United States v. Anthony Dell'Aquilla, Enterprises & Subsidiaries

Opinions of the United

1998 Decisions States Court of Appeals

for the Third Circuit

8-5-1998

United States v. Dell'Aquila

Precedential or Non-Precedential:

Docket 96-5761

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Filed August 5, 1998

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 96-5761

UNITED STATES OF AMERICA

v.

ANTHONY DELL'AQUILLA, Enterprises and Subsidiaries;

HARRY GRANT; SANDALWOOD CONSTRUCTION

CORPORATION,

Harry Grant, Sandalwood Construction Corporation,

Appellants

ON APPEAL FROM THE UNITED STATES

DISTRICT COURT

FOR THE DISTRICT OF NEW JERSEY

(D.C. Civ. No. 88-3232)

ARGUED

October 30, 1997

Before: Nygaard, McKee and Weis, Circuit Judges

(Filed: August 5, 1998)

Roy Alan Cohen

Charles E. Erway, III (Argued)

Toby A. Holbreich

Porzio, Bromberg & Newman, P.C.

163 Madison Avenue

Morristown, NJ 07962-1997

Attorneys for Appellants

Faith S. Hochberg

United States Attorney

Peter G. O'Malley

Assistant United States Attorney

Susan Handler-Menahem (Argued)

Assistant United States Attorney

970 Broad Street, Suite 700

Newark, New Jersey 07102

Attorneys for Appellee

OPINION OF THE COURT

McKee, Circuit Judge.

We are asked to review the district court's grant of

summary judgment in favor of the United States and

against Harry Grant and Sandalwood Corporation. The

court ruled that Grant and Sandalwood were liable for

violations of the Clean Air Act, 42 U.S.C. S 7401 et seq.,

("CAA"), and the National Emission Standard for Hazardous

Air Pollutants established for asbestos, 40 C.F.R. pt. 61,

subpt. M. ("NESHAP"), as a matter of law, and assessed

penalties against Grant and Sandalwood in the amount of

$2,975,000 under 42 U.S.C. S 7413(b). That sum represents

the maximum fine for each violation for each day the

violation existed.

We will affirm the grant of summary judgment in favor of

the United States based upon Grant's and Sandalwood's

non-compliance with an EPA compliance order for each day

they were "operators" beginning on June 29, 1988.

However, since we conclude that there is a genuine issue of

material fact as to the three visible emissions that were

charged, we will vacate that portion of the district court's

order that is based upon those three violations, and

remand for further proceedings consistent with this

opinion. We also conclude that there is a genuine issue of

material fact as to whether Grant and Sandalwood

functioned as operators under the CAA until September 14,

1988. Finally, we hold that the district court erred in

calculating the fine Grant and Sandalwood must pay.

2

Therefore, on remand, the United States must establish the

number of days that Grant and Sandalwood functioned as

operators, and the district court will recalculate penalties

and fines accordingly.

I.

This matter concerns approximately sixty-five acres of

waterfront property located at 1301 Hudson Street,

Hoboken, New Jersey ("Hoboken property"). It is undisputed

that Anthony Dell'Aquilla is the owner of this property. On

May 5, 1988, Dell'Aquilla and Grant entered into an

Agreement to Form Joint Venture ("Agreement") to develop

the Hoboken property. Under the terms of the Agreement,

Grant would become the project manager in charge of the

"overall management and control of the business and

affairs of the venture." App. at 280. The Agreement outlined

the responsibilities and representations relevant to the

environmental condition of the property. It provided that, in

the event that any hazardous environmental condition was

discovered on the property, Dell'Aquilla would cure the

condition at his own expense and indemnify Grant against

any and all "damages, remedial orders, judgments or

decrees, and all costs and expenses related thereto." App.

at 277. According to Grant, Dell'Aquilla also provided him

with copies of correspondence from contractors certifying

that the property and buildings on the property had been

inspected and were free of asbestos. Id. at 539. The

Agreement further provided that Grant would receive a joint

ownership interest in the property contingent upon

refinancing. However, the refinancing was neverfinalized,

and Grant also learned that Dell'Aquilla could not convey

clear title so Grant never obtained an ownership interest

under the Agreement.

Grant invested time and money developing the Hoboken

property in his role as project manager. He and his wife

were the majority shareholders in Sandalwood.

Sandalwood's responsibilities included hiring engineers and

architects to develop the Hoboken property, and contracting

for the demolition of the buildings already on the property

and removal of the resulting debris. Id. at 164 & 229. Grant

3

also incorporated Grant Marina Urban Renewal Corporation

to participate in the development.

The development of the property began on June 10,

1988, with the demolition of existing buildings. On June

17, 1988, the Environmental Protection Agency (EPA) sent

inspectors Robert Fitzpatrick and Jose Rodriguez to the

property because the EPA had not been notified of the

demolition as required by law. App. at 483. While there,

Inspector Fitzpatrick observed insulation that appeared to

be asbestos containing material ("ACM") covering several

pipes in one of the demolished buildings. He also noticed

that the debris from the demolition appeared to contain

ACM. Id. at 21-22. His observations were corroborated

when subsequent tests performed upon samples taken from

the area established they contained asbestos.

Fitzpatrick returned to the Hoboken property several

times during the summer of 1988. During these visits, he

witnessed numerous violations of state and federal

environmental laws. The violations included the continued

unauthorized demolition of ACM structures, visible

emissions of ACM dust, improper removal of ACM, and

inadequate wetting of the ACM which allowed particles to

become airborne. On June 29, 1988, the EPA issued a

compliance order under S 112 of the CAA in which it

commanded Dell'Aquilla, Grant and Sandalwood to comply

with all federal asbestos regulations. However, despite the

notice, the parties continued the demolition in the same

manner that had given rise to the EPA notification.

On July 22, 1988, the government filed a complaint

against Dell'Aquilla, Grant and Sandalwood alleging a total

of 119 violations of asbestos-related regulations, and

seeking injunctive relief and civil penalties under the CAA

and NESHAP. Dell'Aquilla settled with the government and

agreed to pay a disclosed amount in fines ($400,000). The

government then moved for summary judgment against

Grant and Sandalwood. Grant and Sandalwood did not

dispute the violations except for allegations that visible

emissions of asbestos occurred on three dates (June 27,

July 7, and July 13, 1988). However, Grant and

Sandalwood argued that they were not liable under the

regulations because they were not "owners or operators" of

4

the Hoboken property. See 40 C.F.R. S 61.02. The district

court held that they were "operators", and found them in

violation of the regulations.1

The court imposed the statutory maximum penalty of

$25,000 per day for each violation for a total fine of

$2,975,000. Grant and Sandalwood filed a motion to

amend and alter the judgment seeking to reverse the

penalty amount. However, the court refused to reconsider

the amount of the penalty because it concluded that Grant

had initially failed to submit evidence of his finances. This

appeal followed.

Grant and Sandalwood argue that: (1) there are genuine

issues of material fact concerning their status as "owners or

operators" of the Hoboken property, (2) the government

failed to make a prima facie case for each of the 119

violations alleged, and (3) the district court abused its

discretion in failing to reconsider the $2,975,000 penalty in

light of Grant's financial situation. We have jurisdiction

over this appeal pursuant to 28 U.S.C. S1291.2

II.

The CAA was enacted, in part, "to protect and enhance

the quality of the Nation's air resources." 42 U.S.C.

S 7401(b)(1). In order to meet this objective, Congress

authorized the EPA to establish emission standards for

enumerated hazardous air pollutants. 42 U.S.C.

_________________________________________________________________

1. The district court also denied the government's request for injunctive

relief because it concluded that the government had not established that

Grant and Sandalwood were currently engaged in or planned to engage

in activities which would lead to further violations. D. Ct. Op. at 20.

2. We exercise plenary review. Hamilton v. Leavy, 117 F.3d 742, 745 (3d

Cir. 1997) (citation omitted). Summary judgment is appropriate when the

pleadings and other submissions show that there is no genuine issue as

to any material fact and that the moving party is entitled to judgment as

a matter of law. Fed. R. Civ. P. 56; see also, Bank of Nova Scotia v.

Equitable Fin. Management, Inc., 882 F.2d 81, 83 (3d Cir. 1989). The

"mere existence of some alleged factual dispute between the parties will

not defeat an otherwise properly supported motion for summary

judgment; the requirement is that there be no genuine issue of material

fact." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986).

5

S 7412(d)(1995). The asbestos standards, at 40 C.F.R. pt.

61, subpt. M, establish mandatory standards for the

renovation and demolition of a facility that contains

asbestos, and for the disposal of asbestos. A violation of

this NESHAP constitutes a violation of the CAA. See 42

U.S.C. S 7412.

A. Liability as Operator

The CAA imposes strict liability upon owners and

operators who violate the Act. See United States v. B & W

Inv. Properties, 38 F.3d 362, 367 (7th Cir. 1994). Therefore,

although Grant and Sandalwood argue that Dell'Aquilla

and/or his agents led them to believe that any asbestos on

the property had properly been removed and all necessary

permits had been obtained, see Appellants' Br. at 8-10,

those assertions are not relevant to our analysis, and we

need not respond.

The CAA defines an "owner or operator" as "any person

who owns, leases, operates, controls, or supervises a

stationary source." 40 C.F.R. 61.02. A stationary source is

"any structure, facility, or installation which emits any air

pollutant which has been designated as hazardous by the

Administrator." Id. Grant and Sandalwood concede that the

property is a "stationary source" and only challenge their

status as "owners or operators" of the property.

It is clear that neither Grant nor Sandalwood were

owners of the Hoboken property. Under the Agreement,

Grant's procurement of refinancing for the property was a

condition precedent to the fruition of his ownership

interest. In addition, as mentioned above, the contemplated

conveyance of an ownership interest under the Agreement

never occurred because Dell'Aquilla could not convey clear

title. Accordingly, Dell'Aquilla remained the sole owner of

the property. However, it is now axiomatic that a non-owner

can still be liable as an "operator." Moreover, our

determination of whether one is an operator or owner under

the CAA must be conducted in a manner consistent with

the broad reach of the statute. See, e.g., United States v.

Tzavah Urban Renewal Corp., 696 F. Supp. 1013, 1021 (D.

N.J. 1988) (" `[O]wner or operator' is defined broadly for

purposes of asbestos regulations.").

6

Here, the district court relied in part upon United States

v. Walsh, 783 F. Supp. 546 (W.D.Wash. 1991), aff'd, 8 F.3d

1013 (9th Cir. 1993), to conclude that Grant and

Sandalwood were not shielded from liability merely because

they never acquired legal title. In Walsh, the court opined

that a person is strictly liable under the CAA if he or she

had "significant or substantial or real control and

supervision over a project." Id. at 548. Although we are not

bound by the holding in Walsh, we agree with the district

court that the analysis in Walsh is correct.

The control and supervision that Grant and Sandalwood

exercised over the project was more than sufficient to

support the district court's conclusion that they were

operators under the CAA. For instance, Grant negotiated

the contracts for the demolition work that was done on the

project. App. at 183-85. During his deposition, Grant

described his role in the project as follows: "I met the

[contractors], I review which price is better. We discussed

with our people which [sic] better to hire, et cetera, et

cetera." Id. at 184. See Tzavah Urban Renewal Corp., 696

F. Supp. at 1021 (finding that defendants who were

charged with hiring and firing contractors were "operators"

under the CAA). Grant signed the demolition contracts on

behalf of Sandalwood and Grant Marina. The contractors

he retained were involved with all aspects of the project

from demolition to asbestos clean-up. In addition, Grant

was regularly on the property and witnessed the demolition

of several of the asbestos-infested buildings. App. at 244.

Grant argues that much of what he said during his

deposition should have been disregarded because he does

not have a strong command of the English language.

However, the district court properly rejected that assertion.

Grant was represented by counsel during all phases of

these proceedings. Moreover, he had a sufficient command

of English to enter into an intricate agreement with

Dell'Aquilla, incorporate two companies, and negotiate

construction contracts as well as contracts with engineers

and architects.

Grant clearly possessed "significant or substantial or real

control and supervision" and was therefore an "operator"

within the meaning of the CAA. Walsh, 783 F. Supp. at

7

548. Even though his formal role as owner or project

manager never materialized, he clearly functioned in that

capacity as evidenced by the control he exercised over the

project. Therefore, the district court properly concluded

that he was the functional equivalent of an "owner" or

"manager."

Sandalwood attempts to evade liability by shifting

responsibility to Grant Marina. Sandalwood argues that

even if Grant was an operator of the property, Sandalwood

was not an operator because Grant Marina was specifically

created to participate in the Hoboken development.3 The

precise point at which Grant Marina began to exercise

responsibility over the property is unclear. However, it is

clear that Sandalwood was in existence prior to Grant

Marina and was active in the daily operations of the

property. Grant stated that Sandalwood's responsibilities in

the project included: "hir[ing] attorney[s], engineer[s],

architect[s] or anything like that to work on the site." App.

at 163. There is also uncontradicted evidence that

Sandalwood continued to be involved in the project after

the issuance of the compliance order on June 29, 1988. For

example, a check dated July 11, 1988, in the amount of

$25,000 payable to cash was signed by Sandalwood, and

the checkbook register indicates that the proceeds of that

check were intended for one of the contractors. App. at 256.

The record also contains a letter dated July 28, 1988, from

Sandalwood to L. Corio & Sons, Inc. The letter states, in

part, that: "[t]his letter constitutes a modification of the

contract between Sandalwood Construction Corp.,

contractor, and L. Corio and Sons, Inc., sub-contractor, for

demolition work at [the Hoboken property]." This letter was

signed by Sandalwood, and there is no reference

whatsoever to Grant Marina. Id. at 415. Sandalwood clearly

exercised sufficient control over the development of the

property to qualify as an "operator." See generally, B & W

Inv. Properties, 38 F.3d at 367 ("B & W exercised control

over the parcel sufficient to bring [it] within the scope of

`owner or operator' designation because its name appeared

on court papers and on a contract with an asbestos clean-

up company."). Thus, the district court correctly concluded

_________________________________________________________________

3. Grant Marina was not a named party in this action.

8

that there were no genuine questions of material fact as to

the operator status of either Grant or Sandalwood.

The 119 charged violations include a violation for each of

the sixty-seven days of non-compliance from June 29,

1988, until the Agreement was terminated on September

14, 1988. Grant testified at his deposition that, to the best

of his knowledge, he visited the site each day from the

beginning of the demolition until the demolition was

completed; however, the record is unclear as to when

demolition was completed. Although it may have continued

until September 14, 1988, there is nothing to establish that

its duration was coterminous with the Agreement.

Similarly, although Sandalwood clearly functioned as an

operator, this record also fails to establish how long

Sandalwood acted in that capacity.

In United States v. Bestfoods, ___ S. Ct. ___, 1998 WL

292076*7 (1998), the Supreme Court stated:

under CERCLA, an operator is simply someone who

directs the workings of, manages, or conducts the

affairs of a facility. To sharpen the definition[of

operator] for purposes of CERCLA's concern with

environmental contamination, an operator must

manage, direct, or conduct operations specifically

related to pollution, that is, operations having to do

with the leakage or disposal of hazardous waste, or

decisions about compliance with environmental

regulations.

Although the Court was there addressing the definition of

"operator" in CERCLA, and not the CAA, the purposes of

the two statutes is the same, and the language in question

is nearly identical. Accordingly, the Court's gloss on the

CERCLA definition is relevant to our inquiry. Grant and

Sandalwood were clearly involved with contracts relating

directly to the polluting activity beginning with the first

notice on June 29, 1988. However, that does not mean that

either or both continued to function in that capacity until

the Agreement terminated.4 Thus, we conclude that the

_________________________________________________________________

4. In United States v. Bestfoods, et al., S. Ct., 1998 WL 292076 (1998),

the Supreme Court analyzed the liability of a parent corporation for a

9

district court erred in assuming that Grant and

Sandalwood could be held liable for each violation for every

day until September 14, 1988.

Grant and Sandalwood also challenge six violations of 40

C.F.R. S 61.146 concerning notice to the EPA based upon

their assertion that they were not "owners or operators" of

the Hoboken property. As discussed above, we find they

were operators; accordingly, this challenge is without merit.

Moreover, as we discuss infra, it was not preserved.

B. Waiver

On appeal, Grant and Sandalwood attempt to argue that

the government did not present a prima facie case for 34

demolition related NESHAP violations, and 18 disposal-

related violations. See Appellants' Br. at 27-37, Points II &

III. The government asserts that this attack has been

waived, except insofar as appellants challenge violations for

visible emissions related to disposal on June 27, July 7,

and July 13, 1998. See Appellee's Br. at 19. Appellants'

attempt to counter the government's assertion of waiver by

arguing that they "maintained throughout their briefs below

that the asbestos NESHAPs did not apply," and that their

general assertion before the district court is sufficient to

preserve the more specific argument raised here. Reply Br.

at 6.

Third Circuit Court of Appeals Local Appellate Rules

require that each appellant's brief contain "a designation by

reference to specific pages of the appendix or place in the

proceedings at which each issue on appeal was raised,

objected to, and ruled upon . . . ." 3d Cir. L.A.R. 23.1.

Appellants' brief states that the insufficiency of the

_________________________________________________________________

subsidy under the analogous Comprehensive Environmental Response,

Compensation and Liability Act of 1980 ("CERCLA"). The Court held that

a parent corporation can be liable "both directly, when the parent itself

operates the facility, and indirectly, when the corporate veil can be

pierced under state law." 1998 WL 292076 *4. Although we are not

confronted with issues of separate corporate identity, we mention

Bestfoods because it illustrates that the issue of Sandalwood's tenure as

an operator is not as "clear cut" as the United States suggests.

10

government's prima facie case was raised at "Add-2, pp.3-4,

14." See Appellants' Br. at 2. Those references are to the

district court's opinion. At the relevant portions of those

pages the district court stated that Grant and Sandalwood

"do not contest" several of the government's allegations, see

D. Ct. Op. at 4, "nor do the defendants deny the presence

of ACM . . . [t]hus, the demolition of structures containing

verified ACM and the witnessed emissions support the

Court's conclusion that visible emissions of asbestos

occurred on all of the days alleged." Id. at 14. The

appellants' brief also states the following: "[o]n summary

judgment below, the government incorrectly claimed that

appellants were not challenging any of the alleged NESHAP

violations other than the visible emissions. (CITE) That is

incorrect." Appellants' Br. at 31. Appellants apparently had

no more success finding a reference where the argument

was preserved than we did as no "cite" is provided.

Moreover, we have reviewed the Appendix submitted by the

appellants in its entirety, and we do not find any assertion

sufficient to preserve this issue on appeal.

We have previously noted that, absent exceptional

circumstances, an issue not raised in district court will not

be heard on appeal. Fleck v. KDI Sylvan Pools, Inc., 981

F.2d 107, 116 (3d Cir. 1992). "Exceptional circumstances

have been recognized when the public interest requires that

the issue[s] be heard or when a manifest injustice would

result from the failure to consider the new issue[s]." Altman

v. Altman, 653 F.2d 755, 758 (3d Cir. 1981) (citations

omitted). We find no such exceptional circumstances here.

Accordingly, appellants have waived much of their

challenge to the sufficiency of the government's evidence to

support the NESHAP violations. However, the government

concedes that appellants did not waive their challenge to

the three visible emissions of asbestos in violation of 40

C.F.R. S 61.152(b). Accordingly, we turn our attention to

those violations.

C. Visible Emissions

The district court held that the government had

established that Inspector Fitzpatrick witnessed visible

emissions on June 27, 1988, July 7, 1988, and July 13,

11

1988. The court cites "Plaintiff's Exhibit 5, 73-74, 77-79,

89-90, 92-94" for that finding. D. Ct. Op. at 14. Neither

appellants nor the government have included that exhibit in

the Joint Appendix filed in this court. We have, however,

reviewed Inspector Fitzpatrick's affidavit, and the portions

of the transcript from his deposition that are included in

the Joint Appendix. That evidence establishes that the

inspector saw what he believed to be visible emissions of

asbestos on June 27, 1988 (Fitzpatrick Aff. P 7), and July

7, 1988 (Fitzpatrick Aff. P 11), but it does not mention

witnessing any emissions on July 13, 1988 (Fitzpatrick Aff.

P 12). App. at 22-23. Samples that the inspector took on

June 27 and July 7 tested positive for asbestos. Although

we find evidence of only two visible emissions, Grant and

Sandalwood do not dispute that there were three. Rather,

they contend that the government failed to establish as a

matter of law that the three emissions were covered by

NESHAP. We agree.

Section 61.152(b) of the asbestos NESHAP states that

each owner or operator of any source shall "[d]ischarge no

visible emissions to the outside air during the collection,

processing (including incineration), packaging,

transporting, or disposition of any asbestos-containing

waste material generated by the source." 40 C.F.R.

S 61.149. "Visible emissions" are "any emissions containing

particulate asbestos material that are visually detectable

without the aid of instruments." 40 C.F.R. S 61.141 (1988).5

Grant and Sandalwood argue that, even though the

inspectors saw dust and debris, the government did not

establish that the emissions contained asbestos, or even

that they came from asbestos-infested buildings.

Appellants' Br at 34.

_________________________________________________________________

5. The current regulations clarify this definition. "Visible emissions" is

currently defined as "any emissions, which are visually detectable

without the aid of instruments, coming from RACM or asbestos-

containing waste material, or from any asbestos milling, manufacturing,

or fabricating operation." 40 C.F.R. S 61.141 (1997). For purposes of this

appeal, however, the more ambiguous definition found in the regulations

that were in place at the time of the Hoboken property development is

applicable.

12

The district court relied upon United States v. Midwest

Suspension and Brake, 824 F. Supp. 713, 730 (E.D. Mich.

1993), aff'd, 49 F.3d 1197 (6th Cir. 1995), for support of its

conclusion that summary judgment was warranted as to

these visible emissions. In Midwest Suspension, the

government had proven through circumstantial evidence

that visible emissions, as defined under NESHAP, had been

observed on three occasions. During the first occasion, an

EPA inspector observed emissions while a dumpster was

being unloaded at a landfill. Id. at 729. After this emission

settled on top of a box, a sample was taken and that

sample later tested positive for asbestos. On the second

occasion, the government presented evidence that a sample

of material that had been lying loose in a dumpster prior to

transport tested positive for asbestos. An EPA inspector

followed that dumpster as it was being transported and he

observed a dust emission from the dumpster while it was

being unloaded. Id. The court noted that although that dust

was not tested, it could reasonably be inferred that the

discharge came from the lose material that had been tested.

The last visible emissions observed were discharged from a

dumpster as it was being emptied in a landfill. The EPA

inspector did not take samples of those emissions, but he

testified that the emissions were "rust colored, which

suggests that significant component of the emission was

shot blast waste." Id. at 730. According to the inspector,

this type of waste usually contains asbestos. Based on this

evidence, the court concluded that the government had met

its burden at trial. See also, United States v. Hugo Key and

Son, Inc., 731 F. Supp. 1135, 1271 (D. R.I. 1989) (finding

a S 61.141 violation where evidence that friable asbestos

material fell to the ground and remained there with no

precautions to contain the material).

Here, the inspector saw ACM in dry debris on the

ground, app. at 22-23, and contractors loading demolition

debris into dumpsters, id. at 23. The debris in the area was

not wet down. id. Samples, which later tested positive for

asbestos, were taken on June 27 and July 7. However, the

samples that were taken were not samples of the "dust"

from the emissions. Moreover, the government did not show

the proximity of the visible emissions either to the area

where the contractors were loading debris or to the area

13

where the asbestos-infested buildings were being

demolished. Inspector Fitzpatrick also failed to describe the

emissions as containing any specific type of "rust color"

waste that may suggest the presence of asbestos. Moreover,

unlike Midwest Suspension, there is no indication that the

two positive test samples were taken from settled

emissions. The evidence does not even establish that the

samples were taken in the vicinity of the visual emissions.

The inspector's affidavit is certainly consistent with a

conclusion that the visible emissions contained asbestos.

However, summary judgment requires more than a

possibility or even a probability that it was asbestos. The

government's proof must be sufficient to establish that fact

as a matter of law. The proof here is too tenuous to pass

that test. Moreover, we must draw all reasonable inferences

in favor of Grant and Sandalwood, the nonmoving parties.

Josey v John R. Hollingworth Corp. 996 F. 2d 632, 634 (3d

Cir. 1993).

Accordingly, the government did not establish that the

visible emissions contained asbestos, and summary

judgment as to those violations was inappropriate. See

generally, United States v. Owens Contracting Servs., Inc.,

884 F. Supp. 1095 (E.D. Mich. 1994) (concluding that there

must be some proof that the visible emissions contained

asbestos).

III. Maximum Penalty

42 U.S.C. S 7413(b) was amended in 1990 to read, in

part, as follows:

The Administrator shall, as appropriate . . . commence

a civil action . . . to assess and recover a civil penalty

of not more than $25,000 per day for each violation.

42 U.S.C. S 7413(b) (West 1995) (emphasis added). Prior to

the 1990 Amendments, the CAA provided that the civil

penalty would not exceed "$25,000 per day of violation." 42

U.S.C. S 7413(b) (West 1988) (emphasis added). Thus, it is

not clear whether the pre-Amendment maximum fine of

$25,000 could be imposed on each violation for every day

of the violation, or if it was to be limited by the number of

days the owner/operator was in violation regardless of the

14

number of violations on a given day. However, the district

court concluded that either version of the statute allowed it

to impose the maximum fine for each violation, for each day

the violation existed, and that the 1990 Amendments

merely clarified that congressional intent. See D. Ct. Op. at

15. That conclusion is not challenged on appeal.6

Appellants do argue that the district court abused its

discretion in determining the amount of the fine, but they

do not challenge the court's interpretation of the statute.

Since appellants do not challenge that ruling here, we will

proceed on the assumption that the 1990 Amendments

apply. We will limit our inquiry to whether the court abused

its discretion in setting the amount of the fine at the

statutory maximum.

42 U.S.C. S 7413(e)(1) provides in relevant part as follows:

In determining the amount of any penalty to be

assessed . . . the administrator or the . . . court shall

take into consideration (in addition to such other

factors as justice may require) the size of the business,

the economic impact of the penalty on the business,

the violator's full compliance history and good faith

efforts to comply, the duration of the violation . ..

payment of the violator of penalties previously assessed

for the same violation, the economic benefit of the

noncompliance, and the seriousness of the violation.7

(emphasis added). The total amount of the fines resulting

from assessing $25,000 per day for each of 119 violations

the court found from June 28, 1988 (the date of thefirst

compliance order) to September 14, 1988 (the date the

Agreement was terminated) was $2,975,000. The district

_________________________________________________________________

6. Although we need not decide this issue in this appeal, we note that

there is substantial precedent supporting the district court's

interpretation. E.g. Midwest Suspension, 824 F. Supp. at 733-34; United

States v. A.A. Mactal Constr. Co., 22 Envtl L Rep. 21200 (applying the

1990 amended Act to violations that occurred in 1988 and 1989);

Atlantic States Legal Found., Inc. v. Tyson Foods, Inc., 897 F.2d 1128

(11th Cir. 1990) (applying a similar provision in the Clean Water Act).

7. The government misquotes this statute in its brief. It sets forth the

factors included in the statute, but omits "the economic impact of the

penalty on the business," from the quotation. See Appellee's Br. at 36.

15

court relied upon our holding in Public Interest Research

Group of New Jersey, Inc. v Powell Duffryn Terminals, Inc.,

913 F.2d 64 (3d Cir. 1990) ("PIRG"), to begin with this

maximum amount, and proceeded by determining whether

any of the specified considerations in S 7413(e)(1) justified

mitigation of that total. The court stated "[w]hen imposing

a penalty, courts may start with the statutory maximum

and then consider factors in mitigation of the maximum."

D. Ct. Op. at 16 (citing PIRG). The court concluded that

neither the elaborated factors, nor the interests of justice

supported mitigating the fine. The court specifically refused

to mitigate the fine based on Grant's bankruptcy.

The Court will not mitigate the civil penalty based upon

Grant's filing for Chapter 11 Bankruptcy . . . There is

nothing to indicate that Grant cannot afford the

penalty other than Grant's conclusory statement that

he has lost all of his assets. Grant has not submitted

tax records or findings of the bankruptcy court

regarding his financial condition. Without such

financial records, the Court cannot accurately

determine that the fine would be too great.

D. Ct. Op. at 19.

Thereafter, Grant filed a motion to amend the judgment

under Fed. R. Civ. P. 59(e), and included copious financial

records with that motion. However, the district court,

accepting the recommendation of the magistrate judge,

denied that motion because the records had not been

submitted previously, and nothing in the record suggested

that the records had been unavailable when the court

decided the summary judgment motion. The court stated,

"[i]ndeed, defendants admit that the evidence was available,

but claim that they did not submit it because they were not

on notice that the Court would address both liability and

penalty aspects of the case. The record belies this claim."

App. at 2. Accordingly, we must address the district court's

failure to reconsider the fine based upon the additional

financial information.8 However, before addressing that

_________________________________________________________________

8. Our standard of review for the district court's denial of the

appellants'

motion to alter or amend a judgment under Fed. R. Civ. P. 59(e) is for

an abuse of discretion because the underlying order was an assessment

of monetary penalties. See B & W Properties, 38 F.3d at 368 (citation

omitted).

16

issue, we will comment upon the process used by the

district court to determine the appropriate amount of the

fine.

Courts usually calculate a fine under the CAA by starting

with the maximum penalty. See, e.g., B & W Investment

Properties, 38 F.3d at 368 ("[I]n considering fines under the

Act, courts generally presume that the maximum penalty

should be imposed."); Tyson Foods, Inc. 897 F.2d 1128,

1141 ("Upon remand, the district court should first

determine the maximum fine. . . . it must reduce the fine

in accordance with the factors spelled out in [the statute].").9

As noted above, the district court here relied upon our

decision in PIRG to state: "courts may start with the

statutory maximum and then consider factors in mitigation

of the maximum." D. Ct. Op. at 16. However, although

courts may, and frequently do, begin at the maximum, we

have never suggested that such a procedure is always

appropriate. Moreover, our research has not found any

appellate decision that would suggest that method of

determining a fine under the Clean Air Act is always the

best way of proceeding.

In PIRG, the district court assessed the maximum penalty

allowed under the Act and then reduced that amount based

upon some of the mitigating factors. We reversed based

upon our conclusion that the district court erred in

mitigating the fine because of the violator's good faith, and

the regulatory agency's inaction. We reasoned that,

although such a reduction may be appropriate when it is in

the interests of justice, the record before the district court

did not support a reduction for the particular violator's

good faith nor the "nonfeasance" of the regulatory agency.

Id. at 80-1. We did not suggest that courts should always

begin a fine assessment at the maximum. There will be

instances when doing so will initially set the bar so high

_________________________________________________________________

9. Tyson Foods dealt with fines for violations of the Clean Water Act.

However, the Clean Water Act and the Clean Air Act are in pari materia,

United States v. Stauffer Chemical Co., 684 F.2d 1174 (6th Cir. 1982)

aff'd, 464 U.S. 165 (1984), and courts often rely upon interpretations of

the Clean Water Act to assist with an analysis under the Clean Air Act.

See, e.g., Midwest Suspension, 824 F. Supp. at 733.

17

that it will remain at a height that is inconsistent with the

mitigating factors in S 7413(e)(1) even after it is lowered.

Here, for example, the fine of nearly $3,000,000 bore no

relationship to the violators' ability to pay. This is contrary

to Congress' mandate that courts consider "the economic

impact of the penalty on the business." 42 U.S.C.

S 7413(e)(1). The fine that is imposed must have some

reasonable, and proportionate "nexus" to the violations and

the violators. See Midwest Suspension, 49 F.3d at 1204

("Midwest's argument that the district court did not

establish any nexus whatsoever between the violations

claimed and the penalties assessed has no merit."). Such a

nexus is implicit in Congress' command that courts include

within their mitigation analysis "other factors as justice

may require." 42 U.S.C. S 7413(e)(1).

Courts can achieve an equitable mitigation (if any is

warranted in a particular case) either by starting at the

maximum penalty and mitigating it downward based upon

the factors in S 7413(e)(1), or simply relying upon those

factors to arrive at an appropriate amount without starting

at the maximum. The statute only requires that thefine be

consistent with a consideration of each of the factors the

court is obligated to evaluate.

Here, appellants' financial condition was relevant to a

determination of the appropriate penalty, and the district

court abused its discretion in refusing to consider it. The

court justified its refusal for the reasons stated above,

however, the court had a legal obligation to consider each

of the factors set forth in the Act. As noted above, Congress

stated that a court "shall take into consideration" each of

the factors set forth in that Act. 42 U.S.C. S 7413(e)(1).

Here, the court's refusal to consider Grant's bankruptcy is

inconsistent with that mandate. Accordingly, the court

abused its discretion in refusing to consider appellants'

financial records. See Midwest Suspension, 824 F. Supp. at

735 (rejecting government's request to adopt a rule of law

requiring a violator to have "burden of presenting evidence

to support a reduction from the statutory maximum

penalty" or pay maximum amount).

Dell'Aquilla settled with the government for $400,000.

The evidence that the appellants attempted to introduce via

18

their Rule 59(e) motion could have (if accepted by the court)

established their utter inability to pay the fine that was

imposed. That fine was nearly 750% greater than the

settlement the government accepted from Dell'Aquilla, the

owner of the property.10 We do not mean to suggest that the

district court was somehow limited by the government's

settlement. It may well be that a court would be justified in

imposing such a disparate fine because of the policy

considerations that favor settlements as well as the

particular circumstances in a given prosecution under the

CAA. However, the district court should have considered

appellants' financial records before concluding that such a

disparity was consistent with its obligation to consider the

mitigating factors set forth in the statute. Since the court

failed to consider appellants' financial condition, we will

remand for further proceedings consistent with this

opinion. At those proceedings, the court will consider the

financial records previously offered by appellants. Since the

government may not be able to establish that the three

visible emissions constituted violations or that Grant and

Sandalwood are liable for all of the period from June 29,

1988 to September 14, 1988, the resulting fine may be

smaller than the one originally imposed regardless of how

the court calculates the fine. However, any fine that is

imposed must be consistent with the command of 42

U.S.C. S 7413(e)(1).

IV.

For the foregoing reasons, we will affirm in part, reverse

in part, vacate the court's order as to the penalty, and

remand for further consideration.

_________________________________________________________________

10. In addition, to Grant's financial problems, including bankruptcy,

there is evidence in the record that the economic benefit gained by Grant

and Sandalwood was just $100,000 -- the amount expended to the

cleanup cost of ACM on the Hoboken property. See Report and

Recommendation of the Magistrate Judge at 6.

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A True Copy:

Teste:

Clerk of the United States Court of Appeals

for the Third Circuit

20