United States
Environmental Protection
0«.ce of
Solid Waste and
Emergency Response
&EPA
DIRECTIVE NUMBER: 9835.2b
TITLE: Guidance on the use of Stipulated Penalties
in Hazardous Waste Consent Decrees
? 2 1
SEP 2 1
APPROVAL DATE:
EFFECTIVE DATE:
ORIGINATING OFFICE: OECM
D FINAL
D DRAFT
LEVEL OF DRAFT
GO A — Signed by AA or DAA
D 8 — Signed by Office Director
DC — Review & Comment
REFERENCE (other documents):
SWER OSWER OSWER
DIRECTIVE DIRECTIVE Dl
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rotecflon Agency
Washington. DC 20480
OSWER Directive initiation Request
1. Directive Numbe
9835.2b
2. Originator Information
Nam* of Conttet Person
Thomas Adams
Mail Cod*
LE 134
Offiet
OECM
Telephone Code
382-3050
Guidance on the use of Stipulated Penalties in Hazardous Waste Consent Decre-es
4 Summary of Directive (include bnef statement of purpose)
This Guidance addresses the use of stipulated penalties in civil judicial
settlements under CERCLA and RCRA Section 7003
S. Keywords
Hazardous Waste
iazardous
. Don This 0«r
i nis uwecuve auperseae rrevwus utrecuve(S) r
b. Does tt Supplement Previous Directive^)?
I x [ No Yes What directive (number, title)
No
Yes What directive (number. We) 9835.2
Guidance on Drafting Consent Decrees in Hazardous Waste Cases 5/1/85
n
iraft Level
A-SignedbyAA/OAA
B - Signed by Office Director
C - For Review & Comment
0 - In Development
8. Document to b« distributed to States by Headquarters? I IYM I IN°
This Requeat Meeta OSWEH Directive* System Format Standards.
9. Sgnature of Lead Office Directives Coordinator
llxl 77
10. Name and Title of Approving Official
Date
EPA Form 1315-17 (Rev. 5-«7) Previous editions are obsolete.
OSWER OSWER OSWER O
VE DIRECTIVE DIRECTIVE DIRECTIVE
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3 UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
- WASHINGTON. D.C. 20460
SEP 2 I IS87
Office 0»
ENfOMCEMCMT AMD
MEMORANDUM
SUBJECT: Guidance on the Use of Stipulated Penalties in Hazardous
Waste Consent Decrees
FROM: Thomas L. Adams, Jr. \V^>(I> V,
Assistant Administrator""*"^
TO: Regional Administrators, Regions I-X
Regional Counsels, Regions I-X
Waste Management Division Directors, Regions I-X
I have attached the final guidance addressing the use of
stipulated penalties in civil judicial settlements under CERCLA
and RCRA Section 7003. This document reflects comments which were
received from the Office of Waste Programs Enforcement (OWPE), the
Department of Justice (DOJ), and various Regional offices.
This guidance does not apply to administrative orders, such
as RI/FS orders. In addition, to complement this guidance, the
Agency is considering additional guidance to provide positive
incentives for defendants to expedite completion of work under
consent decrees.
i
I appreciate your assistance in the preparation of this
guidance.
Attachment
•
cc: J..Bftton Porter, Assistant Administrator for Solid Waste
ergency Response
Lucero, Director, Office of Waste Programs Enforcement
Roger J. Marzulla, Acting Assistant Attorney General, Land
and Natural Resources Division, Department of Justice
David T. Buente, Chief, Environmental Enforcement Section,
U.S. Department of Justice
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GUIDANCE ON THE USE OF STIPULATED PENALTIES
IN
HAZARDOUS WASTE CONSENT DECREES
SEP 2 I 1987
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
Office of Enforcement and Compliance Monitoring
1987
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TABLE OF CONTENTS
Guidance on the Use of Stipulated Penalties
in Hazardous Waste Consent Decrees
Page
I. INTRODUCTION 1
II. GUIDANCE 2
A. Use of Stipulated Penalties
1. General Rule 2
2. When Penalties May Be Excused
or Delayed 4
a. Force Majcure Brvnt 4
b. Dispute Resolution Period 5
c. Period of Correction by
Defendant 6
d. Missed Interim Deadlines 6
e. Grace Period 6
B. Amount of Stipulated Penalties
1. General Rule 7
2. Escalating Penalty 8
3. Sharing Penalties with the State 9
C. Collection of Stipulated Penalties
1. General Rule . 9
2. Procedure for Collecting Penalties 10
3. Payment of Penalties 10
D. Use of Other Remedies 11
E. Purpose and Use of this Guidance 12
APPENDIX - Model Stipulated Penalties Provisions
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I. INTRODUCTION
This document provides guidance on the use of stipulated
penalties in hazardous waste judicial consent decrees. Stipulated
penalties are fixed sums of money that a defendant agrees to pay
for violating the terms of a decree. Such penalties are an
effective enforcement tool for encouraging compliance with a
consent decree.
This guidance applies to consent decrees under the
Comprehensive Environmental Response, Compensation, and Liability
Act of 1980 (CERCLA), 42 U.S.C. S 9601 et £e£., as amended, and- .
Section 7003 of the Resource Conservation and Recovery Act of
1976 (RCRA), 42 U.S.C. S 6973, supplements existing guidance^/
issued by the United States Environmental Protection Agency (EPA),
and incorporates recent Agency experiences in negotiating and
overseeing consent decrees. The Agency strongly encourages the
use of stipulated penalty provisions in consent decrees. It also
supports the use of contempt penalties, statutory penalties and
injunctive relief as additional sanctions for the violation of
consent decrees. *
1 / See "Drafting Consent Decrees in Hazardous Waste Imminent
"Hazard Cases" (Office of Enforcement and Compliance Monitoring
(OECM) , Office of Solid Waste and Emergency Response (OSWER),
May 1, 1985), "Guidance for Drafting Judicial Consent Decrees"
(OECM, October 19, 1983), "Division of Penalties with State and
Local Governments" (OECM, October 30, 1985), "Remittance of Fines
and Civil Penalties" (OECM, April 15, 1985) and the Superfund
Amendments and Reauthorization Act of 1986.
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While Che concept of stipulated penalties also has rele-
vance for administrative orders, distinctions between such
orders and consent decrees may necessitate some differences in
precise application. Guidance on use of stipulated penalties
in administrative orders will be provided separately.
II. GUIDANCE
A. Use of Stipulated Penalties
1. General Rule
In the past, it has been OECM policy to include stipulated
penalties in most consent decrees. See "Guidance for Drafting
Judicial Consent Decrees" ac 22. Moreover, the Superfund
Amendments and Reauthorization Act of 1986 (SARA) requires that
consent decrees which provide for remedial action^/ contain
stipulated penalties. Section 121(e)(2) of SARA provides that:
...Each consent decree shall also contain stipulated
penalties for violations of the decree in an amount
not to exceed $25,000 per day, which may be enforced
by either the President or the State. Such stipulated
penalties shall not be construed to impair or affect
the authority of the court to order compliance with
Che specific terms of any such dvecree. (Emphasis added).
However, .flfeion 121 does not explicitly require chac every
•^.^K.7 **
requirev^KjM? * consent decree have a stipulated penalty
attached to- it.
2/ Although Seccion 121 deals with "remedial" accions, it is
~" recommended chac stipulated penalties be included in consent
decrees for removals as well.
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Section 122(1) also permits additional penalty sanctions
for violations of the requirements of a consent decree. Sec-
tion 122(1) of SARA provides as follows:
(1) CIVIL PENALTIES - A potentially responsible
party which is a party to an administrative
order or consent decree entered pursuant to an
agreement under this section or section 120
(relating to Federal facilities) or which is
a party to an agreement under section 120
and which fails or refuses to comply with
any tern or condition of the order, decree
or other agreement shall be subject to a
civil penalty in accordance with section 109.
Thus, in the context of a CERCLA consent decree with mandated
stipulated penalties, both the stipulated penalties contained
in the consent decree and the Section 122(1) penalties may be
assessed for violations of the terms of the decree. However,
in limited circumstances, where the stipulated daily penalty
amounts are sufficiently high to effectively deter noncompliance
with the decree, the Agency may consider waiving Section 122(1)
penalties. Such penalties nonetheless may be sought for any
violations to which no stipulated penalty attaches.
St40Bfccd penalties are seldom applicable to noncompli-
**>:
ance vi^Mlgfy requirement of a decree. Most often they are
applicabfe^td compliance schedules, performance standards, and
reporting requirements. The types of violations for which
stipulated penalties should be required will necessarily depend
on the value the Agency places on the activity to be performed
and the importance of timely performance.
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Even consent decrees which primarily involve a "cash out"
(i.e., where the defendant pays a fixed sum of money to absolve
himself of his remedial obligations) warrant the inclusion
of stipulated penalties. For example, if a defendant agrees to
pay his cash out share in installments, stipulated penalties
should be used to penalize late payments. If a case arises in
which the defendant must perform certain tasks in addition to
cashing out (such as providing site access or security), stipu-
lated penalties should be imposed to ensure that the defendant
performs those tasks.
2. When Penalties May Be Excused Or Delayed
Usually stipulated penalties should begin to accrue after
the date on which complete performance of a particular task is
due. Stipulated penalties will not necessarily accrue, or the
accrual of such penalties may be stayed or waived, however,
during designated periods or by the occurrence of certain
events.
«
a. Fyce Majeure Event^/
•v-
On* ifcpcbe most common reasons for the noncollection of
stipulated!penalties is the occurrence of a force majeure
event. A force majeure event is one which is beyond the control
of the defendant and provides the defendant with an affirmative
2/ Model force majeure language is forthcoming as an appendix
~~ hereto.
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defense to a charge of noncompliance. Since penalties do not
accrue during this period, the definition of a force majeure
event should be narrowly drawn and the burden placed on the
defendant to show that a force majeure event has occurred. In
any event/ neither increased costs nor financial difficulty
should constitute a force majeure event.
b. Dispute Resolution Period
To avoid creating incentives to dispute consent decree
obligations, stipulated penalties generally should accrue for
any nonperformance occurring during the period of dispute.
However, for limited types of disputes, EPA may agree to waive
the accrual of penalties during the dispute resolution period.
For example, consent decrees often permit the Agency to require
that additional work be performed beyond that specifically
provided for in the work plan. Where the defendants become
aware of substantial "mid-course corrections" after the decree
is signed, it may be appropriate to forego stipulated penalties
«
during any legitimate dispute related to the additional work
sought by EPA. f
Stipulated penalties will not be collected if the defendant
wins the dispute. In addition, in appropriate circumstances
the Agency may use its discretion not to collect stipulated
penalties, in whole or in part, which have accrued during the
dispute resolution period.
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c. Period of Correction by Defendant
A stipulated penalties provision may indicate that penalties
will accrue until the violation is corrected by the defendant.
To minimize uncertainties and foster timely and full compliance,
such a statement should specify that penalties will accrue
through the last day of correction, as determined by the Agency,
rather than cease to accrue on the day the defendant begins to
correct the violation.
d. Missed Interim Deadlines
Some decrees provide that penalties for interim deadline
violations will not be sought if the defendant meets the final
completion date. Since in many instances the final deadline is
the most important, the penalties for violations of interim
milestones may be waived in some cases. It should be clear to
the defendant, however, that if the final deadline is missed,
the penalties for interim deadline violations will be sought in
addition to those which would accrue^ after the .final deadline.
The "Guidance for Drafting Judicial Consent Decrees" notes that
interim diiadline penalties may be*collected up front and placed
--j-
into an escrow account, to be returned to the defendant in the
event the final compliance deadline is met. Id. at 24.
e. Grace Period
Some prior decrees provided for a fixed period immediately
following notification of a violation in which the defendant
was given the opportunity to explain his noncompliance and/or
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correct ic and during which stipulated penalties would not
Accrue. The length of such grace periods has ranged from 3 to
30 days. However, by requiring that every consent decree
contain stipulated penalties, Congress has endorsed a strong
preference for strict compliance with the terns of a decree.
While the Agency does not endorse the use of grace periods, if
a violation is expeditiously resolved the Agency may use its
discretion not to seek stipulated penalties.
B. Amount of Stipulated Penalties
1. General Rule
Since stipulated penalties are intended to ensure compliance,
they should be sufficient to provide economic incentives to the
defendant to comply with the terms of the consent decree in a
timely fashion. The penalty should not be set so low that the
defendant would prefer to pay the penalty rather than perform
the required activity.^/ Therefore, stipulated penalties should
generally be set at a level designed to exceed the amount of
the estimated savings due to delay. In setting the amount, the
Agency should also take into consideration the gravity of the
violation and the degree of harnf or danger to the public or
environment which might result from the violation.
^ Actual performance is required regardless of the payment
"" of penalties. The Agency reserves the right to seek injunc-
tive relief, modify the decree, or seek other remedies in such
instances.
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Each stipulated penalties provision should state a fixed
amount per day Co be imposed. This "sum certain" puts the
defendant on notice of the potential extent of his obligation
before a violation occurs.£/ The "undetermined amount" approach
(i.e., "defendant shall pay ug £o $5000/day") should not be used
since it makes the amount of the penalty subject to further
resolution. The "undetermined amount" may destroy the economy
of using stipulated penalties since the parties must then
resolve the ultimate amount.
2. Escalating Penalty
Consent decrees should provide that the per diem amount of
the penalty will increase with incremental increases in the
period of noncompliance. For example, a fixed penalty of
$5,000 per day might increase to $10,000 per day after the 15th
day of noncompliance, and $15,000 per day after the 30th day.
Escalating penalties will give the defendant added incentive to
come into compliance, and it is recommended that they be used
as a general rule.
£/ To the extent chat EPA reserves Ics righcs Co seek penal-
cies under SARA § 109 or civil concempc orders, however,
che "sum certain" argument is really only an indication of
Che minimum amount for which a consenc decree violacor may
be liable.
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3. Sharing Penalties with the
Generally, civil penalties may be shared with a State if
the State has actively participated in the litigation, actively
sought such penalties, and State law provides independent
authority for the State to seek civil penalties.?/ In addition,
[tjhe penalties should be divided in a proposed
consent decree based on the level of partici-
pation and the penalty assessment authority of
Che state or locality. ... [T]he division should
reflect a fair apportionment based on the tech-
nical and legal contributions of the partici-
pants, within the limits of each participant's
statutory entitlement to penalties.
"Division of Penalties with State and Local Governments" at 3.
Any agreement to share penalties with a State must be described
in the consent decree. "Division of Penalties with State and
Local Governments" at 2.
C. Collection of Stipulated Penalties
1. General Rule
Since Agency policy encourages aggressive post-settlement
enforcement, it is essential to the integrity of the enforce-
ment program that stipulated penalties be collected. Every
£/ Note that Section 121(e)(2) of SARA gives States the author-
ity to enforce the stipulated penalties section of crnsenc
decrees.
1J Penalty division is a matter for discussion only between
"". the governmental parties, and it is inappropriate for the
defendant to participate in such discussions. "Division of
Penalties with State and Local Governments" (OECM, October 30,
1985) at 3.
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effort shall be made to collect stipulated penalties both to
deter future noncotnpliance by defendants and to maintain the
Agency's enforcement credibility. The Agency thus will not
hesitate to initiate judicial actions to enforce the stipulated
penalties provision of consent decrees.
2. Procedure for Collecting Penalties
Forfeiture is the best method of collecting penalties and
should be provided for in the decree. Under this procedure,
upon notice of a violation^/ the defendant will have a stated
number of days to pay the penalty or to move the issue into
dispute resolution.
Consent decrees should not contain a limitations period
for demanding stipulated penalties which results in the waiver
of penalties that are not demanded within a specified period of
time.
3. Payment of Penalties
The stipulated penalties section should indicate to whom
monies are payable. This is particularly important for actions
brought under CERCLA, since the "Superfund" is partially replen-
ished by aonies paid under that statute. Although monies
collected pursuant to RCRA generally are paid to the "Treasurer
of the United States," stipulated penalties collected pursuant
£/ Penalties should begin to accrue on the day on which the vio-
"~ lation actually occurs and not when the Agency later discovers
it or gives notice to the defendant.
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Co CERCLA violacions are Co be made payable Co Che "Hazardous
Subscances Superfund."£/ All penalcies should be paid by cercifted
check, concain Che complece address of Che defendanc, include
the site identification number if there is one, and reference
the case name and civil action number.
D. Use of Other Remedies
Colleccion of stipulated penalcies is not the sole remedy
for violacions of a decree. There may be times when the Agency
will seek addicional remedies, such as Che court's equicable
contempt powers or the collection of additional penalties under
SARA or other applicable authorities. See, e.g. , SARA § 109.
Thus, to preserve the Agency's rights, each section on stipulated
penalties should state that these penalties are "in addition to,
and not in lieu of" the Agency's right to other sanctions for
violations of the decree.!0/
9/ This is supported by "the guidance memorandum on "Remittance
~ of Finea and Civil Penalties" (OECM, April 15, 1985) which
indicate*.,that "all Superfund billings" should go into a lock-
box bank specifically designated'"for Superfund monies. In
addition, aince Section 107(c)(3) of CERCLA directs that puni-
tive damages go into the Superfund, our view is that CERCLA
stipulated penalties should be deposited chere as well.
The address for the CERCLA lockbox is:
EPA - Superfund
P.O. Box 371003M
Pittsburgh, PA 15251
IP/ Subject, of course, to any waiver of Section 122(1) penal-
ties (see. discussion at p. 3).
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E. Purpose and Use «of This Guidance
This guidance and any internal procedures adopted for ics
implementation are intended solely as guidance for employees
of Che United States Environmental Protection Agency. They
do not constitute rul etna king by the Agency and may not be
relied upon to create a right or a benefit, substantive or
procedural, enforceable at law or in equity, by any person.
The Agency may take action at variance with this guidance or
its internal implementing procedures.
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APPENDIX
MODEL STIPULATED PENALTIES PROVISIONS11/
. STIPULATED PENALTIES
1 . Defendant shall pay stipulated penalties in Che amounts
sec forth in paragraph 9 to the United States [and/or the State
of ] for failure to comply with [sections of] this
Consent Decree, unless excused under paragraph ("Force
Majeure"). Compliance by Defendant shall include completion of
an activity under this decree or a plan approved under this
decree or any matter under this decree in an acceptable manner
and within the specified time schedules in and approved under
this Decree. [If Defendant fails to meet [specified] interim
deadlines, but meets the final completion date for the work to
be performed herein, the penalties for missed interim deadlines
are excused]. Any modifications of the time for performance
pursuant to section ("Modifications") shall be in writing.
2. All penalties begin to accrue on the day that complete
performance is due or a violation occurs, and continue to
accrue through the final day of correction of the noncompliance.
Nothing herein shall prevent the simultaneous accrual of sep-
arate penalties for separate violations of this Decree.
3. Following Plaintiff's determination that Defendant has
failed to comply with the requirements of this Decree, Plain-
tiff shall give Defendant written notification of the same and
describe the noncompliance. Said notice shall also indicate
the amount of penalties due.•
4. All penalties owed to the United States [or State]
under this section shall be payable within 30 days of receipt
of the notification of noncompliance, unless defendant invokes
the dispute resolution procedures ubder section . Penalties
shall accrue from the date of violation regardless of whether
EPA [or ch* State] has notified Defendant of a violation.
Interest ftfatll begin to accrue on* the unpaid balance at the end
of the 30-
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A-2
checks shall be nailed to [che appropriate Federal lockbox bank
or Scace postal address].
5. Neither the filing of a petition to resolve a dispute
nor che payment of penalties shall alter in any way Defendant's
obligation to complete the performance required hereunder.
6. Defendant may dispute Plaintiff's right to the stated
amount of penalties by invoking the dispute resolution procedures
under section herein. [Penalties shall accrue but need not
be paid during the dispute resolution period. If the District
Court becomes involved in the resolution of the dispute, the
period of dispute shall end upon the rendering of a decision by
the District Court regardless of whether any party appeals such
decision]. If Defendant does not prevail upon resolution,
Plaintiff has the right to collect all penalties which accrued
prior to and during the period of dispute. [In the event of an
appeal, such penalties shall be placed into an escrow account
until a decision has been rendered by the final court of appeal'].
If Defendant prevails upon resolution, no penalties shall be
payable.
7. No penalties shall accrue for violations of this
Decree caused by events beyond the control of Defendant as
identified in Section herein ("Force Majeure)"]1 2/. Defen-
dant has the burden of proving force majeure or corapTiance with
this Decree.
8. If Defendant fails to pay stipulated penalties,
Plaintiff may institute proceedings to .collect the penalties-.
However, nothing in this section shall be construed as prohib-
iting, altering, or in any way limiting the ability of Plaintiff
to seek any other remedies or sanctions available by virtue of
Defendant's violation of this Decree or of the statutes and
regulations upon which it is based.
9. The following stipulated penalties shall be payable
per violation per day to che United States [and/or State] for
any nonconpliance identified in Subparagraph 1 above13/;
1£/ With che exception of stipulated penalties clauses in
~~ consent decrees providing solely for cash payments, most
decrees will include force majeure clauses.
13/ Please note chac che penalcy amouncs sec ouc above are only
examples, and che amouncs may vary wich each individual
case.
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A-3
[ Amount/Day Period of Noncompliance
$ 5,000 1st thru 14th day
$10,000 15th thru 30th day
$15,000 31st day and beyond ]
10. No payments made under this section shall be tax deduc-
tible.
11. This section shall remain in full force and effect for
the term of this Decree.
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