A recent federal court decision discusses the factors to be
considered in determining civil penalties under the Clean Water Act for alleged
National Pollution Discharge Elimination System (NPDES) permit violations.
United States v. Allegheny Ludlum Corporation, 187 F. Supp. 2d 426 (W.D. Pa.
2002). Although the case involved an industrial firm defendant, the
court’s analysis may be instructive for utility wastewater systems.
The United States sued a steel manufacturer, seeking civil
penalties for alleged NPDES permit and Clean Water Act violations regarding
several wastewater treatment plants. After a jury trial, the defendant was
found liable for 1,122 days of violations. However, for penalty purposes, the
court added an additional 990 days of violations covered by prior consent
The court stated that the assessment of penalties is
governed by 33 U.S.C. § 1319(d), which provides for a maximum civil
penalty of $25,000 per day. However, this provision also states that in
assessing a penalty, the court shall consider
seriousness of the violations,
economic benefit resulting from the violations,
history of violations,
good faith efforts to comply with applicable requirements,
economic impact of the penalty on the violator, and
other matters as justice may require.
The court found that the seriousness of violations could be
determined by the number of violations, the amount that discharges exceeded
permit limits and the toxicity of the pollutants discharged or environmental
harm. The court found that there were 893 days of violation of toxic pollutant
limits, which it said impose a greater threat to human life than conventional
pollutants. The court also found that permit limits were exceeded by at least
1,000 percent for 180 days.
The court acknowledged that there was no actual harm from
the discharges. However, it held that a court may impose a significant penalty
if it finds that there is a risk or potential risk of environmental harm,
regardless of evidence of actual harm. Thus, it said, a showing of actual harm
is not necessary.
The court also considered the history of violations and good
faith efforts to achieve compliance. It found that the violations complained of
spanned 1990–1997 and that the history of violations extended back to the
1980s. The court also found that upgrades to the treatment plants were delayed
and improvements to facilities were made only after enforcement increased.
“The evidence shows that defendant’s violations of the Clean Water
Act continued until defendant decided to stop them. . . . The court can only
conclude that the violations continued because defendant did not consider
compliance with the Act a priority.” Id. at 436.
The court then addressed the issue of economic benefit.
“A critical component of any penalty is the economic benefit enjoyed by a
permittee as a result of violating the law.” Id. It noted that economic
benefit may not be easily computed. However, it concluded, the law
“establishes that a plaintiff may make a reasonable approximation of
economic benefit to the violator, without elaborate or comprehensive proof, to
successfully meet its burden. A court may exercise its discretion under the Act
in accepting proof that is imprecise and approximate at best.” Id. at 437.
The court’s analysis concluded that defendant obtained
an economic benefit by avoiding expenditures for adequate wastewater treatment
staff, delaying upgrade of one of the treatment plants and delaying a number of
capital projects at its facilities.
For the discount rate, the court used the weighted average
cost of capital. It cited the testimony of the government’s economic
witness who said this approach “represents the rate of return a company
must earn annually to continue to attract its current investors and maintain
its current levels of operations. It is a rate which is commonly used by
companies in making capital budgeting decisions.” Id. at 440–441.
The court concluded that the defendant obtained an economic
benefit of $4,122,335. The court then imposed a penalty of $8,244,670. It
stated that it doubled the economic benefit so as to provide a deterrence
factor. “The Clean Water Act’s penalty provision is aimed at
deterrence with respect to both defendant’s future conduct and the
general population regulated by the Act. . . . To achieve the goal of
deterrence, an appropriate penalty must encompass both the economic benefit
that the defendant obtained through its non-compliance and an additional
punitive component that takes into account the penalty factors listed in
Section 1319(d). Without the second component, those regulated by the Clean
Water Act would have nothing to lose by violating it.” Id. at 444.
The court acknowledged that the defendant ultimately
achieved compliance. However, it said that defendant should have done so years
ago, not in response to steadily increasing enforcement actions. It said that
“the factors of history of violations and good faith efforts to comply
warrant a significant upward adjustment of the penalty.” Id. at 446.
The court found that the penalty would have no adverse
impact on the defendant because the penalty was small compared with its book
value, sales and net income. It reviewed the financial strength of defendant
and its parent company, finding that defendant “can afford to pay an $8.2
million penalty.” Id. at 442.