Courts Must Determine The Economic Benefit Of Noncompliance In Assessing CWA Penalties

It is well-known that the “economic benefit of noncompliance” is one of the factors to be evaluated in setting penalties under the Clean Water Act.  Thus, it is not surprising that, after an oil spill at Citgo’s facility in Lake Charles, Louisiana, LakeCharlesHorizontalthe 5th Circuit Court of Appeals was unhappy when the District Court “did not quantify the economic gain to Citgo, finding it virtually impossible to do so given the evidence.”  The 5th Circuit directed the District Court to “consider its analysis of the [penalty] factors afresh after making a reasonable approximately of economic benefit.”

Determining the economic benefit of noncompliance can be difficult in these types of cases.  A court must create a hypothetical new history, determining what would have been sufficient to prevent the spill, as well as figuring out what those actions would have cost at the time.  However, it’s certainly no more difficult than many other decisions judges must make in the course of their days on the bench.  If there’s any lesson for practitioners here, it’s got to be to put on a clear and comprehensive case and make it as easy as possible for the judge to accept your analysis.

The more interesting part of the case may be that, on remand, the judge accepted EPA’s estimate of the economic benefit to Citgo of noncompliance — $91.7 million.  The District Court also concluded that Citgo had been grossly negligent, although it was pretty much told to do so by the 5th Circuit, which stated that:

In our view, though, almost winning a highly risky gamble with the environment does not much affect the egregiousness of having been gambling in the first place.

Nonetheless, notwithstanding an economic benefit of noncompliance $91.7 million and a finding of gross negligence, the Court imposed a penalty of $81 million.  In other words, based on the Court’s own findings, Citgo made an economically rational choice by not complying with the Clean Water Act.

It will be interesting to see what message the regulated community ultimately takes from the case.

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