More on Enforcement: When is a Penalty Too Big?

While some of my colleagues are laboring in the climate change vineyards (and we should have posts soon summarizing the House bill), I thought I would note another interesting enforcement decision issued this week.  United States v. Oliver is, in some respects, a run of the mill decision.  A mom-and-pop medical waste incinerator (the adjective is the court’s not mine; it does give one pause) failed for several years to comply with EPA regulations governing such facilities.  EPA sought and obtained a permanent injunction ceasing facility operations until the defendants can demonstrate to the satisfaction of EPA and the court that it can comply with the applicable regulations.

The interesting part of the decision relates to the Court’s imposition of a penalty.  EPA took the position that the Court should presume that the maximum penalty should be imposed, citing Pound v. Airosol and United States v. B & W Inv. Properties. Doing so in this case would have generated a penalty of $220,080,000 before any mitigation were considered. That EPA itself only sought a penalty of $445,000 demonstrates the absurdity of even starting with the maximum penalty. The court, noting that the defendant had two employees and was poorly capitalized, stated that the size of the business argued for a penalty “far smaller” than what the government sought.

The court also considered, as a separate factor, the impact of the penalty on business operations. While previously noting that the defendants showed no real likelihood of being able to come into compliance, the court nonetheless noted that imposition of a large penalty would pretty much make it impossible for the defendants to operate in compliance with applicable regulations, and therefore concluded “that the penalty should be dramatically lower than the amount sought by the United States.”  The court imposed a $75,000 penalty.

I’m not sure I’d read too much into this decision, but it does give defendants a basis for arguing that courts should not start with the maximum statutory amount in determining an appropriate penalty.  It also puts the defendant’s ability to pay front and center in the penalty calculus.

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