Going Up: Civil and Administrative Penalties Under Federal Environmental Laws
When advising clients on compliance issues, one of the most common questions is “what is our exposure?” The answer to this question changes over time because the civil penalty amounts authorized under Federal environmental statutes are subject to annual inflation adjustments. The United States EPA published its most recent penalty inflation adjustment rule on January 10, 2018 (link here), making this a good time to revisit penalty amounts.
The annual inflation adjustment applies only to “civil monetary penalties” under the statues EPA administers, and includes administrative penalties assessed in administrative proceedings by EPA and civil penalties assessed in civil proceedings, which are lawsuits in Federal courts. The inflation adjustment rule does not apply to penalties assessed by state agencies, even if those agencies are implementing a Federally-delegated program. State agency penalty amounts are governed by state laws and regulations. The inflation adjustment rule also does not include criminal fines; those amounts remain unchanged. Consequently, in some circumstances the maximum civil penalty could exceed the amount of a maximum criminal penalty. For example, under the criminal penalty provision of the Clean Water Act, the punishment for a non-repeat criminal violation is a maximum of $25,000 per violation per day. If the same violation is enforced as a civil penalty, the maximum penalty, after the latest inflation adjustment, is $53,484 per violation per day. Of course, a party subject to criminal enforcement is often more concerned with potential imprisonment rather than the amount of a fine. Nonetheless, the potential for a greater maximum civil penalty than criminal fine is counterintuitive.
Another confusing aspect of civil penalty amounts is that due to the history of the inflation rule and the timing of the enactment of the various provisions of environmental statutes, one cannot draw general conclusions about penalty amounts. For instance, under RCRA the statutory $25,000 civil penalty is $72,718 after the inflation adjustment. Under the Clean Air Act, the statutory $25,000 civil penalty is $97,229. While under CERCLA and EPCRA, the $25,000 statutory civil penalty is $55,907. Even within the same statute, a $25,000 civil penalty in one provision may differ from a $25,000 civil penalty in another provision after inflation adjustment. So, how does one make sense of a penalty table with what appears to be a bunch of random numbers?
The first thing to understand is that the civil penalty maximums are just that – maximums. EPA has the enforcement discretion to seek penalties that are less than the maximums. The individual circumstances of a potential enforcement matter will affect the final penalty, including the gravity of the violation, the economic benefit resulting from the violation, the size of the violator’s business, the violator’s compliance history, and corrective actions undertaken. EPA also has the authority to consider other matters “as justice may require” in seeking a penalty. But while the ultimate penalty amount is fact-dependent, there are key penalty maximums that drive how an enforcement case proceeds:
- Administrative penalty per-violation maximum. For statutes with administrative penalties, this the penalty amount that EPA may seek for each individual violation, typically calculated daily. In practice, we have found that the agency is often hesitant to agree to a settlement where the total penalty is significantly less than the single violation maximum, even for relatively minor violations. While this is not an absolute rule, a good assumption is that a negotiated administrative penalty will be at least the single violation maximum.
- Administrative penalty total maximum. This is the maximum penalty that may be assessed through an administrative order. From the EPA staff perspective, this amount (which after the latest inflation adjustment is $369,532 under the Clean Air Act and $267,415 under the Clean Water Act) is the largest penalty that the agency may assess without involving the US Department of Justice. For efficiency purposes, both the agency and the respondent have an incentive to keep a penalty amount under the administrative maximum. Thus, settlements at the administrative penalty maximum are common.
- Civil penalty per-violation maximum. In cases where enforcement administrative penalties are not available or where the agency decides to pursue civil penalties, the civil penalty maximums apply. Typically, these are statutory $25,000 per violation per day amounts adjusted upward through the inflation rule. An assessment of the potential violation and the number of violation days can often provide a range of potential penalties in the context of civil enforcement.
While the civil and administrative penalty maximums will inform an effective response strategy, one cannot over-emphasize the importance of individual circumstances and effective legal counsel. But understanding that (1) civil and administrative penalties for most Federal environmental statutes increase each year; (2) there is significant variability as to how the inflation adjustment affects different statutes and different provisions within statutes; and (3) there are key settlement breakpoints that are driven by penalty maximums – can help regulated entities assess exposure and develop an effective plan for responding to enforcement.