Opinion ID: 169642
Heading Depth: 2
Heading Rank: 1

Heading: CAA Penalty Analysis

Text: We will uphold a district court's findings of fact in support of a CAA penalty unless the findings are clearly erroneous. See Pub. Interest Research Group of New Jersey, Inc. v. Powell Duffryn Terminals, Inc., 913 F.2d 64, 79 (3d Cir.1990), cert. denied, 498 U.S. 1109, 111 S.Ct. 1018, 112 L.Ed.2d 1100 (1991). [2] The district court's weighing of those facts, and its penalty determination, are reviewed for abuse of discretion. See United States v. Dell'Aquilla, 150 F.3d 329, 338 (3d Cir. 1998). However, we review de novo the statutory interpretation behind the district court's decision. United States v. B & W Inv. Props., 38 F.3d 362, 366 (7th Cir.1994) (reviewing a Clean Air Act citizen suit). Specifically, our review of the district court's legal construction of the Clean Air Act's penalty factors is plenary. United States v. Allegheny Ludlum Corp., 366 F.3d 164, 171 (3d Cir.2004). Section 7604(a) of the CAA provides the district court with authority to enforce such an emission standard or limitation, or such an order . . . and to apply any appropriate civil penalties. . . . 42 U.S.C. § 7604(a). Section 7413(e)(1) sets forth the factors that a court shall take into consideration in determining the penalty, if any, to be assessed for a violation of the Act: In determining the amount of any penalty to be assessed under this section or section 7604(a) of this title, the Administrator or the court, as appropriate, shall take into consideration (in addition to such other factors as justice may require) the size of the business, the economic impact of the penalty on the business, the violator's full compliance history and good faith efforts to comply, the duration of the violation as established by any credible evidence (including evidence other than the applicable test method), payment by the violator of penalties previously assessed for the same violation, the economic benefit of noncompliance, and the seriousness of the violation. 42 U.S.C. § 7413(e)(1). [3] In considering fines under the Act, courts generally presume that the maximum penalty should be imposed. United States v. B & W Inv. Props., 38 F.3d at 368; see also Dell'Aquilla, 150 F.3d at 339 (Courts usually calculate a fine under the CAA by starting with the maximum penalty.). When starting with the maximum penalty, courts then consider the factors described in 42 U.S.C. § 7413(e) to determine what degree of mitigation, if any, is proper. See Dell'Aquilla, 150 F.3d at 339; see also United States v. Marine Shale Processors, 81 F.3d 1329, 1337 (5th Cir.1996) ([W]hen imposing penalties under the environmental laws, courts often begin by calculating the maximum possible penalty, then reducing that penalty only if mitigating circumstances are found to exist.). This is not to say that this methodology must be used, but merely that we agree with the persuasive case law that concludes that this approach is satisfactory. Dell'Aquilla, 150 F.3d at 338 ([A]lthough courts may, and frequently do, begin at the maximum, we have never suggested that such a procedure is always appropriate.). Other courts, for example, use a bottom up approach whereby the economic benefit a violator gained by noncompliance is established and then adjusted upward or downward, rather than a top down approach in which the maximum possible penalty is first established, then reduced following an examination of mitigating factors. See United States v. Mun. Auth. of Union Twp., 150 F.3d 259, 265 (3d Cir.1998) (collecting cases in a CWA case). Here, the district court calculated the maximum possible penalty under the CAA, then mitigated that penalty to zero based on the following findings: (1) a penalty greater than $20,000 would bankrupt Airosol, (2) Pro Products never established that Airosol's violations of the Act were intentional, (3) Airosol had not been previously penalized for similar violations, (4) Airosol voluntarily ceased manufacturing and selling Black Knight and will no longer benefit from its violations, (5) the EPA neither cited Airosol nor elected to become involved in the case, (6) Airosol's violations of the CAA were not a serious threat to the environment, and (7) most importantly, Pro Products' purpose in bringing suit was to remove a competitor rather than a genuine concern for the environment. Appx. at 543-4. Pro Products makes four arguments in support of its contention that the district court abused its discretion in concluding that it was not appropriate to penalize Airosol for its violations of the CAA. First, Pro Products argues that the district court relied on improper factors not listed in § 7413(e)(1). Second, it argues that the district court failed to address required factors enumerated in § 7413(e)(1). Third, it argues that the factors relied on by the district court do not support a complete mitigation of penalty. Last, it argues the district court did not consider certain evidence supporting the imposition of a penalty.
Pro Products argues that the district court relied on three improper factors in mitigating Airosol's penalty to zero. We agree. Specifically, the district court first implied that mitigation is proper where a private citizen [rather than the EPA] brought suit against [a defendant] for its Clean Air Act violations. Appx. at 544. The district court also looked to Pro Products' failure to establish at trial that Airosol intentionally violated the Clean Air Act as a mitigating factor. Id. at 543. Finally, the district court found it most important that Pro Products' motivation to enforce the CAA was economic rather than environmental. Id. at 544. We review de novo whether unlisted factors such as these are properly considered other factors as justice may require within the meaning of § 7413(e)(1). See Powell, 913 F.2d at 80; see also United States v. Allegheny Ludlum Corp., 366 F.3d 164, 171 (3d Cir.2004) (concluding that imposition of a penalty under the CWA is reviewed for abuse of discretion, but review of the construction of CWA's penalty provision is plenary). In Powell, a citizen suit under the CWA, the district court granted summary judgment finding that the defendant manufacturer violated the CWA. Powell, 913 F.2d at 69. Following a bench trial on the issue of penalties, the district court assessed $3,205,000 in civil penalties. Id. In calculating the penalty, the district court determined the maximum penalty to be $4,205,000 and reduced that amount by $1,000,000 because the EPA and the [New Jersey Department of Environmental Protection] had failed to diligently prosecute [the violator]. Id. at 69-70. The Third Circuit Court of Appeals reversed in part, finding that the mere failure by governmental agencies to prosecute [an alleged violation] does not allow a court to reduce a penalty. Id. at 81. The court held that such failure by itself is not a factor that may be considered within the other matters as justice may require factor set forth in the CWA's penalty statute. Id. The Powell court also found that because the EPA had not affirmatively recognized and excused noncompliance, governmental inaction was not a basis for mitigation based on the violator's good faith. Id. When calculating the appropriateness of a civil penalty, the CAA, like the CWA, requires a district court to consider certain listed factors, but also permits a district court to consider other unlisted factors as justice may require. Compare 33 U.S.C. § 1319(d) (considering other matters as justice may require), with 42 U.S.C. § 7413(e)(1) (considering other factors as justice may require). Both the CWA and the CAA provide that a citizen suit can only be brought if there is a lack of prosecution by the state, or relevant agency. Compare 33 U.S.C. § 1365(b)(1)(B) (No action may be commenced . . . if the Administrator or State has commenced and is diligently prosecuting a civil or criminal action.), with 42 U.S.C. § 7604(b)(1)(B) (No action may be commenced . . . if the Administrator or State has commenced and is diligently prosecuting a civil action . . . to require compliance.). Thus, the mere failure by governmental agencies to prosecute [a violation] does not allow a court to reduce a penalty. Powell, 913 F.2d at 80. Here, the EPA was aware of the instant litigation, but had not cited Airosol or elected to intervene in this litigation. Appx. at 543. We agree with the Third Circuit's approach in Powell and conclude that the district court erred in relying on agency inaction as a mitigating factor when conducting its CAA penalty analysis. Second, the fact that Pro Products did not establish at trial that Airosol intentionally violated the Clean Air Act is also an impermissible basis for a complete mitigation of Airosol's penalty. Appx. at 543. The Act imposes strict liability upon owners and operators who violate the Act. See Dell'Aquilla, 150 F.3d at 332; B & W Inv. Props., 38 F.3d at 367. This is not to say that intent cannot be considered when assessing a CAA penalty, but here, as regards the district court's placing a burden on Pro Products to establish that Airosol intentionally violated the CAA, it erred. Also, we are mindful that the district court found that from October 4, 1996 to April 30, 2005, Airosol sold 64,017 twelve-ounce cans of Black Knight and 548 twelve-pound cylinders of Black Knight all containing substances banned by the CAA, and that Airosol pursued this course of conduct by relying on a letter it alleges it sent to the EPA, but was never received. Thus, insofar as Airosol's intentions are relevant here, there is insufficient evidence in the record to completely mitigate the imposition of a penalty on these grounds alone. [4] Third, the district court expressly determined that the most important factor in its decision to mitigate Airosol's penalty was the motivation of the citizen plaintiffs who brought suit against Airosol for its CAA violations. We conclude this factor is irrelevant to a determination of the amount of penalty to be imposed under the CAA. First, we have found no authority for the district court's conclusion that a plaintiff's motivation is a significant factor when determining what penalty should be imposed against a CAA violator. Moreover, Congress enacted [the CAA citizen suit provision] specifically to encourage citizen participation in the enforcement of standards and regulations established under this Act. Pennsylvania v. Del. Valley Citizens' Council for Clean Air, 478 U.S. 546, 560, 106 S.Ct. 3088, 92 L.Ed.2d 439 (1986) (citations omitted). Congress intended the section to afford citizens very broad opportunities to participate in the effort to prevent and abate air pollution. Id. (citations omitted). Thus, the fact that a citizen-suit plaintiff may have an economic interest in the outcome of the litigation does not justify mitigation of penalties against the violator. To the contrary, one of the purposes of these penalty provisions is to ensure that companies like Airosol do not gain a competitive advantage from violating the CAA. Powell, 913 F.2d at 79 (Violators should not be able to obtain an economic benefit vis-a-vis their competitors due to their non-compliance with environmental laws.) (citations omitted). In short, there is no principled basis for relying on Pro Products' motivation for bringing the suit, or the fact that the parties are competitors, to determine Airosol's penalty. Thus, the district court's reliance on these factors was error.
We conclude further that the district court also erred as a matter of law by failing to address certain statutory factors that must be considered in a CAA penalty analysis. Although the CAA does not prescribe what weight to apply to these factors, 42 U.S.C. § 7413(e)(1) of the Act clearly requires that the district court consider: (1) the size of the business and the economic impact of the penalty on the business; (2) the seriousness of the violation; (3) the violator's full compliance history; (4) good faith efforts to comply; (5) the duration of the violation as established by any credible evidence; (6) payment by the violator of penalties previously assessed for the same violation; (7) the economic benefit of noncompliance; and (8) the seriousness of the violations. Here, the district court did not consider the size of Airosol's business, Airosol's full compliance history, good faith efforts to comply, or the duration of the violation. Because the failure to consider the enumerated factors in § 7413(e)(1) is reversible error, we remand for the district court to include in its penalty analysis these additional factors. See, e.g., Dell'Aquilla, 150 F.3d at 339 (reversing penalty award for failure to consider evidence in violation of CAA mandate to consider economic impact of the penalty). Specifically, in its order where it declined to penalize Airosol for its CAA violations, the district court made a factual finding that [d]ue to its financial troubles, Airosol has decreased its workforce from approximately ninety employees to approximately thirty employees. Appx. at 541. Nonetheless, in the legal analysis that follows, the district court neither explicitly nor implicitly considered this factor. The district court also failed to consider Airosol's full compliance history and good faith efforts to comply with the CAA. 42 U.S.C. § 7413(e)(1). The district court's findings make clear that prior to suit (1) Airosol had never been in compliance with the amendments banning Class II substances, and (2) Airosol was aware of the Class II ban, but failed to properly file an application for reformulation, or to meaningfully inquire about the application it allegedly sent, or to otherwise comply with the Act. Also, Airosol sold Black Knight for months after the district court determined that its sale of Black Knight violated the Act. Appx. at 412 (Airosol admitted to offering Black Knight for sale until August 26, 2004[, but on this] date the sale of Black Knight was illegal pursuant to this court's March 10, 2004 order. . . .). The district court failed to consider any of this evidence. Finally, in its order declining to penalize Airosol for its CAA violations, the district court made a series of factual findings indicating that Airosol's violations lasted more than a decade, from January 1, 1994, through March 10, 2004. Airosol argues that since the district court found that Airosol's violation of the Act extended over a period of 2,715 days (when considering a period from October 4, 1996, through March 10, 2004), this finding was somehow meaningfully considered by the district court in its penalty analysis. Yet, the district court never discussed the duration of the violation as a factor in its penalty analysis, nor did it incorporate by reference its factual findings regarding duration of the violation into its legal analysis. On remand the district court should include in its penalty analysis consideration of these three factors, as well as the related evidence referenced above.
Pro Products next argues that to the extent the district court considered certain statutory factors set forth in 42 U.S.C. § 7413(e)(1), it erred as a matter of law in doing so. We agree. The limited analysis conducted by the district court regarding the economic benefit factor of § 7413(e)(1) resulted in its conclusion that Airosol will not continue to benefit from its violations, as it has voluntarily ceased manufacturing and selling Black Knight. Appx. at 543 (emphasis added). This conclusion is a misapplication of 42 U.S.C. § 7413(e)(1) because it requires a court to consider the economic benefit that the violator has received as a result of its violations of the CAA, not the economic benefit it will receive in the future. The district court's interpretation of the statute would permit any violator of the CAA to mitigate a potential penalty simply by ceasing to pollute. We reject this interpretation of the Act. Also, the district court's conclusion which negates the seriousness of Airosol's violations as a basis for mitigation is not supported by any findings of fact. Instead, the district court stated that it does not believe that Airosol's Clean Air Act violations were a serious threat to the environment or the public [because] the parties did not offer, and the court is not aware of, a single measurable injury to the environment or the public caused by Airosol's manufacture and sale of Black Knight. Id. While there is no statutory definition of seriousness of the violation, the effects of ozone pollution are well documented. [5] The issue then is whether a lack of evidence on the record linking Airosol's CAA violations to discrete damage to either the environment or the public necessarily justifies the conclusion that Airosol's violations were not serious. We conclude it does not. In Powell, the Third Circuit upheld the district court's finding that the defendant's violations of the CWA were serious, even absent a showing which directly linked defendant's discharges to actual harm to the environment or the public. See Powell, 913 F.2d at 79. In other words, Powell held that a court may still impose a penalty if it finds there is a risk or potential risk of environmental harm, even absent proof of actual deleterious effect. Considering the difficulty of measuring these types of harm, we find the logic of Powell persuasive. We therefore conclude that the mere absence of a measurable harm to the public or the environment stemming from a particular CAA violation does not necessarily indicate that a violation is not serious. Particularly important here is the fact that Congress had explicitly banned the substances contained in Airosol's noncompliant product, Black Knight. The statutory economic benefit factor requires the district court to apply a retrospective rather than a prospective analysis, but the court has discretion in deciding how to calculate the economic benefits received from the defendant due to its noncompliance with the CAA. The parties also disagree about how to measure the economic benefit of noncompliance factor set forth in § 7413(e)(1). Pro Products argues that any profits realized through the sale, or offer of sale, of a prohibited product ought to be included when assessing the economic benefit of a CAA violation, the rationale being that one ought not to profit from one's wrongful conduct. [6] Airosol, on the other hand, argues that the economic benefit of noncompliance is more properly measured by considering the costs that it would have incurred to comply with the CAA (i.e., the cost of reformulation). While the question is not easily resolved, we conclude that Pro Products has the better argument. While the economic benefits calculation ideally begins with the costs . . . that should have been spent, to achieve compliance, Ludlum, 366 F.3d at 178 (calculating economic benefit to polluter by the least costly method of compliance), precise economic benefit to a polluter may be difficult to prove, Powell, 913 F.2d at 80. Given this reality, we acknowledge that there are methods other than the delayed or avoided capital expenditure for ascertaining economic benefit, Municipal Authority of Union Township, 150 F.3d at 266 (analyzing economic benefit penalty provision set forth in CWA in terms of profits gained, rather than expenses avoided, from noncompliance due to unique circumstances), and we will accord the district court wide discretion in its calculation, see id. at 264. Thus, if, on remand, the district court is unable to determine the costs Airosol would have expended in order to become compliant with the CAA, then it is free to consider any reasonable alternative to determine Airosol's economic benefit of noncompliance  such as, the EPA's CAA Stationary Source Civil Penalty Policy [7] and/or some degree of profits gained  as long as its analysis is not in conflict with the CAA or basic economic principles. Last, Airosol claims that the record does not establish what costs it would have incurred to reformulate Black Knight and implies that, as a result, it should not be penalized for its violations of the CAA. As noted above, however, because Airosol's cost of reformulation is not the only possible measure of its economic benefit of noncompliance, whether a penalty will be imposed in this case will not rise or fall on a cost of reformulation calculation. And, even if we assume, arguendo, that there is no reasonable means to measure Airosol's economic benefit of noncompliance, it follows that there would be insufficient evidence to mitigate the imposition of a penalty on this basis, and not, as Airosol suggests, that it should not be penalized at all. See B & W Inv. Props., 38 F.3d at 368 (concluding that courts generally presume that the maximum penalty should be imposed, then mitigate the penalty in accord with the § 7413(e)(1) factors).