Appendices — Smithfield Foods, Inc. v. United States

Supreme Court brief2000

Ask Donna

What actually matters in this document.

Text

APPENDIX A

UNITED STATES COURT OF APPEALS.

FOURTH CIRCUIT.

No. 97-2709

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

SMITHFIELD Foops. INCORPORATED; SMITHFIELD PACKING

COMPANY, INCORPORATED: GWALTNEY OF SMITHFIELD.

LTDb..

Defendants-Appellants.

MICHIGAN CHAMBER OF COMMERCE; PENNSYLVANIA

CHAMBER OF BUSINESS AND INDUSTRY; COLORADO

ASSOCIATION OF COMMERCE AND INDUSTRY: AMERICAN

AUTOMOBILE MANUFACTURERS ASSOCIATION; AMERICAN

MEAT INSTITUTE; AMERICAN PETROLEUM _ INSTITUTE:

INDEPENDENT PETROLEUM ASSOCIATION OF AMERICA:

INTEGRATED WASTE SERVICES ASSOCIATION; NATIONAL

ASSOCIATION OF MANUFACTURERS,

Amici Curiae.

Argued: Oct. 26, 1998

Decided: Sept. 14, 1999

Before ERVIN and HAMILTON, Circuit Judges, and

ANDERSON, Jr., United States District Judge for the District

of South Carolina, sitting by designation.

Affirmed in part, reversed in part, and remanded with

instructions by published opinion. Judge ERVIN wrote the

opinion, in which Judge HAMILTON and Judge ANDER-

SON joined.

OPINION

ERVIN, Circuit Judge:

Smithfield Foods, Inc. (“Smithfield”) appeals a grant of

summary judgment in favor of the United States finding

Smithfield liable for multiple Clean Water Act violations.

Smithfield also challenges the court's imposition of a

corresponding $12.6 million civil penalty.

Smithfield alleges that the court committed two errors with

respect to liability. First, Smithfield claims that the district

court erred when it found that Orders issued by the Virginia

State Water Control Board did not condition, revise, or super-

cede Smuithfield’s obligations under its 1992 water discharge

permit. Second. Smithfield asserts that the district court erred

in its finding that this suit was not (1) precluded by the

Supreme Court's holding in Gwaltney of Smithfield, Ltd. v.

Chesapeake Bay Foundation, Inc., 484 U.S. 49, 108 S.Ct.

376, 98 L.Ed.2d 306 (1987), or § 510 of the Clean Water Act

(“CWA”), 33 U.S.C.A. § 1370 (West 1986); or (2) barred by

§ 30% 2X6 AM) of the CWA, 33 US.C.A. § 1319

(gXON AMI) (West 1986 & Supp.1999). On the penalty issue,

Smithfield contends that the district court erred in calculating

the penalty, especially with respect to its determination of

economic benefit and the denial of “good-faith” credit to

Smithfield for its compliance efforts.

For the reasons that follow, we affirm the district court's

grant of summary judgment on liability. We remand the

penalty determination to the district court with instructions to

recalculate the civil penalty as directed by this opinion.

The facts of this case are undisputed and are

comprehensively set out in the distnct court's published

opinion, United States v. Smithfield Foods, Inc., 965 F.Supp.

769, 772-81 (E.D.Va.1997). To properly analyze this case,

however, the major events bear repeating. Smithfield owns

and operates two swine Slaughtering and processing plants,

Smithfield Packing Co. and Gwaltney of Smithfield, Ltd.

Both plants are located on the Pagan River, a tributary of the

James River, in Isle of Wight County, Virginia. The

Wastewater discharged from these plants is treated in two of

Smithfield’s facilities, Outfall 001 and Outfall 002. From at

least August 1991 to August 1997, treated wastewater was

discharged from Outfall 001 into the Pagan River. From at

least August 1991 until June 1996, treated wastewater was

discharged from Outfall 002 into the Pagan River. Smithfield

stopped discharging wastewater into the Pagan River when it

successfully connected its plants to the Hampton Roads

Sanitation District (*HRSD") system.

Smithfield’s wastewater discharges contained numerous

pollutants that were regulated under the CWA and thus, could

not be discharged into the waters of the United States unless

specifically authorized by permit. Permits are governed by

the National Pollutant Discharge Elimination System

(“NPDES”), under which polluters obtain an NPDES permit

to discharge lawfully certain pollutants in specific amounts.

See 33 US.C.A. § 1342 (West 1986 & Supp. 1999).

Regulation of NPDES permits is overseen by the En-

vironmental Protection Agency (“EPA”), sec 33 U.S.C.A.

§ 1342(a), but locally administered by the Commonwealth of

Virginia through its agent, the Virginia State Water Control

Board (“the Board”). See 33 U.S.C.A. §§ 1251(b), 1342(b)

(West 1986 & Supp.1999). The Board is authorized to

enforce the CWA subject to the guidance and approval of the

EPA. See 33 U.S.C.A. § 1319.

Smithfield’s discharges were authorized by an NPDES

permit (“the Permit”) issued in 1986, modified in 1990, and

reissued in 1992. The Permit placed restrictions on the

amount and concentration of certain pollutants allowed in

wastewater released to the Pagan River and _ required

Smithfield to monitor, sample, analyze, and issue reports

conceming its discharges. The results of Smuthfield’s

wastewater sampling program were periodically compiled

into Discharge Monitoring Reports (“DMRs”’) and submitted

to the Board.

In response to elevated levels of nitrogen and phosphorus

in the Chesapeake, the Commonwealth of Virginia prom-

ulgated regulations requiring, among other things, that

NPDES permits for facilities discharging into nutnent-rich

waters like the Pagan River be modified to allow a monthly

average phosphorus effluent limitation of 2.0 mg/l. The new

regulations represented a considerable reduction in the

amount of phosphorus permittees like Smithfield could

discharge. To comply, Smithfield would have had to upgrade

significantly its waste-water treatment facilities, which the

company contended was an insurmountable obstacle under

the required deadline. As a result, on June 3, 1988, Smithfield

filed suit challenging Virginia's new phosphorus limitation as

technologically infeasible.

Notwithstanding the pending legal challenge, the Board

reopened Smithfield’s Permit on January 4, 1990 and

modified it to apply the new, more restrictive phosphorus

limitation. The modified Permit (“1990 Permit’) also

contained a compliance schedule requiring Smithfield to take

steps to comply with the new phosphorus limitation within

three years of the Permit modification. Smithfield contested

this action by appealing the modification. Because these new

phosphorus limitations were not required in other states,

Smithfield also began to talk publicly about moving its

operations out of Virginia rather than complying.

Negotiations between Smithfield and Virginia ensued and

to settle the dispute, each of the parties agreed to various

accommodations. The agreement was documented in an

Order issued by the Board on March 21, 1990 (“the 1990

i eee

ee ee, eS eee eee

Order”), in which Smithfield agreed to study the costs and

feasibility of solving its wastewater treatment problem by

connecting its present wastewater treatment system to the

HRSD. In addition, Smithfield pledged to report the results of

these studies to the Board by November 13, 1990, by which

time Smithfield would decide whether it intended to connect

to HRSD or to upgrade its own facilities to comply with the

new phosphorus limitations. In return, the Board resolved to

defer the commencement of the 1990 Permit compliance

schedule until December |, 1990.

On November 6, 1990, the Board amended the 1990 Order

by extending by three months the date by which Smithfield

Was lo report its decision whether to connect to HRSD. The

Board also agreed to further defer commencement of the

compliance schedule for the new phosphorus limitations.

On May 9, 1991, the Board amended the 1990 Order a

second time (“May 1991 Order”) granting Smithfield another

extension. The May 1991 Order included the following

amendments:

(1) Smithfield now had until June 15, 1991 to notify the

Board of its commitment to connect to HRSD or

upgrade its own facilities to comply with the new

phosphorus discharge standard. If Smithfield decided to

connect to HRSD, it was required to do so within three

months of notification by HRSD that the necessary

sewer line was completed and operational. If Smithfield

decided not to connect to HRSD, it was required to

upgrade its own treatment facilities to comply with all

discharge limitations according to the scheduled

deadline.

(2) Smithfield had to comply with the interim effluent

limitations listed in Appendix A of the May 1991 Order

until it-connected to HRSD or completed the necessary

upgrades to its facilities. Appendix A set out new

discharge limitations and monitoring requirements for a

pollutant other than phosphorus, but reiterated that

required effluent limitations for all other substances

remained as listed in the 1990 Permit.

(3) Smithfield was required to dismiss its legal

challenge to the phosphorus standard pending in

Virginia state court.

At the end of the May 1991 Order, the Board stated that

“[njothing herein shall be construed as altering, modifying, or

amending any term or condition contained in the [1990]

Permit.” Within a month of receiving the May 1991 Order,

Smithfield determined that connecting to HRSD would be the

best long-term solution and notified the Board of its decision

on June 7, 1991.

In the meantime, in May 1991, Smithfield’s onginal

Permit, issued in 1986 and modified in 1990, expired. The

Board submitted a draft permit (“Draft Permit’) for

Smithfield’s facilities to the EPA for review and public

comment. Part I.B. of the Draft Permit contained the same

compliance schedule as in the modified 1990 Permit, giving

Smithfield until January 4, 1993 to comply with the

phosphorus discharge limitations. Part L.C. of the Draft

Permit listed the effluent limitations that would be in effect

after the completion of the compliance schedule in Part 1.B.

The EPA approved the Draft Permit.

Smithfield submitted comments on the Draft Permit to the

Board. In its comments, Smithfield expressed concern that the

Draft Permit contained the same effluent requirements as in

the 1990 Permit, which it believed were inconsistent with the

terms of the May 1991 Order. Smithfield asked the Board for

clarification of this alleged discrepancy, suggesting that the

Board agree that “alternate compliance will be maintained

with Smithfield’s agreement to connect to HRSD as soon as it

becomes available regardless of the time frame in which this

occurs.’ Debra Thompson, an environmental engineer with

the Board, responded to Smithfield’s concerns in an October

10, 1991 letter stating that “[a]ny special order agreements

relative to compliance with water quality standards, the

Permit regulation and associated studies that have been

approved by the Board take precedence over the . . . Permit.”

The EPA received a copy of this letter.

Despite Smithfield’s comments and concerns. on January

3, 1992, the Board finalized and issued Smithfield’s new

permit (“1992 Permit’). Part LC. of the 1992 Permit retained

the phosphorus discharge limitations listed in the 1990

Permit, and Part I.B. contained the same deadline for

achieving phosphorus compliance, January 4, 1993. Smith-

field never challenged the 1992 Permit conditions nor sought

a modification.

In response to a February 1992 letter from Smithfield to the

Board indicating that Smithfield intended to comply with

effluent limitations for substances other than phosphorus as

listed in the 1992 Permit by connecting to the HRSD system,

the Board responded as follows:

These “plans” are acceptable as submitted. The re-

mainder of the schedule requires submittal of quarterly

progress reports. These reports should indicate con-

Struction progress and other issues which may effect

completion of the project. Also note that the deadline for

achieving final effluent limitations [for substances other

than phosphorus] is May 13, 1994. Should construction

be delayed such that this deadline may be missed, a

modification to the existing Consent Order should be

requested.

Smithfield met neither the January 4, 1993 compliance

deadline for phosphorus discharges, nor the May 13, 1994

compliance deadline for the other regulated substances. There

is no evidence that Smithfield sought or received a permit

modification challenging these deadlines before failing to

adhere to required compliance schedules.

In November 1994 the Board amended the May 1991

Order, stating that Smithfield could achieve compliance with

the final effluent limitations for the substances other than

phosphorus by connecting to HRSD and agreed to hold the

compliance deadline scheduled for May 13, 1994 in

abeyance. In addition, however, the Board and Smithfield

agreed that the amendment did not alter, modify, or amend

any other term or condition of the May 1991 Order or of the

1992 Permit.

Before Smithfield could connect to HRSD, three things

needed to occur: (1) Smithfield needed to upgrade its own

wastewater treatment system to pretreat its waste before

discharging it to HRSD, (2) a new pipeline had to be built to

connect Smithfield with HRSD, and (3) HRSD needed to

upgrade its facilities to treat Smithfield’s wastewater.

HRSD'’s original completion schedule was February 1995 for

the pipeline, and December 1996 for the facility upgrade. The

pipe-line was not completed until March 1996 and Smith-

field's Outfall 002 was connected to HRSD in June 1996.

Outfall 001 could not be connected until HRSD completed its

facility upgrades. The facility upgrades were not completed

until June 1997 and Outfall 001 was connected to HRSD in

August 1997.

Under the NPDES program as administered by EPA,

permit holders who are not in compliance with the terms of

their permits are listed in the EPA’s Quarterly

Noncompliance Report (“QNCR”). Although it had been out

of compliance for months, Smithfield’s Permit violations did

not appear in the QNCRs until the third quarter of 1994. The

EPA cited Smithfield’s false and inaccurate reporting and the

Board's willingness to permit Smithfield to continue to

exceed its 1992 Permit limits as the reason why Smithfield’s

violations did not appear in the QNCRs. If a state does not

achieve compliance, the CWA authorizes the EPA to step in

and initiate its own enforcement action. Once Smithfield

appeared in the QNCR, EPA began to closely track Virginia's

efforts to bring Smithfield into compliance.

In 1995 state and federal agencies began a criminal

investigation into the illegal activities of Terry Rettig

(Rettig), chief operator of Smithfield’s wastewater

treatment plant. Rettig was charged with falsifying records

and DMRs submitted to both state and federal regulatory

agencies. When Rettig’s actions came under suspicion,

he destroyed presumably incriminating records from

Smithfield’s wastewater treatment operations. At the

beginning of the criminal investigation, federal investigators

asked Virginia authorities to refrain from pursuing an

enforcement action against Smithfield for its Permit

violations until after the criminal investigation into Rettig’s

conduct was underway. In February 1996, the United States

notified Virginia that there was no longer any need to delay

pursuing an enforcement action against Smithfield, but the

Commonwealth took no action.

In April 1996, the Virginia Department of Environmental

Quality informed the Board that it had evidence of

Smithfield’s numerous CWA violations and recommended

that legal action be initiated. At their meeting in May 1996,

the Board decided to do nothing until it was sure Smithfield

was aware of the violations.

When it became apparent to the EPA that Virginia did not

intend to initiate legal action against Smithfield for its CWA

violations, the EPA filed its own action. The EPA invited

Virginia to join the suit, but the Commonwealth declined.

electing instead to file its own enforcement action in the

Circuit Court of the County of Isle of Wight. Virginia’s

enforcement action alleged that Smithfield violated its 1992

Permit discharge limits on other substances, but did not

10a

include claims for violations of the phosphorus limitations,

false reporting, or late reporting.

The government filed suit in the United States District

Court for the Eastern District of Virginia on December 16,

1996, seeking injunctive relief and penalties for a range of

effluent limit violations, submission of false DMRs,

submission of late reports, and destruction of records. On

March 10, 1997, the United States moved for summary

judgment on liability arguing that there were no disputes of

material fact and the evidence proved that Smithfield had (1)

violated the CWA by discharging pollutants into the Pagan

River at levels above the allowable limits of its 1992 Permit,

and (2) submitted false DMRs late on numerous occasions.

Smithfield countered that it did not violate the phosphorus

limitations in the 1992 Permit because the Boara’s Orders

superseded and revised the 1992 Permit limitations. In the

alternative, even if it violated the terms of its 1992 Permit,

Smithfield argued that the EPA’s claim was barred by

§ 309(g)(6)(A) of the CWA and the doctrines of estoppel and

waiver. The district court granted summary judgment for the

United States on liability and claims of false reporting and

document destruction, but decided to calculate the exact

number of violations and the penalty amount at tral.

The district court held a bench trial on the remaining issues

in July 1997. The court reviewed evidence and heard from

both sides’ experts who opined on the proper calculations for

each of the factors to be considered under the CWA‘s penalty

statute. In the end, the district court found Smithfield liable

for 6,982 days of violations and, after weighing the mitigating

and aggravating circumstances, assessed a penalty of $12.6

million.

Meanwhile, the Commonwealth's enforcement action

against Smithfield continued to proceed in state court. On

Ila

July 9, 1997, the state court declared that Smithfield’s obli-

gations under the 1992 Permit were circumscribed by the

May 1991 Order, and therefore Smithfield was required to

comply with the phosphorus limits only by connecting to

HRSD within three months of availability.

Based on this decree, Smithfield filed a motion to dismiss

or for summary judgment in this federal action. Arguing that

the imposition of the Phosphorus limitation was imposed

solely as a matter of state law. Smithfield contended that the

federal court must give substantial weight to the Virginia

court ruling in a state enforcement action. On that basis,

Smithfield asked the district court to reverse its liability

finding. The district court declined to do so.' Smithfield now

appeals the district court's ruling.

Smithfield’ s initial challenge is to the district court's grant

of summary judgment in favor of the United States on the

issue of liability. We review the grant of summary judgment

viewing all evidence in the light most favorable to the non-

movant. See Sempione v. Provident Bank of Maryland, 75

F.3d 951, 954 (4th Cir.1996). The district court allegedly

made three distinct errors.

' The Commonwealth appealed the Circuit Court's decision to the

Supreme Court of Virginia. The action was pending when the parties filed

their briefs to this Court. On June 5. 1998, the Supreme Court of Virginia

reversed and vacated the judgment below. Based on the Commonwealth's

continued agreement with Smithfield that the May 1991 Orders modified

the phosphorous limitations set out in the 1992 Permit. the Virginia

Supreme Court found that Smithfield was not entitled to a declaratory

judgment because it failed to demonstrate a justiciable controversy

between the parties. See Treacy \. Smithfield Foods, Inc.. 256 Va. 97.

500 S.E.2d 503. 507 (1998).

i2a

First, Smithfield contends that the district court erred in

finding that the May 1991 Order did not take precedence over

or alter the terms of the 1992 Permit. Smithfield admits that

the May 1991 Order explicitly states that “[nJjothing herein

shall be construed as altering, modifying, or amending any

term or condition contained in [the] Permit,” but argues that

the May 1991 Order was incorporated into, and therefore took

precedence over, the 1992 Permit. In the alternative, Smith-

field insists that the EPA was bound by the terms of the May

1991 Order when it failed to object to it during the permitting

process.

The district court rejected these arguments, holding that the

1992 Permit could not have incorporated any of the Board's

Orders. See Smithfield, 965 F.Supp. at 790. After an extensive

analysis of the Boards post-1992 Permit cor-

respondence, «he court reasoned that “because [Smithfield]

did not follow the procedures required for the modification of

a permit, and none of the Board’s Special Orders and letters

were issued in accordance with the permit modification

procedures, [Smithfield] cannot support [its] argument that

the Special Orders or letters issued by the Board after the

1992 Permit modify the terms of the Permit. . . .” /d. at 787-

88.

With respect to the Board's Orders predating the 1992

Permit, the court found it illogical that correspondence

written before the 1992 Permit was finalized could change the

terms of a subsequently-issued document. See id. at 788.

Finally, regarding Smithfield’s assertion that the EPA was

bound to abide by the Board's Orders because the agency

failed to object contemporaneously, the court found that the

agency's “silence with regard to the agreement between

Smithfield and the Board does not indicate its approval,

especially when the EPA was not asked to review and

approve of Smithfield’s agreement with the Board.” /d.

‘

I3a

Second, Smithfield argues that the district court erred when

it found that the EPA‘s suit was not barred by CWA

§ 30% SK6WAii). See 33° US.CA. § 1319(g)(6)(A (ii).

Section 309(2)6) of the CWA provides in part that any

violation of the CWA “which a State has commenced and is

diligently prosecuting an action under a State law comparable

to this subsection” shall not be the subject of a federal civil

enforcement action. See id. Because Smithfield believes that

since 1990 Virginia has been diligently prosecuting

Smithfield through the issuance of Orders and enforcing a

State statutory scheme that is sufficiently comparable to the

CWA, Smithfield asserts that the EPA‘s enforcement action

Should have been barred.

Examining this argument, the district court found that

Virginia’s enforcement scheme was not sufficiently

comparable to § 309( g) to bar the EPA suit. Because Vir-

ginia’s enforcement scheme did not give the Commonwealth

authority to assess administrative penalties without the

violator’s consent,” and did not provide adequate procedures

for notice and public participation,’ the district court found

“In 1996, Virginia amended its enforcement scheme to allow the

Commonwealth to impose administrative penalties without the permission

of the violator. See Va. Code Ann. § 62. 1-44.32 (Michie 1998). Smithfield

argues that. because the law was amended before the filing of this suit.

comparability should be judged based on the amended version of the

Statute. The basis of Smithfield’ s argument, however, is that Virginia had

been “diligently prosecuting” the case by issuing Orders since 1990. The

only Orders relevant to this case were issued in 1990. 1991. and 1994 and

dunng that time. the Commonwealth could have imposed penalties only

with Smuthfield’s consent. We decline to accept Smithfield’s argument

here. Because the amendment was not in effect when the relevant Orders

were issued, it is not applicable to our inquiry of whether Virginia’s law

“as comparable to § 30%) at the time of the Commonwealth's en-

forcement action.

As noted by the district court. the Commonwealth amended its public

PArlicipation statutes in 1996 to allow citizens to obtain judicial review of

l4a

that the Commonwealth's statutory structure was not

sufficiently comparable to CWA § 309(g). See Smithfield,

965 F.Supp. at 795."

Third, Smithfield challenges the district court's finding that

this suit was not precluded by the Supreme Court's holding in

Gwaltney, 484 U.S. at 60-61, 108 S.Ct. 376. In Gwaltney, the

Court recognized that there would be cases under the CWA in

which it would be counterproductive to assess penalties

against violators who had agreed to take corrective actions

not otherwise required. See id. Smithfield asserts that is

exactly what happened here. The Board and Smithfield

reached a compromise in which Smithfield agreed to take

non-mandatory corrective actions, and the company argues

that for the district court to allow the EPA to assess

administrative penalties after the fact violates Gwaltney.

For the same reasons, Smithfield contends, the EPA‘s

enforcement action violates CWA § 510, which allows states

to adopt more stringent effluent limits than those required

under the CWA. See 33 U.S.C.A. § 1370. Smithfield argues

that the Commonwealth's ability to adopt more stringent

standards as provided by § 510 is rendered useless if it cannot

implement those effluent limits in the manner it. finds most

directly serves the public interest. On these two grounds,

an Order of the Board. See Smithfield. 965 F.Supp. at 795 n. 37. For the

same reasons given above. see supra note 2, we agree with the district

court that the timing of this amendment renders it irrelevant to this

inquiry.

* Because the district court held that Virginia's enforcement scheme

was not sufficiently comparable to § 309g). the court found it

unnecessary to address the issue of whether the Commonwealth was

diligently prosecuting an administrative action against Smithfield. See

Smithfield, 965 F.Supp. at 795. Smithfield did not challenge this ruling on

appeal and. because we agree with the district court’s ruling that the

Commonwealth's scheme is not comparable to § 309g). we similarly

decline to address this issue.

ISa

Smithfield asserts that the district court erred in failing to

hold that the EPA*s enforcement action was precluded.

Acknowledging the Supreme Court's holding in Gwaltney,

the district court found that Smithfield’s alleged corrective

actions did not preclude the EPA‘s enforcement action here

because the chosen enforcement methods were not achieving

compliance. See Smithfield, 965 F.Supp. at 790 n. 29 (citing

Gwaltmey, 484 U.S. at 61, 108 S.Ct. 376). Further, the court

found that the text of CWA § 510 did not support

Smithfield’s argument. Besides allowing states to enforce

more stringent standards, the CWA act also provides that the

EPA has the authority to enforce these more stringent state

effluent standards once they are incorporated into a pollu-

ter's permit. See CWA §8§ 30%a\1), (3), 33 US.CA.

$§ 1319%ax1), (3). The district court agreed that Virginia

adopted more stringent phosphorus standards than under the

CWA and that these elevated standards were included in

Smithfield’s 1992 Permit. Once incorporated into the Permit,

however, the district court found that the CWA requires the

EPA to enforce a state’s more stringent effluent standards. On

that basis, the court ruled that § 510 did not preclude the

EPA’s enforcement action.

Having had the benefit of oral argument and the parties’

briefs, and after careful consideration of the record and the

applicable law, we conclude that the district court correctly

decided the issue of liability. We concur with the district

court that (1) the Board's Orders were not incorporated into

nor changed the terms of the 1992 Permit;* (2) Virginia's

enforcement scheme is not sufficiently comparable to

§ 30% ¢) to bar the EPA from bringing its own independent

§ . . . . .

Because we agree with the district court's ruling that the May 1991

Order did not change the terms of the Permit, we find it unnecessary to

consider whether the EPA was bound by the terms of that Order.

16a

penalty action; and (3) neither the Supreme Court's ruling in

Gwaltney, nor § 510 of the CWA preciude the EPA from

bringing this enforcement action. Rejecting Smithfield’s

claims of error, we affirm the district court's reasoning and

ruling on liability. See Smithfield, 965 F.Sapp. at 784-96.

Il.

Smithfield’s second major challenge is to the district

court's assessment of a $12.6 million pemlty. We review the

factual findings that formed the basis of the district court's

penalty calculation for clear error, see Sie:ra Club, Lone Star

Chapter v. Cedar Point Oil Co., Inc., 73 F.3d 546, 573 (Sth

Cir.1996), but the highly discretionary caculations necessary

to award civil penalties are reviewed for abuse of discretion.

See id. See also Chesapeake Bay Found., Inc. v. Gwaltney of

Smithfield, Lid., 791 F.2d 304, 316-17 (4h Cir. 1986), rev'd

on other grounds, 484 U.S. 49, 108 S.Ct. 276, 98 L.Ed.2d 306

(1987).

The CWA sets out six factors intendec to assist courts in

determining the appropriate civil penalty. »ee CWA § 309d),

33 U.S.C.A. § 1319(d) (Supp.1999). Section 309(d) provides

that “the court shall consider the seriousness of the violation

or violations, the economic benefit (if any resulting from the

violation, any history of such violatioas, any good-faith

efforts to comply with the applicable requirements, the

economic impact of the penalty on the violator, and such

other matters as justice may require.” /d.

lil ae ey iN

These factors are designed to give distact courts direction

in fashioning penalties for CWA violations, but once applied

in a specific case, we have given and will continue to give the

district court's final penalty calculation wide discretion. See |

Stoddard v. Western Carolina Reg'l Sewer Auth., 784 F.2d |

1200, 1208 (4th Cir.1986) (“The amount of the penalty to be

levied is, of course, discretionary with the court.”’); Atlantic

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

Eh ee ee ee en es ee hs sore

17a

1128, 1142 (11th Cir.1990) (same). Because of the difficulty

of determining an appropriate penalty in a complex case such

as this one, we give deference to the “highly discretionary

calculations that take into account multiple factors [that] are

necessary in order to set civil penalties under the Clean Water

Act.” Tull v. United States, 481 U.S. 412, 427, 107 S.Ct.

1831, 95 L.Ed.2d 365 (1987).

Although Smithfield contests several of the district court's

discretionary decisions, such as the method used to count

each violation and the alleged trebling of the penalty,

Smithfield’s major allegations of error relate to the court's

economic benefit calculation and its refusal to grant

Smithfield good-faith credit for its compliance efforts. We

consider each of these arguments in turn.

Smithfield argues that the district court “double counted”

its violations by counting separately its exceedances of daily

maximum limits when it had already imposed thirty days of

violations for exceedances of the monthly average limit for

the same substance. In the opinion below, the district court

reaffirmed our holding in Chesapeake Bay Found., 791 F.2d

at 313-15, that each violation of a monthly average limit shall

be treated as a violation for every day in the month in which

the violation occurred, rather than as a single violation for

that month. See United States v. Smithfield Foods, Inc., 972

F.Supp. 338, 340 (E.D.Va.1997). The court went on to hold,

however, that “if multiple violations of the Permit occur on

the same day, defendants are liable for a separate day for each

violation of the Permit, including the daily maximum,

monthly average concentration, and monthly average loading

limits for each pollutant.” /d. at 340.

In coming to this conclusion, the district court reasoned

that the two limits are included in the Permit for different

reasons and serve distinct purposes: daily maximum effluent

18a

limits protect the environment from the acute effects of large,

single releases, and monthly averages protect against chronic

effects occurring at lower levels. See id. at 340-42.

Acknowledging that there was no Fourth Circuit precedent

for this counting method, the district court found that the

different pollutants and their daily maximum and monthly

average loading limits are separate requirements listed in the

Permit and therefore represent distinct violations. See id. at

341.

We find the district court's opinion persuasive here. It is

clear from the language of § 309(d) of the CWA that such a

penalty structure was anticipated. See 33 U.S.C.A. § 1319(d)

(providing for a “civil penalty not to exceed $25,000 per day

for each violation” rather than a statutory maximum of

$25,000 per day) (emphasis added). The specific limitations

of Smithfield’s 1992 Permit support this conclusion as well.

The daily maximum limits in the 1992 Permit were set at

double its monthly average limits. As a result, a violation of

one did not automatically result in the violation of the other,

further supporting the notion that the different limits were

included in the Permit to protect against distinct en-

vironmental effects. See Smithfield, 972 F.Supp. at 340-41.

Far from double counting, the district court’s decision to

treat each violation of the 1992 Permit as a separate infraction

for purposes of penalty calculation makes sense. This

structure gives courts considerable flexibility to tailor

penalties to the unique facts of each case. As noted by the

district court, a permittee who violates a single effluent limit

one time is less culpable than one who violates the limits of

several different pollutants in one day. See id. Such a

structure is reasonable considering the first violator causes

less overall harm to the environment. In the same vein, a

permittee who violates a monthly average limit is less

culpable and causes less harm than a permittee who violates

;

19a

daily maximum and monthly average limits in the same

month. See id.

Furthermore, this method of counting violations creates the

proper incentives for polluters to comply. For example, if the

maximum penalty that could be levied against a violator on a

single day was $25,000, no matter how many different Permit

effluent limitations were violated, the permittee would have a

strong disincentive to comply with the other permit

limitations. Once one effluent limit was violated, there would

be no reason for the permittee to heed the rest of the permit

limits for that day.

We agree with the district court's decision to treat each of

Smithfield’s permit violations as a separate and distinct

infraction for purposes of penalty calculation. We feel this

approach is consistent with the language of § 309(d) of the

CWA and Smithfield’s 1992 Permit and join the other courts

which have interpreted the CWA in the same manner.”

See Public Interest Research Group of New Jersey, Inc. v. Powell

Duffrvn Tenninals. Inc., 913 F.2d 64. 78 & n. 28 (3d Cir.1990) (holding

that violation calculations should be analyzed “on a parameter by

parameter basis” and thai each type of effluent limit is “clearly separate”

and there is “no reason why [a defendant] should not be penalized

separately for violating each limitation”): Natural Resources Defense

Council. Inc. v. Texaco Ref & Mkre.. Inc.. 800 F.Supp. |. 21 (D.Del.1992)

(finding that “separate exceedances of weight and concentration limits can

constitute separate violations”): Student Pub. Interest Research Group of

New Jersey. Inc. v. Monsanto Co.. No. CTV.A.83-2040, 1988 WL 156691.

at “Il (D.N.J. Mar.24. 1988) (concluding that “{eJach violation of any

express limitation in the permit may. of course. be treated as a separate

violation for the purposes of assessing a penalty”): United States v. Amoco

Oil Co., 580 F.Supp. 1042. 1046 n. | (W.D.Mo.1984) (suggesting that the

CWA allows for separate penalties for violations of the daily limit of

different pollutants). Bur see Tyson Foods. 897 F.2d at 1140 (declining to

interpret § 309%d) as allowing single discharges that violate both daily and

monthly limits to constitute distinct violations).

20a

Smithfield next argues that the district court erred as a

matter of law by allegedly calculating the penalty by trebling

the amount of economic benefit calculated. Pointing to the

text of the Act, Smithfield contends that, unlike other federal

statutes, the CWA does not provide for trebling and therefore

the court committed reversible error by assessing a penalty

equal to exactly three times the amount of economic benefit

calculated. We see no indication that the district court

“simply trebled the amount of economic benefit.” Appellant's

Br. at 42. On the contrary, we find that the district court

correctly applied the CWA in assessing Smithfield’s penalty.

In calculating the penalty, the district court properly began

by determining that the statutory maximum based on Smith-

field's violations was $174.55 million. See Smithfield, 972

F.Supp. at 353. Thereafter, the court evaluated two different

methods used to assess penalties—the top-down method and

the bottom-up method—and to Smithfield’s advantage, chose

the bottom-up method.’ Under the bottom-up method, the

court begins with the violator’s estimated economic benefit

from noncompliance, which here was $4.2 million, and then

adjusts up or down based on the court's evaluation of the six

factors set out in § 309(d). See id. at 353-54. After evaluating

and discussing the effect of each of the factors, the court

found a $12.6 million penalty appropriate. See id. at 354.

” As noted by the district court, the CWA does not require the use of

either method, however, courts have applied both. See, e.g., Tyson Foods,

897 F2d at 1142 (using top-down method in which a court begins with the

statutory maximum and adjusts downward based on its evaluation of

§ 309d) factors): Hawaii's Thousand Friends v. City & County of

Honolulu, 821 F.Supp. 1368, 1395 (D.Haw.1993) (same). Bur see United

States v. Municipal Auth. of Union Township, 150 F.3d 259, 265 (3d Cir.

1998) (applying the bottom-up method) (known as “Dean Dairy”):

Monsanto, 1988 WL 156691, at *16 (same).

Pe ae Lee ee ee ee ee ee eee ee wee ee ee

2la

When calculating Smithfield’s penalty, the district court

took into account all six of the Sstatutonly mandated factors

and sufficiently detailed its findings as to whether the

evidence in each area had a mitigating or aggravating impact

on the total penalty. See id. at 354. The court properly

exercised its discretion in weighing the evidence and

determining the credibility of key witnesses and, in doing so,

made several decisions that were highly favorable to

Smithfield. In the end, however, the court found that

Smithfield’s thousands of CWA violations warranted a

penalty far in excess of the economic benefit calculation.

We find that the court's analysis was complete and in line

with what is required under the statute. It is clear from its

opinion that the court's exhaustive examination of the facts

formed the basis of its final penalty calculation, rather than

simply multiplying the economic benefit by three as

Smithfield contends.

But even if the court had simply trebled the economic

benefit to determine the appropniate penalty, that was within

its discretion, as long as it was below the statutory maximum

of $174.55 million. As mentioned, the Supreme Court has

emphasized that under the CWA, the highly discretionary

calculations necessary to assess civil penalties are particularly

within the purview of trial judges, see Tull, 481 U.S. at 426-

27, 107 S.Ct. 1831, and we have continually given these

determinations wide deference, reviewing them only for

abuse of discretion. See Sierra Club v. Simkins Indus., Inc.,

847 F.2d 1109, 1116 (4th Cir.1988). The government asked

for a $20 million penalty, but based on its analysis of the

relevant factors, the district court determined that $12.6

million was more appropriate, which is approximately 7.2%

of the maximum penalty that could have been assessed.

Finding that the court did not abuse its discretion in

calculating the penalty, we reject Smithfield’s contention that

the district court erred as a matter of law in determining the

22a

penalty. Accord Dean Dairy, 150 F.3d at 265 (affirming a

penalty that was calculated by doubling the economic benefit

amount and intended to serve the goal of punishment and

deterrence).

Smithfield also argues that the district court erred as a

matter of law by failing to give Smithfield credit for certain

capital costs incurred and user fees paid when calculating

economic benefit.

As one of the six factors the court must use to calculate

CWA penalties, economic benefit is assessed to keep

violators from gaining an unfair competitive advantage by

violating the law. This is accomplished by including as part

of the penalty an approximation of the amount of money the

violator has saved by failing to comply with its permit. See

Powell Duffryn, 913 F.2d at 80. The rationale for including

this measure as part of the violators’ fine is “to remove or

neutralize the economic incentive to violate environmental

regulations.” Dean Dairy, 150 F.3d at 264.* As noted in the

Senate Report accompanying the 1987 amendment adding the

economic benefit factor to § 309(d), and as recognized by

courts, the precise economic benefit a polluter has gained by

violating its effluent limits may be difficult to prove, so

“{rjeasonable approximations of economic benefit will

suffice.” /d. (referring to S.Rep. No. 50, 99th Cong., 1st Sess.

25 (1985)).”

The statute does not define economic benefit and courts

have applied different methods to determine the appropriate

> See also Powell Duffryn, 913 F.2d at 80 (“Violators should not be

able to obtain an economic benefit vis-a-vis their competitors due to their

noncompliance with environmental laws.”*) (citation omitted).

* See also Cedar Point Oil, 73 F.3d at 576 (“{A] court need only make

a ‘reasonable approximation’ of economic benefit when calculating a

penalty under the CWA.">).

23a

amount.’ The district court used the common “‘cost-avoided”

method here whereby economic benefit is measured by

_ determining “the avoided and/or delayed cost of compliance,

.. . [using] the weighted average cost of capital (WACC) as a

discounVinterest rate.”'' Smithfield, 972 F.Supp. at 349

(footnote omitted). The rationale behind this method is that

“[w]hen a company delays or avoids certain costs of Capital

and operations and maintenance necessary for compliance,

the company is able to use those funds for other income-

producing activities, such as investing that money in their

own company.” /d.

The cost-avoided method has been utilized elsewhere, see,

c.g.. Laidlaw, 890 F.Supp. at 481, and was chosen by the

district court in its discretion in part based on the court's

evaluation of the credibility of the government's expert

witness. The cost-avoided method is not in conflict with the

CWA or basic economic principles. On the contrary, it

represents a logical method by which a violator in

Smithfield’s position can be disgorged of any profits it

attained through its non-compliance. Finding no fault with the

district court's choice to apply the cost-avoided method in

this case, we reject Smithfield’s claim that its application was

in error.

Smithfield further alleges that even under the cost-avoided

method, the district court should have given Smithfield credit

'° In Dean Dairy, the Third Circuit calculated a violator’s economic

benefit by determining that the company would have lost $417,000 per

year in revenues from a customer it would have had to drop in order to

reduce production enough to comply with its permit. 150 F.3d at 262-67.

In most cases. however. the court applies the cost-avoided method applied

by the district court in the instant case. See Friends of the Earth, Inc. v.

Laidlaw: Envtl. Servs., Inc.. 890 F.Supp. 470. 481 (D.S.C.1995).

' The weighted average cost of capital method was chosen by the

district court as a means by which to calculate the present value of the

costs avoided.

24a

for (1) capital expenses incurred to build a pretreatment

facility and to modify a sludge lagoon in preparation for

connecting to HRSD, and (2) future user fees paid that

Smithfield claims allowed HRSD to construct the necessary

facilities for Smithfield’s connection. In support of this

argument, Smithfield repeatedly asserts that these are

expenses it would have gotten credit for had it built its own

direct discharge treatment system.

Smithfield decided to connect to HRSD in 1991 and, from

that time until HRSD became available in 1996 and 1997,

Smithfield was responsible for complying with its 1992

Permit requirements. Its decision to ignore these requirements

in the interim certainly benefitted Smithfield financially

because, by failing to comply with the 1992 Permit limits,

Smithfield avoided the costs of pollution control its

competitors were simultaneously incurring by complying

with the law. It is these costs that constitute Smithfield’s

economic benefit.

These capital expenses and user fees can reduce the

economic benefit that Smithfield experienced from 1991 to

1996 or 1997 only in so far as they are duplicative of costs

Smithfield should have incurred for interim compliance. The

building of its pretreatment facility and the paying of user

fees for future HRSD use were not costs Smithfield incurred

to aid in compliance from 1991 to 1996 or 1997 and,

therefore, should not have been credited to Smithfield during

the district court's economic benefit calculation.

The final allegation of error with respect to economic

benefit is Smithfield’s contention that the district court erred

in using the WACC to calculate the present value interest

rate. In a footnote, Smithfield apparently thinks that the

court's error was in accepting the testimony of the

government's expert witness, Robert Harris (“Harris’’)}—who

persuaded the court to apply the WACC rate—rather than

25a

accrediting its own expert who advocated application of a

“risk-free” rate.

As part of calculating economic benefit, the court must

apply an interest rate to determine the present value of the

avoided or delayed costs. Harris advocated the use of the

WACC rate which represents “the average rate of return a

company expects to make for its investors, in order to

maintain its current level of investors and its current level of

business operations.” Smithfield, 972 F.Supp. at 349 n. 18.

Smithfield’s expert used the “risk-free” rate, or the rate on

short-term U.S. Treasury bills. The district court found

Harris’ approach to be the most appropniate and his testimony

the most credible and, on that basis, decided to apply the

WACC rate to determine the present value of Smithfield’s

economic benefit. See id. at 349 & n. 17. Smithfield argues

that the district court chose to rely on Harris’ testimony solely

on the basis of credibility and failed to examine the

differences in the suggested procedures.

We find this argument meritless. The district court is

licensed to determine the credibility of expert witnesses and

its assessments on such questions are entitled to deference by

this Court. See League of United Latin American Citizens, #

4552, v. Roscoe Indep. School Dist., 123 F.3d 843, 846 (Sth

Cir.1997). There is no indication from the evidence that the

district court committed clear error in choosing to accredit

Harris’ testimony, nor that it accepted the WACC rate

without examining the differences between the two methods.

Given that Smithfield’s argument is essentially that the

district court accredited the wrong expert, we reject this

assertion and affirm the district court's application of the

WACC rate to determine the present value of Smithfield’s

avoided costs.

We do find troubling, however, the district court's

summary finding that Harris’ admitted WACC calculation

error of approximately 4% was insignificant. See Smithfield,

26a

972 F.Supp. at 349 n. 19. While it is true that, compared to

$12.6 million dollars, a miscalculation of between $100,000-

$200,000 seems immaterial, we see no reason that an

admitted error should stand uncorrected in a judicial opinion.

On this basis, we remand the penalty to the district court with

instructions to recalculate the penalty solely to correct Harris”

approximately 4% error.

Finally, Smithfield alleges that the district court erred when

it failed to give Smithfield credit for its good-faith efforts to

comply by connecting to HRSD. Specifically, Smithfield

argues that it should have received credit for its efforts to

connect to HRSD because, even if it was mistaken,

Smithfield believed that connecting to HRSD was the only

applicable requirement in the interim.

Section 309(d) of the CWA requires a district court to

consider “any good-faith efforts to comply with the

applicable requirements” as a mitigating factor in the penalty

calculation. 33 U.S.C.A. § 1319(d). In practice, a court

evaluates the evidence to determine whether the permittee

took any actions to reduce the number of violations or

attempted to lessen the impact of their discharges on the

environment. See Atlantic States Legal Found., Inc. v.

Universal Tool & Stamping Co., Inc., 786 F.Supp. 743, 751

(N.D.Ind. 1992).

In its opinion, the district court began by acknowledging

that Smithfield should receive credit for its decision to

connect to HRSD when available, a decision that would

eventually reduce its discharges to zero. The court went on,

however, to focus its inquiry on whether there were any

good-faith efforts to comply with the requirements set out in

Smithfield’s Permits during the relevant period—from 1991

until 1996 or 1997 when Smithfield connected to HRSD. In

evaluating the facts presented at tral, the court found little

evidence that the defendants made any good-faith efforts to

27a

comply because Smithfield did not facilitate its connection to

HRSD or mitigate its discharges by treating its wastewater or

decreasing its releases of pollutants in the interim. See

Smithfield, 972 F.Supp. at 350.

The court looked beyond these obvious facts, however, for

other signs that Smithfield might have tried to mitigate its

violations by evaluating Smithfield’s other business practices.

In doing so. the court found that during the relevant period

Smithfield cut back on the number of times it curtailed

production to achieve compliance, ignored the advice of its

own consultants who pointed out serious deficiencies in the

operation and maintenance of Smithfield’s existing

wastewater treatment plant, and dismissed evidence that its

treatment plant employees were inadequately trained. Other

than agreeing to connect to HRSD, the court found that

Smithfield “apparently believed they could discharge as much

and as frequently as they wanted into the Pagan River... .”

See id. at 351.

The district court's finding of liability, with which we

agree, was based on the notion that Smithfield impermissibly

ignored its explicit obligations under its 1992 Permit by

failing to comply with effluent limitations for the entire

period between its decision to connect to HRSD and the time

the connection was made. It is only reasonable, therefore, that

Smuthfield’s efforts towards connecting to HRSD would not

suffice as good-faith efforts to comply with its applicable

permit requirements since, during this entire interim period,

Smithfield made no effort to heed the specific limits

established by its 1992 Permit.

Furthermore, the evidence supports the district court's

ruling. The testimony presented at trial and the documentary

evidence on which the court relied in making these factual

findings illustrate that Smithfield did not make efforts to

decrease its violations and, instead, relied on the unreasonable

notion that as long as it connected to HRSD within three

28a

months of availability, it was unnecessary to comply with the

specific effluent limitations listed in its 1992 Permit during

the five year interim. Finding that the district court's factual,

determinations regarding Smithfield’s lack of good-faith

efforts to comply with applicable requirements were not

clearly erroneous, we affirm its findings on this issue.

IV.

For the foregoing reasons, we affirm the district court's

grant of summary judgment on liability. We reverse and

remand the penalty determination to the distnict court with

instructions to recalculate the civil penalty to the extent

required by this opinion.

AFFIRMED IN PART, REVERSED IN PART, AND

REMANDED WITH INSTRUCTIONS

> .

a itr beatae ai bit

SS ee — _

29a

APPENDIX B

UNITED STATES DISTRICT COURT,

E.D. VIRGINIA,

NORFOLK DIVISION

Civ. A. No. 2:96CV 1204.

UNITED STATES OF AMERICA,

Plaintiff,

SMITHFIELD Foops, INC..

SMITHFIELD PACKING COMPANY, INC..

AND GWALTNEY OF SMITHFIELD, LTD..,

Defendants.

Aug. 8, 1997

OPINION

REBECCA BEACH SMITH, District Judge.

This matter is before the court on the issue of the amount

of civil penalties to be assessed against defendants for

violations of the Clean Water Act (“Act”) § 309(b) and (d),

33 U.S.C. § 1319¢(b) and (d), as alleged in Counts I through

VII of the Complaint. On May 30, 1997, the court granted

partial summary judgment to the United States on Counts |

through V. The court found defendants liable for 164 days of

violation for Count V, late reporting, but deferred calculating

the days of violation for Counts I through IV, the effluent

violations of defendants’ Permit No. VA0059005 (“Permit”).

On July 18, 1997, the court granted partial summary

judgment to the United States on Counts VI and VIL With

30a

regard to Count Vi, subrrrission of false discharge monitoring

reports (“DMRs’”), defendants stipulated to fifteen (15) days

of violation. Since the court has already found defendants

liable on Counts I through VII, the court must now determine

(1) the days of violation for Counts I-[V and VII, (2)

defendants’ maximum liability for the violations, and (3) the

appropriate civil penalty for those violations under Section

309(d) of the Act. The parties presented evidence and

arguments on these remaining issues at a bench trial held

from July 21, 1997, through July 25, 1997.

lL. Days of Violation

A. Counts I-IV

Defendants’ Permit imposes limits on the amount of

pollutants that can be discharged from defendants’ facilities

into the Pagan River. Not only are there several different

pollutants regulated by the Permit, but the Permit also

contains different types of limits: daily maximum limits,

monthly average loading limits,’ and monthly average

concentration limits. Daily maximum limits are designed to

protect the environment from acute effects of pollutants

discharged into the water. The monthly average concentration

and loading limits are designed to protect against the chronic

effects of pollutants in the wastewater. The monthly average

concentration controls the concentration of an effluent in the

waste stream, while the monthly average loading controls the

total amount of pounds of effluent discharged per day. The

concentration limits are designed to encourage a facility to

operate its plant efficiently at all times by ensuring that

facilities cannot cut back on their treatment efficiency to

' These limits have been referred to as monthly average mass limits

and monthly average loading limits. The court wall use the latier term

herein.

3la

discharge at a high concentration while maintaining

compliance with the loading limits.

Under the Permit, defendants may sample their effluent as

often as necessary to ensure that the reported monthly

average values are representative of the discharges

throughout all days of the month, and not just the result of a

few days of violation of the daily maximum limit. Since the

daily maximum limit is set at double the monthly average

limit, it is possible to exceed a daily maximum limit without

exceeding the monthly average limit for the same pollutant,

and vice versa. It is also possible for a discharger to violate

the monthly average concentration limit without violating the

monthly average loading limit, and vice versa.

In accordance with the clear holding of the Fourth Circuit

Court of Appeals in Chesapeake Bay Foundation. Inc. y.

Gwalmey of Smithfield, Lid. 791 F.2d 304, 314-15 (4th

Cir. 1986) (each violation of a monthly average limit shall be

treated as a violation for every day in the month in which the

violation occurred, rather than as a single violation for that

month), rev'd on other grounds, 484 U.S. 49, 108 S.Ct. 376,

98 L.Ed.2d 306 (1987), remanded, 844 F.2d 170 (4th Cir.),

judgment reinstated, 688 F.Supp. 1078 (E.D.Va.1988). aff'd

im part, rev'd in part on other grounds, and remanded. 890

F.2d 690 (4th Cir.1989), this court will count each violation

of a monthly average concentration or loading limit as a

violation for every day of the month in which the violation

occurred.” Furthermore, if multiple violations of the Permit

occur on the same day, defendants are liable for a separate

day for each violation of the Permit. including the daily

maximum, monthly average concentration, and monthly

average loading limits for each pollutant. This determination

~ See Atlantic States Legal Found Inc. y. Tyson Foods, Inc., 897 F.2d

1128. 1139-40 (1tth Cir. 1990) (following Gwalmev): Atlantic States

Legal Found., Inc. v. Universal Tool & Stamping Co.,Inc., 786 F.Supp.

743. 747 (N.D.Ind.1992) (same).

32a

is consistent with Section 309(d) of the Act, which

specifically provides for a “civil penalty not to exceed

$25,000 per day for each violation” (emphasis added), rather

than a statutory maximum of $25,000 per day. The different

pollutants, and their daily maximum, monthly average

concentration, and monthly average loading limits, are

included in the Permit for different reasons. Each limit is a

separate, distinct requirement in the Permit which can be

violated. Accordingly, where multiple violations of

defendants’ Permit occur on one day, the maximum penalty

on that day may exceed $25,000.”

* Although there is no Fourth Circuit precedent on this issue, see

Gwaltney, 791 F.2d at 307-08 n. 8 (declining to “address the question

whether multiple violations attributable to a single day may give rise to a

maximum penalty in excess of $10,000 [, the statutory maximum at the

time,] for that day”), several courts in other circuits have held that a

violation under every permit limitation for each effluent and each type of

effluent limitation constitutes a separate and distinct violation. See, e.g.,

Public Interest Research Group of New Jersey, Inc. v. Powell Duffryn

Terminals, Inc., 913 F.2d 64, 77-78 (3d Cir.1990), cert. denied, 498 US.

1109, 111 S.Ct. 1018, 112 L.Ed.2d 1100 (1991) (rejecting contention that

a discharge which violated more than one permit parameter should be

counted as a single violation, and holding that violation calculations

should be undertaken “on a parameter by parameter basis”; with regard to

the different types of limitations, holding that each type of limit is “clearly

separate” and there is “no reason why [a defendant] should not be

penalized separately for violating each limitation”); Natural Resources

Defense Council, Inc. v. Texaco Refining & Marketing, Inc., 800 F.Supp.

1, 20-21 (D.Del. 1992) (“separate exceedances of weight and con-

centration limits can constitute separate violations’), affd in part, rev'd in

part on other grounds, 2 F.3d 493 (3d Cir.1993); Student Pub. Interest

Research Group of New Jersey, Inc. v. Monsanto Co., No. CIV.A.83-

2040, 1988 WL 156691, at *11 (D.N.J. Mar.24, 1988) (Since “[e]Jach

violation of any express limitation in the permit may, of course, be treated

as a separate violation for the purposes of assessing a penalty,” the total

penalty for any given day may exceed the statutory maximum.); United

States v. Amoco Oil Co., 580 F.Supp. 1042, 1047 n. | (W.D.Mo, 1984) (in

dicta, construing the language in Section 1319(d) to allow for separate

penalties for violations of the daily limit for two or more different

33a

The court's approach to calculating the days of violation

gives sufficient flexibility to assess penalties suitable to the

particular circumstances of the case. For example, a permittee

who violates one pollutant limit of a permit on a single day is

less culpable and causes less harm to the environment than a

permittee who violates the limits of several different

pollutants on that day. Similarly, a permittee who violates a

monthly average concentration limit in a certain month is less

culpable and causes less harm to the environment than a

permittee who violates daily maximum, monthly average

concentration, and monthly average loading limits in that

month. If the court found that the maximum penalty for any

single day was $25,000, there would be no incentive for a

permittee to comply with other pollutant limitations in the

permit, once one limitation in the permit was violated on that

day. Thus, consistent with the language of Section 309(d),

and the different effluent requirements in the Permit, the court

will treat each violation of the Permit as a separate and

pollutants): cf. Tyson Foods, 897 F.2d at 1138-40 (With regard to

violations of different pollutants. the court found that the only reasonable

interpretation of “$25.000 per day of each violation” in Section 30%d)

was that “the daily maximum penalty applies separately to each violation

of an express limitation.” and thus there is no daily cap. as each excessive

discharge of a pollutant on a given day will subject the polluter to the

$25.000 maximum fine. However. the court refused to count the daily

maximum violation separately from monthly average violations for the

same pollutant (which were counted as a daily violation for each day of

the month). because the court found this “may result in imposing two

fines for the same illegal act.”) Bur see Chesapeake Bay Found., Inc.

1.Gwalmev of Smithfield, 611 F.Supp. 1542. 1554-55 (E.D.Va. 1985)

(subsequent history omitted) (In spite of the fact that there were many

“days of violation” on which multiple violations were found to have

occurred, the district court declined to set the maximum penalty for a

given day at more than $10,000 (the maximum). regardless of whether

more ihan one violation occurred for several substances on that day.)

(citing United States v. Detrex Chem. Indus.. Inc.. 393 F.Supp. 735

(N.D.Ohio 1975)).

34a

distinct day of violation in assessing a civil penalty under the

statute. ,

Finally, based on the credible testimony of Lorraine H.

Reynolds, an environmental scientist with the Environmental

Protection Agency (“EPA”), and in light of the court’s

determination regarding the calculation of the days of

violation, the court FINDS that defendants reported in the

DMRs the following days of violation of their Permit effluent

limits: 5,112 for phosphorus, 459 for ammonia, 200 for total

Kjeldahl nitrogen (“TKN”), 72 for fecal coliform, 63 for total

suspended solids (“TSS”), 4 for ph,’ 4 for cyanide, 4 for

chlorine, and | for oil and grease. Accordingly, for Counts |

through IV, defendants are liable for a total of 5,919 days of

violation of the effluent limitations in the Permit.

B. Count VII

The record-keeping requirements of the Permit include the

requirement that defendants maintain three years of records of

the collection and analysis of samples used in generating the

DMRs, such as laboratory analysis records and bench sheets.

At trial, it was established that defendants’ records covering

the period up to December, 1993, were destroyed on or

around July 21, 1994, by Terry Rettig, chief operator of

defendants’ wastewater treatment plants. Thereafter,

defendants did not have the correct amount of records, as they

only had seven months of records, from January, 1994,

through July, 1994, instead of three years of records. Since

defendants did not have three years of records until December

31, 1996, they were in violation of the record-keeping

requirements in the Permit for two years and five months, or

884 days, from August |, 1994, until December 31, 1996.

* DH is “a measure of the acidity or the alkalinity of the water. Very

low pH would be acidic, and acidic waters are also toxic as are very

alkaline waters.” Tr. at 158. ;

)

35a

At trial, defendants argued they should only be assessed

one day of violation for the record-keeping requirement

violations. They claim the records were maintained for those

884 days, and were only destroyed on a single day in July,

1994, by Rettig, in direct contravention of company policy

and an order from his immediate superior to find and produce

the records for the inspectors from the Department of

Environmental Quality (“DEQ”).° The court declines to treat

these 884 days of missing records as a single day of violation.

First, defendants’ explanation for the missing records is

irrelevant with regard to the number of days of violation,° as

the Clean Water Act is a strict liability statute. See Stoddard

V. Western Carolina Reg'l Sewer Auth., 784 F.2d 1200, 1208

(4th Cir.1986). Second, treating destruction of records as a

single violation would create a terrible incentive to destroy

records covering a certain time period to get one single day of

violation, rather than submitting the records which might

reflect a larger number of days of violation. Thus, for Count

VIl, the court FINDS there are 884 days of violation of the

record-keeping requirements in the Permit for defendants’

failure to maintain or destruction of records.

C. Summary of Total Days of Violation

For Counts | through IV, there is a total of 5,919 days of

violation of the effluent limitations in the Permit.’ For Count

‘The DEQ was formed in 1993. pursuant to a state statute passed in

1992. The DEQ then encompassed its predecessor, the State Water

Control Board.

° Defendants’ explanation may be relevant. however. with regard to the

| appropniate penalty for these days of violation. Sec infra Part IIl.A.4.b.

~ Defendants’ contention that they are entitled to an “upset defense”

under Section 309(d). because. in the fall of 1994, they suffered a single

operational plant upset. caused in part by warm weather. is unsupported

by the evidence. Their reliance on a state DEQ repon, defense exhibit 61.

is insufficient. Thus, this “upset defense” does not merit any further

discussion. The court does note that this claim technically is not an

36a

V there are 164 days of violation for late reporting, as found

by the court on May 30, 1997. For Count V1, defendants have

stipulated there are 15 days of violation for submission of

inaccurate DMRs. For Count VII, defendants are liable for

884 days of violation of the reporting requirements for their

failure to maintain or destruction of records. Thus, there is a

total of 6,982 days of violation of the Permit by defendants.*

Il. Statutory Maximum Penalty

Section 309(d) of the Act provides that defendants “shall

be subject to a civil penalty not to exceed $25,000 per day for

each violation.” Thus, for defendants’ 5,919 days of violation

in Counts | through [V (effluent limit violations), the

statutory maximum is $147,975,000. For defendants’ 164

days of violation in Count V (late reporting), the statutory

affirmative defense. as apparently presented by defendants, but rather a

limiting factor on the calculation of the number of days of violation under

Section 309(d). In any event. the evidence and facts of this case do not

warrant such a limitation.

* During the entire trial, defendants’ approach to their Permit violations

was rather cavalier, They repeatedly argued there was no real harm caused

by their numerous violations. and stressed that the Pagan River would sull

be environmentally damaged, and unsafe for swimming and shellfish

harvesting, even if defendants complied with their Permit. Such

arguments miss the mark. As the United States pointed out in closing

argument:

The goal of the Clean Water Act is bit by bit to clean up the waters of

the United States .. . . The defendants cannot evade their responsibility

for their part in the damage to the Chesapeake Bay through the discharge

of phosphorus [and other effluents] into the Chesapeake Bay by saying,

“If you took ours out, it wouldn't make any difference” because

everybody contributing to the Bay bears a responsibility tor what went

into the Bay.

Tr. at 970. A violator cannot escape liability or penalties for Permit

violations simply by pointing to the violations of others. Each must do its

part to clean up the environment. Only then will the goals of the Clean

Water Act be achieved.

37a

maximum is $4,100,000. For defendants’ 15 days of violation

in Count VI (submission of inaccurate DMRs), the statutory

maximum is $375,000. For defendants’ 884 days of violation

in Count VII (failure to maintain or destruction of records),

the statutory maximum is $22,100,000. Accordingly, the total

Statutory maximum penalty for defendants’ 6,982 total days

of violation of their Permit is $174,550,000, or $174.55

million. However, before assessing any penalty, the court

must first review the facts of the case in light of certain

factors set forth in Section 309(d).

Ill. Appropriate Civil Penalty for Defendants’ Violations

A. Section 309(d) Factors

Section 309(d) of the Act provides that “{un determining

the amount of a civil penalty the court shall consider the

seriousness of the violation or violations, the economic

benefit (if any) resulting from the violation, any history of

such violations, any good-faith efforts to comply with the

applicable requirements, the economic impact of the penalty

on the violator, and such other matters as justice may

require.” The court will address each of these Section 309(d)

factors in turn.

1. Seriousness of Violations

In determining the seriousness of defendants’ violations,

the court will consider the frequency and severity of the

violations, and the effect of the violations on the environment

and the public. See United States v. Avatar Holdings, Inc.,

No. CIV.FTM.93-281-21, 1996 WL 479533, at *6 (M.D.Fla.

Aug.20, 1996) (unpublished) (the seriousness of the

violations is determined by considering “the number, duration

and degree of the violations as well as the actual or potential

harm to human health and the environment”; “{a] substantial

reduction in the maximum statutory penalty is warranted

where the violations caused minimal environmental

damage”); Friends of the Earth, Inc. v. Laidlaw Envil. Serv.

38a

(TOC), Inc., 956 F.Supp. 588, 602 (D.S.C.1997) (“presence

or absence of environmental harm is relevant” to the penalty

assessment).

a. Counts I-IV: Effluent Limit Violations

i. Frequency and Severity

of the Violations

With regard to frequency, the phosphorus limit violations

were very frequent in this case, and the TKN and ammonia

limit violations were frequent enough to cause concern.

Between December, 1991, and February, 1997, defendants

exceeded their phosphorus limits in at least 69% of all months

for Outfall 001 and 76% of the months for Outfall 002.”

Defendants also exceeded TKN limits in at least 41% of the

months for Outfall 001 and 13% of the months for Outfall

002, and ammonia limits in at least 25% of the months for

Outfall 001 and 5% of the months for Outfall 002.

Based on the credible testimony and evidence, most of

defendants’ violations were severe. With regard to the

severity of the violations, some courts consider the extent to

which a violator’s discharges exceed the permit limits to

assess the seriousness of the violation. See, e.g., Public

Interest Research Group of New Jersey, Inc. v. Powell

Duffryn Terminals, Inc., 720 F.Supp 1158, 1161, 1163, 1166

(D.N.J.1989), aff'd in part, rev'd on other grounds, 913 F.2d

64 (3d Cir.1990), cert. denied, 498 U.S. 1109, 111 S.Ct.

1018, 112 L.Ed.2d 1100 (1991). In this case, the credible

evidence was that most of defendants’ effluent limit

violations extensively exceeded the Permit limits. On

average, defendants exceeded the phosphorus limits by

1,055%, fecal coliform limits by 1,365%, ammonia limits by

97%, cyanide limits by 168%, oil and grease limit by 114%,

and the TSS limit by 63.5%. The only exceedances that were

” Defendants operate two wastewater treatment plants located on the

Pagan River, Outfall 001 and Outfall 002.

39a

slightly above the limits were TKN discharges, which

exceeded the limits by 35%, and chlorine discharges, which

exceeded the limits by 8%. Thus, defendants’ effluent

violations were frequent and severe.

i. Impact on the Environment and the Public

The court may justifiably impose a significant penalty if it

finds there is a risk or potential risk of environmental harm,

even absent proof of actual deleterious effect. Natural

Resources Defense Council, Inc. y. Texaco Refining &

Marketing, Inc., 800 F.Supp. 1, 21 (D.Del.1992): United

States v. Roll Coater Inc., 2) Envtl.L.Rep. 21073, 21075

(S.D.Ind.1991) (also noting that lack of damage is a

mitigating factor).

Defendants’ wastewater treatment plants, Outfalls 001 and

002 (Gwaltney). are located on the Pagan River at

approximately river kilometer 9 and at approximately river

kilometer 6, respectively. Outfall 001 discharges into a

marshy area. Upstream of Outfall OO1, the Pagan River is

sparsely developed.

The watershed for the Pagan River is approximately 50%

forest. The river is a relatively shallow estuary, most of which

is surrounded by marsh. Direct harvesting of shellfish in the

Pagan is prohibited. However, the river is used by the public

for recreational boating, fishing, crabbing, hunting, and

swimming. The Pagan is of moderate salinity (mesohaline)

from kilometer 0, which is at the confluence with the James

River, to kilometer 10 or 11. After approximately kilometer

10 or 11, the Pagan is of lower salinity (oligohaline).

On average, defendants’ discharges accounted for

approximately 10% of the freshwater flow into the Pagan

River and as much as 50% of freshwater flow during low

flow periods. It is during low flow periods that water quality

can most exacerbate biological effects. Based on the EPA’s

“Fraction of Freshwater Flow” model based on salinity, and

40a

historic modeling efforts used to describe the particular tidal

flushing characteristics of the river, the credible evidence ts

that pollutants introduced at Outfalls 001 and 002 will peak

near, Or just upstream of, Outfall 001.

(a) Nutrients

Phosphorus and nitrogen are nutrients.” Nutrients do

enable living organisms to grow, but they can be harmful in

large quantities. Excessive nutrient loadings,'' or nutrient

enrichment, in the Pagan River cause eutrophication and are a

primary cause of the absence of submerged aquatic vegetation

(“SAV”) in the Pagan River. Eutrophication is the over

stimulation or overproduction of organic carbon in an estuary.

Excessive nurient loadings stimulate productivity of algae,

which decreases sunlight to plants, and causes increased algae

growth on plants and increased turbidity. Eutrophication ts

likely to cause changes in phytoplankton, zooplankton, and

benthos, which can affect fish. To limit eutrophication, the

Chesapeake Bay Program has established SAV restoration

goals of .02 mg/l for phosphorus in bodies of water with low

salinity, and .O1 mg/l in waters with moderate salinity.

SAV is a critical component of the ecosystem. It has

tremendous habitat value, as there are generally more fish,

crabs, and benthic (bottom-dwelling) organisms in habitats

with SAV than in habitats without SAV. The Chesapeake Bay

Foundation has directed major efforts towards reducing

nutrient loadings to the Chesapeake Bay and encouraging

While there was no limit in defendants’ Permit for total nitrogen,

nitrogen was measured by TKN limits before May 13, 1994. and by

ammona limits after May 13, 1994. TKN includes ammonia and a

measure of organic nitrogen, which can break down into ammonia and

subsequently consume oxygen. In the mver, when oxygen ts consumed,

ammonia may be converted into nitrite of nitrate

"As noted previously, the monthly average loading limits in

defendants’ Permit control the total pounds of effluent discharged per day

into the Pagan River

4la

SAV restoration. Nutrient loadings discharged into the Pagan

River contribute to nutrient loadings in the James River, and

ultimately the Chesapeake Bay. Accordingly, any excess

discharges into the Pagan River may affect both the James

River and the Chesapeake Bay, and would hinder the efforts

of several states and the federal government to reduce

nutrient loadings into the Chesapeake Bay.

(1) Phosphorus

Phosphorus is discharged into the Pagan River from point

sources, such as wastewater treatment plants and storm water

drains, and nonpoint sources, such as run-off from fertilized

lields, septic systems, and marinas. Phosphorus also comes

from sources within the Pagan River, such as decomposed

oyster shells, plants, and the soil. Defendants’ total loadings

from Permit exceedances for Phosphorus from December,

1991, through February, 1997, were approximately 79% of

the phosphorus entering the Pagan River." During that same

period, phosphorus loadings from nonpoint sources were

approximately 11.1% of the phosphorus entering the Pagan

River. The Town of Smithfield Wastewater Treatment Plant,

the only other major point source at the time, had phosphorus

loadings comprising approximately 1.4% of the phosphorus

entering the Pagan. The loadings were not significant from

other minor point sources. For the James River, phosphorus

loadings attributable to defendants’ Permit exceedances

accounted for approximately 9% of total point-source

phosphorus loadings to the James River.

The Chesapeake Bay Program has designated the Pagan

River and lower James River as severely stressed with regard

* Defendants’ total loadings (including allowed discharges and

violations) were approximately 87% of phosphorus entering the Pagan

River during this time period. Although the phosphorus limit in the Permit

did not take effect until January 3, 1992, it is unlikely this fact would

change the percentage of phosphorus entering the Pagan River due to

defendants’ exceedances of their Permit.

42a

to phosphorus. Clearly defendants have contributed to this

condition, since 79% of the phosphorus loadings to the Pagan

River are a result of defendants’ Permit exceedances.

Throughout the Pagan River, phosphorus concentrations in

the river exceed the .0!1 and .02 phosphorous goals for SAV

restoration established by the Chesapeake Bay Program. Data

for phosphorus concentrations show, however, that the

phosphorus concentrations increase as one approaches Outfall

002 from the mouth of the river and peak in the vicinity of

Outfall OO1. As phosphorus’ causes — eutrophication,

particularly in lower salinity areas of the river where

defendants were discharging, defendants’ Permit exceedances

for phosphorus potentially stimulated more primary

productivity when they added more phosphorus to the river.

Based on loadings estimates and water quality data, water

quality concentrations in the Pagan River are therefore

strongly influenced by discharges from defendants’ Outfalls,

and peak concentrations of phosphorus in the Pagan River are

attributable to defendants’ Permit exceedances. Thus,

defendants’ phosphorus violations had a_ detrimental

ecological effect on the river, as they significantly contributed

to the large phosphorus concentrations in the Pagan River,

and these concentrations exceed the goals for SAV

restoration.

(2) TKN and Amenonia

The total nitrogen concentrations in the river exceed the .15

nitrogen goal for SAV _ restoration established by the

Chesapeake Bay Program throughout the river. From

December, 1991, through February, 1997, defendants’

ammonia and TKN violations resulted in a minimum of 1%

additional nitrogen entering the Pagan River.'* Since the

TKN and ammonia violations contributed excess nitrogen to

the Pagan River, they contributed in part to the eutrophication

of the river. Furthermore, the ammonia violations create a

'* Defendants’ nitrogen loadings comprised approximately 63% of the

nitrogen entering the Pagan River during this ime penod

43a

potential for toxicity, and the TKN violations can be an

indicator of problems at a wastewater plant. Based on the

STORET data presented at trial,'* concentrations of nitrogen

increase near Outfall 002 and peak in the vicinity of Outfall

OO1, just like the phosphorus concentrations. Accordingly,

there is sufficient evidence that defendants’ ammonia and

TKN violations contributed to the high _ nitrogen

concentrations in the Pagan River, which exceed the nitrogen

goal for SAV restoration established by the Chesapeake Bay

Program.

(3) Impact of Nutrient Discharges

The Pagan River and neighboring rivers and streams

exceed SAV restoration goals, and the entire Chesapeake Bay

Basin has been designated an SAV-impacted area by the

Chesapeake Bay Program. However, according to the

STORET data comparison of the Pagan River and

neighboring estuaries during December, 1991, through

February, 1997, the concentrations of nutrients, such as

phosphorus and nitrogen, and of fecal coliform, are higher in

the Pagan River than the neighboring estuaries. There is

evidence that the Pagan River is eutrophic. First, the

STORET water quality data and the eutrophication index

prepared for the EPA’s Office of Research and Development

show that the Pagan River scores a 5 on a scale of | to 5, with

5 being the most eutrophic. Second, Dr. Jeffrey B. Frithsen

and Dr. William A. Richkus, the United States’ experts at

trial in estuarine ecology and fisheries biology, respectively,

presented credible testimony that the Pagan River is

eutrophic, as evidenced in part by the fact that there was no

SAV in the Pagan River and the benthic communities showed

eutrophication.”

'* The STORET is a water quality database that the EPA maintains and

to which states submit information.

'’ Defendants’ water quality expert, Edwin L. Barnhart, primarily dealt

with freshwater systems, and he is not an expert in marine ecology,

44a

In light of the STORET data’s pattern of concentrations in

the Pagan River for phoshorus and nitrogen, and defendants’

excessive loadings reported in their DMRs, it is clear that

defendants’ Outfalls are the major source of nutnents in the

river from December, 1991, through February, 1997,

particularly phosphorus. Although it 1s unclear whether there

would be no eutrophication and restoration of SAV in the

Pagan River, if defendants were in compliance with the

phosphorus and nitrogen limitations in their Permit,

defendants’ compliance would bring the Pagan River closer

to meeting the goals for SAV restoration set by the

Chesapeake Bay Program.

Defendants are not the sole cause of the degradation and

eutrophication to the nmver, but their exceedances of the

phosphorus, TKN, and ammonia limits clearly contributed to

the degradation and eutrophication of the Pagan River and

connected waters, such as the James River. The Pagan River

would have been less eutrophic from December, 1991,

through February, 1997, had defendants met their Permit

limits for these nutrients. Defendants’ pollutant loadings

affected water quality and impaired biobgical resources,

including SAV and benthic cornmunities, which participate in

metabolic activities of the estuanes and serve as food for fish.

No significant stands of SAV were present in the Pagan

River, and this is pnmarily caused by nutient enrichment.

There is limited fish spawning in the nver. and commercial

and recreational fishing, crabbing. and shellfish harvesting

are also limited in the Pagan River. Accodingly, both the

fishenes biology. or environmental micromology. The court finds the

United States’ experts more credible regardug the effects of

defendants phosphorus. ammonia. and TKN violaions on the Pagan

River. James River. and the Chesapeake Bay. Defendants’ Permit

exceedances increased loadings. which resulted in ingeased concentration

of nutrients in the Pagan River. which contnbuted to atrophication.

Og ee ee ee ee

45a

overall environment and human use have been affected by the

eutrophication and degradation of the river, to which

defendants significantly contributed with their Permit

violations.

(b) Fecal Coliform

Fecal coliform is an easily measurable organism which

Serves as an indicator of possible disease-carrying pathogens

in a body of water. The purpose of the fecal coliform standard

is to prevent public illness from waterborne diseases, such as

intestinal infections, and water-washed diseases, such as skin,

ear, and eye infections, caused by swimming in contaminated

water. Although fecal coliform levels in the Pagan River

indicate a public health risk, they are not entirely accurate

indicators of pathogens present in the river, as some

pathogens die quicker than fecal coliform, and a few may

survive longer than fecal coliform. From December, 1991,

through February, 1997, microbiological pollution based on

fecal coliform levels in the Pagan River was severe in the

upper reaches of the river, and moderate in the lower reaches

of the river. When microbiological pollution exists, and fecal

coliform concentrations are high, there is a risk of illness for

people who come in contact with the river during contact

recreation, such as swimming and water skiing, and for those

who eat foods in contact with the water, such as shellfish.

Due to the fecal coliform contamination of the Pagan River,

direct harvesting of oysters is prohibited in the river, and

direct contact recreation is discouraged.

Defendants’ effluent included fecal matter from hogs, as

well as humans, namely the approximately 3,000 employees

working at the plants each day. Defendants’ exceedances for

the total maximum daily limit for fecal coliform were in

many cases substantially over the limit. Although defendants

Suggest the other major point source in the area, the Town of

Smithfield’s wastewater treatment plant, is a more significant

source of fecal coliform, combined flows from Outfalls 001

46a

and 002 averaged over 2.5 million gallons per day, while the

flows of the Town of Smithfield averaged less than .5 million

gallons per day. In addition, based on flow, fecal coliform

levels coming from defendants were five times the levels

coming from the Town of Smithfield. Unlike defendants, the

Town of Smithfield did not violate its permit limits for fecal

coliform from December, 1991, through February, 1997.

Furthermore, since extensive expanses of marsh and forest

bordering most of the Pagan serve as buffers and filters

between nonpoint sources and the river, the court also does

not find nonpoint sources to be significant sources of fecal

coliform, when compared to defendants’ fecal coliform

discharges from December, 1991, through February, 1997.

Nonsource polluters. such as the housing and commercial

units in the Town of Smithfield, were also not major polluters

because 94% were on public sewer service.

Although they are unquantifiable, loadings of fecal

coliform from defendants’ violations are significant. Dr.

Wesley O. Pipes, the United States’ trial expert in

environmental microbiology, concluded that several of

defendants’ fecal coliform violations were caused by their

failure to disinfect properly their effluent. Data for fecal

coliform concentrations in the Pagan River follow the same

general pattern as the nutrients, as the concentrations increase

near Outfall 002 and peak in the vicinity of Outfall O01.

Although defendants are not the only source of fecal coliform

in the Pagan River, their Permit exceedances significantly

contributed to the microbiological contamination of the Pagan

River, and further delayed direct harvesting of shellfish and

safe direct contact recreation in the river.

With regard to the other effluent violations of the Permit,

the evidence showed there were potential toxic effects from

defendants’ chlorine and cyanide violations, and defendants’

47a

oil and grease violation. Defendants’ TSS violations po-

tentially affected water clarity, which shields sea grasses and

other primary producers from sunlight. Such violations also

make the river less appealing to humans. Defendants’ pH

violations potentially caused acidic or alkaline conditions,

which would affect the toxicity of the effluent.

it. Conclusion

In conclusion, based on the credible testimony and

evidence presented at trial, most of defendants’ Permit

discharge exceedances clearly had a severe and significant

impact on the water quality of the Pagan River, in light of

their frequency and severity. The harm to the environment

and the risk to human health caused by defendants’ numerous

effluent limit violations are serious, and will be considered by

this court when assessing the appropriate penalty.

Counts V-VI1: Records and

Reporting Violations

Although 164 days of violation for untimely reports, 15

days of violation for submission of false reports, and 884

days of violation for failure to maintain or destruction of

records, may not be considered “serious” violations by some

courts, since they were not done by defendants in “bad faith,”

see Laidlaw Envil. Serv., 956 F.Supp. at 603 (“monitoring

violations . . . not considered serious unless they are found to

have been in bad faith”), or because they did not directly

harm the environment, id. (“Reporting deficiencies do not

produce the type of direct environmental impact which is the

primary purpose behind the [Act].”) (citations omitted), such

violations do impact the effectiveness of the self-reporting

scheme set up by the Act.

When a permittee falsifies DMRs, fails to maintain

supporting records, or destroys records, the permittee may be

covering up serious violations of effluent limitations. Thus.

48a

the court cannot assume that violations of monitoring and

reporting requirements in a permit are trivial. Since the Clean

Water Act relies on self-reporting of permittees, such

violations undermine the Act and are considered serious by

this court, despite the fact that they are not discharge

violations. With regard to the late reports, the violations are

not as serious as the other violations of the reporting

requirements, but they are still problematic.

2. Economic Benefit (if any) Resulting from Violations

Clearly, “[vJiolators should not be able to obtain an

economic benefit vis-a-vis their competitors due to their

noncompliance with environmental laws.” Powell Duffryn,

913 F.2d at 80. Courts use economic benefit analysis to level

the economic playing field and prevent violators from gaining

an unfair competitive advantage. The analysis provides an

approximation of the amount of money a company has gained

over its competitors by failing to comply with the law. Since

it is difficult to prove the precise economic benefit to a

polluter, a reasonable approximation of economic benefit is

sufficient.

For their phosphorus discharges, defendants did not have a

treatment system at either plant that could remove

phosphorus, but they could have achieved compliance in

1992 by installing a chemical addition system at the dissolved

air flotation system, with a second chemical addition point for

ferric chloride at the final clarifier, and by instituting source

control within the plant. Such treatment systems were

installed four years later at Smithfield Packing in January,

1996, in anticipation of defendants’ connection to the

Hampton Roads Sanitation District (“HRSD”) system.

Although similar treatment systems were never installed at

Gwaltney, it is likely they would be more expensive at

Gwaltney, based on an estimate prepared by defendants’

consultant, CH2M Hill, and a prior estimate by defendants’

49a

own expert, J. Willis Sneed, an engineer with Wells

Engineering Environmental, Inc. In both estimates, the

installation cost was higher for Gwaltney than for Smithfield

Packing. Nonetheless, the annual operation and maintenance

of the Gwaltney system would have resulted in a profit for

defendants each year, had defendants installed the treatment

system at Gwaltney. The installation of such equipment for

treatment of phosphorus was not inconsistent with the hookup

to HRSD, as it could have been used as part of an effective

pre-treatment system upon connection to HRSD. Garry E.

Stigall, the United States’ expert in sanitary engineering,

admitted that his estimates of the cost of compliance were

minimum estimates, based on installing just enough

equipment to get by, and that actual costs would likely exceed

his estimates.’

The credible testimony and evidence was that defendants

also had insufficient oxygenation in the aerobic lagoons. This

lack of aeration most likely caused defendants’ violations of

the ammonia and TKN limits, and the pH and fecal coliform

limit violations in 1994. Since there was also testimony that

defendants could not have been consistently meeting their

TKN or fecal coliform limits between 1991 and 1994, they

should have installed additional aeration capacity at both

plants in October, 1991. Although some aerators were

installed at both plants in 1994, more aerators were required

at Smithfield Packing to ensure compliance with the ammonia

limit.

The court acknowledges there are various methods for

calculating defendants’ economic benefit gained from

'° Defendants do not get credit for past or future money spent on

HRSD user fees, sewer surcharges, or other equipment installed at

Gwaltney to enable them to connect to HRSD, as the court finds based on

the credible evidence and testimony, that the user fees and surcharges are

neither avoided or delayed costs, and such equipment was not necessary

for a facility upgrade to bring defendants into compliance.

50a

noncompliance. However, based on the credible testimony,"’

the court finds the avoided and/or delayed cost of compliance,

and the weighted average cost of capital (WACC)'® as a

discount/interest rate in the economic benefit calculation, to

be both the best and the appropriate method to determine how

much money defendants made on the funds they did not

spend for compliance. When a company delays or avoids

certain costs of capital and operations and maintenance

necessary for compliance, the company is able to use those

funds for other income-producing activities, such as investing

that money in their own company.

Robert Harris was called as an expert in financial analysis

by the United States. Using Harris’ WACC rate of

approximately 11.83% to 12.49% for Smithfield Packing and

Gwaltney of Smithfield, the court agrees with Harris’

conclusion that defendants gained an economic benefit of

approximately $4,253,070, or $4.2 million, from avoided and

delayed compliance.'’ Thus, it is clear that defendants saved a

substantial amount of money by delaying the construction of

equipment, or avoiding the purchase and installation of

equipment, that would have allowed them to comply with

their Permit and the Clean Water Act.

"’ The court was more persuaded by the testimony of the United States’

economic benefit expert, Robert Harris. The court rejects in most part the

testimony of defendants’ experts Robert H. Furhman and A. Lawrence

Kolbe, and particularly the risk-free rate analysis.

'* The WACC is the average return a company expects to make for its

investors, in order to maintain its current level of investors and its current

level of business operations. Tr. at 366-67.

" Even if the errors identified by defendants in Harris’ calculations

were remedied (other than his failure to use the risk-free rate), there is

only a slight decrease in his estimate of defendants’ economic benefit of

noncompliance. This difference, of approximately 4%, is not significant.

od vat aa le a os Rae ell

Sla

3. History of Such Violations

In determining the “history of such violations,” courts

consider the duration of defendants’ current violations,

Whether defendants have committed similar violations in the

past, and the duration and nature of all of the violations,

including whether the violations are perpetual or sporadic.

See United States v. City of San Diego, No. CIV. 88-1101-B,

1991 WL 163747 (S.D.Cal. Apr.18, 1991); Student Publ.

Interest Rersearch Group of New Jersey, Inc. v. Hercules,

Inc., 19 Envtl.L.Rep. 20903, 20906 (D.N.J.1989). The Permit

violations in this case, especially the effluent limit violations,

are of significant duration and are perpetual. There were

violations of the effluent limits and the monitoring and

reporting requirements throughout the six-year period

covered by this lawsuit, from 1991 through 1997.

Furthermore, this is not the first time defendants have been

sued for violations under the Clean Water Act. See

Chesapeake Bay Found., Inc. v. Gwaltney of Smithfield, 611

F.Supp. 1542 (E.D.Va.1985) (lengthy four-year subsequent

history omitted). Accordingly, defendants have a history of

violations, which will be taken into account in determining

the appropriate penalty.

4. Good-faith Efforts to Comply

with Applicable Requirements

Whether defendants took any actions to decrease the

number of violations or made efforts to mitigate the impact of

their violations on the environment must be also considered

when the court is determining the appropriate penalty for

permit violations. See, e.g., Atlantic States Legal Found., Inc.

v. Universal Tool & Stamping Co., Inc., 786 F.Supp. 743, 752

(N.D.Ind. 1992); Roll Coater, 21 Envtl. L. Rep. at 21076-77.

52a

a. Counts 1-IV: Effluent Limit Violations

In their favor, defendants will soon fully connect to the

HRSD system in 1997,”° with the result that defendants will

have zero discharge into the Pagan River in the future. Thus,

defendants do get some credit for their steps. although slow,

that they have taken to eliminate their future effluent

violations, regardless of whether they elected to connect to

HRSD for environmental or economic reasons, or both.”! But

cf. Powell Duffryn, 913 F.2d at 81 (reversing district court’s

reduction of penalty on basis that defendant attempted to

comply with state, and holding that defendant’s actions did

not rise “to the level of good faith”). See generally Universal

Tool, 786 F.Supp. at 752 (consideration given to record

showing that defendant worked diligently with the state

department).

However, the court must also consider whether there were

any other good-faith efforts by defendants to comply with the -

applicable requirements in the Permit from 199] until the

HRSD connection. Although defendants did agree on July 15,

1991, to connect to HRSD soon after it became available,

there was little to no evidence at trial that defendants made

any efforts to facilitate their connection to HRSD, or to treat

their wastewater and/or decrease their discharge of pollutants

°° At the time of trial, defendants had not yet completed their HRSD

connection. However, such full connection apparently is imminent. In any

event, the court reiterates that the liability and resulting penalty in this

case are for past discharges, pre-dating the HRSD connection.

"In May, 1991, defendants’ consultant CH2M Hill advised defendants

to connect to HRSD, finding that “the overall most cost-effective

alternative for Smithfield Foods, when considering both plants together, is

to discharge to HRSD.” PI.Ex. 21 at SF403218. Also, the State Water

Control Board advised defendants that the HRSD connection would aid

the Town of Smithfield with its sewer problems, provide sewage service

to Isle of Wight County, and result in a much-needed upgrade of the

Nansemond Wastewater Treatment Plant. See Tr. at 491-92.

ties

53a

in the interim. Defendants were granted two extensions to

decide whether to connect to HRSD. The HRSD connection

was further delayed when the sewer line was relocated closer

to defendants’ facilities. It is undisputed that defendants have

spent a considerable amount of money to connect to HRSD,

but in this document-intensive case, defendants could not

point to any document indicating they took any steps to

facilitate or speed the connection with HRSD.~

Defendants could have curtailed production to achieve

compliance with the effluent limits in the interim, as they had

done prior to 1991. After 1991, however, defendants reduced

the number of times they cut back production. By 1995, they

were no longer cutting back on production to achieve

compliance. Defendants apparently had an incentive to

maintain or increase the level of production, and their

discharge of pollutants, until the HRSD connection.

According to defendants, the Commonwealth's Special

Orders took precedence over their Permit, and they were in

_compliance, if they agreed to connect to the HRSD system

within three months of availability, regardless of the date the

connection became available or the amount of phosphorus,

carbonaceous biological oxygen demand (“CBOD”),

ammonia-nitrogen, and cyanide they discharged.~* Other

** At trial, the only document to which defendants pointed was defense

exhibit SO. a letter dated May 23, 1996, from James R. Borberg, General

Manager of HRSD. to W. Bidgood Wall. Jr.. of the state board. regarding

HRSD’s request for lost revenue from the DEQ due to the delay in the

Smithfield Foods-HRSD connection. In the letter, HRSD attributes the

delay to the DEQ’s failure to enforce its consent order with Smithfield

regarding the HRSD connection. Matters between the HRSD and the state

board are not relevant, as defendants must show that they—nor HRSD—

objected to the delay and that they took steps to facilitate the connection.

No such documents exist in the record of this case.

“In its May 30. 1997 Opinion. the court held the Special Orders did

not take precedence over the Permit. At trial, Richard Burton, the

former Director of the State Water Control Board and then the DEQ,

S4a

than agreeing to the HRSD connection, defendants did not

attempt to comply in the interim with the phosphorus, CBOD,

ammonia and cyanide limits in the Permit, such as facility

upgrade or a decrease in production, since they apparently

believed they could discharge as much and as frequently as

they wanted into the Pagan River under the terms of the

Special Orders.

Defendants also claim they acted in good faith since they

often engaged consultants, such as in the fall of 1994.

However, this expert advice was often ignored and the

implementation of suggestions was often delayed. For

example, serious deficiencies in the operation and

maintenance of the treatment plant identified by Larry Lively

in his internal “audit” of defendants’ wastewater treatment

plants in 1990. were not completely remedied by

defendants. Moreover, in 1991, although HRSD, the DEQ,

and defendants’ consultant informed defendants that there

was insufficient oxygen in the aeration lagoons to remove

nitrogen, defendants did not regularly record the oxygen

levels in the aeration lagoons. Insufficient oxygen was

supplied to defendants’ aerobic lagoon as early as March.

1991, with the result that defendants violated their TKN and

ammonia limits in the Permit.

Defendants’ insufficient and inadequate efforts at com-

pliance are also evidenced by the credible testimony and

testified that the Commonwealth did not intend the consent order to be a

modification of the Permit, and he acknowledged the express language in

the May. 1991 Special Order that “nothing herein shall be construed as

altering. modifying, or amending any term or condition contained” in

defendants’ Permit. Tr. at 495-96. Moreover, Burton testified that “the

order speaks tor the Commonwealth” —he did not maimtain that it spoke

tor or bound the EPA. Tr. at 504.

* At this time, Lively was a project engineer at detendants” Kinston.

North Carolina plant. He was later transferred to work at defendants’

wastewater treatment plants in Smithfield, Virginia, as a director of

environmental aftairs

55a

evidence that defendants’ wastewater treatment plants were

not properly operated and maintained. When Lively was

acting as defendants’ director of environmental affairs, Terry

Rettig was the chief operator of defendants’ wastewater

treatment plants. Lively decided to allow Rettig to run the

treatment plant “on his own,” with little supervision by

Lively. From 1990 until Rettig was transferred out of the

plant, Lively and Carl Wood, a vice president of Smithfield

Foods, allowed Rettig to perform work for several outside

wastewater treatment plants, even though he was the only

licensed operator at defendants’ plants. By 1993, Rettig was

often absent from defendants’ plants. His absence was

exacerbated in 1993 by defendants’ decision to cut costs by

leaving the wastewater treatment plant unsupervised for one

shift a day, from 4 p.m. to 6 a.m. During 1992 and 1993,

when Lively began to spend significantly less time at

defendants’ facilities, there was no one other than Rettig

supervising the wastewater treatment plants. Although Lively

provided the second signature on each of the DMRs prepared

and signed by Rettig, Lively never spot-checked the bench

Sheets from which the information in the DMRs was drawn.

Defendants were notified in May, 1994, that the DEQ was

investigating Rettig with regard to his outside activities at the

other facilities, and his use of defendants’ laboratory to

perform work for outside clients. When an interview with the

DEQ was scheduled in June, 1994, to discuss the allegations,

Rettig failed to attend. Despite these facts, defendants did not

conduct any investigation of Rettig or of their own laboratory

records. At a second meeting held on July 21, 1994, Rettig

could not locate the pre-1994 records requested by the DEQ,

which were held in boxes in a storage room to which only

Rettig, Diane Carson (then the chief of the wastewater

treatment laboratory), and another employee, Henry Morris,

had keys. Neither Lively nor Wood asked Carson or Morris if

they knew the location of the records, and Carson declined to

inform defendants that she saw Rettig dumping several boxes,

S6a :

which may have contained the records, into a dumpster at

defendants’ plant in the summer of 1994. When bench sheets

for the 1992-1993 time frame were recovered by Carson in

August, 1995, they showed that the DMRs submitted by

defendants to the DEQ were falsified by Rettig for certain

months. Thereafter, Rettig was asked to resign, and this

information was turned over to the DEQ. Although Rettig’s

destruction of the documents was against company policy and

in direct contravention of Lively’s order to get the documents,

defendants did not take all of the necessary steps to

investigate the disappearance of. the documents, or prevent

such destruction in the future. Even after it was discovered

that Rettig falsified data on the DMRs, defendants did not

require spotchecks of bench sheets or laboratory reports.

Defendants have submitted at least three inaccurate DMRs

since Rettig’s departure from the company.

Inadequate training of wastewater treatment plant

employees was another problem at defendants’ plants, which

likely contributed to their Permit violations. For example,

problems at the plant, such as solids not being removed by the

skimmer at the dissolved air flotation unit at Smithfield

Packing, and the ferrie chloride addition tank running out of

ferric chloride, were likely attributable to inadequately trained

or supervised staff, or short-staffing. When Rettig was the

chief Operator of defendants’ plants, he was the only

treatment plant or laboratory employee who knew the Permit

limits. In August, 1994, Carson succeeded Rettig, and was

made operations manager for the wastewater treatment plant,

despite the fact that she did not have the correct license to

operate the plant and had never supervised the operation of

such a plant before. Despite Carson’s lack of proper

qualifications, she did take steps to ensure that defendants’

employees were made aware of the Permit limits after

August, 1994. Carson instituted several policies and

procedures to facilitate compliance and the reporting of

Permit violations. She developed “flag sheets,” which

S7a

identified potential violations, and “problem sheets,” for use

by employees in addressing specific problems at the plants. It

was not until April, 1997, however, that defendants issued a

policy on reporting Permit violations.

b. Counts V—VII; Records and

Reporting Violations

Although there is no evidence of bad faith on the part of

defendants with regard to the monitoring and reporting

requirements in Counts V through VII,” or that anyone other

than Rettig was involved in the falsification and destruction

of documents, defendants’ efforts at compliance could have

been more vigorous. They should have had safeguards to

prevent delays in reporting, falsifications, or destruction of

records. To prevent delays, defendants could have employed

another plant operator or supervisor who could perform the

record-keeping and reporting requirements in the absence of

Lively, or the person normally in charge of the records. To

prevent falsification, defendants could have instituted random

spot-checking of reports. To prevent the problem of missing

records from destruction of such, defendants could have

retained copies of these documents and placed them in a

different and secure location. Accordingly, defendants are

entitled to some credit for their lack of bad faith for these

violations, but they are not blameless, as they failed to

institute proper safeguards to ensure compliance with the

Permit in this regard.

5. Economic Impact of the Penalty on the Violator

Penalties are not limited to the economic benefit derived

from noncompliance, as such a penalty would make the

** Kor example, with regard to the document destruction alleged in

Count VII, defendants contend there were good-faith efforts to comply, as

Lively ordered Rettig to retrieve the records from storage on July 21,

1994. and Rettig’s destruction of those documents was in direct

contravention of defendants’ records retention policy.

S8a

violator no worse off than complying in a timely manner.

Hercules, 19 Envtl.L.Rep. at 20904 (citing Gwalmey, 611

F.Supp. at 1557); Tull v. United States, 481 U.S. 412, 422-23,

107 S.Ct. 1831, 1838, 95 L.Ed.2d 365 (1987) (economic gain

and restoration of the status quo not the only basis on which

penalties should be awarded under the Clean Water Act;

penalties are designed to punish violators for their

noncompliance and serve the goals of retribution and

deterrence). The main purpose of the penalty is to deter the

violator and others from committing future violations.

In accordance with these principles, the court is required to

consider the economic impact of the penalty on the violator.

In doing so, the court may consider appropriate economic

indicators of a company’s financial status. One such indicator

is the stockholder’s equity, which is the net of a company’s

total assets minus total liabilities, and which gives a good

indication of the size of the company. Based on its financial

statements from 1992 through 1996, Smithfield Foods is a

large and financially healthy company, as its total

stockholders’ equity is over $240 million. As presented by the

United States at trial, the $4.2 million of economic benefit

represents only 1.7% of defendants’ stockholders’ equity; and

a $16 million penalty, representing 6.4% of defendants’

stockholders’ equity, would have a more material, but not

detrimental, effect on the company’s financial condition.”

Accordingly, the government asks for a penalty of $20

million.

°° These figures and conclusions derive from the credible expert

tesumony of Robert Harris. See Tr. at 389-90. Although the court refused

the evidence regarding the $16 millon in economic benefit gained by

defendants from “wrongful profits,” because this opinion had not been

properly given to defendants during pre-trial discovery, the court agrees

that a $16 million penalty would have a material, but not detrimental,

financial effect on defendants. However, the court itself makes this

conclusion based upon defendants’ financial statements and other evi-

dence in the case.

59a

6. Other Matters as Justice May Require

For this factor of Section 309(d), courts may either increase

or decrease the penalty in light of other matters, such as bad-

faith conduct of the violator, a violator’s attitude toward

achieving compliance, and the violator’s ability to comply

with the Act. See Powell Duffryn, 720 F.Supp. at 1167,

aff'd in part, rev'd in part on other grounds, 913 F.2d 64:

United States v. Velsicol, 8 Envtl.L.Rep. 20745, 20748

(W.D.Tenn.1978); Gwaltney, 611 F.Supp. at 1561. The court

has already commented on defendants’ attitude; 7’ and the

court has found no bad faith.** Thus, these two factors seem

to cancel each other out. Furthermore, the court is of the

opinion that defendants could have complied by reducing

production or updating equipment.”

One factor the court has not addressed is defendants’

assistance to the Town of Smithfield to connect to the HRSD

system. The Town may not have been able to connect to

HRSD, if defendants had not elected to connect to HRSD,

and given assurances of their continued business presence in

the town. The court will also consider the fact that certain

DEQ reports showed that defendants’ facilities were in

compliance, and thus defendants thought they were in

compliance, at least with state requirements.

B. Penalty Calculation

For the 6,982 total days of violation of defendants’ Permit,

the court’s penalty may not exceed the statutory maximum,

$174.55 million. However, after calculating the statutory

maximum penalty,*” the court must then determine the

”” See supra note 8.

** See supra Part III.A.4.b.

*° See supra Part IIL.A.2. and IIL.A.4.a.

1g)

See supra Part I.

60a

methodology to use in assessing an appropriate civil penalty,

after consideration of the Section 309(d) factors. Some courts

use the “top-down” method of penalty calculation, in which

the court begins the penalty calculation at the statutory

maximum, and adjusts downward considering the Section

309(d) factors. See, e.g., Atlantic States Legal Found., Inc. v.

Tyson Foods, Inc., 897 F.2d 1128, 1142 (11th Cir.1990);

Avatar Holdings, 1996 WL 479533, at *5; Hawaii's

Thousand Friends v. City & County of Honolulu, 821 F.Supp.

1368, 1395 (D.Haw.1993); Universal Tool, 786 F.Supp. at

746; Roll Coater, 21 Envtl.L.Rep. 21073. Other courts use the

“bottom-up” method of penalty calculation, in which the

court begins the penalty calculation using defendants’

economic benefit of noncompliance, and adjusts upward or

downward considering the Section 309(d) factors. See, e.g.,

Laidlaw Envtl. Serv., 956 F.Supp. at 603; United States v.

Municipal Authority of Union Township, 929 F.Supp. 800,

806 (M.D.Pa.1996); Student Pub. Interest Group of New

Jersey, Inc. vy. Monsanto Co., No. CIV.A.83-2040, 1988 WL

156691, at *16 (D.N.J. Mar 24, 1988); Gwaltney, 611 F.Supp.

at 1557. As the statute does not require either the “top-down”

or the “bottom-up” method, the court exercises its discretion

and elects to use the "bottom-up" method when calculating

the appropriate penalty for defendants’ violations of their

Permit.

In accordance with the “bottom-up” method of penalty

calculation, the court will start at defendants' estimated

economic benefit of noncompliance, $4.2 million, and will

adjust upward or downward considering the other factors set

forth in Section 309(d), as already detailed and reviewed in

this Opinion, namely: seriousness of the violation; history of

violations; good-faith efforts to comply with the Permit:

economic impact of penalty on defendants; and other matters

as justice may require. The economic impact of the penalty

on defendants and other matters as justice may require apply

equally to all counts. The seriousness of the violations,

6la

history of violations, and good-faith efforts to comply,

however, apply in different degrees with regard to the counts.

In summary, there are 5,919 days of violations in Counts I

through IV for defendants’ effluent limit violations. Most of

defendants’ violations were both frequent and severe, and had

a significant impact on the environment and on the public,

and thus in total their violations of the effluent limits were

extremely serious. Defendants also have a lengthy and a

persistent history of effluent violations. While there were

some good-faith efforts made by defendants to eliminate their

discharge in the future by connecting to HRSD, and they

indicated they believed they were in compliance with some of

the effluent limits once they agreed to connect to HRSD,

clearly defendants could have done more to facilitate the

HRSD connection or reduce their discharges in the interim.

Defendants’ had 164 days of violation in Count V for late

reporting, which included a toxic management report that was

106 days late, and a missing number for average loading of

TKN on a September, 1994 DMR tumed in 58 days late.

These violations are moderately serious, but were not made in

bad faith. However, defendants should have instituted

safeguards to prevent such violations.

For defendants’ 15 days of violation in Count VI for

: submission of inaccurate DMRs, the violations are extremely

serious. While Rettig falsified the reports, both he and lively

signed them, stating they were accurate. Defendants are

| commended for turning the altered records over to the DEQ,

’ once the falsifications were discovered. Nonetheless,

: defendants’ efforts to comply here were insufficient;

defendants could have instituted safeguards, such as using

bench sheets or laboratory reports to spot-check DMRs.

ANE

There are 884 days of violations in Count VII for failure to

maintain or destruction of records. These violations are also

extremely serious. Although there could be effluent limit or

62a

other violations reflected in these documents, the contents of

all of the destroyed documents will never be known. Rettig

alone destroyed the documents, in direct contravention of

company policy and an order from his immediate supervisor

to find and produce the records. Although there is no

evidence of bad faith by defendants, sufficient good-faith

efforts were not made by defendents, as they did not have

adequate safeguards to prevent such destruction.

Accordingly, the court FINDS that the appropriate civil

penalty for defendants’ Permit violations is $12,600,000.

Defendants are jointly and severally liable for this penalty.

The Clerk shall enter judgment in this amount for plaintiff.

Further, plaintiff shall submit to the court, within thirty (30)

days, a proposal for the allocation of this penalty, with a.

specific focus on the feasibility of directing all, or part of, the

penalty toward the restoration of the Chesapeake Bay and its

tributaries, namely the James and the Pagan Rivers. The

court retains limited jurisdiction of this matter in regard to

such proposal. ;

The Clerk is DIRECTED to send a copy of this Opinion to

counsel for the parties.

It is so ORDERED.

63a

APPENDIX C

UNITED STATES DISTRICT COURT,

E.D. VIRGINIA,

NORFOLK DIVISION

Action No. 2:96cv 1204

UNITED STATES OF AMERICA,

Plaintiff,

Vv.

SMITHFIELD Foops, INC.; SMITHFIELD

PACKING COMPANY, INC., AND GWALTNEY

OF SMITHFIELD, LTD.,

Defendants.

May 30, 1997.

OPINION

REBECCA BEACH SMITH, District Judge.

This matter is before the court on (1) the Motion to Join the

Virginia State Water Control Board and the Virginia

Department of Environmental Quality as Parties to this Ac-

tion filed by Smithfield Foods, Inc., and its subsidiary

- companies Smithfield Packing Co., Inc., and Gwaltney of

Smithfield, Ltd. (hereinafter “defendants” or “Smithfield”),

on March 14, 1997, and (2) the Motion for Partial Summary

Judgment on Liability and Section 309(g)(6) Issues filed by

the United States on March 10, 1997. For the reasons stated

from the bench, the court DENIES defendants’ Motion to

Join the Virginia State Water Control Board and the Virginia

Department of Environmental Quality as Parties to this

Action. For the reasons stated below, the court GRANTS the

United States’ Motion for Partial Summary Judgment on

Liability and Section 309(g)(6) Issues.

64a

I. Factual and Procedural History

Smithfield Foods, Inc. is a publicly-held Delaware corpora-

tion that owns and operates two pork processing and packing

plants in Smithfield, Virginia, namely Smithfield Packing (a

Virginia corporation) and Gwaltney (a Delaware corpora-

tion), that discharge wastewater. The wastewater generated

by the Smithfield Packing and Gwaltney facilities is treated

by two wastewater treatment plants operated by Smithfield

Foods, Outfalls 001 and 002. The discharge through Outfall

001 generally originates from the Smithfield Packing plant,

while the discharge through Outfall 002 generally originates

from the Gwaltney plant. Between at least August, 1991, and

the present, defendants discharged treated wastewater from

Outfall OO1 into the Pagan River, a tributary of the James

River. Treated wastewater was also discharged by defendants

into the Pagan River through Outfall 002 from at least Au-

gust, 1991, until June, 1996, when Outfall 002 was connected

to the Hampton Roads Sanitation District (““HRSD”) system.

A. The Clean Water Act

The Clean Water Act (“Act”) was enacted by Congress “to

restore and maintain the chemical, physical, and biological

integrity of the Nation’s waters.” Section 101, 33 U.S.C.

§ 1251. In order to achieve these goals, Section 301(a) of the

Act prohibits the discharge of pollutants into the waters of the

United States by any person except as authorized by specific

provisions of the Act. 33 U.S.C. § 1314(a). Section 402, one

of the specified sections, establishes the National Pollutant

Discharge Elimination System (“NPDES”). 33 U.S.C. § 1342.

Under the NPDES program, the Administrator of the Envi-

ronmental Protection Agency (“EPA”) may issue permits to

point sources' authorizing the discharge of pollutants in

A “point source” is defined as “any discernable, confined and discrete

conveyance, from which pollutants are or may be discharged.” Section

502(14), 33 U.S.C. § 1362(14).

65a

accordance with specified limitations and conditions. Section

402(a), 33 U.S.C. § 1342(a). Section 301(b) of the Act

authorizes the EPA to establish nationally applicable effluent

limitations for point sources, 33 U.S.C. § 1311(b), which are

incorporated into the discharger’s permit along with any other

requirements established pursuant to the Act. Section 402(a),

33 U.S.C. § 1342(a).

Although the primary responsibility for the administration

of the Act lies with the Administrator of the EPA, Section

10i(d), 33 U.S.C. § 1251(d), Congress has stated that the par-

ticipation of the public must be provided for, encouraged, and

assisted, see Section 101(e), 33 U.S.C. § 1251(e), and that the

“primary responsibilities and rights of States” to control pol-

lution and manage natural resources must be recognized, pre-

served, and protected. Section 101(b), 33 U.S.C. § 1251(b).

Consequently, Section 402(b) of the Act allows a state to be-

come involved in the administration of the NPDES program

for discharges within that state’s boundaries. 33 U.S.C.

§ 1342(b). Congress retained in the EPA, however, “close and

continuing oversight and supervision of the state program,”

including the authority to withdraw EPA approval of the state

NPDES program in extreme situations. United States v. Car-

gill, Inc., 508 F.Supp. 734, 740 (D.Del.1981) (citing Section

402(c)(3), 33 U.S.C. § 1342(c)(3)). Accordingly, while the

enforcement provision of the Act, Section 309, 33 U.S.C.

§ 1319, gives “primary responsibility to the state with an ap-

proved NPDES system,” it also places “significant authority

in the EPA to oversee the state’s administration and to step in

itself in appropriate situations.” /d.

Once the EPA determines that it should assume enforce-

ment responsibility with regard to a violator, the EPA may

issue an order requiring compliance, “commence a civil ac-

tion for appropriate relief’ pursuant to Section 309(b), 33

U.S.C. § 1319(b), or institute administrative proceedings pur-

suant to Section 309(g), 33 U.S.C. § 1319(g). Not only may

66a

the EPA pursue injunctive relief, but the Act also provides for

civil penalties not exceeding “$25,000 per day for each vio-

lation.” Section 309(d), 33 U.S.C. § 1319(d).

B. The Permits and Special Orders relating to defendants

In March, 1975, the EPA authorized the Commonwealth of

Virginia to issue permits governing the discharge of pollut-

ants into navigable waters within the Commonwealth.

Pursuant to this authonzation, the Virginia State Water

Control Board (“Board”) issued Permit No. VA0059005

(“Permit’) to Smithfield on May 13, 1986. The Permit placed

various restrictions on the operation of Smithfield’s wastewa-

ter treatment plants, including limitations on the amount and

concentration of certain pollutants in the waste-water. In

addition, the Permit required Smithfield to monitor the waste-

water discharged from. the outfalls, submit Discharge Moni-

toring Reports (“DMRs”) reporting the results of wastewater

sampling and analysis, submit the results of annual toxicity

testing, and retain all sampling and analysis data for three

vears. The 1986 Permit imposed stricter total Kjeldahl nitro-

gen (“TKN”) limits on Smithfield than prior permits govern-

ing Outfalls OOL and 002.

Pursuant to its authority to promulgate state environmental

standards more stringent than those required by federal law,

the Commonwealth promulgated its “Policy for Nutnent En-

* The Board imposed “interim limits” for TKN in a Special Order dated

May 13. 1986. that were less strict than the limits set forth in the 1986

Permit because “the Board and Smithfield recognize{d] that additional

Water quality data on the Pagan River would be of benefit in confirming

the model prediction” used to set the stricter TEN limits in the 1986 Per-

mit. In return, Smithfield was required to submit water quality data and

modeling information to the Board by March 31. 1987. See May 13. 1986

Special Order. In an amendment to the May, 1986 Special Order. dated

January 25, 1988. the Board extended the deadline for Smithfield’s sub-

mission of data to October |, 1988. and set forth a schedule of compliance

for the TKN standards

fsa wal Eee anaegats tadlaahaaha aac IA Alivia Slhat AN

iliaapdaieaee acta

67a

riched Waters” (“Policy”), effective May 25, 1988, which

provided for the control of discharges of nutrients from point

sources affecting state waters designated “nutrient enriched

waters.” Va. Admin. Code tit. 9, § 25-40-10 et seq. The Pol-

icy required the Board to reopen and modify the permits of

point sources discharging into nutrient enriched waters to in-

clude a monthly average phosphorus effluent limitation of 2.0

mg/l. The Pagan River is designated a “nutrient enriched wa-

ter.” Va. Admin. Code tit. 9, § 25-260-350(17). Because the

Policy applied to defendants’ facilities, on June 3, 1988,

Smithfield filed a petition of appeal in Isle of Wight Circuit

Court challenging the 2.0 mg/I standard as not reasonable and

practical of attainment.

Notwithstanding Smithfield’s appeal, the Board reopened

and modified Smithfield’s Permit to include the 2.0 mg/l

phosphorus limitation on January 4, 1990. The modified

January 4, 1990 Permit, which was approved by the EPA, re-

tained the requirements of the 1986 Permit, but added the

phosphorus limitation of 2.0 mg/l and required monitoring for

total nitrogen. Part IC. of the Permit included the following

“Schedule of Compliance” for the total phosphorus limita-

tions: (1) initiate design of facilities within 30 days after the

modification date of the permit; (2) submit plans to the Board

within 90 days from # 1; (3) commence construction within

30 days of the Board’s approval of the plans; (4) complete

construction within 29 months of #3; and (5) achieve compli-

ance with final effluent limitations 30 days after completion

of construction. Jan. 4, 1990 Permit, Part 1.C., at 3. Smithfield

appealed the modified 1990 Permit. Since the new phospho-

rous limitations were not required in other states, the com-

pany considered moving its operations outside of Virginia if

forced to comply.

After conducting negotiations with Smithfield, the Board

elected to settle the dispute concerning the phosphorus limita-

tions by issuing a Special Order on March 21, 1990. In the

68a

March, 1990 Special Order, the Board first explained the

deadlines imposed by the modified 1990 Permit: Smithfield

was “required to commence design of treatment works to

~ achieve compliance with th{e) phosphorus limitation on Feb-

ruarv 4, 1990, and complete design within 90 days thereafter.

Smithfield is further required to attain full compliance with

the phosphorus limitation by January 4, 1993.” March 2],

1990 Special Order at |.‘ Because Smithfield challenged the

schedule of compliance for the phosphorus limitations in Part

I1.C. as unreasonable and not practicable of attainment, the

Board agreed “to defer commencement of the schedule in

Part 1.C. of the 1990 Permit until December 1, 1990.” /d. at

2.* The Special Order also continued the interim effluent lim-

In the record. this is the first time “January 4, 1993.” is mentioned as

the date that Smithfield must attain full compliance with the phosphorus

limitation. March 21. 1990 Special Order at 1.

* Initially. it was not clear from the March 21. 1990 Special Order

whether the Board intended to defer just the commencement of the sched-

ule of compliance from February 4. 1990 to December |, 1990. or if the

Board intended to defer the entire schedule of compliance. so that full

compliance with the phosphorus limitation was not required until several

months after January 4. 1993. The court concludes that the Board only

deferred the commencement of the schedule. and not the entire schedule

of compliance. for several reasons. First. the Special Order clearly states

that “[t}he Board agrees to defer commencement of the schedule . .

March 21. 1990 Special Order at | (emphasis added). Second. in the re-

cord. this March 21. 1990 Special Order is the first time the date January

4. 1993. is cited as the date of full compliance required by the modified

1990 Permit. See supra note 3. While the Board deferred commencement

of the schedule from February 4. 1990 to December |. 1990. it did not

similarly defer the date of full compliance. January 4. 1993. to a later date.

Third. in the subsequent 1992 Permit. the Board included the January 4.

1993 date. and not a later date, for full compliance with the phosphorus

limitation. This issue of whether the Board's March. 1990 Special Order

deferred the commencement of the schedule. or the entire schedule of

compliance. is not in any way dispositive. however. as the court has found

that the EPA was not bound by the Board's Special Orders. See infra Pan

I1.B.2. :

69a

its for TKN. /d. The Board noted that “[the remainder of the

Permit shall remain in effect pending further action by the

Board.” IL In return, Smithfield agreed, inter alia, to (1)

study the available costs and technologies involved in achiev-

ing compliance with the phosphorus limitations, (2) study the

feasibility of connecting its wastewater system to the HRSD

system, and (3) notify the Board by November 13, 1990,

whether it intended to connect to the HRSD system. /d. at I-

The Board issued an amendment to the March, 1990 Spe-

cial Order on November 6, 1990. In the November, 1990

Special Order, the Board gave Smithfield until February 15,

199], a three-month extension, to advise the Board whether it

intended to connect to the HRSD system. The Board also

agreed “to defer commencement of the schedule” of compli-

ance for phosphorous limitations set forth in Part LC. of the

Permit until March 1, 1991.

On May 9, 1991, the Board issued another Special Order

granting an extension to Smithfield. In the May, 1991 Special

Order, the Board required Smithfield to notify the Board no

later than June 15, 1991. of defendants’ commitment “to con-

nect to the HRSD line or to upgrade their facilities to comply

with the 2 mulligram per liter phosphorus standard.” May 9,

1991 Special Order at 2. If Smithfield agreed to connect to

the HRSD system, it was required to do so within three

months after notification by HRSD that a sewer line was

available for the collection of defendants’ wastewater. If

Smithfield decided not to connect to the HRSD system, it was

required to “submit by August 15, 1991, an approvable

schedule for upgrading its treatment facilities to comply with

all Permit effluent limitations.” /d.

* Again. while initially it was not clear if the Board agreed to compli-

ance. the court concludes that it intended the former here. See supra note

70a

The May, 1991 Special Order also indicated that: Smuth-

field was required to comply with the interim effluent limita

tions in Appendix A of the Special Order, until it connected

to the HRSD system or completed the approved upgrade of tts

treatment facilities. /d. The first part of Appendix A set forth

discharge limitations and monitoring requirements for TKN,

and the second part stated that “[e]ffluent limitations and

monitoring requirements for all other parameters and charac-

teristics shall be those set out in the Permit.” /d. at App. A.

The May, 1991 Special Order also provided that Smithfield

must dismiss its challenge to the phosphorus standard tn Isle

of Wight Circuit Court.® At the end of the May, 1991 Special

Order, the Board stated that “[nJothing herein shall be con-

strued as altering, modifying, or amending any term or condi-

tion contained in VPDES Permit No. VAOOS9005." Id. at 2.

On June 7, 1991, Smithfield notified the Board of its deci-

sion to connect its wastewater treatment facility to the HRSD

system. Consequently, Smithfield “ceased all attempts to

comply with the phosphorus limits by upgrading its treatment

facilities” and “instead conduct[ed] studies and cooperat{ed]

with HRSD to ensure compatibility of Smithfield’s effluent

with HRSD’s system.” Defs.” Br. at x, ¥ 9jj.

In 1991, the Board issued a draft of a new Permit for

Smithfield. Part 1.B. of the draft Permit retained the schedule

of compliance for the phosphorus limitation first included in

the modified 1990 Permit; Smithfield was required to achieve

compliance with the phosphorus limitation by January 4,

1993. Part I.C. stated that the phosphorus limitation in effect

after that date was a monthly average of 21 Ibs/day and 2

mg/l. After reviewing the draft Permit, the EPA advised the

Board that it had no objection to the issuance of the revised

draft Permit. July 25, 1991 Letter from EPA to Board (Defs.’

° The Isle of Wight Circuit Court dismissed Smithfield’s action on

April 1, 1991, actually predating the May, 1991 Special Order. Defs.” Br.

at 1x, J 9bb.

heii ce Bela)

PE pete eee ey ae ON eat eRe Ee yee ONT SO nT Corn ant hoe aan Pte saat ee oan) aoe te en aoe

Tila

Ex. 27). The EPA reminded the Board that “[a]ny additional

changes to the draft permit will require EPA review prior to

issuance.” Id. -

On October 1, 1991, Smithfield submitted the following

comments to the Board regarding Part I, Sections B and C, of

the draft Permit:

Comphance dates of the effluent characteristics and en

gineering milestones listed in the Part I, Section C tables

(pages 6 and 7) cannot be met by Smithfield Foods, Inc.

now that we have agreed to abandon the plans to up

grade our existing facilities and’ tap onto HRSD when it

becomes available. Relief from such compliance is not

specifically present or is not apparent in the [1991] Con-

sent Order. In view of these factors, Smithfield Foods,

Inc. requests that if these compliance dates and mile-

stones are required in the proposed permit, some docu-

mentation or letter be provided by the State Water Con-

trol Board stating that alternate compliance will be main-

tained with Smithfield’s agreement to connect to HRSD

as soon as it becomes available regardless of the time

frame in which this occurs.

Oct. 1, 1991 Letter from Smithfield to Board at 3 (Defs.’ Ex.

25). The Board responded as follows in a letter dated October

10, 1991:

The draft permit is a separate document from the current

Consent Special Order issued to Smithfield Foods in

May 1991. The effluent limitations imposed on two

point source discharges from the facility are based on

State Water Quality Standards, the Permit Regulation

and the revised Pagan River Model presented to the

” In their brief, defendants insert the word “finstead|” between “and”

and “tap” when quoting this portion of Smithfield’s letter. Defs.’ Br. at xi,

4 9kk. The word “instead,” or a similar word, is not included in the origi-

nal text of Smithfield’s letter

72a

Board. The compliance schedules and related goal dates

contained in the permit are there to afford the permittee

necessary time to comply with the established effluent

limitations. Any special order agreements relative to

compliance with water quality standards, the Permit

regulation and associated studies that have been ap-

proved by the Board take precedence over the VPDES

Permit.

Oct. 10, 1991 Letter from Board to Smithfield at 2, 4 3

(Defs.” Ex. 26). The EPA was provided a copy of the Board's

letter. See id.

On December 23, 1991. the Board staff sent a memoran-

dum to the Executive Director of the Board recommending

approval of the proposed 1992 Permit. Dec. 23, 1991 Memo-

randum Accompanying 1992 Permit (Defs.’ Ex. 23). The

Board staff indicated that Smithfield “notified the Board that

it will eliminate its wastewater discharges to the Pagan River

and connect its facilities to the HRSD system when the sewer

has been extended to their plant.” /d. at 2. The staff noted that

Smithfield’s “discharge is not controversial and is expected to

meet the required final effluent limitations” and that it be-

lieved “that the future effluent limitations will maintain the

Water Quality Standards adopted by the Board.” /d. at 4.

On January 3, 1992, the Board issued Smithfield’s 1992

Permit. Despite Smithfield’s October 1, 1991 letter to the

Board stating that it could not meet the compliance dates

listed in Part LC. of the draft 1992 Permit now that it had

agreed to connect to the HRSD, the Board did not change the

terms of the 1992 Permit. Part I.-C. of the 1992 Permit re-

tained the monthly average phosphorus limitation of 21

Ibs/day and 2 mg/l, which was required after “completion of

the schedule of compliance contained in Part I.B. (Total

Phosphorus).” January 3, 1992 Permit, Part L.C., at 7. Part

I.B. of the 1992 Permit required Smithfield to: (1) “[sJubmit

PA Nc PEL WS

eel

Ac ANG ON

ee ave ee as tty he eee ee et le bel

PR alte HVE erst IMIS A bn CNR DARL AVAL A ILE REN ERG SOME AI BG EFI KAS ORR LINING Hie

73a

quarterly progress reports for achievement of final effluent

limitations” for phosphorus “[w]ithin 30 days of the effective

date of the permit and each calendar quarter thereafter until

completion of item # 2 below” and (2) “[a]chieve compliance

with final effluent limitations” for phosphorous “[b]y January

4, 1993." Id. Part 1.B., at 5. A three-year schedule of compli-

ance was also included for carbonaceous biological oxygen

demand (“CBOD”), total cyanide, and ammonia-nitrogen,’

which required Smithfield to “[a]chieve compliance with the

final effluent limitations” for those effluents no later than

May 13, 1994. /d. Part .D., at 8.

In response to a February 12, 1992 letter from Smithfield

to the Board, which indicated that Smithfield intended to

achieve compliance with the final effluent limitations for

CBOD, total cyanide, and ammonia-nitrogen by connecting

to the HRSD system, the Board responded as follows:

These “plans” are acceptable as submitted. The remain-

der of the schedule requires submittal of quarterly pro-

gress reports. These reports should indicate construction

* Because Smithfield agreed to connect to the HRSD system, defen-

dants contend that this schedule of compliance for the phosphorus limi-

tations “merely provided the official point of reference that would be

needed in case Smithfield reneged on its commitment to make the HRSD

connection.” Defs.” Br. at xii, J 9nn. There is nothing in the record to sup-

port this conclusion.

” The terms “ammonia” and “ammonia-nitrogen” have both been used

in the parties’ briefs, filings, and exhibits, often interchangeably. Thus, it

is unclear to the court whether the United States is alleging violations of

the same or different effluent limitations when it alleges a violation of

“ammonia-nitrogen” in Counts I and II, and a violation of “ammonia” in

Counts III] and IV. The Summary of Violations attached to Nash’s Decla-

ration, and the United States’ brief in support of their motion for summary

judgment only mention violations of “ammonia-nitrogen.” PI's Br. at iii,

4 9. Accordingly, the court will assume that “ammonia” and “ammonia-

nitrogen” are the same effluent when quoting the record, and the court

will refer to the effluent at issue as “ammonia-nitrogen.”

74a

progress and other issues which may affect completion

of the project. Also note that the deadline for achieving

final effluent limitations is May 13, 1994. Should con-

struction be delayed such that this deadline may be

missed. a modification to the existing Consent Order

should be requested.

May 15, 1992 Letter from Board to Smithfield (Defs.’ Ex.

30).'°

Defendants failed to meet either the January 4, 1993 dead-

line in the 1992 Permit for phosphorus compliance, or the

May 13, 1994 deadline in the 1992 Permit for CBOD, total

cyanide, and ammonia-nitrogen compliance. There is no evi-

dence in the record that Smithfield sought or procured a per-

mit modification with regard to these deadlines.

On November 8, 1994, the Board issued an amendment to

the May, 1991 Special Order. In the November, 1994 Special

Order, the Board agreed that Smithfield “may achieve com-

pliance with the [final effluent limitations for CBOD, total

cyanide, and ammonia-nitrogen] by connecting to the HRSD

system” and agreed “to hold in abeyance the requirement in

Part [.D.6. of the Permit for Smithfield to comply with these

effluent limitations by May 13, 1994.” November 8, 1994

Special Order at 1. In addition, the Board and Smithfield

agreed “that an appropriate toxicity reduction evaluation plan,

as required by Part I.F.4.c. of the Permit, is connection to the

HRSD system in accordance with this Order. No additional

toxicity testing is required.” Id. at 1-2. At the end of the Spe-

cial Order, the Board and Smithfield agreed that they both

'0 In their brief, defendants state that “Smithfield was specifically ex-

empted from the May 13, 1994 deadline for ammonia and cyanide in the

letter from the Board dated May 15, 1992. (Exh. 30 at 1).” Defs.” Br. at

xvi, J 23. Clearly, the text of this letter from the Board shows that Smith-

field was reminded of the deadline rather than “specifically exempted”

from it.

Rat Se ase es Ua ee

Bhd bish. dara an ee

75a

“understand and agree that this amendment does not alter,

modify, or amend any other term or condition of the Order or

of the Permit except as specified above.” /d. at 2.

No other Special Orders are relevant to the issues before

this court at this time.

C. The HRSD system connection

Before defendants could connect to the HRSD system,

Smithfield explains that three tasks had to be completed: (1)

an upgrade of Smithfield’s wastewater treatment system to

pretreat properly the effluent before discharging it into the

HRSD system; (2) construction of a seventeen-mile intercep-

tor force main pipeline extending from the HRSD treatment

facility to Smithfield, Virginia; and (3) an upgrade of

HRSD’s Nansemond treatment facility so that it could prop-

erly treat the additional effluent from defendants. Defs.’ Br. at

ix, J 9dd.

Smithfield hired Wells Engineering to design and construct

onsite wastewater treatment works sufficient to pretreat ade-

quately its process effluent. Id. at ix, ¥ 9ee.'' On August 23,

1991, HRSD submitted a Virginia Revolving Loan Fund ~

Construction Assistance Program (“CAP”)" application to the

'' It is unclear when Wells Engineering completed this construction,

but it appears it may have been completed in 1996, as defendants state that

“Wells Engineering designed and constructed these required facilities at a

capital cost of approximately $3 million in 1995 and 1996.” Defs.’ Br. at

1x, J Yee.

'* In the Clean Water Act. Congress directed the EPA to establish capi-

talization grants, known as “state revolving funds,” to each state to assist

in the construction of publicly-owned treatment works. Section 601, 33

U.S.C. § 1381. Before funds will be given to a state, the EPA must enter

into an agreement with that state establishing a procedure for the distribu-

tion of funds. Section 602, 33 U.S.C. § 1382. Once that agreement has

been established, as it has in Virginia, the state oversees the individual

projects. Section 603, 33 U.S.C. § 1383.

76a

Board requesting funding of approximately $14.6 million for

the construction of the seventeen-mile interceptor force main

pipeline. The initial completion date for the pipeline was Feb-

ruary, 1995. Jd. at xii, { 9pp. On July 29, 1992, HRSD sub-

mitted another CAP application to the Board requesting fund-

ing of approximately $54.4 million for upgrading the HRSD

Nansemond facility to a treatment capacity of twenty-million-

gallons per day. Although the original completion deadline

for the Nansemond facility upgrade was December, 1996, id.

at x, J 9hh, this completion deadline was extended several

times by the HRSD, to March 25, 1997. Id. at x, J 9ii."”

The interceptor force main pipeline was completed on

March 22, 1996, thirteen months after the original deadline

for completion. /d. at xiii, | 9qq. Outfall 002 at the Gwaltney

plant was connected to the HRSD system on June 24, 1996,

and there is currently zero discharge from this facility into the

Pagan River. /d. at x. J 9gg. Defendants expect to connect

Outfall 001 at the Smithfield Packing plant to the HRSD sys-

tem in May, 1997, as soon as the Nansemond facility is avail-

able, and completely cease their discharge from Outfall 001.

Id. at x, J 911.

D. Enforcement by the EPA

Under the NPDES enforcement program administered by

the EPA, point source facilities that are not complying with

their NPDES permit are listed in the EPA’s Quarterly Non-

compliance Report (“QNCR”). Decl. of Lorraine H. Reynolds

q 8. According to Ms. Reynolds, an Environmental Scientist

with the EPA, defendants’ violations of Permit No.

VA0059005 did not appear on the QNCR until the third quar-

ter of the 1994 fiscal year, because Smithfield falsely and in-

accurately reported its discharges, and because the Common-

wealth of Virginia issued consent orders allowing defendants

'* It is not clear from the record whether this project completion date

for the Nansemond upgrade was met.

4b Wri naga

with SE Aaccanite Rec!

a TRS La Ns aE NO ERE aig WT RIT LTR 7

drial

77a

to exceed the limits established in the Permit. Jd. q 12. Ms.

Reynolds notes that the “EPA was not a participant nor a sig-

natory to the Commonwealth issued consent orders and there-

fore. EPA never agreed nor intended to be bound by the con-

sent orders.” Jd. ¥ 13.

Once a company appears on the QNCR, the EPA begins to

track the state's actions in getting the company into compli-

ance. If the state does not achieve compliance, the EPA steps

in and initiates its own enforcement action to ensure compli-

ance. /d. | 9. Once defendants’ violations of Permit No.

VA0059005 appeared on the QNCR in 1994, the EPA tracked

the Commonwealth's attempts to get Smithfield into compli-

ance. /d. J 14.

On Apnil 8, 1996, the Commonwealth's Department of En-

vironmental Quality (“DEQ”) notified Smithfield that it had

evidence of numerous violations of the Permit and Special

Orders, including violations of effluent limits, sampling and

analysis methods, recording of results, records retention, re-

porting requirements, operator requirements, treatment works

Operation, quality control requirements, and unauthorized dis-

charge of pollutants. April 8, 1996 Letter from DEQ to

Smithfield at 1 (Pl..s Ex. 18). Due to these violations, the

DEQ stated it would recommend to the Board that it consider

asking the Attomey General of Virginia to seek injunctive

relief and civil penalties against Smithfield. /d. at 2. At their

May 22. 1996 meeting, however, the Board instead voted to

“reaffirm their March 21, 1996, approval of the Consent Spe-

cial Order for the HRSD Nansemond Treatment Plant” and

“direct [its] staff not to take enforcement action against

Smithfield, Inc. for violations of their 1991 Consent Special

Order until such time as staff has met with the company and

brought the matter back to the Board at their next meeting.”

Excerpt of Minute No. 28 from the Board Meeting on May

22. 1996 (PI.'s Ex. 19).

“When it became apparent that the Commonwealth's ac-

tions were not resulting in compliance, and the Common-

78a

wealth did not intend to seek a civil penalty for the violations,

the EPA initiated its own enforcement action.” Decl. of Rey-

nolds | 14. On August 27, 1996, the EPA informed the

Commonwealth that it had referred a case against defendants

to the United States Department of Justice for an enforcement

action, and invited the Commonwealth to join the federal ac-

tion. The EPA provided the Commonwealth with a copy of

the table of defendants’ violations. /d. J 15S.

The Commonwealth declined the EPA’s invitation to join

the federal action. Although the Commonwealth never men-

tioned its plan to file its own enforcement action to the EPA,

id., on August 30, 1996, the Commonwealth filed an action

against Smithfield in the Circuit Court of the County of Isle

of Wight. The Commonwealth sought injunctive relief and

civil penalties for Smithfield’s violations of the Permit and

Special Orders, and alleged violations of “the Permit limita-

tions for fecal coliform, pH, total suspended solids, bio-

chemical oxygen demand, and oil and grease” dating back to

1994. Commonwealth’s Complaint at 3 (filed Aug. 30, 1996)

(PI.’s Ex. 23). The Commonwealth did not seek penalties for

phosphorus violations, inaccurate reporting, or late reporting.

See id. at 1-4. The Commonwealth amended its complaint on

September 20, 1996, to correct certain factual allegations and

to add an allegation that Smithfield violated “other permit

terms and conditions” of Permit No. VA0059005. Common-

wealth’s Amended Complaint at 3 (filed Sept. 20, 1996) (PI.’s

Ex. 24).

The United States filed this action on December 16, 1996,

seeking permanent injunctive relief and civil penalties from

all three defendants for violations of Clean Water Act

§ 309(b) and (d), 33 U.S.C. § 1319(b) and (d). Count I alleges

that since October, 1991, defendant Smithfield discharged

pollutants from Outfall 001 into the Pagan River in violation

of the effluent limits in the Permit for phosphorus, ammonia-

nitrogen, TKN, fecal coliform, pH, cyanide, and oil and

grease. Count If alleges that from October, 1991, until June,

eS CT es, TP ee.

79a

1996, defendant Smithfield discharged pollutants from Out-

fall 002 into the Pagan River in violation of the effluent limits

in the Permit for phosphorus, ammonia-nitrogen, TKN, fecal

coliform, and oil and grease. In Counts HI and IV, plaintiff

alleges that since October, 1991 for Count Ill, and between

October, 1991 and June, 1996 for Count IV, defendants

Smithfield Packing and Gwaltney discharged pollutants from

Outfalls 001 and 002 into the Pagan River in violation of the

effluent limits in the Permit for phosphorus, ammonia, TKN,

fecal coliform, pH, cyanide, oil and grease, CBOD, and bio-

logical oxygen demand (“BOD”). In the alternative, Counts

Ill and IV allege that on numerous occasions during these

time periods, Smithfield Packing and Gwaltney discharged

pollutants from Outfalls 001 and 002 into the Pagan River

without a permit. Count V alleges failure of all defendants to

comply in a timely manner with the Permit’s reporting re-

quirements since October, 1991. Count VI alleges that all de-

fendants submitted DMRs containing inaccurate information.

Count VII alleges failure of defendants to maintain records,

or destruction of records required to bé maintained by the

Permit.

Defendants’ Answer, filed January 9, 1997, put forth sev-

eral affirmative defenses. Defendants maintain Permit No.

VA0059005 was

actually or constructively conditioned or amended, or an

actual or constructive variance granted, or the underlying

standards were revised by the issuance of several Special

Orders and amendments thereto by the Virginia State

Water Control Board. None of the Defendants violated

the permit as revised with respect to the following pollu-

tion parameters: phosphorus, nitrogen, CBOD, cyanide

and ammonia.

Answer at 13. Defendants also argue that they agreed to con-

nect to the HRSD system to achieve compliance with the

Permit, but were unable to connect earlier due to circum-

Stances and delays beyond their control. Therefore, even if

80a

they did fail to meet the terms of the Permit, defendants claim

they “cannot be held liable therefore when it was impossible

to meet the terms of the permit until the [HRSD] sewer line

had been completed.” /d. at 14-15."* In addition, defendants

assert that plaintiffs claim for civil penalties is barred by the

doctnnes of estoppel, waiver, and/or laches, and by Section

309(2)6)(A) of the Clean Water Act. /d. at 12-13."

In the United States’ Motion for Partial Summary Judg-

ment on Liability and Section 309(g)(6) Issues, filed March

10, 1997, the United States argues that there is no genuine

issue Of material fact that defendants committed thousands of

days of violations of the Clean Water Act by discharging pol-

lutants into the Pagan River at levels above the limits con-

tained in the Permit’ and that Smithfield committed over one

'* Although defendants maintain that it is not their fault that the HRSD

connection was delayed, fault is not the focus of this inquiry, as the Clean °

Water Act is a strict liability statute. intended to protect the public from

environmental damage. Stoddard v. Wester Carolina Regional Sewer

Auth.. 784 F.2d 1200. 1208 (4th Cir. 1986). It is the defendants, and not

the public. who are discharging wastewater into the Pagan River. who

waited until June 7, 1991, to commit to connect to the HRSD system. and

who have still not fully connected to the HRSD system. Accordingly. it is

defendants. and not the public, who should pay the price for the damage to

the environment caused by their Permit violations and the delay in the

HRSD connection. See also infra note 19.

'’ In their response. defendants indicate that they believe that plaintiffs

claim for injunctive relief is also barred by Section 309(¢).

*° The United States alleges violations of phosphorus. ammonia-

nitrogen (or ammonia). TKN, fecal coliform. pH. cyanide, oil and grease,

CBOD. and BOD in the Complaint. In their brief and the Summary of

Violations. however, the United States alleges violations of phosphorus.

ammonia-nitrogen. TKN, fecal coliform. pH. cyanide. oil and grease. and

total suspended solids-not CBOD and BOD. See PI.'s Br. at iii, 9: Decl.

of Nash at App. C. Because the limits for CBOD and BOD are listed sepa-

rately from the limits for total suspended solids in the Permit. the court

will address separately the violations of the effluent limitations for

CBOD. BOD. and total suspended solids.

PIAS set elisha isl 2

SI dea odie

8la

hundred days of violations by submitting required reports

late. In addition, the United States contends it is entitled to

summary judgment because the Permit did not incorporate the

Special Orders issued by the Commonwealth, the United

States is not estopped from enforcing the Permit, and the

United States’ claims are not barred by Clean Water Act

§ 309(g)(6)(A), 33 U.S.C. § 1319(g)(6)(A).

In defendants’ response, filed March 26, 1997, they ad-

dress the issues in the United States’ Motion, and also argue

that the United States is not entitled to summary judgment

with regard to the phosphorus claims because Section 510 of

the Act, 33 U.S.C. § 1370, bars federal enforcement of limita-

lions that are set by the state and that are more stringent than

federal limits. The United States filed a rebuttal on April 1,

1997. The court heard argument from the parties on April 14,

1997. and the matter is ripe for decision.

Il. Analysis

Summary judgment is appropriate only when the court,

viewing the record as a whole and in the light most favorable

to the nonmoving party, finds there is no genuine issue of ma-

terial fact and that the moving party is entitled to judgment as

a matter of law. Fed.R.Civ.P. 56(c): see, €.g., Celotex Corp. v.

Catrett, 477 U.S. 317, 322-24, 106 S.Ct. 2548, 2552-53, 91

L.Ed.2d 265 (1986): Anderson y. Liberty Lobby, Inc., 477

U.S. 242, 248-50, 106 S.Ct. 2505, 2510-11, 91 L.Ed.2d 202

(1986); Terry's Floor Fashions, Inc. vy. Burlington Indus., 763

F.2d 604, 610 (4th Cir.1985). Once a party has properly filed

evidence supporting the motion for summary judgment, the

nonmoving party may not rest upon mere allegations in the

pleadings, but must instead set forth specific facts illustrating

genuine issues for trial. Celotex Corp., 477 U.S. at 322-24,

106 S.Ct. at 2552-53. Such facts must be presented in the

form of exhibits and sworn affidavits. “[T]he plain language

of Rule 56(c) mandates the entry of summary judgment . .

This text is long and has been trimmed here. Open the source document for the complete record.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.