1998 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

7-20-1998

United States v. Union Township

Precedential or Non-Precedential:

Docket 97-7115

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Recommended Citation

"United States v. Union Township" (1998). 1998 Decisions. Paper 161.

http://digitalcommons.law.villanova.edu/thirdcircuit_1998/161
Filed July 20, 1998 

UNITED STATES COURT OF APPEALS 

FOR THE THIRD CIRCUIT 

No. 97-7115 

UNITED STATES OF AMERICA 

v. 

THE MUNICIPAL AUTHORITY OF UNION TOWNSHIP; 

DEAN DAIRY PRODUCTS COMPANY, INC, 

d/b/a Fairmont Products, Inc. 

Dean Dairy Products, Inc. d/b/a Fairmont Products, 

 Appellant 

On Appeal from the United States District Court 

for the Middle District of Pennsylvania 

(D.C. No. 94-cv-00621) 

Argued March 19, 1998 

Before: SLOVITER, RENDELL and HEANEY,* 

Circuit Judges 

(Filed July 20, 1998) 

Gary A. Peters 

Steven C. Kohl (Argued) 

Howard & Howard 

Bloomfield Hills, MI 48304 

 Attorneys for Appellant 

_________________________________________________________________ 

* Hon. Gerald W. Heaney, Senior Circuit Judge for the Eighth Circuit 

Court of Appeals, sitting by designation. 
 Lynn P. Dodge (Argued) 

 United States Department of Justice 

 Environmental Enforcement Section 

 Washington, DC 20044 

 Attorney for Appellee 

 John G. Roberts, Jr. 

 Hogan & Hartson 

 Washington, DC 20004 

 Attorney for Amicus-Appellant 

 American Frozen Food Institute 

 Paul G. Wallach 

 Hale & Dorr 

 Washington, DC 20004 

 Attorney for Amicus-Appellant 

 International Dairy Foods 

 Association, and 

 The Grocery Manufacturers of 

 America 

 Kathy D. Bailey 

 Chadbourne & Parke 

 Washington, DC 20036 

 Attorney for Amicus-Appellant 

 Chemical Manufacturer 

 Association, and 

 American Automobile 

 Manufacturers Association 

OPINION OF THE COURT 

SLOVITER, Circuit Judge. 

Appellant Dean Dairy Products, Inc., d/b/a Fairmont

Products, Inc., appeals the district court's imposition of a 

$4,031,000 civil penalty against it for Clean Water Act 

violations. Dean Dairy contends that the district court erred 

when it assessed the economic benefit Dean Dairy gained 

during the period of the Clean Water Act violations on the 

basis of Dean Dairy's "wrongful profits." Dean Dairy also 

 2 
contends that the district court improperly looked to the 

financial condition of Dean Dairy's parent company in 

evaluating whether it could afford the substantial penalty 

imposed. The American Frozen Food Institute, the Chemical 

Manufacturers Association, the American Automobile 

Manufacturers Association, the International Dairy Foods 

Association, and the Grocery Manufacturers of America 

support Dean Dairy's appeal as amicus curiae. We have 

jurisdiction under 28 U.S.C. S 1291. 

I. 

The underlying facts of this case are undisputed and are 

comprehensively set forth in the district court's published 

opinion, United States v. Municipal Auth. of Union 

Township, 929 F. Supp. 800 (M.D. Pa. 1996). Briefly stated, 

Dean Dairy, operating in Union Township, Belleville, 

Pennsylvania, is a wholly-owned subsidiary of Dean Foods, 

Inc., the country's largest milk processor. Since 1974 Dean 

Dairy's wastewater, a result of the production of sour 

cream, cottage cheese, yogurt and ice cream, has been 

discharged and treated by Union Township's Publicly

Owned Treatment Works (POTW). Union Township collected 

a user fee based upon the volume of wastewater and the 

amount of conventional non-toxic pollutants treated at the 

plant, including Total Suspended Solids (or TSS) and 

Biological Oxygen Demand (or BOD). In June 1989, 

pursuant to requirements of the United States 

Environmental Protection Agency, Union Township issued 

to Dean Dairy an Industrial User Wastewater Discharge 

Permit ("the IU permit") which established monthly average 

limits and daily maximum limits for TSS and BOD and for 

flow volume. 

Beginning in July 1989, Dean Dairy exceeded the limits 

set forth in its IU permit. Its wastewater, containing the 

impermissibly high levels of BOD and TSS, flowed from 

Union Township's POTW into the nearby Kishacoquillas 

Creek, which was damaged as a result. There is no dispute 

that because Dean Dairy issued monitoring reports to 

Union Township on a monthly basis, it had been aware of 

its violations since July 1989. 

 3 
In 1994, the United States filed a civil enforcement action 

against Dean Dairy under the Clean Water Act, 33 U.S.C. 

S 1251 et seq., for close to 1800 violations of the IU permit 

and for numerous interferences with the POTW. Following 

discovery, the United States moved for and was granted 

summary judgment on the issue of Dean Dairy's liability for 

the CWA violations. The action against the Municipal 

Authority of Union Township was settled and therefore the 

Authority is not a party to this appeal. Dean Dairy does not 

contest its liability for the violations. Its appeal is limited to 

the amount of the civil penalty imposed. 

The district court held a three-day bench trial to 

determine the appropriate penalty under the Clean Water 

Act. Under 33 U.S.C. S 1319(d), a violator of a permit issued 

pursuant to the Act shall be subject to a civil penalty not 

to exceed $25,000 per day for each violation. This section 

further provides that in establishing the penalty the court 

shall consider the following six factors: "[T]he seriousness of 

the violation or violations, the economic benefit (if any) 

resulting from the violation, any history of such violations, 

any good-faith efforts to comply with the applicable 

requirements, the economic impact of the penalty on the 

violator, and such other matters as justice may require." Id. 

The district court found Dean Dairy liable for 1,754 

violations of its IU permit and 79 instances of interference 

with Union Township's POTW between July 1989 and April 

1994. It also found that Dean Dairy continued to violate its 

IU permit even after the United States filed suit. Although 

Dean Dairy took certain steps to address the violations of 

its permit between 1991 and 1994, the district court found 

these efforts were belated and ineffective. It was only the 

construction of a $865,000 pretreatment system, which 

became operational in April 1995, that succeeded in

reducing Dean Dairy's pollutants to permissible levels. 

Important to the issue before us is that Dean Dairy

considered various options to meet its permit obligations 

but, as the district court found, "it continued to produce at 

a volume which it recognized was very likely to generate 

levels of BOD and TSS beyond that allowed by its IU

permit. [Dean Dairy] chose not to reduce production volume 

because it viewed the concomitant reduction in earnings as 

 4 
too high a price to pay for compliance with the Clean Water 

Act." 929 F. Supp. at 805. 

Although the district court applied the six statutory 

factors a court must consider in assessing the appropriate 

penalty for a CWA violation, the appellant presents the case 

as if the court concentrated almost exclusively on the 

"economic benefit" factor. In fact, the district court made 

extensive findings of fact and issued conclusions of law on 

each of the six factors. See id. at 802-09. The court noted 

that the history of Dean Diary's violations dated back to 

1989, that the excessive discharges required the 

Pennsylvania Fish and Boat Commission to cease stocking 

fish in areas of the Kishacoquillas Creek, and that its twoyear delay to take meaningful action to remedy the 

violations did "not speak highly of its good faith in this 

matter." Id. at 803-08. 

In connection with its evaluation of the economic benefit 

factor, which is the primary basis of the appeal, the district 

court acknowledged that the parties had previously 

stipulated that Dean Dairy did not realize any economic 

benefit from delaying the capital investments necessary to 

achieve compliance with its IU permit. This was due to the 

unusual fact that, by delaying the construction of the 

pretreatment plant, Dean Dairy was actually losing money 

because it was paying higher usage fees to the POTW for its 

increased volume. Thus, Dean Dairy did not reap an 

economic benefit by delaying the construction of the 

pretreatment plant. The court nevertheless found that Dean 

Dairy did realize an economic benefit during the period of 

the violations because it produced "at a volume above that 

which would have allowed it to operate within its IU 

permit." Id. at 805. 

In making the finding of economic benefit, the district 

court relied upon a document produced by Dean Dairy

during discovery and introduced at trial as Joint Exhibit 18 

that outlined various options by which Dean Dairy could 

comply with its permit. The district court noted that Option 

#4 of that document indicated that Dean Dairy could drop 

PennMaid as a customer and thereby reduce the amount of 

wastewater generated. Dean Dairy recognized, however, in 

Exhibit 18 that losing the revenues from PennMaid would 

 5 
result in a loss of earnings in the amount of $417,000 in 

fiscal year 1994.* 

During the damages trial, the government questioned

Fairmont plant manager Dean Koontz about that document 

in the following exchange: 

 Counsel for the United States: Let me turn your 

 attention to Joint Exhibit 18, please. It is entitled 

 Recap of Wastewater Treatment Options . . . . 

 *** 

 Mr. Koontz: Okay. Yes. This is the information that I 

 fed to Ron Crock based on the costs that Union 

 Township gave us. And he ran some type of analysis 

 with it. 

 Q: Ron Crock is the comptroller for Dean Dairy 

 Products, is that correct? 

 A: Yes, he is. 

 *** 

 Q: And Mr. Crock ran numbers using four options, is 

 that right? 

 A: Yes it is. 

 Q: And one of those options includes Fairmont not 

 building a treatment plant and discharging to the 

 Authority but cutting back on plant volume to reduce 

_________________________________________________________________ 

* The other three options for wastewater treatment as set forth in Exhibit 

18, were, in brief summary: 

 Option #1: Fairmont builds pretreatment plant at cost of $700,000 

 (with obligation to municipal authorities for belt press, filter 

press 

 and/or reed bed filter press); 

 Option #2: Fairmont builds pretreatment plant at cost of $1 million 

 dollars with no obligation to municipal authorities; 

 Option #3: Fairmont does not build a pretreatment plant leading to 

 substantial (in excess of $100,000 a year) obligation to municipal 

 authorities for belt press, filter press and reed bed filter press. 

App. at 15-17. 
 6 
 flow rate which does not allow for growth -- future 

 growth of the plant. Do you see that? 

 A: Yes, option four. 

 Q: Option number four. . . . [I]t has an estimate of the 

 impact on earnings that this option would involve. Is 

 that correct? 

 A: That is the way I read it, yes. 

 Q: These are numbers that Mr. Crock arrived at. Is 

 that correct, sir? 

 A: Yes. 

 Q: Isn't it true that if you reduce volume, you would 

 lose an account by the name of PennMaid according to 

 the scenario? 

 A: Yes. This was when we did look at possibilities of 

 reducing volume. The only customer that we could 

 come up with that would have an impact would have 

 been PennMaid because we make only one product for 

 them, cottage cheese. And we could eliminate them as 

 a possible customer, which would have made all of us 

 very happy. 

 Q: It would have made you all happy, and it would also 

 have set you back $417,000 for fiscal year '94. Is that 

 correct? 

 A: Yes. There would have been a considerable amount 

 of overhead absorption loss by losing that. 

App. at 275-77. 

In its opinion, the district court commented on Exhibit 

18 as follows: "Production volume at Fairmont was higher 

in each year from 1989 to 1993 than it was in 1994, and, 

therefore, it is reasonable to believe that Fairmont gained at 

least $417,000 in earnings annually during the period of its 

violations. On this basis, the court concludes that between 

July 1989 and April 1994, Fairmont gained approximately 

$2,015,500 by violating its IU permit." 929 F. Supp. at 805. 

The district court also determined that the figure should be 

doubled in order to provide a proper deterrent and 

 7 
punishment, and accordingly imposed a total penalty of 

$4,031,000. 

II. 

Dean Dairy challenges the district court's analysis of two 

of the six factors to be considered in imposing a CWA civil 

penalty - the economic benefit to the violator and the 

economic impact of a penalty. We consider first its

contention that the district erred as a matter of law in 

using a "wrongful profits" approach to ascertain whether 

Dean Dairy received any "economic benefit" from its Clean 

Water Act violations. 

A. 

The Use of "Wrongful Profits" to 

Measure Economic Benefit 

Section 1319(d) of the Clean Water Act provides in 

pertinent part: 

 Any person who violates . . . this title, or any permit 

 condition or limitation . . . shall be subject to a civil 

 penalty not to exceed $25,000 per day for each 

 violation. In determining the amount of a civil penalty 

 the court shall consider the seriousness of the violation 

 or violations, the economic benefit (if any) resulting 

 from the violation, any history of such violations, any 

 good-faith efforts to comply with the applicable 

 requirements, the economic impact of the penalty on 

 the violator, and such other matters as justice may 

 require. 

33 U.S.C. S 1319(d). 

The statute does not define the term "economic benefit" 

used in this section. It is apparent, however, that the goal 

of the economic benefit analysis is to prevent a violator 

from profiting from its wrongdoing. In United States v. 

Smithfield Foods, Inc., 972 F. Supp. 338, 348 (E.D. Va. 

1997), the district court explained that "[c]ourts use 

economic benefit analysis to level the economic playing field 

 8 
and prevent violators from gaining an unfair competitive 

advantage." 

A similar rationale was also given by the Environmental 

Protection Agency, which emphasized that the reason for 

considering economic benefit to a violator in assessing a 

CWA penalty is to remove or neutralize the economic

incentive to violate environmental regulations. In a 1990 

Manual to its BEN computer program, established to assist 

in the calculation of civil CWA penalties, the EPA explained: 

 An organization's decision to comply with 

 environmental regulations usually implies a 

 commitment of financial resources; both initially, in the 

 form of a capital investment or one-time expenditure, 

 and over time, in the form of annual, continuing 

 expenses. These expenditures might result in better 

 protection of public health or environmental quality; 

 however, they are unlikely to yield any direct economic 

 benefit (i.e., net gain) to the organization. If these 

 financial resources were not used for compliance, they 

 presumably would be invested in projects with an 

 expected direct economic benefit to the organization. 

 This concept of alternative investment; that is, the 

 amount the violator would normally expect to make by 

 not investing in pollution control, is the basis for 

 calculating the economic benefit of noncompliance. As 

 part of the Civil Penalty Policy, EPA uses the Agency's 

 penalty authority to remove or neutralize the economic 

 incentive to violate environmental regulations. In the 

 absence of enforcement and appropriate penalties, it is 

 usually in the organization's best economic interest to 

 delay the commitment of funds for compliance with 

 environmental regulations and to avoid certain other 

 associated costs, such as operating and maintenance 

 expenses. 

EPA BEN User's Manual I-6 (July 1990), quoted in Friends 

of the Earth, Inc. v. Laidlaw Envtl. Servs. (TOC), Inc., 890 F. 

Supp. 470 (D.S.C. 1995) ("Laidlaw I"). 

Few published cases discuss the "economic benefit" 

factor of the Clean Water Act in any detail, and those that 

do are, in large part, district court opinions. In Laidlaw, the 

 9 
court described economic benefit as: "the after-tax present 

value of avoided or delayed expenditures on necessary 

pollution control measures." 890 F. Supp. at 481. The 

theory is that economic benefit "represents the opportunity 

a polluter had to earn a return on funds that should have 

been spent to purchase, operate, and maintain appropriate 

pollution control devices." Id. 

This court has previously recognized that a violator's 

economic benefit under the Clean Water Act may not be 

capable of ready determination. In Public Interest Research 

Group of New Jersey, Inc. v. Powell Duffryn Terminals, Inc., 

913 F.2d 64 (3d Cir. 1990), we stated: 

 Precise economic benefit to a polluter may be difficult 

 to prove. The Senate Report accompanying the 1987 

 amendment that added the economic benefit factor to 

 section 309(d) recognized that a reasonable 

 approximation of economic benefit is sufficient to meet 

 plaintiff 's burden for this factor. . . . The determination 

 of economic benefit or other factors will not require an 

 elaborate or burdensome evidentiary showing.

 Reasonable approximations of economic benefit will 

 suffice. 

Id. at 80 (citation omitted). 

Because of the difficulty of determining the appropriate 

penalty under the Clean Water Act, the court will accord 

the district court's award of a penalty wide discretion, even 

though it represents an approximation. This was 

emphasized by the Supreme Court when it said, more than 

a decade ago, "Congress [made the] assignment of the 

determination of the amount of civil penalties to trial judges 

. . . . Since Congress itself may fix the civil penalties, it may 

delegate that determination to trial judges. In this case, 

highly discretionary calculations that take into account 

multiple factors are necessary in order to set civil penalties 

under the Clean Water Act." Tull v. United States, 481 U.S. 

412, 426-27 (1987). 

This has been the approach generally followed by the 

courts. In Smithfield Foods, the court recognized that it is 

difficult to prove the precise economic benefit to a polluter, 

but stated that the economic benefit analysis provides an 

 10 
approximation of "the amount of money a company has

gained over its competitors by failing to comply with the 

law." 972 F. Supp. at 348. See Sierra Club v. Cedar Point 

Oil Co., 73 F.3d 546, 576 (5th Cir. 1996) ("a court need only 

make a `reasonable approximation' of economic benefit 

when calculating a penalty under the CWA") (citation 

omitted); Public Interest Research Group of New Jersey, Inc. 

v. Hercules, Inc., 970 F. Supp. 363, 364 (D.N.J. 1997) ("In 

assessing a penalty under the Clean Water Act, a district 

court has a great amount of discretion."); United States v. 

Sheyenne Tooling & Mfg. Co., 952 F. Supp. 1420, 1422-23 

(D.N.D. 1996) ("It must be understood, however, that 

despite the directional aid and guidance that the six 

enumerated factors in S 1319(d) provide, the calculation of 

a final penalty may often be imprecise and approximate at 

best. Indeed, the accuracy of the final calculations, and the 

figure of penalty that they produce, is as dependant, or 

even more so, upon the provision of complete and accurate 

evidence, as introduced, developed, and explained at trial, 

as it is upon a good evaluation of this information by the 

court."). 

Courts have applied different methods in determining the 

appropriate penalty for a Clean Water Act violation. Some 

courts have employed a "top down" approach in which the 

maximum possible penalty is first established, then

reduced following an examination of the six "mitigating" 

factors. See, e.g., Sierra Club, 73 F.3d at 574-76; Powell 

Duffryn, 913 F.2d at 79; Atlantic States Legal Found., Inc. 

v. Tyson Foods, Inc., 897 F.2d 1128, 1142 (11th Cir. 1990); 

Hawaii's Thousand Friends v. City and County of Honolulu, 

821 F. Supp. 1368, 1395 (D. Haw. 1993); Atlantic States 

Legal Found., Inc. v. Universal Tool & Stamping Co., 786 F. 

Supp. 743, 746-47 (N.D. Ind. 1992). 

Other courts have used a "bottom up" approach whereby 

the economic benefit a violator gained by noncompliance is 

established and adjusted upward or downward using the 

remaining five factors in S 1319(d). See , e.g., Smithfield 

Foods, 972 F. Supp. at 354; Friends of the Earth, Inc. v. 

Laidlaw Envtl. Servs. (TOC), Inc., 956 F. Supp. 588, 603 

(D.S.C. 1997) ("Laidlaw II"). Because the statute does not 

prescribe either method, it appears that a court is free to 

 11 
use its discretion in choosing the appropriate method. See 

Smithfield Foods, 972 F. Supp. at 354. 

Had the district court in this case taken a "top-down" 

approach, it would have begun at the maximum penalty, 

which was approximately $45,825,000, based on the 

statutory penalty of $25,000 a day. Instead, the court 

applied the "bottom up" approach, 929 F. Supp. at 806, by 

determining Dean Dairy's economic benefit acquired 

through the Fairmont plant's production at a volume that 

resulted in more wastewater than permissible under its 

permit. These were knowing violations, as its own 

document demonstrated it was aware that if it had reduced 

its wastewater volume by reducing its production, it would 

have been in compliance with its IU permit. As Koontz 

specifically testified, if Dean Dairy had reduced volume, it 

believed it would have lost PennMaid as a customer. Dean 

Dairy's own document prepared by Ron Crock, its 

controller, demonstrated that this loss of PennMaid would 

have had a negative impact of $417,000 per year.** This 

was the basis on which the district court calculated Dean 

Dairy's economic benefit as $2,015,500, which when 

doubled, resulted in the penalty of $4,031,000. That 

penalty was barely 9% of the maximum statutory penalty to 

which Dean Dairy was subject. 

It is not surprising that no published case has used this 

method of ascertaining a violator's economic benefit 

because it is the rare violator who actually loses money by 

delaying compliance with the law. Typically, a violator 

benefits economically by avoiding or delaying the 

construction of antipollution equipment that would have 

_________________________________________________________________ 

** While the exhibit referred to, and relied upon by the district court 

(and 

specifically the "impact on earnings" portion, see app. at 18) is 

susceptible to different interpretations, including an interpretation that 

earnings could have been affected anywhere from $407,748 to $443,000, 

it was not error, and specifically not clearly erroneous, for the district 

court to have made a factual finding based upon the documentary 

evidence, coupled with the testimony of Koontz, that the continued sale 

to PennMaid had a positive impact of $417,000. Further, it was not error 

to conclude as a matter of law that this impact, which by the company's 

own statements resulted from noncompliant production, could be 

deemed wrongful profits and therefore economic benefit to Dean Dairy. 

 12 
placed it in compliance with its permit. See, e.g., Sierra 

Club, 73 F.3d at 574; Hawaii's Thousand Friends, 821 F. 

Supp. at 1396. In Smithfield Foods, the court explained 

that, "[w]hen a company delays or avoids certain costs of 

capital and operations and maintenance necessary for 

compliance, the company is able to use those funds for 

other income-producing activities, such as investing that 

money in their own company." Id. at 349. Therefore, it 

concluded that in that case, "the avoided and/or delayed 

cost of compliance, and the weighted average cost of capital 

(WACC) as a discount/interest rate in the economic benefit 

calculation, to be both the best and the appropriate method 

to determine how much money defendants made on the 

funds they did not spend for compliance." Id. at 349 

(footnote omitted). 

This case is unusual because Dean Dairy's delay in 

constructing a pretreatment plant was not beneficial to its 

"bottom line"; in effect, Dean Dairy was actually penalizing 

itself in failing to promptly build the pretreatment plant. 

Our general assumption of the reasonable capitalist went 

awry with this company. 

There are methods other than the delayed or avoided

capital expenditure for ascertaining economic benefit, a fact 

the appellant and the amici decline to acknowledge. It is 

significant that neither the statute nor the case law 

supports the contention that the cost-avoidance method is 

the only permissible method of determining the amount a 

polluter has gained from violating the law. In Smithfield 

Foods, though the court applied the delayed or avoided 

costs method, it "acknowledge[d] there are various methods 

for calculating defendants' economic benefit gained from 

noncompliance." 972 F. Supp. at 349. 

In contrast to the situation in Smithfield Foods, the "costavoided" method of determining economic benefit is not a 

method that fits the facts that were presented to the district 

court because Dean Dairy did not profit by delaying its 

construction of the pretreatment plant. But it clearly gained 

other economic benefits by failing to adopt the method that 

was readily available. The wastewater from the Fairmont 

plant is created by the required daily cleaning of its vats 

and other processing equipment. A reduction of production 

 13 
would reduce the wastewater. Thus, if Dean Dairy wanted 

to avoid the cost entailed by the purchase of new 

equipment, it had the option of reducing volume. 

The approach adopted by the district court is not in 

conflict with the CWA or basic economic principles. A 

violator who chooses to continue to violate its permit while 

experimenting with less costly remedies necessarily

subjects itself to the surrender via penalty of any economic 

benefit it acquired. The fact that the violator has also 

penalized itself by failing to implement cost-effective 

methods that would have put it into compliance with its 

permit and thereby save it money is certainly no basis to 

mitigate its penalty. 

Requiring a company to reduce the amount of pollution 

it creates to comply with its permit is not unreasonable. As 

the court in Tyson Foods stated: "There was one simple and 

straightforward way for Tyson to avoid paying civil penalties 

for violations of the Clean Water Act: After purchasing the 

plant, Tyson could have ceased operations until it was able 

to discharge pollutants without violating the requirements 

of its . . . permit. Tyson chose not to do this and it must 

now bear the consequences of that decision." 897 F.2d at 

1141-42. Similarly, Dean Dairy chose neither what proved 

to be the economically sensible option (building the 

pretreatment facility) nor the alternative option of reducing 

the amount of wastewater produced. Accordingly, it must 

bear the consequences. 

Appellant and the amici argue that the use of the 

"wrongful profits" method to calculate economic benefit 

contravenes EPA policy. They base this argument on the 

EPA's interim Clean Water Act Settlement Penalty Policy 

Guide published in 1995, which states that the "objective of 

the economic benefit calculation is to place violators in the 

same financial position as they would have if they complied 

on time." App. at 244. The appellant focuses on language in 

the Guide that explains that "[p]ersons that violate the 

Clean Water Act are likely to have obtained an economic 

benefit as a result of delayed or completely avoided 

pollution control expenditures during the period of

noncompliance." Id. Thus, this reference to delay and 

avoidance and the EPA's creation of computer software 

 14 
("the BEN model") to calculate a violator's economic benefit 

from delaying or avoiding compliance has led appellant to 

conclude that this is the only approach to determining 

economic benefit. 

However, the EPA guideline itself notes that this 

approach may not always be applicable. The policy states: 

 [I]f the violator is a privately-owned regulated utility, 

 the standard BEN model may not be appropriate. In 

 this situation, the Agency should consider a wrongful 

 profits analysis and seek to recover the profits and 

 other competitive market benefits the violator obtained 

 as a result of operating during the period of 

 operation. . . . In a few unusual cases, economic benefit 

 may be negative: this means, e.g., operating the old 

 efficient system was more expensive than purchasing 

 and operating a new, more efficient treatment system. 

 When economic benefit is negative, the settlement 

 calculation enters zero as the economic benefit. 

App. at 245-46 (emphasis added). 

Even the EPA guideline, on which Dean Dairy relies, is 

receptive to a wrongful profits analysis where appropriate. 

But the EPA policy is not applicable here because, by its 

own express terms, it is not "intended for use by EPA, 

violators, courts or administrative judges in determining 

penalties at a hearing or trial." App. at 243. See also 

Laidlaw I, 956 F. Supp. at 601 ("the policy expressly states 

that it is not to be used by a court in determining a penalty 

at a trial . . . . [therefore] it will not be considered in 

arriving at an appropriate penalty amount"). Finally, the 

conclusive evidence that the "wrongful profits" approach to 

economic benefit does not conflict with EPA's policy is the 

fact that its representative is on the brief for the 

government arguing in support of that approach here. 

We conclude that the district court's method of 

calculation of the penalty was within its discretion. We do 

not suggest that we have any dissatisfaction with the costavoided method of determining a violator's economic benefit 

in the usual case. However, under these unusual 

circumstances, we see no legally significant difference in 

measuring the economic benefit achieved by avoiding the 

 15 
costs of antipollution equipment, and the economic benefits 

achieved by failing to reduce the volume of pollution 

created. Both methods aim to recoup any benefits a violator 

gained by breaking the law and which gave the violator an 

advantage vis-a-vis its competitors. The penalty thus 

achieves the leveling of the playing field intended by 

Congress. 

Finally, we reject Dean Dairy's claim that it was 

"ambushed" and unfairly surprised by the government's 

reliance on the "wrongful profits" theory of economic 

benefit. Although the government first identified Joint 

Exhibit 18 as the document on which it based the 

$417,000 figure in its penalty calculation in its closing 

argument, the document had already been admitted into 

evidence and was the subject of the government's trial 

examination of Koontz, Dean Dairy's plant manager, quoted 

earlier in this opinion. Dean Dairy did not question Koontz 

on this document nor did it call Ron Crock, its own

controller, who prepared the figures in the document, for 

an explanation. If Dean Dairy was content to allow those 

figures to go to the factfinder without cross-examining 

Koontz and examining Crock, then it cannot reasonably 

argue only after the district court's opinion, forthcoming six 

months later, that the figures don't mean what they say. 

Dean Dairy vehemently contends that it was given 

inadequate notice of the government's theory. Our 

examination of the record establishes that the government 

gave Dean Dairy ample notice that it was pursuing this 

theory of economic benefit. The government's pretrial 

memorandum states that "Dean Dairy was operating its 

Fairmont plant at a percentage over capacity, thus 

increasing its profits at the expense of violating" the CWA, 

and that this "economic benefit, separate from capital 

costs, was substantial for each year of production." Supp. 

App. at 748. The government's trial brief also emphasized 

that Dean Dairy "enjoyed financial benefits during the 

period of noncompliance" because its "production 

operations were neither halted nor adversely impacted by 

its noncompliance." App. at 768. The government's opening 

statement promised to "present evidence showing what 

Dean itself estimated as the amount of revenue it would 

 16 
lose if it decreased production to levels that would comply 

with its permit." Supp. App. at 734. Dean Dairy never 

requested a continuance of the bench trial to answer those 

contentions. 

Moreover, although Dean Dairy repeatedly refers to the 

government's stipulation that Dean Dairy did not realize 

any economic benefit from delaying the capital expenditures 

needed to achieve compliance with the IU permit, the 

government carefully reserved the argument that Dean 

Dairy could have received economic benefit from other 

actions. Indeed, at trial government counsel specifically 

stated: 

 [T]he United States is preserving the argument with 

 respect to economic benefit to other actions that the 

 dairy could have taken. In other words, we are talking 

 about production or other matters aside from the 

 capital expenditures, as well as the maintenance costs 

 associated with the actual hardware that was brought 

 on-line at the dairy facility. 

App. at 288. 

Finally, although six months elapsed after the close of 

the trial during which the parties prepared and submitted 

post trial briefs, which we have examined, Dean Dairy 

never argued that it had been unprepared by the 

government's theory or method of proof. Only after the 

district court's opinion fixing the penalty did it raise these 

claims. By then, it was too late. Under these circumstances, 

we cannot accept Dean Dairy's claim that it was unfairly 

surprised by either its use of the "wrongful profits" 

approach of economic benefit or the basis of the calculation 

of the penalty. 

B. 

Consideration of the Finances of 

Dean Dairy's Parent Company 

In analyzing the "economic impact on the violator," one of 

the six factors the statute lists as relevant to the CWA 

penalty, the district court stated it would look to the 

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finances of Dean Dairy's parent, Dean Foods. Among the 

reasons it gave were that "Dean Foods was closely involved 

with Fairmont [Dean Dairy's plant] in evaluating the 

options for resolving Fairmont's wastewater problems, and 

it had complete control over whether and when Fairmont 

would achieve compliance with its IU permit." 929 F. Supp. 

at 808. The district court also stated that "[a]t the same 

time, Dean Foods was siphoning off profits from Fairmont." 

Id. 

Dean Dairy contends that it was legal error for the

district court to consider the financial condition of Dean 

Foods because the parent corporation was not a party to 

the action, it did not violate the Clean Water Act, and there 

was insufficient evidence to pierce the corporate veil. We 

reject its contention. Notwithstanding the arguments made 

in the brief and before us orally, it is important to 

remember that it was not Dean Foods, but only Dean Dairy, 

the violator, who was penalized. The reference to Dean 

Foods' financial statement merely assured that the penalty 

would not be set at a level above Dean Dairy's ability to 

pay. If the subsidiary does not retain its revenues, as the 

evidence showed in this case, then its parent'sfinancial 

resources are highly relevant. Other courts in CWA cases 

have looked to the assets and finances of the violator's 

parent in evaluating the economic impact of the penalty on 

a violator, see Universal Tool, 786 F. Supp. at 753; PIRG v. 

Powell Duffryn, 720 F. Supp. 1158, 1166 (D.N.J. 1989), 

reversed in part on other grounds, 913 F.2d 64 (3d Cir. 

1990), and we see nothing improper in the same action 

here. 

The consideration of a parent's financial condition in 

assessing a penalty on a subsidiary is a far cry from 

piercing the corporate veil and holding the parent liable for 

the actions of its subsidiary; here the penalty was assessed 

against the subsidiary alone. Furthermore, the district 

court only considered Dean Foods' assets as one factor 

among others; they were not dispositive. The court simply 

undertook a fact-specific assessment that examined the role 

of the parent in the operations of the subsidiary, 

particularly with regard to the issue of pollution of the 

nearby waters and actions that could have resolved it. 

 18 
Although Dean Dairy contends that any evaluation of its 

financial condition would show that it lost over one million 

dollars between 1992 and 1995, there was also evidence 

that it had over twenty million dollars in assets infiscal 

year 1995. App. at 586-88. In light of the discretion 

afforded a district court in determining a penalty, we 

conclude that the court's examination of the parent's 

assets, the basis for which it was done, and the manner in 

which the information was used was neither clear error nor 

an abuse of discretion. 

III. 

For the foregoing reasons, the order of the district court 

will be affirmed. 

A True Copy: 

Teste: 

 Clerk of the United States Court of Appeals 

 for the Third Circuit 

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