U.S. v. Alisal Water Corp.

• Decision Date: 09 April 2002
• Docket Number: No. C97-20099 JF(EAI).,C97-20099 JF(EAI).
• Citation: 326 F.Supp.2d 1010
• Court: U.S. District Court — Northern District of California
• Parties: UNITED STATES of America, Plaintiff, ALISAL WATER CORPORATION, et al., Defendants

326 F.Supp.2d 1010

UNITED STATES of America, Plaintiff,

ALISAL WATER CORPORATION, et al., Defendants

No. C97-20099 JF(EAI).

United States District Court, N.D. California, San Jose Division.

April 9, 2002.

Lori Jonas, Matthew Fogelson, Environmental Enforcement Section, Environment

and Natural Resources Division, U.S. Department of Justice, Washington, DC, for Plaintiff.

Marc P. Fairman, Law Offices of Marc P. Fairman, San Francisco, CA, for Adcock Defendants.

S. Gary Varga, Monterey, CA, for Trust Defendants.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

FOGEL, District Judge.

I. INTRODUCTION

Trial in the above-entitled action commenced on December 4, 2001 and concluded on January 8, 2002. On February 7, 2002, the Court issued its Memorandum of Intended Decision outlining its proposed disposition of this matter. Having reviewed Plaintiff's proposed findings of fact and conclusions of law and Defendants' objections thereto, the Court now sets forth the factual and legal basis for its Order Appointing Equitable Receiver contemplated by the Memorandum of Intended Decision and issued simultaneously herewith. Issues related to civil penalty, which will be the subject of further proceedings, will be the subject of a future Memorandum

This case, originally filed in January 1997, arises under the federal Safe Drinking Water Act ("SDWA" or the "Act"), 42 U.S.C. §§ 300f, et seq., and its regulations. The operative complaint alleges violations of the SDWA by corporate defendants Alisal Water Corporation; Toro Water Service, Inc.; North Monterey County Water Service, Inc.; Moss Landing Water Service, Inc. (collectively, "Alisal"); and individual defendants Robert T. and Natholyn P. Adcock at nine drinking water companies in Monterey County, California. The corporate defendants are public water systems which are owned, operated or controlled by Mr. and Mrs. Adcock. Their son, Tom Adcock, currently is responsible for the day-to-day operations of the water systems. Trial Transcript ("Tr.") at 1552.

On August 23, 2000, the Court granted summary judgment establishing defendants' liability with respect to nine separate causes of action encompassing hundreds of individual violations of the Act occurring in the 1990s. United States v. Alisal Water Corp. et al., 114 F.Supp.2d 927 (N.D.Cal.2000). Specifically, the Court found that Defendants failed to meet the Maximum Contaminant Level ("MCL") for microbiological contaminants, failed to report or give public notice of the MCL failures, failed to do required repeat and increased routine monitoring, failed to report the lack of repeat and increased routine monitoring as required, failed to retain documents as required, and failed to test for lead and copper in their water in a timely manner. Many of the violations found by the Court involved intentional false reporting or non-reporting. Id. at 932.¹ On November 8, 2001, the Court granted summary judgment establishing the liability of the corporate defendants with respect to three additional causes of action alleging further violations of the MCL for total coliform during 2000-01. The trial addressed the appropriate remedy for the adjudicated violations.

The Safe Drinking Water Act provides that a court may enter "such judgment as protection of the public health may require, taking into consideration the time necessary to comply and the availability of alternative water supplies." See 42 U.S.C. § 300g-3(b). As set forth herein, in light of all the evidence presented at trial and upon review of the applicable law, the Court concludes that significant equitable relief, including the appointment of a receiver for certain specified purposes, is warranted in this case.

II. DISCUSSION

A. The Law of Receivership Supports the Imposition of Such a Remedy in this Case

The appointment of a receiver "represents a judicial determination that the operator of an organization may be unwilling or incapable of acting in good faith toward compliance with a judgment.... The receiver ensures certainty in the execution of a court's order." Stuart P. Feldman, "Curbing the Recalcitrant Polluter: Post-Decree Judicial Agents in Environmental Litigation," 18 B.C. Envtl. Aff. L.Rev. 809, 828 (1991) ("Feldman"). The authority of a court of equity to impose a receivership on a chronic violator of public health laws is "founded in the broad range of equitable powers available to [a] court to enforce and effectuate its orders and judgments." United States v. City of Detroit, 476 F.Supp. 512, 520 (E.D.Mich.1979).

A receivership is particularly appropriate where public health issues are implicated. As one court explained in appointing a receiver to run a waste disposal facility, there are "differences between the type of business in which the respective Defendants are involved and that of the ordinary private corporation or enterprise." Ohio v. Chem-Dyne, Inc., 1980 WL 6204, 10 ELR 20387 (Ohio Com.Pl., Feb. 1, 1980), aff'd in part, rev'd in part on other grounds, 1981 WL 5234 (Ohio App. Oct. 28, 1981). Specifically, the court noted that "the Defendants in this case are engaged in a business that definitely affects the entire community and conceivably the water for this entire area.... [Defendant] is engaged in businesses that very definitely have a widespread effect on community life and its daily operation and is affected with a public interest which invokes the equity powers of the Court." Id.

Accordingly, several state and federal courts have imposed receiverships on environmental violators, including owners and operators of public drinking water systems. See, e.g., United States v. Alder Creek Water Co., 1984 WL 178394, 14 ELR 20430 (D. Or. April 23, 1984) (receiver appointed in SDWA case after defendant "failed to comply with a court order to lessen the health risks posed by [defendant's water systems], and to comply with the Act's reporting and monitoring requirements"), aff'd, 823 F.2d 343 (9th Cir.1987); United States v. Acadiana Woods Add. # 2 Sewer Co., 41 F.Supp.2d 632 (W.D.La.1999) (receiver appointed to run defendants' sewage treatment plants to secure compliance with CWA); City of Detroit, 476 F.Supp. 512 (administrator appointed to run City's wastewater treatment plant to obtain compliance with CWA); see also Town of Greenwich v. Dep't of Transp., 1979 WL 30063 (D. Conn. Nov. 7, 1979); Ohio v. Chem-Dyne Corp., 1981 WL 5234; Dep't of Envtl. Prot. v. Emerson, 563 A.2d 762 (Me.1989).²

Courts appointing receivers focus on defendants' actual ability to manage their facilities in compliance with the law. As the district court noted in City of Detroit in appointing a receiver to run the city's sewage treatment plant, "[p]resent management is consumed by the demands of crisis operating conditions that command priority over personnel, planning, budgeting, process evaluation, and other administrative functions. As with other problems at the plant, this situation feeds on itself[.]" City of Detroit, 476 F.Supp. at 517-18 (quoting consultant's report). The court also focused on defendant's failure to train staff adequately, and to submit a continuing training program to regulators. Id. at 517. The district court in Acadia Woods also relied in part on defendants' failure to have "sufficient numbers of properly trained personnel to operate or to adequately maintain their sewage treatment plants." United States v. Acadia Treatment Systems, 41 F.Supp.2d 632, 633 (W.D.1999).

Courts also have focused on a defendant's financial ability to comply. In appointing a receiver to run defendants' sewage treatment plants in Acadia Woods, the court found compelling the fact that "[n]either the named defendants in this proceeding nor any subsidiary corporation or corporations or officers thereof have the financial ability to conduct the current business of defendants in an environmentally sound manner to protect the public health or to secure the necessary capital from a lending institution to do so." Acadia Woods, at 634.

A court order appointing a receiver and divesting a defendant of water companies that are non-compliant appears to be well within the scope of remedies contemplated by Congress in enacting the SDWA. The legislative history of the SDWA's enforcement provision, Section 1414, expressly states that "courts which are considering remedies in enforcement actions under this section are not to apply traditional balancing principles used by equity courts. Rather, they are directed to give utmost weight to the Committee's paramount objective of providing maximum feasible protection of the public health...." H.R.Rep. No. 93-1185, 93d Cong., 2d Sess., reprinted in 1974 U.S.Code Cong. & Admin. News, 6454, 6476. Moreover, Congress expressly contemplated that some small companies might not be able to comply and would be forced out of business. The legislative history provides:

It is evident that what is a reasonable cost for a large metropolitan (or regional) public water system may not be reasonable for a small system which serves relatively few users. The Committee believes, however, that the quality of the Nation's drinking water can only be upgraded if the systems which provide water to the public are organized so as to be the most cost-effective. In general, this means larger systems are to be encouraged and smaller systems discouraged.

H.R.Rep. No. 93-1185, 93d Cong., 2d Sess., reprinted in 1974 U.S.Code Cong. & Admin. News 6454, 6470.

The evidence presented at trial convinces the Court that the imposition of some form of receivership on the defendant water systems is unavoidable in this case. As set forth below, the adjudicated violations are serious and include falsification of records designed to protect public health; Defendants have a long history of such violations and others; Defendants have adopted an inordinately combative stance against legitimate regulatory oversight and have maintained that stance for more than a decade; Defendants...