Minimizing Civil Penalties for Wastewater Compliance Violations

by: Daniel Kucera

Penalties, whether civil or criminal, are a concern for both operators and investors in wastewater treatment facilities.

The Federal Clean Water Act contains a rather awesome civil penalty provision: "Any person who violates (specified sections of the Act) shall be subject to a civil penalty not to exceed $25,000 per day for each violation." 33 U.S.C. [GMT1]ยง _1319(d). The penalties are designed to punish violators for non-compliance and to achieve retribution. See Atlantic States Legal Foundation, Inc. v. Tyson Foods, Inc., 897 F.2d 1128 (11th Cir. 1990).

However, potentially tempering this maximum statutory penalty are the following statutory mitigation factors:

"In determining the amount of a civil penalty the court shall consider the seriousness of the violation or violations, the economic benefit (if any) resulting from the violation, any history of such violations, any good-faith efforts to comply with the applicable requirements, the economic impact of the penalty on the violator, and such other matters as justice may require." Id. at 1140.

A recent federal district court decision brings all of these civil penalty factors together in an interesting way. U.S. v. Avatar Holdings Inc., 43 ERC 1262 (M.D. Fla. 1996). An investor-owned public utility owned and operated three wastewater treatment plants accused of violating various NPDES (National Pollutant Discharge Elimination System) permit limits and other Clean Water Act requirements.

The court's calculation of the total statutory maximum civil penalty for the alleged violations was $53,300,000. However, the court ultimately determined a total civil penalty of only $309,710. How was this possible?

The court analyzed and applied each of the statutory mitigation factors to derive this substantially reduced civil penalty. In particular, it appears to have determined that most of the violations were not serious, noting that "a substantial reduction in the maximum statutory penalty is warranted where the violations caused minimum environmental damage." Id. at 1267. Lesser mitigation was found in the history of the violations: good faith efforts to comply; and economic impact of penalties on the utility.

On the latter point, the court found that the utility had substantial debt, a large capital improvement budget which would exhaust available lines of credit, and being regulated, simply could not raise rates to cover a penalty.

Of course, the threat of a substantial penalty and the risks of its assessment may be sufficient to induce many accused dischargers to negotiate and settle. The Avatar case shows one result of actual litigation of the penalty question.

An interesting sidebar issue in the case was whether the parent company of the public utility could be held liable for the civil penalties. The court stated that the standard for liability of parent companies under CERCLA (Comprehensive Environment Response and Liability Act) does not apply. That standard, according to the court, makes a parent company liable if it directly or pervasively controlled the subsidiary to the extent of actually involving itself in daily operations. Under the Clean Water Act, the court said, the standard is more strict: the parent company must direct or cause the violations by the subsidiary to be liable. Id. at 1274.

In this case, the court held that the parent company was not liable, finding that it did not make operational and compliance decisions that amounted to directing or causing the violations.

Dan Kucera is a partner with the Chicago law firm of Chapman and Cutler, specializing in public utilities, water and wastewater and environmental law. Tel: (312) 845-3757; Fax: (312) 701-2361; email: