Criminal Environmental Violations

It is the worst-case scenario.  You own a business.  Your business has environmental requirements – lots of them.  You, personally, cannot assure compliance with all the requirements – that’s why you have hired staff to do it.  One of their tasks is to maintain compliance with the environmental laws and regulations.

But what happens when they screw up?  Who is responsible?  After all, you gave them express directions to maintain compliance and to follow the law, right?  Well, unfortunately, their actions might land you in the crosshairs of criminal environmental enforcement.

Let’s take a quick look at some recent examples from EPA criminal enforcement cases for 2012.

1.              In February of 2012, Edward Hannan was found criminally liable for illegally discharging oil contaminated waste into Breton Sound, off the coast of Louisiana.  The chain of command became a large part of the case.  What started as Edward Hannan ordering an employee to illegally discharge the oil contaminated water, turned into liability for Hannan’s employer St. Bernard Well Service, and for Linder Oil Company.  Linder Oil Company made two mistakes.  First, it hired St. Bernard Well Service.  Second, and most importantly for the courts, Linder Oil Company did not implement sufficient safeguards to detect and prevent the discharge – putting all three in the criminal enforcement crosshairs.

What is the take away from this case?  It is that your company is ultimately responsible for the acts of its employees including third parties and independent contractors.  You cannot merely hire an independent contractor and assume they will do the right thing.  You must take action to put in place any safeguards that are needed to prevent criminal environmental violations.

2.            In September 2012, the Scotts Miracle-Gro company was sentenced for 11 criminal environmental violations.  It will pay $12.5 million dollars in criminal and civil penalties.  At the core of the case is an employee Sheila Kendrick, at the time, the Registrations Manager at Scotts. Currently serving jail time.  It was her duty to maintain the insecticides, fungicides and rodenticides registrations with the federal government under FIFRA.  Over a course of several years Ms. Kendrick made false statements to authorities and fabricated pesticide documents.  To conceal her fraud, she suggested that the EPA must have “lost” its copies of her filings.  She also provided false registration documents to other Scotts employees knowing that they would submit the false information to state regulators, knowing that the state would then issue erroneous state registrations based on the fraudulent documents.

What is the take away from this case?  It is that even with a large, highly structured company like Scotts, a single employee can cause the company to be liable for criminal environmental violations.  Had they put in place specific requirements that would have validated the work of Ms. Kendrick they would have prevented the fraud by eliminating the ease of opportunity for her to create fraudulent registrations.  Additional note:  She claims to have filed the documents with EPA, but says EPA must have lost them. Regulators are not perfect, far from it.  There are many cases where regulators lose documents.  If you are required to submit documents to regulators, establish a fail-safe system that ensures you can document your filing, so the agency cannot claim non-compliance.

Overall Takeaways On Criminal Environmental Violations?

The real question that every employer wants to know is “when are employers responsible for the acts of employees”?  Especially criminal environmental liability.  As a general rule, employers can be held liable for the acts of an employee when those acts were committed in the course and scope of employment.  This is also known by the Latin term  “Respondeat Superior”.   What is most disturbing to employers is that under the Respondeat Superior theory, employers can be held responsible for not only negligent acts (e.g. car accidents), but also for intentional and criminal acts.

And with the extensive and punitive enforcement provisions of many environmental laws, the liability for environmental violations can be unforgiving.  Even if you end up with a misdemeanor or probation, the cost of the criminal environmental trial can be overwhelming, and the “permanent record” element can haunt you the rest of your life.

Key things you can do to protect against criminal enforcement.

1)      Get your facility or operation audited.  Environmental regulations can be extensive, complex and can change without much warning.  Often times those with operational control of a facility or production are too close to the system to be objective about their compliance.  For example, they may believe their system produces a byproduct that is then recycled, avoiding certain RCRA requirements.  Upon outside, third party scrutiny, it may actually be revealed that the byproduct is actually considered a waste product.  Mishandling, mislabeling, improper disposal and other violations can quickly ensue, resulting in mounting dialing penalties and potential criminal liability.   Additionally, you want to create fail-safes for people like Ms. Kendrick at Scotts. You want to double-check her work so that she cannot put the company in a position where it is vulnerable to millions in criminal penalties.  If she is the one left to determine compliance, she can short-circuit the system and no one will know until it is too late.

1. A key element to any audit you do is to utilize an attorney.  Have the work done under the protections of the Attorney-Client shield.  It will increase the ability of your attorney to control the process and the information revealed during the audit. 
2. Additionally, there are oftentimes incentives for compliance auditing.  By stepping forward and acknowledging the problem and the fix, you will be on strong ground compared to hiding or ignoring violations, which, as shown above, can not only increase the fines, but also, can actually result in criminal prosecution.

2)      In addition to auditing, you will want to assess your liability chain.  If you have performed an audit of your operations, you are now in compliance with the rules.  Now you need to institute a chain of command that extends to everyone that is in contact with the process, products or waste stream.  This may include third parties, contractors, or independent agents.  Determine their proper role, their management of the process, products or waste stream and make sure they agree to your understanding of their role.  Often times it will benefit your process if you establish an indemnification or additionally insured requirement.  Although this may not help with criminal enforcement, it will certainly help with the financial cost of the process as well as providing a clear indication to the environmental enforcement agency that you were taking all appropriate efforts you could to ensure compliance.

Michael Denby is the founder of Denby Law, PLLC an exclusive environmental and natural resources law firm in Phoenix, AZ focusing on regulatory compliance law for all the major environmental programs, CERLCA, RCRA, CAA, CWA, & TSCA. In his 18 years of environmental representation, Michael has written and presented on numerous environmental topics, sat on 3 gubernatorial appointments, and represented large and small clients before local, state and federal regulators. Learn more about Denby Law, PLLC or to contact the author click here www.denbylaw.com