U.S. v. Allegheny Ludlum Corp.
| Decision Date | 28 April 2004 |
| Docket Number | No. 02-4346.,02-4346. |
| Citation | 366 F.3d 164 |
| Parties | UNITED STATES of America v. ALLEGHENY LUDLUM CORPORATION, Appellant. |
| Court | U.S. Court of Appeals — Third Circuit |
Thomas L. Sansonetti, Assistant Attorney General, John T. Stahr, Nancy Flickinger, Robert H. Miller, John Sither, Kathryn E. Kovacs (Argued), U.S. Department of Justice, Environment & Natural Resources, Division, Appellate Section, Washington, DC, Kerry Nelson, Lori G. Kier, U.S. Environmental Protection Agency, Office of Regional Counsel, Philadelphia, PA, for Appellee.
H. Woodruff Turner (Argued), John E. Beard, III, Thomas J. Smith, Todd R. Brown, Kirkpatrick & Lockhart, LLP, Pittsburgh, PA, for Appellant.
Before ALITO, FUENTES and BECKER, Circuit Judges.
This is an appeal from an order of the District Court granting judgment for the plaintiff United States and against defendant Allegheny Ludlum Corporation ("ALC") in an action brought for violations of the Clean Water Act ("CWA" or the "Act") at five of ALC's Western Pennsylvania manufacturing facilities. The judgment is multifaceted, flowing from: (1) pretrial legal determinations by the Court; (2) a jury verdict on a number of liability issues; and (3) determinations by the Court following a penalty hearing. The jury verdict was mixed; each side prevailed on a number of issues, and ALC's appeal leaves unchallenged significant portions of the judgment against it. However, the appeal does challenge major aspects of the judgment and also of the civil penalty assessment leveled against ALC for the alleged violations in the sum of $8,244,670.
The first important question presented by the appeal concerns the viability of the so-called "laboratory error defense." The CWA operates under a self-monitoring and reporting system whereby the discharger of toxic waste measures and reports to the Environmental Protection Agency ("EPA") the volume of its discharge. ALC maintains that the EPA predicated certain aspects of the violation upon reports submitted by ALC that were tainted by laboratory error caused by a contaminated reagent resulting in overreporting of the amount of the toxic zinc discharge. The District Court declined to allow the laboratory error defense on the grounds that it had not been recognized in the Third Circuit, and that to allow such a "new defense" would contravene the CWA.
Although the CWA operates under a regime of strict liability, designed to ensure that polluters will take responsibility for ensuring the correct and precise measurements of their waste (which they are obliged to certify), we do not believe that a laboratory error defense-where the error resulted in overreporting-is inconsistent with this regime. Rather, inasmuch as the penalty imposed is for an unlawful discharge and not for faulty reporting, we think that deprivation of the defense would not advance the purpose of the CWA and that it would be grossly unfair, especially in view of the presence of companion provisions of the CWA imposing liability for monitoring and reporting violations. We will therefore vacate the judgment in part and remand so that the laboratory error defense can be considered and adjudicated with respect to the affected claims.
The appeal also requires us to determine whether the District Court made either a mistake of law or abused its discretion in calculating the economic benefit that ALC obtained from those violations that are unchallenged on appeal. Section 1319(d) of the CWA requires that the District Court, when determining the amount of a civil penalty under the CWA, consider "the economic benefit (if any) resulting from the violation," so as to "level the playing field." The District Court's calculation here was an agglomeration, based on a number of factors. The largest single factor was the 12.73% interest rate used by the government and the District Court to compute interest from the date of violation to the date of the judgment so as to calculate the total economic benefit to ALC. This rate was predicated largely on a calculation of ALC's weighted average cost of capital ("WACC"). Noting that it was uncontested at trial that ALC had an actual rate of return on capital that was less than half the 12.73% rate used by the District Court, ALC contends that the 12.73% rate is excessive.
We conclude that the application of the 12.73% rate may so vastly overstate the economic benefit to ALC of its improper discharges, that it does not "level the playing field," and that it constitutes an abuse of discretion. As a prelude to making this determination we explore the potential ramifications of the notion of economic benefit under § 1319(d). We conclude that there are two possible approaches to calculation of economic benefit: (1) the cost of capital, i.e., what it would cost the polluter to obtain the funds necessary to install the equipment necessary to correct the violation; and (2) the actual return on capital, i.e., what the polluter earned on the capital that it declined to divert for installation of the equipment. Because these factors are so variable, depending upon market conditions and the financial soundness of the polluter, we leave it to the District Court, in the sound exercise of its discretion, to decide which approach to apply and how to apply it (there are a variety of models). However, we explain why the District Court's application of the WACC in this case was, at a minimum, unsupported by the evidence, and needs to be recalculated should the District Court on remand elect to pursue that approach.
In contrast, we conclude that the District Court's application of the other legally required factors to calculate ALC's economic benefit-the least costly method of compliance and the periods of non-compliance-were supported by the record. In the course of this determination, we clarify that the proper method for determining economic benefit is to base the calculation on the least costly method of compliance. On the issue of economic benefit, we therefore vacate and remand with respect to the interest rate issue.
Finally we must decide whether, in compiling the number of violations for the purpose of assessing a penalty, the District Court erred by counting violations of monthly averages as violations for each day of the month. We, of course, follow our precedent in Natural Resources Defense Council, Inc. v. Texaco Refining & Marketing Inc., 2 F.3d 493 (3d Cir.1993), that the daily average limit is computed by averaging effluent levels only for days on which the facility operated. Although some Courts-most notably the Fourth Circuit in Chesapeake Bay Foundation, Inc. v. Gwaltney of Smithfield, Ltd., 791 F.2d 304 (4th Cir.1986), vacated on other grounds, 484 U.S. 49, 108 S.Ct. 376, 98 L.Ed.2d 306 (1987)-have held that a violation of a monthly average parameter constitutes a violation for each day of the month, we find this approach incomplete. We adopt Gwaltney insofar as it establishes an absolute upper bound on the penalty that can be assessed for a monthly average violation. However, permit limits can be exceeded in many different ways, both by very large, isolated discharges and by moderate continuous discharges. Furthermore, daily and monthly average limits are designed to avoid distinct environmental harms. As a result, in some cases a violator's wrongful conduct will merit punishment for both daily and monthly violations, while in others, the conduct will have been sufficiently punished by penalties for daily violations alone. We hold that district courts have discretion to determine, on the facts of each case, how many violation days should be assessed for penalty purposes for the violation of a monthly average limit, based on whether violations are already sufficiently sanctioned as violations of a daily maximum limit. In this case, the District Court did not have the benefit of this standard, so we will vacate its penalty assessment and remand for further proceedings.
We will therefore affirm in part, vacate in part, and remand for further proceedings consistent with this opinion.
ALC manufactures steel and owns and operates five plants comprising three specialty steel manufacturing facilities in Western Pennsylvania: the Brackenridge Facility (the Brackenridge and Natrona plants); the West Leechburg Facility (the West Leechburg and Bagdad plants); and the Vandergrift Facility. The Brackenridge Facility conducts melting, continuous casting, rolling, and finishing operations. The West Leechburg and Vandergrift Facilities are finishing operations.
The steelmaking process generates a considerable amount of pollution. ALC's steel-making process uses water from adjacent rivers. The water is used as process water and as non-contact cooling water. Process water is used directly in the process of making steel, and makes contact with steel or steel-making equipment. Non-contact cooling water cools the steel-making equipment without actually touching the steel. ALC operates six on-site wastewater treatment plants ("WWTPs") at these facilities. The three WWTPs at the Brackenridge facility discharge to the Allegheny River, pursuant to a National Pollution Discharge Elimination System ("NPDES") permit issued by the Pennsylvania Department of Environmental Protection ("PADEP"). The two WWTPs at the West Leechburg facility discharge to the Kiskiminetas River pursuant to another NPDES permit. The Vandergrift WWTP discharges treated process waters to the Kiski Valley Water Pollution Control Authority ("KVWPCA") pursuant to permits with it. After applying further treatment, KVWPCA discharges to the Kiskiminetas River.
The United States filed this action against ALC on June 28, 1995. The Complaint, as amended, alleged three types of violations: (1) discharges at each of ALC's five facilities containing discharges in...
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