Fourth Quarter 2007
Penalties Are Not Just a Cost of Doing Business
Holland & Knight Newsletter
Penalties are not just a cost of doing business: that’s the message Florida Department of Environmental Protection (DEP) Secretary Michael Sole hopes to convey with the strengthened penalty guidelines DEP issued on July 17, 2007. The new penalty guidance policy applies to all program areas except Beaches and Coastal Systems and State Lands. Various program areas have specific penalty policies. These policies are meant to be used in conjunction with the new guidance for penalty assessments which exceed $10,000 or involve programs not covered by the Environmental Litigation Reform Act (ELRA), such as violations of the Resource Conservation and Recovery Act (RCRA).
Penalties which are covered by the ELRA are limited to $10,000 per day. However, penalties which are not covered by the ELRA may exceed $10,000, subject to application of the new penalty guidance. In deciding whether to proceed with a judicial assessment of penalties rather than mere administrative penalties, DEP must consider (1) whether enforcement eliminates any economic benefit gained by the violator, and (2) whether enforcement provides enough of a financial disincentive to discourage future violations by the violator, making it an example to others.
The key factors in determining the penalty are (1) risk of harm, and (2) extent of deviation by the violator from the regulatory requirement. These factors are categorized as major, moderate or minor, to develop the basic matrix of penalties. Multi-day and multiple penalties should be considered for independent and substantially distinguishable violations, particularly where a daily advantage is being gained by the violator for an ongoing violation. If the multi-day violation is significantly detrimental to the environment, the matrix amount should be calculated for up to 30 days of non-compliance and may be calculated at the matrix amount beyond the 30 days, based on the judgment of DEP.
Mitigating factors can cause the penalty to increase or decrease, depending on the circumstances. Economic benefit to the violator is an important aspect of the new policy and must be added to the penalty in “all civil penalty calculations” for non-ELRA cases. This is DEP’s mechanism for ensuring future compliance by eliminating as much of the economic benefits as allowed by statute. Where calculation of the ability to pay and the economic benefit components is difficult and significant, the Office of General Counsel may use EPA’s computer models.
Penalties may be adjusted down for good faith efforts of a violator to comply with the regulation prior to or after the discovery of the violation by DEP, an inability to pay, and other unique factors within the discretion of the District. Penalties may be adjusted up for lack of good faith prior to or after the discovery of the violation by DEP, a history of non-compliance within a five-year period, the economic benefit of non-compliance, the ability to pay and other unique factors within DEP’s discretion. Although not stated in the policy, it stands to reason that the lack of an economic benefit could justify a downward adjustment to the penalty.
DEP may also consider alternative ways for a violator to pay a penalty, such as with in-kind penalty projects, which must be one and one-half times the amount of the penalty if it had been paid in cash. Such projects can include capital or facility improvements, transfer of property to DEP, environmental education projects or support for environmental enhancement or restoration projects. Similarly, enforcement staff may consider offsetting civil penalties up to 100 percent on a dollar-for-dollar basis with pollution prevention projects such as source reduction, waste minimization or on-site recycling.
In the rationale for this new policy, Secretary Sole cited a need to “provide a stronger deterrent for the most egregious violations” – apparently, 10 percent of enforcement actions. It remains to be seen if this policy will have the intended effect on DEP’s enforcement initiatives.
Penalties which are covered by the ELRA are limited to $10,000 per day. However, penalties which are not covered by the ELRA may exceed $10,000, subject to application of the new penalty guidance. In deciding whether to proceed with a judicial assessment of penalties rather than mere administrative penalties, DEP must consider (1) whether enforcement eliminates any economic benefit gained by the violator, and (2) whether enforcement provides enough of a financial disincentive to discourage future violations by the violator, making it an example to others.
The key factors in determining the penalty are (1) risk of harm, and (2) extent of deviation by the violator from the regulatory requirement. These factors are categorized as major, moderate or minor, to develop the basic matrix of penalties. Multi-day and multiple penalties should be considered for independent and substantially distinguishable violations, particularly where a daily advantage is being gained by the violator for an ongoing violation. If the multi-day violation is significantly detrimental to the environment, the matrix amount should be calculated for up to 30 days of non-compliance and may be calculated at the matrix amount beyond the 30 days, based on the judgment of DEP.
Mitigating factors can cause the penalty to increase or decrease, depending on the circumstances. Economic benefit to the violator is an important aspect of the new policy and must be added to the penalty in “all civil penalty calculations” for non-ELRA cases. This is DEP’s mechanism for ensuring future compliance by eliminating as much of the economic benefits as allowed by statute. Where calculation of the ability to pay and the economic benefit components is difficult and significant, the Office of General Counsel may use EPA’s computer models.
Penalties may be adjusted down for good faith efforts of a violator to comply with the regulation prior to or after the discovery of the violation by DEP, an inability to pay, and other unique factors within the discretion of the District. Penalties may be adjusted up for lack of good faith prior to or after the discovery of the violation by DEP, a history of non-compliance within a five-year period, the economic benefit of non-compliance, the ability to pay and other unique factors within DEP’s discretion. Although not stated in the policy, it stands to reason that the lack of an economic benefit could justify a downward adjustment to the penalty.
DEP may also consider alternative ways for a violator to pay a penalty, such as with in-kind penalty projects, which must be one and one-half times the amount of the penalty if it had been paid in cash. Such projects can include capital or facility improvements, transfer of property to DEP, environmental education projects or support for environmental enhancement or restoration projects. Similarly, enforcement staff may consider offsetting civil penalties up to 100 percent on a dollar-for-dollar basis with pollution prevention projects such as source reduction, waste minimization or on-site recycling.
In the rationale for this new policy, Secretary Sole cited a need to “provide a stronger deterrent for the most egregious violations” – apparently, 10 percent of enforcement actions. It remains to be seen if this policy will have the intended effect on DEP’s enforcement initiatives.