Medzam, Ltd.

Plain-English summary

Medzam, Ltd. appealed a Default Order that imposed a $3,500 civil penalty for allegedly distributing or selling an unregistered pesticide called Red-Z. The company argued that the complaint had not been properly served because the postal receipt was signed by a bookkeeper instead of an officer, partner, managing agent, or other authorized person. The Environmental Appeals Board held that a mailed complaint must be properly addressed to a person in one of the listed classes, and that the complaint sent to Medzam was addressed only to the company. The Board vacated the Default Order and dismissed the Complaint, so the penalty was not imposed.

Decision snapshot

• Cited authorities: 7 U.S.C. §§ 136, 136j(a)(1)(A), 136l(a)(3), and 136(u); 40 C.F.R. §§ 22.05(b)(1)(ii), 22.07(c), 22.17, 22.30, and 152.15
• Outcome: The Default Order was vacated and the Complaint was dismissed.
• Key point: Service by certified mail was defective because the complaint was addressed only to Medzam and not to a person in a class specified by the governing rule.

Full text (EPA EAB public release)

MEDZAM, LTD. 87

IN THE MATTER OF MEDZAM, LTD.
FIFRA Appeal No. 91-1

FINAL DECISION

Decided July 20, 1992

Syllabus

The Respondent in this action has appealed from the issuance to it of a Default
Order under the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA). Respond-
ent contends that it was not properly served with the Complaint. It asserts that
the Complaint was not properly “directed” under 40 CFR §22.05(b)(1)(ii) because the
acknowledgement of receipt of the Complaint was signed by a bookkeeper, rather
than an officer, partner, or managing agent of the company. Respondent also challenges
the determination that its product is a pesticide and thus subject to FIFRA and
contends that its actions were not violations of FIFRA.

Held: To be properly directed under § 22.05(b)(1)(ii), a Complaint must be ad-
dressed and mailed to a person within one of the classes of persons specified therein.
If it is properly addressed and mailed, and the return receipt signed, it is valid
without regard to which of Respondent’s employees signed the receipt on behalf of
the Respondent. In this instance, the Complaint was addressed and mailed to the
Respondent without being further directed to any person within any of the classes
listed in § 22.05(b)(1)(ii). Therefore, service of the Complaint was not properly directed
to the Respondent, and thus is invalid. Accordingly, the Default Order is vacated
and the Complaint dismissed.

Before Environmental Appeals Judges Ronald L. McCallum
and Edward E. Reich.

Opinion of the Board by Judge Reich:

Respondent, Medzam, Ltd., has appealed the issuance to it of
a Default Order under the Federal Insecticide, Fungicide, and
Rodenticide Act, as amended, 7 U.S.C. § 136 et seq. (FIFRA). The
order was issued on July 30, 1991, by Constantine Sidamon-Eristoff,
the Regional Administrator of the U.S. Environmental Protection
Agency’s Region II. The order assesses a $3,500 penalty for alleged
violations of Section 12(a)(1)(A) of FIFRA, 7 U.S.C. § 136j(a)(1)(A),
arising from the distribution or sale of an unregistered pesticide,

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88 ENVIRONMENTAL ADMINISTRATIVE DECISIONS

Red-Z, at Respondent’s store in North Tonawanda, N.Y. on March
22, 1989.

The order issued by the Regional Administrator constitutes an
initial decision of the Agency, pursuant to 40 CFR §22.17(b). Initial
decisions may be appealed to the Environmental Appeals Board pur-
suant to 40 CFR §22.30 (57 Fed. Reg. 5325, February 18, 1992).
This appeal has been taken under that provision.

I. BACKGROUND

The basic facts of this case do not appear to be in dispute.!
On March 22, 1989, an inspector from the New York State Depart-
ment of Environmental Conservation collected a sample of Respond-
ent’s product, Red-Z, from the stock that Respondent held for sale
or distribution at its North Tonawanda store. The product sample
bore a label that stated in part, “Sanitizer Deodorizer Red-Z is a
unique fast acting encapsulator with stabilized chlorine available at
10,000 ppm. The application of a chlorine compound is consistently
recommended for use on spilled body fluids. Aggressively attacks:
AIDS, Hepatitis and any other blood bourne [sic] virus.”

Red-Z is not registered as a pesticide with EPA. As will be
discussed later, Respondent asserts that Red-Z is not a pesticide
and thus is exempt from registration under FIFRA.

Region II’s Director, Environmental Services Division, having de-
termined that Red-Z was subject to the registration requirement,
issued a Complaint to Respondent on September 27, 1990, alleging
that Respondent violated FIFRA by distributing or selling an unregis-
tered pesticide. In the Complaint, Region II proposed a civil penalty
of $3,500, calculated in accordance with the EPA Enforcement Re-
sponse Policy for FIFRA issued on July 2, 1990. The Complaint ad-
vised Respondent of its right to a hearing pursuant to Section 14(a)
of FIFRA, 7 U.S.C. § 136l(a)(3) and 40 CFR Part 22. The Complaint
further provided that to avoid being found in default, an Answer
had to be filed within twenty days after service of the Complaint,
which Answer may include a request for a hearing. The Complaint
outlined the consequences of failure to respond as follows:

Failure to admit, deny, or explain any of the factual
allegations in the Complaint will be deemed to con-
stitute an admission of the allegations. Failure to

1Moreover, if a default is determined to have occurred, 40 CFR § 22.17 provides
that such default constitutes an admission of all facts alleged in the complaint.

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MEDZAM, LTD. 89

file a written Answer within twenty (20) days of
receipt of this Complaint will be deemed to represent
Respondent’s admission of all facts alleged in the
Complaint and a waiver of its right to contest such
facts. In such event, a Final Order of Default will
be issued by the Regional Administrator, and the
civil penalty proposed herein will be imposed without
further proceedings.

Complaint at 3.

The Complaint was mailed on September 27, 1990, via certified
mail. Region II received a return receipt for the Complaint stamped
October 1, 1990, and bearing the signature of “Kathleen Moreland”
as signing for Respondent. Respondent admits that it did not file
an Answer to the Complaint prior to the expiration of the 20 days.
However, Respondent contests the validity of the service of the Com-
plaint.

On May 30, 1991, Complainant filed a Motion for Default Order
with the Region II Regional Administrator pursuant to 40 CFR
§§ 22.16 and 22.17. A copy of the Motion was served on Respondent
pursuant to 40 CFR §22.17(a) and was received on June 5, 1991.
Respondent filed a timely response on June 10, 1991, entitled “Re-
spondent’s Answer and Affirmative Defenses.” Complainant then en-
tered into negotiations with Respondent which were unsuccessful.
The Regional Administrator issued the Default Order on July 30,
1991. The final order, while noting the receipt of Respondent’s reply
in the Preliminary Statement section, was virtually identical to the
proposed order included with the Motion for Default Order. Respond-
ent then appealed.

Respondent’s appeal raises both procedural and substantive is-
sues. Respondent asserts that the Complaint was not properly served
because it was not “directed to an officer, partner, a managing or
general agent, or to any other person authorized by appointment
or by Federal or State law to receive service of process.” (40 CFR
§ 22.05(b)(1)(ii)). Respondent states that Kathleen Moreland, a book-
keeper, was not authorized to receive service. In fact, Respondent
characterizes Ms. Moreland as a “disgruntled employee” who was
terminated on or about the October 1, 1990, date listed on the return
receipt. The Respondent-Appellant’s Brief on Appeal and Motion to
Set Aside, on page 3, refers back to the discussion of this issue
in its June 10, 1991, “Answer”. In that document, Respondent states:

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90 ENVIRONMENTAL ADMINISTRATIVE DECISIONS

19. At no time was Kathleen Moreland an employee
    of respondent authorized to accept service of process
    or complaints, nor was she a “managing agent” or
    person of authority of respondent.

20. Kathleen Moreland was employed by respondent
    as a bookkeeper, but was fired for incompetency on
    or about October 1, 1990. At all times herein mate-
    rial, after being terminated, Kathleen Moreland was
    angry and resentful and did certain physical damage
    and engaged in certain physical damage and acts
    of retribution in respondent’s offices.

21. At no time did Kathleen Moreland turn over to
    respondent or any of its officers or employees a copy

of the complaint which she allegedly received on or
about October 1, 1990.

22. Respondent does not believe that said complaint
    was served on Kathleen Moreland on October 1,
    1990, but rather, on a later date and that she fal-
    sified or altered the date of receipt in anger and
    retribution.

Respondent’s Answer and Affirmative Defenses (June 10, 1991) at
5.

Respondent contends that due to the allegedly defective service
of the Complaint, its first notice of this proceeding was on June
5, 1991, when it received a copy of the Motion for Default Order
and thus its Answer on June 10 was timely and the Default Order
should not have been issued.

Respondent further challenges whether Red-Z is in fact a pes-
ticide within the meaning of 7 U.S.C. §136. Respondent describes
its product as follows:

Respondent’s product is essentially an encapsula-
tion product which performs a mechanical encap-
sulating function on liquids, i.e., it solidifies liquids.

The presence of an extremely low level (less than
1%) of available chlorine is incidental to the encap-
sulating function, and is far less than the 2% mini-
mum. Respondent’s Red-Z product resembles a host

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MEDZAM, LTD. 91

of off-the-shelf household and commercial cleaning
and encapsulating products which are not deemed
to be pesticides by the Administrator and are not
registered as such. Furthermore, Respondent’s Red-
Z product did not make any relevant disinfectant
or anti-microbial claims. (Emphasis in original.)

Respondent-Appellant’s Brief On Appeal and Motion to Set Aside
at 6.

In Respondent’s Answer and Affirmative Defenses at page 3,
Respondent elaborates by indicating that at all times its product
had an available chlorine concentration of less than 1% of the product
or less than 10,000 ppm. It states, upon information and belief, that
products such as Red-Z are exempt from being registered or covered
by FIFRA unless they have in excess of 60% available chlorine or
600,000 ppm.

Respondent also asserts that Complainant “both by direct advice
as well as by its brochures and publications” had previously advised
Respondent that Red-Z was exempt from FIFRA and need not be
registered. Respondent-Appellant’s Brief on Appeal and Motion to
Set Aside at 4. Therefore, Respondent believes Complainant was
barred by laches, acquiescence and estoppel.

The Complainant filed a Reply Brief on September 10, 1991.
In its Reply Brief, Complainant denies that its service of the Com-
plaint was in any way defective. It indicates that the Complaint
was addressed to the Respondent and mailed to Respondent by cer-
tified mail, return receipt requested, in accordance with the applica-
ble rule, 40 CFR § 22.05(b)(1)(i). Service was made on a representative
of the Respondent. “According to the Respondent’s own papers, the
real problem lay with its employee, who was apparently authorized
to receive mail and to whom the U.S. Postal Service actually delivered
the mail.” Reply Brief at 7. In the Region’s view, acceptance of the
envelope satisfied Complainant’s obligation; the conduct of the em-
ployee receiving the envelope is Respondent’s responsibility.

Complainant, in its Reply Brief, also addresses the other issues
raised in the appeal. On the issue of the applicability of FIFRA,
Complainant cites Section 2(u) of FIFRA, 7 U.S.C. § 136(u) as defining
a pesticide to include “any substance or mixture of substances in-
tended for preventing, destroying, repelling, or mitigating any
pest * * *.” As provided in 40 CFR § 152.15, a substance is consid-

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92 ENVIRONMENTAL ADMINISTRATIVE DECISIONS

ered to be intended for pesticidal purposes, and thus subject to reg-
istration, if:

(a) The person who distributes or sells the substance
claims, states, or implies (by labeling or otherwise):

(1) That the substance (either by itself or in com-
bination with any other substance) can or should
be used as a pesticide; or

(2) That the substance consists of or contains
an active ingredient and that it can be used to manu-
facture a pesticide; or

(b) The substance consists of or contains one or more
active ingredients and has no significant commer-
cially valuable use as distributed or sold other than
(1) use for pesticidal purpose (by itself or in combina-
tion with any other substance), (2) use for manufac-
ture of a pesticide; or

(c) The person who distributes or sells the substance
has actual or constructive knowledge that the sub-
stance will be used, or is intended to be used, for
a pesticidal purpose.

Complainant asserts that the viruses mentioned on the Red-Z
label meet the definition of a pest, and thus Red-Z is subject to
registration based on its labeling claims and Respondent’s actual
or constructive knowledge of its intended use, irrespective of the
“extremely low level” of available chlorine.

Finally, Complainant states that neither the appeal nor the An-
swer provide sufficient facts to establish that EPA represented to
Respondent that Red-Z need not be registered. In any event, even
if such representations were made, Complainant states that a party
assumes the risk when it relies on an interpretation of an agency
rule provided by an agency employee and that opening the door
for violators to claim that their violations result from incorrect advice
from unidentified Agency employees would invite endless litigation.

II. DISCUSSION

The threshold determination is the validity of the service of proc-
ess, since if service were defective, it would vitiate all of the subse-

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MEDZAM, LTD. 93

quent proceedings. The essence of Respondent’s challenge is that the
service was not properly “directed” within the meaning of 40 CFR
§ 22.05(b)(1)(ii).

There is no clarification in the rules or the preamble accompany-
ing it² as to the meaning of the word “directed.” We recognize that
the term “directed” in this context is different from the term “deliv-
ered” as used in other parts of §22.05(b). Delivery, which con-
templates personal service, is much more within the control of the
Complainant. When serving a complaint by mail, Complainant has
control over how the mail is addressed but none whatsoever over
who receives and signs for it on behalf of the Respondent. The rule
does not contain acknowledgement-of-service requirements com-
parable to the Federal rule,³ only a return receipt requirement for
certified mail. For service of the Complaint by mail, 40 CFR § 22.07(c)
provides that service is complete when the return receipt is signed.
We think the proper focus of our inquiry in determining the effective-
ness of service under § 22.05(b) is therefore on whether the Complaint
was properly addressed and mailed and whether the return receipt
was signed by an employee of the Respondent, rather than on the
authority of the employee who signed the receipt on behalf of the
Respondent.⁴

We have looked to the record on appeal to ascertain whether
all of the required elements of proper service have been complied
with. Once Respondent’s Answer raised the issue of validity of serv-
ice, the Complainant had the obligation to assure that the adminis-
trative record demonstrated that service was proper. We can fairly
assume that any document material to this issue would have been
included in the record as submitted to the Regional Administrator
accompanying the final Default Order.

2The Consolidated Rules of Practice, comprising 40 CFR Part 22, were adopted
as a final regulation on April 9, 1980 (45 Fed. Reg. 24363 et seq.). They were proposed
(43 Fed. Reg. 34378 et seq.), and adopted on an interim basis (43 Fed. Reg. 34730
et seq.), on August 4, 1978.

3 Rule 4(c)(2)(C)(ii) of the Federal Rules of Civil Procedure.

4In a case somewhat similar to this one, In re Katzson Brothers, Inc., FIFRA
Appeal No. 85-2 (Final Decision November 15, 1985) (Order on Reconsideration March
3, 1986), service of a complaint by certified mail addressed to the owner and president
of a company, signed for by that person’s secretary, was found to be valid despite
allegations by the owner or lack of actual notice due to acts of “sabotage” by the
secretary. On appeal, the Court of Appeals for the Tenth Circuit upheld this determina-
tion, although the Order was reversed and remanded on other grounds. Katzson Bros.,
Inc. v. United States Environmental Protection Agency, 839 F.2d 1396 (10th Cir. 1988).

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94 ENVIRONMENTAL ADMINISTRATIVE DECISIONS

As previously discussed, a threshold question, then, is how the
envelope was addressed. The record does not contain a copy of the
envelope nor a copy of a transmittal letter if there was one. There
are two significant documents in the record relating to service, how-
ever. These are the return receipt for certified mail and the certificate
of service. The return receipt shows the article as being addressed
to “MEDZAM LTD.” It does not indicate the name of any particular
person. The Certificate of Service also lists only the company name.
We can only infer from this that the Complaint was mailed to
Medzam, Ltd., without being further addressed to an officer or agent.
We note that Complainant’s Reply Brief says that it was addressed
to “the Respondent.” (Reply Brief at p. 6.)

Since the Complaint was mailed addressed only to “Medzam,
Ltd.” without further addressing it to one of the persons specified
in § 22.05(b)(1)(ii), it was not properly “directed” under that section
and service was defective. Accordingly, the Default Order is hereby
vacated and the Complaint dismissed.

So ordered.

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