Air Emissions Violations Presumed Continuing in Nature for Purposes of Civil Penalties

On December 6, 2012, the Ohio Supreme Court issued a rare opinion pertaining to the proper calculation of civil penalties in the context of an environmental enforcement action.  The decision has serious ramifications for any company that is required to perform stack tests to demonstrate compliance with air emission standards.  It also may impact any company that has been issued a notice of violation for an air emission violation.

In State ex rel. Ohio Atty. Gen. v. Shelly Holding Co., Slip Opinion No. 2012 – Ohio – 5700 (Dec. 6, 2012), the Court found that once a violation of an air emission permit or regulatory limit has been demonstrated, the violation is presumed to be continuing in nature until the company provides convincing rebuttal evidence that the violation has ceased.  This finding means that any company that exceeds an air emission limit must act quickly to change operations or reduce emissions to demonstrate compliance.  Otherwise, the company could face a very large civil penalty because each day of non-compliance could warrant a penalty up to $25,000 per day.

Rebuttal of the Presumption Air Emissions Violation is On-Going

The Shelly company had failed a stack test of its asphalt plant.  A key aspect of the failed stack test was that it had to been run under "worst case" conditions- Meaning the emissions were measured when the facility was operating at maximum capacity.  The Court held that the failed stack test established that there was an emission limit violation.  

The State asserted civil penalties were owed for each day following the failed stack test until the Company demonstrated it had returned to compliance.  Shelly argued that it was inappropriate to presume such a violation was continual in nature when its normal operations were not at maximum capacity. 

While the trial court had agreed with the Company, the Supreme Court disagreed with Shelly and concluded the burden was on the Company to demonstrate it returned to compliance through one of the following:

  1. A subsequent stack test at maximum capacity that showed emissions within permit limits;
  2. A revised permit or variance;
  3. Operating conditions during the stack test no longer existed;
  4. Mechanical failures were repaired; or
  5. Raw materials and fuels were changed.

However, relative to numbers 3 through 5, the Court suggested a company would need to supply convincing evidence that emissions were actually within limits.  For example, the Court rejected Shelly's argument that normal operating conditions where below maximum capacity and, therefore, the State lacked evidence it violated emission limits on days other than the initial stack test. 

 

Part 1 on U.S. EPA's Audit Policy: The:Basics

U.S. EPA's Environmental Audit Policy encourages companies to self-evaluate their compliance with environmental requirements and disclose any violations to EPA.  As an incentive to disclose violations to EPA, the Audit Policy provides up to 100% forgiveness of gravity-based civil penalties if certain conditions are met. 

U.S. EPA's audit policy contains nine (9) conditions that must be met in order to qualify for the penalty reduction incentive for self-disclosure.  Those nine conditions include:

1. Systematic Discovery-  There are two ways to qualify under this condition – perform an environmental audit or utilize a compliance management system to review compliance. If a company fails to meet this condition, EPA's policy still may provide a 75% reduction in gravity-based civil penalties if the other eight conditions are satisfied.
2. Voluntary Discovery- The violations disclosed must not have been otherwise legally required to be disclosed.  (Example: Title V Air Permits require covered facilities to certify compliance on an annual basis with all requirements in the Title V air permit.  Therefore, a Title V facility would not qualify for the incentives under the EPA Audit Policy if it disclosed non-compliance with permitting requirements with its Title V permit.  Note:  EPA does have a limited exception for new owners of Title V facilities.)
3. Prompt Disclosure-  If you decide to disclose violations uncovered to try and secure gravity-based penalty reductions, the company must disclose all violations within 21 days of discovery
4. Independent Discovery and Disclosure- The audit cannot have been performed and/or the violation cannot have been discovered after a federal, state or local investigation, etc.
5. Correction and Remediation-  The violations must have been corrected within 60 days.
6. Prevent Recurrence-  The company must take steps to prevent recurrence of the violations. 
7. No Repeat Violations-  The same violations must not have occurred within 3 years at the same facility or within 5 years if EPA determines there is corporate pattern of violations.
8. Certain Violations Excluded-  The two types of violations are excluded from any penalty forgiveness– violations that have the potential to cause serious harm or if the company violates an order or agreement with EPA.
9. Cooperation-  The company must provide requisite or requested information to EPA.

Why Consider Using EPA's Audit Policy?

If s company can successfully establish all the conditions under EPA's audit policy for forgiveness of gravity-based civil penalties, the company may be able to avoid very large civil penalties that otherwise would have been paid if an EPA inspector detected the violations first.

One common area of environmental compliance that companies audit is Emergency Planning and Community Right to Know Act (EPCRA) reporting requirements.  As a prime example of the benefits that may flow from using the U.S. EPA's Audit Policy:

This February U.S. EPA entered into a settlement with a New Cingular Wireless PCS LLC.   The company found violations at 642 sites in 35 different states through two separate environmental audits.  According to the settlement, the company avoided $6.7 million in projected gravity based civil penalties that EPA otherwise may have pursued if the violations were discovered through EPA inspections versus an audit.  

While there are strong incentives to utilize EPA's audit policy, there are many issues to navigate. Some of these issues will be the subject of future blog posts on this topic.  Those issues include:

  • Confidentiality of the audit;
  • Establishing the nine conditions;
  • The requirement to report all violations within 21 days
  • Gravity-based penalties versus the potential for assessment of economic benefit penalties

 

Bill Introduced to Extend Ohio Audit Privilege for Environmental Violations

Senator Tom Niehaus has introduced S.B. 372 bill to extend the effectiveness of Ohio's Environmental Audit Privilege law for another five years.  The law is set to expire on January 1, 2009.  It was a hard fought battle for businesses to get the Audit Privilege law on the books in the late 90's.  While the law was watered down to address U.S. EPA concerns, it remains a valuable tool for some businesses. The law is intended to reward those companies that proactively evaluate their compliance with environmental requirements. 

What is the Ohio Environmental Audit Privilege law?  It is provides immunity from civil penalties if a company voluntarily discloses environmental violations to the appropriate State Agency that were uncovered as a result of an environmental compliance audit.  Note: a civil penalty can still be assessed even after a valid disclosure if the company enjoyed a "economic benefit" as a result of the violation, meaning delayed compliance gave it a competitive advantage.

As a further incentive to utilize the law, the content of an environmental audit report is privileged and not admissible as evidence in a civil or administrative proceeding. (See R.C. §3745.71(C) for exceptions to the privilege provisions)  This provision is meant to reduce exposure to third party suits as a result of environmental violations.

How frequently do businesses use the Audit Privilege Law?  In my experience the law has been used infrequently by Ohio businesses.  During my time at the Ohio EPA, I oversaw the processing of Audit Privilege disclosures.  I would estimate that the Agency received, on average, around four or five disclosures per year during my tenure. 

Why isn't the Audit Privilege Law used more frequently?  I was always puzzled why more companies did not take advantage of the Audit Privilege law.  Some may believe it is better to correct the violation and wait and see if it is discovered by the Agency.  With so many entities to inspect, some companies think it is better to take this risk the violation is discovered than have their disclosure denied for a technical flaw and face an enforcement action.

Other companies may think the administrative costs of performing an audit are too high.  Or some may be under the mistaken belief that Ohio's five year statute of limitations on environmental enforcement actions provides a better shield from penalties.  Just keep in mind that the trigger for the statute of limitations in R.C. §3745.31 is when the Agency "actually knew or was informed" of the violation.  So the Agency must be aware of the violation for the clock to run.

What are some of the reasons a request for coverage is denied?  The disclosure must be voluntary, which means it must not be required by some environmental law.  During my time at Ohio EPA, by far the most frequent reason a company was denied coverage was the disclosure of the violation was required by some other environmental law.  Of those companies denied coverage for this reason, most were Title V permitted sources under the Clean Air Act.   Title V sources are required to disclose violations as part of their permit terms and conditions.  However, even in these cases, the Agency frequently reduced penalties to reward the early disclosure of violations.

Here are additional requirements to be deemed a voluntary disclosure (See R.C.§3745.72(B)):

  1. Prompt disclosure
  2. Reasonable effort to achieve compliance as quickly as practicable
  3. Cooperate with the State Agency who is charged with investigating the disclosure
  4. Disclosure not required by law, prior litigation, or a prior order
  5. The company disclosing has no knowledge or reason to know of an Agency had previously commenced an investigation or enforcement action regarding the violations

What is involved in filing a disclosure to the appropriate state agency?  Unlike environmental permitting or grant applications, the submission to Ohio EPA to receive coverage under the Audit Privilege law is actually pretty minimal. R.C. §3745.72(C) requires that all disclosures must be in writing, dated, and hand delivered or sent by certified mail to the Director.  The written disclosure must include the following information: 

  1. the name, address, and telephone number of the owner or operator of the business making the disclosure;
  2. the name, title, address, and telephone number of one or more persons associated with

    the owner or operator who may be contacted regarding the disclosure;

  3. a brief summary of the alleged violation of environmental laws, including, without

    limitation, the nature, date, and location of the alleged violation to the extent that the

    information is known by the owner or operator; and

  4. a statement that the information is part of an environmental audit report and is being

    disclosed under R.C. §3745.72 in order to obtain the immunity provided by that section.

Are there good reasons to use Ohio's Environmental Audit Privilege Law if it is renewed?  Yes.  During my tenure, I was not aware of any enforcement action that was pursued against a company that made a valid and voluntary disclosure.  Just make sure you are not required to report by some other environmental law. 

I think the law may be ideal for companies that recently purchased a new facility or company.  Performing an environmental audit after such an acquisition is an excellent way to ensure your house is order. 

Also, the audit is a good way to have a third party to evaluate your compliance status.  You can always choose to not file the disclosure if you think its not to your advantage for some reason.