, would "essentially eliminat[e] the most adverse feature of the soil column, the hole in the ground that is contaminated that does collect water will recharge the aquifer." T.T. at p. 388, lines 21-24.

Mr. Mann testified that "rainwater hitting the impervious cover would run off the cover, like an eve, around the perimeter of the lagoon. And at that time find its way back either in[to] the lagoon or along, beneath — along side of the cover, between the cover and the very porous soil that's in that area and find its way down under the lagoon at any time, [sic] only now it would be at a concentrated rate." T.T. at p. 331, line 25 to p. 332, line 6. He concluded that a cover would be more environmentally harmful than not having a cover, even with the liner removed from the lined lagoon, because of the path water would follow through the soil column as it descended to the groundwater. T.T. at p. 342, lines 1-25.

But Mr. Tracy testified that the rainwater could be controlled as it runs off the cover to prevent it from hitting the soil at all. T.T. [20 ELR 21402] at p. 381, line 21 to p. 382, line 17; p. 388, lines 10-17. On this point his testimony was unrebutted, since Mr. Mann did not address collecting rainfall off the cover, only how rainwater would travel through the soil after it fell off the cover. Since rainwater on the cover could be collected and need not percolate through the soil column — either in the manner described by Mr. Mann or Mr. Tracy — then having a cover could prevent rainfall from passing through the lagoon and the contaminated soil beneath it, thus eliminating the risk of rainfall causing more arsenic to leach out of the soil column into the groundwater. If that rainfall is collected, then a cover is better environmentally than the now exposed lagoon.

The efficacy of a cover, however, as compared to leaving the now-unlined lagoon exposed to the elements, bears only on the proper manner of closing the impoundments — an issue entrusted to the DEP and the EPA in their administration of RCRA and Superfund. Unless we were to decide today how the impoundments should be closed, and neither party has attempted to establish that the court is authorized to decide that issue, then we need not address the merits of a cover.

Our inquiry here is limited to what fines are appropriate for the RCRA violations in Count I and Count IV. This inquiry looks at past behavior and present ability to pay, not to future remedial actions more properly guided by the regulatory agencies entrusted by Congress and New Jersey with protecting our environment. Our inquiry into past behavior is satisfied by a finding that defendants have exacerbated the risk of arsenic leaching into the groundwater by removing the liner from the lined lagoon. It was better to have the liner intact than removed and the lagoon uncovered. We turn now to defendants' ability to pay whatever fine the court levies.

g) Defendants' Finances

Plaintiff offered expert testimony of Gail Coad and other evidence as to defendants' financial condition. Ms. Coad's unrebutted testimony was based on her analysis of financial information supplied by the defendants — her figures come directly from their figures. Her testimony demonstrated that defendants have the ability to pay a significant penalty. The net worth of Mr. and Mrs. Schwerdtle is over $ 3.1 million. P.E. 5; T.T. at p. 34, line 4-5. The evidence also indicates that defendants are attempting to shield some of their assets by the creation of foreign trusts. T.T. at p. 19, line 1 to p. 36, line 25; P.E. 1-24.

Mr. and Mrs. Schwerdtle have unencumbered personal and corporate assets, largely made up of land in New Jersey and Puerto Rico, with a value of $ 1.6 million. T.T. at p. 33, line 13 to p. 34, line 14; P.E. 1, 2, 3, 5, 6.

The Schwerdtles have been able to generate annual after-tax cash flows of about $ 150,000 from their rental and salary income from Vineland Chemical Company of New Jersey. T.T. at p. 35, lines 18-25; P.E. 4-6.

The Schwerdtles have set aside $ 750,000 in two foreign trusts, one in Liechtenstein and one in the Island of Jersey. The Liechtenstein trust was formed in 1988; the Island of Jersey trust was formed in April 1986. The Schwerdtles are beneficiaries of these two trusts. Additional property may be added to the trusts. P.E. 16, Attachment G, p. 10, Question 36; P.E. 23, Attachment 3, ref. p. 373; T.T. at p. 34, lines 3-4. The trusts were set up by defendants' counsel and Herbert Bass of counsel's firm is a trustee. P.E. 24 at p. 102, lines 11-12.

As sole owners of Vineland Chemical Company of New Jersey and Vineland Chemical Company of Puerto Rico, the Schwerdtles have equity in these corporations, primarily retained earnings, of $ 800,000. These retained earnings are liquid assets, including cash, inventory and accounts receivable. P.E. 1, 2, 3, 5, 6; T.T. at p. 36, lines 1-25 and p. 47, lines 7-19.

Ms. Coad did not consider any contingent claims against defendants in determining the assets available to pay fines here. T.T. at p. 39, lines 15-18. On December 23, 1988, the DEP issued a directive against Vineland assessing cleanup costs for Union Lake of $ 4.9 million. D.E. 9. The EPA has issued an RI/FS under Superfund setting forth various remedial alternatives for the Vineland plant site, including the area of the surface impoundments, ranging in cost up to nearly $ 63 million. D.E. 16.

The only tax consequence of a liquidation of the Vineland business noted by Ms. Coad was a $ 600,000 tax loss carry forward. T.T. at p. 43, lines 13-22. She did not consider any capital gains tax or corporate tax on the sale of assets or income tax on the proceeds from Vineland's liquidation. T.T. at p. 43, line 23 to p. 44, line 9.

III. Conclusions of Law

Section 3008(g) of RCRA, 42 U.S.C. § 6928(g) provides:

Any person who violates any requirement of this subchapter shall be liable to the United States for a civil penalty in an amount not to exceed $ 25,000 for each violation. Each day of such violation shall, for purposes of this subsection, constitute a separate violation.

Defendants are liable for 1223 days of violation of RCRA because they operated the concrete pit and lined lagoon impoundments with neither interim status nor a final permit and failed to submit a timely closure plan. T.T. at p. 10, line 25 to p. 12, line 4. Defendants total exposure here is thus $ 30,575,000.

Assessment of the amount of a civil penalty is committed to the informed discretion of the court. United States v. ITT Continental Baking Co., 420 U.S. 223, 230 n. 6 (1975); United States v. Environmental Waste Control, Inc. (EWC), 710 F. Supp. 1172, 1245 [20 ELR 20035] (N.D. Ind. 1989); United States v. T & S Brass and Bronze Works, Inc., 681 F. Supp. 314, 322 [18 ELR 20905] (D.S.C. 1988), rev'd in part on other grounds, 865 F.2d 1261 [19 ELR 20857] (4th Cir. 1988). Concern for deterrence guides the court's discretion:

A civil penalty must provide a meaningful deterrence without being overly punitive; it should be large enough to hurt; it should deter anyone in the future from showing a similar lack of concern with compliance.

EWC, 710 F. Supp. at 1244, citing United States v. Phelps Dodge Inds., Inc., 589 F. Supp. 1340, 1367 (S.D.N.Y. 1984); see also United States v. Ciampitti, 669 F. Supp. 684, 700 [18 ELR 20419] (D.N.J. 1987) (civil penalties are imposed "with the aim of both punishing the defendant[s] and of deterring [them] and others from taking further [illegal] action").

We must be clear to the regulated community that violations of the law are not treated lightly, especially where the regulations protect public health and the environment. Moreover, a significant penalty deprives violators of any economic benefit from delay in compliance. Too small a penalty risks being considered by violators as "an acceptable cost of violation, rather than as a deterrence to violation." ITT Continental Baking, 420 U.S. at 231. Cf. Diver, "The Assessment and Mitigation of Civil Money Penalties by Federal Administrative and Mitigation of Civil Money Penalties by Federal Administrative Agencies," 79 Colum. L. Rev. 1435, 1458 (1979) ("The efficacy of any regulatory program depends on the sanctions imposed in individual cases. If these sanctions are set too low, potential violators may be insufficiently motivated to minimize the social harm resulting from their behavior, or society may be under compensated for the harm that does occur.").

The statute does not provide guidance for determining penalties in a judicial proceeding, but RCRA § 3008(a)(3) provides factors to be considered in fixing a civil penalty in an administrative action. These factors include the seriousness of the violation and evidence of good faith efforts to comply with applicable requirements. See T & S Brass, 681 F. Supp. at 322.

Defendants are jointly and severally liable for the penalty. EWC, 710 F. Supp. at 1245, 1249. Defendants are strictly liable for RCRA violations. See Allegan, 696 F. Supp. at 287; United States v. Liviola, 605 F. Supp. 96, 100 [15 ELR 20452] (N.D. Ohio 1985).

The defendants failed to comply with the financial assurance requirements for facilities granted interim status. Having lost interim status on November 8, 1985 and lacking a final permit to operate the two impoundments, defendants had no legal alternative but to cease entirely using the impoundments and to submit a closure plan within fifteen days after the loss of interim status.

Compliance with the statutory deadline was mandatory, even if the defendant[s'] only option was to cease its business on November 8, 1985. By imposing an absolute cut-off date for certifying compliance, Congress had already determined that protection of the public health and the environment was paramount.

T & S Brass, 681 F. Supp. at 321; see also United States v. Allegan [20 ELR 21403] Metal Finishing Co., 696 F. Supp. 275, 288 [19 ELR 20148] (W.D. Mich. 1988).

Nonetheless, defendants have admitted that they continued to place hazardous waste in the concrete pit until January 30, 1987 and in the lined lagoon until August 28, 1986. The lined lagoon has been kept in service for collecting arsenic-contaminated storm water runoff from defendants' parking lot. The liner has been removed but the lagoon has not been covered. Defendants have not closed either impoundment.

There is a continuing threat of a release of hazardous waste to the environment at the Vineland facility, even though it cannot be determined what amount of environmental damage has been done as a result of the continued use of the impoundments since the loss of interim status on November 8, 1985. Defendants' efforts to avoid closure of the impoundments in the time since loss of interim status has prolonged that threatened release.

Although defendants have spent money on environmental matters, in Environmental Waste Control, where the defendant had operated an inadequate groundwater monitoring system for three years and then had gotten approval to install a better and expensive monitoring system, the expense of the new system was found to be an inappropriate set-off to any penalty the court might impose. "The cost of compliance with the law does not seem a proper set-off to apply to penalties for noncompliance." EWC, 710 F. Supp. at 1244. If a set-off was improper regarding future compliance costs for an inadequate monitoring system, they are even less appropriate here, where past compliance costs were woefully inadequate (to the extent Vineland's "environmental" expenditures were directed toward compliance at all and not, say, to legal fees).

a) Bad Faith Dealings by Vineland With EPA and EDP

Defendants acted in bad faith by removing the liner from the lined lagoon without informing the regulatory agencies, and further by concealing the removal from the DEP at the September 5, 1989 meeting. Removing the liner was an act of closure for which defendants had neither an approved closure plan nor final closure order. But they went ahead anyway, contrary to DEP regulations of which they were aware. Moreover, defendants knew that the pending administrative order issued by the DEP in August 1989 required immediate installation of a cover over the impoundment once the liner had been removed, a provision that had also been contained in the September 1988 DEP order. Yet when they removed the liner defendants had no intention of installing a cover. Instead, they were preparing for a meeting with the DEP to dissuade them of the merit of installing a cover. Thus, removal of the liner was more an act of defiance than one of compliance.

Indeed, defendants have been forestalling compliance with RCRA for more than four years, preferring to appeal regulatory decisions rather than to comply with them. Delay has enabled defendants to defer substantial cleanup costs, which will now be underwritten by the public as part of the EPA's Superfund process and may not be recoverable ultimately from defendants, even if defendants are found liable for those Superfund costs after further (probably lengthy) litigation. Where public health and the environment are threatened by the release of arsenic into groundwater from defendants' manufacturing processes, the court must exact a penalty which makes the cost of polluting as unacceptable a business cost as the arsenic contamination in the soil underneath Vineland's plant is an unacceptable social cost.

b) Ability to Pay

Of course, defendants do not have the financial resources to pay a penalty anywhere near the maximum of their more than $ 30 million liability. In Environmental Waste Control and T & S Brass, the district courts awarded penalties of $ 2000 per day and $ 1000 per day, respectively, for violations of the loss of interim status provision of RCRA. See EWC, 710 F. Supp. at 1245 (civil penalty of $ 2,778,000 for 1,389 days of illegal operation; $ 2000 per day); T & S Brass, 681 F. Supp. at 322 (civil penalty of $ 194,000 for 194 days of illegal operation; $ 1000 per day).

This court awarded civil penalties of $ 1000 per day for violations of the Clean Water Act where the defendant had shown a complete lack of good faith effort to comply with applicable regulations. See United States v. Ciampitti, 669 F. Supp. 684, 699-700. We imposed the penalty in Ciampitti "with the aim both of punishing the defendant and of deterring him and others from taking further action that is destructive of the federally protected wetlands." Id., at 700. Although this is not a wetlands case, the public health and environmental interests that are implicated here are of equal or greater magnitude.

There is no question of defendants' ability to pay a substantial penalty. By defendants' own submissions of financial information, they have a net worth of $ 3.1 million, including unencumbered personal and corporate assets of $ 1.6 million. We believe it consistent with the goal of deterrence, in light of defendants' demonstrated bad faith, to exact a penalty of $ 1000 per day of violation, or a total penalty of $ 1,223,000.

Defendants have characterized their actions which led to summary judgment against them as "a paper violation [or] . . . a technical violation . . . for failure to essentially file the right piece of paper with the government." Defendants' Opening Statement, T.T. at p. 163, line 20 to p. 164, line 1. This penalty is intended to show defendants that the court regards their actions as much more than merely "a paper violation." Moreover, we hope this penalty will deter defendants and others from committing similar acts in the future.

c) Injunctive Relief

We further direct defendants to comply with New Jersey closure regulations pursuant to N.J.A.C. 7:26-9.1 et seq. and the provisions of a final and enforceable closure order issued by the DEP.

The foregoing constitute this court's findings of fact and conclusions of law, pursuant to Fed. R. Civ. P. 52. The accompanying order has been entered.

Order

This matter having been tried to the court on the issues of penalties and injunctive relief to be imposed pursuant to summary judgment entered on behalf of plaintiff on July 29, 1988 on Count I and Count IV of the complaint, and the court having considered the testimony, exhibits and submissions of the parties;

IT IS, this 30th day of April, 1990, hereby ORDERED that defendants are jointly and severally liable for and shall pay a penalty of $ 1,223,000 to plaintiff United States of America; and

It is FURTHER ORDERED that defendants shall comply with New Jersey closure regulations pursuant to N.J.A.C. 7:26-9.1 et seq. and the provisions of a final and enforceable closure order issued by the New Jersey Department of Environmental Protection.