Opinion ID: 503844
Heading Depth: 2
Heading Rank: 1

Heading: Halaco's Operations

Text: 2 Halaco operates a metals recycling plant near the Pacific Ocean in Oxnard, California. Halaco's property consists of a recycling plant, a settling pond, and an area commonly referred to as the Waste Disposal Area. Prior to smelting certain scrap metal known as dross, Halaco washes it to remove contaminants, which are principally in the form of dirt, but also include some fluxing salts. This wash water is then pumped to Halaco's settling pond, to allow the suspended dirt and salts to settle to the bottom of the pond. The settled dirt and salts are then removed from the bottom of the pond and placed in the waste disposal area. 3 The EPA determined that Halaco's waste disposal site included wetlands that constituted waters of the United States subject to the EPA's jurisdiction under the Clean Water Act. See 33 U.S.C. Sec. 1362(7) (1982); 40 C.F.R. Sec. 122.2 (1987) (defining navigable waters and wetlands). Halaco claims that these are not wetlands, and this is the decisive issue in the underlying suit. 4 On July 17, 1980, the EPA issued to Halaco a Cease and Desist Order, pursuant to 33 U.S.C. Sec. 1319(a) (1982). The Order provided that Halaco could not engage in any work on the waste disposal area without first obtaining a Section 402 permit and, further, had to submit a plan of restoration to return the waste disposal area to its original wetland state. Halaco then sued EPA for declaratory and injunctive relief, in essence seeking to establish that its waste disposal affected no wetlands subject to EPA's jurisdiction. EPA counterclaimed for declaratory and injunctive relief requiring Halaco to obtain a permit for its activities.B. EPA's Misbehavior 5 The district court struck the EPA's answer and dismissed its counterclaim, and entered judgment for Halaco, because the court found certain abuses by EPA occurring during the pre-trial discovery process. Nevertheless, in the early stages of the litigation, the district court extended a preliminary injunction to prevent Halaco from continuing its operation in the waste disposal area. The court recognized that a serious question existed whether Halaco's waste disposal site was a wetland or water of the United States subject to EPA's jurisdiction. 6 The district court based the dismissal upon two incidents occurring during discovery. The first occurred when the government withheld from Halaco certain parts of a report prepared by a contractor for EPA's National Enforcement Investigations Center (NEIC). Pursuant to a magistrate's discovery order, the contractor was permitted to do on-site sampling, provided Halaco was given the information NEIC garnered. When Halaco did not receive any documents or the results of the tests made by the NEIC on behalf of the EPA, Halaco served a production request, and then secured a production order from the court. The EPA tendered the NEIC report, but Halaco divined that in the version it received close to half of the report had been excised. Halaco claims that a portion of the report which had been withheld declared that the waste disposal area could not be considered hazardous according to the tests and criteria specified in the Resource Conservation and Recovery Act, 42 U.S.C. Sec. 6903(5), (27) (1982). EPA disputes this characterization of the excised portions of the NEIC report. 7 Halaco sought sanctions against the EPA for producing a doctored report. At the hearing on this sanctions request, Magistrate Reichmann held that the providing of an excised report was not a deliberate attempt to withhold evidence or to deceive plaintiff. At a later hearing, District Judge Marshall let the magistrate's finding stand and also found that the government's conduct was not willful. At this hearing, the court refused to impose a severe sanction against the EPA because of the nature of the public interest in the subject matter of the lawsuit. The court imposed a $500 fine against the EPA and the Assistant U.S. Attorney handling the case. District Judge Marshall made other remarks on the record indicating her disapproval of the EPA's censoring the NEIC report. In this appeal, EPA does not dispute the court's imposition of a monetary fine. 8 The second charge against the EPA for abuse of discovery arose in May of 1982, when the EPA commissioned a report entitled Photographic Analysis of a Waste Disposal Site, Ventura County, California, prepared by the EPA's Environmental Monitoring System Laboratory (EMSL). Halaco claimed, and the district court agreed, that the EMSL report continually referred, either specifically or impliedly, to purported findings that the waste on Halaco's site was hazardous. 9 EPA gave Halaco a copy of the EMSL report during discovery. Before the EPA had made any use of the report in litigation, Halaco filed a motion seeking dismissal of EPA's counterclaim on the grounds that the report was false, defamatory, injurious to Halaco's business, and constituted grave prosecutorial misconduct by the government. Halaco deposed the author of the report, David R. Williams. Mr. Williams testified that there was no factual basis for the characterization of Halaco's waste as hazardous, and that phrase had been used as just a shorthand expression or generic term. C. The Dismissal Sanction 10 Following a hearing, the district court granted Halaco's motion for sanctions against the EPA. The court found that the EMSL Report's statements concerning Halaco's wastes were knowingly and intentionally made by EPA, although EPA admittedly did so without any foundation whatsoever. The court also referred to the earlier incident concerning the doctored NEIC report. The court noted that the EPA had falsely and intentionally stated that the waste on Halaco's property was hazardous and that the government's attempt initially to suppress the favorable NEIC report, and now to create the false EMSL report, evidences inequitable and unconscionable conduct before this court. The court then struck EPA's answer to Halaco's complaint, dismissed its counterclaim, and entered judgment for Halaco. This dismissal was apparently premised on a willful violation of the Federal Rules of Civil Procedure relating to discovery and on the court's inherent power to impose sanctions for discovery abuses. EPA timely appeals. We have jurisdiction by virtue of 28 U.S.C. Sec. 1291.