IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF ALABAMA

SOUTHERN DIVISION

UNITED STATES OF AMERICA,

Plaintiff,

v. CIVL ACTION NO. 12-00498-KD-C

HAMILTON SMITH.

Defendant.

ORDER

This rnatter came before the Court for a non-jury trial on June 2-3,2014 ("Phase II"), at which

time the issue of remedies concerning Dams/roads A, B, D and E, were tried. Upon consideration of the

arguments, and documentary and testimonial evidence presented, and all other pertinent portions of the

record including the parties' post-trial briefs (Docs. 137-142), the Court finds as follows.

I. Statement of the Case & Factual Background

This is a civil action arising under the Clean Water Act ("CWA").r The purpose of the CWA is

to restore and maintain the chemical, physical, and biological integrity of the Nation's waters. 33 U.S.C.

$ l25l(a). Accordingly, the CWA prohibits all discharges of pollutants, including dirt, rock, clay and

other materials, into "waters of the United States" except as authorized by a "section 404 permit" granted

under the CWA, or as provided in one of the statute's permit exemptions. Section 404 requires that,

before discharging dredged infill material into jurisdictional waters of the United States, you must obtain

a permit from the Secretary of the Army.

Defendant Hamilton Smith ("Smith")'s family owns (and Smith manages) approximately 800

acres of real properly in Baldwin County, Alabama. The property contains wetlands and streams that are

protected by the CWA, including Dennis Creek and three (3) unnamed tributaries that flow into Dennis

Creek, which are referred herein as Creek A, Creek B, and Creek E. Dennis Creek flows directlv into

I The CWA makes it illegal to introduce pollutants from any point source into the navigable waters of the

United States without a permit. 33 U.S.C. $$ l3l t(a), 1342.

Case 1:12-cv-00498-KD-C Document 145 Filed 07/24/14 Page 1 of 30
the Tensaw River, which is three (3) miles away from Smith's property, and ultimately into Mobile Bay,

approximately l5 miles down the Tensaw River. Between approximately 1998-2004, Smith built five

(5) dams on his properly at the cost of $ 180,000 (Doc. 90 at 56; Doc. 103 at 69), which provided roads

and resulted in several lakes, referenced herein as Dams/roads A, B, C, D, and E.2 Smith did not request

permission from the Government before making these improvements, and did not apply for Section 404

CWA permits.3 As such, the Government sued Smith for CWA Section 404 permit violations.

The Government has established, and Smith does not dispute, that the tributaries at issue are

jurisdictional waters of the United States and that he built the dams/roads using point sources that

discharged pollutants. Smith also does not contest that one (t) dam/road, Dam/road E, was built in

violation of the CWA Section 404 permitting requirement.

At the Phase I trial (liability only), Smith contended that Dams A-D did not require a Section 404

permit because they were built in compliance with the CWA permitting exemption for forest roads (and

for silviculture).4 The forest roads exemption covers the discharge of dredged or fill material "for the

purpose of construction or maintenance of farm roads or forest roads ... where such roads are constructed

and maintained, in accordance with best management practices, [BMPs] to assure that flow and

circulation patterns and chemical and biological characteristics of the navigable waters are not impaired,

that the reach of the navigable waters is not reduced, and that any adverse effect on the aquatic

environment will be otherwise minimized." 33 U.S.C. $ 1344(D(IXE). This permitting exemption

2 In addition to constructing dams/roads, Smith harvests timber and hunts quail on is properfy. From

2000-201l, Smith grossed $100,000 from timber sales, $50,000 of which were for timber sales on the portion of his

property where the Dams/roads are located. (Doc. 90 at 58-60). In 2006, Smith grossed $72,000 from a quail

hunting business on his properly (Dennis Lake Wing Club); and from2007 forward grossed $152,000/year from this

business. (Doc. 90 at 52;Doc. 103 at 69).

3 33 U.S.C. $ l3a4(a). To establish a prima facie case of a violation of Sections 301 and 404, the

Government must prove that Smith is a l) person who 2) discharged a pollutant 3) from a point source 4) into waters

of the United States 5) without a permit issued under CWA section 404. 33 U.S.C. g$ l3l l(a), 1344 and 1362

(definitions); U.S. v. RGM Corp.,222F.9upp.2d780,786 (E.D. Ya.2002); U.S. v. Board of Trustees of Fla. Kevs

Cmty. Colleee, 531 F.Supp.267,274 (S.D. Fla. l98l). Under the CWA statutory scheme, the Army Corps of

Engineers is the agency that issues CWA permits for the dredge and fill of navigable waters, which can include

wetlands. 33 U.S.C. $ 1344; Rapanos v. United States, 547 U.S. 715 Q006).

4 For the "silviculture exemption" to apply, "the activities ... must be part of an established (i.e., on-going)

farming, silviculture, or ranching operation...." 33 C.F.R. g 323.4({(l)(ii).

Case 1:12-cv-00498-KD-C Document 145 Filed 07/24/14 Page 2 of 30
requires that the roads be constructed in accordance with 15 mandatory Best Management Practices

("BMPs"). 33 C.F.R. $ 3n.a@)(6Xi-xv); 40 C.F.R. $ 232.3(c)(6)(i-xv). To qualify for the forest roads

exemption, Smith bore the burden of establishing that his activities satisfied the exemption's

requirements. U.S. v. Brink,795 F.Supp.2d 565,582 (S.D. Tex.201l); Avoyelles Sportsmen's League.

Inc. v. Marsh,715F.2d8g7,92615'h Cir. 1983); U.S. v. Akers,785F.2d8t47t5F.zd8g7,8l9 19th Cir.

1986); In re Carsten, 2l I B.R. 719,732 (Bkrtcy. D. Mont. 1997).

At trial, the Government argued that Smith failed to comply with the mandatory BMPs such that

he could not avail himself of the forest road exemption, and moreover, even if he could, he still would not

be entitled to the exemption because his activities were subject to "recapture"5 -- an exception to the

forest roads exemption. To support recapture applying to Smith's dams/roads, the Government asserted

that because they altered the ecosystem and affected the hydrology of the jurisdictional waters, the use

and the reduction or reach/circulation of the waters was altered.

During the Phase I trial, which dealt only with liability, the jury heard the testimony and

evidence, and considered Smith's CWA liability for Dams/roads A, B, C, and D. The jury found Smith

liable for Dams/roads A and B (that the forest road exemption applied but so did recapture which

removed that exemption).6 The jury found Smith was not liable for Dams/roads C and D (that the forest

road exemption applied and recapture did not). Thereafter, the Government filed a post-trial motion for

judgment as a matter of law regarding Dams/roads C and D (Doc. 100), which the Court granted as to D?

5 Recapture refers to the concept that, despite exceptions to the CWA permitting requirement, if dam

construction and resulting discharges significantly alter the "use" of navigable waters and the reduction or

reaclr./circulation of such waters, then the Section 404 exemptions are inapplicable. Section 1344(DQ) reinstates

the permit requirement where the discharge of dredged or fill material into the navigable waters is "incidental to any

activity having as its purpose bringing an area of the navigable waters into a use to which it was not previously

subject, where the flow or circulation of navigable waters may be impaired or the reach of such waters reduced ...."

To fall within the exception, both conditions (new use q41lreduction or reach/circulation of waters) must be shown

to apply. Greenfield Mills. Inc. v. Macklin, 361 F.3d g34,g4g and 953 (7th Cir. 2004).

6 Dams/roads A and B were found (by the jury) to be in compliance with all 15 MBPs for the forest road

exemption but were subject to recapture under Section 404(f)Q).

7 The Court determined that there was insufficient evidence for the jury's determination that Dam/road D

complied with BMP 6 (minimal impact on aquatic vegetation) and BMP 7 (movement of aquatic species).

Case 1:12-cv-00498-KD-C Document 145 Filed 07/24/14 Page 3 of 30
but denied as to C (upholding the jury's verdict on C). (Doc. 106). At a later date, this case proceeded

to Phase II of the trial (remedies only) regarding Dams/roads A, B, D and E. For purposes of Phase II,

the Parties agreed that Dams/Roads A, B and D are located in protected streams and/or wetlands and that

each of the dams/roads created impoundments of water of various sizes that inundated protected streams

and/or wetlands. Smith also admitted liability for Dam/road E. Phase II then addressed the remedies

and damages for the admitted or adjudicated CWA violations by Smith for Dams/roads A, B, D and E.

As damages, the Government seeks injunctions, compensatory mitigation, and civil penalties.

Specifically, the Government asserts the following relief against Smith:

' Permanent Injunction: a general permanent injunction forever prohibiting Smith's discharge of

pollutants into waters of the United States without a permit in violation of CWA section 301(a),

33 U.S.C. $ 13ll(a). (Doc. 133 at4).

Temporary Restorative Injunction (Restoration Plan): a restorative temporary injunction relating

to a restoration plan (based on the findings of William L. Kruczynski- "Dr. Kruczynski") (Docs.

138-1, Doc. l4i-l (as amended)) requiring Smith, from October l, 2014 through October 1,

2015, at his own expense and at the direction of the EPA, to fully restore the site by returning the

violation areas to their pre-violation conditions through the removal of all unauthorized fill (the

earthen material that comprises the dams/roads) from the protected streams and wetlands at the

site and planting new vegetation to restore the pre-violation forested wetland condition. (Doc. 133

at 4, 6-7). Included in this request is removal of the dams/roads because there are other ways to

cross the streams (e.g., bridges), or at the minimum, Dams/roads A and B should be redesigned

via culverts and to restore the flodcirculation of Creeks A and 8.8 (Id. at 5-6, 8). Additionally,

the Government seeks 3 years of annual monitoring/reporting to the EPA to ensure the plan is

working and the site is being restored. Qd. at 7-8). ($e9 also Docs. 138-1, l4l-l). The

Govemment estimates the costs of restoration as $89,900. (Doc. 138-l at l0; Doc. 141-l at 1 1).

Compensatory Mitigation: compensatory mitigation for any unauthorized fill Smith cannot

remove, or that the Court determines should be allowed to remain at the site, given the statute's

policy of "no net loss" of wetlands. (Doc. 133 at 4-5). For the Govemment, this addresses

both permanent and temporary losses since the fill has been in place (the time of the violations)

from 2003 to the present, as during that time the wetlands and streams have not been functioning

as they should and there should be compensatory mitigation for those losses. (Id. at 5,9).

' Temporal Losses. Compensatory mitigation for temporal losses of stream and wetland

function due to Dams A, B, D, and E and their impoundments until they are restored, in

8 During the Phase II trial and in post-trial briefing, the Government also sought restoration as to

Dam/road C (that the water level of Dam /road C be lowered to prevent back-flooding connected to areas upstream

of Dams/roads A,B, and D). (See, e.g., Doc. 138-1 at2,4-6,8, 1l). However, during the liability phase of hial,

Phase I, the jury concluded that Smith satisfied the forest road exemption and was not subject to recapture for the

Dam/road C impoundment. The Government is not in a position to demand any form of relief as to Dam/road C and

any such request is DENIED.

4

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the form of mitigation credits. (Doc. 107; Doc. 133 at9-13; Doc. 137 at6,20).

' Mitigation Bank Credits. The Government seeks an order specifuing that Smith satisf,,

the requirement to mitigate for temporal losses for more than decade by purchasing

credits at an existing mitigation banke in the service area, or nearby within the State oi

Alabama, in recognition of the preference under applicable regulations (40 C.F.R. $

230.93(b) for mitigating through mitigation banks rather than through other forms of

mitigation that involve further temporal losses and increased risk of failure. (Id.)

o Post-trial, the Government produced a specific figure of $217,365 and requests

that this Court require Smith to purchase credits for Dams/roads A, B and E

equivalent to 20o/o of the mitigation that would have been required for the

impacts if they had been permitted, to offset the functional losses that occurred

during the 12 years the violations remained unabated. (Doc. 137 at6,l4). The

Government also seeks credits equivalent to 15%io for Dam/road D to reflect that

its size decreased in 2010 aftera large culvertwas installed. (Doc. 137 at l5).

The Government adds that the temporal mitigation request will address only the

impoundment and not the filling impacts at Dams/roads A, B, and D based on the

expectation that these dams will be brought into compliance with the forest road

exemption and will not impound water "in which case the remaining fill would

not require a permit." Gd.)

' Compensation for permanent impacts (none if restoration is complete). (Doc. 133 at l3).

' Civil Penalties. The Government seeks civil penalties against Smith in the amount of

$1'500'000 for the Dams/roads A, B, D and E, pursuant to 33 U.S.C. $ l3lg(d), depending on the

other relief being ordered in full by the Court.

III. Conclusions of Law

Guidingthe Court's analysis of the appropriate relief to be awarded in this case is the principle

that while CWA violations may be remediated in a variety of ways, restoration of a violation site to its

pre-violation condition is the preferred remedy. United States v. Cumberland Farms of Conn.. Inc., 826

F.2d I 151, I l6l-l165 (l't Cir. 1987); U.S. v. Bedford ,2009 WL 149t224, *74 (E.D. Va. May 22,2009).

See also 9.g., Ohio v. United States Dep't of the Int., 880 F.2d 432, 443-444, 457 (D.C. Cir. 1989)

(recognizing that the common law concept of "legal" damages was unacceptable to Congress and that

restoration was the preferred remedy). Restoration, meaning to offset the impacts of violations and

9 Explained by the Government as for-profit private enterprises where individuals locate properties

suitable for restoration, develop a restoration plan, take that to the Corps ofEngineers to obtain approval, and ifthey

can show a benefit associated with the work they will do, the Corps approves the plan and authorizes the company,

the mitigation bank, to sell credits to the public. (Doc. 133 at 9-10). One restoration wetland credit is

approximately $12,000 and the stream restoration credits are $75 per linear foot. (!d. at 13).

)

Case 1:12-cv-00498-KD-C Document 145 Filed 07/24/14 Page 5 of 30
remove the violations themselves to return the site to its pre-violation state. The Court agrees that site

restoration is a foremosl consideration, and as such, has given great weight to the significance of

accomplishing restoration, over other remedies, when assessing remedies. The Court has also

considered that the main purpose of imposing any civil penalties is deterrence -- to deter the violator and

others from committing future violations. Tull v. United States,43l U.S. 412,422-425 (1987); United

States v. Smithfield Foods. 972F. Supp. 338, 352 (E.D.Ya. 1997).

A. Injunctive Relief

The Government seeks entry of: l) a permanent injunction prohibiting Smith's discharge of

pollutants into waters of the United States without a permit in violation of CWA section 301(a), 33 U.S.C.

$ I 3 1 I (a); and 2) a temporary injunction requiring Smith, as his own expense and at the EPA's direction,

to fully restore the site via its proposed restoration plan.r0 (See also Doc. 133 at4;Doc.I37 at5,7).

In the event of a violation, the CWA authorizes civil judicial enforcement, allowing the United

States to seek "appropriate relief, including a permanent or temporary injunction, for any violation." 33

U.S.C. $ l3l9(b). However, an injunction does not issue automatically upon a finding of a CWA

violation. Weinberger v. Romero-Barcelo, 456 U.S. 305 (1982); Amoco Production Co. v. Village of

Gambell. AK,480 U.S.53l (1987)." District courts are not "mechanically obligated to grant an

injunction for every violation of the law." Weinberger, 446 U.S. at 313. More specifically, the CWA

does not require a district court to grant injunctions for all violations of the act, but instead the CWA

"permits the district court to order that relief it considers necessary to secure prompt compliance with the

Act." Id. at320.

1. Permanent Iniunction

As to the Government's request for entry of a permanent injunction, there is no basis for this

l0 By retuming the violation areas to their pre-violation conditions through the removal of all

unauthorized fill from the protected streams and wetlands at the site and planting new vegetation to restore the

pre-violation forested condition.

I I In Weinberger and Amoco Production Co. v. Village of Gambell. Alaska, both cases involving

violations of environmental statutes, the Supreme Court reversed the granting of preliminary injunctions that were

given without considering irreparable harm or a balance of the equities.

Case 1:12-cv-00498-KD-C Document 145 Filed 07/24/14 Page 6 of 30
request and such is DENIED. A permanent injunction prohibiting Smith from violating the CWA and

Section 404 permit requirements (i.e., to permanently enjoin Smith from constructing any further dams,

discharging and/or creating impoundments), is superfluous and redundant. Smith, as a matter of federal

law, is already "so prohibited." In the event Smith violates the CWA and/or Section 404 permit

requirements again, that is a matter for another day. Indeed, before the Court could enter such an order,

the Government would have to show the likelihood of afuture CWA violation by Smith. United States

v. Sea Bay Dev. Corp.,2007 WL 1378544, *3 (E.D. Va. May 8,2007); United States v. Fabian,522

F.Supp.2d 1078,1094-1095 (N.D. Ind. Mar. 2,2007). The Government has presented no such evidence.

Additionally, implementation of the plan will cure the harm caused by the prior actions.

2. TemporaryRestorativelnjunctionfRestoration)

As part of restoring and maintaining the chemical, physical and biological integrity of the

Nation's waters, the CWA authorizes the Government to commence a civil action for appropriate relief;

including injunctions, for any violation for which it is authorized to issue a compliance order under 33

U.S.C. $ 1319(a). Restoration of illegally destroyed wetlands is one type of injunctive relief

contemplated by the CWA.33 U.S.C. $ 1319. Courts have recognized a mandatory duty to restore

intentionally filled wetlands, unless the equities weigh against restoration. See, e.g.. United States v.

Cumberland Farms,826F.2d 1151, ll6l-116511" Cir. l9S7); United States v. Van Leuzen, Sl6 F. Supp.

ll7l, ll80 (S.D. Tex. 1993). "Primary guidance for the imposition of the restoration remedy is

contained in U.S. v. Sexton Cove Est., Inc., 526 F.2d l2g3,l30l (5th Cfu. 1976)." U.S. v. Weisman, 489

F. Supp. 1331, 1342 (M.D. Fla. 1980) (involving the identification of point source equipment used to

build a road across a wetland to a private residence).

Courts have held that injunctive relief via a restoration plan must: l) confer maximum

environmental benefits tempered with a touch of equity, 2) be practical and feasible from an

environmental and engineering standpoin! and 3) bear an equitable relationship to the degree and kind of

wrong the plan is intended to remedy (considers the financial recourses of defendant), and 4) include

consideration of a defendant's objections. U.S. v. Bailey,5Tl F.3d 791,805 18'h Cir. 2009); U.S. v.

Case 1:12-cv-00498-KD-C Document 145 Filed 07/24/14 Page 7 of 30
Cundiff, 555 F.3d 200,21616tr' Cir. 2009); U.S. v. Deaton, 332 F.3d 698, 71414'h Cir. 2003); EPA

Injunctive Relief Requirements in Section 404 Enforcement Action at 2 (Sept. 29, 1999),

http:llwater.epa.gov/type/wetlands/outreach/factl5.cfm (last visited July 17,2014) (citing Cumberland

Farms, 826 F.2d at 1164); U.S. v. Sexton Cove Est.. Inc.,526 F.2d 1293, 130115th Cir. 1976)); U.S. v.

Donovan, 466F. Supp.2d 595,598 (D. DeI.2006); United States v. Robinson,570 F. Supp. 1157,1164

(M.D. Fla. 1983); United States v. Weisman, 489 F. Supp. 133l,1342-1343 (M.D. Fla. 1980).

The CWA grants district courts the authority to order restoration of jurisdictional wetlands that

have been unlawfully filled to remedy the harm resulting from the violations. Ogeechee{anoochee

Riverkeeper. Inc.v.T.C.Logging. Inc.,2010 WLl009797,at*2 n.2(S.D.Ga.Mar. 18,2010);United

States v. Donovan,466 F.Supp.2d595,598 (D. DeI.2006). And courts frequently order restoration of

damaged or destroyed wetlands as injunctive relief for violations of wetland permitting requirements.

United States v. Deaton , 332 F,3d 698, 71414tr' Cir. 2003); United States v. Cumberland Farms of Conn."

Lnc.,826 F.2d, 1151, I164-1165 (1" Cir. 1987). There are two (2) prerequisites to be satisfied before

any consideration of the restoration plan itself: 1) the court must have jurisdiction over the portion of the

property or activity to be directly affected by the restoration plan, and 2) the court must conduct a hearing

in which the merits, demerits, and alternatives to the restoration plan are fully developed. See, e.g.,

Weisman, 489 F. Supp. at 1342-1343 (applying the factors). Once these preliminaries are satisfied,

federal courts analyze the 3-4 factors (depending on the court) referenced supra. "The record should

establish 'that the court's choice of the specific restoration ordered was based upon a comprehensive

evaluation of the environmental factors involved and the practicalities of the situation."' Weisman, 489

F. Supp. at 1342-1343 (citing Weiszmann v. Dist. Eng.. U.S. Army Corps of Eng., 526 F.2d 1302, 1304

15tr' Cir. 1976)). Further, courts have found restoration orders equitable even when it placed a "heavy

burden" on the defendant, because he had no one but himself to blame for the predicament. Cumberland

Farms of Conn., Inc., 826 F.2d at I 165.

As for the prerequisites to a restorative injunction, there is no dispute that this Court has

jurisdiction over the affected portions of the site on Smith's property, and moreover, the hearing

requirement is satisfied as the restoration plan was part of the Phase II bench trial on remedies. Having

Case 1:12-cv-00498-KD-C Document 145 Filed 07/24/14 Page 8 of 30
satisfied these prerequisites, the Court finds that from all the evidence and in keeping with the CWA's

goal of "restoring and maintaining the chemical, physical, and biological integrity of the Nation's waters"

33 U.S.C. $ 1251(a) -- that entry of a restoration plan and temporary restorative injunction is proper as

restoration of the Smith property is necessary and justified. Friends of the Earth" Inc. v. Laidlaw Envtl.

Servs. (TOC). Inc., 528 U.S. 167, 193 (2000) (federal courts should narrowly frame relief to fit the

precise facts ofthe case).

The Government's expert, Dr. Kruczynski, explained that the trees located within the wetland

area of Smith's property drop their leaves forming an organic material known as detrifus. This detritus,

if not absorbed within the wetland area, normally would be flushed out into the estuaries and waters

through the tidal creek, in combination of natural water movement. The detrital material, according to

testimony, forms the base of the food chain and is relied upon by many aquatic organisms which o'man is

the ultimate beneficiary." Weisman,489 F. Supp at 1345. The dams/roads fill covered and destroyed

acres of wetland vegetation, thereby eliminating this acreage from performing these food chain

productions. Additionally, despite the culverts Smith placed under the fill, the dams/roads impede the

flow of water which may carry and distribute detritus. As stated in Weisman,489 F. Supp. at 1346-1347

and applicable to the facts of this case:

The intricate web of interdependence which characterizes our environment requires that we look

beyond the present and immediate in assessing the value of any particular element of the

environment or in gauging the harm that will accrue from its destruction. Injury to the production

and export of detritus from these wetlands, discussed above, is but one example[.] ... Similarly,

the new road[s]' interference with the natural flow of water through the area now covered by fill

will ultimately change the flushing characteristics of the wetlands... The reduced elevation and

flow of water over a period of time will dry out the soil in .. [certain] area[s] .... and convert it to

upland. Conversely, the wetland area[s]... may be adversely affected by higher water elevations,

again caused by the interference of the new road[s] with the expansion of rising waters in the tidal

creeks. These higher water elevations may be too high to sustain emergent wetland vegetation

and may eliminate existing species of plants and habitat of animal species... The Court finds that

the destruction and alteration of these wetlands has and will detrimentally affect other important

environmental characteristics of surrounding wetlands.... These findings of harm effectively

foreclose one alternative: the alternative of doing nothing. Clearly some specific remedy is

required....

Thus, the Court finds that restoration will confer maximum environmental benefits to the subject site,

tempered with a touch of equity.

Case 1:12-cv-00498-KD-C Document 145 Filed 07/24/14 Page 9 of 30
Second, as to practicality, "[t]he question is whether the proposed restoration plan, which

theoretically could provide the maximum environmental benefits, is achievable as a practical

matter...This calls for consideration of the feasibility and cost-effectiveness of the proposed plan."

Weisman, 489 F. Supp. at 1348. In this regard, evidence indicates that the approximate cost of

restoration will be $89,000, which the Court finds to be reasonable.

Third, regarding the equitable relation to degree of wrong, "[t]he duty to restore an intentionally

filled wetland is mandatory, absent equities." U.S. v. Van Leuzen, 816 F. Supp. l l7l, 1180 (S.D. Tex.

1993) (finding that the landowner lacked any equities and, thus, had mandatory duty to completely restore

wetland he intentionally had filled, remediate damage caused by lost use of wetland, and take steps to

undo damage inflicted upon wetlands permit program by his open and notorious violations of permit

requirements of CWA, and by his disregard for cease and desist orders issued by Corps and EPA). The

Court must assess whether the proposed restoration is equitable to Smith in light of the degree and kind of

wrong it is intended to remedy (looking at for instance, the degree of harm caused and a defendant's

financial inability to comply). Intentional conduct on the part of a defendant eviscerates any equitable

arguments against restoration. United States v. Pozsgai , 999 F.2d 719, 73613'd Cir. 1993) (holding that

"repeated noncompliance with the Act and with the Corps' directives to stop filling foreclose any such

equitable argument[]"); United States v. Robinson, 570 F. Supp. I 157, 1165 (M.D. Fla. 1983) (assessing a

defendant's financial resources and finding defendants' objection that they lacked financial means to

accomplish the restoration plan lacked merit). Upon consideration of all the evidence and testimony at

trial, the Court finds that the proposed restoration is equitable to Smith.

Fourth, the Court has considered Smith's objections with regard to the specifics of the restoration

plan. In part, the Government has agreed (post-trial) with some of Smith's objections and as such,

mooted those via filing an amended restoration plan (Doc. 141-l). The Court has addressed the

remaining objections in the approved restoration plan.

Accordingly, the Government's request for entry of a temporary restorative injunction against

Smith is GRANTED in part and the Court ADOPTS in part the Government's amended restoration

plan (Doc. l4l-l) as revised by this Court. (See Attachment A hereto). Moreover, it is ORDERED

10

Case 1:12-cv-00498-KD-C Document 145 Filed 07/24/14 Page 10 of 30
that the Annual Reports regarding the status of the restoration plan shall be filed with this Court.

B. Compensatory Mitigation

Smith opposes the Government's request for compensatory mitigation, and justifiably so based on

the wording of the regulations.r2 Specifically, this case primarily concerns an exemption to the Section

404 permit requirements, such that there are no permits involved and there is no indication that there will

be permits involved in the future. There has also never been a "mitigation site" designated on Smith's

properfy - an item which is a necessary point of measure/reference for these regulations. In other words,

this is a non-permit case and the compensatory mitigation regulations are simply inapplicable.

As to Dam/road E, Smith conceded that such was not an exempt forest road. According to the

Government, "Dam E does not serve a forestry purpose and cannot be made compliant with the forest

road exemption....[so the plan]...proposes...E be fully restored to...pre-violation conditions." (Doc.

138-l at l). In otherwords, the Government seeks full restoration of Dam/road E, and no permit. As to

the remaining dams/roads, the jury concluded that Dam/road C was an exempt forest road. The jury

found that while they were forest roads, recapture applied to Dams/roads A and B, and the Court

concluded that Dam/road D did not meet two (2) of the 15 BMPs even though it was a forest road.

According to the Government, "the Proposed Restoration Plan provides for reconfiguration of Dams A, B

and D so that they are made eligible for the forest road exemption[.]" (Doc. 138-1 at l). Regardless,

either party's proposed restoration plan will bringall of these violations into compliance with the forest

road exemption criteria, such that all of Smith's dams/roads will be fully exempt under Section

404(fxlXA) as forest roads - i.e., no Section 404 permit ("after the fact" or otherwise) will be required.

Moreover, the following excerpts from the compensatory mitigation regulations highlight their

apparent inapplicability to non-permitted (exempt) scenarios:

12 Smith opposes any form of compensatory mitigation as such only applies to permitted scenarios, and

because such evidence is inadmissible as no Government expert addressed this relief in their reports and no

information as to the specific costs for such was presented to Smith until the eve of trial. (Doc. 133 at 17-18).

Moreover, Smith contends that the Government's request as to temporal losses is improperly based on 12 years of

time given that the Government requested a tolling agreement from Smith for five (5) years to resolve the issues,

and moreover, only 11 years have passed since 2003. Qd. at l9). Smith contends that the five (5) years of

required tolling by the Government should not be counted against him.

1l

Case 1:12-cv-00498-KD-C Document 145 Filed 07/24/14 Page 11 of 30
The Regulations define a "compensatory mitigation project" as "compensatory mitigation

implemented by the permittee as a requirement of a DA permit (i.e., permittee-responsible

mitigation)...." 40 C.F.R. 5230.92 (emphasis added).

Mitigation bank means a site, or suite of sites, where resources (e.g., wetlands, streams, riparian

areas) are restored, established, enhanced, andlor preserved for the purpose of providing

compensatory mitigation for impacts authorized by DA permits. A mitigation bank sells

compensatory mitigation credits to permittees whose obligation to provide compensatory

mitigation is then transfened to the mitigation bank sponsor..." Id. (emphasis added).

"Permittee-responsible mitigation means....activity.. .by the permittee...to provide compensatory

mitigation for which the permittee retains full responsibility." Id. (emphasis added).

"Temporal loss is the time lag between the loss of aquatic resource functions caused by the

permitted impacts and the replacement of aquatic resource functions at the compensatory

mitigation site. Higher compensation ratios may be required to compensate for temporal loss.

When the compensatory mitigation project is initiated prior to, or concunent with, the permitted

impacts, the district engineer may determine that compensation for temporal loss is not necessary,

unless the resource has a long development time." Id. (emphasis added).

The Government relies upon the Corps CWA guidelines, 33 C.F.R. $ 320.4(r), 40 C.F.R. S

230.10,55 Fed. Reg. 9210 (Mar. 12,1990), to discuss the three (3) components of mitigation.

However, those "policies shall be applicable to the review of all applications for DA permits."

33 C.F.R. $ 320.4 (emphasis added). Subsection (r) provides that mitigation is part of the

"review and balancing process on...permit applicationsfl" adding that consideration of mitigation

occurs as part of "the permit application review processl.]" 33 C.F.R. $ 320.a(r) (emphasis

added). Part230.l0 references compliance with the guidelines' requirements in order to receive a

permit, addressing what discharge of dredged or fill material shall be permitted.

Similarly, the Federal Regulations 55 Fed. Reg. 9210 (Mar. 12,1990) provide, in part, as follows:

...The agencies developed the MOA in response to questions that had arisen with respect

to mitigation requirements under the Guidelines applicable to the review of applications

for standard Section 404 permits....we anticipate that the MOA will increase the

effectiveness of the Section 404 program by reducing delays in permit processing,

minimizing ambiguity in the regulatory program and by providing agency field personnel

with a clearer understanding of the procedures for determining appropriate and

practicable mitigation under the Guidelines...The MOA interprets and provides internal

guidance and procedures for implementing existing Section 404 permit

regulations....The MOA also maintains the flexibility of the Guidelines by expressly

recognizing that no net loss of wetlands functions and values may not be achieved in each

and every permit action .. ...The Guidelines establish environmental criteria which must

be met for activities to be permitted under Section 404......The Guidelines are the

environmental standard for Section 404 permit issuance under the CwA....Mttigation

requirements shall be conditions of standard Section 404 permits....This MOA shall take

effect on February 7, 1990, and will apply to those completed standard permit

applications which are received on or after that date.

12

Case 1:12-cv-00498-KD-C Document 145 Filed 07/24/14 Page 12 of 30
33 c.F.R. $ 332.3(b) concerns requirements for mitigation DA permits (permitees).

40 C.F.R. $ 230.93(b) concerns compensatory mitigation to offset environmental losses resulting

from unavoidable impacts to waters of the United States "authorized by DA permits[]" and

discusses mitigation requirements for permitted scenarios.

The temporal loss statute is concemed with mitigation for DA permit applications (i.e., those

situations where a DA permit has been issued (or in the process of being issued).

The stated purpose of this portion of the CFR is to establish standards and criteria for the use of

all types of compensatory mitigation and in-lieu fee mitigation to offset unavoidable impacts to

US waters authorized through the issuance of DA permits under Section 404. 33 C.F.R.

$332. I (a).

' The general compensatory mitigation requirements discusses the existence of a DA permit. 33

c.F.R. $ 332.3.

' Section 332.1(b) provides: (b) Applicability. This part does not alter the regulations at g 320.4(r)

of this title, which address_the general mitigation requirements for DA permits . - .

Despite the Government's assertion that an award of temporal losses in this case is "consistent

with federal regulations" "[u]nder the plain language of the statute" (Doc. 137 at 6-7), such is not the case

as the regulations only concem permitted situations.13

Further, the Court has been unable to find a single case where compensatory mitigation was

awarded when no permits were involved and an exemption applied. And while given the opportunity to

do so, the Government failed to provide the Court with any case law showing compensatory mitigation

awarded as a remedy without a permit and with an exemption. Instead, the cases relied upon and cited

by the Government, to assert that the compensatory mitigation law (mitigation banks andlor temporal

loss) applies here, actually deal with distinguishable permrring situations.ra

13 Further, the Govemment asserts that this Court has the broad equitable authority to require

compensatory mitigation for any permanent impacts to the Nation's waters, including any part of a protected stream

or wetlands that cannot be fully restored due to a CWA violation. However, this ignores the very wording of the

permitting regulations - that they are regulations and forms of relief which apply to permitted scenarios. The Court

has neither the type or scope of equitable relief characterized by the Government, nor can it unilaterally rewrite the

regulations so they apply to non-permitted situations.

14 The Government relies upon Ohio Valley Environ. Coalition v. Aracoma Coal Co., 556 F.3d 177,

204'205 (W. Va. 2009); however, that case dealt with challenges to the issuance of four (4) permits allowing the

13

Case 1:12-cv-00498-KD-C Document 145 Filed 07/24/14 Page 13 of 30
Under the unique circumstances of this case" and given the other forms of relief available to the

Government to remedy Smith's CWA violations, the undersigned is not inclined to grant a form of relief

when no basis for same has been provided. Even if the Court had the authority it would decline to

require compensatory mitigation because the restoration and monetary penalties imposed adequately

address the violations. As such, the Government's request for compensatory mitigation is DENIED.

C. Civil Penalties

Before substantively addressing civil penalties, the Government's requested amount should be

viewed in context of how it has litigated this potential remedy. This case was filed in August of 2012.

filling of West Virginia stream waters in conjunction with area surface coal mining operations. See also Butte

Envtl. Council v. United States Army CorptqlE4gi$, 620 F.3d 936, 947 (9'n Cir. 2010) (dealt with issuance of a

permit by the Corps); United States of America v. Feinstein Family P'p et al., Civil Action 98-873 (M.D. Fla. Oct.

30, 1998) (concerning the activities of a permit applicant, and referencing 40 C.F.R. $ 1508.20 to note that

mitigation "comes into play at the permitting stage of development, where it may be a condition imposed" by the

Corps or EPA); Ogeechee-Canoochee Riverkeeper. Inc. v. T.C. Lo .,2010 WL 1009797 (S.D. Ga. 2010)

(where an "after the fact" permit was obtained from the Corps). The same holds true to the cases provided by the

Govemment as exhibits (Docs. 137-1 through 137-4) ((Staben Consent Decree concerned National Permit #32 and

required the party to obtain all necessary permits and submit to the EPA a permit status checklist), (Century

Homebuilders dealt with a permit to authorize discharges), (f.lewdunn Associates dealt with Nationwide Permit #32

and did not relieve defendants of the obligation to comply with any applicable permit requirements), and

(Chesapeake Appalachia dealt with Nationwide Permit #32 and did not relieve defendants of the obligation to

comply with any applicable permit requirements and required defendants to obtain all necessary permits and apply

for certain specific permits as part of the compliance protocol of the consent decree)).

l5 Including the Government's untimely presentation of information (hard facts and specific calculations)

concerning temporal loss to Smith - namely, occurring on the eve of trial. While the Government contends that

Smith knew it would seek temporal losses because it sought such relief in the Complaint and other pre-trial filings

(Doc. 137 at 5 at note I (referencing specifically Doc. 122)), this is not tantamount to placing Smith on notice of a

specific request for temporal loss as a form of relief. The Government cannot claim compensatory mitigation is

injunctive relief and so no specific calculations or numbers as to Smith's potential temporal loss costs were required

to be produced to Smith, yet simultaneously hold Smith to some "understanding" that the Government was seeking

temporal loss with a specific price tag and as such had to "just accept" the numbers it presented for the first time at

trial.

Moreover, pointing to pre-litigqtion correspondence and documents given to Smith (Doc. 122 at2-3 and at

note 2), before any Complaint was filed, to somehow assert that Smith was "on notice" that temporal losses would

officially be sought against him in this case lacks merit. What parties demand and assert pre-trial is often distinct

to what is actually litigated and the forms of relief officially sought throughout the course of any case. As for the

Harris report the Government asserts it served on Smith in July 2013, which mentioned that Smith, in Harris'

opinion, has the financial capability to purchase mitigation credits, again, that has nothing to do with the official

relief the Government sought against Smith. For the Government to contend that based on that report Smith was

"undoubtedly on notice of the magnitude" of the Government's compensatory mitigation claim (including temporal

loss component) is a non-starter. The Harris report did not break down any temporal losses, but instead, provided

an overall amount as to what Smith could pay, in his opinion, for everything.

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Throughout this case, the Government failed to notify either Smith or this Court of the actual amount of

civil penalties sought for the CWA violations. At most, the Government only (inadvertently) disclosed

and presented such evidence during discovery -- via the deposition testimony of EPA representative Mike

Wylie -- for a potential civil penalty range of $50,000-$150,000. (Doc. 1i0; Doc. ll0-2 at 3 (Dep.

Wiley at 149-150). However, the Government would not -- and did not even at trial -- commit to that

penalty range. Additionally, in the Government's May 13,2014 jointly filed proposed pretrial document

for the Phase II trial, the Government failed to speciff the total civil penalties sought (Doc. 107 at 5-7)

and instead, generally discussed civil penalties for CWA Section 404 violations and simply stated that per

statute "[f]or violations occurring after January 30, 1997, the maximum penalty is $27,500 per day."

(Id. at 6). As such, on May 15, 2014, the Court ordered the Government to file a Supplement to the

proposed pretrial document specifuing the damages sought against Smith (and also, as discussed at the

Final Pretrial Conference to explain how it arrived at that figure). (Doc. 109 at 2).

In its May 19,2014 Supplement, the Government stated that it sought to recover $300,000 as

civil penalties (Doc. I 13 at 2) with the contingency and caveat that the Court also ordeq infull, all of the

injunctive and compensatory mitigation relief requested; otherwise, the Government stated that it would

seek an even higher penalty. In so doing, the Government provided no information as to how they

calculated the $300,000 total, much less any discussion of the requisite CWA penalty factors used in the

Eleventh Circuit to arrive at a penalty amount. (Doc. 113). Instead, two (2) weeks before trial was the

first time either the Court or Smith were notified of any civil penalty total which would be sought by the

Govemment. Nevertheless, even then, still, neither the Court nor Smith had been provided any

explanation as to how the Government arrived at that amount. This Court was then, and remained

through the start of Phase II trial on June 2,2014, wholly unable to discern whether the $300,000 figure

was proper and/or how it related to any of the facts of this case. Further complicating both the Court and

Smith's understanding of the civil penalties sought, is that on the first day of the Phase II trial on June 2,

2014, the Government asserted - for the first time and without explanation or evidence as to how that

l5

Case 1:12-cv-00498-KD-C Document 145 Filed 07/24/14 Page 15 of 30
number was calculated - that it seeks $1,500,000 as the civil penalty, a figure five (5) times that

demanded just a few weeks earlier. With the aforementioned context in mind, the Court turns to

substantively addressing the matter of civil penalties.

To protect the integrity of the Nation's waters, Congress authorizes courts to, upon finding a

violation of the CWA, assess appropriate civil penalties under Section 309(d) to restore and maintain the

o'chemical, physical, and biological integrity of the Nation's waters." 33 U.S.C. $ 1251(a). 33 U.S.C. $

13l9(b), (d) (providing for civil penalties); Atlantic States Legal Foundation Inc. v. Universal Tool &

Stamping Co. Inc. ,786 F. Supp. 743, 746 (N.D. Ind. 1992) (providing that a district court is authorized to

assess appropriate civil penalties). However: "[t]he Court can conceive of no mathematical formula

which can be applied to the overall effort of assessing a fair penalty. Each case must be decided on its

own facts. While the experts offered calculations on the ability to pay as well as the economic benefit, to

these findings there must be applied a degree of reason and common sense without the benefit of precise

mathematical equations...To achieve the goal of deterrence, a penalty must be high enough so that the

discharger cannot o'write it off ' as an acceptable environmental trade-off for doing business. . . [it] must be

high enough to insure that [violators]...cannot simply absorb the penalty as a cost of doing business."

united States v. Gulf Park water Co.. Inc. , 14F. Supp. 2d 854, 868-869 (s.D. Miss. 1998).

Section 309(d) mandates a civil penalty for each violation, instructing that any person found in

violation of the Act "shall be subject to a civil penalty not to exceed $25,000 per day. 33 U.S.C. $

l3l9(d). Over the years, this amount has been amended and supplemented by the Code of Federal

Regulations as follows: January 30,1997 - March 15,2004, the penalty is $27,500 per day per violation,

March 15, 2004 - January 12, 2009, the penalty is $32,500 per day per violation; January 12, 2009 -

December 6,2013, and effective after December 6,2013, the penalty is $37,500 per day per violation.

40 C.F.R. $ 19.4 (Eff. Dec. 6,2013). Congress has also specified that penalties be assessed considering

the maximum daily amount "for each violation." Atlantic States Legal Foundation. Inc. v. Tyson Foods.

Inc., 897 F.2d I 128, ll39 (l lth Cir. 1990). In calculating the appropriate civil penalty, the Eleventh

I6

Case 1:12-cv-00498-KD-C Document 145 Filed 07/24/14 Page 16 of 30
Circuit has adopted a "top down" approach: the court must first determine the maximum fine for each

daily violation for which a defendant is liable, but thereafter can can use the CWA's enumerated factors

to uphold or mitigate the maximum. 33 u.s.c. $ 1319(d); Tyson Foods ,897 F.2d at ll4l.

To arrive at the maximum starting figure, there must be a beginning and end date to the "violation

time clock."r6 In this case, there is no clear indication as to the actual day that the unpermitted work

began.rt Given that the statute instructs that civil penalties be assessed per day and the Government has

provided no facts in Phase II of the trial as to the start date, the Court has selected January I't of each

relevant year as the "start date" from which to calculate the maximum per day penalty. Similarly, as the

Government has not provided any facts as to when the clock for Smith's civil penalties stopped, the Court

has found persuasive caselaw concerning ongoing impediment violations.18 From this, the Court finds

16 The start date for assessing penalties has traditionally been the date that violations of the CWA began.

See, e.g., Ogeechee-Canoochee Riverkeeper.Inc. v. T.C. Logging. Inc.,2010WL 1009797 (S.D. Ga. Mar. 18,2010)

(starting the penalty clock as of the day the unpermitted road construction began); Center for Biological Diversity v.

Marina Point Dev. Assocs., 434 F. Supp. 2d 789 (C.D. CaL 2006) (starting the penalty clock as of the day that

unpermitted work began); United States v. Gulf Park Water Co.. Inc., 14 F. Supp. 2d854 (S.D. Miss. 1998) (starting

the penalty clock as ofthe day the chancery court issued a cease ofthe illegal discharge and discharge continued).

17 The Complaint indicates work on the dams/roads and subsequent discharge began on or around 1998.

(Doc. 1). The summary judgment offers a little more precision on the year but no specific date: stating work began

on Dams A, B, and D in 2003 or 2004, and work began on Dam E in2004 or 2005. (Docs. 51, 106).

18 See 99., T.C. Loeging" 2010 WL 1009797, *l (dealing with a road constructed in violation of the Act

that was in place at the time of the remedies hearing); United States v. Donovan , 466 F . Supp. 2d 595, 597 (D. Del.

2006) (dealing with a landowner whose unpermitted fill of wetlands was in place at the time the remedies hearing

was held). Additionally, while concerned with unpermitted discharge of water from an industrial plant, Siena Club,

Lone Star Chapter v. Cedar Point Oil Co.. Inc., 73 F.3d 546 (5th Cir. 1996) sheds light on a date that can be used to

stop the civil penalty clock. In Cedar Point, the parties stipulated at trial that there were 797 days of unpermitted

discharge. ld. at 573. The district court entered its judgment 12 days later; the unpermitted violations of the Act

were presumed ongoing from time the parties stipulated 797 days to the time the court announced its judgment. Id.

The circuit court noted that the district court added the 12 days to the maximum civil penalty multiplier, which

brought the total multiplier to 809 days. Id. The circuit court agreed with the district courts calculation of the

maximum penalty based on 809 total days. Id. However, United States v. Donovan illustrates the common

uncertainty in calculating the maximum civil penalties when the parties do not stipulate to an end date for CWA

violations. In Donovan. the Govemment filed a complaint against the defendant for unpermitted fill in a protected

wetland and sought injunctive relief in 1996. Donovan, 466 F. Supp. 2d at 597. It was contended that the

defendant began filling protected wetlands in violation of the CWA in February 1993. Id. In 2006, the court

granted the Government's request for summary judgment and assessed civil penalties in the amount of $256,000.

Id. at 600. The court opined that the maximum civil penalty under 1319(d) ranged from $1 I to $15 million. Id.

The court did not elaborate on the end date used to derive this figure. It can be infened that the civil penalty clock

had to stop on the date the summary judgment and civil penalty were jointly announced.

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Case 1:12-cv-00498-KD-C Document 145 Filed 07/24/14 Page 17 of 30
that the harm from Dams A, B, D, and E were ongoing through Phase II's conclusion and will thus stop

the clock on the final day ofthe Phase II trial - June 3,2014 -- because Phase II concludes or decides all

of the issues raised in the Govemment's Complaint.

As noted supra,in calculating the appropriate CWA civil penalty, this Court is required to start

with the maximum. Based on the foregoing, Smith is subject to a maximum CWA penalty in the

amount of $561,662,500 for 16,323 days of violations.re However, in the Eleventh Circuit, the

maximum potential CWA penalty is merely a starting point. From this, the Court conducts a top-down

approach in light of the six (6) Section 1319(d) factors, assessing the propriety of the maximum CWA

penalty available - to either maintain or deviate from the maximum. 33 U.S.C. g 13 t9(d); Tyson Foods,

897 F.zd at 1440-1441; Sierra Club. Lone Star ChaplglrJQcdarPoint Oil Co.. Inc.,73 F.3d 546,574-576

15tr' Cir. 1996); Public Interest Research Group of New Jersey. Jnc. v. powell Duffryn Terminals. Inc.,

913 F.2d,64, 80 (3'd Cir. 1990); Universal Tool ,786 F. Supp. at 746-747 .

Specifically, because Congress set a particularly high maximum for civil penalties to reinforce the

deterrent and punitive nature of the CWA, after calculating the maximum, courts may, and often do,

adjust significantly downward based on mitigating factors listed in the statute. Cedar Point,73 F.3d at

573; Tyson Foods,897 F.zd at 1142. These factors consist of: 1) the seriousness of the violation or

violations; 2) the economic benefit (if any) resulting from the violation; 3) any history of such violations;

4) any good-faith efforts to comply with the applicable requirements; 5) the economic impact of the

penalty on the violator; and 6) such other maffers as justice may require. 33 U.S.C. g l3l9(d); Tyson

Foods, 897 F.2d at 1140. Courts may also consider any other factors they determine are important to

imposing afair penalty. Tvson Foods,897 F.2d at ll4l. A courtos decision is given a great deal of

discretion in assessing the civil penalty under the six (6) factors. Tull v. United States , 481 lJ.S. 412,

19 This total is based on days calculated from the representations in summary judgment that work began

on Dams A, B and D in 2003 or 2004 and on Dam E in 2004 or 2005 (Docs. 5 l, 106), with January l't of each year.

Additionally, this total includes the changing amounts of the per day per violation penalties, per the Code of Federal

Regulations amendments and supplements for the applicable time periods.

l8

Case 1:12-cv-00498-KD-C Document 145 Filed 07/24/14 Page 18 of 30
427 (1987). However, each factor should

penalty assessed. Tyson Foods,897 F.2d al

1. Seriousness of Violations

be discussed as to what, if any, effect it has on the final

ll4l. In so doing, the Court finds as follows.

The seriousness of the violation deals with the negative impact a defendant's actions have on the

environment. United States v. Smithfield Foods. Inc.,972 F. Supp. 338, 344-346 (E.D. Va. 1997)

(considering the negative impact that the defendant's chlorine and cyanide discharge had on native

species). This can range from toxic waste to organic material being discharged without a permit into

protected wetlands. Id. See also 9.g., Weber v. Trinity Meadows Raceway. Inc., 1996 WL 477049,

x16 (N.D. Tex. Jun. 20, 1996) (evaluating whether the defendant's unpermitted discharge of pollutants

which were "largely, if not, wholly comprised of organic material" mitigated the civil penalty). The

seriousness of the violations is determined after both parties offer evidence in the form of facts or expert

testimony. Smithfield, 972 F. Supp. at 343-349; Gulf Park Water, 14 F. Supp. 2d at 859-862. The

seriousness can be mitigated if the environmental impact of the unpermitted action only affects the

immediate area. T.C. Logging,2010 WL 1009797, *4. Additionally, factors to consider include the

number and frequency of violations, how far the violator's discharges exceed the permit parameters, the

presence, delay, or absence of state enforcement, the toxicity of the discharged substance, and violations

of reporting requirements. Smithfield, 972F. Supp. at 343; Allegheny Ludlum, 187 F. Supp. 2d at 426;

Hawaii's Thousand Friends v. City & Countv of Honolulu, 821 F. Supp. 1368, l3S3 (D. Haw. 1993)

(looking to the number of violations, the duration of noncompliance, the significance of the violation, and

the actual or potential harm to human health and the environment).

The Government contends that the seriousness of the violation is high and supports a substantial

penalty. In support, Dr. Kruczynski testified that water testing indicates a rise in temperature in the

streams surrounding the impoundments, which affect water quality. Dr. Kruczynski also emphasized the

seriousness of the destruction of wetlands in general. There was no evidence presented at trial that EPA

conducted any water quality testing. In contrast, Smith hired Dr. Vittor to evaluate the water quality

t9

Case 1:12-cv-00498-KD-C Document 145 Filed 07/24/14 Page 19 of 30
over a period of four (4) years to determine any detrimental efflects of the crossings. This testing was

commenced at the request of the EPA and was paid for by Smith at a cost of $35,000. Dr. Vittor

responded that while the water temperature has risen, there has been no material effect on the water

quality. Dr. Vittor also noted a reduction in suspended solids which improves water quality.

The Court is more inclined to rely on the expert who actually conducted the testing for his

opinion regarding the detrimental effects of the violation on the water quality at this time. Thus, the

Court finds that the violations have not resulted in significant effects on water quality. However, there

have been significant areas of wetlands that have been destroyed through Smith's building of the

roads/dams and from the impoundments that resulted. The Court credits Dr. Kruczrynski's testimony in

this regard and finds that the cumulative effect of this destruction is significant to the environment.

The primary purpose to be served in the imposition of a civil fine is to deter any future

destruction of wetlands. Still, there has been no evidence of harm (or even potential harm) to human

life, nor any specific evidence of harm to animal or aquatic life. The violations in this case are not toxic

dumping, but rather timber roads built by an individual who appears to care about his property and its

natural resources. With modifications the timber roads, which form the bases for the majority of the

violations, become CWA exempt. Thus, this factor does not support the severity of a maximum fine and

instead supports a significant decrease.

2. Economic Benefit

The second factor to be considered is the economic benefit that a defendant receives from his

unpermitted actions. 33 U.S.C. $ 1319(d). This factor "is of key importance if the penalties are to

successfully deter violations." Tyson Foods. 897 F.2d at ll4l. o'A court need only make a 'reasonable

approximation' of the economic benefit [reaped from the defendant's noncompliance] when calculating a

penalty under the [CWA]." Cedar Point,73 F.3d at 576. See also gg., Piney Run, 82 F. Supp. 2d at

470; Alleghey Ludlum, 187 F. Supp. 2d at 437; Gulf Park Water Co., l4 F. Supp. 2d at 863. The goal of

the economic benefit analysis is to prevent a violator from profiting from its wrongdoing. Piney Run, 82

20

Case 1:12-cv-00498-KD-C Document 145 Filed 07/24/14 Page 20 of 30
F. Supp.2d at47I.

Initially, it was the theory of the Government that Smith built these roads to support his hunting

lodge enterprise. However, the Government put forth no evidence of any economic benefit that has been

derived from the Dennis Wing Lake Club, a quail hunting operation. In the liability phase of the trial,

Smith credibly testified that the Club was basically a break-even proposition. There was some evidence

that the crossings had resulted in some timber cutting income, but this was relatively minor and

intermittent. Moreover, any economic benefit from timber cutting should likely be exempt from

consideration since the CWA itself exempts what would otherwise be violations if the crossings were

built within guidelines for forestry purposes. Thus, there is insufficient evidence of economic benefit to

Smith for his CWA violations. As such, this factor does not support a severe civil penalty.

3. Violations History

The third factor to consider is the defendant's history of violations. 33 U.S.C. $ l3l9(d);

Smithfield Foods, 191 F.3d at 531; Allegheny Ludlum, 187 F. Supp.2d at433. The absence of any past

state or federal environmental law or regulation violations can help mitigate the maximum civil penalty

assessed under $ l3l9(d). T.C. Logging,2010 WL 1009797, *4 (reasoning that the lack of history

helped justi$ a reduction in the civil penalty paid). A defendant's repeated violations or an ongoing

history of a particular violation that spans a significant duration can justiff upholding a higher penalty.

Gulf Park Water, 14 F. Supp. 2d at 864 (reasoning that the defendant was not entitled mitigation under

this factor because violations were ongoing for twelve years and there were repeated attempts to bring

him into compliance); Smithfield, 972 F . Supp. at 349 (stating that the six years of ongoing violations was

a significant duration taken into consideration with prior violations). Whether a defendant has committed

similar violations in the past is not the only part of the court's analysis, as the duration of a defendant's

current violations are also considered. Smithfield Foods,972 F. Supp. at 349. For example, where

"defendant's violations occurred daily and uninterrupted for over twelve (12) years," one court found that

21

Case 1:12-cv-00498-KD-C Document 145 Filed 07/24/14 Page 21 of 30
"the discharge is serious solely by virtue of its duration." Gulf Park Water, 14 F. Supp. 2d at 859.

There is no past history of violations by Smith, thus, that part of this factor does not support a

severe civil penalty but instead, supports a significant decrease from the maximum. Even so, Smith's

current violations are lengthy in duration and continue to the present day - based on the Government's

representations, approximately 12 years. However, Smith contends that for five (5) of those years, the

Government required he "do nothing." On balance, this factor weighs in favor of a penalty amount that

will sufficiently deter individuals (including Smith) from violating the CWA in the future. However,

this factor certainly does not justi$ the absurd amount of over $500,000,000.

4. Good Faith Compliance Efforts

The fourth factor to be considered is the good-faith efforts of the defendant to comply with the

requirements of the Act. 33 U.S.C. $ l3l9(d). This can be summed up as analyzing the defendant's

interaction with regulatory agencies before a civil complaint is filed. Qf, T.C. Loegine, 2010 WL

1009797, *4, with United States v. Key West Towers. Inc.,720 F. Supp. 963 (S.D. Fla. 1989).20

Additionally, courts look to whether a defendant took any actions to decrease the number of violations or

made efforts to mitigate the impact of their violations on the environment. Smithfield , 972 F. Supp. at

347-349. Evidence of good faith efforts may include proof of insufficient or inadequate efforts to

comply, conducting environmental compliance audits, hiring consultants, or similar endeavors to obey

permitting requirements. Id.; Gulf Park, 14 F. Supp. 2d at 864-866.

The "good faith" factor was the subject of great controversy between the Government and Smith,

and also involves the matter of credibility. The Government contends that this factor supports a

20 In T.C. Logging, the defendant worked with the Corps to obtain an after-the-fact permit, which would

evaluate the harm of the unpermitted road and prescribe the necessary action to bring it into compliance. Id. at * I .

The district court found that the defendant's engagement with the Corp satisfied the good-faith factor. ld. at *4.

T.C. Logging can be contrasted with Key West Towers. In Key West Towers, the court found it "especially

bothersome" that the defendant continued to place unpermitted fill in a protected wetland after receiving a cease and

desist order from the Corps. 720 F. Supp. at 966. The court noted that the defendant's after-the-fact permit

application was deactivated because of inaccuracies. Id. The court held that these two factors, along with a

finding of liability from the jury, weighed in favor of imposing a $250,000 civil penalty. Id.

22

Case 1:12-cv-00498-KD-C Document 145 Filed 07/24/14 Page 22 of 30
significant civil penaltv -- primarily based on the fact that it has taken l2 years to resolve this dispute and

it has been 8 years since the EPA issued its citation.

Mike Wylie, the EPA's representative, seemed to find unbelievable that Smith would not agree to

the EPA's determination that his roads were not exempt. Wylie also appeared to find equally

incredulous the fact that Smith litigated the matter, rather than just accepting the EPA's interpretation.

Wylie charactefized Smith's difference of opinion on the law (including whether exemptions applied) as a

failure to cooperate. Wylie also seemed to suggest that it was an insult to the EPA's authority that Smith

attempted to recti$ the objection to dam/road D (by installing a culvert) without first obtaining EPA's

stamp of approval and that it should weigh against Smith as to culpability.

In contrast, Smith, through the testimony of Dr. Vittor, contends that he was cooperative with the

EPA and attempted in good faith to comply with the applicable regulations. As evidence of Smith's

good faith, Dr. Vittor points to the fact that at the EPA's request, Smith hired an expert to test the water

quali$ over a four (4) year period at a cost to Smith of $35,000, and hired a geotechnical engineer to

evaluate the crossings at a further cost to Smith of $55,000. Dr. Vittor also testified that Smith paid him

to attempt to discuss and reach an agreement with the EPA. Moreover, the record is replete with

references to amicable site visits by the EPA, Corps of Engineers, and DOJ attorneys and staff.

The Court does not find that Smith's dealings with the EPA support a severe civil penalty.

Rather, considering the evidence and the jury's findings, Smith was partially vindicated in his resistance

to the EPA's determinations. Accordingly, the Court finds that Smith's belief that he was in compliance

was not only reasonable, but partially conect. Piney Run, 82 F. Supp.2d at 471 (finding good faith

efforts at compliance when defendant did not consider the discharges to be permit violations and the court

found that the interpretation was not unreasonable). Further, Smith has spent a significant amount of

money at the request of the EPA for testing. This does not indicate a person who simply ignored EPA

over a 12year period and made no efforts to comply with CWA requirements.

23

Case 1:12-cv-00498-KD-C Document 145 Filed 07/24/14 Page 23 of 30
5. Economic ImpgElqlPenalty on the Violator (Undue Burden)

The fifth factor is the economic impact that a civil penalty would have on the defendant violator

(r.e., Smith's financial stability). 33 U.S.C. $ 1319(d); Universal Tool,786 F. Supp. at 753-754.

Hearing testimony from a certified public accountant, a representative of the defendant corporation, or a

special master's report generally assesses the economic impact a civil penalty will have on defendant.

Gulf Park Water,14F. Supp.2d at 866-868 (hearing experttestimony and reviewing a special master's

report);2r United States v. Avatar Holdings- Inc.,1996 WL 47953| *11 (M.D. Fla. Aug. 20, 1996)

(hearing testimony from a representative of the defendant corporation). But if a defendant seeks to use

the economic impact of a civil penalty to mitigate the total amount, he has the burden of showing that the

penalty would be ruinous or otherwise disabling. Gulf Park Water, 14 F. Supp. 2d at 868.

Additionally, if a court is convinced that the imposition of the maximum penalty would have a more

drastic effect on a defendant than is needed to ensure future compliance, the court may take that into

account. Weber, 1996WL 477049,*17.

The Government has proposed that Smith should be required to pay $1.5 million for restoration,

fines, temporal loss and mitigation. This would amount to 79o/o of his and his wife's liquid assets.

(Plfs Phase II Trial Ex. 230). And although Smith is 63 years old, retired, depends on the vulnerability

of the market for income, and neither he nor his wife have significant earned income, the Government

contends that the "remainder" will be "adequate" for his needs for the rest of his and his wife's lives. It

is the undersigned's opinion that the Government's request lacks objective perspective on the seriousness

of this particular violation. To suggest that the Court penalize Smith to this extent merits no further

2l After hearing evidence from experts, at least one court has allowed the personal and corporate assets of

the defendant that are illiquid to be used in calculating a defendant's ability to pay a civil penalty. Gulf Park

Water, 14 F. Supp. 2d at 866-68. In Gulf Park Water, the district court adopted Govemment's expert opinion that

evaluated the "assets, less liabilities, which could be liquidated or sold to gain revenue for a penalty payment." Id.

at 866. The assets considered included personally owned stock, art, and guns ofone defendant and the operating

and non-operating assets of another defendant, which was a corporation. Id. The court ordered a civil penalty

totaling $ I ,500,000 based on the expert's opinion of the after tax value of the assets after liquidation.

24

Case 1:12-cv-00498-KD-C Document 145 Filed 07/24/14 Page 24 of 30
discussion.

6. Other matters as justice may require

The final factor allows the court to address such other matters as justice requires, or essentially

any other facts deemed relevant. Smithfield Foods,972F. Supp. at 353. This factor has been used as a

tool to determine whether the civil penalty was equitable in relation to other analogous cases. United

States v. Righter,20l0 WL 4977046, *4 (M.D. Pa. Dec. 2,2010) (performing a side-by-side comparison

of two prior cases to fashion an equitable penalty). Additionally, a defendant may be "entitled to some

credit for their lack of bad faith." Alleeheny Ludlum, 187 F. Supp. 2d at 445.

Smith has been (partially) found by a jury to be a CWA Section 404 violator. Smith flooded

wetlands on his property and created significant impoundments. This is not a case of toxic dumping,

pollution, or egregious or irreversible harm to the environment (in the sense that restoration is available).

Rather, this is a case of a retired banker from a small town in South Alabama who decided to -- albeit

very unwisely -- build roads/dams on family property for the family's forestry business. Smith believed

that the roads were forest roads and so were exempt from the CWA's Section 404 permit requirements.

While he was ultimately wrong, in part, to some extent the jury also agreed with him.

Moreover, the fact that Smith disputed the EPA's findings is certainly not held against him.

While the Government has repeatedly expressed its surprise and shock at having to initiate this litigation

(they asserted at trial that the Section 404 permit violations cases settle about 99%o of the time such that

this was abnormal), that does not detract from a United States citizen's right to dispute the Government's

findings and defend the claims against him. In sum, Smith is entitled to some credit for his lack of bad

faith (the absence of "evil motive"), and because the environmental harm which resulted from his

violations can, and will, be remedied and restoration will occur on his property.

Further, the Court has considered the expense to Smith to implement the requisite restoration

plan. The demolition cost will entail the extraction and movement of a significant amount of fill

material. Additionally, Smith will bear further restoration costs for the destruction of Impoundment E

25

Case 1:12-cv-00498-KD-C Document 145 Filed 07/24/14 Page 25 of 30
(the lake), planting trees throughout his properly, and taking all of the other detailed restoration steps

required by the forthcoming temporary restorative injunction (amended restoration plan). Also, Smith

will be required to pay the fees of the Court appointed consultant.

7. EPA Section 404 Settlement Penalty Policy Considerations

It is the EPA's policy to accomplish certain objectives in the assessment of penalties for Section

404 permit violations: l) penalties should be large enough to deter noncompliance, both by the violator

and others similarly situated; 2) penalties should help ensure a level playing field by making certain that

violators do not obtain an economic advantage over others who have complied in a timely fashion; 3)

penalties should generally be consistent across the country to promote fair and equitable treatment of the

regulated community; and 4) settlement penalties should be based on a fair and logical calculation

methodology to promote expeditious resolution EPA Revised Clean Water Act Section 404 Settlement

Penalty Policy at 4 (Dec. 21,2001), http://water.epa.gov/rype/wetlands/outreach/factl5.cfm (last visited

July 17, 2014). Courts may balance any penalty against the violator's ability to survive after it imposes

a fine, considering a defendant's total assess and liabilities, etc. Smithfield Foods,972 F. Supp. at 353;

GulfPark, 14 F. Supp.2d at 866-868.

To assist with the calculation of civil penalties in this case, the Court has referred to the EPA's

settlement polic;, and penalty assessment process> including the testimony of EPA representative Mike

Wylie about same. While the Court understands that the EPA policy is used for settlement purposes,

given the sparse case law, it proves as a useful guide- The EPA policy provides that the "bottom line

penalty" amount (the minimum penalty the government will accept) is comprised of economic benefit

plus a preliminary gravity amount (plus or minus gravity adjustment factors) minus litigation

considerations, minus ability to pay, minus mitigation credits via the following formula:

Penatiy: Economic Benefit + (Preliminary Gravity Amount +/- Gravity Adjustment

Factors) - Litigation Considerations - Ability to Pay - Mitigation Credit for SEPs

Preliminary Gravity Amount: (sum of A factors + sum of B factors) x M

26

Case 1:12-cv-00498-KD-C Document 145 Filed 07/24/14 Page 26 of 30
M is the Multiplier : $500 for minor violations with low overall environmental and compliance

significance, $1,500 for violations with moderate overall environmental and compliance

significance, and $3,000-$10,000 for major violations with a high degree of either environmental

or compliance significance.

As to economic benefit, the Government presented no relevant economic benefit evidence, as

such, the Court finds that this factor is zero (0).22

Regarding gravity, at trial the Court questioned EPA representative Mike Wylie as to these

factors (which are based on a scale of l-20, with 1 as the lowest and 20 as the highest), and has

considered, in part, his testimony concerning the values he would ascribe but acknowledges areas of

disagreement, to find as follows:

"A" Factors: Environmental Significance

Harm to Human Health or Welfare:

Extent of Aquatic Environment Impacted:

Severity of Impacts to Aquatic Environment:

Uniqueness/Sensitivity of Affected Resource :

Secondary/Off- site impacts :

Duration of Violation:

T

"8" Factors: Compliance Siqnificance

Degree of Culpability:

Compliance History of Violator:

Need for Deterrence:

I (low per Wylie)

l0 (but per Wylie it is l5)

l0

I (low per Wylie)

5 (but per Wylie it is 1l-13)23

1024

5 (but per Wylie it is l0- I 5)25

0 (none per Wylie)

10

22 lndeed, the only evidence presented during hial was that of timber sales on the site. (Gov't Phase II Tr.

Ex. 44). However, Smith contends that the dams/roads were "forest roads" such that they were constructed for his

timber business. Additionally, while Smith also operates a quail hunting club on the site (Dennis Wing Lake

Club), the Government failed to present any evidence of his sales or profit from that business.

23 There was no evidence to support the higher rating as the only evidence presented was that of some

elevated water temperatures.

24 The Government contends that Smith's violations have been occurring for 12 years.

25 The Court disagrees with the Government's description of Smith's culpability and its characterizations

of his behavior and interactions with the Government. Additionally, the Court is not persuaded by the

Govemment's contention that the mere fact of Smith disputing the Govemment's findings and disagreeing with

same, and as a result taking this matter to court, somehow translates into grounds for a high culpability score,

because the Government had to expend resources and money to litigate this case. Under the law, Smith was

entitled to dispute and disagree with the Govemment's findings and litigate this matter; thus, Smith's exercise of his

legal rights should not be equated as "culpability" or "avoidance" or any other negative behavior.

27

Case 1:12-cv-00498-KD-C Document 145 Filed 07/24/14 Page 27 of 30
Gravity: 52

Additionally, the Court finds that Smith's violations are of "moderate overall environmental and

compliance significance" such that the applicable Multiplier (M) is $1,500. As such, the Preliminary

Gravity Amount is 52 x $1,500: $78,000. The Penalty is calculated as follows:

Penalty : Economic Benefit

+ Preliminary Gravity Amount

0

$78,000

- Adjustments/reductions26 0

$78,000

8. Conclusions as to Civil Penalty

As stated supra, Smith is subject to a maximum CWA penalty in the amount of $561,6 62,500 for

16,323 days of violations. Additionally, in this Court's opinion, under the EPA Section 404 Settlement

Policy, Smith would be subject to a $78,000 penalty if he settled. This presents a wildly varying range.

The Court's research reveals a dearth of cases dealing with dam and impoundment situations

matching that here. As such, the Court has reviewed a handful of persuasive cases that have dealt with

an unpermittedz7 road or wetland filling, and what they have held to be appropriate civil penalties:

' T.C. Logging,20l0 WL 1009797, *5 (assessing a $78,000 penalty for one road);

' Donovan , 466 F . Supp. 2d at 599 (assessing a $256,000 penalty for .77 | acres of illegal fill);

' Weisman, 489 F. Supp. at 1350 (assessing a $10,000 penalty for one road along with

complete restoration);

U.S. E.P.A. v. Northwoods Organics.Inc., Dkt. No. 5{WA-95-005, (U.S. E.P.A. Region 5,

Mar.24,1995), the EPA assessed a $63,000 consent penalty against a peat mining business

as part of a settlement of an enforcement action directed to stopping the opening of sites on

1,300 acres of wetlands for peat mining without a $ 404 permit.

United States v. Feinstein Family Partnership. Case No.96--232 (M.D.Fla.1998), the Court

assessed a $400,000 penalty for clearing 24Yz aqes of wetlands for development of a

residential subdivision without a $ 404 permit. The proofs showed that the "twenty-four acres

of wetlands were previously heavily vegetated" and afterwards "the terrain was flat and water

pooled up on the site" ... and that "the damage done to the wetlands was significant."

Upon review, the Court finds that none are merited in this case.

Unpermitted at some point but not necessarily never permitted (e.g,"after the fact" permits, etc)

28

26

27

Case 1:12-cv-00498-KD-C Document 145 Filed 07/24/14 Page 28 of 30
' Borden Ranch Partnership v. Corps of Engineers" 1999 WL 1797329 (E.D. Cat. Nov. 8,

1999), the plaintiff deep ripped and plowed wetlands which degraded and destroyed 2 acres

as part of a real estate development. The Court found a lack of earnest effort to comply with

the CWA. Plaintiff was fined $1,500,000 reduced to $500,000 if certain restoration measures

were undertaken.

' United States v. Cundifl 555 F.3d 200, 204 16'h Cir. 2009) (assessing a $250,000 civil

penaltl' for illegally draining and filling wetlands but suspending all but $25,000 if restoration

plan was followed).

Taking into consideration the case law, evidence, parties'arguments, all of the Section l3l9(d)

factors, the maximum penalqr, the EPA settlement policy penalty, and other factors deemed relevant by

this Court, the Court imposes a CWA civil penalty against Smith of $78,000.

III. Conclusion

Upon consideration, it is ORDERED that the Government's request for relief is DENIED in

part and GRANTED in part as detailed supra suchthat;

l) the Government's request for entry of a permanent injunction against Smith is DENIED;

2) the Government's request for a temporary restorative injunction (the amended restoration plan

for the site) against Smith is GRANTED in part asdescribed in Attachment A;

3) the Government's request for compensatory mitigation is DENIED;

4) the Government's request for a $1,500,000 civil penalty is DENIED as to the amount and

GRANTED as to a form of relief, Smith is ORDERED to pay, on or before January 1,2015,

a CWA civil penalty of $78,000; and

5) Smith is ORDERED to pay, in annual installments, the cost of the Court's consultant, who

will be appointed to monitor compliance with the amended restoration plan (as described in

Attachment A).

6) It is further ORDERED that pursuant to Rule 53(aXlXC) of the Federal Rules of Civil

Procedure,2s the Court shall appoint a consultant to monitor compliance with the dmporary

restorative injunction (the restoration plan - Attachment A). The parties shall file, on or before

28 (a) Appointment. (1) Scope. Unless a statute provides otherwise, a couft may appoint a master only

to... (C) address pretrial and posttrial matters that cannot be effectively ... addressed by an available districtjudge

or magistrate judge of the district. The undersigned is not an expen in complex environmental restoration matters.

An experienced consultant who is lvill be better suited to effectively monitor compliance rvith the requirements of

the temporary restorative injunction issued in this case.

29

Case 1:12-cv-00498-KD-C Document 145 Filed 07/24/14 Page 29 of 30
August 8,2014, a Notice of Suggested Candidates for Appointment,2e identifying the proposed

consultant(s) and their credentials, as well as noting whether they are in joint agreement as to any

proposed consultant(s).

DONE and ORDERED this the24th dav of Julv 2014.

/s/ Kristi K. DuBose

KRISTI K. DUBOSE

UNITED STATES DISTRICT JUDGE

29 Fen. R.CIV. P. 53(b)(l): "Any party may suggest candidates for appointment." This shall provide the

parties with an opportunity to make written submissions to the Court.

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