Opinion ID: 701769
Heading Depth: 1
Heading Rank: 4

Heading: Whether District Court Abused its Discretion in Setting Amount of Penalty

Text: Section 3008(g) of the RCRA provides: 39 Any person who violates any requirement of this subtitle shall be liable to the United States for a civil penalty in an amount not to exceed $25,000 for each such violation. Each day of such violation shall, for purposes of this subsection, constitute a separate violation. 40 42 U.S.C. Sec. 6928(g). Subsection (c) provides that a violation of a compliance order also renders the violator subject to a $25,000 per day penalty. In imposing civil penalties, it is appropriate for the court to take into account the seriousness of the violation and any good faith efforts to comply. See 42 U.S.C. Sec. 6928(a)(3). Numerous other factors are relevant, including the harm caused by the violation, any economic benefit derived from noncompliance, the violator's ability to pay, the government's conduct, and the clarity of the obligation involved. United States v. Bethlehem Steel Corp., 829 F.Supp. 1047, 1055 (N.D.Ind.1993) (collecting cases). The assessment of civil penalties is committed to the informed discretion of the court, and we review only for abuse of discretion. United States v. Midwest Suspension and Brake, 49 F.3d 1197, 1205 (6th Cir.1995) (citing United States EPA v. Environmental Waste Control, Inc., 917 F.2d 327, 335 (7th Cir.1990), cert. denied, 499 U.S. 975, 111 S.Ct. 1621, 113 L.Ed.2d 719 (1991)). This court will find an abuse of discretion when the district court relies on clearly erroneous findings of fact or uses an erroneous legal standard. Newsom v. Norris, 888 F.2d 371, 373-74 (6th Cir.1989). On appeal, Ekco contends that the district court abused its discretion in giving insufficient weight to numerous alleged mitigating factors, and in imposing a penalty allegedly disproportionate to that imposed against other RCRA violators. We address each argument in turn.
41 In determining whether the court gave Ekco short shrift in its treatment of the numerous alleged mitigating factors, we first examine the purpose of the financial responsibility regulations, which is to require the owner/operator of a hazardous waste facility to document that it has secured the resources required to close the facility in an appropriate and safe manner, and to pay third-party claims that may arise from its operations. Vineland Chem. Co. v. United States EPA, 810 F.2d 402, 404 n. 1 (3d Cir.1987). The timing of these obligations is critical. The regulations require that the owner/operator secure the necessary funds, and document that it has done so, prior to closure. This requirement is imposed to reduce the risk that insufficient funds will be available after the facility is shut down, when the owner/operator may not have the economic ability or incentive to devote resources to a defunct operation. See generally 47 Fed.Reg. 32274 (1982) (interim rules regarding hazardous waste treatment, storage and disposal facilities). Similarly, the regulations set forth specific requirements regarding the manner in which the funds are to be secured to provide the appropriate level of assurance that the funds will, in fact, be available when needed. Id. 42 Mindful of these significant regulatory goals, we reject Ekco's contention that the $1000 per day penalty was excessive because AHP always had the financial resources to close the impoundment and satisfy third-party claims, and ultimately provided the necessary documentation. Ekco's no harm--no foul theme, recurrent throughout this appeal, simply misses the mark. Ekco was required to have secured the funds and documented their existence on each day of each year in question. It cannot escape the consequences of its inaction by pointing to its eventual, and untimely, compliance. 43 We are persuaded, however, that the district court gave too little weight to the fact that Ekco substantially complied with its closure and post-closure care obligations on June 25, 1990, when it submitted AHP's letter of credit; and with its third-party claims obligations on September 29, 1992, when it submitted AHP's guarantee. The court found that technical defects existed in both instruments, leading it to continue the $1000 per day penalty for each violation until final abatement. The penalty imposed for the period following Ekco's substantial compliance is significant, as the time period involved exceeds two years for two violations, and five months for the third violation. 44 The EPA legitimately may require that financial responsibility requirements be satisfied in the manner specified in the regulations, and an owner/operator's failure to comply with those requirements renders it subject to the imposition of penalties. In assessing the seriousness of a violation of this type, however, the court should consider principally whether the defects threaten the availability of the funds. Other relevant factors include the violator's attempt to cure the defects, whether there are impediments to cure that are outside the violator's direct control, and the timeliness of the violator's response. 45 We conclude that the amount of the penalty imposed here is excessive, because the record does not reflect that the defects in the letter of credit and guarantee in any way impaired the availability of the funds. There is no indication that the defects in the letter of credit, e.g., the failure to provide a duplicate trust agreement and to name Ekco in the letter of credit itself, had any bearing on the bank's obligation to pay Ohio EPA upon presentment. Likewise, there is no evidence that AHP's guarantee was invalid when originally submitted, and its sole defect was in having an effective date of 1988 rather than the date on which it was executed. 5 Ekco documented that secured funds were available in amounts that were satisfactory to Ohio EPA. The principal purpose of the regulations thus was fulfilled, and Ekco should not be required to pay the same amount in penalties for the period following its substantial compliance as it must pay for the period when it was in complete default. We therefore remand to permit the district court to re-assess the proper penalty to be imposed for the periods noted above. 46 The district court did not abuse its discretion in its assessment of Ekco's remaining mitigation claims. Ekco concedes that the amount of its penalty can be based on the economic benefit gained through noncompliance, but contends that the court erred by calculating the amounts saved by Ekco in not procuring a letter of credit and liability insurance coverage, rather than with reference to the costs ultimately incurred by AHP in procuring a letter of credit and in submitting a guarantee. Ekco, not AHP, was bound by the regulations and consent order. 6 Until AHP stepped forward, Ekco was required to comply with the regulations, and realized cost savings by not doing so. 7 47 Ekco's claim that it delayed in complying with its financial responsibility obligations based upon its good faith reliance on the advice and interpretations of governmental officials is plainly contradicted by the record. The district court detailed at least 28 written or telephonic communications between Ekco's representatives and Ohio EPA in which Ekco was informed, repeatedly and unequivocally, that it was obligated to comply with all three financial responsibility requirements. In defending its delay, Ekco relies in part on the September 1989 notice that it should revise its closure estimates prior to providing financial assurances, and claims that it could not provide financial assurances until it could revise its estimates, and it could not revise its estimates until it revised its closure plan. Ekco does not explain, however, why it defaulted in its obligations until September 1989. For the period following September 1989, it is sufficient to note that Ekco was able to revise its estimates for purposes of submitting financial assurances, as evidenced by the fact that it did so in June 1990 with AHP's $1.5 million letter of credit. Ekco defends its failure to document responsibility for third-party claims, arguing that it interpreted, in good faith, Sec. 265.147 and the consent order as not imposing this obligation. Admittedly, the cases addressing the effect of the LOIS amendment made Ekco's obligation under Sec. 265.147 less than crystal clear. The same cannot be said of its obligation under the consent order, however. Moreover, the repeated and consistent notices given by Ohio EPA negate Ekco's claim of good faith. 48 Finally, Ekco contends the amount of the penalty imposed exceeds the amount necessary to deter it from future violations. The district court properly considered the deterrence effect not just on Ekco, but on the regulated community as a whole. Moreover, given Ekco's apparent view that the financial responsibility requirements take a far-distant seat to its other RCRA obligations and its contentions that its ultimate compliance substantially excuses its lengthy delay in so doing, the deterrence message sent by the district court's penalty was one sorely needed.
49 Ekco contends that the court abused its discretion in imposing a penalty significantly higher than penalties imposed against other owners/operators for similar violations. The penalties imposed in other cases are indeed relevant. See Sterling v. Velsicol Chem. Corp., 855 F.2d 1188, 1207 (6th Cir.1988) (civil damage awards 8 to 40 times award made in prior case excessive, and shocked judicial conscience). The reasonableness of a penalty, however, is a fact-driven question, one that turns on the circumstances and events peculiar to the case at hand. 50 Viewed in this light, the decisions relied upon by Ekco do not provide meaningful guidance. Ekco relies almost exclusively on EPA administrative cases, decided at the earliest stages of the enforcement process, in which violators were assessed penalties in the thousands-of-dollars range for violating financial responsibility requirements. 8 Ekco was in a position analogous to these violators in 1989 when it entered into a consent order requiring it to pay $55,478 for the violations cited in the administrative complaint. This case was brought several years later, following Ekco's continued default in its obligations under both the regulations and the consent order. 51 Ekco acknowledges that significantly higher penalties have been imposed in RCRA cases, 9 but contends that these cases are inapposite because the violations involved conduct that actively caused environmental harm. 10 In contrast, argues Ekco, its violations merely involved a failure to provide the EPA with financial documentation. Ekco's assessment of the relative seriousness of a violation of the financial responsibility regulations is questionable. These regulations are not mere paperwork requirements, and a party cannot comply by submitting a financial statement or other indicators of its net worth. The purpose of these regulations is to ensure that adequate funds are secured (through, e.g., a letter of credit, guarantee or liability policy) in the present to meet the future financial needs for closing a hazardous waste site and satisfying any third-party claims that might arise therefrom. A present violation of these regulations may significantly impair the ability to close and remediate the site when needed and to protect third parties from harm. This risk of future harm posed by a hazardous waste facility such as that owned by Ekco, found by the district court to present serious risks to human health and the environment, 11 is no less important a consideration than the risk of present harm caused by activities causing contamination. Thus, we are not persuaded that the district court imposed a penalty disproportionate to other RCRA penalties, and find no abuse of discretion. 52 We REVERSE the imposition of civil penalties pertaining to 40 C.F.R. Sec. 265.143, for the period June 25, 1990 to September 20, 1992; 40 C.F.R. Sec. 265.145, for the period June 25, 1990 to July 28, 1992; and 40 C.F.R. Sec. 265.147, for the period from September 29, 1992 to March 11, 1993. We REMAND to the district court for a redetermination of penalties for these time periods. In all other respects we AFFIRM.