Environmental Crimes Blog

Texas Supreme Court Holds Manager Personally Liable for Environmental Penalties

This is a guest post from my good friend Jim Smith at Crain Caton.

In State of Texas v. Morello, the Texas Supreme Court reversed a mid-level appellate court and reinstated a trial court’s judgment making Bernard Morello personally liable for approximately $400,000 in civil penalties for environmental violations.

The Company’s History of Permit Violations

Morello had been the sole member and manager of White Lion Holdings, a limited liability company.  The State alleged that White Lion consistently violated its hazardous waste permit.  Based on these violations, the State received a judgement of a similar penalty amount against White Lion, which was affirmed in a separate appeal.

Morello’s Personal Involvement

The State also sued Morello, individually.  The State alleged, and the courts agreed, that Morello was the sole decision-maker for the limited liability company. Moreover, Mr. Morello personally removed water treatment equipment from the facility, and was responsible for having monitor well protective housing caps discarded. The trial court determined that this involvement was enough to make Morello personally liable for the civil penalties. Neither

“Fraud” nor “Tortious” Acts Required

The mid-level appellate court had reversed the civil penalty award as to Morello.  That court reasoned that Mr. Morello did not individually participate in tortious or fraudulent acts, and therefore, as an agent of the limited liability company that owned the facility, he could not be held individually liable.

The Texas Supreme Court rejected that argument and reversed the mid-level court. The Supreme Court examined the Texas environmental statutes and determined that the State could hold an individual liable without proving fraudulent or tortious acts by that individual.  Morello was the sole decision-maker.  He personally removed water treatment equipment and had monitoring well protective housing caps discarded.  These circumstances were enough to make Morello personally liable for the civil penalties.

Decision Makers Can Be Liable for Allowing Violations

The Supreme Court’s discussion of personal liability suggests that an individual who is the sole decision-maker for a corporation or limited liability company will generally have civil liability for the environmental violations of the entity, because Texas law states that no person shall “cause” or “allow” environmental violations.

At least as to civil penalties, individual managers should expect that they can be held liable if their decisions constitute causing or allowing violations of Texas environmental laws, even if the entity owning the facility or holding the permit is a corporation or limited liability company.

For a copy of the Supreme Court’s opinion http://www.txcourts.gov/media/1440618/160457.pdf

Thanks Jim!

More later.

As always, feel free to contact me at walter.james@jamespllc.com

WDJiii

Decrease in Enforcement under the Trump Administration

As if there was any real doubt, the New York Times (yes, derided by the current administration as fake news) reports that USEPA penalties against the regulated community “comes with an astersik.” See, Rise in E.P.A. Penalties Against Polluters Comes With an Asterisk, by Eric Lipton and Danielle, Ivory.  https://www.nytimes.com/2018/02/08/business/epa-penalties-polluters.html

Despite puffing its chest with the release of data showing “a large increase in penalties against polluters,” in fact virtually every single one of these cases was initiated under the Obama administration.

Even assuming the correctness of the old adage artfully used by Mark Twain that there are “lies, damn lies and statistics,” the numbers themselves do not lie. The Trump administration is bringing fewer enforcement cases, both civil and criminal. And this is not a trend that will reverse itself under this administration under its “cooperative federalism.” Down-streaming enforcement to the states, who in most instances, do not have the expertise, man power or money, places the public at risk.

The American public should be concerned about the lack of enforcement.  Look no further than Flint, Michigan.

More later.

As always, feel free to contact me at walter.james@jamespllc.com

WDJiii  

The Cost of Noncompliance is Now More Expensive.

On January 10, 2018, the USEPA published its annual civil monetary penalty adjustment as required by the 2015 revisions to the Federal Civil Penalties Inflation Adjustment Act. https://www.environmentallawandpolicy.com/wp-content/uploads/sites/452/2018/01/2018-00287.pdf  It used to be that the USEPA adjusted penalty levels for inflation once every several years. Now, the USEAP are required to adjust the penalty amounts every year.

The inflation adjustment effects all federal environmental statutes and increase the penalties for the per-day violations and the per-violation maximums. Under the adjustment civil penalties (assessed on or after January 15, 2018, for violations occurring after November 2, 2015), for example, increase as follows: CAA: from $95,284.00 to $97,229.00; CWA: from $52,414.00 to $53,484.00; and RCRA: from $71,264.00 to $72,718.00.

Remember, the cost of compliance pales in comparison to the cost of enforcement.

More later.

As always, feel free to contact me at walter.james@jamespllc.com

WDJiii

Do You Have An International Client or Travel Out of the US?

Yes, the US customs agents demand to search attorneys’ iPhones and iPads (and other mobile devices) upon the attorney’s reentry into the country (may not happen often, but it happens often enough).  On January 4, 2018, Customs and Border Protection (CBP) released a new directive on searches of an attorney’s mobile devices. A portion of it deals with privileged information on an attorney’s mobile device.

Under this new directive, CBP has new procedures that an agent must use when there is data protected by the attorney-client privilege or work product exemption.  Essentially, once an attorney asserts that there is privileged information on the mobile device, the CBP Associate/Assistant Chief Counsel office will get involved. The big change is that the border patrol agent cannot decide on his/her own to ignore the assertion of privilege. And it appears that the attorney may be forced to provide a full privilege log. Even after all of that, it remains unclear how CBP will deal with the privileged information. 

        5.2 Review and Handling of Privileged or Other Sensitive Material

5.2.1    Officers encountering information they identify as, or that is asserted to be, protected by the attorney-client privilege or attorney work product doctrine shall adhere to the following procedures.

5.2.1.1    The Officer shall seek clarification, if practicable in writing, from the individual asserting this privilege as to specific files, file types, folders, categories of files, attorney or client names, email addresses, phone numbers, or other particulars that may assist CBP in identifying privileged information.    

5.2.1.2    Prior to any border search of files or other materials over which a privilege has been asserted, the Officer will contact the CBP Associate/Assistant Chief Counsel office.  In coordination with the CBP Associate/Assistant Chief Counsel office, which will coordinate with the U.S. Attorney's Office as needed, Officers will ensure the segregation of any privileged material from other information examined during a border search to ensure that any privileged material is handled appropriately while also ensuring that CBP accomplishes its critical border security mission. This segregation process will occur through the establishment of a Filter Team composed of legal and operational representatives, or through another appropriate measure with written concurrence of the CBP Associate/Assistant Chief Counsel office.

5.2.1.3    At the completion of the CBP review, unless any materials are identified that indicate an imminent threat to homeland security, copies of materials maintained by CBP and determined to be privileged will be destroyed, except for any copy maintained in coordination with the CBP Associate/Assistant Chief Counsel office solely for purposes of complying with a litigation hold or other requirement of law.    

5.2.2    Other possibly sensitive information, such as medical records and work-related information carried by journalists, shall be handled in accordance with any applicable federal law  and CBP policy. Questions regarding the review of these materials shall be directed to the CBP Associate/Assistant Chief Counsel office, and this consultation shall be noted in appropriate CBP systems.    

5.2.3    Officers encountering business or commercial information in electronic devices shall treat such information as business confidential information and shall protect that information from unauthorized disclosure. Depending on the nature of the information presented, the Trade Secrets Act, the Privacy Act, and other laws, as well as CBP policies, may govern or restrict the handling of the information. Any questions regarding the handling of business or commercial information may be directed to the CBP Associate/Assistant Chief Counsel office or the CBP Privacy Officer, as appropriate.

5.2.4    Information that is determined to be protected by law as privileged or sensitive will only be shared with agencies or entities that have mechanisms in place to protect appropriately such information, and such information will only be shared in accordance with this Directive.

In short, you may be able to protect privileges and exemptions on your mobile devices; however, the safer course might be to use a “burner” phone while traveling abroad. And an even safer course would be - wipe any privileged material from the mobile device before leaving and reentering the United States.

Travel is hard enough – let us not make it any harder . . ..

More later.

As always, feel free to contact me at walter.james@jamespllc.com

WDJiii

The USDOI M-37050 Does Not Really Change a Thing

On December 22, 2017, the USDOI issued Memorandum M-37050. The USDOI now concludes that the incidental taking of migratory birds is no longer prohibited under the Migratory Bird Treaty Act (“MBTA”). This is a reversal of opinion from the prior interpretation that did prohibit the incidental taking of migratory birds, that is industrial or commercial activity that accidentally caused the death of a migratory bird. This is potentially a big development in the oil and gas industry.

While this revised interpretation may reduce MBTA liability, does it really change anything? Probably only the USDOI approach to enforcement. What M-37050 does is follow the interpretation of the MBTA that has been used several Court of Appeals (the 5th, 8th, and 9th Circuits). United States v. CITGO Petroleum Corporation, 801 F.3d 477 (5th Cir. 2015); Newton County Wildlife Association v. United States Forest Service, 113 F. 3d 110 (8th Cir. 1997); Seattle Audubon Society v. Evans, 952 F.2d 297,303 (9th Cir. 1991). Two Courts of Appeals (the 2nd and the 10th Circuits) take an opposing approach. United States v. FMC Corporation,‌ 572 F.2d 902 (2d Cir. 1978); United States v. Apollo Energies, Inc., 611 F.3d 679 (10th Cir. 2010).

Will those two Courts of Appeal fall in line? Not unless there is a prosecution within a court under the jurisdiction of the Second and Tenth Circuits. Under the current administration, that is unlikely to happen.

 More later.

 As always, feel free to contact me at walter.james@jamespllc.com

 WDJiii

A Major Change to the Migratory Bird Treaty Act

On December 22, 2017 the Department of the Interior (“DOI”) issued its revised interpretation of the Migratory Bird Treaty Act’s (“MBTA”) prohibition on the take of migratory birds.  Opinion M-37050 is the result of the DOI Solicitor’s Office review of the MBTA’s prohibition on take.  It is a complete reversal of Opinion M-37041 which had concluded that “the MBTA’s broad prohibition on taking and killing migratory birds by any means and in any manner includes incidental taking and killing.”  No longer the case. 

Opinion M-37050 concludes that “consistent with the text, history, and purpose of the MBTA, the statute’s prohibitions on pursuing, hunting, taking, capturing, killing, or attempting to do the same apply only to affirmative actions that have as their purpose the taking or killing of migratory birds, their nests, or their eggs.” (emphasis added).  Stated plainly, if the take of a migratory bird, its nest, or eggs that is incidental to an activity that is lawful, it does not violate the MBTA.  And that means that the MBTA’s criminal provisions do not apply either.

Opinion M-37050 impact industries that have wrestled with MBTA compliance, particularly those facing potential incidental take of migratory birds.

More later.

As always, feel free to contact me at walter.james@jamespllc.com

WDJiii

Trump Administration EPA to Focus Criminal Enforcement on Significant and Egregious Violators, Citing 1994 “Devaney Memorandum”

This is a guest post by Andrew Brought of Spencer Fane in Kansas City.

A high-ranking Environmental Protection Agency (EPA) enforcement official in the Trump Administration recently cited a 1994 memorandum by Earl Devaney, then Director of EPA’s Office of Criminal Enforcement, as presenting guiding principles to select cases for criminal enforcement of environmental violations. The January 12, 1994, memorandum, “Exercise of Enforcement Discretion,” is often referred to as the “Devaney Memorandum,” and it is available at this link: https://www.epa.gov/sites/production/files/documents/exercise.pdf  This may signal that criminal enforcement of environmental laws under the Trump Administration will be limited to situations in which there has been significant actual or threatened environmental harm and truly culpable conduct.

Earlier during prepared remarks the official said, “We will be enforcing environmental laws in the Trump Administration,” although at that time he was not specifically discussing criminal enforcement.

The EPA official’s reference to the Devaney Memorandum came during a continuing education event hosted by the American Bar Association Section of Environment, Energy, and Resources attended by the authors and in response to a question posed by co-author Jim Price.  In his question, Price noted that environmental enforcement cases can be, and frequently are, brought under either civil or criminal provisions based on largely the same facts, a position echoed by the EPA official.

The Devaney Memorandum notes that EPA is obligated to “instill confidence that EPA’s criminal program has the proper mechanisms in place to ensure the discriminate use of the powerful law enforcement authority entrusted to us.”  The Devaney Memorandum further states,

“The criminal provisions of the environmental laws are the most powerful enforcement tools available to EPA.  Congressional intent underlying environmental criminal provisions is unequivocal: criminal enforcement authority should target the most significant and egregious violators.”

The Devaney Memorandum states that criminal case selection will be guided by two general measures.  The first is the presence of actual harm or the threat of significant harm to human health or the environment.  The Devaney Memorandum sets out four factors that comprise this measure, including illegal discharges that have an identifiable and significant harmful impact. The Devaney Memorandum states that failure to report a discharge may be an additional factor favoring criminal investigation but that generally the failure to report, alone and without actual or threatened environmental harm, should not cause an investigation to be criminal instead of civil. 

Culpable conduct is the second general measure guiding criminal case selection.  The Devaney Memorandum cites five factors comprising this measure, including a history of repeated violations, deliberate misconduct, concealment or falsification of records, tampering with equipment, and operating without a permit.

The Devaney Memorandum concludes with these statements and admonition:

“EPA has a full range of enforcement tools available—administrative, civil-judicial, and criminal.  There is universal consensus that less flagrant violations with lesser environmental consequences should be addressed through administrative or civil monetary penalties and remedial orders, while the most serious environmental violations ought to be investigated criminally.  The challenge in practice is to correctly distinguish the latter cases from the former.” (Emphasis added.)

The authors agree and trust that a renewed focus on the factors set forth in the Devaney Memorandum will guide EPA to choose only the most significant and egregious violations for criminal enforcement of environmental laws.

More later.

As always, feel free to contact me at walter.james@jamespllc.com

WDJiii

 

How the EPA Monitors Compliance

This is a guest post from Brett A. Podolsky. Mr. Podolsky is a criminal defense attorney in Houston, Texas, is Criminal Legal Specialist certified by the Texas Board of Legal Specialization and was the Assistant Criminal District Attorney for the State of Texas.

How the EPA Monitors Compliance

The Environmental Protection Agencies (EPA) ensures that a regulated entity complies with environmental regulations and laws. The EPA monitors compliance of regulatory agency actions performed in order to determine if a certain facility (or facilities group, e.g. plants in a geographic location, corporate structure, or sector) is compliant with the applicable law(s). 

EPA compliance monitoring includes 1) inspector support, 2) compliance monitoring (on-site), e.g. investigations, inspections, and evaluations (including review of documentation, permits, and data), 3) compliance monitoring (off-site), e.g. support, data collection, oversight, reviews, coordination of programs, and reporting, and 4) formulation and/or implementation of strategies for compliance monitoring.

What is EPA Compliance

Regardless of your facility’s location in the United States, you must adhere to certain regulations and rules put in place by the EPA.  Environmental compliance is a big deal. If you’re uncertain about what EPA compliance means, you might not be in compliance. Non-compliance can mean monetary fines, penalties, and violations. 

EPA compliance means conforming in the fulfillment of EPA’s requirements. Conformity simply means the business must meet the requirements set forth by EPA:

• This means the business must do everything required – it can’t pick and choose what to do with the EPA requirements.

• Compliance means the business must do everything it’s required to do – correctly and completely. EPA compliance might sound simple and straightforward, but it can be very difficult for many businesses. 

Compliance Monitoring

EPA encourages facilities and businesses to voluntarily identify and disclose its violations. EPA may also discover violations through complaints or tips received from the public. However, if the business or organization doesn’t speak up, it may later face civil or criminal violations and enforcement by EPA.

Inspections, civil investigations, information requests, record reviews, and other methods are used by the EPA to monitor compliance:

• Inspections are an essential component of EPA’s efforts to monitor compliance. EPA and/or regulatory partners perform compliance inspections. The inspection is a visit to the site or facility to gather information needed to ascertain if the entity is in compliance. Pre-inspection activities are typically included beforehand. An inspection may involve a short walk-through taking hours to an event taking weeks to complete.

• An evaluation under the Clean Air Act may involve a Full or Partial Compliance Evaluation (FCE/PCE). An FCE involves a complete evaluation of the facility’s compliance status. An FCE may occur through several PCEs. 

• A civil investigation is a detailed assessment of the facility’s compliance status. Such an investigation usually takes several weeks to complete.

• A record review involves EPA’s review of the facility’s records. Such a review occurs at the agency’s offices—either at EPA, local, or state offices. It may occur in tandem with an on-site inspection. 

• An information request is a written request for data when 1) an inspection, investigation or review indicates that a potential problem may exist, 2) EPA receives a referral concerning a potential problem, 3) a study conducted indicates a possible compliance issue, or 4) the facility/entity has demonstrated an ongoing “pattern of non-compliance.”

EPA’s audit policy underscores the importance of regulated entities’ willingness to discover, report, and ameliorate violations of U.S. environmental regulations and laws. If all regulated entities agreed to self-identify and disclose violations, formal investigations or enforcement actions would be unnecessary.

How the EPA Enforces Compliance

If a regulated entity doesn’t comply, or the EPA orders cleanup, enforcement actions will be initiated. Because EPA is empowered to protect the environment and human health, it will attempt to enforce the law. Environmental justice (EJ) works to protect those communities “disproportionately affected” by pollution. In addition, EJ:

• Plans, implements, and enforces EPA compliance

• Identifies cases of interest to pursue

• Develops solutions

Enforcement Programs

Many federal environmental statutes have both civil and criminal components to address violations:

1. Civil administrative actions involve non-judicial enforcement actions by EPA (or a state). An administrative action may take the form of: • An order, with or without penalties, directing a business, individual, or other entity to come into EPA compliance, e.g. clean up a site. • A notice of violation, e.g. a Superfund notice.
2. 2. Civil judicial actions involve the court. These lawsuits are filed in a court of law, against entities or persons who failed to 1) comply with regulatory or statutory requirements, 2) comply with a prior administrative order, or 3) compensate EPA for costs relating to the cleanup of a Superfund site (or commit to performing clean up tasks). Civil judicial cases are filed on behalf of EPA by the U.S. Department of Justice.
3. Civil cases are usually filed by a State Attorney General’s Office on behalf of a state government.
4. Criminal actions may occur when a state or EPA enforces against an entity or individual by bringing a criminal action. A criminal action is typically reserved for more serious violations – those considered to be “willfully” or “knowingly” committed by the offender. If convicted, the offender faces imprisonment and/or significant fines.

What Enforcement Issues Does EPA Face?

The author of “Enforcement at the EPA: High Stakes and Hard Choices,” (Revised Edition, 2012) writes that the EPA is challenged by a static or declining workforce. 

EPA’s FY 2018 budget proposes to do more with much less. In July 2017, a House bill proposed to cut EPA’s funding by more than $500 million. 

That said, a civil or criminal action by the EPA must be taken extremely seriously. It’s relatively easy for businesses and organizations to conflict with EPA’s seven statutes and 44 programs.

Thanks for the information Brett! 

More later.

As always, please feel free to contact me at walter.james@jamespllc.com

WDJiii

Criminal Enforcement under the Trump/Pruitt USEPA

On November 16, 2017, the ABA sponsored a “brown bag” session that featured USEPA Deputy Assistant Administrator for OECA, Patrick Traylor. After some opening remarks in which he assured the audience that the Trump Administration will be enforcing the environmental laws, he took questions from the participants.

My good friend, Jim Price (Spencer Fane, out of Kansas City) asked Traylor a question regarding the Trump Administration’s enforcement position on which types of cases will head in the criminal direction as opposed to civil enforcement.  In particular, the question focused on how will the current USEPA decide which cases are brought as criminal cases versus those brought as civil cases (in the past there has been a sense that the primary distinguishing factor has been how the case initially arose – USEPA CID or the civil side).

After allowing that, because of the general intent mens rea, there is no real difference between a civil and a criminal matter, Traylor specifically referenced the 1994 Devaney Memorandum as the key directive for the Trump Administration in determining whether a case should go criminal versus civil.   The 1994 Devaney Memorandum concludes that only the most significant and egregious violators ought to be investigated and prosecuted criminally.  The 1994 Devaney Memorandum can be found here: https://www.epa.gov/sites/production/files/documents/exercise.pdf

A BIG SHOUT OUT to the ABA and the fine people at Sidley (Ben Tannen, Justin Savage) for organizing/hosting/moderating (as well as all of the others behind the scenes) for making the event a success.

Also, a shout out to my friend Andrew Brought (also Spencer Fane, out of Kansas City) for inspiring this blog post.

More later.

As always, feel free to contact me at walter.james@jamespllc.com

WDJiii

Cell Phone Searches as Evidence

Smartphones are everywhere. One question regarding smart phones is whether law enforcement can force an individual to provide the password or personal identification number to unlock your phone.  So far, most courts say no.  The reasoning is that having to provide your passcode is tantamount to self-incriminating testimony. 

Generally speaking, law enforcement is required to obtain a search warrant before it can search electronic devices. Even the use of biometric information to unlock a phone still requires a search warrant to access the smart phone (you may be compelled to give up your fingerprint under certain “reasonable suspicion” conditions and that could also apply to facial recognition).  The warrantless searching of cellphones was ruled unconstitutional by the SCOTUS in 2014, see Riley v. California, 134 S.Ct. 2473 (2014).  Remember, however, there is the so-called “border search” exception which allows federal authorities to conduct searches within one hundred (100) miles of a U.S. border without a search warrant, though and that includes smartphones.  I know of no case where this has been applied in an environmental criminal investigation; however, it is not beyond the pale.  Ask yourself if your facility is within one hundred (100) miles of a US border. 

This also becomes important because of the prevalence of individuals bringing their smartphone to work and the use of their personal smartphone for company business.

So, how do you protect your company and yourself from a warrantless search of your smartphone? Require the criminal investigator to have a search warrant.  When the search warrant is presented, get a copy of it and READ IT.  If it does not allow for the collection of cell phones and cell phone pass codes, do not give up your cell phone or the pass code.  Second, your company needs to have a policy in place that requires the employee to use the “pass code” setting on the smartphone to set up a pass code (preferably a six-digit pass code) to unlock the cell phone.  Without a warrant, you cannot be compelled to provide the pass code (this is different than facial recognition or thumbprint).  So be forewarned.

More later.

As always, feel free to contact me at walter.james@jamespllc.com

WDJiii