U.S. ENVIRONMENTAL PROTECTION AGENCY
OFFICE OF INSPECTOR GENERAL
Catalyst for Improving the Environment
Public Liaison Report
A Region 5 Penalty Reduction
Was Unjustified and
Undocumented
Report No. 08-P-0291
September 29, 2008
-------
Report Contributors: Edward Baldinger
Larry Dare
Paul McKechnie
Abbreviations
ALJ Administrative Law Judge
EPA U.S. Environmental Protection Agency
MMF Minnesota Metal Finishing, Inc.
OIG Office of Inspector General
ORC Office of Regional Counsel
RCRA Resource Conservation and Recovery Act
WPTD Waste, Pesticides, and Toxics Division
-------
I
U.S. Environmental Protection Agency
Office of Inspector General
At a Glance
08-P-0291
September 29, 2008
Catalyst for Improving the Environment
Why We Did This Review
We conducted this review in
response to a complaint
alleging that the U.S.
Environmental Protection
Agency's (EPA's) Region 5
Regional Counsel arbitrarily
reduced a civil penalty against
Minnesota Metal Finishing,
Inc. (MMF), without
justification.
A Region 5 Penalty Reduction Was Unjustified
and Undocumented
Background
MMF is a plating and
anodizing company in
Minneapolis, Minnesota.
Based on a May 2001
inspection, EPA determined
that MMF was in
noncompliance with the
Resource Conservation and
Recovery Act (RCRA) and
designated it a significant
noncomplier. In August 2005,
the Region filed a complaint to
fine MMF $300,000 for its
noncompliance. After
negotiating with EPA, in April
2007 MMF agreed and signed a
settlement agreement to pay a
$110,000 civil penalty.
However, Regional Counsel
subsequently reduced the fine
to $85,000.
For further information,
contact our Office of
Congressional and Public
Liaison at (202) 566-2391.
To view the full report,
click on the following link:
www.epa.qov/oiq/reports/2008/
20080929-08-P-0291 .pdf
What We Found
EPA Region 5 Regional Counsel's decision to reduce the $110,000 penalty MMF had
already agreed to pay to $85,000 was unjustified. Further, the Regional Counsel's
basis for the reduction was not documented. Regional Counsel relied on information
in an internal Office of Regional Counsel memorandum. He did not have current
reliable financial information to justify the decision nor a complete understanding of
the owner's prior relationship with the company. In addition, Regional Counsel
believed that when the Administrative Law Judge terminated and closed the case on
May 14, 2007, after an agreement between MMF and EPA had been reached, EPA
could be left with no agreement. However, in its correspondence to MMF on
May 17, 2007, the Region noted it would process the earlier agreement if the
company turned down the Region's offer to settle for a reduced penalty amount.
As a result of the Regional Counsel's actions, the government received $25,000 less
than it could have. In addition, Region 5 may have sent a signal to other violators
that they may have their civil penalties reduced regardless of the evidence supporting
EPA's decision.
What We Recommend
We recommend that Region 5's Regional Administrator direct the Regional Counsel
and the Land and Chemicals Division Director to document their rationale for
reducing the amount of MMF's penalty, and properly determine and document all
future penalty decisions. We also recommend that the Regional Administrator direct
Regional Counsel and the Director to follow through on hiring staff who can provide
the necessary financial and accounting expertise to understand and assess a violator's
financial health. Region 5 has already directed staff to properly document in the
future, and has begun the process to hire a civil investigator and attorney to ensure
future penalties are properly calculated and documented. However, we do not
consider Region 5's plans for documenting the MMF penalty rationale to be
sufficient. Further, Region 5 needs to clearly define the difference between an
ability-to-pay memorandum and a bottom-line settlement amount.
-------
o
,«?
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
OFFICE OF
INSPECTOR GENERAL
MEMORANDUM
SUBJECT:
FROM:
TO:
September 29, 2008
A Region 5 Penalty Reduction Was Unjustified and Undocumented
Report No. 08-P-0291
Nancy E. Long /' &
Acting Assistant Inspector General /
Office of Congressional and Public Liaison
Lynn Buhl
Regional Administrator, EPA Region 5
This is our final report on the subject review conducted by the Office of Inspector General (OIG)
of the U.S. Environmental Protection Agency (EPA). This report represents the opinion of the
OIG and the findings in this report do not necessarily represent the final EPA position. Final
determinations on matters in this report will be made by EPA managers in accordance with
established resolution procedures.
The findings in this report are not binding in any enforcement proceeding brought by EPA or the
Department of Justice under the Comprehensive Environmental Response, Compensation, and
Liability Act to recover costs incurred not inconsistent with the National Contingency Plan.
The estimated cost of this report - calculated by multiplying the project's staff day by the
applicable daily full cost billing rates in effect at the time - is $276,287.
Action Required
In accordance with EPA Manual 2750, you are required to provide this office with a written
response within 90 days of the date of this report. We have no objection to the further release of
this report to the public. This report will be available at http://www.epa.gov/oig.
If you or your staff has any questions regarding this report, please contact me at 202-566-2391 or
long.nancy@epa.gov, or Eric Lewis at 202-566-2664 or lewis.eric@epa.gov.
-------
A Region 5 Penalty Reduction Was 08-P-0291
Unjustified and Undocumented
Table of Contents
Purpose 1
Background 1
Noteworthy Achievements 2
Scope and Methodology 2
Results of Review 3
Regional Counsel Did Not Justify the Penalty Reduction 3
Regional Counsel Believed MMF Could Not Afford the $110,000 Penalty 4
Signing New Agreement Not Urgent/Not Clear How Agreement Could Be Null 5
Regional Counsel Did Not Have Sufficient Information Regarding New Owner 6
Decision to Reduce Civil Penalty Not Documented 6
Recommendations 7
Region 5 Response to Draft Report and OIG Evaluation 7
Status of Recommendations and Potential Monetary Benefits 10
Appendices
A Region 5 Response to Draft Report 11
B Timeline of Significant Events Since 2005 22
C Distribution 25
-------
08-P-0291
Purpose
On May 30, 2007, the U.S. Environmental Protection Agency (EPA) Office of Inspector General
(OIG) received a complaint alleging the inappropriate reduction of a settlement amount for
Minnesota Metal Finishing, Inc. (MMF), by Region 5's then Acting Regional Counsel.1 The
complainant alleged that the reduction of a signed Resource Conservation and Recovery Act
(RCRA) enforcement settlement from $110,000 to $85,000 was arbitrary and without
justification.
Based on the initial complaint and subsequent discussions with the complainant, we sought to
answer the following two questions:
• Was the enforcement settlement in the amount of $85,000 justified?
• Did the Region's process for determining this RCRA settlement amount follow
established EPA processes?
Background
MMF operates a plating and anodizing company in Minneapolis, Minnesota. In May 2001, EPA
and the State of Minnesota performed a compliance inspection at the company's facility. EPA
determined that MMF was in noncompliance with RCRA and designated MMF a significant
noncomplier. EPA did so because MMF did not: (1) minimize the potential releases of
hazardous waste to the environment, (2) manage its hazardous waste containers properly, and
(3) complete its waste stream documentation when it shipped hazardous waste off-site. Soon
after EPA's May 2001 inspection, its current owner purchased the company. Prior to the
purchase, that person had been a part owner and long-time employee who was plant manager.
For 4 years following the May 2001 inspection, EPA requested additional information. In
August 2005, EPA Region 5 filed a Complaint and Compliance Order (complaint) with EPA's
Office of Administrative Law Judges alleging that MMF had violated RCRA since the 1980s.
EPA proposed a $300,000 civil penalty. The complaint was amended twice in 2006. The
penalty amount remained at $300,000.
On April 24, 2007, staffs of EPA Region 5's Office of Regional Counsel (ORC) and the Waste,
Pesticides, and Toxics Division2 (WPTD) agreed to offer MMF $150,000 to settle the case.
MMF made a $110,000 counteroffer that ORC staff found to be acceptable. On April 26, 2007,
MMF's president signed a Consent Agreement and Final Order (subsequently referred to as
"settlement document") for a $110,000 civil penalty, plus interest. The next day, EPA informed
the Administrative Law Judge's (ALJ's) office that MMF had executed a settlement agreement
and the Region would sign and file the agreement by May 11, 2007. On May 14, 2007, the ALJ
terminated and closed the case based on the Region's April 27, 2007, motion.
1 The Acting Regional Counsel has since been appointed to the position on a permanent basis.
2 Name changed to Land and Chemicals Division in August 2007.
-------
08-P-0291
On May 9, 2007, between the time MMF signed the settlement document and the ALJ
terminated and closed the case, the Regional Counsel directed his staff to gather tax returns,
financial statements, and other financial documents to help determine an appropriate penalty
amount. He also stated that he was concerned with a statement in his staffs April 23, 2007,
memorandum that indicated MMF's cash flow was insufficient to finance a large penalty and the
possibility the current owner could become bankrupt if the penalty was more than $80,000. On
May 16, 2007, during the process to finalize the settlement document, Regional Counsel reduced
the civil penalty amount from $110,000 to $85,000. Two days later, MMF signed the revised
settlement document.
Although MMF signed the settlement document on May 18, 2007, for $85,000, the Region's
Enforcement and Compliance Branch Chief was not convinced the Region should accept the
lesser amount, and he refused to sign the settlement document. Officially, the Region's
complainant for this case was the Enforcement and Compliance Branch Chief. On May 30,
2007, in a memorandum to the WPTD Director, this chief wrote:
... I wish to clarify that I was not among the "Region's decision-makers" who
were persuaded that a civil penalty of $85,000 was more appropriate than a civil
penalty of $110,000. Because (1) I have not been given an opportunity to review
and assess the additional information which Respondent has provided and
(2) I have read the attached review of that information by the ORC litigators,
I remain unpersuaded that a civil penalty of $85,000 is more appropriate than a
well documented civil penalty of $110,000.
Therefore, I respectfully request that my duly delegated authority to participate as
complaint [sic] in the instant case be withdrawn.
However, on May 31, the WPTD Director signed the settlement agreement for the Enforcement
and Compliance Branch Chief, and the Director's signature made the settlement final. On the
same day, MMF made its first payment to the government. EPA inspected MMF in October
2007 and determined that MMF's noncomplier designation could be removed, even though the
company still had not yet completed actions to correct all its environmental problems.
Appendix A is a timeline of significant events from January 2005 until EPA's final settlement
with MMF in May 2007.
Noteworthy Achievements
Region 5's ORC revised its internal procedures to include the Regional Counsel in all penalty
decisions before draft settlement documents are sent to the company for signature. Region 5 also
announced that it intends to hire a civil investigator and an attorney who have an understanding of
financial accounting matters and can help determine a company's ability to pay.
Scope and Methodology
We conducted work from September 2007 to May 2008. We performed our work in accordance
with generally accepted government auditing standards issued by the Comptroller General of the
-------
08-P-0291
United States, except we limited the scope of our review to areas identified by the complainant.
The standards that we followed require that we plan and perform the review to obtain sufficient,
appropriate evidence to provide a reasonable basis for our findings and conclusions based on our
review objectives. We believe that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our review objectives. We did not use computer-processed
data to support our findings.
We collected records from Region 5 and interviewed staff and senior managers in Region 5's
ORC and WPTD to understand the events and circumstances leading to the decision to reduce
the civil penalty. We also interviewed individuals from EPA Headquarters' Office of
Enforcement and Compliance Assurance and staff from EPA's ALJ about procedural matters
related to our review. In addition, we interviewed Region 5's outside ability-to-pay financial
expert about issues related to MMF's financial condition. We assessed whether the Region
followed its internal procedures as they relate to the issues in this complaint. On April 3, 2008,
we discussed our preliminary findings with Region 5 representatives and made changes where
warranted.
Results of Review
Region 5's Regional Counsel adjusted MMF's $110,000 penalty amount downward to $85,000
without convincing evidence to justify the reduction. EPA Region 5 Regional Counsel's
decision to reduce MMF's civil penalty by $25,000 was unjustified, and the basis for the
reduction was not documented. The Regional Counsel did not have current reliable financial
information to justify the decision nor a complete understanding of the owner's prior relationship
with the company. As a result, the government received $25,000 less than it could have. Also,
Region 5 may have sent a signal to other violators that they may have their civil penalties
reduced regardless of the evidence supporting EPA's decision.
Regional Counsel Did Not Justify the Penalty Reduction
EPA procedures permit enforcement personnel, at their discretion, to adjust the amount of a
proposed penalty downward where the violator or other sources convincingly demonstrate that
additional adjustment is warranted by facts. Region 5's Regional Counsel stated he believed
reducing MMF's civil penalty from $110,000 to $85,000 was justified because:
• MMF could not afford to pay the $110,000 penalty it had already agreed to pay because
information in an April 23, 2007, ORC staff memorandum raised questions about
whether MMF could pay the $110,000.
• Region 5 needed to quickly settle with MMF because the ALJ's office terminated and
closed the pending case and the Region was thus subject to significant litigation risk.
• EPA's reduced $85,000 settlement offer could have been considered a counteroffer,
nullifying MMF's original offer to settle for $110,000.
• MMF's violations occurred prior to the current company president's ownership and the
president corrected the RCRA violations after buying the company.
-------
08-P-0291
However, Regional Counsel's decision is not justified or supported based on the evidence we
gathered. Details follow.
Regional Counsel Believed MMF Could Not Afford the $110,000 Penalty
Regional Counsel said he relied primarily on information in an April 23, 2007, internal
memorandum to establish his belief that MMF could afford to pay about $80,000 rather than the
$110,000 that MMF agreed to pay. ORC and WPTD staffs maintained that MMF could pay the
$110,000.
The RCRA June 2003 Civil Penalty Policy provides EPA with options when it determines the
violator cannot afford to pay the penalty. It allows enforcement personnel, as a last resort, to
adjust proposed penalties downward. Before doing so, EPA must consider delayed payment and
installment options. The policy notes information from the violator or other sources must
convincingly demonstrate that such a reduction is warranted by the facts. RCRA Civil Penalty
Policy clearly places the burden of proof on the violator to show it is unable to pay a specific
penalty amount.
Regional Counsel believed that the April 23, 2007, memorandum was the ORC staffs
recommendation for the maximum amount MMF could pay. However, ORC staff who wrote the
April 23 memorandum stated its purpose was not to establish a maximum amount (i.e., $80,000).
Rather, the memorandum was a "bottom line document" used to determine the least amount EPA
should accept. Also, the memorandum was written to portray a worst case scenario, consider
EPA's litigation risk, and determine the least amount of civil penalty EPA should accept to settle
the case. Staffs analysis was never intended to establish MMF's ability to pay. An ability-to-
pay analysis is a document prepared by a financial expert that determines a financial range a
company could pay over a period of time. ORC staff stated they are not qualified to conduct an
ability-to-pay analysis.
Because the April 23 memorandum used a worst case scenario, some critical information about
MMF's financial condition was omitted or did not agree with the analysis provided by the
financial expert. Also, conclusions reached in the memorandum focused on the financial
condition of the owner, who was not named as a respondent to EPA's August 2005 complaint,
rather than MMF's financial condition. Since MMF is a corporation, it is separate and distinct
from its owners and managers, and is liable for its own debts and payments. Regional Counsel
and ORC staff did not make that distinction. Additionally, the financial expert's April 19, 2007,
report concluded that MMF continues to be a financially healthy and profitable firm and, based
on 2 years of available cash flow, MMF could pay between $80,000 and $110,000. However,
the expert's conclusions were based on MMF's 2001-2004 financial statements and 2001-2003
and 2005 tax returns.
EPA's Environmental Appeals Board has ruled that, as a matter of law, tax returns are entitled to
little weight. Accordingly, as stated in the Board's Bill-Dry Corporation decision,3 if a company
fails to provide sufficient information to substantiate its inability to pay, claim enforcement
personnel should disregard this factor in adjusting the civil penalty. Regional Counsel stated that
! Environmental Appeals Board decision at 9 E.A.D 575.
-------
08-P-0291
the April 23, 2007, memo was based on MMF's financial statements. However, at the time EPA
made its ability-to-pay determination in 2007, MMF only provided its financial statements for
2001 through 2004. In addition, those 2001-2004 financial statements were unaudited and,
according to MMF's certified public accounting firm, MMF elected to omit all disclosures
required by generally accepted accounting principles. Moreover, the accounting firm, in its cover
letter, warned that if the omitted disclosures were included, they might influence users'
conclusions about the company's financial position, its results of operations, and cash flows. In
addition, the financial statements were not designed for those who were not informed about such
matters.
Signing New Agreement Not Urgent/Not Clear How Agreement Could Be Null
We do not believe reducing the penalty was urgent. For example, when the Region notified
MMF that its new settlement offer was for $85,000 it also noted that the offer could be
withdrawn and the previous offer, for $110,000, processed. Regional Counsel believed it was
urgent that EPA settle with MMF as quickly as possible. He said that because the ALJ
terminated and closed the case rather than postpone it as the Region requested, MMF could have,
at any time, withdrawn its $110,000 offer to settle and EPA would be left with no agreement.
Regional Counsel also believed that MMF could have considered the Region's offer to
reconsider the penalty amount a counteroffer, thereby nullifying the previous settlement
document MMF had already signed.
Regional Counsel continued to assess the fairness of the $110,000 penalty even after the ORC
staff, on April 27, 2007, had notified the ALJ there was no need for a hearing. The notification
stated that the Region and MMF had reached a settlement agreement and on April 26 MMF had
signed the agreement. Also, the ALJ was told that the Region expected to sign the settlement
agreement by May 11.
However, on May 9, 2007, just 2 days before the ALJ expected the Region's completed
settlement agreement and 5 days before the ALJ's decision to terminate and close the case,
Regional Counsel met with ORC staff and instructed them to obtain tax returns, financial
statements, and other information from MMF to help determine an appropriate amount and
consider reducing the penalty amount. On the same day, ORC staff requested the additional
information from MMF.
On May 14, 2007, MMF provided its 2006 tax return, which the Region immediately had
analyzed by its financial expert. The financial expert told ORC staff that his opinion had not
substantially changed from his April 19, 2007, analysis, in which he concluded MMF was
healthy and profitable and could pay a civil penalty between $80,000 and $110,000.
Regional Counsel said he also believed he had to settle quickly because the ALJ terminated and
closed the case on May 14, 2007. Two days later, Regional Counsel instructed his Branch Chief
to settle for either $80,000 or $85,000. The next day, on May 17, Regional Counsel's Branch
Chief offered MMF an $85,000 settlement amount. In his offer to MMF, the Branch Chief
stated:
-------
08-P-0291
If I do not receive them [a signed settlement document] by the close of business
on that date [May 21, 2007] EPA 's offer to resolve this matter on terms set
forth in the attached settlement document may be withdrawn, in which case we
still will likely forward the earlier version of the settlement document, which
your client has already executed, for final agency approval.
The Branch Chiefs memorandum does not indicate that the Region had made a counteroffer and
nullified the April 26, 2007, signed version of the settlement agreement. Because the Region
already had a signed agreement for $110,000, we do not agree that settlement for a lesser amount
was urgent. ORC staff also did not agree that the Region made a counteroffer.
Regional Counsel had other options besides making a straight $25,000 reduction in the penalty
amount. For example, if MMF could not afford the $110,000 civil penalty, the RCRA civil
penalty policy directs enforcement personnel to consider other options before making a straight
reduction in the civil penalty as a last resort. The policy allows Regional Counsel to extend the
installment payment terms over a number of years. This option would have resolved the urgency
issue without resorting to reducing MMF's agreed-upon $110,000 civil penalty amount, and
would have given MMF some additional time to pay the penalty.
Regional Counsel Did Not Have Sufficient Information Regarding New Owner
Regional Counsel stated that he believed the current MMF owner was eager to fix the company's
environmental violations. He noted that violations occurred prior to the current president's
ownership and, despite existing violations, the president bought the company and invested
considerable money to correct existing RCRA violations. As a result, Regional Counsel believed
he should not be unduly aggressive in setting the penalty amount.
Regional Counsel's characterization of MMF's owner was based on incomplete and inaccurate
information. Regional Counsel believed the new owner should be commended for agreeing to
clean up MMF's environmental violations. However, clean-up of major problems had not begun
until about 4 years after the current owner purchased MMF and after EPA issued its complaint
(September 2005). Region 5 WPTD inspection staff noted, in its October 2007 inspection report,
that MMF's attorney stated the company had not completed its clean-up. However, recognizing
that MMF had made significant progress, the Region removed MMF's significant noncomplier
designation. Although the current president was not named in the August 2005 complaint, he
was a minority owner and plant manager at the time of the Region's May 2001 inspection. Also,
regional staff told us the owner's efforts had already been considered in establishing the initial
$300,000 penally amount. Further, because the new owner had already agreed to settle for
$110,000, the need to reduce the penalty amount remains unclear.
Decision to Reduce Civil Penalty Not Documented
Neither the ORC nor WPTD offices documented the decision to reduce the penalty amount from
$110,000 to $85,000. EPA's June 2003 RCRA Civil Penalty Policy requires that a proposed and
final settlement amount be justified and documented. It states that in administrative civil penalty
cases such as this, EPA will perform and document two separate calculations. EPA must first
-------
08-P-0291
determine an appropriate amount to seek in the administrative complaint and subsequent
litigation. Second, EPA must explain and document the process by which it arrived at the
penalty figure it agreed to accept in the final settlement.
ORC or WPTD staffs calculated and properly documented the initial proposed settlement
amount. They followed procedures in the RCRA Civil Penalty Policy to develop worksheets and
narratives that supported the $300,000 civil penalty. ORC staff prepared and described their
rationale to settle the case with MMF for $110,000.
Regional Counsel and the WPTD Director offered conflicting information regarding the reason
for the penalty reduction. The only support we found for the $85,000 amount was in a footnote
to a May 23, 2007, memorandum from an ORC Branch Chief to the signer of the final order, the
WPTD Director. In the memorandum, the Branch Chief stated that on April 25, 2007, MMF
agreed to pay $110,000 in civil penalties. The footnote to the memorandum states that "At the
Region's request, Respondent [MMF] provided additional information [MMF's 2006 Federal
Income Tax Return] on May 14, 2007, which persuaded the Region's decision-makers that an
$85,000 settlement figure was more appropriate." However, Regional Counsel stated he did not
have the analysis of MMF's 2006 tax return at the time he made the decision to reduce the
amount, which raises questions about the statement in the footnote. The WPTD Director stated
that, prior to signing the May 31, 2007, settlement document, she relied on the Regional
Counsel's advice and she never saw the May 16, 2007, memorandum. The ORC staffs May 16,
2007, memorandum disagreed with the Regional Counsel's decision. In it, ORC staff strongly
recommended accepting the $110,000 penalty. The WPTD Director also stated that if she had
seen the document, she may have reconsidered giving approval to the $85,000 settlement
document.
Recommendations
We recommend that the Regional Administrator, Region 5, direct Region 5's Regional Counsel
and the Director for the Land and Chemicals Division (formerly WPTD) to:
1. Document in the case file the Region's rationale for reducing the amount of MMF's
penally.
2. Properly determine and document all future penalty decisions.
3. Follow through on (a) hiring staff that can provide the enforcement and legal staff with
the financial analysis expertise necessary to properly analyze violators' financial health,
and (b) instruct staff to clearly define the difference between an ability-to-pay
memorandum and a bottom line settlement figure.
Region 5 Response to Draft Report and OIG Evaluation
Region 5 generally disagreed with our conclusions and recommendations. Region 5's complete
response is in Appendix A. Where appropriate, we have made changes to reflect the Region's
comments. Region 5 stated that it nonconcurs in each of the report's first three findings and they
-------
08-P-0291
should have been withdrawn. The Region agrees, with comments, with the last finding
("Documentation"). Even though it nonconcurs with the findings, Region 5 noted that it will
implement the recommendations according to the schedule it set out in its response.
Region 5 agreed with our first recommendation to document in its MMF case file its rationale for
reducing the amount of MMF's penalty. However, in the body of the response, Region 5 notes
that it intends to restate conclusions reached in its April 23 and May 23, 2007, memoranda into a
single justification document.
OIG disagrees that combining the April 23, 2007, document and the May 16, 2007, document
provides justification to reduce the $110,000 agreed-upon penalty to $85,000. Region 5's
response states that the April 23 and May 23, 2007, memoranda set out all the reasons for its
actions. As we pointed out in our draft report, ORC staff who wrote the April 23 memorandum
stated its purpose was not to establish a maximum penalty amount. They noted that it was
written to portray a worst case scenario, consider EPA's litigation risk, and determine the least
amount of civil penalty EPA should accept to settle the case. Its authors also noted that the
memorandum was never intended to establish MMF's ability to pay. Moreover, the financial
information in the April 23 memorandum was not supported by Region 5's independent financial
expert's April 17 analysis. During our discussions with the expert, the expert confirmed our
understanding. Similarly, we disagree that the $25,000 penalty reduction was supported by the
footnote to the May 23, 2007, memorandum as the Region asserts. Regional Counsel agreed that
a tax return standing alone carried little weight in making an ability-to-pay decision. Therefore,
since Region 5 had no current or reliable financial information about MMF or its current owner
to make an informed decision, it had no basis for reducing the $110,000 agreed-upon penalty to
$85,000.
OIG also disagrees with Region 5's assertions about MMF's new owner. MMF's 2000
accounting records and 2001 response to EPA's request for information showed that MMF's
current owner was a part-owner and the company's plant manager at the time of the May 2001
inspection. Also, in October 2007, Regional Counsel stated that he was unaware of the new
owner's prior ownership, and if he had known he would have made a different decision. ORC
staff also confirmed that they were unaware of the new owner's prior ownership and position at
MMF when they wrote the April 23, 2007, memorandum. Moreover, MMF's owner and MMF
are separate entities. EPA's August 26, 2005, complaint and subsequent amendments clearly
show that MMF, not its owner or previous majority owner, was listed as the Respondent.
Region 5's Regional Counsel stated that he made his decision, in part, because he believed a
penalty of more than $80,000 would bankrupt the new owner. However, ORC staff confirmed
that they did not have any proof at the time of the April 23, 2007, memorandum that MMF's
owner was vulnerable to bankruptcy because Region 5 did not have any personal financial
documents (i.e., personal tax returns, bank statements, or personal financial statements ) to
support the statement.
OIG also disagrees with Region 5's rationale that signing the revised settlement agreement (for
$85,000) was urgent because the ALJ had terminated the pending hearing and June 4, 2007, was
the date for MMF's first payment. Region 5 already had a signed agreement with MMF for
-------
08-P-0291
$110,000 that ORC staff had negotiated with the company and they found acceptable. The ALJ
relied on this information when the case was terminated and closed.
OIG disagrees that the Region has complied with our recommendation to adequately document
all future penalty decisions. Managers and staff should be instructed to fully document the basis
for their decisions. During our review, Regional Counsel made improvements to its internal
procedures regarding the process for issuing draft settlement documents. Region 5 has partially
complied with Recommendation 2.
OIG agrees with Region 5's response to Recommendation 3 regarding the need to hire a
financial expert. The Region is following through to hire staff who can provide expert financial
analysis. However, we disagree with the Region's response about what constitutes an ability-to-
pay memorandum and a bottom-line settlement figure. Staff are not clear about the difference,
and the difference of opinion between staff and Regional Counsel should be resolved.
-------
08-P-0291
Status of Recommendations and
Potential Monetary Benefits
RECOMMENDATIONS
Rec.
No.
1
Page
No.
7
Subject Status1
Direct Region 5's Regional Counsel and the U
Director for the Land and Chemicals Division
(formerly WPTD) to document in the case file the
Region's rationale for reducing the amount of
MMF's penalty.
Action Official
Regional Administrator,
Region 5
Planned
Completion
Date
POTENTIAL MONETARY
BENEFITS (in $OOOs)
Claimed Agreed To
Amount Amount
7 Direct Region 5's Regional Counsel and the U
Director for the Land and Chemicals Division
(formerly WPTD) to properly determine and
document all future penalty decisions.
7 Direct Region 5's Regional Counsel and the
Director for the Land and Chemicals Division
(formerly WPTD) to follow through on:
(a) hiring staff that can provide the enforcement 0
and legal staff with the financial analysis expertise
necessary to properly analyze violators' financial
health, and
(b) instruct staff to clearly define the difference U
between an ability-to-pay memorandum and a
bottom line settlement figure.
Regional Administrator,
Region 5
Regional Administrator,
Region 5
Regional Administrator,
Region 5
12/31/08
0 = recommendation is open with agreed-to corrective actions pending
C = recommendation is closed with all agreed-to actions completed
U = recommendation is undecided with resolution efforts in progress
10
-------
08-P-0291
Appendix A
Region 5 Response to Draft Report
Comments of EPA Region 5 on "A Region 5 Civil Penalty
Reduction Was Unjustified and Undocumented"
September 4, 2008
(revised)
11
-------
08-P-0291
MEMORANDUM
SUBJECT: Comments of EPA Region 5 on "A Region 5 Penalty Reduction was Unjustified
and Undocumented."
FROM: Lynn Buhl
Regional Administrator
TO: Eric Lewis
Director of Special Review and Inspection
EPA Region 5 appreciates the opportunity to provide comments on "A Region 5 Penalty
Reduction Was Unjustified and Undocumented," (the Report) as well as to provide comments on
an earlier draft, and discuss these comments with you on April 2, 2008.
EPA Region 5 begins its response by noting that the Office of Inspector General's
(OIG's) investigation into this matter not only errs in its conclusions as set out herein, but was
also an exercise without result. As shown, the recommendations of the Report had been
undertaken long before OIG produced a draft report. For example, for more than a year, ORC
has required Regional Counsel concurrence on all draft Consent Agreements and Final Orders
(CAFOs). The system has worked well. Also, Region 5 had made the decision to hire a civil
investigator with financial expertise in January 2008. In the interim, EPA Region 5 made use of
the same highly regarded contractor the Department of Justice uses in litigation — and it was this
information that formed the basis of the Acting Regional Counsel's actions. In addition, the
reasons for the decision were documented, and in the year and half since the events here, the
hundreds of penalty matters handled by the Office of Regional Counsel and its program clients
have been properly determined and documented. OIG reports should guide conduct. Here, as
the actions recommended had been undertaken prior to the Report, Region 5 questions why OIG
chose to spend nearly a year of investigation an a project without benefit. Furthermore, the
penalty at issue was fully consistent with the penalty policy, was above EPA's bottom line, and
did not compromise economic benefit, thereby assuring a "level playing field." It usually falls to
OIG to ensure the Agency's scarce investigative and enforcement resources are being used in a
way that benefits the environment. Here, Region 5 questions the use of resources on this matter.
In addition, the Report makes a number of errors in arriving in its investigative
conclusions. Region 5 nonconcurs on each of OIG's first three findings. As explained herein,
Region 5 concurs, with comments, on the last finding ("Documentation"). The first three
findings are so flawed that OIG should have withdrawn them.
First, the Acting Regional Counsel sought more information because of the financial
analysis submitted with the approval package showed that the proposed penalty had the potential
to bankrupt the new owner, and was significantly higher than the maximum penalty that the
government's financial analysis expert could support. Region 5 supports the request for more
12
-------
08-P-0291
information. Region 5 does not accept the conclusion that the Acting Regional Counsel was
obligated to ignore the potentially ruinous effect of the penalty sought. This conclusion is
incorrect.
Second, as shown below, the Report is an attempt to second-guess a litigation risk
decision. In doing so, OIG supplants its own conjecture in place of the Region's reasoned
analysis. It is also troubling that the Report is unable to distinguish between internal evaluations
of litigation risk and external positions taken in letters to opposing counsel. The selective
reliance on documents in an attempt to bolster an erroneous conclusion is particularly
disappointing. This conclusion is incorrect.
Third, the Report attempts to show that the Acting Regional Counsel did not have
complete information about the new owner. Region 5 nonconcurs. It is undisputed that none of
the violations were attributable to the new owner, who at great expense invested the necessary
funds to timely and appropriately correct the violations. The Report significantly distorts the
record of the new owner. These distortions call into question the even-handed, neutral review of
information that should be the goal of OIG reports. This conclusion is incorrect.
Finally, Region 5 set out all of the reasons for its actions in a May 23, 2007 justification
memo, which incorporated by reference the April 27, 2007 settlement approval memo. The
Region agrees that it would have been more clear to restate the conclusions of the April 27, 2007
memo into a single justification memo, and will do so.
1. The Request for Information was Justified and Fully Appropriate.
The Report finds that the decision to reduce the civil penalty was "unjustified." Report at
2. Region 5 nonconcurs, and supports the decision of the Acting Regional Counsel to seek more
information prior to potentially bankrupting a company. The Report skirts the threshold issue of
determining whether the request for more information was justified, by jumping to the ultimate
issue of the penalty reduction. This takes the decision out of time and context. As shown, OIG's
findings are unfounded, and are inconsistent with the stated goals of EPA's penalty policy. The
reasons for the Acting Regional Counsel's actions are set out adequately at page three of the
Report, but the Report omits the key facts upon which the decisions were based. 1
As noted in the Report, the ORC case team submitted a "Recommendation for Settlement
in Minnesota Metal Finishing, Inc." on April 23, 2007. That memo, submitted with the
settlement for approval, comes to two important conclusions, both absent from the Report: (1)
depending on the outcome of certain important information, the owner of the company is on the
verge of bankruptcy, unable to pay any penalty and (2) the government's sole litigation financial
litigation expert could not support any penalty higher than $80,000 and if cross-examined, might
be forced to conclude that MMF cannot pay any penalty.
Thus, on April 23, 2007, less than one month before the hearing in this matter, the
litigation team unequivocally concluded:
Region 5 submitted extensive exhibits and attachments to its comments on prior drafts of this
Report. Many of these documents contain information such as investigative reports and financial
data that are inappropriate for publication, and will not be submitted herewith.
13
-------
08-P-0291
Even based on incomplete information with assumptions favoring the
argument for a high penalty, [the government's only financial litigation
expert], cannot support more than $80,000 payable over two years
* * *
[the government's expert] might be forced to testify that, based on the
information available to him, MMF cannot pay any penalty. We would
not be able to argue that more evidence is necessary for MMF to sustain
its burden of proof, because MMF has clearly met its burden by providing
the financial statements, tax returns, notes payable to the previous owner,
and the DKG lease.
(Emphasis added).
The financial analysis itself concluded that there were some crucial assumptions being
made about a lease term and "if we learn that the lease was renewed on the same terms, then [the
new owner] is probably facing personal bankruptcy." (Emphasis added). It also states that the
"amount of money going to [the new owner] is at best barely enough to finance his purchase of
MMF, allow for payment of taxes on MMF's profits, and support himself, his wife and two
teenage sons" on a "small salary."
On the basis of this joint recommendation from staff and both managers that the known
facts did not justify a penalty in excess of $80,000, the Acting Regional Counsel sought more
information upon which to evaluate the proposed $110,000 penalty. As it stood, the
government's witness could not support a penalty of higher than $80,000, and if certain key facts
that were still unknown favored the Respondent, Respondent might well have zero ability to pay.
The request for more information was justified and appropriate, and as shown below, the
ultimate penalty reduction was consequently justified and appropriate.
For unknown reasons, the Report attempts to diminish the impact of the clear and explicit
conclusions of the April 23 memo by labeling the memo a "worst case" analysis. The "worst
case" claim is nowhere found in the memo - and is contradicted by the memo itself. Further, the
Report concludes that the analysis was "never intended to establish MMF's ability to pay," a
statement that is belied by the second sentence of the memo explaining its purpose, which states,
"[a]s explained below, this recommendation is based on ability to pay" and then reviews the
ability to pay information in detail in each subsequent subheads (see, e.g., subhead 1: "the
Original Ability to Pay Analysis Was Based on Incomplete Information; subhead 2: the Second
Ability to Pay Analysis Yields a Smaller Amount Available for Penalties"; subhead 3: New
Information Reveals that the Rental Payments Mostly Go to an Unrelated Third Party."). The
Report implies that Regional decisionmakers cannot review memos summarizing ability to pay
information in justification of a settlement. Region 5 disagrees. Regional decisionmakers were
entitled to rely upon the ability to pay review summarized in the memo in deciding whether to
seek additional information.
14
-------
08-P-0291
Perhaps most troubling is that the Report would require the Region to cast a blind eye to
information that a penalty higher than $80,000 was unsupportable. Indeed, the Report is
apparently mandating that the Acting Regional Counsel should have ignored the only financial
information before him showing that the penalty proposed would have been beyond the ability to
pay of the Respondent. The information that the Report would have the Acting Regional
Counsel disregard was based on the following investigations:
1. The First Ability to Pay Analysis.
2. The Second Ability to Pay Analysis.
3. The report of EPA's Civil Investigator, including a comprehensive asset search for
MMF and the new owner, to investigate whether assets were not disclosed to EPA.
4. Attorneys' Settlement Memo.
It is beyond dispute that the Acting Regional Counsel's decision to obtain more
information was justified, rested on solid information, and was proper.
It was also consistent with EPA penalty policy. EPA procedures permit enforcement
personnel, at their discretion, to adjust the amount of the proposed penalty downward where the
violator or information from other sources convincingly demonstrates that application of
additional adjustment factors is warranted by facts. Indeed, the 2003 RCRA Civil Penalty Policy
(RCRA Penalty Policy) notes that agency decisionmakers may take into account "Other Unique
Factors," and states:
"This Policy allows an adjustment for factors which may arise on a case-by-case basis."
Policy at 40. The 2003 penally policy is based on and consistent with the Agency's 1984 general
policy on civil penalties, which established three goals of penalties:
1. Deterrence
2. Fair and equitable treatment of the regulated community; and
3. Swift resolution of environmental problems.
RCRA Penalty Policy at 6. Given the penalty policy allows for downward adjustment when
information from the violator or other sources is warranted, and that fair and equitable treatment
of the regulated community is a requirement of the policy, the OIG's conclusion that the Acting
Regional Counsel must ignore evidence that the penalty was in excess of Respondent's ability to
pay is wholly without merit. Region 5 strongly disagrees with the OIG that the Acting Regional
Counsel was barred from requesting additional information.
2. After the May 14, 2007 Order of Termination, Settling the Case Rather than
Proceeding to Hearing or Delaying Further was Appropriate, and Should Not be Second-
Guessed by OIG.
15
-------
08-P-0291
The Report concludes settlement of the matter was not urgent after the Administrative
Law Judge (ALJ) terminated the proceedings on May 14. Region 5 nonconcurs. Here, the OIG
is supplanting its own judgment of litigation risk for that of the Office of Regional Counsel, with
no basis.
A week before the hearing, on May 14, 2007, the presiding judge issued an Order
unexpectedly. Rather than grant EPA's motion to postpone the hearing, the Order denied the
motion — and terminated the proceeding. The Order was unprecedented in ORC's experience.
The termination underscored the need to resolve the matter as fast as possible. At this point,
Respondent could have decided not to settle at all — leaving EPA without remedy except for a
motion for reconsideration of the termination. The outcome of such a motion is speculative. The
ALJ could have denied it, leaving EPA in a difficult situation. Or the ALJ could have granted it,
and reset a hearing — perhaps in the next day or two. If a hearing were set, the litigation team of
three attorneys and a number of program witnesses would have had to mobilize quickly,
necessitating a large expenditure of scarce taxpayer resources (and scarcer time). The conclusion
that it would be best to avoid this situation is doubtless correct. The Report errs in finding
otherwise.
The Report is able to predict what no one else could: What will Respondent do? Will
Respondent offer substantially less? Will Respondent engage in strategic bargaining behavior?
What would happen if Respondent revoked their offer, but EPA then attempted to sign it anyway
(after EPA had made a counteroffer?). Was the offer still effective? What would the ALJ have
done? Would she have set a new trial? Imminently? Next month? Next year? What would
have happened at the hearing? Would the EPA have obtained more at the hearing than the
$85,000 it settled for? or less? Would the expenditure of resources been justified by the result?
Would ORC attorneys been better deployed on the many pending matters before the Region with
a settlement rather than hearing?
Region 5 suggests that OIG is significantly overreaching if it purports to know even the
probabilities of these answers, let alone to predict outcomes definitively. It is notable that the
Report does not consider such relevant questions, avoiding the issue by apparently concluding
that in OIG's judgment, Region 5 should not have considered risk, costs and benefits, or
resources.
An alternative implicit in the Report is that the Acting Regional Counsel should have
delayed the settlement for an unspecified longer period to make the decision, even though the
uncontradicted record is clear that no new evidence aside from a single tax return would be
forthcoming and there was mounting time pressure to settle. It cannot be concluded that the
Acting Regional Counsel should have at this point launched an extensive accounting/financial
analysis. This is especially true because the settlement proposed by the Acting Regional Counsel
of $85,000 recovered economic benefit, and was in no way inconsistent with any penalty policy.
It was prudent to accept the settlement rather than wait further.
In addition, the CAFO itself in Paragraph 9 required the Respondent to pay the first
installment of the penalty amount due by a date certain — June 4, 2007. Any delay beyond that
date would have required the entire 3-year payment schedule to be renegotiated. Again, it was
16
-------
08-P-0291
better to obtain the payment on June 4 rather than re-open negotiations. The imminent June 4
date contributed to the urgency, and made filing the CAFO a high priority.
The Report cites an email from an ORC Branch Chief to opposing counsel as its only
"proof that EPA could have signed Respondent's original offer if Respondent revoked in
response to EPA's counteroffer. The Report fails to distinguish between an assessment of
litigation risk and external communications to counsel. It should come as no surprise to anyone
familiar with litigation that the two often are not the same - especially when the parties are
engaged in bargaining. The Branch Chief who wrote the email agrees that the Report is wrong to
conclude on the basis of his letter that EPA could have signed the earlier, superceded settlement
agreement. The finding is wholly without basis.2
Finally, the Report suggests that Region 5 could have offered time payments rather than a
penalty reduction. First, Region 5 did offer and incorporate time payments. Second, extended
time payments over a number of years are generally disfavored, as they require monitoring
resources and are subject to the continuing viability of the company (a matter that was in doubt
here). Recovery of penalties from a bankrupt entity is at best uncertain, difficult, and time
consuming. Especially when viewed against the April 23 memo's assessment of MMF's
financial condition, the Report's preference for further extending time payments to a marginal
company is inappropriate.
3. Sufficient Information Regarding the New Owner
The Report finds that "Regional Counsel's characterization of MMF's owner was based
on incomplete and inaccurate knowledge." Region 5 nonconcurs with this finding. The Report
states the Acting Regional Counsel (1) believed that the current MMF owner was eager to fix the
company's environmental violations and, (2) the violations occurred prior to the current
president's ownership, and despite existing violations, the president bought the company and
invested considerable money to correct existing RCRA violations. Oddly, the Report does not
show that these facts are untrue. Rather, the Report incorrectly disparages the new owner's
compliance activities, while avoiding the central proposition at issue: the violations were not
attributable to the new owner, who at great expense invested the necessary funds to timely and
appropriately correct the violations. The uncontradicted evidence is as follows.
2The Report seems to conclude that if the Respondent just prior to the hearing agreed to settle for
$110,000, the Acting Regional Counsel was barred from taking account of the April 23, 2007
memo. The Report ignores that EPA's demand in the complaint was $300,000, and that the
hearing would cost Respondent tens of thousands of dollars more in time and attorney's fees. At
an imminent hearing with an uncertain result, Respondent was faced with losing his company,
which had been financed in part with personal debt, even if the company prevailed on many
counts - or accepting the government's offer. It is unsurprising that a company facing those
choices opted to settle. To use this higher settlement amount to call into question the Acting
Regional Counsel's review shows a misunderstanding of litigation and negotiation. It is
improper, and Region 5 rejects the Report's apparent suggestion that regional decisionmakers are
bound to disregard the consequences of their actions.
17
-------
08-P-0291
As the Acting Regional Counsel was informed, the new owner fixed every compliance
issue after he bought the facility. The April 23 memo accurately states:
There are no compliance issues, since Respondent has implemented a
floor repair and management plan to correct problems from the
deteriorated flooring (which was the basis of the main count in the
Complaint), and has also re-built its waste system to ensure that all
hazardous wastewater (which was formerly discharged onto the floor) now
flows within hard piping directly to the treatment system.
The April 23 memo makes clear MMF's "cashflow and assets are insufficient to secure
credit." The new owner took on lease payments for the business signed by himself and his wife.
The new owner "takes a small salary" to support himself and two teenage sons. Against this
backdrop, and without EPA action, the new owner invested in the business to cure the
environmental problems that arose while the prior owner ran the business.
The record before the Acting Regional Counsel indicated that the new owner had no
connection to the violations. The Report attempts to draw an inference from the fact that the new
owner was an employee of MMF prior to purchasing the company, and had been paid in part in
stock. The conclusion that the new owner was responsible for the violations finds no basis in the
penalty assessment worksheets. The record is to the contrary. The Penalty Computation
Worksheet refutes the Report's speculation as to the new owner's involvement in the violations.
The worksheet is a fifty six page single-space comprehensive evaluation of every act of violative
conduct, with the names of each employee responsible where appropriate. See, e.g., Count I,
Failure to Provide Hazardous Waste Training, extent of deviation: Major (listing the prior
owner's name (President and Emergency Coordinator) and others, but not the new owner's). It
also details the gravity associated with each act. This exhaustive document connects no gravity
to the new owner. The only basis for the penalty here was gravity; the violations resulted in no
economic benefit. Thus, there can be no showing that the new owner was associated with the
violations, nor that he benefitted from them in any way.
The Report disregards the new owner's successful efforts to remedy every violation after
his purchase of MMF (as well as the subsequent outstanding environmental record at the
facility). This is consequential, because EPA procedures permit enforcement personnel, at their
discretion, to adjust the amount of the proposed penalty downward where the violator or
information from other sources convincingly demonstrates that application of additional
adjustment factors is warranted by facts of the case. As noted, the penalty in this matter was
based 100 percent upon gravity. It is undisputed that (1) all of the violations were attributable to
the former owner, and (2) the new owner, on credit, took responsibility for repairing existing
condition of the facility. The Report errs in implying that regional decisionmakers should not
have taken these facts into account, especially with regard to a gravity-based penalty.
The Report attempts to show that the "clean up" was not complete as of October 2007.
This statement is emblematic of the selective omissions in the Report. The October 2007
inspection resulted in no violations whatsoever - a stark contrast to the former owner's
18
-------
08-P-0291
operations. The remaining "clean up" noted in the Report is the continued implementation of
corrective action already submitted and approved. 3 The overwhelming majority of the original
penalty resulted from Count III (failure to maintain and operate a facility to minimize possibility
of fire, explosion, or any unplanned sudden or non-sudden release). This main violation
characterizes the former owner's operation of the facility, and should be contrasted to the
October 2007 inspector's report, which highly praises the new owner's operations and
improvements.
To dismiss the changes from the former owner to the present owner as the Report does as
merely "some improvement," Report at 6, is a gross misrepresentation, and calls into question
the neutral fact-finding of the Report. One need only contrast the October 2007 Report with the
description in Count III above to realize the Report has drastically minimized the improvements
made by the new owner.
In sum, the Acting Regional Counsel's information concerning the new owner was not
only "sufficient" but also correct. The Report's conjecture that the new owner could be in some
unstated way responsible for the violations lacks any proof. The Report's recitation of progress
made at the facility under the new owner evinces a propensity to distort the facts. The finding is
incorrect.
4. The Proposed Penalty Documentation Could Be Improved in this Matter.
The Report notes that the 2003 RCRA Civil Penalty Policy requires documentation and
justification for any adjustments to the penalty. The Report finds the incorporation by reference
in the May 23, 2007 justification memo of the April 23, 2007 memo inadequate. The April 23
memo contained the basis of the penalty reduction and its reference in the May 23 memo
explains the adjustment to the final penalty. However, the Region agrees that combining the
justification into a single document would have been clearer, and will provide appropriate
documentation consistent with the Report's Recommendation.
Region 5 did in fact attempt to provide the proper documentation. It is unfortunate that
the Report recounts none of this history, even though it was provided in its entirety to the OIG.
In fact, the Report only quotes from a WPTD Branch Chief memo, while describing none of the
events that preceded or followed it. It is puzzling and unfortunate that the Report opted not to
reflect the Region's efforts in this regard. Quoting solely the WPTD Branch Chief here is a
selective recitation. The Report should have noted the emails that followed the memo, which
gave every opportunity to the author of the memo to address any concerns he had.
3It should be noted that the continued corrective action obligations arise from violations of the
former owner, and undermine the Report's conclusion that penalty reduction was not justified. It
is puzzling why OIG would prefer to take funds away from ongoing corrective action to pay a
very small amount more towards a penalty that already recovers economic benefit and is above
EPA's bottom line.
19
-------
08-P-0291
5. Comments on Recommendations
The Report makes three recommendations. Region 5 responds to each below:
1. Documentation. The Report recommends that the Regional Administrator direct ORC
and LCD "to document in the case file their rationale for reducing the amount of MMF's
penalty." As noted above, Region agrees the rationale could have been consolidated into a single
document, and made more clear.
Planned Completion Date: Consolidated documentation placed in file by
September 30, 2008.
2. Documentation Concerning "all future penalty decisions." The Report recommends
that the Regional Administrator direct ORC and LCD "to properly determine and document all
future penalty decisions." Region 5 disagrees that the penalty decision was improperly
"determined," and declines to give this instruction. There is no question that the penalty decision
comports with all applicable penalty policies, and Region 5 has nonconcurred on the findings
that underpin this recommendation. As to the documentation of the "all future penalty
decisions," the instruction is unnecessary. As the Report recognizes in the "Notable
Achievements" section of the Report, ORC for more than a year has mandated the review of all
CAFOs. There have been no coordination problems with LCD and ORC throughout the time
period at issue. The specific conditions that form the basis of the recommendation are no longer
present, and the factual findings of the Report otherwise do not support the instruction.
3. Hiring. The Report recommends that ORC, "follow through on hiring staff that can
provide the enforcement and legal staff with the financial analysis expertise necessary to
properly analyze violators' financial health, and instruct staff to clearly define the difference
between an ability-to-pay memorandum and a bottom line settlement figure." Region 5 will
continue with its hiring plans, consistent with the Recommendation. ORC has already hired a
new attorney who will handle a range of activities, including fiscal law, grants, and some
financial transactions. Region 5 will also hire a Civil Investigator — the only Region in the
country to do so — and will publish the solicitation on USAJOBS in September 2008. The
report also calls for ORC to instruct staff to "clearly define the difference between an ability-to-
pay memorandum and a bottom line settlement figure." As noted above, settlement memoranda
often contain summary ability to pay information, and it is not improper for regional
decisionmakers to rely upon such summary information in evaluating settlements. Region 5
disagrees that this instruction is necessary or appropriate.
Planned Completion Date:
A. Hiring Civil Investigator: Solicitation published on USAJOBS by September 15,
2008, and Civil Investigator hired by December 31, 2008.
20
-------
08-P-0291
CONCLUSION
For the reasons stated herein, EPA Region 5 nonconcurs in each of the Report's first
three findings. These findings should have been withdrawn. Region 5 agrees, with comments,
with the last finding ("Documentation"). Region 5 will implement the recommendations
according to the schedule set out above.
EPA Region 5 appreciates this opportunity to provide comments.
21
-------
08-P-0291
Appendix B
Timeline of Significant Events Since 2005
Date
Event
2005
January 5
February 1
March 25
July 27
August 26
MMF provided EPA its 2001 to 2004 federal tax returns so that EPA could assess
MMF's ability to pay a civil penalty for violations under RCRA.
WPTD requested that MMF provide its corporate financial statements. WPTD stated
that EPA would not consider an ability-to-pay claim without the company's corporate
financial statements.
WPTD acknowledged receipt of 2001-2003 financial statements. In addition, WPTD
requested a copy of MMF's current owner's stock purchase from the company's prior
owners and the names and titles of its current owners and executives.
WPTD's financial expert evaluated MMF's ability to pay and concluded it could pay a
$300,000 civil penalty.
Region 5 filed a complaint against MMF that proposed it pay a $300,000 civil penalty
for violations of RCRA.
2006
February 17
March 23
May 16
May 31
September 1
ORC financial expert evaluated MMF's ability to pay. Based on MMF's 2001-2003 tax
returns and 2001-2004 unaudited financial statements, the expert determined MMF
was healthy and profitable in 2004 and could afford to pay a $300,000 penalty.
Region 5 filed an amended complaint and continued to propose a $300,000 civil
penalty.
MMF offered to settle the case for $15,000.
ORC proposed that MMF perform a Supplemental Environmental Project and pay a
$75,000 penalty.
Region 5 filed a second, amended complaint that continued to propose a $300,000
civil penalty.
2007
February 26
April 18
April 19
MMF offered to pay an $80,000 civil penalty payable over 4 years.
ORC staff discussed whether it should take MMF's $80,000 offer or counter with an
offer up to $150,000 payable over 2 to 3 years. In addition, ORC staff noted that the
financial expert would be hard-pressed to support a civil penalty of more than $50,000
per year for 2 years, or a total of $1 00,000.
The financial expert prepared a second ability-to-pay analysis and informed ORC staff
that MMF continued to be a healthy and profitable firm. The financial expert also
stated MMF could pay a penalty between $80,000 and $110,000 based on its available
cash flow.
ORC Branch Chief wrote his staff that ORC had a choice between bottom lines of
$80,000 over 2 years or $1 00,000 over 3 years.
22
-------
08-P-0291
Date
April 23
April 24
April 26
April 27
May 9
May 10
May 14
May 15
May 16
May 17
Event
ORC staff wrote its bottom line settlement recommendation to their Section and
Branch Chiefs stating that MMF could pay at least $80,000 over a 3-year period.
ORC Branch Chief informed the WPTD Enforcement and Compliance Branch Chief
that EPA intended to offer MMF a settlement of $1 50,000 over 3 years. He believed
that MMF would seriously entertain this offer. In addition, he noted that the only real
outstanding issue in the case was the appropriate amount of the penalty, which
depended on MMF's ability to pay.
ORC Branch Chief and WPTD Enforcement and Compliance Branch Chief agreed to
offer MMF $1 50,000 if it settled by April 30, or $1 65,000 if it settled by May 7.
ORC Branch Chief informed WPTD Enforcement and Compliance Branch Chief that
MMF made a final offer to pay a $1 10,000 civil penalty, payable over 3 years, to
resolve the case without resorting to a hearing. In addition, the ORC Branch Chief
stated that ORC recommended EPA accept the offer because it was above the
$80,000 bottom line amount that was recommended on April 23.
MMF's president signed the settlement agreement for $1 1 0,000, plus interest, payable
over a 3-year period.
ORC staff filed a motion to postpone the hearing before EPA's ALJ. Motion stated that
EPA and MMF had agreed to the settlement terms without resorting to a hearing; MMF
signed the agreement on April 26; and EPA would sign, date, and file it by May 1 1 ,
2007.
Regional Counsel met with his staff, and requested that they reconsider the penalty
amount with the possibility of reducing the $1 1 0,000 penalty to $80,000.
ORC staff requested that MMF provide its 2006 corporate tax return, 2006 financial
statement, and copy of its office space lease.
MMF's attorney informed ORC staff that MMF's tax return would be prepared by the
following Monday (May 12) and MMF did not intend to prepare a financial report
because it would take several weeks to prepare.
The ALJ terminated and closed the case because MMF had waived its right to a
hearing by signing the settlement document.
MMF provided its 2006 tax return. After reviewing the 2006 tax return, the financial
expert concluded that his opinion had not materially changed from his April 19, 2007,
analysis.
Regional Counsel asked his Branch Chief if there was any new information concerning
receipt of MMF's tax returns and lease.
Regional Counsel met with WPTD Director to discuss MMF settlement.
ORC Section Chief wrote his staff that a revised settlement document had been
prepared. The settlement document was consistent with the Regional Counsel's order
to settle the case for $85,000.
ORC's staff and its Section and Branch Chiefs recommended that the Regional
Counsel make no adjustment to the $1 1 0,000 penalty that MMF had already accepted.
ORC Branch Chief informed MMF's attorney that following discussions between EPA
Region 5 management a revised settlement document was prepared for MMF's
signature. He also stated that if the settlement document was not signed by May 21
the offer may be withdrawn and ORC would likely forward the earlier version that MMF
signed for final approval.
23
-------
08-P-0291
May 18
May 22
May 31
MMF's president signed the settlement document for $85,000.
May 21 ORC Branch Chief informed his staff that the Regional Counsel and WPTD Director
agreed to the $85,000 settlement.
Regional Counsel concurred with revised settlement amount.
May 23 ORC's Branch Chief informed WPTD Director that the settlement document had been
negotiated to resolve alleged violations under RCRA, and MMF had agreed to pay an
$85,000 penalty over a 3-year period. In addition, the ORC Branch Chief stated that
MMF had provided additional information on May 14, 2007, that persuaded the
decision-makers that an $85,000 settlement figure was appropriate.
May 30 WPTD's Enforcement and Compliance Assurance Branch Chief wrote to ORC staff,
WPTD Director, and the Regional Counsel that the documents presented to him did
not include the penalty calculation worksheet and support that were required by the
RCRA Civil Penalty Policy. In response, an ORC Branch Chief wrote WPTD's
Chief Enforcement and Compliance Assurance Branch Chief that a penalty justification
memorandum was typically prepared by the WPTD staff, and Counsel's office would
assist if necessary.
WPTD's Enforcement and Compliance Branch Chief informed the WPTD Director that
he had not been given the opportunity to assess the additional information MMF had
provided. The Branch Chief withdrew from signing the settlement document as the
EPA complainant.
WPTD Director signed the settlement document and issued it as a final order. The
settlement document was filed with the Regional Hearing Clerk and became effective
that day.
MMF immediately paid the civil penalty's first installment.
24
-------
08-P-0291
Appendix C
Distribution
Office of the Administrator
Assistant Administrator for Enforcement and Compliance Assurance
Assistant Administrator for Solid Waste and Emergency Response
Regional Administrator, Region 5
Regional Counsel, Region 5
Office of Administrative Law Judges
Office of General Counsel
Agency Follow-up Official (the CFO)
Agency Follow-up Coordinator
Associate Administrator for Congressional and Intergovernmental Relations
Associate Administrator for Public Affairs
Director for Land and Chemicals Division, Region 5
Director for Public Affairs, Region 5
Audit Follow-up Coordinator, Office of Enforcement and Compliance Assurance
Audit Follow-up Coordinator, Region 5
Deputy Inspector General
25
------- |