U.S. EPA and the many state EPA’s have adopted environmental audit policies or laws to encourage companies to review and disclose instances of non-compliance. (See prior post- Why Businesses Should Consider an Environmental Audit?)  

Last week, I participated in a webinar discussing environmental audits.  It was a good panel discussion which explored many of the complex issues associated with performing audits and whether to voluntarily disclose non-compliance.  Below is a summary of some of the considerations when deciding whether to perform an audit and/or voluntarily disclose violations.  

Pro’s of Performing an Environmental Audit or Voluntarily Disclosing Violations

  • Return to Compliance w/o Fear of Enforcement-  Audit and disclosures provide companies the ability to wipe the slate clean.  Companies no longer have to fear inspections or large penalties if the non-compliance is discovered as a result of an EPA investigation.  Audits can provide a company the ability to proactively address compliance issues.
  • Civil Penalty Forgiveness-  U.S. EPA’s audit policy provides between 75% to 100% of forgiveness of gravity based civil penalties if a company performs and audit and meets EPA’s nine conditions in its policy.  Many state audit laws and policies provide similar incentives.
  • Limit Likelihood of Criminal Prosecution-  Companies that voluntarily disclose violations have the potential to avoid criminal prosecution.  If the company meets EPA’s audit conditions and the audit and disclosure were performed in good faith.  Also, companies must take steps to prevent recurrence of the violation.
  • Audit Report/Materials Confidential-  Many states provide a privilege over the environmental audit report and possibly the materials associated with the audit.  U.S. EPA does not provide a privilege over audit materials, but generally commits to not use the audit materials against the company.
  • Mergers/Acquisitions-  Audit policies provide even greater incentives to new owners to perform audits and make voluntarily disclosures.  EPA’s new owner audit policy provides an opportunity to fix problems and make a fresh start post-acquisition.

Con’s of Performing an Environmental Audit or Voluntarily Disclosing Violations

  • Not a "Shield" from Enforcement-  U.S. EPA’s federal audit policy is simply guidance, not the law.  Therefore, U.S. EPA may elect to not provide penalty forgiveness.  Also, there are many exceptions under both federal and state environmental audit policies and laws.  
  • Must Be Prepared to Fix Violations Uncovered-  Generally, its not wise to perform an audit if there are insufficient funds to correct the violations once discovered.    
  • Violations Become Public-  Even if the company qualifies for state or federal civil penalty reductions or avoids a penalty all together, the violations still become public once disclosed to regulators.  Disclosures may prompt 3rd party lawsuits.
  • Limited Scope of Criminal Leniency-  There are a number of limitations and exceptions on the U.S. EPA’s audit policy with regard to criminal violations.  Also, the Department of Justice has the ability to exercise independent prosecutorial discretion. (Link to DOJ factors in deciding whether to criminally prosecute).  Similar exceptions exist at the state level.
  • State and Federal Independent Enforcement Authority-  State and federal EPA’s have independent enforcement authority.  Companies must choose whether to disclose violations under both State audit laws/policies as well as EPA’s federal audit policy. 
  • Privilege Issues-  The privilege issues (including: a-c privilege, attorney work product and audit privilege laws) are very complex.  Careful attention must be paid to how audits are performed and their results communicated if the company wants to maintain confidentiality and privilege over related records and communications.
  • Inspection Post-Disclosure-  It is very likely that the U.S. EPA and/or the state EPA will perform an inspection of the facility following a voluntary disclosure.  Facility records and operations should be in good shape in advance of any inspection.
  • Disclosure Timeframes-  The timeframe for making a voluntary disclosure can be very short (i.e. 21 days for most violations under EPA’s audit policy).  This does not provide much time for the company to make a determination as whether to voluntarily disclose.  Also, potential violations may be identified without the ability to determine whether an actual violation has taken place within the disclosure timeframes. 


An environmental audit is a self-evaluation of current compliance with applicable environmental regulations.  The audit is typically performed by an outside environmental consultant. However, more sophisticated businesses can utilize advanced electronic compliance tools or their own EHS personnel.

An audit can be wide in scope (i.e. compliance with all applicable regulations) or it can review just one issue at a specific facility (Ex: Does a particular process need an air permit). Common areas of noncompliance identified in audits include:

  • Failure to obtain permits or update expired permits;
  • Failure to evaluate waste streams; and
  • Failure to perform mandatory reporting (TRI and SARA are very common reporting violations)

There are many reasons why a company should consider performing an environmental audit, including the following:

1.  Environmental Audit Policies and Immunity Laws

The states and federal government have laws and policies designed to encourage performing environmental audits.  These policies and laws provide incentives as well as privilege over communications related to the audit.

U.S. EPA has its own environmental audit policy which encourages environmental audits and self-disclosure of violations.  Under the current policy, U.S. EPA will provide penalty forgiveness if the company meets nine (9) requirements when making a self-disclosure.  To take advantage of these incentives, regulated entities must voluntarily discover, promptly disclose to EPA, expeditiously correct, and prevent recurrence of future environmental violations.

Many states have passed environmental audit & immunity laws.  Each state has different requirements with regard to self-disclosure and penalty forgiveness.  However, in many cases the immunity laws provide very strong incentives to self-disclose and correct violations.  The protections and incentives offered at the state level are often much better than available under U.S. EPA’s audit policy.

Many state’s allow all records  associated with the performance of an environmental audit to be privileged.   U.S. EPA does not provide privilege for environmental audit.  Therefore, in order to protect communications related to the audit from disclosure, the audit must be performed in a state that has passed an environmental privilege law.

Such privilege laws allow the company to review compliance and consultant with legal counsel prior to making a determination whether to self-disclose any violations identified during the audit.  It is important to carefully review the exceptions to privilege.  Some examples of common exceptions include:

  • Criminal activities are not entitled to privilege
  • If there is a mandatory duty under existing environmental regulations to report a violation (Ex:  Title V certification of compliance)
  • The audit cannot be performed after the company is aware it is the subject of a possible environmental enforcement action.

2.  Buying a Business is the Perfect Time to Perform an Environmental Audit?

When purchasing a business it is often difficult to assess whether the seller has taken environmental compliance seriously.  Most transactions rely upon three strategies to address the risk that the business being purchased may not be in compliance:

  1. Reps & Warranties in Purchase Agreement-  This is the most common strategy.  While a breach of a rep may provide buyer a right to indemnity, it doesn’t protect buyer from the regulator.  In the eyes of the law and regulator, the current owner is responsible for ensuring compliance.
  2. Data Room-  It is common to request that documents related to environmental compliance be placed into the data room for the transaction.  However, a data room that has no documents related to environmental issues does not mean there are no issues, it just means there may be no historical documents which help identify compliance issues.
  3. ASTM 1527-13 Phase I Environmental Assessment–  An ASTM 1527-13 Phase I environmental assessment is geared to identifying historical releases of contamination, not whether a business or facility is in current compliance.  Evaluation of compliance in terms of permitting, reporting or documentation are considered non-scope items for the typical Phase I environmental assessment.  

As discussed above, each of these strategies have their limitations.  A material compliance evaluation (i.e. audit) of the business or facility to be purchased is the best way to get a comprehensive evaluation.

3.  The Risk of Noncompliance

You don’t just need to be purchasing a business for an environmental audit to make sense.  It is important to understand that noncompliance can expose the business to civil penalties.  Most environmental statutes impose penalties on a per day basis.  Therefore, the longer a business goes without correcting its violations, the larger the potential penalties.  

It is important to determine the appropriate strategy for addressing noncompliance issues.  Many companies simply turn in missing permits or reports without ever considering utilizing environmental audit laws or policies.  However, the submission of those permits or records can immediately trigger a significant enforcement actions with penalties.

Once regulators identify serious noncompliance at a facility through their own inspections, it is much more likely that facility will get more intense scrutiny.  This could mean more inspections or multi-media inspections.  Most regulators are inclined to work with and provide leniency to companies that self-audit and correct their noncompliance.

4.  Audit Laws and Strategies are Complex

If a business decides to conduct (or is thinking about conducting) an environmental audit, it is important to consult is experienced environmental attorney.  Many of the laws and policies associated with privilege, immunity & self disclosure have unique and complicated requirements.  It is important to put a strategy together before initiating an audit.

The Ohio EPA enforcement process can appear to be a mystery, especially to companies that find themselves the subject of an EPA visit for the first time.  This post provides a general overview of the Ohio EPA civil enforcement process.

Step 1:  The Inspection

The enforcement process starts with the inspection.  The inspections can be announced or unannounced.  (A prior post discusses EPA’s inspection authority).

Typically, an inspector assigned to one regulatory area will perform the inspection. (i.e. air, surface water, drinking water, hazardous waste or solid waste).  Most time, the inspector will limit their inspection to compliance with their assigned regulatory area.

If you find multiple inspectors at your door (called a "multi-media inspection") then there is probably cause for concern.  Typically, the Agency will not perform multi-media inspections unless they suspect there is an issue at your facility.

Here are some tips regarding handling an EPA inspection:

  • Listen closely to the inspector- Accompany them during the inspection. If they point out concerns that can easily be addressed, fix them. Also, follow up in writing telling the inspector what you have done. EPA appreciates pro-active companies who listen and respond to Agency concerns. This can go a long way toward establishing a good reputation.
  • Debrief with the inspector- Don’t be shy about asking for an oral report of the inspector’s findings during or after the inspection. Take notes of any concerns or requests for information made by the inspector. Then follow up if possible. Don’t wait for the inspector to provide a letter if you can easily address some of the issues. If you are able to provide information not available during the inspection that demonstrates compliance, you may avoid seeing these issues in a formal notice or letter from EPA.

If the violations are not corrected after the first inspection, the inspector will more than likely return in the near future to document the ongoing nature of the violations.

Step 2:  Notice of Violation (NOV)

If the inspector believes that the company or facility is not in full compliance with applicable environmental regulations, they will issue a formal letter called a "Notice of Violation’ or NOV.  The NOV will specifically identify the regulation(s) that the inspector believes have been violated.  The NOV will also contain the facts observed during the inspection that the inspector believes supports their conclusion a violation has occurred.  

If you or the company receives an NOV, respond in writing. (Note:  This may be the appropriate time to consult with an environmental attorney to help craft an appropriate response)  Failing to respond will more than likely ensure the matter proceeds to Step 3 discussed below.  

When responding, make sure you gather all appropriate information.  Inspectors can be wrong in stating a violation has occurred.  However, you must be prepared to refute their finding(s) with supporting documents or information.  

Relatively minor violations can often be addressed without escalated enforcement.  However, make sure you respond as to how and when the issue will be addressed.  

It is mostly up to the discretion of the inspector to decide when to recommend escalated enforcement (Steps 3 through 5).  If violations are serious, the inspector could recommend further enforcement after only one NOV.  For less serious violations, it may take a few NOVs before an inspector recommends further action.

Step 3:  Enforcement Committee

If the inspector believes the Agency should take more formal action beyond a NOV, he/she will put together an enforcement referral from the District Office to Central Office.  The referral package will include a memorandum summarizing the issues and inspector’s recommendations.

The referral package will typically be reviewed by the Central Office Enforcement Committee.  The Committee is made up of enforcement coordinators from the Division as well as an attorney from the Legal Office.  The committee will review and discuss the recommendation and decide whether to: a) proceed to Step 4; b) jump to Step 5 or; c) take no action at the present time.

Step 4:  Director’s Final Findings & Orders (DFFOs)

If the Enforcement Committee decides further enforcement is necessary, in most instances they will begin with administrative orders- Director’s Final Findings & Orders (DFFOs).  DFFOs contain findings of fact which set forth the basis for the Agency’s conclusion that violations have occurred.

The DFFOs also contain an orders section.  The orders includes deadlines for correcting the violation  as well as proposed civil penalties.  Ohio EPA does not have unilateral civil penalty authority, therefore, any civil penalty contained in DFFOs must be agreed upon by the company.  

If the company and Agency cannot agree on terms of DFFOs, including but not limited to a civil penalty, Ohio EPA can refer the matter to the Ohio Attorney General’s Office (AGO).  Once a case has been referred to the AGO, it almost never will be sent back to Ohio EPA for resolution.

You should discuss with your attorney an legal advantages to resolving a matter at the DFFO stage versus the Attorney General’s Office.  

Step 5:  Referral to the Attorney Generals Office

This is the final step in the escalated enforcement process.  Once a matter is referred to the AGO, an Assistant Attorney General will be assigned to the case.  The attorney will send an initial letter asking whether the person/company would like to try and settle the matter without litigation in court.  This stepped is called an "invitation to negotiate" or ITN.  

If a settlement can be reached it will be in the form of a formal judicial consent order that is filed in court.  In order to file a consent order, a complaint (lawsuit) must be filed which contains the specific violations alleged by the State.

If the parties cannot reach agreement on the terms of a consent order, the AGO will file a complaint and proceed with litigation in court.  The AGO will typically indicate that higher penalties will be requested if the AGO is forced to proceed with litigation.


This meant only as a basic overview of the typical Ohio EPA enforcement process.  The specific facts of a case may result in the Agency taking different action.  

The best defense to Agency enforcement is to be well prepared and have a good team in place (technical and legal advisors).  Gather all the facts and respond strategically.  Keep in mind that no matter how the case is finally resolved, EPA will visit your facility again in the future and the process can start all over again.

An EPA inspector shows up at your facility unannounced and requests access to inspect your facility.  Do you have to let them in?  If you deny access, how likely is it that EPA will quickly gain access?  What is the downside of making EPA  go through the step of legally gaining access by obtaining a search warrant?

Criminal Searches

In responding to the questions above, we are assuming this is an administrative inspection, not a criminal.  Typically, the EPA will have already secured a criminal search warrant before showing up on your property.  Less common, EPA could request your consent to perform a criminal search of your facility.  Under either circumstance, due to the serious nature of criminal inspections, you should contact your attorney immediately.

Here are some things you should do in addition to immediately contacting your attorney:

  • Do not answer any questions without your attorney present;  
  • Employees may, but are not required to answer questions of the inspectors, they have the right to the presence of their own attorney during any interview (the rights of employees during a criminal search warrant is a complicated issue that you should discuss with your attorney);
  • Request a copy of the search warrant as well as the inventory of seized items (if any);
  • Do not consent to the the search of an area or the seizure of materials not identified in the search warrant; 
  • Do not interfere with the government agents if a search warrant is provided;
  • If the warrant allows sampling, request a split sample of any material tested; and
  • Listen to what the inspectors are saying and take notes.

Administrative Searches

EPA, as an administrative agency, is authorized by law to conduct inspections of any property or facility under their jurisdiction.  

Can you deny EPA access for an administrative inspection?

Generally speaking, unless the inspector has obtained an administrative search warrant, you have the right to refuse the inspection and ask the inspector to leave.  The inspector can either try and negotiate a more convenient time to perform the inspection or obtain an administrative search warrant from a court.

While generally you have the right to refuse access when the EPA inspector does not have an administrative search warrant, the standard for obtaining such warrant is not that high.  When EPA is enforcing laws with health, safety, or welfare standards, or enforcing regulatory schemes, EPA only need demonstrate their inspection is supported by "reasonable legislative or administrative standards" (i.e. administrative probable cause).  See, U.S. v. M/V Sanctuary, 540 F.3d 295, 299 (4th Cir. 2008).

Here are some of EPA’s specific statutory inspection authority that provides the agency the right to obtain an administrative search warrant:

  • CERCLA-  EPA is authorized to enter at reasonable times any property where hazardous substances may be or has been generated, stored, treated, disposed of, or transported from.  Even properties where a release is only threatened.  EPA has the authority to collect samples, but must provide the results to the owner.  See, 42 U.S.C. Section 9604(e)
  • RCRA- Similar to EPA authority under CERCLA, EPA may perform inspections at reasonable times and collect samples of any facility where hazardous wastes are or have been generated, stored, treated, disposed of, or transported from.  See, 42 U.S.C. Section 6927(a)
  •  Clean Water Act– Relative to NDPES permitting, EPA has the right to enter any facility which is an effluent source or which is required to maintain records under the Act.   EPA can enter at reasonable time and get access to and copy any records, inspect any monitoring equipment or any other compliance method.  They also can sample effluent. See, 33 U.S.C. Section 308
  • Clean Air Act-   If you own or operate an air emissions source regulated under the Clean Air Act, EPA has broad authority to inspect the facility, monitoring equipment and records. EPA can also sample emissions. See, 42 U.S.C. Section 7414
  • TSCA-  Regulates "chemical substances."  A typical chemical substance subject to regulation under TSCA are PCBs.  EPA has broad inspection authority of any facility that is subject to regulation under TSCA.  EPA may inspect any establishment, facility, or other premises in which chemical substances, mixtures, or products subject to TSCA regulation are manufactured, processed, stored, or held.  See, 15 U.S.C. Section 2610

Note: Courts have found limited exceptions when EPA can perform a warrantless administrative search with regard to enforcement of environmental regulations.  As an example, the New Jersey Supreme Court held the State EPA did not need a warrant before inspecting a property that was subject to the terms of a wetland permit.  See, New Jersey Department of Environmental Protection v. Robert and Michelle Huber

Should you deny access if the EPA inspector does not have an administrative search warrant?

It depends, it is always worth consulting with your attorney to review the particulars of the situation. Also, when the inspector arrives try and gain more information as to the purpose of the inspection. Before contacting your attorney, you should ask the inspector:

  • What they are seeking to inspect or issues are they concerned with?
  • What program are they from? (hazardous waste, air, water or multi-media inspections)
  • Did they receive a complaint or is this a routine inspection?  

As discussed above, the EPA will generally be able to secure a warrant from court to perform an administrative search.  Therefore, if you simply deny access without discussing the situation with your attorney, you run the risk the inspector will conclude you have something to hide.  

When the inspector secures the warrant, they could be inclined to perform a more intense inspection of your facility.  Furthermore, it is more than likely that the EPA inspector requesting access is assigned to your facility and will visit again in the future.  It is important to try and maintain a good working relationship with your inspector.

In conclusion, inspections are routine with regard to environmental regulation.  An inspection can simply confirm your facility is in compliance or it can be the first step in a lengthy and costly enforcement action.  If you are subject to an inspection, it is important to talk with your attorney.

So you have decided to retain an environmental consultant to assist with sampling, cleanup or compliance assistance.  Many times businesses have the tendency to review the terms of the proposal itself without paying much attention to the "standard terms & conditions" that are often attached to the proposal.  These standard terms & condition make up the consultant’s contract.  

There are aspects of any consultant’s contract that are definitely worth reviewing.

The bigger the project, the more risk that the contract terms could become a major issue.  Here are some clauses that may appear in a environmental consulting contract that are worth close review:

  1. Limitations on Liability–  Most contracts will place a cap on potential recoverable damages if a claim is made under the contract. Not all such caps are unreasonable. However, I regularly see caps that state the recoverable damages cannot be any greater than the fees paid under the contract.  With environmental work, claims related to negligence or breach of the standard of care can result in hundreds of thousand or even millions in damages.  Limiting recoverable damages to the fees paid is unreasonable.
  2. Indemnity–  Similar to caps on liability, many contracts include "one way" indemnity clauses. Meaning the client must reimburse for damages the consultant suffers as a result of client’s negligence, but no indemnification is provided it the consultant is negligent.
  3. Ownership/Use of Document-Many contracts state that any documents prepared by the consultant remain the sole property of the consultant.  Such language can be broad enough even to include drawings and sampling.  If you pay for the documents, you should have rights to use the documents.  It is fair for the consultant to include a disclaimer that reuse without their consent is at the client’s sole risk, but an absolute prohibition on reuse is problematic.
  4. Payment–  Pay close attention to the terms related to payment.  It is not uncommon for a consultant to quote a price for services, but the contract terms allow them to exceed the quote without getting prior approval.  Also, if you expect the consultant to be paid from grants or a special fund, pay close attention to terms the govern submissions for reimbursement.
  5. Termination-  Standard consultant contract language can try and limit the client’s right to terminate the consultant.  Sometimes the language limits a client’s right to terminate only if there is a breach of the agreement.  The client should have the right to terminate the contract without cause.  If you are unhappy with the consultant’s performance for any reasons, you need the right to get out of the contract.

As an example of recent litigation involving an environmental consulting contract, consider the case involving a clause in a consulting contract that limited the right to bring an action to one year from the date of the contract. Shahin v. I.E.S., Inc., 2013 Mass. App. LEXIS 93 (May 31, 2013) In this case a Massachusetts Appellate Court struck down the contractual provision as unreasonable.  The Court noted a contract can place limits on when a claim can be brought, but those limits must be reasonable.

The Court noted that the "discovery rule" should be allowed to operate.  Under the discovery rule, a claim is tolled if the claimant didn’t have information, with reasonable due diligence, necessary to bring the suit.  In other words, if the client didn’t know they had a claim an issue didn’t appear until two years after the consultant performed their work, the Court found it would be unreasonable to bar such a claim.

Such litigation is an example of how the terms and conditions of an environmental consultant’s contract can potentially have significant impacts.  


On March 20, 2012, the U.S. Supreme Court handed down the much anticipated decision in Sackett v. EPA.  The Court rejected U.S. EPA’s claims that its administrative enforcement orders were not subject to pre-enforcement review.  The Court’s decision provides a new tool to challenge EPA administrative compliance orders. 

Synopsis of the Case

The Clean Water Act prohibits filling of wetland without a permit.  The Sacketts own a .63 acre parcel of land on which they hoped to construct a home.  EPA said that the Sacketts had filled wetlands as part of their development without a permit. 

EPA decided to take enforcement by issuing an administrative compliance order directing the Sacketts to remove the fill.  If the Sacketts failed to comply with EPA’s order they could potentially be liable for penalties of $37,500 for each day of non-compliance with the order and potentially an additional $37,500 per day for the underlying Clean Water Act violation.

The Sacketts attempted to appeal the administrative order in Court to challenge EPA’s determination they filled regulated wetlands.  EPA argued that the Sacketts were not entitled to any pre-enforcement review of the administrative order. 

Lower Courts Ignore the Legal Presumption of a Right of Appeal

The Administrative Procedure Act ("APA") sets the standards for when administrative actions of federal agencies are subject to review or judicial appeal.  The APA contains a presumption that  federal statutes allow for judicial review of agency actions.  That presumption can be overcome if: 1) there is an explicit bar to pre-enforcement review in the statue; or 2)  the presumption "may be overcome by inferences of [congressional] intent drawn from the statutory scheme as a whole." 

The Clean Water Act does not contain an explicit bar to pre-enforcement review (such a bar does exist under CERCLA- the federal Superfund law).  Therefore, EPA had to argue the bar can be inferred from congressional intent.

Both the District Court and Appeals Court sided with EPA holding that a bar to review could be inferred from the congressional record and the language in the the Clean Water Act.

Supreme Court Unanimously Disagrees

Before determining whether there was a bar to appeal, the Court had to determine whether the administrative action amounted to a final order.  The Court found that the order issued by EPA had all the hallmarks of a final order, including:

  • It determined the rights of the party– in this case, the Sacketts were required to restore the wetland;
  • Legal consequence flow from the order- the Sacketts were subject to penalties if they failed to comply;
  • The order is final– EPA did not provide the Sacketts a meaningful opportunity to challenge the order

After finding the order was final, the Court then rejected the lower courts finding that the history and language of the Clean Water Act suggested there should be no pre-enforcement review of orders.  The Court held:

"APA’s presumption of judicial review is a repudiation of the principle that efficiency of regulation conquers all." and

There is "no reason to think that the [Clean Water Act] was uniquely designed to enable the strong-arming of regulated parties into ‘voluntary compliance’ without the opportunity for judicial review- even judicial review of the question whether the regulated party is within the EPA’s jurisdiction."

It is interesting that both lower courts sided with EPA, but yet the Supreme Court unanimously sided with the Sacketts.  Its difficult to understand how such a split could occur.


Clearly, the Courts ruling gives attorneys representing regulated parties who are the subject of an EPA unilateral compliance order a tool to challenge the merits of those orders.  Certainly, allowing such a review is a clear victory and certainly seems to comport with logic.  The right to challenge EPA orders also likely extends to other environmental statutes that do not contain an explicit bar to pre-enforcement review, including orders issued related to hazardous waste (RCRA) and the Clean Air Act.

However, the standard for overturning an EPA order is very difficult to meet.  In addition, the Supreme Court’s decision is unclear as to whether penalties continue to amass while litigation proceeds.

Under the APA, an EPA action is entitled to deference and can only be overturned if it is demonstrated that the EPA acted in an "arbitrary and capricious" manner or "otherwise in violation of the law."  That is a pretty tough hurdle to clear. 

Also, the Court didn’t address whether EPA could be entitled to penalties for non-compliance during the appeal let alone whether EPA could be entitled to double penalties-  one set of penalties for failing to comply with the EPA’s order at $37,500 per day and a second for violating the Clean Water Act (also at $37,500 per day).   Therefore, a party could be risking up to $70,000 per day to continue its challenge of the EPA’s action. 

Until another court rules EPA is not entitled to collect such large penalties during the appeal, the deck is still pretty much stacked in EPA’s favor or in the Court’s words, EPA can still "strong arm" regulated parties.

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


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.

I have been on all sides of the fence relative to environmental enforcement actions.  I have represented the State, managed Ohio EPA enforcement program and now I represent companies who find themselves the subject of enforcement.  These experiences have given me valuable insight into what things to do and not to do when dealing with compliance oversight.

When speaking on the topic of enforcement, I am asked to provide practical advice on how to reduce the chances that your business will be a target of EPA enforcement.  In this post I provide five tips regarding your early interactions with EPA.

Much of my advice may be viewed as simple common sense.  However, I am consistently surprised how many times companies don’t follow these simple steps. 

Relationship with Inspector

Most inspectors are assigned a Division (air, water, hazardous waste, etc.) and a geographic territory.  This means you are likely to see this same person again and again at your facility. 

  • If possible, try and develop a good relationship with the inspector.  Cooperation at this lowest level can often prevent communication issues that sometimes lead to enforcement. 
  • Also, while not true in all cases, developing a good reputation with inspector assigned to your facility may lead to additional flexibility when addressing Agency concerns or issues.
    • Ask yourself-  Which report or permit application will get more scrutiny- one submitted by a company with a good reputation/relationship or a bad one….

The EPA Inspection 

The Agency has the ability to perform both announced and unannounced inspections of your facility.  It is understandable that companies are frustrated by the disruption that an EPA inspection causes at their facility.  Just don’t let that frustration carry over to your interactions with the inspector. 

  • Listen closely to the inspector– Accompany them during the inspection. If they point out concerns that can easily be addressed, fix them. Also, follow up in writing telling the inspector what you have done. EPA appreciates pro-active companies who listen and respond to Agency concerns. This can go a long way toward establishing a good reputation.
  • Debrief with the inspector– Don’t be shy about asking for an oral report of the inspector’s findings during or after the inspection. Take notes of any concerns or requests for information made by the inspector. Then follow up if possible. Don’t wait for the inspector to provide a letter if you can easily address some of the issues.  If you are able to provide information not available during the inspection that demonstrates compliance, you may avoid seeing these issues in a formal notice or letter from EPA.

Respond to Requests for Information or Notice of Violations– 

If you receive a notice of violation (NOV) or a request for information, respond within the time frame requested or write and ask for additional time.  ALWAYS WRITE A RESPONSE.  It is far better to write a letter formally disputing findings, then to not respond at all. 

  • Silence will quickly lead to more NOVs and escalated enforcement.  Companies have learned time and again, simply ignoring the situation will not make it go away.  Also, the higher you go up the enforcement chain the more likely you will see a demand for civil penalties.

In the Early Stages of Interaction Involve an Attorney to Help Respond

This may come across as a blatant advertisement, but its not intended as one.  The fact of the matter is the difficult compliance issues often arise due to the complexity of the environmental regulations. 

  • How your respond or what information you choose to provide in this early stage can significantly impact the likelihood or severity of escalated enforcement.  Make sure you are putting your company in the best defensive position possible, particularly on issues that carry significant risk of liability.

Try and Resolve Issues at Lowest Level Possible

A common reaction of companies who find themselves in a major disagreement with EPA or subject to enforcement, is the to call senior management and complain.  Some may think if they just get management involved they will see it their way and the issued will be resolved. 

  • Due to the number of issues that arise, senior manager constantly push decision making down to the lowest possible level.  Usually the first question you will get when you call is "have you talked through these issues with staff assigned?"   Even if you don’t hear that question, the first thing they will do when the hang up the phone is to call the inspector to hear "their side of the story." 
  • Remember, you are trying to build a relationship with your inspector.  It is human nature to not like it when someone tries to "go over your head."  Sometimes the situation demands such action be taken, but be prudent when choosing to utilize that option.

Of course every situation is different.  The five pieces of practical advice are meant to be general guidelines on conduct rather than legal insight.  The more significant the dispute or compliance issue, the more cautious you should be in your interactions with the Agency.  Hire a good supporting team to assist on those issues. 


I was interviewed for a good story appearing in Law360 (subscription or free trial required) about environmental insurance coverage for businesses.  The emphasis of the story were recent lawsuits where businesses were denied coverage under for environmental claims even though the companies thought they had purchased coverage.  As reported in the story:

  • Headwaters Inc., a company that re purposes coal combustion and other energy byproducts, was denied coverage by Ace American Insurance Co. for nuisance suits against Headwaters over coal byproduct-based fill material used for a golf course, citing pollution provisions and other exclusions
  • Changing World Technologies Inc., converts agricultural waste into biodiesel, have been hit with legal claims associated with a class action suit related to odors from a biodiesel production facility.  Their insurer denied coverage for the claims.

Companies still don’t realize most general liability insurance policies will not provide coverage for environmental claims even if they do, the coverage will be limited.   Companies must either negotiate special endorsements on those policies or buy special pollution liability insurance policies to cover these types of claims.

As reported in the story in Law 360, companies either fail to purchase coverage or don’t pay close attention to the language in their policies to make sure it will cover the risks associated with their product or operations.

“We would argue that generally it’s an underinsured marketplace,” Anderson said, adding that environmental liability coverage makes up just half of one percent of the roughly $450 billion in commercial property and casualty premium volume each year…Sometimes the problem stems from companies failing to conduct enough upfront risk analysis, including evaluating whether indemnification agreements from other companies are secure, or whether they are buying adequate insurance, attorneys and brokers said…

“I believe a lot of times insureds don’t see the big picture with regard to their exposures,” said Stephanie Story, senior vice president in the environmental practice at insurance brokerage Marsh. “What they should probably focus on first is sitting down and being honest with themselves, and having discussions internally with their real state folks, or their legal counsel, or their operations teams.”

Remember, Insurance companies have attorneys as well who are paid to think of ways exclusions will apply to prevent paying out claims.  Spending time up-front to analyze your risks is prudent.

Example:  Suppose you own a business that recycles wastes into a new product that is distributed to multiple sites.  Perhaps the product is used as fill, insulation or ground cover.  What happens if you are sued by people who claim your product has released chemicals at sites where your product was used. 

Even if you purchase pollution liability insurance, you must make sure coverage will extend to locations where your product has been utilized.  Policies can often be limited to the production facility.

Also, if you are going to purchase pollution liability insurance make sure you review the actual language of the policy.  Just because its special environmental insurance coverage does not mean it will cover all environmental claims.