Hazardous Waste (RCRA) and Retailers

When most people think of businesses that handle hazardous waste, they think of manufacturing and other industrial companies.  The classic image is the storage of 55 gallon drums marked with placards indicating the contents are hazardous. 

In the last two years and unlikely sector has found themselves the focus hazardous waste enforcement and regulatory development- retails stores.  National awareness occurred in 2013 when Walmart announced a settlement with EPA to resolve violations of the Resource Conservation and Recovery Act (RCRA), the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA), and the Clean Water Act (CWA) .  The violations were related to the handling of returned, unsold, and off-specification products. Walmart agreed to pay $7.628 million in civil penalties and pled guilty and agreed to pay $81.6 million in three federal criminal cases. Walmart entered into a Consent Agreement and Final Order (CAFO) with EPA, under which Walmart agreed to implement various measures to ensure future compliance. 

While the Walmart settlement was the largest, EPA and State EPA's have been very active in taking enforcement against retailers.  Actions include:

  • Walgreen Co., $16.6 Million (2012)
  • Costco Warehouse, $3.6 Million (2012);
  • CVS Pharmacy, $800,000 (CT, 2013) and $13.75 Million (CA, 2012
    settlement);
  • Target Corp., $22.5 Million (2011);
  • Home Depot, $425,000 (2006) and $10 Million (2007).

When Does RCRA Become an Issue for Retailers?

Products are not regulated as a hazardous waste.  However, if a product is returned by a customer or the store takes the product off the shelf due to damage or for some other reason, the product can become a hazardous waste if it meets certain characteristics.

At issue for retailers are paints, aerosol cans, bleach, polishes, and other chemical products that could be considered reactive, ignitable, corrosive or toxic.  When those products are returned by customers or if they are removed from the store, the retailer must evaluate whether the product has become a hazardous waste and should be managed as such.  

Waste can be generated at the retail store level through customer returns, household hazardous waste events, product recalls, damaged product containers or packaging, off specification product, unauthorized dumping, customer spills, and change out of inventory by the store. 

Large retailers also use reverse logistics systems to consolidate products that may be returned or removed from retail stores.   These products are sent to consolidation centers where decisions can be made regarding whether the product can still be sold, returned to the vendor, donated, recycled or discarded.  

Is a removed/returned product a "waste" when it leaves the retail store or when the decision is made it is to be discarded at the consolidation center?  That is one of many critical open issues facing retailers.

If a product is a hazardous waste, then it must be stored, managed, transported and disposed properly.  In addition, RCRA's "cradle to grave" regulatory scheme requires maintenance of required paperwork to verify any hazardous waste was managed properly.

EPA Collects Information Regarding Hazardous Waste Requirements for Retailers

On February 14, 2014, EPA released a Notice of Data Availability (NODA) in order to "collect information towards improving hazardous waste requirements for the retail sector."  In the NODA EPA sums up the challenge facing retailers- "Retailers are required to make numerous hazardous waste determinations at thousands of sites, generally by store employees with limited experience with the RCRA hazardous waste regulations."

Some national retailers (Walmart and Home Depot) already submitted comments to EPA.  Some of the issues/concerns raised by these retailers include:

  1.  Waste characterization at the retail store level by employees with little training or understanding of the regulations;
  2. Generation of waste at the store level that can force stores to fluctuate between Conditionally Exempts Small Quantity Generator to Large Quantity Generator status under RCRA (different regulations apply depending on the store's classification);
  3. The lack of applicability of the Household Hazardous Waste Exemption which allows customers to dispose of the same products in the trash as EPA requires retailers to manage as a hazardous waste;
  4. Argue for the application of Universal Waste classification which would make it much easier for retailers to manage products; and
  5. Application of RCRA regulations to central processing centers utilized by retailers;
  6. Regulation of empty prescription bottles;
  7. Ambiguous regulations of electronic waste.

Retailers identify legitimate issues with application of RCRA to their stores.  In reality, RCRA was designed to regulate generate hazardous waste from industrial operations, not consumer stores.  

How EPA decides to move forward to develop sensible regulations will be very interesting to watch. However, in the meantime, retail stores must be aware there is not "timeout" while EPA figures this out.  No better evidences exists than the multi-million dollar enforcement cases against large retailers.

(Photo: courtesy Flickr Catawba County)

Quick Primer on Voluntary Action Program (VAP) Cleanups

Ohio EPA has established its own voluntary cleanup program for addressing hazardous substances and obtaining a legal release from liability- the Voluntary Action Program (VAP).  The VAP program has been on the books since 1995. 

When the VAP was created its purpose was to allow the private sector to address historical contamination at industrial or commercial properties.  The key word in the program's title "Voluntary" means that Ohio EPA does not order companies to complete the VAP.  Rather, the program offers an opportunity to either:

  • Address historical contamination at brownfield sites that may otherwise limit or prohibit redevelopment; or
  • Allow an operating company to address its potential liability for historical contamination at a property it is still utilizing.

In the nearly twenty years of the VAP, approximately 360 properties have completed the cleanup process and obtained an legal release. (You can visit a map of VAP properties here)   In reality, 360 VAP cleanups is not that many considering there are thousands of properties in Ohio with historical contamination.  

Process

A complex set of rules and guidance documents govern VAP cleanups.  Those documents are accessible through Ohio EPA's website.  Here is a very brief overview of the process:

  1. Hire a Certified Professional (CP)-  In order to perform a VAP cleanup and receive a legal release from the State you must retain a CP.  A CP is an environmental consultant that has been certified by Ohio EPA has being technically capabale of completing a VAP cleanup.
  2. "No Further Action" (NFA) Letter-  Unlike other regulatory cleanup programs, VAP is intended to allow a CP to complete a cleanup without Ohio EPA review of sampling and cleanup plans prior to initiating work.  The CP can develop a NFA without oversight by the Agency.  However, if a company wants a legal release from the State, the NFA must be submitted to Ohio EPA. The components of an NFA would likely include: the Phase I/Phase II assessment, a Risk Management Plan, an Operation & Maitenance (O&M) Plan, an O&M agreement and an Environmental Covenant.
  3. "Covenant Not to Sue" (CNS)-  If the company decides it wants a legal release from the State upon completing a VAP cleanup, it must have its CP submit the NFA for review.  If the Ohio EPA agrees that the NFA meets VAP cleanup regulations and the property meets VAP standards, it will issue the CNS. 

Issues/Considerations with VAP Cleanups

While the VAP has been a success, there are complex issues that must be evaluated prior to initiating a cleanup under the program.  Some of those considerations include:

  • Benefits-  Company's looking to address potential liability exposure, the VAP is worth considering. Performing a VAP to address contamination will make property more marketable as most major banks are familiar with the program in Ohio.  Furthermore, the VAP is a key tool for brownfield redevelopment in order to attract new tenants or users of the property who may otherwise be concerned with environmental liability or exposures associated with old industrial or commercial properties.
  • Limits on CNS-  The CNS does not release you from liablity from third party property damage or injury lawsuits, including toxic tort claims related to exposure to releases of contamination.  Furthermore, the State takes the view that the CNS is also limited to the property itself, not contamination that has left the property. Finally, the CNS does not include a release from U.S. EPA (although you can obtain certain comfort that U.S. EPA won't pursue separate action once the VAP cleanup is complete).
  • Eligibility Issues-  Certain regulatory requirements must be addressed before a property can be deemed eligible to participate in the VAP.  Properties subject to State environmental enforcement may not be eligible.  Portions of the property required to be cleaned up under hazardous waste regulations (RCRA) are ineligible until cleanup is completed.  The presence of underground storage tank (USTs) can complicate VAP eligibility. 
  • Complex Cleanup Issues-  Each site cleanup is different.  However, it doesn't take much for a site to present complex cleanup challenges.  Existing buildings and structures may present vapor intrusion issues.  Off-property migration of contaminated groundwater may also need to be addressed.  Impacts to surface water or other ecological features may need to be evaluated.
  • Costs-  Again, each site cleanup is different.  However, the cost of cleanup can be expensive.  State and local brownfield grant programs can help mitigate those costs.  Even the costs of preparing and submitting the documents to Ohio EPA can be costly.  Due to such cost considerations, some businesses have decided to utilize the VAP standards to address historical contamination without submitting the NFA to the Agency for review. 

Options to Address Environmental Liability in Ohio

The VAP has been a very useful tool for addressing historical contamination.  However, the costs and complexities involved in completing such cleanups make it less attractive, particular for smaller sites with very limited contamination.

As discussed in prior posts, Ohio currently does not have a less formal means of addressing historical contamination, such as Michigan's Baseline Environmental Assessment Program.   This leaves may buyers or tenants with choosing between costly VAP cleanups or performing due diligence to try and establish the federal "Bona Fide Purchaser Defense."  

The Threat of Personal Liability for Environmental Violations of Small Businesses

Owners of small business form corporations, in part, to insulate themselves from personal liability. A recent trend in Ohio is that the State has become far more aggressive in pursuing owners of small businesses personally in environmental enforcement actions.

A business owner could still be pursued even if the corporate formalities were followed.  More and more the State is pursuing any president or owner of a small business who has an active role in managing his company day-to-day.

Due to the high costs associated with environmental compliance, this is a trend that owners of small businesses should be aware of and take prudent steps to try and protect themselves. 

"Piercing the Corporate Veil"

A fundamental rule of corporate law is that, normally, shareholders, officers, and directors are not liable for the debts of the corporation. There are exceptions to this rule  Courts have found that the “veil” of the corporation can be “pierced” and individual shareholders held liable for corporate misdeeds when it would be unjust to allow the shareholders to hide behind the fiction of the corporate entity.  This is commonly referred to as "piercing the corporate veil."

The test in Ohio for disregarding the corporate form is whether:

  1. Control over the corporation by those to be held liable was so complete that the corporation has no separate mind, will or existence of its own;
  2. Control over the corporation by those to be held liable was exercised in such a manner as to commit fraud or an illegal act against the person seeking to disregard the corporate entity; and 
  3. Injury or unjust loss resulted to the plaintiff from such control and wrong.

[See, Belvedere Condominium Unit Owners' Assn. v. R.E. Roark Cos. (1993), 67 Ohio St.3d 274, 287, 617 N.E.2d 1075]

It had been a rare instance when the AGO would try to "pierce the corporate veil" and pursue shareholders, owners or officers of a corporate personally for environmental violations.  That has changed since the State won a victory in 2006 in case of State of Ohio v. Mercomp.  In that case, the State successfully pierced the corporate veil attaching personal liability to Manny Rock, a shareholder of a landfill.

What Actions Gave Rise to Liability?

 Here are some of the facts that the Court gave rise to personal liability:

  • Mr. Rock was the sole shareholder of the corporation;
  • The name of the corporation was based upon his initials;
  • Regulatory violations by a corporation, absent affirmative wrongful conduct by the shareholder, is sufficient; and
  • The failure of the Corporation to correct the environmental violations threatened public health and the environment.

It is important to note that the Court found liability even though it did not find under-capitalization, failure to observe corporate formalities, insolvency, or diversion of corporate funds for personal use.

Since 2006 State Seeks Individual Liability Frequently

Since the Mercomp decision in 2006, the State of Ohio has frequently sought (and obtained) personal liability of owners of small businesses.  Individuals are not only required to perform clean up, they are also subject to civil penalties if they don't perform on a timely basis. 

For small businesses that have a sole or large majority shareholder, the Mercomp case increases the liability risks for individuals.  If a company has environmental violations that have gone unaddressed, the State may argue for personal liability.

Owners of small businesses must be aware of these risks and take steps to try and protect themselves. .

When Do I have to Report a Chemical/Oil Spill or Other Release

There are a myriad of federal statutes that require your company to report a spill to any of the following:

  • National Response Center
  • State Emergency Response Center (SERC)
  • Local Emergency Planning Committee (LEPC)
  • Local Fire Department

Failure to report a spill can lead to an enforcement action as well as civil penalties.  Also, failure to respond appropriately following a spill can lead to serious ramifications for your company in terms of exposure to greater clean up costs, property damages, or environmental harm. 

Due to the liability exposure associated with managing and reporting spills appropriately, its wise for all corporations to have prepared an internal corporate policy for spill response.  The policy would not only cover when you have a legal obligation to report a spill to regulators, but also how to communicate about a spill internally within the company.

Depending on the facts and circumstances surrounding the spill event, you are not always under a legal obligation to report a spill to the authorities.  Its wise to know your regulatory obligations before making the decision to report.  Otherwise, you may be inviting teams of regulators to your facility unnecessarily. (Click here for U.S. EPA's Website on Spill Reporting)

The facts of each event are different.  Therefore, each must be analyzed independently to determine your regulatory obligations.  However, its wise to get familiar with the triggers for mandatory reporting.

Attached is a series of power point slides which contains information regarding the most commonly applied federal regulations that may trigger mandatory reporting to federal or state regulators.  The spreadsheet shows the event, regulation, trigger level and reporting requirement. 

These charts were based upon a more limited spreadsheet prepared by Region VII of U.S. EPA called the Fact Sheet on Emergency Release Reporting Requirements.  They are meant for reference only and cannot substitute for analysis of each regulation and the facts surrounding your particular event.  However, I hope they are useful to you in getting familiar with the mandatory reporting obligations that exist.

Missing Hazardous Waste Paper Work Can Be Costly

Federal hazardous waste regulations (RCRA) have long been referred to as management from "cradle to grave."  In order meet this management principle, the regulations require detailed paper work and reporting from both small and large businesses. 

Failure to maintain the proper paper work can result in significant penalties or even change your regulatory status which will have even greater implications.  Just in 2008, Ohio EPA Division of Hazardous Waste Management (DHWM) has taken 24 formal enforcement actions that included assessment of civil penalties.  Those penalties have ranged from $4,000 to $75,000.  Many of the actions were against small to medium sized businesses.

In addition, hazardous waste enforcement cases will often be reported in the newspaper, even in the small town local newspaper.  If you want to avoid the bad publicity and a costly fine, it pays to review your company's paper work practices. 

A recent EHS blog post provided a good example of the dangers of missing paperwork. 

But in the absence of any documentation that showed the facility never generated more than 2200 lbs of waste in a calendar month, the inspector assumed incorrectly that the facility generated all the wastes that were shipped out in August of 2001 in that month. [shipped out more than 2200 lbs in the month] The reality was that the wastes in the two shipments made in August had been accumulated over the past several months.

The fact the company did not maintain good records resulted in the inspector citing them for being a Large Quantity Generator (LQG) even though in reality the company was a Small Quantity Generator (SQG).  Without the proper records, the inspector's conclusion becomes difficult to refute.

Ohio EPA has identified the most frequently cited RCRA violations in Ohio.  Reviewing the following list of frequent  categories of violations is a good place to start in determining if your company is property managing hazardous waste. 

  • Waste Determination- The regulations require all waste to be evaluated.  This is often an area overlooked by businesses. Failing to evaluate just one barrel of waste can result in a citation. Ohio EPA developed a handy fact sheet that is worth reviewing to get yourself familiar with these requirements.
  • Annual Reports-  All LQG must submit a report by March 1st for the preceding year.  Review your files to makes sure you have submitted annual reports. 
  • Container Management- Must inspect your hazardous waste storage areas at least once a week and maintain a log documenting those inspections.  Ohio EPA has provided a hazardous waste storage inspection log sheet that can be used to maintain your records.
  • Emergency Equipment Inspections- SQG and LQG must maintain a log of inspections showing all emergency equipment (fire suppression, spill containment, alarms) were inspected as recommended by the manufacturer or supplier of the equipment.  Ohio EPA also has a emergency equipment inspection log sheet you can use to maintain these required records.
  • Used Oil Storage-  All containers use to store used oil must be properly labeled with a sign that says "used oil."  Using terms like "hazardous waste" or "waste oil" is not sufficient.
  • Large Quantity Tank Systems-  All LQG's that use tanks to store hazardous waste must inspect the tank once "each operating day."  A log of inspections must be maintained. According to an Ohio EPA fact sheet, this means each day the tank is in use.  Even if workers are not on-site seven days a week.

(photo from flickr: Ashe-Villian)