Court Opinion

ID: 2995437
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:20:19.074553+00
Date Added: 2024-06-11T11:45:25.462930
License: Public Domain

In the
United States Court of Appeals
For the Seventh Circuit

No. 01-1380

United States of America,

Plaintiff-Appellee,

v.

Shakeab Alshabkhoun and A&A Farms,

Defendants-Appellants.

Appeal from the United States District Court
for the Western District of Wisconsin.
No. 98-C-583-S--John C. Shabaz, Judge.

Argued October 31, 2001--Decided January 18, 2002

  Before Bauer, Coffey and Diane P. Wood,
Circuit Judges.

  Bauer, Circuit Judge. The United States
and appellants Shakeab Alshabkhoun and
A&A Farms (collectively A&A) entered into
a court-approved Consent Decree to
resolve the government’s claims that A&A
violated the Clean Water Act. When A&A
failed to comply with the terms of the
Consent Decree, the government moved to
enforce the stipulated penalties
provision. The district court granted the
government’s motion and ordered A&A to
pay stipulated penalties and attorney’s
fees. A&A appealed that ruling. For the
reasons set forth below, we affirm the
district court.

I.   Background

  A&A owns 1,000 acres of farmland
adjacent to the Wisconsin River in Dane
County, Wisconsin. In January of 1994,
A&A excavated a drainage ditch system to
collect water and excess soil from the
farm and neighboring land and convey it
to the river. The system required a ditch
that was 38 feet wide and 1,500 feet
long, which resulted in the discharge of
dredged or fill materials into the
wetlands. A&A did not obtain a permit
from the United States to construct this
drainage ditch system.

  On December 4, 1996, the Environmental
Protection Agency (EPA) issued an
administrative compliance order stating
that A&A’s construction of the ditch
without a permit was a violation of the
Clean Water Act. The Clean Water Act
prohibits the discharge of any pollutant,
including dredged or fill material, into
navigable waters of the United States,
except in accordance with a permit. 33
U.S.C. sec. 1311(a). A&A then submitted a
restoration plan that the EPA rejected
and further attempts to resolve the
dispute failed.

  On August 13, 1998, the United States
filed a civil action in federal district
court under section 309 of the Clean
Water Act. The court entered partial
summary judgment in favor of the
government and, on July 2, 1999, the
parties entered into a Consent Decree for
the restoration of the wetlands. The
decree was negotiated by both parties and
approved by the district court. It
required A&A to pay $225,000 in civil
penalties. Further, to properly restore
the wetlands, the Consent Decree required
A&A to submit to the EPA a Restoration
Work Plan, prepared by a certified
engineer, and a schedule for completing
the tasks set forth in the Plan.

  The Consent Decree provided for
stipulated penalties for any failure to
implement the Plan in compliance with the
schedule. Specifically, the Consent
Decree required the payment of $500 per
day for one to thirty days of
noncompliance, $1,000 per day for thirty-
one to sixty days of noncompliance and
$2,000 per day for sixty-one or more days
of noncompliance. The Consent Decree
allowed for the extension of the
deadlines if "performance is prevented or
delayed solely by events which constitute
a Force Majeure event," defined to
exclude "normal precipitation or climate
events." A&A was required to notify the
government in writing of any alleged
Force Majeure event to invoke the
extension of deadlines.

  The Consent Decree also included a
dispute resolution provision. Under this
provision, if A&A filed a petition in
court concerning the Consent Decree,
A&A’s penalties would continue to accrue
during the proceedings; however, the
filing of a petition would stay A&A’s
obligation to pay any penalty regarding
the disputed matter. In the event that
A&A did not prevail on the matter in
dispute, the stipulated penalties became
due.

  The Plan required A&A to obtain bids
from contractors within thirty days of
the approval of the Plan, complete
grading and installation of erosion
control measures within forty-five days
thereafter, and plant the required trees,
shrubs and seeds within thirty days after
that. A&A hired a contractor and began
the work in late November of 1999, but
did not complete the project. More than
two months later, on February 17, 2000,
A&A filed a notice of dispute with the
EPA, requesting relief from the Plan on
the grounds that compliance was
impossible. A&A stated that it had hired
additional experts who opined that the
implementation of the Plan could
potentially cause flooding problems. The
EPA reviewed this information and denied
A&A relief.

  On April 7, 2000, invoking the decree’s
dispute resolution clause, A&A filed a
Petition to Modify the Consent Decree
with the district court claiming that
significant unforeseen circumstances
affected its ability to perform the work.
The court rejected A&A’s impossibility
claim and instead found that since the
drainage problem was the very reason A&A
constructed the ditch at issue, A&A was
well aware of its experts’ observations
and the potential for drainage problems
at the time the Consent Decree was
negotiated. As a result, on May 26, 2000,
the district court held that A&A had
failed to present adequate grounds for
any modification of the decree and the
petition was denied.

  In June of 2000, spring flooding
rendered the land unsuitable for work.
A&A did complete the required excavation
in October of 2000, but the parties were
still in dispute over the issue of
stipulated penalties for the delay. On
October 23, 2000, the government filed a
Petition to Enforce the Consent Decree,
asking the court for an award of
$507,850.40. The amount represented the
accumulation of the stipulated daily
penalties, as well as attorney’s fees. In
response, A&A did not contest the
calculation of damages, but argued that
the stipulated penalties provision was
unreasonable and unenforceable and that
the delay in completing the work should
be excused due to the June flooding.

  On January 11, 2001, the district court
granted the government’s petition in
full. The court held that the stipulated
penalty provision was reasonable and
enforceable because it amounted to less
than 10% of the penalty authorized by
statute. Further, the court refused to
excuse the delay due to the June flooding
because had A&A implemented the Plan in a
timely manner seven months earlier, the
June flooding would have been irrelevant.
A&A then brought this appeal.

II.   Discussion

  Because a consent decree is a form of
contract, we generally review a district
court’s interpretation of the consent
decree de novo. Goluba v. Sch. Dist. of
Ripon, 45 F.3d 1035, 1037-38 (7th Cir.
1995). However, where, as here, the
district court oversaw and approved the
consent decree, we give "some deference"
to the district court’s interpretation.
Id.

  A&A concedes that the construction of
the ditch violated the Clean Water Act.
The sole issue raised on this appeal is
whether the district court’s enforcement
of the Consent Decree is against public
policy. A&A presents two arguments: (1)
that the stipulated penalty provision in
the Consent Decree is void and
unenforceable as a matter of public
policy because it allows for penalties to
accrue while the parties engage in the
dispute resolution process; and (2) that
the district court erred in penalizing
A&A for the delay in compliance with the
schedule because it was unable to perform
the work due to the June flooding. We
find both arguments to be without merit.

  A consent decree is a court order that
embodies the terms agreed upon by the
parties as a compromise to litigation.
United States v. Witco Corp., 76 F. Supp.
2d 519, 525 (D. Del. 1999). For purposes
of construction, a judicially approved
consent decree is essentially a contract.
United States v. City of Northlake,
Illinois, 942 F.2d 1164, 1167 (7th Cir.
1991). While a consent decree is also
deemed a judgment of the court, "it is
the parties’ agreement that serves as the
source of the court’s authority to enter
any judgment at all." Local 93, Int’l
Ass’n of Firefighters v. City of
Cleveland, 478 U.S. 501, 522 (1986); King
v. Walters, 190 F.3d 784 (7th Cir. 1999).

  A provision within a consent decree
fixing a stipulated penalty is
unenforceable if it constitutes an
unreasonable penalty or is void as a
matter of public policy. South Suburban
Hous. Ctr. v. Berry, 186 F.3d 851, 856
(7th Cir. 1999). A&A argues that the
stipulated penalty provision in the
Consent Decree forces A&A to effectively
surrender its rights to invoke the
dispute resolution process because
stipulated penalties might be imposed
while the dispute is pending. In support
of its public policy argument, A&A relies
heavily on United States v. Witco
Corporation, in which a United States
District Court rendered a similar
stipulated penalty provision void and
unenforceable.

  In Witco, the EPA asserted a claim
against Witco Corporation, a property
owner, seeking the clean-up of a contami
nated land site. Witco Corp., 76 F. Supp.
2d at 521. Witco and the EPA entered into
a consent decree that provided for
stipulated penalties if Witco failed to
comply with the decree’s terms and the
accrual of penalties during any period of
dispute resolution. Id. at 522-23. Witco
invoked the dispute resolution clause but
did not succeed in the dispute. The EPA
sought collection of the stipulated
penalties, including those that had
accrued during the dispute. Id. at 524.
The district court refused to award such
penalties. Id. at 531. Reasoning that
enforcement of the stipulated penalties
provision would penalize Witco for
asserting its rights to judicial process,
the court determined that the stipulated
penalty provision was against public
policy and therefore, unenforceable
because it allowed penalties to accrue
while the dispute was pending. Id. at
529-30.

  A&A’s reliance on Witco is misplaced.
The decisions of the district court of
Delaware are not controlling authority in
this jurisdiction and Witco is notably
distinguishable from A&A’s case. First,
Witco completed the required clean-up
before invoking the dispute resolution
clause. Id. at 523. The penalties at
issue in that case accrued only while the
dispute over fee amounts was pending, and
Witco’s dispute involved a change in the
law since the entry of the consent
decree. Unlike the instant case, Witco
had fully remedied the environmental harm
by completing its work, and the accrued
penalties at issue were unrelated to any
continuing environmental violation. Id.
at 530-31.

  In contrast, A&A invoked the dispute
resolution procedures while the required
work was still uncompleted. A&A’s
penalties accrued during this period not
because of a late payment, but because of
the unwarranted delay in completing the
restoration of the wetlands, as required
by the Consent Decree. In addition, while
Witco brought a good faith claim based on
a change in the law, A&A sought to modify
the decree here without any similar,
legitimate basis. We agree with the
district court that Witco was not
instructive in this case.

  More analogous is United States v.
Krilich, 126 F.3d 1035 (7th Cir. 1997),
in which we upheld the imposition of over
$1 million in stipulated penalties.
Krilich, a property owner, entered into a
consent decree to settle the government’s
Clean Water Act claims. Krilich, 126 F.3d
at 1036. In the decree, Krilich promised
to restore the subject wetlands according
to a schedule. Krilich missed the
scheduled deadlines and the government
moved to enforce the decree’s stipulated
penalties provision. Id. The district
court granted the motion and we affirmed.
In so doing, we noted that Krilich had
negotiated the decree, entered into it
freely, and never properly modified any
of the deadlines. Id. at 1037.
Accordingly, Krilich was bound to pay the
stipulated penalties set forth in the
consent decree. We believe that the
result in Krilich is warranted in the
instant case.

  We agree with A&A that access to the
courts is of paramount importance.
However, it does not follow that an
agreed upon provision that allows for the
accrual of stipulated penalties during
any dispute resolution is unenforceable
as a matter of public policy. It is
undisputed that this Consent Decree was
drafted and negotiated by both parties
and entered into voluntarily. A&A cannot
now escape the consequences of the
Consent Decree with a public policy
argument that the provision inhibits its
right to access the courts. A&A’s blanket
statement that the "right to dispute
resolution ’rings hollow’ when
accompanied by the risk of penalties" is
overbroad. In fact, the stipulated
penalty accrual provision does not apply
to a successful claim. Unfortunately for
A&A, it was not successful on its
petition to modify the Consent Decree. As
a result, A&A is liable for the penalties
that accrued during the resolution of
that dispute. To excuse A&A from the
stipulated penalties would undermine the
clear terms of the Consent Decree
andprovide any party to a Consent Decree
with a method of delaying performance by
invoking the dispute resolution clause
with meritless claims.

  Although unreasonable penalties may well
be unenforceable, we believe the
stipulated penalties imposed under this
Consent Decree are reasonable under these
circumstances. See, e.g., United States
v. Krilich, 948 F. Supp. 719, 726 (N.D.
Ill. 1996). The penalties are directly
related to the environmental harm caused
by A&A. Further, the amount is less than
10% of the statutory authorized
penalties. See 33 U.S.C. sec. 1319(d).

  A&A also argues that the stipulated
penalties were unreasonable as a matter
of public policy since the delay in work
was attributable to weather conditions
beyond its control. It argues that it did
not resume work following the resolution
of the dispute because June flooding
rendered the land unsuitable for work.
A&A adds that even the government
concedes that the land was too wet for
the work at the time. The Consent Decree
provided that a deadline may be excused
in the event of a "Force Majeure." This
provision, however, required A&A to
notify the government in writing of the
alleged Force Majeure event in order to
excuse a deadline. Because A&A failed to
do so, A&A cannot now claim that
compliance with the schedule was not pos
sible. See, e.g., Krilich, 126 F.2d at
1037. Moreover, because June was a full
seven months after the Consent Decree’s
deadlines for completing the work, any
flooding in June does not warrant an
excuse for the delay and is therefore ir
relevant to the issue of stipulated
penalties.

III.   Conclusion

  For the foregoing reasons, we AFFIRM the
judgment of the district court.