# Appendices — Smithfield Foods, Inc. v. United States

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendices
- **Published:** January 1, 2000
- **Citation:** 531 U.S. 813

## Text

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APPENDIX A

UNITED STATES COURT OF APPEALS.
FOURTH CIRCUIT.

No. 97-2709

UNITED STATES OF AMERICA,
Plaintiff-Appellee,
i
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

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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.

I.
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,

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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.

A.

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

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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

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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

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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

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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

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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

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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

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include claims for violations of the phosphorus limitations,
false reporting, or late reporting.

B.

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

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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.

I.

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).

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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.

‘

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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

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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.

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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

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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.

A.

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

B.

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).
ae

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.
D.

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,

of

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.

ae

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

SS

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.

(c) Other Effluents

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

a

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386014_0982%3A2. Public record. Not legal advice.