ELR Citation: ELR 21468
No(s). 94-3268 (6th Cir. Aug 16, 1995)

The court orders a district court to reassess penalties assessed under the Resource Conservation and Recovery Act (RCRA) against a housewares manufacturer for violating financial responsibility regulations and a U.S. Environmental Protection Agency (EPA) consent order relating to the closure of the manufacturer's Massillon, Ohio, facility. The consent order required the manufacturer to submit a closure plan for the facility and to comply with the financial responsibility requirements of 40 C.F.R. §265.140-151. Three years after EPA and the manufacturer entered into the order, the manufacturer's parent corporation submitted to the state of Ohio, which has an EPA-authorized hazardous waste program, a $1.5 million letter of credit, which substantially complied with the applicable financial assurance requirements for closure and postclosure care. Two years later, the manufacturer completed correction of defects in the letter of credit. That same year, the manufacturer submitted to the state its parent corporation's guarantee to satisfy the manufacturer's financial responsibility obligation for third-party liability; it corrected defects in the guarantee one year later. Before the manufacturer had finally abated its violations, the United States sued it for violating the financial responsibility regulations and the consent order. The court first rejects the manufacturer's argument that RCRA's loss of interim status (LOIS) provisions excuse it from complying with §265.147's financial responsibility requirements for third-party claims. None of the cases the manufacturer cites directly confronts the issue whether an owner/operator must satisfy those requirements until certification of final closure, and the approach the cases suggest would reward owners/operators that flouted the interim status and LOIS requirements. The court next rejects the manufacturer's argument that the consent order did not include an obligation to demonstrate financial responsibility for third-party claims as set forth in §265.147. The consent order required the manufacturer to comply with the "financial responsibility requirements" pursuant to 40 C.F.R. §§265.140-151, and the obligation set forth in §265.147 is, by its own terminology, a "financial responsibility" requirement.

The court rejects the manufacturer's contention that because its parent had the financial resources to close the facility and satisfy third-party claims and ultimately provided the necessary documentation, the district court's $1,000 per day penalty was excessive. The court, however, holds that the penalty was excessive because the district court gave too little weight to the fact that the manufacturer substantially complied with its closure, postclosure care, and third-party claims obligations when it submitted its parent's letter of credit and guarantee. The record does not reflect that the defects in the letter of credit and the guarantee impaired the availability of the funds. The principal purpose of the regulations was fulfilled, and the manufacturer should not be required to pay the same amount in penalties for the period following its substantial compliance as it must pay for the period when it was in complete default. The court holds that the district court did not abuse its discretion in assessing the manufacturer's remaining mitigation claims. The court rejects the manufactuer's argument that the district court erred by failing to refer to the parent's costs when the district court calculated the amounts the manufacturer saved through noncompliance. The manufacturer, not its parent, was bound by the regulations and the consent order. The court finds that the record contradicts the manufacturer's claim that its delay in complying with the financial responsibility obligations was based on its good-faith reliance on the advice and interpretations of governmental officials. State officials repeatedly and unequivocally informed the manufacturer that it was obligated to comply with the financial responsibility requirements. The court also rejects the manufacturer's argument that the penalty the district court imposed exceeds the amount necessary to deter it from future violations. The district court properly considered the deterence effect not just on the manufacturer, but on the regulated community as a whole. Finally, the court holds that the district court did not impose a penalty disproportionate to other RCRA penalties. The financial responsibility regulations are not mere paperwork requirements. A violation of these regulations may significantly impair the ability to close and remediate a site when needed and to protect third parties from harm.

[The district court's opinion is published at 24 ELR 21560. Briefs in this litigation are digested at ELR Pend. Lit. 66376.]

Counsel for Plaintiff
J. Carol Williams
Environment and Natural Resources Division
U.S. Department of Justice, Washington DC 20530
(202) 514-2000

Counsel for Defendant
John P. Dean
Willkie, Farr & Gallagher
Three Lafayette Ctr.
1155 21st St. NW, 6th Fl., Washington DC 20036
(202) 328-8000

Before: MARTIN and JONES, Circuit Judges; JOINER, District Judge