A Version of this Article Originally Appeared in the September, 1999 Issue of Environmental Compliance and Litigation Strategy, a national publication for which Mr. Sheldon is a Contributing Editor.
September 1, 1999
Companies facing multiple day violations under statutes like the Clean Air Act, Clean Water Act and RCRA are threatened with monumental penalties that can mount at a rapid $27,500 per violation a day clip. Thus a year of daily violation of a single permit requirement at the maximum penalty totals $10,037,500. Since permit violations are commonly multiple in nature, maximum penalties in the range of hundreds of millions of dollars are sometimes encountered. This article reviews the factors that trial courts are using to assess penalties in cases that reach them and suggests that the theory of top down analysis that is often followed by the courts is flawed in terms of reasonable jurisprudence. Some approaches to penalty assessment that are better tied to statutory purpose and real world benchmarks are suggested.
The Statutory Provisions for
Each of the major federal statutes dealing with environmental regulation provides for the assessment of civil penalties against violators. The Clean Water Act, Clean Air Act and RCRA form a triad of laws that encompass the major environmental media with regulation. The Clean Air and Clean Water Act provisions are considered in pari materia by the courts; the less specific language of the RCRA penalty provisions is approached in generally the same manner as the other two laws. Their relevant penalty provisions are similar. Attorneys representing clients accused of violating these laws often become involved with a negotiation with the EPA over whether and what penalties are appropriate. During those negotiations, the EPA utilizes penalty guidance that has been developed under each statute. Often negotiations devolve into arguments over which box on a penalty grid should be assigned to a given violation. Choice of penalty box grids is generally governed by the seriousness of the violation and the harm or risk it causes to the environment or public health. In its penalty policies, EPA has made general decisions on whether and in what circumstances to assess multi-day penalties and as to what circumstances involve distinct violations subject to fine. Some of these decisions are confirmed in case law not relevant here. While EPA reserves the right to assess penalties at the maximum daily statutory limit, that is rarely the result in negotiated cases. A question underlying every negotiation is what the cost and result of litigation would be in a given case. A key element of this decision is predicting what sort of penalty a judge will assess.
The district courts wrestle with the issue of what penalties are appropriate in light of multiple factors the statute requires be considered. In this article, I suggest that the Circuit Courts of Appeals that have addressed the issue all recognize that the assessment of civil penalties is to be left to the discretion of the trial court. Nevertheless, disparity of approaches to the assessment process has developed, in which one or more courts are sometimes seen as following a top down or bottom-up approach to the penalty assessment process. This article reviews the major Circuit Court of Appeals decisions and discussion related to the civil penalty assessment process in a key United States Supreme Court case. In conclusion, it suggests a judicial approach to the penalty process that is inherently more fair and case specific than the top down idea and which takes a broader view of the purpose of civil penalties than the bottom-up method.
The Nature of the Civil Penalty
The United States Supreme Court examined the nature of the civil penalty that is provided under the Clean Water Act in the case of Tull v. United States, 481 U. S. 412 (1987). In that case the main issue was whether the Seventh Amendment to the Constitution entitled a civil defendant to jury trial on the issues of liability and penalty. The Supreme Court decided that there was a right to jury determination of liability, but it held the penalty was properly vested in the sound discretion of a trial judge. The Supreme Court found that Congress intended the highly discretionary calculations necessary to award civil penalties be performed by judges. It also indicated that the nature of the civil penalty includes punitive elements such as deterrence and retribution, as well as elements of recovery or restoration of unfair advantages gained by non-compliance. See Tull v. U.S., 481 U.S. at 422-425.
The District Courts have struggled with the question of how best to exercise their discretion is assessing penalties. As pointed out by the District Court for the Southern District of Mississippi in a thoughtful opinion, the courts are split on which methodology to use in assessing an appropriate civil penalty. Some courts use the top-down method of penalty calculation, in which the court begins at the statutory maximum, and adjusts downward (citations omitted) . Other courts use the bottom-up method of penalty calculation, in which the court begins the penalty calculation using the defendant economic benefit of noncompliance, and adjusts upward or downward considering the [statutory] factors. (citations omitted) Bramlette, J. in U.S. v Gulf Park Water Company, Inc. et al., 14 F. Supp. 2d 854, 858. (1998).
Given the discretion accorded trial judges by the law and numerous reported trial court opinions, there are relatively few appeals reported from trial court determinations, and those that review a penalty appear to do so on the basis of whether it constitutes an abuse of discretion by the trial court.
The top-down methodology approach appears to be most strongly favored by the Eleventh Circuit. In the case of Atlantic States Legal Foundation v Tyson Foods, 897 F.2d 1128 (1990). In that case, the Court was reviewing a case in which a citizens action group had sued Tyson Foods for several years of NPDES permit violations. There was a serious question of standing and mootness, which the Court disposed of in favor of the plaintiffs. The trial judge had decided not to impose any penalty at all, citing its equitable powers. The District Court had found it would simply be inequitable and unconscionable to impose civil penalties against Tyson when it has displayed the utmost good faith. The Eleventh Circuit found that a penalty determination based solely on good faith efforts at compliance was an abuse of discretion. 897 F.2d at 1142.
The Eleventh Circuit then indicated: Upon remand, the district court should first determine the maximum fine for which Tyson may be held liable. If it chooses not to impose the maximum, it must reduce the fine in accordance with the factors spelled out in section 1319(d), clearly indicating he weight it gives to each of the factors in the statute and the factual findings that support its conclusions. While the court may find the EPAs Penalty Policy helpful in determining the appropriate fines, the courts primary focus should be on the statutory language.... Ibid. Although this directive of determining the maximum penalty first by the Eleventh Circuit has been interpreted by some courts as mandatory, it clearly is not mandatory. The actual order of the Eleventh Circuit was merely that in calculating penalties, the district court shall consider and explain its finding on each of the factors enumerated [in the statute] 897 F.2d at 1143.
The Seventh Circuit is also sometimes cited as favoring the top-down approach. That Court in U.S. v. B.& W. Investment Properties, 38 F.3d 362 (1994) upheld a maximum penalty determination in an asbestos removal case under the Clean Air Act. A review of the decision reveals no real bias or inclination toward top-down. The Court merely upheld a trial judges determination that in the egregious case before him, the maximum penalty need not be reduced, even considering the factors in the statute.
The Third Circuit has sometimes followed top-down, See e.g. P.I.R.G. v Powell Duffryn, 913 F.2d 64 (1990), but in U.S. v Anthony DellAquilla, 150 F.3d 329 (1998), it explicitly recognized that a top down procedure is not always appropriate or the best way to proceed. 150 F.3d at 338. The Court states in conclusion: Courts can achieve an equitable mitigation (if one is warranted in a particular case) either by starting at the maximum penalty and mitigating it downward based on the factors in [the statute], or simply relying upon those factors to arrive at an appropriate amount without starting at the maximum. The statute only requires that the fine be consistent with a consideration of each of the factors the court is obligated to evaluate. Ibid. at 339.
The Fifth Circuit is another that is sometimes cited as favoring the top-down approach. See Gulf Park supra at 858 citing U.S. v Marine Shale Processors, 81 F.3d 1329 (1997). Yet a reading of Marine Shale does not fully support that impression. In Marine Shale, the defendants had been found guilty of numerous violations. In its analysis of a three million dollar fine, the Fifth Circuit merely notes that it is a small fraction of the forty-five million dollar fine that could have been imposed, and states the fact that in imposing penalties under the environmental laws, courts often begin by calculating the maximum possible penalty, then reducing that penalty only if mitigating circumstances are found to exist. 81 F.3d at 1337. All that Marine Shale stands for is that a district court that adequately explains itself can use top d
I found no Circuit Court of Appeals that explicitly directed a district Court to
use a bottom-up approach. Nevertheless,
some have done so. This approach sets economic benefit as the starting point.
See Friends of the Earth v. Laidlaw Environmental Services, Inc., 956 F. Supp. 588
(D., S.C., 1997). This is a rational
approach, because it analyzes a relevant statutory factor.
Some Courts doing this find support in EPAs civil penalty policy for
analyzing economic benefit first. Chesapeake
Bay Foundation v. Gwaltney of Smithfield, Ltd., 611 F. Supp. 1542 (E.D. Va., 1985).
I found no Circuit Court of Appeals that explicitly directed a district Court to use a bottom-up approach. Nevertheless, some have done so. This approach sets economic benefit as the starting point. See Friends of the Earth v. Laidlaw Environmental Services, Inc., 956 F. Supp. 588 (D., S.C., 1997). This is a rational approach, because it analyzes a relevant statutory factor. Some Courts doing this find support in EPAs civil penalty policy for analyzing economic benefit first. Chesapeake Bay Foundation v. Gwaltney of Smithfield, Ltd., 611 F. Supp. 1542 (E.D. Va., 1985).
What Should a Trial Court Do?
A review of the applicable case law yields the simple conclusion that a trial judge is only required to consider each of the factors made relevant to the imposition of a penalty by law. While what the maximum figure is perhaps implicitly a factor by reason of the statutory authorization of the maximum penalty, there is no requirement that the top-down approach to setting a penalty be followed, even in the Eleventh Circuit. Moreover, the maximum figure is clearly not intended by Congress as an indication of what should generally be the result in a case; thus use of it as a default provision seems unfair.
Instead of starting with the statutory maximum and working down, the statutes can be more usefully viewed as requiring a trial judge to determine an appropriate penalty based on the purposes for civil penalties cited in Tull v.U.S. (punitive elements such as deterrence and retribution, as well as elements of recovery or restoration of unfair advantages gained by non-compliance) assuming no aggravating or mitigating factors exist, and then to examine the degree to which the statutory penalty factors in each of the environmental statutes either mitigate or increase that appropriate figure. In reaching an appropriate starting point, Tull and some of the Court of Appeals decisions indicate that reference to EPA penalty policies can be a useful exercise. Certainly comparison to penalties imposed in other cases may also be useful. Such an approach not only should yield a result that is unlikely to be overturned as an abuse of discretion, but it should lead to more consistency in judicial penalty determinations overall. The bottom-up approach seems more in line with the approach I suggest here than is the top-down method.
 Clean Water Act, 33 USC §1319(d):
In determining the amount of a civil penalty the court shall consider the seriousness of the violation or violations, the economic benefit (if any) resulting from the violation, any history of such violations, any good-faith efforts to comply with the applicable requirements, the economic impact of the penalty on the violator, and such other matters as justice may require .
Clean Air Act, 42 USC § 7524(b):
In determining the amount of any civil penalty to be assessed under this subsection, the court shall take into account the gravity of the violation, the economic benefit or savings (if any) resulting from the violation, the size of the violators business, the violators history of compliance with this subchapter, action taken to remedy the violation, the effect of the penalty on the violators ability to continue in business, and such other factors as justice may require.
Under RCRA, 42 USC §§6928(a), (g), there are fewer specific factors in the law. However courts seem to take into consideration the Clean Air and Clean Water Act factors. See U.S. v Bethlehem Steel Corp., 829 F. Supp. 1047 (N.D. Ind. 1993), U.S. v Ekco Housewares, Inc. 62 F.3d 806 (6th Cir., 1995).
 See, e.g.. U.S. v. Roll Coater, Inc., 1991 U.S. Dist. LEXIS 8790 (S.D. Ind., 1991).
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