United States v. Gulf Park Water Company, 14 F.Supp. 2d 854 (S.D. Miss. 1998).

Kristen M. Fletcher, J.D., LL.M.
 

This year, the Gulf Park Water Company became the first defendant in southern Mississippi to be penalized under the Clean Water Act using a "top-down methodology." Last March, the U.S. District Court for the Southern District of Mississippi elected to use a top-down assessment method when calculating the appropriate penalty for violations of the Clean Water Act. After twelve uninterrupted years of discharge into the Mississippi Sound, the court fined the defendants $1.5 million.

The defendants, Gulf Park Water Company, Johnson Properties, and Glenn and Michael Johnson (hereinafter Gulf Park), are owners and operators of a wastewater treatment facility that discharged wastewater directly into the waters of the United States, specifically into the Mississippi Sound. For twelve years, the defendants continuously discharged without a National Pollutant Discharge Elimination System (NPDES) permit, as required by the Federal Clean Water Act (CWA). After numerous attempts by the Chancery Court of Jackson County and the Mississippi Department of Environmental Quality (DEQ), the Chief of the Water Division at DEQ referred the case to the U.S. for civil enforcement.1

The defendants continued to illegally discharge after the United States filed the complaint against them in 1993 for 1,825 violations of the CWA. The defendants were found guilty on July 2, 1997 and were required to pay a deposit for connection to the Gulf Coast Regional Wastewater Authority, permitted for such discharges. After eight days passed and the defendants had neither paid the requisite deposit nor ceased illegally discharging, the United States moved to hold them in contempt. Ultimately, Gulf Park complied with the order on July 23. The court then considered the appropriate penalty for the violations.

Section 309 of the CWA mandates civil penalties for each violation and states that the violator "shall be subject to a civil penalty not to exceed $25,000 per day for each violation."2 The maximum penalty the court could have imposed was $46,062,500 for the 1,825 violations. Federal courts are split, however, on how to assess the appropriate penalty. Some U.S. District Courts and the Eleventh Circuit, use the "top-down" method of penalty calculation, in which the court begins the penalty calculation at the statutory maximum and adjusts downward considering mitigating factors under the CWA.3 Other courts use the "bottom-up" method of calculation, in which the court begins the calculation using the defendant's economic benefit of the noncompliance, and adjusts upward or downward considering mitigating factors.

The court found the Eleventh Circuit's reasoning persuasive and determined "[i]n deciding upon the penalty to be assessed against a defendant who has violated its NPDES permit, the point of departure for the district court should be the maximum fines for such violations. . . ."4 Starting with a maximum penalty of over $46 million, the court then considered the five mitigating factors, as laid out by the CWA, to determine the appropriate fine.

Seriousness of the Violations. The court found that Gulf Park's discharge was serious solely by virtue of its duration: daily, uninterrupted violations for over twelve years during which Gulf Park refused to connect to the Regional Authority. The defendants countered that the violations were not serious because of the presence of other pollution sources on the Gulf Coast. Quickly dismissing this argument, the court found that even though the plaintiffs have no responsibility to show actual harm to the environment, evidence shows that the "defendant's discharges constituted both an actual and a potential threat to the public health and the environment."5

The defendants then argued that the discharge from Gulf Park had no more impact on the receiving waters of the Mississippi Sound than the discharge from the Regional Wastewater Authority to which Gulf Park was required to connect because the numerical discharge parameters on the permits were the same. The court found the discharges distinguishable because Gulf Park's permit was for disposal onto land and the Authority's permit was into water. In addition, Gulf Park was discharging directly to the Sound while the Authority's disposal was more than ten miles from the Sound. Finally, the quality of Gulf Park's discharge is noticeably more polluted according to testimony from an Environmental Protection Agency Inspector who found "solids leaving the plant, debris floating in the effluent, excessive residual chlorine, and broken and malfunctioning equipment."6

Finally, the court considered the health risks of the violations to determine the seriousness. Evidence revealed raw sewage bypasses into the Sound, increasing risks of numerous illnesses, closure of recreational areas, and contamination of oyster beds along the shore from Ocean Springs to Pascagoula. Thus, the violations were serious and this factor did not allow for mitigation of the maximum fine.

Defendant's Economic Benefit of Violations. The court noted that a "defendant should not be placed in a better position, due to its failure to comply with the law, than it would be in if it had made the necessary expenditures to comply."7 Recognizing that the defendant can benefit from delaying the expenditure of funds on compliance, avoid some costs altogether, and obtain an advantage over competitors, the court found that the defendants' economic benefit was $600,000 and as a result, found that this did not mitigate the fine.

History of Violations. In reviewing the history of violations factor, courts generally consider the duration of current violations, similar violations in the past, and the duration and nature of such violations.8 With a twelve year history of present violations and a refusal to comply until faced with a contempt motion, the court quickly determined the defendants' penalty could not be reduced by this factor.

Good Faith Efforts to Comply. The court searched through twelve years of history to find good faith efforts by Gulf Park. While the court found evidence that Gulf Park ignored a Chancery Court order in 1995, failed to timely pay the necessary connection deposit to the Regional Authority, and knowingly did nothing to exhibit compliance, it balanced these violations with improper charges against Gulf Park by the Regional Wastewater Authority. The Authority had imposed a 10% surcharge in addition to the normal rates and required a considerable connection fee. While not excusing Gulf Park's failures, the court did determine that this factor mitigated the final penalty.

Economic Impact of the Penalty on the Violator. The final mitigating factor is to consider whether the defendants have the ability to pay and what impact the penalty will have on the ability to conduct business. Inconsistencies, misstatements, mistakes, and erroneous figures on the part of the defendants led the court to appoint a Special Master to study Gulf Park's ability to pay. After evidence of low cash flow and bargaining power, the court held that this fifth statutory factor weighed in favor of a significant reduction in the amount of the penalty, leaving the defendants to pay $1.5 million.

In opting to use the top-down methodology, the court showed its preference to use the maximum level of penalty. It tempered this with its concern that this method not dissolve the defendants' ability to continue business shown in its favoring of the fourth and fifth statutory factors of the CWA allowing reduction of the original $46 million fine.
 

NOTES

1. Chief of the Water Division of the Mississippi DEQ, testified that in his 21 years at DEQ, this was the only case his office had to refer to the United States for civil enforcement. U.S. v. Gulf Park Water Company, 14 F.Supp. 2d 854, 864 (S.D. Miss. 1998).

2. 33 U.S.C. § 1319(d) (1998).

3. The 11th Circuit uses the top-down method and a 5th Circuit opinion favors that method, as well. See Atlantic States Legal Foundation v. Tyson Foods, 897 F.2d 1128 (11th Cir. 1990); and United States v. Marine Shale Processors, 81 F.3d 1329 (5th Cir. 1996).

4. U.S. v. Gulf Park Water Company, at 858, quoting Tyson Foods, 897 F.2d at 1137.

5. U.S. v. Gulf Park Water Company at 860.

6. Id. at 861.

7. Id. at 862.

8. See U.S. v. Smithfield Foods, 972 F. Supp. 338, 349 (E.D. Va. 1997).
 
 

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