U.S. DEPARTMENT OF TRANSPORTATION OFFICE OF HEARINGS

WASHINGTON, D.C.
Federal Avia'ionAdministration, Complainant. FAA DocketNo. CPIOGL0212 v. DMSNo. FAA-2013-0620 National Pov•er Corporation, 

# RECEIVED JAN 212015 

## HEARING DOCKET

The Honorable Richard C. Goodwin Respondent.

POST-HEARING BRIEF/CLOSING ARGUMENT OF RESPONDENT Now Comes the Respondentpursuantto 14 C.P.R. §13.23l(c)by and through its attorney, Martin A. Blumenthal, and states as follows:

A. Proposed J!.lindings ofFact and Conclusions ofLaw

I. The Proposed Fine of$66,000.00 Has No Rational Basis and is Unconstitutional

a. During**dim~!** examinationbythe Government, Mr. Zawarus testified onbehalfofthe FAA as howhe determined the fine to be $66,000.00:

BY MS . BARBER: 

### Trial Transcript at Page 67 Pagel of 28

### 6 Q Mr. 

### Zawarus, how does the FAA 7 

### and/or yourself determine the sanction in a 8 

### hazardc•.ls materials violation's case? 9 A 

### We follow our enforcement order, 10 2150.3, currently B, FAA compliance and 11 enforcement. 12 

### Q And is that document a public 13 document? 14 A 

### Yes. 15 

### Q And what does that guidance tell 16 you? 17 A It provides the factors that are 18 

### taken into account to determine 19 

### recommendations for sanction. 20 

### Q And in this case the sanctioned 21 amount was $66,000. Is that the maximum 22 amount that could have been alleged or seeked, Page 68 1 sought from National Power Corporation? 2 A No. It is not. 3 

### Q And what would, if you know, what Page 2 of 28

### 4 would be the maximum? 5 A Under current compliance and 6 enforcement guidelines, a penalty of hazardous 7 materials regulations can be assessed up to 8 $32,500 per violation. 9 

### Q And so, in this case, where there 10 four violations or six? 11 A Four violations per shipment, I 12 believe. 13 

### Q So, essentially, it could have 14 been much higher? 15 A Correct. 16 

### Q What considerations did you 17 evaluate when determining the amount of the 18 civil penalty assessed against the company? 19 A Nature and circumstances of the 20 shipme>nt, the extent in gravity related to the 21 shipment. The, any mitigating or aggravating 22 circumstances there, the company's ability to 

### Page 69 1 pay is taken into account. Page 3 of 28

### 2 

### Q Was an inability to pay ever 3 brought: up to you in or anyone in the FAA to 4 

### your knowledge in regards to this case? 5 A 

### No. 6 

### Q And is $66,000, is that an 7 appropriate civil penalty for this type of 8 case? 9 A Yes. 10 

### Q Do you take into consideration the 11 nature of a business when looking at sanction? 12 A It is factored in, yes. 13 Q And what is ·i:he nature of National 14 Power Corporation's business? 15 A They're a battery manufacturer. 16 

### Q And do they regularly ship 17 batteries in their course of business? 18 A Yes. 19 

### Q What does that tell the FAA when 20 looking at a sanction, why would you look at 21 the nature of the business entity doing the 22 shipping? Page 4 of 28

### Page 70 1 A Generally, a company who is in the 2 business of manufacturing a hazardous material 3 has a, is expected to have a higher degree of 4 responsibility relative to that shipment, or 5 to those materials that they ship.

Mr. Zawarus testified only as to the general factors considered in assessing apenalty. Based on his testimony
..\lone, a thirdpartycould notpossiblyindependently calculate the dollarfigure that Mr. Zawarus 1·roduced. On cross examinationhe admitted thatthe whole process ofcalculating the penaltyis arbitrary-there are no calculations, criteria specified, references to charts or comparisons to fines levied in similar cases.

Trialtranscript atpage 82: 

### Q Now, your testimony regarding the Page 

### 83 1 amount of penalty in this case, the $66,000. 2 That came from you? 3 A Yes, it was my recommendation. 4 

### Q Okay. FAA counsel had nothing to 5 do with determining that amount?
Page 5 of 28

### 6 A Well, initially, when the case 7 

### went up, it included other shipping 8 

### documentation but, so it was a higher penalty. 9 

### Q Okay. But the recommendation 10 

### comes from you, not the FAA 

### counsel? 11 A 

### Corract. 12 

### Q Okay. You also said that there's 13 

### a enforcement order 2150.3? 14 A 

### Yes. 15 Q 

### And that's a public document? 16 A 

### Yes. 17 Q 

### And there are factors in there for 18 

### you tc conside"::? 19 A 

### Cor:rcect. 20 

### Q Okay. What are the, what are 21 

### those factors is, there are factors in 22 

### mitigation? Page 84 1 A Yes. 2 

### Q Okay. Such as corrective action? 3 A Correct. Page 6 of 28

### 4 

### Q What other factors in mitigation 

### 5 are there? 6 A 

### Factors, what do you mean by 7 

### mitigation? 8 

### Q That mitigation, in other words, 9 

### making the, that would make the penalty lower. 10 A 

### If a company had gone above, above 11 

### the requirement of the regulation to ensure 12 

### future: safety. Taking immediate and corrective 13 

### action upon notification. Those types of 14 

### things. 15 

### Q Okay. And are one those factors 16 

### of mitigation, the intent of the company? 17 A 

### Not necessarily, no. And a person 18 

### acting with knowledge relative to the material 19 

### that their [sic.they're] shipping, there's an exception that 20 

### they'll prepare it and offer it properly. 21 

### Q In the course of your 22 

### investigation, did you make a determination as Page 85 Page 7 of 28

### 1 to whether the alleged violations were 2 

### deliberate? 3 A 

### No. It wasn't. 4 

### Q Okay. Did you, when you were 5 

### coming up with the amount of the penalty, are 6 

### there, and according to enforcement order 7 2150.3, are there factors in aggregation [sic.aggravation] that 8 

### you consider? 9 A 

### Yes. 10 

### Q Okay. And what would be those 11 factors in aggregation [sic.aggravation]? 12 A 

### Release of the hazardous material, 13 shut down of transport artery, injury, death, 14 

### things: like that. 15 

### Q Were any of those factors here? 

### 16 A No, no. 17 

### Q So, there were no factors in 18 

### aggregation? [sic.aggravation] 19 A 

### No. 20 

### Q Does enforcement order 2150.3 give Page 8 of 28

### 21 you specific monetary amounts? 22 A Provides ranges. Page 86 1 

### Q And what 

### is the range per single 2 violation? 3 A I believe the 

### minimum is 250 and 4 the maximum 

### is $32,500, statutorily. 5 

### Q So, you have a lot of digression [sic.discretion], 6 

### isn't that true? 7 A Corre,ct. 8 

### Q Did you make a determination on a 9 per viclation amount and multiply that by the 10 number of alleged violations or was there 11 another method you used?

Atthis point counsel for the FAAobjectedonthe grounds that the specific method ofhis determination is protectedbyattorney-client privilege. (Transcript p.86, lines 12-15). The court overruled this objection thatthe method ofdetermination ofthe penaltyis notprotected. (Transcriptp.[;6, lines 16-20). Mr. Zawarus alreadytestified that FAAcounsel had nothing to do with the penalty determination. (Transcript p.83, lines 9-11) Up until now, Mr. Zawarus testified that there were. several factors inmitigation present andnone in aggravation. He also admitted Page 9 of 28that the Respondent did not have any intent to violate any ofthe regulation (P.85, lines 1-5)

Black's Law Dictionary defines "arbitrary" as "fixed or done capriciously oratpleasure; without adequate determiningprinciple; not rational; notdone or acting according to reason or judgment". M. Zawarus admitted that his "determination" oftbe penalty of$66,000.00 was not only arbitrarybutbased solely on his own "judgment".

AtPage 87 of the Trial Transcript: 

### A I can't really answer that 

### 2 question. 

### Q Okay. Now, when you came up with 9 a $66,000 number, was there a number you came 10 up with per violation and multiple [sic. multiply] it by the 11 number of alleged violations, or was there 12 some other method? 13 A Each transaction is provided a 14 sanction recommendation. 15 Q Okay. Now, what was your 16 recommendation per sanction? 17 A I don't recall. 18 Q Okay. So you're telling us that Page 10 of 28

### 19 we rea.lly can't get to the essence of the 20 reasonableness of that sanction? Page 88 1 A I can't really answer that 2 question.
Upon further inquirybyRespondent's counsel, Mr. Zawarus triedto denythathis decisionwas arbitrary:

Trial Transcript atpage 88:

BY MR. BLUMENTHAL: 

### 8 

### Q How did you, when you had 9 originally wanted to assess a higher penalty, 10 was that on a per violation and multiplied by 11 the number of alleged violations or was it 12 just a number you came up with? 13 A My 

### initial sanction recommendation 14 was based on additional instances. 15 

### Q But you did not, so, would it be 16 fair t:o say that the $66,000 number 

### is totally
Page 11 of 28

### 17 arbitrary? 18 A 

### No.

Furtherquestioning seekingto get to the essence ofexactlyhowMr. Zawarus cameup with the penalty amour'! of$66,000.00 fmally got him to admit thathe has "latitude" in determining the penalty amount.

Trial Transcript atpage 88


### 19 

### Q What basis did you use to come up 20 with the $66,000? 21 A The compliance and enforcement's 22 guidance that we have in our compliance and 

### Page 89 1 enforcement order. 2 

### Q Did that give you a specific 3 amount per violation? 4 

### 5 A No, it does not. 6 

### Q So, it was arbitrary as to the 7 number you came up with, isn't that correct?
Page 12 of 28

### 8 A I have latitude, yes. 9 Q 

### Latitude meaning it's arbitrary? 10 A If**:~~ou** 

### want to call it arbitrary, 11 yes. 12 Q What would you call it? Latitude? 13 A Sure. 14 Q 

### Isn't that just another word for 15 arbitrary?

Atthatpointcounselfor the FAAobjected, without stating grounds for the objection:


### MS. BARBER: Objec"tion, Your 17 Honor. 18 ADMIN. LAW JUDGE GOODWIN: Yes. 19 Sustained. The Court gets the point.

2. Conclusion ofLawWith Respectto the Fine

Inits complaint, the Governmentprays for a "reasonable" fine of$66,000.00. Black's Law Dictionary defines "reasonable" as "Just; proper; Havingthe faculty ofreason; rational;". The U.S. Supreme Court stated "Elementarynotions offairness enshrinedinthis Court's constitutionaljurisprudence dictate that a personreceive fair notice not onlyofthe conduct that Page 13 of 28will subjecthim to punishmentbut also ofthe severity ofthepenaltythat a State mayimpose. " BMWof North AmericaInc. v. Gore, 517 U.S. 559, 116 S.Ct. 1589, 134 L.Ed.2d 809 (1996) "The Due Process Clause ofthe Fourteenth Amendmentprohibits a State from imposing a '"grosslyexcessive"' punishment on a tortfeasor. TXO Production Corp. v. AllianceResources Corp., 509 U.S. 443,454 (1993) "Elementarynotions offairness enshrined inourconstitutional jurisprudence dictate that a personreceive fair notice not onlyofthe conduct that will subject himto punishment but also ofthe severity ofthe penaltythat a State mayimpose. BMWofNorth AmericaInc. 1'. Gore, 517 ti.S. 559 at 574. Further," A statute is unconstitutionallyvague as applied "ifit fails to providepeople ofordinaryintelligence areasonable opportunityto understand wLat conduct itprohibits" or "ifit authorizes or evenencourages arbitrary and discriminatory enforcement." Hill v. Colorado, 530 U.S. 703, 732, 120 S.Ct. 2480, 147 L.Ed.2d 597 (2000); accord UnitedStates v. Rybicki, 354 F.3d 124, 132 (2d Cir.2003) (enbane), cert. denied, 543 U.S. 809, 125 S.Ct. 32, 160 L.Ed.2d 10 (2004). (emphasis added) Moreover, in Southwestern Telegraph & Telephone Co. v. Danaher, 238 U.S. 482 (1915), the Court actually set aside apenaltyimposed ona telephone company on the t,>round that it was so "plainly arbitrary and oppressive" as to violate the Due Process Clause. Id., at 491. (emphasis added)

The FAA imposed a fine againstNational Powerthat violated due process. Mr. Zawarus imposed the fine using arbitrary, irrational and unknown criteriato calculatethe fine. He basedthe fine purely onhis <. wn "latitude", a doublespeakterm for "arbitrary". This denies NationalPowerits due process orknowing the severityofa potentialpenalty since it is impossible to calculate or determine usingreadily accessible factors. Page 14 of 28The fine is unconstitutional and unenforceable and violates our traditional notions offair play and substantialjustice.

2. The Respondent DidNotHavethe Requisite Intent to Violate anyReb>u.lations

a. The relevan. statute states "49 U.S.C. §5123 (a) Penalty.-(1) A personthat knowingly violates this chapter or a regulation, order, special permit, or approval issuedunderthis chapter is liable to the United States Government for a civilpenalty ofat least $250butnotmorethan $50,000 for each violation. A person acts knowingly when-
(A) the personhas actual knowledge ofthe facts giving rise to the violation; or
(B) areasonal::le person acting inthe circumstances and exercisingreasonable care would have thatknowledge." (Emphasis supplied)
Duringhis tescimony, Mr. Zawarus, admitted that National Power did nothave the requisite intent to violatethe regulations he testified about.

Trial TranscriptP. 84


### 21 Q 

### In the course of your 22 

### investigation, did you make a determination as Page 15 of 28

### Page 85 1 to whether the alleged violations were 2 deliberate? 3 

### A No. It wasn't.

The question now is whether National Powerwas "reasonable" under the circumstances and exercised ''reasonable care".

A corporation only acts and wills byvirtue ofits employees. As such, a corporation's knowledge is made up ofall ofthe knowledge acquiredbyits employees in the scope oftheir duties. Restatement (Third) ofAgency§ 5.03 (2006); Steere TankLines, Inc. v. United States, 330 F.2d 719, 722 (5th Cir.l963). Similarly, corporate intent depends onthe intent ofspecific employees. Saba v. CompagnieNationale AirFrance, 78 F.3d 664, 670 (D.C. Cir. 1996); see also United States v. PhilipMorris USA Inc., 566 F.3d 1095, 1118 (D.C. Cir. 2009) ("[c]orporations maybe held liable for specific intent offenses based onthe 1mowledge and intent' oftheir employees").
Regarding the batteries that were shipped, Thomas Vrablik, the vice-president ofNational Power testified:

Trial Transcript at Page 110:
Q 

### So, wo,;,ld you say that this was a Page 16 of 28

### 20 prototype of something that they may, in the 21 

### future, order? 22 A For them it was a prototype. For 

### Page 111 1 

### us, it's a finished product. 2 

### Q Okay. So, what shipping standard 3 

### would you use to send a tested battery? A 4 

### tested lithium ion battery? 5 A 

### It would fall under class two, I'm 6 

### sorry, Group II container of the regulations. 7 

### Q Okay. 

### 8 A Packing instruction 

### 965. 9 

### Q Okay. And in fact, is that how 10 

### you shipped it'? How National Power shipped 11 

### it? 12 A 

### Yes.

He also testified that:

Trial Transcript at Page 112:

Page 17 of 28

### Q Do you ever review the regulations Page 113 1 

### and the shipping instructions from FedEx 2 

### regarding how batteries should be shipped? 3 A 

### Counselor, that's kind of a tricky 4 

### question. I'll tell you why. Because the 5 

### common carrier's [sic], FedEx and UPS have been 6 

### known to give us incorrect information. 7 Q 

### But a.s far as you're concerned, 8 

### National Power <amployees are instructed as to 9 

### how to properly ship batteries? 10 A 

### Yes. 11 

### Q Okay and they've received training 12 and how to ship batteries? 13 A Absolutely. 14 

### Q Especially lithium ion batteries? 15 A Especially lithium ion batteries. 16 

### Q Okay. And who typically provides 17 that training? 18 A A third party. 19 

### Q And these third parties, do these Page 18 of 2820 

### third parties have credentials to provide that 21 type of instruction? 22 A 

### Yes. Page 114 1 Q So, for example, Maria Munoz's 2 name appears on these typical, these airway 3 bills that the Government has introduced, to 4 the best of your knowledge, had she received 5 proper training? 6 A If she's involved in the shipment, 7 

### she received proper training, yes.

National Powerreasonablybelieved it was shipping thebatteries inthepropermanner andthat its shipping employees were properlytrained.

Mr. Vrablik aJ.so testifiedthat the Canadian shipments were shipped as untestedprototypes per the regulations as Class 9 HazmatinGroup II packaging.

Trial Transcript at page 132:
Q 

### Okay. 

### So, you shipped that
Page 19 of 28

### 3 batter)' according to the regulations using the 4 untested prototype standard? 5 A That's the way our shipping 6 

### department offered it for shipment, yes.

The otherbatteries inthe shipments were all tested eventhough the SM201 and SM206 were in physically different packages andtheir electricalparameters differed innnaterially. Mr. Vrablik testified that the SM 201 and SM 206 did not differ perthe UN standards.: 

### Q Okay. Now, was this particular 20 battery pack, the SM206 ever tested? 21 A 

### Yes. 22 

### Q Okay. And what kind of tests did Page 106 1 it undergo? 2 A It went through UL's safety 3 testing, UL2054 to be exact. And, but 4 eventually the UN38.3 batteries, battery of 5 tests. 6 

### Q Okay. Now, 

### is that, are there 7 other battery packs that you ship that are Page 20 of 28

### 8 similar to this one? 9 A I, absolutely
.... Page 107 5 

### Q Okay. So, in terms of watt hours, 6 it's the same as SM201? 7 A Well, according to the UN38.3, it 8 doesn't differ by more than 20 percent in the 9 reg. But 20 percent or greater change in the 10 anode, cathode or electro light in mass, which 11 equates to actually, watt capacity. No it 12 doesn't, it's similar in construction.

This contradicts the testimony ofMr. Zawarus onpages 79-81 ofthe Trial Transcript. InFact, Mr. Zawarus c,dmitted during his testimonythattestedbatteries didnot evenneed the approval letter from PHMSA. :
Page 81: 

### 10 

### Q Okay. But with, and I'll continue 11 for the sake of completeness. But without the 12 knowledge of that special approval buy [sic] PHMSA,
Page 21 of 28

### 13 it's 1''-H-M-S-A for the record, was needed? 14 

### A Sir, I, if that's what it says. 15 

### Q Okay. Now would special approval 16 

### had be,en needed had these battery packs been 17 

### tested? 18 A 

### No. 19 

### Q Okay. So, if these battery packs 20 

### were, 

### in fact, not materially different from 21 

### battery packs that had already been tested, no 22 

### PHMSA letter would have been needed? Page 82 1 A If they had met the requirements 2 

### in the UN Manual of Tests and Criteria, 3 correct.
Therefore, for each ofthe shipments, there were no violations ofthe regulations since all batteries were sent either as tested orundervirtuallythe same standard as international shipments, Tested ornottested, as Mr. Zawarus testified, there is no material difference between the international standard and the domestic standard:
Page 73 ofthe Trial Transcript: Page 22 of 28

### 14 Q Are the international standards 15 stricter, the same or less strict than 16 domestic? 17 A They are, the international 18 requirement, there are differences between 19 them. But for the most part they are similar.

Respondent's c1se ofthe wrong telephone number onthe shipping documents was also not intentional. National Powerhad a contractinplace with Chemtrec, a companythatprovides emergencyinformation 24hours a day. Chemtrec's telephone numberwas correctly shown on the label on the boxes, Due to a clerical error, National Power's telephone numberwas printed on the shipping documents instead ofChemtrec's 24-hournumber. National Power correctedthis immediatelywhen Mr. Zawaruspointedit out during the audit.

Mr. Vrabliktestified:

TrialTranscriptPage 112


### Q Okay. What number appeared on the 3 labels, on the boxes that were shipped on 4 these airway bills? Page 23 of 28

### 5 A The Chemtrec 24 hour hotline. 6 

### Q Okay. Why was there a difference 7 between the Chemtrec number on the labels and 8 the nun;ber that appeared on the airway bill? 

### 9 A Because the labels were pre10 printed with the correct information. And the 11 typographical error listed on this, these 12 documents was propagated over time. It was 13 never corrected. 14 

### Q Okay. So no one ever noticed that 15 it was National Power's number, not Chemtrec's 16 number? 17 A No, no. 18 

### Q Had you known that it was the 19 wrong number, what would you have done? 20 A I would have not been happy. I 21 would have corrected it.

Mr. Zawarus dso testified : 

### Page 56 Page 24 of 28

### 1 BY MS. BARBER: 2 Q What did C-12 tell you? 3 A The le·tter response indicated that 4 the 24 hour telephone number that was in 

### 5 question, that was provided by National Power 6 Corporation on the shipping papers, they, they 7 agreed with the findings and agreed to correct 8 them immediately and indicated that they had 9 done 

### so. National Power stated that they 10 would provide the 24 hour number of Chemtrec 11 

### as their emergency response telephone number 12 in the future.

B. Conclusion ofLaw

Ineach instance ofanyalleged violation, National Powerprovedthat it did not violate any ofthe shippingregulations for hazardous materials. It shippedthe batteriesbelievingin good faith that all batteries shppedwere tested orthe same as tested batteries. Inany event, the difference betweenthe shipping methods was trivial and immaterial.

The incorrect celephone number onthe shipping documents was a mere clerical error as the correct number appeared onthe shipping labels. There was no intent to violate this regulation. Page 25 of 28Logically, whywouldthe Respondent not putthe correctnumber down since it alreadyhad an agreement wit'lChemtrec to provide 24-hour emergency contactinformation andthe Chemtrec number already appeared onthe label?

The evidence ;hows that none ofNational Power's employees intended to violate any ofthe regulations co;teeming shipping protocols or labeling. All batteries that were shipped were tested whetherbecause theywere actuallytested or were exempt from testing because there was no material difference from those thatwere tested. Anyuntested prototypes were shippedperthe
same standards as National Power employees reasonablybelieved to bethe correct standard.
Therefore, since intent to violate anyregulations was lacking, National Power was notliable for anyviolations.

3. Conclusion

The Respondeat, National Power Corporation, lacked the requisite intentto violate any ofthe regulations concerning the shipping ofhazardous materials. The hazardous materials here were lithium-ionbatterypacks. At all times its employees followed theregulations that applied to the shipments inquestion. Those employees received thepropertraining inthoseregulations and the properprotocolto follow when shippingthose batteries. The batteries were all testedproperlyor, accordingto the UN rules, since theywere equivalentto testedbatteries. The otherprototypes
were shippedperthe standards that the shippingpersonnelreasonablybelieved to bethe required Page 26 of 28ones nnderthe circumstances. As itturns out, the method used did not differ materiallyfrom the international standard.

Theproposed fine orpenaltythat the FAAproposes is nnconstitutional. The FAA couldnot or wouldnotreveal how it cameup withthe penaltyamonnt. The FAAinvestigator admitted freely that itwas all i1is ideawithoutinput from others. He also admitted that the amount was arbitrary butwithin the limits providedby statute. This violates due process as one should be able to calculate the amount ofpenaltywithin a predictable degree ofcertainty. The proposedpenalty lacked anyreasonableness, was arbitraryand violated due process thatNational Poweris entitled to.
Respectfully submitted: MartinA. Blumenthal

Martin A. Blumenthal Attorneyfor Respondent I Northfield Plaza, Suite 300 Northfield, IL 60093 847-441-2687 martv@blumenthallaw.com

Page 27 of 28CERTIFICATE OF SERVICE I hereby certify that the foregoing Answer was sent via First-Class Mail to: Federal AviationAdministration 800 Independence Avenue, S.W. WilburWright Building, Suite 2WIOOO Washington, D.C. 20591 Attn: Hearing Docket Clerk, AGC-430 (Original and one copy)

Federal Avia1•on Administration 2300 E. Devo.1 Ave., AGL-7 Des Plaines, I L 60018 Attn.: Kate Barber, Esq.
The Honorable Richard C. Goodwin, ALJ Office ofHearings, M-20 U.S. Department ofTransportation 1200 New Jersey Ave., S.E. (E-11-310) Washington, D.C. 20590
Date: 4 January 2015 Signed:

# Mart~~-m-c-nt_h_a_l ____ _

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