U.S. DEPARTMENTOFTRANSPORTATIONRECE-

# iVf=D OFFICE OF HEARINGS 

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**~.,_**

WASHINGTON, DC 

### ************************************ Federal Aviation Administration Complainant v. 

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## * * * JAN 20 2015 HEARING DOCKET



## * FAADocketNo. CP10GL0212 National Power Corporation, Respondent 

## * * * * * ************************************* Judge Richard C. Goodwin DMS No. FAA-2013-0620

AGENCY'S RESPONSE TO RESPONDENT'S POST-HEARING BRIEF The Complainant, by and through the undersigned counsel, hereby files this Response to the Respondent's Post-Hearing BriefofClosing Argument. I. The Proposed Fine is Reasonable and Constitutional. The civil penalty was derived from the Agency's sanction guidelines and was reasonable under the circumstances and consistent with the Agency'spolicy. AnAgency's action onlyis arbitrary ifits actions were "unwarranted inlaw or withoutjustificationin fact." Lugo v. United States, 2009 WL 928136, *3 (S.D.N.Y. 2009). See also Cross v. UnitedStates, 512 F.2d 1212, 1218 (2"d Cir. 1975); Goodman v. United States, 518 F.2d 505,511-12 (5th Cir. 1975). "A sanction is not arbitrary and capricious when a federal agency properly adheres to its own regulations and guidelines when imposing it." Young Jin Choi v. UnitedStates, 944 F.Supp. 323, 325 (S.D.N.Y.1996). See also Lugo, 2009 WL 923136 at*3; Yafaie v. UnitedStates, 1995 WL 422169, at *I (S.D.N.Y. July 18, 1995)("Ifthepenalty imposed is in accordance with the

1settledpolicy ofthe FNS, it is not arbitrary or capricious.");AiHoa Supermarket, Inc. v. United States, 657 F.Supp. 1207, 1209 (S.D.N.Y.1987) (sustaining FNS's imposition ofa particular sanction for a Program violation based onthe regulations and the FNS Handbook); A/ira) Enterprises, Inc. v. US., 2013 WL 690530, *2 (W.D. Tex. Feb. 25, 2013)(citing Otto v. Block, 693 F.2d 472,474 (5th Cir. 1982)). At the hearing, Zawarus testified that the proposed sanction was calculated using the Agency's enforcement order. (Tr. 67) The enforcement order is a tool used bothto provide the public ofthe potential penalty for violations and to assist the Agency in determining the appropriate amount "inlight ofthe statutorily defined penalty considerations." FAA OrderNo. 2150.3B. The enforcement order sets the baseline for determining the civil penalty. It does not dictate the amount, but allows the ChiefCounsel to "reduce penalties based on 'othermatters as justice may require'". Novelty, Inc., RSPA No. 02-354-SB-EA (2005). "In general, as long as the assessed penalty falls into the range that should be used after consideration ofall relevant factors, and no factors that wouldjustify an assessment ofa civil penalty above or belowthat range (i.e., inability to pay; willful violation; history ofpastviolations) exist, then the amount assessed is not arbitrary under the guidance and constitutes a reasonable exercise ofthe Administrator's discretion to assess a civil penalty." In the Matter ofVillamor Tabula, FAA Order No. 2010-6, *6 (2010). Courts evaluating whether the civil penalty was arbitrary generally look to whether the penalty falls within the guidelines and whether the Agency considered all ofthe aggravating and mitigating circumstances. The guidelines call for the Agency to consider such factors as the nature, circumstances, extent, and gravity ofthe violation, the degree ofculpability, any history ofviolations, the ability to pay, the volume ofhazardous materials, any corrective actiontaken,

2and other factors asjustice mayrequire. Courts have recognized that each case is unique and thatthe Agency "must analyze the statutory factors in each case independently." EastFork Enterprises, PHMSANo. 03-501-SB-SW (2005). Although the precise amount that may be imposed for each violation cannot be knownprior to the violation, the proposed penalty is not arbitrary simply because there is discretion within the penalty range. Rather, this matrix puts the public onnotice ofthe extent ofthe penalty that may be incurred and what the Agency considers in assessing that penalty. "Ifthe agency's sanction conforms to federal regulations and internal agency guidelines, the reviewing court may not deem itarbitrary and capricious."Aliraj, 2013 WL 690530, *2 (citing 

### Otto, 693 F.2d at 474)). The proposed sanction fell within the penalty guidelines for the violations NPC committed. Zawarus testified at the hearing thatthe penalty matrix was used in his calculation. (Tr. 67) He first consideredthe nature ofthe business, the frequency in which NPC handles and ships hazardous materials, and the types ofviolations NPC committed to determine the appropriate sanctionrange. (Tr. 68-70) The shipments each contained violations that fell into the categories ofpackaging, emergency response, training, and other. See e.g., Tabula, FAA ( Order No. 2010-6 (considering the categories the violations fell into). Thepenalty for each of the four violations could have been as high as $5,500 for each ofthe shipments. However, Zawarus recommended, and Regional Counsel's office agreed, that $66,000 for all ofthe violations was a reasonable amount in light ofthe circumstances. (Tr. 67-68, 80) To determine the appropriate sanction within the range proposed bythe sanction guidelines, Zawarus explained that he considered the nature and circumstance ofthe shipment, the extent ofgravity related to the shipment, the number ofviolations, NPC's violation history, and mitigating circumstances. (Tr. 67-70, 83-86) The penalty reflects the danger ofthe materials, which should

3have beenpackaged according to the more protective packing group I standard. See EastFork, PHMSANo. 03-501-SB-SW, at *4 (explaining that improper shipping in a lower packing group poses a serious and immediate threat to dangerthat mustbe reflected inthe penalty). The penalty also took into considerationthatNPC manufactures the batteries that were shipped, imposing a higher degree ofcare, and that, despite its regular handling ofbatteries, it offered eleven shipments that were not prepared in accordance with the regulations in four different violation categories. (Tr. 69) See 

### e.g. Tabula, FAA OrderNo. 2010-6 at *5 (considering the amount ofhazardous materials offered for shipment). Zawarus' testimony established that the Agency considered all ofthe factors laid out in the 2150.3B, and NPC has not identified any mitigating factors thatthe Agency overlooked. See Tabula, FAA OrderNo. 2010-6 at *5 (explaining that respondent did not prove that circumstances existed to warrant a reduction ofthe penalty); Novelty, RPSA No. 02-354-SB-EA, at *4 (upholding the Agency's penalty because itused the penalty guidelines and consideredthe circumstances ofthe violation). The Agency has complied with its ownregulations and guidelines and, therefore, "the reviewing court may not deem it arbitrary and capricious." Aliraj, 2013 WL 690530, *2 (citing Otto, 693 F.2d at 474)). NPC also broadly alleged that thepenalty is grossly excessive without any explanation of the basis ofits argument. (Resp. Br. p. 14) It's failure to articulate its position alone is sufficient to deny its argument. In the Matter ofWTWEnterprises, FMCSA-2001-11084, *1 (Feb. 12, 2004) (rejecting Respondent's argumentthatpenalty was excessive because it failed to identify any reason for its broad allegation). Regardless, the penalty falls within the sanction guidelines and is not excessive. "The legislative history ofHMTA indicates that the purpose ofsection 1809(a) was to 'put some teeth inthis new legislation by making civil and criminal penalties for

4the violations ofthe regulations quite severe."' Pony Express Courier Corp., FAA DocketNo. 89-4 (Sept. 27, 1993) (citing UnitedStates v. AlliedChern. Corp., 431 F. Supp. 361,367 (quoting 120 Cong.Rec. H12351 (daily ed. December 19, 1974)(remarks ofRep. Jarman)). According to the Agency's enforcement order, NPC could have received a fme ofup to $5,500 for the violation ofeach ofthe four offense categories for each shipment for a total of$242,000. The civil penalty is far belowthe maximum penaltythat the Agency could have sought and clearly within the authority ofthe Agency and the guidelines ithas set. There is no evidence ofrecord to showthatthe Agency varied in such a gross fashion as to render the assessment unconstitutional. Rather, the Agency assessed a penalty according to its guidelines and far below what it couldhave sought, taking all ofthe required factors into consideration. It's use ofits own policy and guidelines "constitutes a reasonable exercise ofthe Administrator's discretion to

assess a civil penalty." In the Matter ofVillamor Tabula, FAA OrderNo. 2010-6 at *6. NPC has not identified any mitigating circumstances thatthe Agency overlooked. Absent a clear and convincing reason, the penalty the Agency seeks should not be disturbed. FAA v. Gunn, Docket No. SE-12192, *2 (1992). See alsoAdministrator v. Goei, NTSB Order No. EA-2380 (1986) (absent clear and compelling reasons, the sanction must not be disturbed.).

II. The Respondent Knowingly Violated the Regulations. A. Testing andPackagingRequirements The Respondent argues that it lackedthe requisite intentto violate the HMRs, relying on Zawarus' agreement that it did not act deliberately. (Resp. Br. p. 10, 15-16,23, 25-26) However, this is not a criminal matter inwhich specific intent must be shown. See FAA v. Smalling, FAA Docke No. CP93NM0260, 1994 WL 16054473, *9 (Jan. 27, 1994)(explaining

5that specific intent to violate the HMRs need not be shown as in criminal matters). Rather, in this context, a civil case arising from the violation ofa regulation, lack ofknowledge ofthe law is irrelevant. Id The Agency has not alleged, nor does itneed to, thatNPC was aware ofand deliberately violated the HMRs when itofferedthe untested batteries. "Congress intended to preventindividuals from relying on ignorance ofthe law as an excuse incivil hazardous materials cases." 

### I d. The applicable standard is whether NPC acted knowingly as defined bythe HMRs.In its analysis, the Respondent misconstrues the definition ofknowingly as defined by the HMRs. (Resp. Br. p. 15-16) Title 49 U.S.C. 

### § 5123(a)(l) states that a person acts knowingly when either he has actual knowledge ofthe facts giving rise to theviolations or a reasonable personexercising reasonable care would have such knowledge. As explained above, the standard is not, as Respondent argues, whether it had actual knowledge ofthe law and knew that the batteries had notbeen offered incompliance with the HMRs, but whether it had actual knowledge ofthe facts giving rise to the violation. NPC's intent to deliberately violate the HMRs is not the dictating factor. In hazardous material matters such as this, an individual orentity is charged with having actual knowledge ofthe facts giving rise to the matter when it knewthatitwas both offering a shipmentfor transportation by air and that the shipment contained hazardous materials. Interstate Chemical Company, FAA Order No. 2002-29, *7 (Dec. 2, 2002) (explaining that respondent "knowingly offered" the shipment in question because in the exercise ofreasonable

care itwould have known ofthe contents ofthe shipment) (Contract Courier Services, Inc. v. Research & SpecialProgramsAdministration, UnitedStates Department of Transportation, 924 F.2d 112, 114 (7th Cir. 1991)). For example, in Smalling, the Respondent was accused of

6knowingly offering a hazardous material for air transportation without completing the shipping papers, marking the package, labeling the package, andpreparing thepackage. FAADocketNo. CP93NM0260, 1994 WL 16054473, *7. The Respondent claimed thathe did notknow that placing fireworks inhis luggage violated any regulations. 

### !d. at 

## *1. The court determined that the respondent had actual knowledge ofthe facts giving rise to the violation because he acted knowingly when he placed the hazardous material in his suitcase and checked his baggage. 

### Id. at *8. Likewise, NPC had actual knowledge ofthefacts that gave rise to the violations. NPC knew thatit was both offering packages for transportation by air and that the packages contained

a hazardous material, lithium batteries. NPC argues that it believed that itwas shipping the batteries inthe manner its employees were trained and that the batteries were shipped in accordance with its understanding ofwhat the HMRs required. Whether or notNPCbelieved the batteries were being offered in compliance withthe HMRs is irrelevant to the inquirybecause this speaks to NPC's knowledge ofthe law. This is not the dictating factor. Rather, the court must look onlyto whetherNPC had actual knowledge ofthe facts that gave rise to the violations, and here itis undisputed thatNPC had actual knowledge ofthe facts that gave rise to the violation- that itwas offering a hazardous material for air transportation. Therefore, NPC had actual knowledge as defined by the HMRs. The Respondent urges that the applicable standard is whether itacted reasonably under the circumstances, butbecause it had actual knowledge ofthe facts giving rise to the violations, the Agency need not show that the Respondent acted in accordance with how a reasonable person under the circumstances would act ifthatperson was exercising reasonable care. See Resp. Br. p. 16. Even so, this is not a burdensome standard. For example, in the Matter of Scott

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### Novak, FAA OrderNo. 2014-1,2014 WL 493035 (Jan. 2, 2014), the respondent offered to take

some ofhis daughter's belongings to anAlaska Airlines cargo facility to shipby air. He did not pack any ofthe boxes and did not know what they contained, though he believed them to contain clothes, dishes, and furniture. 

### !d. at *I. It was later discovered that the boxes contained hazardous materials, including a grill, charcoal lighter fluid, insect repellant, hairspray, andnail polishremover. 

### Id. at *3. The court determined thatNovak knowingly shipped the materials for purposes ofthe HMRs, because a reasonable person "'knows' whatever a reasonably inquiry would have turned up." 

### !d. at *8. This case further illustrates thatthe relevant inquiry is whether the individual knewthat the materials he was offering were hazardous, not whether he knew hewas violating the HMRs. NPC's actions were far more egregious thanNovak's because it did know that its shipment contained lithiumbatteries and thatthe HMRs required lithium batteries to be tested, as is evident bythe fact that the SM206 batteries were tested. NPC had actual knowledge thatthe SM201batteries themselves had not been tested, and admitted as much during the course ofthe investigation. Uponinquiry, NPC was unable to showthat the batteries were tested and complied withthe HMRs. In fact, NPC did not evenpurport during the investigation that the shipments conformed with the HMRs because they varied by less than 20% from the tested batteries and did not have to be tested. Itwas not until later that it acquired this defense. However, as explained more thoroughly inthe Agency's opening brief, the record is without evidence that the batteries did in fact vary by less than 20% and complied withthe HMRs and that the differences would nothave materially changed the test results. The only evidence ofrecord to showthat the batteries varied by less than 20% was Vrablik's self-serving, unsupported testimony stating as much. As Zawarus explained, the only

8way that this determination could be made was with evidence ofthe battery configuration, which

was never provided. (Tr. 139) Vrablik admitted thatthe batteries were configured differently and that there were differences in the anode, cathode, electro light, or wattage, buthe never identified what those differences were. (Tr. 127) And, even ifthe court accepted Vrablik's unsupported, unexplained testimony that the batteries did notvary bymore than 20%, the record is without evidence that the differences he admittedto would not have materially altered the test results. Therefore, NPC offered the lithium batteries knowing that the HMRs required testing andthat the batteries had notbeen tested, and, atbest, withoutknowledge that the differences in the tested and untested batteries would nothave materially altered the test results. Whether NPC acted reasonably isnotrelevantto the inquiry, but even ifit was, NPC did not actreasonably underthe circumstances because ithadknowledge ofthe HMRs and did notmake areasonable inquiry to insure that it complied withthe HMRs by checking the battery configurations to

ensure boththat the batteries varied byless than 20% and that the differences wouldnot alter the test results. IfNPC had acted reasonably, itwouldhave needed to make this inquiry prior to shipping the batteries. SeeNovak, FAA Order No. 2014-1, at *8; Interstate Chemical Company, FAA Order No. 2002-29, *7 (citing Contract Courier Services, 924 F.2d at 114) (explaining that the shipper is expectedto knowwhat a reasonably inquiry would reveal).

B. Emergency Response Information NPC makes a similar argument that its failure to provide the correct phone number on the label ofthe packages was not intentional but was due to a clerical error. (Resp. Br. p. 23) Again, NPC's intent to violate the HMRs is irrelevant. Smalling, FAA Docke No. CP93NM0260 at *9. Rather, the Court must consider whetherNPC acted knowingly as defined by the HMRs. Even ifNPC did not have actual knowledge thatthe incorrect phone number was written onthe

9labels, the definition of"knowingly" holds the offeror to the standard ofa reasonable person under similar circumstances who exercised reasonable care. Moreover, the offeror is charged with having knowledge ofwhat a reasonable inquiry would reveal. 

### Novak, 2002 WL 31957045 at *8. It is irrelevant whether the offeror made that inquiry. IfNPC had exercised reasonable care, the clerical error would nothave been made. Even so, ifan inquiry had beenmade, itwould have revealed thatthe number was incorrect. Although NPC may have acted in error, it did so knowingly as defined bythe HMRs. It's intent to do so is irrelevant. CONCLUSION The HMRs state that an entity has actual knowledge whenit is aware ofthe facts surrounding the violation. The record is clear thatNPC had knowledge ofthe facts surrounding the violation. It knewboththat the shipment contained hazardous materials and thatthe shipment was being offered for transportation by air. NPC's intentto violate the HMRs and beliefthat the HMRs did not require for the batteries to be tested is irrelevant because this speaks to its knowledge ofthe law. Congress did notintend for ignorance ofthe law to serve as a defense to violations ofthe HMRs. WhenNPC knowingly offered the packages ofhazardous materials, it violated several HMRs related to packaging, training, and emergency response. The record is clear thatthe batteries contained inthe shipments had not beentested. NPC later acquired the defense that the batteries did not vary by more than 20% from batteries that were tested, eliminating the testing requirement and the requirementto get special authorization from the PHMSA to ship untested prototype lithium ion batteries. However, the record is devoid ofevidence to show that the batteries did infact varybyless than 20% orthat those variations would not have alteredthe test

10results. Vrablik testified that the batteries did not vary bymore than 20%, although he did admit to some variances in anode, cathode, electro light, or wattage without identifying what those variances were. The only way this determination could have been made was with the battery configuration, which was never provided. Even ifhis unsupported testimony was accepted, Vrablik didnot state, nor is there any evidence ofrecord to show, that the variances to which he admitted wouldnot have altered the test results. NPC admitted that it did not receive special authorization from the PHMSA to ship the untested prototype lithium ionbatteries. Therefore, the batteries were offered inviolation ofthe HMRs. Moreover, it is undisputed thatthe employee who offered the shipments did not have the requisite training and that the emergency telephone number provided onthe package labels did not contain a 24-hour phone number. Even ifNPC did not have actual knowledge that the phone number was incorrect, ifithad exercised reasonable care, this error would have been avoided. Again, NPC's intent to violate this regulation is irrelevant. The Agency assessed a civil penalty for the violations inthe amount of$66,000 using its enforcement order. Zawarus testified that the Agency considered all ofthe requisite factors whendetermining the appropriate amount. Specifically, it considered the nature, circumstances, extent, and gravity ofthe violations, the volume ofhazardous materials, the frequency inwhich NPC handles hazardous materials, NPC's violation history, the nature ofthe hazardous materials, and the remedial measures NPC took along with any other mitigating factors to calculate the amount. NPC has not identified any other mitigating factors that the Agency overlooked. Because the amount fell within the penalty range provided by the Agency's guidelines, it is not arbitrary and capricious. 

### See Aliraj, 2013 WL 690530, *2 (citing 

### Otto, 693 F.2d at

11474)(explaining that the Court maynot deem a penalty arbitrary and capricious whenit falls within the Agency's guidelines). WHEREFORE, Complainantrequests the Administrative Law Judge to fix the civil penalty at the requested amount of$66,000. Respectfully submittedthis 

### 15th day ofJanuary, 

### 2015 

# deuuru

**t6,~_** \(lf Kate Barber (} Attorney Office ofthe Regional Counsel

12CERTIFICATE OF SERVICE I hereby certify that the foregoing Agency's Response to Respondent's Post-Hearing Briefhas been mailedto the following:
The Honorable Richard C. Goodwin Office ofHearings, M-20 Administrative Law Judge U.S. Department ofTransportation 1200 NewJersey Avenue, S.E. (Ell-310) Washington, DC 20590 FAX: (202) 366-7536 And by CERTIFIED MAIL to: Attorney MartinA. Blumenthal OneNorthfield Plaza, Suite 300 Chicago, IL 60093 Hearing Docket Clerk FAA,AGC-430 800 Independence Ave., SW Wilbur Wright Building, Suite 2W1000 Washington, DC 20590 FAX: (202) 493-5020 TEL: (202) 385-8229



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